##### 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,
    2002                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to          .                                      

Commission file number 33-13646

Westcorp

(Exact name of registrant as specified in its
Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|California                                                         |  | 51-0308535                              
|(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:

|                           |  |                                          
|-------------------------- |  | -----------------------------------------
|Title of each class        |  | Name of each exchange on which registered
|                           |  |                                          
|Common Stock, $1 par value |  | New York Stock Exchange                  

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

None


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports,) and
(2) has been subject to such filing requirements for the
last
90 days.     Yes þ          No o

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

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

Common Stock, $1.00 Par Value 
$293,267,611

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

Common Stock, $1.00 Par Value 
39,204,709

DOCUMENTS INCORPORATED BY REFERENCE

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



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TABLE OF CONTENTS



|                           |                                                                                               |  |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Forward-Looking Statements
|PART I                    
|                           | Item 1. Business                                                                             
|                           | Item 2. Properties                                                                           
|                           | Item 3. Legal Proceedings                                                                    
|                           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                   
|                           | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                           | Item 6. Selected Financial Data                                                              
|                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                           | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                           
|                           | Item 8. Financial Statements and Supplementary Data                                          
|                           | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                  
|                           | Item 10. Directors and Executive Officers of the Registrant                                  
|                           | Item 11. Executive Compensation                                                              
|                           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                           | Item 13. Certain Relationships and Related Transactions                                      
|                           | Item 14. Controls and Procedures                                                             
|PART IV                   
|                           | Item 15. Financial Statement Schedules, Exhibits and Reports on Form 8-K                     
|EXHIBIT INDEX             
|EXHIBIT 10.6.1            
|EXHIBIT 10.6.2            
|EXHIBIT 10.9.2            
|EXHIBIT 10.9.3            
|EXHIBIT 10.9.4            
|EXHIBIT 10.10.1           
|EXHIBIT 10.18.3           
|EXHIBIT 10.19.1           
|EXHIBIT 10.20             
|EXHIBIT 10.20.1           
|EXHIBIT 10.22.1           
|EXHIBIT 10.22.2           
|EXHIBIT 10.23.1           
|EXHIBIT 10.23.2           
|EXHIBIT 10.24             
|EXHIBIT 10.24.1           
|EXHIBIT 10.25             
|EXHIBIT 10.26             
|EXHIBIT 10.26.1           
|EXHIBIT 10.27             
|EXHIBIT 10.28             
|EXHIBIT 10.29             
|EXHIBIT 10.30             
|EXHIBIT 10.31             
|EXHIBIT 10.32             
|EXHIBIT 10.33             
|EXHIBIT 10.34             
|EXHIBIT 10.35             
|EXHIBIT 10.35.1           
|EXHIBIT 10.36             
|EXHIBIT 21.1              
|EXHIBIT 23.1              
|EXHIBIT 99.1              



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

TABLE OF CONTENTS

|                                                            |  |                                                                                           |   |      |    | 
|----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | - | ---- | -- | 
|                                                            |  |                                                                                           |   | Page
|                                                            |  |                                                                                           |   |     
|Forwarding-Looking Statements and Available
    Information |  |                                                                                           | 1 |     
|PART I                                                     
|                                                           
|Item 1.                                                     |  | Business                                                                                  |   |      | 2  | 
|Item 2.                                                     |  | Properties                                                                                |   |      | 26 | 
|Item 3.                                                     |  | Legal Proceedings                                                                         |   |      | 27 | 
|Item 4.                                                     |  | Submission of Matters to a Vote of Security
    Holders                                   |   |      | 27 | 
|PART II                                                    
|                                                           
|Item 5.                                                     |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |   |      | 28 | 
|Item 6.                                                     |  | Selected Financial Data                                                                   |   |      | 29 | 
|Item 7.                                                     |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |   |      | 31 | 
|Item 7A.                                                    |  | Quantitative and Qualitative Disclosure About
    Market Risk                             |   |      | 63 | 
|Item 8.                                                     |  | Financial Statements and Supplementary Data                                               |   |      | 71 | 
|Item 9.                                                     |  | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure  |   |      | 71 | 
|PART III                                                   
|                                                           
|Item 10.                                                    |  | Directors and Executive Officers of the Registrant                                        |   |      | 72 | 
|Item 11.                                                    |  | Executive Compensation                                                                    |   |      | 72 | 
|Item 12.                                                    |  | Security Ownership of Certain Beneficial Owners
    and Management                        |   |      | 72 | 
|Item 13.                                                    |  | Certain Relationships and Related Transactions                                            |   |      | 72 | 
|Item 14.                                                    |  | Controls and Procedures                                                                   |   |      | 72 | 
|PART IV                                                    
|                                                           
|Item 15.                                                    |  | Financial Statement Schedules, Exhibits and
    Reports on Form 8-K                       |   |      | 73 | 



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

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

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



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

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

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

Available Information

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

1



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##### Table of Contents






PART I






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

General

We are a diversified financial services holding
company that provides automobile lending services through our
second-tier subsidiary, WFS Financial Inc, also known as WFS,
and retail and commercial banking services through our wholly
owned subsidiary, Western Financial Bank, also known as the
Bank. The Bank currently owns 84% of the capital stock of WFS.



| |                              
| | -----------------------------
| | Automobile Lending Operations

Through WFS, we are one of the nations
largest independent automobile finance companies with
30 years of experience in the automobile finance industry.
We believe that the automobile finance industry is the second
largest consumer finance industry in the United States with over
$895 billion of loan and lease originations during 2002. We
originate new and pre-owned automobile installment contracts,
otherwise known as contracts, through our relationships with
over 7,800 franchised and independent automobile dealers
nationwide. We originated $5.4 billion of contracts during
2002 and managed a portfolio of $9.4 billion contracts at
December 31, 2002.

Approximately 29% of our contract originations
are for the purchase of new automobiles and approximately 71% of
our contract originations are for the purchase of pre-owned
automobiles. Approximately 80% of our contract originations are
with borrowers who have strong credit histories, otherwise
generally known as prime borrowers, and approximately 20% of our
contract originations are with borrowers who have overcome past
credit difficulties, otherwise generally known as non-prime
borrowers.

We underwrite contracts through a credit approval
process that is supported and controlled by a centralized,
automated front-end system. This system incorporates proprietary
credit scoring models and industry credit scoring models and
tools, which enhance our credit analysts ability to tailor
each contracts pricing and structure to maximize
risk-adjusted returns. As a result of our sophisticated credit
and underwriting systems, we are able to earn attractive
risk-adjusted returns on our contracts. For the year ended
December 31, 2002, the average net interest spread was
7.61% while net credit losses averaged 2.77% for the same period.

We structure our business to minimize operating
costs while providing high quality service to our dealers. Those
aspects of our business that require a local market presence are
performed on a decentralized basis in our 41 offices. All
other operations are centralized. We fund our purchases of
contracts, on an interim basis, with deposits raised through our
banking operations, which are insured by the Federal Deposit
Insurance Corporation, also known as the FDIC, and other
borrowings of the Bank. For long-term financing, we issue
automobile contract asset-backed securities. Since 1985, we have
sold or securitized over $30 billion of contracts in 58
public offerings of asset-backed securities, making us the
fourth largest issuer of such securities in the nation. The
relationship between WFS and our banking operations gives us a
competitive advantage relative to other independent automobile
finance companies by providing a significant and stable source
of liquidity at a low cost.

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The following table presents a summary of our
contracts purchased:

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



| |                
| | ---------------
| | Bank Operations

The primary focus of our banking operations is to
generate diverse, low-cost funds to provide the liquidity needed
to fund our acquisition of contracts. We have 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. These funds are generated through our retail
and commercial banking divisions. We may also raise funds by
obtaining advances from the Federal Home Loan Bank, or
FHLB, selling securities under agreements to repurchase and
utilizing other borrowings. Our retail banking division serves
the needs of individuals and small businesses by offering a
broad range of products through 18 retail branches located
throughout Southern California. Our commercial banking division
focuses on medium-sized businesses in Southern California. At
December 31, 2002, the total deposits gathered by both
banking divisions were $2.0 billion. Approximately 85% of
these accounts were demand deposits, money market accounts and
certificate of deposit accounts under $100,000 in principal,
which we believe represent a stable and attractive source of
funding.

We also invest deposits generated by the
Banks retail and commercial banking divisions in
mortgage-backed securities, also known as MBS. Our investment in
MBS, together with the cash balances that we maintain, create a
significant liquidity portfolio, which provides us with
additional funding security and also affords us greater
flexibility to structure securitizations with attractive terms.
Net interest income from bank operations totaled
$57.0 million, $45.7 million and $26.3 million
for the years ended December 31, 2002, 2001 and 2000,
respectively. Net interest income from bank operations
represented 9%, 10% and 21% of total net interest income for us
on a consolidated basis for the same respective periods.

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The following table sets forth our loan
origination, purchase and sale activity over the past five years:

|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |           |           |           | 
|----------------------- | ----------------------------------- | ------------------------------- | ---------------------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | 
|                        |                                     |                                
|                        |                                     | For the Year Ended December 31,
|                        |                                     |                                
|                        |                                     | 2002                            |                        | 2001    |           | 2000      |           | 1999    |           | 1998     
|                        |                                     |                                 |                        |         |           |           |           |         |           |          
|                        |                                     |                                
|                        |                                     | (Dollars in thousands)         
|Loans originated:       |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        | Consumer loans:                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |           |          
|                        |                                     | Contracts(1)                    |                        | $       | 5,415,734 |           |           | $       | 4,863,279 |           |           | $       | 4,219,227 |           |         | $         | 3,340,146 |           |         | $         | 2,670,696 |          
|                        |                                     | Other                           |                        |         | 3,561     |           |           |         | 6,691     |           |           |         | 12,888    |           |         |           | 15,586    |           |         |           | 9,645     |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        |                                     |                                 | Total consumer loans   |         |           | 5,419,295 |           |         |           | 4,869,970 |           |         |           | 4,232,115 |         |           |           | 3,355,732 |         |           |           | 2,680,341 | 
|                        | Mortgage loans:                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |           |          
|                        |                                     | Existing property               |                        |         | 21,100    |           |           |         | 9,714     |           |           |         | 17,382    |           |         |           | 263,019   |           |         |           | 2,725,415 |          
|                        |                                     | Construction                    |                        |         | 2,022     |           |           |         | 12,318    |           |           |         | 14,718    |           |         |           | 11,969    |           |         |           | 18,721    |          
|                        |                                     | Equity                          |                        |         | 828       |           |           |         | 969       |           |           |         | 1,024     |           |         |           | 1,948     |           |         |           | 10,262    |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        |                                     |                                 | Total mortgage loans   |         |           | 23,950    |           |         |           | 23,001    |           |         |           | 33,124    |         |           |           | 276,936   |         |           |           | 2,754,398 | 
|                        | Commercial loans:                   |                                 |                        | 354,439 |           |           |           | 291,944 |           |           |           | 266,342 |           |           |         | 237,316   |           |           |         | 124,259   |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        |                                     |                                 | Total loans originated |         |           | 5,797,684 |           |         |           | 5,184,915 |           |         |           | 4,531,581 |         |           |           | 3,869,984 |         |           |           | 5,558,998 | 
|Loans purchased:        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        | Mortgage loans on existing property |                                 |                        | 46      |           |           |           | 229     |           |           |           | 488     |           |           |         | 412       |           |           |         | 450       |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        |                                     |                                 | Total loans purchased  |         |           | 46        |           |         |           | 229       |           |         |           | 488       |         |           |           | 412       |         |           |           | 450       | 
|Loans sold:             |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        | Contracts                           |                                 |                        |         |           |           |           |         |           |           |           | 660,000 |           |           |         | 2,500,000 |           |           |         | 1,885,000 |          
|                        | Mortgage loans                      |                                 |                        | 554     |           |           |           | 3,382   |           |           |           | 3,394   |           |           |         | 502,157   |           |           |         | 2,884,073 |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|                        |                                     |                                 | Total loans sold       |         |           | 554       |           |         |           | 3,382     |           |         |           | 663,394   |         |           |           | 3,002,157 |         |           |           | 4,769,073 | 
|Principal reductions(2) |                                     |                                 | 3,922,542              |         |           |           | 2,572,665 |         |           |           | 1,126,520 |         |           |           | 679,224 |           |           |           | 670,310 |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          
|Increase in total loans |                                     | $                               | 1,874,634              |         |           | $         | 2,609,097 |         |           | $         | 2,742,155 |         |           | $         | 189,015 |           |           | $         | 120,065 |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |         |           |           |           |         |          



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|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | Includes contracts purchased from automobile
    dealers as well as leases.
|   
|(2) | Includes scheduled payments, prepayments and
    chargeoffs.               

The History of Westcorp

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

Western Thrift & Loan Association
was involved in automobile finance activities from its
incorporation until its merger with Evergreen Savings and
Loan Association. Since such time, the automobile finance
activities of Western Thrift & Loan Association
were continued by the Bank. In 1988, Westcorp Financial
Services, Inc. was 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 Westcorp Financial Services, Inc., which
changed its name to WFS Financial Inc. In connection with that
restructuring, the Bank transferred to WFS all assets relating
to its automobile finance division, including the contracts held
on balance sheet and all

4



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##### Table of Contents



interests in the excess spread payable from
outstanding securitization transactions. The Bank also
transferred 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, thereby
making these companies subsidiaries of WFS. In 1995, WFS sold
approximately 20% of its shares in a public offering.


The Bank and its subsidiaries are subject to
examination and comprehensive regulation by the Office of Thrift
Supervision, also known as the OTS, and the FDIC. It is further
subject to certain regulations by the Board of Governors of the
Federal Reserve System, also known as the FRS, which governs
reserves required to be maintained against deposits and other
matters. The Bank is also 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. WFS and certain other
subsidiaries of the Bank are further regulated in part by
various departments or commissions of the states in which they
do business. Federal statutes and regulations primarily define
the types of loans that the Bank and its subsidiaries may
originate.

Market and Competition

The automobile finance industry is generally
segmented according to the type of vehicle sold (new versus
pre-owned) and the credit characteristics of the borrower
(prime, non-prime or sub-prime). Based upon industry data, we
believe that during 2002, prime, non-prime and sub-prime loan
originations in the United States were $600 billion,
$160 billion and $135 billion, respectively. The
United States captive automobile finance companies, General
Motors Acceptance Corporation, Ford Motor Credit Company and
Chrysler Credit Corporation account for approximately 39% of the
automobile finance market. We believe that the balance of the
market is highly fragmented and that no other market participant
has greater than a 4% market share. Other market participants
include the captive automobile finance companies of other
manufacturers, banks, credit unions, independent automobile
finance companies and other financial institutions.

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

The competition for contracts available within
the prime and non-prime credit quality contract spectrum is more
intense when the rate of automobile sales declines. Although we
have experienced consistent growth for many years, we can give
no assurance that we will continue to do so. Several of our
competitors have greater financial resources than we have and
may have a lower cost of funds. Many of our competitors also
have longstanding relationships with automobile dealers and may
offer dealers or their customers other forms of financing or
services not provided by us. The finance company that provides
floor planning for the dealers inventory is also
ordinarily one of the dealers primary sources of financing
for automobile sales. We do not currently provide financing on
dealers inventories. We must also compete with dealer
interest rate subsidy programs offered by the captive automobile
finance companies. However, these programs are not generally
offered on pre-owned vehicles and are limited to certain models
or loan terms that may not be attractive to many new automobile
purchasers.

Competition in the retail banking business comes
primarily from commercial banks, credit unions, savings and loan
associations, mutual funds and corporate and government
securities markets. Many of the nations largest savings
and loan associations and other depository institutions are
headquartered or have branches in Southern California. We
compete for deposits primarily on the basis of interest rates
paid and the quality of service provided to our customers. We do
not rely on any individual, group or entity for a material
portion of our deposits.

Competition in the commercial banking business
comes primarily from other commercial banks that maintain a
presence in Southern California. In general, many commercial
banks are more sizable institutions with larger lending
capacities and depository services. We have differentiated
ourselves by providing high

5



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quality service, local relationship management,
prompt credit decisions, and competitive rates on both loans and
depository products.


Our Business Strategy

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



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



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

Over the past five years, we have experienced a
compounded annual growth rate in contract purchases of 19%. We
provide a high degree of personalized service to our dealership
base by marketing, underwriting and purchasing contracts on a
local level. Our focus is to provide each dealer superior
service by providing a single source of contact to meet the
dealers prime and non-prime financing needs. We believe
that the level of our service surpasses that of our competitors
by making our business development representatives available any
time a dealer is open, making prompt credit decisions,
negotiating credit decisions within available programs by
providing structural alternatives and funding promptly.

Growth of originations is primarily through
increased dealer penetration. We intend to increase contract
purchases from our current dealer base as well as develop new
dealer relationships. Prior to 1995, we originated contracts in
seven, primarily western states. Subsequently, we increased our
geographic penetration nationwide. Although our presence is
well-established throughout the country, we believe that we
still have opportunities to build market share, especially in
those states that we entered since 1994. In addition, we have
improved our dealer education and delivery systems in order to
increase the ratio of contracts purchased to the number of
applications received from a dealer, thereby improving the
efficiency of our dealer relationships. We are also seeking to
increase contract purchases through new dealer programs
targeting high volume, multiple location dealers. These programs
focus on creating relationships with dealers to achieve higher
contract originations and improving efficiencies. On a limited
basis, we also originate loans directly from consumers and
purchase loans from other finance companies. Additionally, we
continue to explore other distribution channels, including the
Internet. In 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
30 finance companies and 19,600 dealers. As of
December 31, 2002, we owned approximately 8.5% of
DealerTrack. Currently, over half of our applications are
received through DealerTrack.



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

Quality underwriting and servicing are essential
to effectively assess and price for risk and to maximize
risk-adjusted returns. We rely on a combination of credit
scoring models, system-controlled underwriting policies and the
judgment of our trained credit analysts to make risk-based
credit and pricing decisions. We use credit scoring to
differentiate applicants and to rank order credit risk in terms
of expected default probability. Based upon this statistical
assessment of credit risk, the underwriter is able to
appropriately tailor contract pricing and structure.

6



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

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

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



---



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



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

Since 1997, we have evaluated all aspects of our
operations in order to streamline processes and employ best
practices throughout the organization.

Our key technology systems implemented through
this process include:



| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | automated front-end loan origination system that
    calculates borrower ratios, maintains lending parameters and
    approval limits, accepts electronic applications and directs
    applications to the appropriate credit analyst, all of which
    have reduced the cost of receiving, underwriting and funding
    contracts;
|
| |  | custom designed proprietary scoring models that
    rank order the risk of loss occurring on a particular contract;                                                                                                                                                                                                                
|
| |  | behavioral delinquency management system, which
    improves our ability to queue accounts according to the level of
    risk, monitor collector performance and track delinquent
    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 loans from a high of
4.3% during the second quarter of 1998 to 2.6% during the fourth
quarter of 2002. We have substantially completed the
implementation of our loan systems and major changes to business
practices. We will, however, continue to evaluate new technology
and best practices to further improve our operating efficiencies.

7



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

The Bank provides diverse, low-cost liquidity
through its retail and commercial banking divisions as well as
its ability to obtain advances from the FHLB, sell securities
under agreements to repurchase and utilize other borrowing
sources. These significant and diverse sources of funds provide
liquidity at a low cost to fund our contract purchases and allow
us flexibility as to when we enter the automobile contract
asset-backed securities market. Cash flows from operations
provide an additional source of liquidity for us. For the year
ended December 31, 2002, we generated $215 million in
positive cash flows from our automobile lending operations. We
maintain a significant liquidity portfolio of cash and
mortgage-backed securities on our balance sheet, which totaled
$2.7 and $2.1 billion as of December 31, 2002 and
2001, respectively. This liquidity portfolio provides us with
additional funding security and also affords us greater
flexibility to structure securitizations with attractive
features.



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

Presenting high quality earnings and maintaining
a conservative and well-capitalized balance sheet have been our
focus since our founding in 1972. We believe that this strategy
ensures success over the long term rather than providing
extraordinary short-term results. Components of this strategy
include accounting for our automobile securitizations as secured
financings, rather than sales, maintaining appropriate
allowances for credit losses and holding solid regulatory
capital levels.

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 30% of equity,
net of tax, in 1997.

Our allowance for credit losses increased
$87.5 million, or 51%, to $259 million at
December 31, 2002, compared with $171 million at
December 31, 2001. This increase is the result of the
increase in contracts held on the balance sheet as well as us
increasing the percentage of allowance for credit losses to
loans to 2.8% at December 31, 2002, compared with 2.3% at
December 31, 2001.

At December 31, 2002, the Bank had a total
risk-based capital ratio of 13.38%, a tier 1 risk-based capital
ratio of 7.67%, and a leverage ratio of 6.43%, compared to
well-capitalized regulatory requirements of 10.0%,
6.0% and 5.0%, respectively. Because of the Banks
well-capitalized status, it has no institution
specific liquidity or regulatory constraints on its operations.

Operations



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



| |          
| | ---------
| | Locations

We currently originate contracts nationwide
through our 41 offices. Each regional business center manager is
accountable for the performance of contracts originated in that
office throughout the life of the contracts, including
acquisition, underwriting, funding and collection. We have two
national service centers located in California and Texas with
functions including data verification, records management,
remittance processing, customer service call centers and
automated dialers. We maintain three regional bankruptcy and
remarketing centers and have a centralized asset recovery center
located in California. Our corporate offices are located in
Irvine, California.

8



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| |                     
| | --------------------
| | Business Development

Our business development representatives are
responsible for improving our relationship with existing dealers
and enrolling and educating new dealers to increase the number
of contracts originated. Business development managers within
each regional business center provide direct management
oversight to each business development representative. In
addition, the director of sales and marketing provides oversight
management to ensure that all business development managers and
representatives are following overall corporate guidelines.

Business development representatives target
selected dealers within their territory based upon volume,
potential for business, financing needs of the dealers, and
competitors that are doing business with such dealers. Before we
decide to do business with a new dealer, we perform a review
process of the dealer and its business. If we then determine to
proceed, we enter into a non-exclusive dealership agreement with
the dealer. This agreement contains certain representations
regarding the contracts the dealer will sell to us. Due to the
non-exclusive nature of our relationship with dealers, the
dealers retain discretion to determine whether to sell contracts
to us or another financial institution. The business development
representative is responsible for educating the dealers
finance managers about the types of contracts that meet our
underwriting standards. This education process helps to ensure
that we minimize the number of applications we receive that are
outside of our underwriting guidelines, thereby increasing our
efficiency and lowering our overall cost to originate contracts.

After this relationship is established, the
business development representative continues to actively
monitor the relationship with the objective of maximizing the
overall profitability of each dealer relationship within his or
her territory. This includes ensuring that a significant number
of approved applications received from each dealer are actually
converted into contracts by us, ensuring that the type of
contracts received meets our underwriting standards, monitoring
the risk-based pricing of contracts acquired and reviewing the
actual performance of the contracts purchased. To the extent
that a dealer does not meet our minimum conversion ratio,
lending volume standards or overall profitability, the dealer
may be precluded from sending us applications in the future.
During the past year, our dealer base increased from
approximately 7,500 to 7,800, primarily as a result of us
expanding our nationwide presence. Our increase in volume is the
result of funding more contracts from dealers that meet our
standards and increasing our dealer base.



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

The underwriting process begins when an
application is sent to us via the Internet or faxed to our data
entry service provider. During 2002, we outsourced our data
entry process to a third-party provider to maximize efficiencies
and reduce costs due to the decreased volume of applications
received via fax. Internet applications are automatically loaded
into our front-end underwriting computer system. Our data entry
service provider enters the applicant information from faxed
applications into our front-end system. Once the application is
in the front-end system, the system automatically obtains credit
bureau information on the applicant and calculates our
proprietary credit score.

We use credit scoring to differentiate credit
applicants and to rank order credit risk in terms of expected
default probabilities. This enables us to tailor contract
pricing and structure according to our statistical assessment of
credit risk. For example, a consumer with a lower score would
indicate a higher probability of default; therefore, we would
structure and price the transaction to compensate for this
higher default risk. Multiple scorecards are used to accommodate
the full spectrum of contracts we purchase. In addition to a
credit score, the system highlights certain aspects of the
credit application that have historically impacted the credit
worthiness of the borrower.

Credit analysts are responsible for properly
structuring and pricing deals to meet our risk-based criteria.
They review the information, structure and price of an
application and determine whether to approve, decline or make a
counteroffer to the dealer. Each credit analysts lending
levels and approval authorities are established based on the
individuals credit experience and portfolio performance,
credit manager audit results and quality control review results.
Higher levels of approvals are required for higher credit risk
and are controlled by system driven parameters and limits.
System driven controls include limits on interest rates,

9



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contract terms, contract advances, payment to
income ratios, debt to income ratios, collateral values and low
side overrides.


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

If the dealer accepts the terms of the approval,
the dealer is required to deliver the necessary documentation
for 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.

10



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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:

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

11



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| |                       
| | ----------------------
| | 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 scores information on all borrowers,
which is updated each quarter. These three tools allow us to
continually seek the most efficient and effective collection
methods.

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

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

If satisfactory payment arrangements are not
made, the automobile is generally repossessed within 60 to
90 days of the date of delinquency, subject to compliance
with applicable law. We use independent contractors to perform
repossessions. The automobile remains in our custody generally
for 15 days, or longer if required by local law, to provide
the obligor the opportunity to redeem the automobile. If after
the redemption period the delinquency is not cured, we write
down the vehicle to fair value and reclassify the contract as a
repossessed asset. After the redemption period expires, we
prepare the automobile for sale. We sell substantially all
repossessed automobiles through wholesale automobile auctions,
subject to applicable law. We do not provide the financing on
repossessions sold. We use regional remarketing departments to
sell our repossessed vehicles. Once the vehicles are sold, we
charge off any remaining deficiency balances. At
December 31, 2002, repossessed automobiles outstanding
managed by us were $16.4 million or 0.18% of the total
managed contract portfolio, compared with $7.6 million or
0.09% of the total managed contract portfolio at
December 31, 2001.

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



| |               
| | --------------
| | Retail Banking

Our retail banking operations are conducted
through 18 branch offices located throughout Southern
California. At December 31, 2002, the total deposits
gathered by the retail banking division were $1.4 billion

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##### Table of Contents



compared to $2.1 billion at
December 31, 2001. Due to our limited number of branch
offices, we have historically focused on certificate of deposit
accounts as the primary product offered by the retail banking
division.


Demand deposits and money market accounts
obtained through our retail banking operations totaled
$490 million at December 31, 2002 compared with
$812 million at December 31, 2001. At
December 31, 2002, demand deposits and money market
accounts represented 36% of our total deposits compared with 39%
at December 31, 2001. In addition, demand deposits, money
market accounts and certificate of deposit accounts under
$100,000 in principal represented approximately 85% of our total
deposit accounts.

The decrease in total deposits, demand deposits
and money market accounts in 2002 is a result of our decision to
sell our seven Northern California branch offices. We made a
strategic decision to enhance our retail banking operations by
focusing our deposit gathering efforts in Southern California.
As a result of the sale of $481 million of deposits, we
recorded a gain of $6.0 million. We opened our first new
Southern California branch office in March 2003 and expect to
relocate five and open three Southern California branch offices
in 2003.



| |                   
| | ------------------
| | Commercial Banking

We focus our commercial banking operations in the
Orange, Los Angeles and San Diego County metropolitan
areas, operating through our Irvine headquarters. We target
commercial clients with sales between $10 million and
$100 million. We offer our commercial clients a full array
of deposit and loan products that are priced competitively and
designed specifically for them. The commercial banking
divisions strategy is to generate deposits in excess of
the loans it funds to provide another source of liquidity for
us. Deposit products include money market, business checking and
certificate of deposit accounts delivered either through direct
contact or cash management services. Loan products include term
loans, lines of credit, asset-based loans, construction and real
estate loans. We also offer consumer deposit and money market
accounts as well as consumer loans and lines of credit to the
company owners, management and their associates. Loan products
are generally priced on a floating rate basis, based on the
prime rate or the London Interbank Offer Rate, also known as
LIBOR. Fixed rate loans are generally limited to a one-year term
or less.

Credit quality is managed by having each loan
reviewed for approval by a credit committee comprised of the
Commercial Banks President, Chairman of the Board, Board
members and our executives. In addition, account officers are
assigned to specific accounts to maintain close contact with the
customer. Such contact allows for greater opportunity to cross
sell products, as well as for observing and continually
evaluating the customer for potential credit problems.

At December 31, 2002, the commercial banking
division had $517 million in deposits compared with
$220 million at December 31, 2001. Commercial loans
outstanding totaled $97.2 million and $85.3 million at
December 31, 2002 and 2001, respectively.

The following table presents information
regarding total loans and deposits of our commercial banking
operations:

|                                       |  |                                 |          |      |  |      |          |   |  |  |          |  
|-------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                       |  |                                
|                                       |  | For the Year Ended December 31,
|                                       |  |                                
|                                       |  | 2002                            |          | 2001 |  | 2000
|                                       |  |                                 |          |      |  |     
|                                       |  |                                
|                                       |  | (Dollars in thousands)         
|Average balance  loans                |  |                                 | $142,116 |      |  |      | $152,251 |   |  |  | $156,065 |  
|Average balance  deposits             |  |                                 | 546,045  |      |  |      | 443,434  |   |  |  | 507,455  |  
|Interest income                        |  |                                 | 8,070    |      |  |      | 11,215   |   |  |  | 14,312   |  
|Interest expense                       |  |                                 | 29,265   |      |  |      | 19,262   |   |  |  | 27,929   |  
|Average interest rate earned on loans  |  |                                 | 5.68     | %    |  |      | 7.37     | % |  |  | 9.17     | %
|Average interest rate paid on deposits |  |                                 | 5.36     | %    |  |      | 4.34     | % |  |  | 5.50     | %

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Mortgage Portfolios

We have from time to time originated mortgage
products that were held on our balance sheet rather than selling
such products into the secondary markets. Other than mortgage
loans originated on a limited basis through the commercial
banking division, we do not expect to add mortgage loans to our
balance sheet.

Construction Loans

On a limited basis, we originate construction
loans primarily for single family owner-occupied residences and
commercial real estate. These include loans for the acquisition
and development of unimproved property to be used for
residential and commercial purposes. The construction loan
portfolio generally consists of loans with terms ranging from
six to twelve months with fully indexed adjustable interest
rates that range between 4% and 10%. Advances are generally made
to cover actual construction costs and include a reserve for
paying the stated interest due on the loan.

Transactions with Related Parties

We believe that the transactions described below
have been on terms no less favorable to us than could be
obtained from unaffiliated parties, notwithstanding that the
transactions were not negotiated at arms length. However,
the transactions were approved by our Board of Directors and the
Boards of Directors of the Bank and WFS, including their
respective independent directors. Each of these transactions
described eliminates upon consolidation.

Intercompany Borrowings

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

WFS 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. WFS made payments on the $125 million note of
$11.2 million and $32.7 million for the years ended
December 31, 2001 and 2000, respectively, without
prepayment penalties. The $125 million note was paid off in
the third quarter of 2001 in connection with the retirement of
the Banks 8.5% subordinated debentures. There was no
outstanding balance on the $125 million note at
December 31, 2002 and 2001 compared with $11.2 million
outstanding at December 31, 2000. Interest expense on this
note totaled $0.5 million and $1.5 million for the
years ended December 31, 2001 and 2000, respectively.

WFS borrowed $135 million from the Bank
under the terms of a $135 million note. WFS initially
borrowed $50 million under this note in 1997. The amount
was increased to $135 million in 1999. According to the
terms of the amendment in 1999, the $135 million note
provided for two equal principal payments of $67.5 million
per year, commencing July 31, 2001. Under its original
terms, interest payments on the $135 million note were due
quarterly, in arrears, calculated at the rate of 9.42% per
annum. On January 1, 2002, the note was amended to increase
the remaining principal amount from $67.5 million to
$150 million and to decrease the interest rate from 9.42%
to 8.875% per annum. All principal is due and payable on
August 1, 2007, although the Bank has the option to require
payment in part or in full at any time prior to that date. WFS
made principal payments on this note totaling $42.0 million
during 2002 in conjunction with the Banks purchase of
$42.0 million of its 8.875% subordinated debentures.
Pursuant to the terms of this note, WFS may not incur any other
indebtedness which is senior to the obligations evidenced by
this note except for (i) indebtedness under the
$125 million note, (ii) indebtedness collateralized or
secured under the $1.8 billion

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##### Table of Contents



line of credit discussed below and
(iii) indebtedness for similar types of warehouse lines of
credit. There was $108 million outstanding on this note at
December 31, 2002 compared with $67.5 million at
December 31, 2001. Interest expense on this note totaled
$12.4 million, $10.1 million and $12.7 million
for the years ended December 31, 2002, 2001 and 2000,
respectively.


Additionally, WFS 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, 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 December 31,
2002. Interest expense on this note totaled $20.3 million
for the year ended December 31, 2002.

WFS has a line of credit extended by the Bank
permitting it to draw up to $1.8 billion as needed to be
used in its operations. WFS does not pay a commitment fee for
this line of credit. The line of credit terminates on
December 31, 2004, although WFS may extend the term for
additional periods of up to 60 months. There was no amount
outstanding at December 31, 2002. There was
$374 million and $236 million outstanding on this line
of credit at December 31, 2001 and 2000, respectively. The
$1.8 billion line of credit carries an interest rate based
on the one-month LIBOR and an interest spread of 125 basis
points when unsecured and 90 basis points when secured. The Bank
has the right under this line of credit to refuse to permit
additional amounts to be drawn if, in the Banks
discretion, the amount sought to be drawn will not be used to
finance the purchase of contracts or other working capital
requirements.

On November 30, 2001 and August 8,
2002, various subsidiaries of WFS entered into lines of credit
with the Bank. These lines permit these subsidiaries to draw up
to a total of $255 million to fund activities related to
our securitizations. Of the total $255 million,
$10 million terminates on December 1, 2006 and
$245 million terminates on January 1, 2010, although
the terms may be extended by these subsidiaries for additional
periods of up to 60 months. At December 31, 2002, the
amount outstanding on these lines of credit totaled
$62.0 million compared with $47.3 million outstanding
at December 31, 2001. The $255 million in lines of
credit with the Bank held by WFS 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 $3.0 million,
$8.9 million and $37.9 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The
weighted average interest rates for the lines of credit were
2.74%, 4.43% and 7.09% for the years ended December 31,
2002, 2001 and 2000, respectively. The weighted average interest
rates for the lines of credit were 2.55%, 3.08% and 7.44% at
December 31, 2002, 2001 and 2000, respectively.

Short-Term Investments

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

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Reinvestment Contracts

Pursuant to a series of agreements to which WFS,
the Bank and WFAL2, among others, are parties, WFS has access to
the cash flows of certain outstanding securitizations, including
the cash held in the spread accounts for these securitizations.
WFS is permitted to use that cash as it determines, 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 WFS pursuant to the terms of the WFS Reinvestment
Contract. Under the WFS Reinvestment Contract, WFS receives
access to all of the cash available to the Bank under each trust
reinvestment contract and is 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 WFS pursuant to the terms of the sale and
servicing agreements.

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. WFS pays 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 WFS access to cash under the WFS
Reinvestment Contract. WFS paid the Bank $1.2 million,
$1.1 million and $0.7 million for the years ended
December 31, 2002, 2001 and 2000, respectively, for this
purpose. As WFAL2 directly utilizes the cash made available to
it to purchase contracts for its own account from WFS, no
additional consideration from WFS is required to support
WFAL2s pledge of its property under the agreement with
Financial Security Assurance, also known as FSA. While WFS is
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 WFS would prefer to purchase those contracts
than for WFAL2 to sell those contracts to a third party. The WFS
Reinvestment Contract, by its terms, is to remain in effect so
long as any of the trust reinvestment contracts is an eligible
investment for its related securitization. There was
$944 million, $942 million and $832 million
outstanding on the trust reinvestment contracts at
December 31, 2002, 2001 and 2000, respectively.



| |                 
| | ----------------
| | Whole Loan Sales

We purchased $1.4 billion of contracts from
WFS in whole loan sales for each of the years ended
December 31, 2001 and 2000. In these transactions, we paid
cash for the amount of the principal outstanding on the
contracts plus a premium of $44.3 million and
$41.2 million for the years ended December 31, 2001
and 2000, respectively. These premiums were recorded by WFS 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 us and continue
to be managed by WFS under the terms of the transactions. We
purchased no contracts from WFS for the year ended
December 31, 2002. These sales and the related gains are
eliminated upon consolidation.



| |                      
| | ---------------------
| | Tax Sharing Agreement

We and our subsidiaries are parties to an amended
tax sharing agreement 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 us 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

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until the parties to the tax sharing agreement
agree in writing to terminate it. See Consolidated
Financial Statements  Note 22  Income
Taxes.




| |                      
| | ---------------------
| | Management Agreements

We have entered into certain management
agreements with WFS and the Bank pursuant to which we pay an
allocated portion of certain costs and expenses incurred by WFS
and the Bank with respect to services or facilities of WFS and
the Bank used by us or our subsidiaries, including our principal
office facilities, our field offices, and overhead and associate
benefits pertaining to Bank and WFS associates who also provide
services to us or our subsidiaries. Additionally, as part of
these management agreements, WFS and the Bank have agreed to
reimburse us for similar costs incurred. Net amounts paid to WFS
by us and our affiliates under these agreements were
$6.4 million, $5.9 million and $2.4 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. The management agreements may be terminated by any
party upon five days prior written notice without cause, or
immediately in the event of the other partys breach of any
covenant, obligation, or duty contained in the applicable
management agreement or for violation of law, ordinance,
statute, rule or regulation governing either party to the
applicable management agreement.

Supervision and Regulation

General

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

As a savings and loan association holding
company, we are subject to regulation under the Home
Owners Loan Act, also known as HOLA, as amended, and
to inspection, examination and supervision by the OTS. Our
subsidiary bank, Western Financial Bank, and its subsidiaries,
including WFS, are subject to regulation and examination
primarily by the OTS and secondarily by the FDIC. Both the Bank
and WFS, as well as our other operating subsidiaries, are
generally not subject to state laws pertaining to their business
activities due to pre-emption by HOLA and OTS regulations. Our
service corporation subsidiaries are also subject to regulation
by the OTS and other applicable federal and state agencies. Our
insurance subsidiaries are subject to regulation by applicable
state insurance regulatory agencies. Our service corporation
subsidiaries are subject to the laws and regulations of both the
federal government and the various states in which they conduct
business.



| |         
| | --------
| | Westcorp



| |                                             
| | --------------------------------------------
| | The Savings and Loan Holding Company
    Act

We are, by virtue of our ownership of the Bank, a
savings and loan holding company within the meaning of HOLA. We
are registered with the OTS as a savings and loan holding
company. Therefore, we are subject to the OTS regulations,
examination and reporting requirements. The OTS may take
substantive action if it determines that there is reasonable
cause to believe that the continuation by a savings and loan
holding company of any particular activity constitutes a serious
risk to the financial safety, soundness or stability of that
holding companys subsidiary savings association.

Savings association subsidiaries of holding
companies must also comply with regulations regarding loans to
executive officers, directors and principal shareholders. Loans
secured by a first lien on an executive officers residence
may be made without prior approval of the board of directors of
the financial institution.

17



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| |                          
| | -------------------------
| | The Home Owners Loan Act

Provisions of HOLA limit the type of activities
and investments in which the savings association subsidiaries of
a savings and loan holding company may participate if the
investment and/or activity involves an affiliate of that savings
association subsidiary. In addition, transactions between a
savings association subsidiary or its subsidiary and an
affiliate must be on terms that are at least as favorable to the
bank or its subsidiary as are the terms of the transactions with
unaffiliated companies.

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



| |         
| | --------
| | The Bank



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

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

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

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

In addition, the OTS has adopted a regulation
pertaining to the capital treatment of recourse, direct credit
substitutes and residual interests in asset securitizations. The
regulation modifies the capital rules for residual interests
arising upon the transfer of assets, including limiting the
amount of residual interests that are credit-enhancing
interest-only strips that may be included in calculating an
institutions capital. The new regulation requires all
institutions to hold dollar-for-dollar capital
against their total contractual exposure to loss resulting from
residual interest assets arising from the transfer of assets
accounted for as a sale. The regulation also requires that all
residual interest assets which are credit-enhancing
interest-only strips in excess of 25% of an institutions
tier 1 risk-based capital be deducted from capital.

18



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

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

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

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

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



| |                           
| | --------------------------
| | The Gramm-Leach-Bliley Act

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

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

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subsidiaries, because the Bank and its
subsidiaries have historically safeguarded the personal
confidential information of their customers as required by other
federal statutes.




| |                                    
| | -----------------------------------
| | Prompt Corrective Regulatory Action

Federal regulators are required to take prompt
corrective action to resolve the problems of insured depository
institutions that fall below certain capital ratios. The OTS, in
conjunction with other regulatory agencies, adopted regulations
defining five categories of capitalization, ranging from
well capitalized to critically
undercapitalized, and implemented a framework of
supervisory actions applicable to savings associations in each
category. At December 31, 2002, the Bank met the capital
requirements of a well capitalized institution.



| |                     
| | --------------------
| | Dividend Regulations

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 safety and soundness
concerns, or violates a prohibition in any statute, regulation
or agreement between the Bank and the OTS. The Bank is required
to file prior notice 30 days before a proposed capital
distribution because it is a subsidiary of a savings and loan
holding company.

The Bank is also 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 $140 million. We received
dividends from the Bank during 2002 in the aggregate amount of
$16.1 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. For the year ended
December 31, 2002, we were required to pay insurance
premiums of $0.7 million compared with $0.9 million
for the year ended December 31, 2001.

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. Management is not aware
of any existing circumstances that could result in termination
of the Banks deposit insurance.



| |                  
| | -----------------
| | Brokered Deposits

FDIC regulations provide for differential
regulation relating to brokered deposits based on capital
adequacy. Institutions are divided into categories of well
capitalized, adequately capitalized and
undercapitalized. Only well capitalized
institutions may continue to accept brokered deposits without
restriction, as well capitalized institutions are excluded from
the definition of deposit brokers. At December 31, 2002,
the Bank met the capital requirements of a well-capitalized
association as defined by the regulation. At that date, the Bank
held $99.2 million in brokered deposits.



| |                              
| | -----------------------------
| | Federal Home Loan Bank System

The GLBA amended the Federal Home Loan Bank
Act and made FHLB System membership optional. The Bank is,
nonetheless, a member of the FHLB of San Francisco and
holds the required minimum investment in the FHLB System.
Moreover, the Federal Housing Finance Board recently proposed
that either an investment in capital stock of the FHLB System or
payment of an annual membership fee should satisfy the
membership investment requirement. The option of a membership
fee might provide more flexibility for the Bank and once the
final regulation is issued, we will consider that option.

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| |                             
| | ----------------------------
| | Qualified Thrift Lender Test

A Qualified Thrift Lender, also known as QTL,
test is included in HOLA. An association that fails to become or
remain a QTL must either convert to a bank subject to the
banking regulations or be subject to severe restrictions. Such
restrictions may include being forbidden to invest in or conduct
any activity that is not permissible to both a savings
association and a national bank, and restrictions on branching,
advances from its FHLB, and dividends.

Under the QTL requirements, a savings
associations qualified thrift investments must
not equal less than 65% of its portfolio assets
measured on a monthly basis in nine of every twelve consecutive
months. Qualified thrift investments include all loans or
mortgage-backed securities which are secured or relate to
domestic residential or manufactured housing, educational loans,
small business loans, credit card loans, FHLB stock, and certain
obligations of the FDIC and related entities. Portfolio assets
are total assets less goodwill and other intangible assets, the
value of the associations facilities and the
associations liquid assets, but not over 20% of its total
assets. At December 31, 2002, the Banks percentage of
qualified thrift investments to portfolio assets was 88.82%.



| |                      
| | ---------------------
| | Loans to One Borrower

Under HOLA, a savings association generally is
not permitted to make loans to a single borrower in excess of
15% to 25% of the savings associations unimpaired capital
and unimpaired surplus, depending upon the type of loan and the
collateral provided therefore. At December 31, 2002, 15% of
the Banks unimpaired capital and unimpaired surplus was
$183 million. The largest amount outstanding at
December 31, 2002 to one borrower and related entities was
$16.3 million.



| |                           
| | --------------------------
| | Community Reinvestment Act

Congress passed the Community Reinvestment Act,
also known as CRA, to encourage each financial institution to
help meet the credit needs of the communities it serves,
including low to moderate income neighborhoods. The CRA
establishes certain performance standards under which the Bank
is to be examined. Periodically, the OTS reviews the Banks
performance and publishes a Community Reinvestment Act
Performance Evaluation. Following the Banks most
recent scheduled examination in February 2001, it received an
updated performance evaluation of satisfactory.



| |                                   
| | ----------------------------------
| | Standards for Safety and Soundness

The regulatory agencies must, either by
regulation or guidelines, provide standards for all insured
depository institutions and depository institution holding
companies relating to internal controls, information systems,
loan documentation and underwriting, interest rate risk
exposure, asset growth, and executive compensation. The agencies
are authorized to take action against institutions that fail to
meet these standards.

Annual Examinations

The OTS is required to conduct a full scope,
on-site examination of the Bank every twelve months. Its last
full annual examination was completed in March 2002 and it is
currently under examination for 2003.

USA Patriot Act

In October 2001, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act, also known as the USA Patriot Act,
became effective. Title III of that Act represents a major
expansion of the federal anti-money laundering laws granting
broad new anti-money laundering powers to the Secretary of the
Treasury and imposing a variety of new compliance obligations on
banks and broker dealers. The USA Patriot Act also requires a
banks regulator to specifically consider the banks
past record of compliance with the anti-money laundering
requirements of the Bank Secrecy Act when acting on any
applications filed by such bank.

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Sarbanes-Oxley Act of 2002

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

Interagency Guidance Statement Regarding
Asset-Backed Securitization

The OTS, in conjunction with other federal
banking regulatory agencies, issued a guidance statement
regarding asset securitization activities of banks and savings
associations which applies to the Bank and WFS. The guidance
generally provides that institutions engaged in asset
securitization activities should ensure that sufficient capital
is held to support the risks associated with those activities,
that valuations are reasonable, conservative and supported and
that appropriate management oversight and reporting is
accomplished with respect to the institutions asset
securitization activities. We believe that the securitization
activities of WFS, as an operating subsidiary of the Bank, are
in compliance with the guidance provisions. Moreover, as
WFS recent securitization activities have been accounted
for as secured financings or a sale of contracts servicing
released, WFS has eliminated and does not anticipate creating in
the future any non-cash gain on sale residual interests, the
valuation of which would be subject to the guidance statement.

Interagency Guidance Statement Regarding
Sub-prime Lending Programs

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

We cannot predict whether the Bank will be
required, following its next examination, to hold additional
capital with respect to those contracts on its consolidated
balance sheet as to which the borrowers are determined to be
sub-prime borrowers as defined by the regulatory agencies. To
the extent that the guidance, as implemented, requires the Bank
to raise and continue to maintain higher levels of capital, our
ability to originate, service and securitize new and pre-owned
contracts, especially as to which the borrower is determined to
be a sub-prime borrower, may be adversely affected. Any changes
to regulations that would

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negatively impact us may require us to curtail
our contract purchasing activities or change the relative
percentage of types of contracts we originate, either of which
could have a material adverse effect on our financial position,
liquidity and results of operations.


Taxation

Federal Income Taxes

We file a calendar year consolidated federal
income tax return. All entities included in the consolidated
financial statements are included in the consolidated tax return.

The Bank is a savings and loan association for
federal income tax purposes. Prior to 1996, savings and loan
associations satisfying certain conditions were permitted under
the Internal Revenue Code to establish reserves for bad debts
and to make annual additions to these reserves, which qualified
as deductions from income. However, in 1996 new legislation was
enacted which eliminated the reserve method of accounting for
bad debts for tax purposes for savings and loan associations and
required the reserve balance to be recaptured. As of
December 31, 2002, $1.7 million of reserves remained
to be recaptured in 2003.

We will be subject to the alternative minimum tax
if that tax is larger than the regular federal tax otherwise
payable. Generally, alternative minimum taxable income is a
taxpayers regular taxable income, increased by the
taxpayers tax preference items for the year and adjusted
by computing certain deductions in a special manner which
negates the acceleration of such deductions under the regular
federal tax. This amount is then reduced by an exemption amount
and is subject to tax at a 20% rate. In the past, we have not
generally paid alternative minimum tax and do not expect that we
will in the current year.

We and our subsidiaries are under examination by
the Internal Revenue Service for the tax years ended
December 31, 1997 through 1999. We do not anticipate any
significant changes based upon these examinations.

California Franchise Tax and Other State
Provisions

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

The California franchise tax applicable to the
Bank 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 such as the Bank. For taxable years ending on or
after December 31, 1995, the tax rate for a financial
corporation is equal to the tax rate on a regular corporation
plus 2%. For income years beginning after January 1, 1997,
the California regular corporate tax rate is 8.84% and the
financial corporation tax rate is 10.84%.

Prior to 2002 under California law, a financial
corporation could determine its bad debt deduction using one of
two methods. The first method allowed a deduction for debts that
became wholly or partially worthless during the tax year, i.e.,
the specific chargeoff method. The second method allowed a
reasonable addition to a reserve to be deducted. During 2002,
California enacted legislation that eliminated the use of the
reserve method for financial corporations. As of the first tax
year beginning on or after January 1, 2002, only debts
which become worthless during the period may be deducted. In the
first year of the change in accounting method, 50% or
$64 million of the ending reserve prior to the change will
be included in California taxable income. The remaining 50% of
the reserve is not required to be recaptured into income and
represents a permanent difference between GAAP and California
tax accounting. The deferred tax liability related to this
permanent difference has been eliminated from our balance sheet
and the current year state tax expense reduced accordingly.

We compute our taxable income for California
purposes on a unitary basis, or as if we were one business unit,
and file one combined California franchise tax return, excluding
Westhrift Life Insurance Company, also known as Westhrift. We
are under examination by the California Franchise Tax Board and
various other state

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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 Receivables
Corporation 2

WFS Receivables Corporation 2, also known as
WFSRC2, is our wholly owned, Nevada based, limited purpose
service corporation. WFSRC2 was organized for the purpose of
purchasing contracts from WFS and securitizing them in the
asset-backed securities market. Contracts securitized through
WFSRC2 are treated as secured financings for accounting purposes.

Westran Services Corp.

Westran Services Corp., also known as Westran, is
our wholly owned, California based subsidiary, which provides
travel-related services for us and our subsidiaries. Westran
does not provide a significant source of revenues or expenses.

Western Consumer Products

Western Consumer Products is our wholly owned,
California based subsidiary. Western Consumer Products was
created in 2001 to market non-lending related products such as
automobile warranties, maintenance agreements and vehicle
security systems.

Western Financial Bank

The Bank is our wholly owned, federally chartered
and federally insured savings bank. The Bank provides
diversified financial services through its community banking
operations, which include a retail banking division and a
commercial banking division. Substantially all of our operations
are conducted through the Bank and its subsidiary, WFS. The
Banks subsidiaries are WFS, which in turn owns all of the
stock of WFAL, WFAL2, WFS Investments, Inc., also known as
WFSII, WFS Funding, Inc., also known as WFSFI, WFS Receivables
Corporation, also known as WFSRC, WFS Receivables
Corporation 3, also known as WFSRC3 and WFS Web
Investments, also known as WFSWEB. Other subsidiaries of the
Bank include Western Auto Investments, Inc., also known as WAI,
Westfin Insurance Agency, also known as WFIA, Westhrift Life
Insurance Company, also known as Westhrift, WestFin Securities
Corporation, also known as WestFin, Western Reconveyance
Company, Inc., also known as RECON, Western Consumer Services,
Inc., also known as WCS, and The Hammond Company, The Mortgage
Bankers, also known as THCMB. Each of these entities are
described in further detail below.

WFS Financial Inc

WFS is an 84% owned subsidiary of the Bank that
is in the business of financing contracts purchased from
automobile dealers. The remaining interest is traded on the
Nasdaq National Market® under the ticker symbol WFSI. Each
of its offices is licensed to the extent required by law to
conduct business in each respective state. The contracts that
WFS originates are generally securitized by its subsidiaries,
WFAL, WFSFI, WFSRC or WFSRC3. See General 
Automobile Lending Operations. During 2002, WFS originated
$5.4 billion of contracts.

WFS Financial Auto Loans,
Inc.

WFAL is a wholly owned, Nevada based, limited
purpose operating subsidiary of WFS. WFAL was organized
primarily for the purpose of purchasing contracts from WFS and
securitizing them in the asset-backed securities market. All
sales to securitization trusts directly from WFAL are treated as
sales for accounting purposes. WFAL has not purchased any
automobile contracts since March 2002.

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WFS Financial Auto Loans 2,
Inc.

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

WFS Investments, Inc.

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

WFS Funding, Inc.

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

WFS Receivables Corporation

WFSRC is a wholly owned, Nevada based, limited
purpose service corporation subsidiary of WFS. WFSRC was
incorporated for the purpose of purchasing contracts from WFS
and securitizing them in the asset-backed securities market.
Securitizations originated by WFSRC are guaranteed under a
financial guaranty insurance policy issued by an unaffiliated
third-party company. Securitization transactions in which
contracts are sold through WFSRC are treated as secured
financings for accounting purposes. At December 31, 2002,
WFSRC had $6.3 billion in notes payable on automobile
secured financing outstanding.

WFS Receivables
Corporation 3

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

WFS Web Investments

WFSWEB is our wholly owned, California based,
limited purpose service corporation subsidiary of WFS. WFSWEB
was incorporated for the purpose of investing in an Internet
service company called DealerTrack. Our investment in
DealerTrack provides us with the unique opportunity of being
involved with a company that provides a business-to-business
Internet portal specifically designed for the indirect
automobile lending market. Currently, over half of our
applications are received through DealerTrack.

Western Auto Investments,
Inc.

WAI is a wholly owned, Nevada based, limited
purpose operating subsidiary of the Bank. WAI was incorporated
for the purpose of purchasing limited ownership interests in
contract securitization transactions. WAI is limited by its
articles of incorporation from engaging in any business
activities not incidental or necessary to its stated purpose.
WAI does not provide a significant source of revenues or
expenses.

WestFin Insurance Agency

WFIA is a wholly owned, California based,
insurance agency and operating subsidiary of the Bank. WFIA acts
as an agent for independent insurers in providing property and
casualty insurance, collateral

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protection insurance and other non-credit related
life and disability coverage on contracts made by WFS. WFIA is
also a licensed broker-dealer, which sells fixed annuities to
the general public. WFIAs revenues consist primarily of
commissions received on policies sold to customers.


Westhrift Life Insurance
Company

Westhrift is a wholly owned, Arizona based,
operating subsidiary of the Bank. Westhrift is engaged in the
business of reinsuring credit life and credit disability
insurance offered to borrowers of the Bank. An independent
insurer underwrites these policies. The credit life insurance
policies provide us with full payment of the insureds
financial obligation in the event of the insureds death.
The credit disability insurance policies provide us with payment
of an insureds financial obligation during a period of
disability resulting from illness or physical injury. Westhrift
has a Certificate of Authority from the California Insurance
Commissioner authorizing it to conduct insurance business in
California. Westhrift does not engage in any business except
with respect to our customers.

WestFin Securities
Corporation

WestFin is a wholly owned operating subsidiary of
the Bank. WestFin was a National Association of Securities
Dealers licensed securities broker-dealer of the Bank. Westfin
discontinued its operations as of December 31, 2002.

Western Reconveyance Company,
Inc.

RECON is a wholly owned, California based,
operating subsidiary of the Bank. RECON acts primarily as the
trustee under trust deed loans made by the Bank. RECON does not
provide a significant source of revenues or expenses.

Western Consumer Services,
Inc.

WCS is a wholly owned, California based,
operating subsidiary of the Bank. WCS historically conducted
real estate development activities through two California
limited liability companies, also known as LLCs. The purpose of
the LLCs was to acquire, develop and ultimately sell single
family residences. WCS has also held properties that were
prohibited to be held by the Bank due to regulatory guidelines.
The Bank is required to hold dollar for dollar risk-based
capital for its investment in WCS. WCS does not currently hold
any real estate investments or conduct any real estate
development activities.

The Hammond Company, The Mortgage
Bankers

THCMB is a wholly owned, California based,
operating subsidiary of the Bank. THCMB was acquired in 1995 for
the purposes of providing retail mortgage banking services. In
1996, THCMB activities were moved into the Bank. THCMB does not
currently conduct any business.

Associates

At December 31, 2002, we had
2,244 full-time and 116 part-time associates. None of
our associates are represented by a collective bargaining unit
or union. We believe we have good relations with our associates.






|        |           
|------- | ----------
|Item 2. | Properties

At December 31, 2002, we owned nine
properties in California and one property in Texas and leased 55
properties at various locations in various states.

Our executive offices are located at
23 Pasteur, Irvine, California. The remaining owned and
leased properties are used as retail branch offices, automobile
lending regional business centers, and other operational
centers. At December 31, 2002, the net book value of
property and leasehold improvements was approximately
$53.4 million. We lease space at two locations from a
company controlled by the Chairman of the Board of our company
and our majority shareholder.

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

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






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

None.

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##### 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
1986 and is currently traded on the New York Stock Exchange,
also known as the NYSE, identified by the symbol, WES. The
following table illustrates the high and low prices by quarter
in 2002 and 2001, as reported by the NYSE, which prices are
believed to represent actual transactions:

|               |  |      |        |      |  |      |        |     |  |  |        |  |  |  |        | 
|-------------- |  | ---- | ------ | ---- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|               |  |      |        |     
|               |  | 2002 |        | 2001
|               |  |      |        |     
|               |  | High |        | Low  |  | High |        | Low
|               |  |      |        |      |  |      |        |    
|First Quarter  |  |      | $22.55 |      |  |      | $15.70 |     |  |  | $18.66 |  |  |  | $14.68 | 
|Second Quarter |  |      | 31.95  |      |  |      | 22.50  |     |  |  | 23.70  |  |  |  | 16.45  | 
|Third Quarter  |  |      | 31.41  |      |  |      | 18.10  |     |  |  | 23.41  |  |  |  | 16.00  | 
|Fourth Quarter |  |      | 21.63  |      |  |      | 16.92  |     |  |  | 19.45  |  |  |  | 16.05  | 

We had 1,912 shareholders of our common
stock at March 11, 2003. The number of shareholders was
determined by the number of record holders, including the number
of individual participants, in security position listings.

Dividends

We paid cash dividends of $0.47, $0.43 and
$0.30 per share for the years ended December 31, 2002,
2001 and 2000, respectively. On February 19, 2003, we
declared a quarterly cash dividend of $0.13 per share for
shareholders of record as of May 6, 2003. This dividend is
payable on May 20, 2003. There are no restrictions on the
payment of dividends by Westcorp.

Our wholly owned subsidiary, the Bank, is
restricted by regulation and by the indentures relating to the
subordinated debentures as to the amount of funds which can be
transferred to us in the form of dividends. Under the most
restrictive of these terms, on December 31, 2002, the
Banks restricted shareholders equity totaled
$393 million with a maximum dividend of $140 million.

The Bank must notify the OTS of its intent to
declare cash dividends 30 days before declaration and may
not pay a dividend or make a loan to us for any purpose to the
extent we engage in any activities not permitted for a bank
holding company.

28



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

The following table presents summary audited
financial data for the years ended December 31, 2002, 2001,
2000, 1999 and 1998. Since this table is only a summary and does
not provide all of the information contained in our financial
statements, including the related notes, you should read our
Consolidated Financial Statements contained elsewhere herein.
Certain amounts from the prior years Consolidated
Financial Statements have been reclassified to conform to the
current year presentation.

|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |           |           |           | 
|-------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | --------- | --------- | ---------- | ------- | --------- | --------- | ---------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | --------- | 
|                                                         |                                                           |                                                 
|                                                         |                                                           | At or For the Year Ended December 31,           
|                                                         |                                                           |                                                 
|                                                         |                                                           | 2002                                             |                                            | 2001      |           | 2000       |         | 1999      |           | 1998      
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |           
|                                                         |                                                           |                                                 
|                                                         |                                                           | (Dollars in thousands, except per share amounts)
|Consolidated Statements of Operations
    Data:          |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Interest income                                          |                                                           | $                                                | 1,142,940                                  |           |           | $          | 962,627 |           |           | $          | 583,821 |           |           | $         | 297,616 |           |           | $         | 272,166 |          
|Interest expense                                         |                                                           |                                                  | 530,916                                    |           |           |            | 491,944 |           |           |            | 313,872 |           |           |           | 152,788 |           |           |           | 161,713 |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         | Net interest income                                       |                                                  |                                            | 612,024   |           |            |         | 470,683   |           |            |         | 269,949   |           |           |         | 144,828   |           |           |         | 110,453   |          
|Provision for credit losses                              |                                                           |                                                  | 306,233                                    |           |           |            | 196,977 |           |           |            | 82,133  |           |           |           | 38,400  |           |           |           | 18,960  |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         | Net interest income after provision for credit
    losses |                                                  |                                            | 305,791   |           |            |         | 273,706   |           |            |         | 187,816   |           |           |         | 106,428   |           |           |         | 91,493    |          
|Noninterest income                                       |                                                           |                                                  | 90,430                                     |           |           |            | 78,899  |           |           |            | 177,884 |           |           |           | 212,138 |           |           |           | 128,654 |          
|Noninterest expense(1)                                   |                                                           |                                                  | 251,306                                    |           |           |            | 244,871 |           |           |            | 220,973 |           |           |           | 217,958 |           |           |           | 248,390 |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Income (loss) before income tax (benefit)                |                                                           |                                                  | 144,915                                    |           |           |            | 107,734 |           |           |            | 144,727 |           |           |           | 100,608 |           |           |           | (28,243 | )        
|Income tax (benefit)                                     |                                                           |                                                  | 52,044                                     |           |           |            | 41,675  |           |           |            | 58,132  |           |           |           | 41,460  |           |           |           | (11,330 | )        
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Income (loss) before minority interest                   |                                                           |                                                  | 92,871                                     |           |           |            | 66,059  |           |           |            | 86,595  |           |           |           | 59,148  |           |           |           | (16,913 | )        
|Minority interest in earnings (loss) of
    subsidiaries |                                                           |                                                  | 13,153                                     |           |           |            | 10,369  |           |           |            | 11,852  |           |           |           | 6,522   |           |           |           | (2,216  | )        
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Net income (loss)                                        |                                                           | $                                                | 79,718                                     |           |           | $          | 55,690  |           |           | $          | 74,743  |           |           | $         | 52,626  |           |           | $         | (14,697 | )        
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Consolidated Statements of Financial Condition
    Data: |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Assets:                                                  |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         | Cash and other assets                                     |                                                  | $                                          | 237,664   |           |            | $       | 336,345   |           |            | $       | 611,088   |           |           | $       | 714,357   |           |           | $       | 728,476   |          
|                                                         | Loans:                                                    |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |           |          
|                                                         |                                                           | Consumer(2)                                      |                                            |           | 9,027,638 |            |         |           | 7,074,383 |            |         |           | 4,309,036 |           |         |           | 1,516,669 |           |         |           | 933,010   |          
|                                                         |                                                           | Mortgage(3)                                      |                                            |           | 282,930   |            |         |           | 373,455   |            |         |           | 507,431   |           |         |           | 598,302   |           |         |           | 1,006,933 |          
|                                                         |                                                           | Commercial                                       |                                            |           | 97,216    |            |         |           | 85,312    |            |         |           | 107,586   |           |         |           | 66,927    |           |         |           | 52,940    |          
|                                                         | Mortgage-backed securities                                |                                                  |                                            | 2,649,657 |           |            |         | 2,092,225 |           |            |         | 2,230,448 |           |           |         | 1,431,376 |           |           |         | 980,044   |          
|                                                         | Investments and time deposits                             |                                                  |                                            | 115,771   |           |            |         | 110,677   |           |            |         | 102,321   |           |           |         | 171,143   |           |           |         | 131,417   |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         |                                                           |                                                  | Total assets                               |           | $         | 12,410,876 |         |           | $         | 10,072,397 |         |           | $         | 7,867,910 |         |           | $         | 4,498,774 |         |           | $         | 3,832,820 | 
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|Liabilities:                                             |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         | Deposits                                                  |                                                  | $                                          | 1,974,984 |           |            | $       | 2,329,326 |           |            | $       | 2,478,487 |           |           | $       | 2,212,309 |           |           | $       | 2,178,735 |          
|                                                         | Notes payable on automobile secured financing             |                                                  |                                            | 8,422,915 |           |            |         | 5,886,227 |           |            |         | 3,473,377 |           |           |         | 461,104   |           |           |         |           |          
|                                                         | FHLB advances and other borrowings                        |                                                  |                                            | 618,766   |           |            |         | 723,675   |           |            |         | 616,193   |           |           |         | 498,901   |           |           |         | 440,924   |          
|                                                         | Amounts held on behalf of trustee                         |                                                  |                                            | 177,642   |           |            |         | 280,496   |           |            |         | 494,858   |           |           |         | 687,274   |           |           |         | 528,092   |          
|                                                         | Subordinated debentures                                   |                                                  |                                            | 400,561   |           |            |         | 147,714   |           |            |         | 189,962   |           |           |         | 199,298   |           |           |         | 239,856   |          
|                                                         | Other liabilities                                         |                                                  |                                            | 101,145   |           |            |         | 85,994    |           |            |         | 71,221    |           |           |         | 59,140    |           |           |         | 94,311    |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         |                                                           |                                                  | Total liabilities                          |           |           | 11,696,013 |         |           |           | 9,453,432  |         |           |           | 7,324,098 |         |           |           | 4,118,026 |         |           |           | 3,481,918 | 
|                                                         | Minority interest in equity of subsidiaries               |                                                  |                                            | 101,666   |           |            |         | 78,261    |           |            |         | 56,644    |           |           |         | 28,030    |           |           |         | 21,857    |          
|                                                         | Shareholders equity                                      |                                                  |                                            | 613,197   |           |            |         | 540,704   |           |            |         | 487,168   |           |           |         | 352,718   |           |           |         | 329,045   |          
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          
|                                                         |                                                           |                                                  | Total liabilities and shareholders equity |           | $         | 12,410,876 |         |           | $         | 10,072,397 |         |           | $         | 7,867,910 |         |           | $         | 4,498,774 |         |           | $         | 3,832,820 | 
|                                                         |                                                           |                                                  |                                            |           |           |            |         |           |           |            |         |           |           |           |         |           |           |           |         |          

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|                                                                             |                  |                                                  |            |           |           |      |            |           |           |      |            |           |           |   |            |           |           |   |            |           |           | 
|---------------------------------------------------------------------------- | ---------------- | ------------------------------------------------ | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | - | ---------- | --------- | --------- | - | ---------- | --------- | --------- | 
|                                                                             |                  |                                                 
|                                                                             |                  | At or For the Year Ended December 31,           
|                                                                             |                  |                                                 
|                                                                             |                  | 2002                                             |            | 2001      |           | 2000 |            | 1999      |           | 1998
|                                                                             |                  |                                                  |            |           |           |      |            |           |           |     
|                                                                             |                  |                                                 
|                                                                             |                  | (Dollars in thousands, except per share amounts)
|Other Selected Financial Data:                                               |                  |                                                  |            |           |           |      |            |           |           |      |            |           |           |   |            |           |           |   |            |          
|Average assets                                                               |                  | $                                                | 11,572,027 |           |           | $    | 9,280,377  |           |           | $    | 6,242,668  |           |           | $ | 3,952,360  |           |           | $ | 3,859,202  |          
|Return on average assets                                                     |                  |                                                  | 0.69       | %         |           |      | 0.60       | %         |           |      | 1.20       | %         |           |   | 1.33       | %         |           |   | (0.38      | )%       
|Average shareholders equity(4)                                              |                  | $                                                | 654,109    |           |           | $    | 570,298    |           |           | $    | 450,323    |           |           | $ | 351,162    |           |           | $ | 327,687    |          
|Return on average shareholders equity(4)                                    |                  |                                                  | 12.19      | %         |           |      | 9.77       | %         |           |      | 16.60      | %         |           |   | 14.99      | %         |           |   | (4.49      | )%       
|Equity to assets ratio(4)                                                    |                  |                                                  | 5.76       | %         |           |      | 5.97       | %         |           |      | 6.38       | %         |           |   | 8.32       | %         |           |   | 8.49       | %        
|Originations:                                                                |                  |                                                  |            |           |           |      |            |           |           |      |            |           |           |   |            |           |           |   |            |          
|                                                                             | Consumer loans   |                                                  | $          | 5,419,296 |           |      | $          | 4,869,970 |           |      | $          | 4,232,115 |           |   | $          | 3,355,732 |           |   | $          | 2,680,341 |          
|                                                                             | Mortgage loans   |                                                  |            | 23,950    |           |      |            | 23,001    |           |      |            | 33,124    |           |   |            | 276,936   |           |   |            | 2,754,398 |          
|                                                                             | Commercial loans |                                                  |            | 354,439   |           |      |            | 291,944   |           |      |            | 266,342   |           |   |            | 237,316   |           |   |            | 124,259   |          
|                                                                             |                  |                                                  |            |           |           |      |            |           |           |      |            |           |           |   |            |           |           |   |            |          
|                                                                             |                  | Total originations                               |            | $         | 5,797,685 |      |            | $         | 5,184,915 |      |            | $         | 4,531,581 |   |            | $         | 3,869,984 |   |            | $         | 5,558,998 | 
|                                                                             |                  |                                                  |            |           |           |      |            |           |           |      |            |           |           |   |            |           |           |   |            |          
|Interest rate spread                                                         |                  |                                                  | 5.29       | %         |           |      | 4.99       | %         |           |      | 4.37       | %         |           |   | 3.59       | %         |           |   | 2.83       | %        
|Book value per share(4)                                                      |                  | $                                                | 18.23      |           |           | $    | 16.80      |           |           | $    | 15.72      |           |           | $ | 14.06      |           |           | $ | 12.29      |          
|Weighted average number of shares and common
    share equivalents  diluted |                  |                                                  | 38,922,611 |           |           |      | 34,485,127 |           |           |      | 29,525,677 |           |           |   | 26,505,128 |           |           |   | 26,305,117 |          
|Earnings (loss) per common share 
    diluted                               |                  | $                                                | 2.05       |           |           | $    | 1.61       |           |           | $    | 2.53       |           |           | $ | 1.99       |           |           | $ | (0.56      | )        
|Dividends per share                                                          |                  | $                                                | 0.47       |           |           | $    | 0.44       |           |           | $    | 0.30       |           |           | $ | 0.20       |           |           | $ | 0.25       |          
|Dividend payout ratio                                                        |                  |                                                  | 22.9       | %         |           |      | 27.3       | %         |           |      | 11.9       | %         |           |   | 10.1       | %         |           |   | N/A        |          



---



|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information for 1998 includes a one-time
    restructuring charge of $18.0 million, including
    $1.8 million for employee severance, $13.2 million for
    lease termination fees and the write-off of disposed assets, and
    $3.0 million relating to our decision to exit the mortgage
    banking business.
|   
|(2) | Net of unearned discounts.                                                                                                                                                                                                                                                                                        
|   
|(3) | Net of undisbursed loan proceeds.                                                                                                                                                                                                                                                                                 
|   
|(4) | Accumulated other comprehensive income (loss)
    excluded from shareholders equity.                                                                                                                                                                                                                             

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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, which consists
of consumer, mortgage and commercial loans, and from investments
in mortgage-backed securities and other short-term investments.
We fund our loan portfolio and investments with deposits,
advances from the FHLB, securities sold under agreements to
repurchase, securitizations, other borrowings and equity.

Noninterest income is primarily made up of
revenues generated from the sale and servicing of contracts and
real estate loans. 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 real estate loans, and contractual
specified 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 or
subsequent contractual servicing and retained interest income.
Instead, the earnings of the contracts in the trust and the
related financing costs are reflected over the life of the
underlying pool of contracts as net interest income. Other
components of noninterest income include gains and losses from
the sale of investment securities and mortgage-backed
securities, gains from the sale of deposits and premises,
insurance income, fees related to the sales of investment
products such as mutual funds and annuities and fee income from
depository accounts. The primary components of noninterest
expense are salaries, credit and collection expenses and data
processing costs.

Critical Accounting Policies

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

Retained Interest in Securitized
Assets

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

For securitization transactions treated as sales,
we recorded a non-cash gain equal to the present value of the
estimated future cash flows on a cash out basis, net of the
write-off of dealer participation and gains or

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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 is calculated so as to recognize retained interest
income on an effective yield basis. These amounts are reported
as automobile lending income on our Consolidated Statements of
Income.

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

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

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

As servicer of these contracts, we hold and remit
funds collected from the borrowers on behalf of the trustee
pursuant to reinvestment contracts that we have entered into for
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.

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 on an owned
and managed basis, analysis of cumulative losses on both a
managed and sold basis, and evaluation of credit loss experience
by credit tier and geographic location. Other quantitative
analyses include the evaluation of the size of any particular
asset group, the concentration of any credit tier, the level of
nonperformance and the percentage of delinquency.

Qualitative analyses include trends in chargeoffs
over various time periods and at various statistical midpoints
and high points, the severity of depreciated values of
repossessions 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. Our multifamily and commercial loan
portfolios are evaluated individually while our single family
and consumer portfolios are evaluated in pools. We classify our
loan

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portfolios 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. This approach allows for enhanced analysis as it
highlights the need for more allowance than would be generally
allocated if held in one classification.

All contracts that are 60 to 90 days
delinquent are automatically classified as Special Mention. Real
estate loans that are manifesting a weakness in performance are
classified as Special Mention. Any contract that is 90 or more
days delinquent is automatically classified as Substandard. Real
estate loans that are manifesting a significant weakness in
performance are also classified as Substandard. Any multifamily
loan that is impaired is classified as Substandard. Any contract
where the borrower has filed for bankruptcy or where 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 loan balance classified as Loss.

The allowance for credit losses is reduced by net
chargeoffs as well as decreases in required allowances due to
sales of loans and by lowering the level of required reserves
based upon improved loan performance. The allowance for credit
losses is increased by recording amounts to the provision for
credit losses.

Derivatives and Hedging
Activities

Deposits and Securities Sold Under Agreements
to Repurchase

We may enter into cash flow hedges that will
protect against potential changes in interest rates affecting
interest payments on future deposits gathered by us and future
securities sold under agreements to repurchase. The fair value
of the interest rate swap agreements is included in deposits and
securities sold under agreements to repurchase, respectively,
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. Related interest
income or expense is settled on a quarterly basis and is
recorded in accumulated other comprehensive income (loss) and
reclassified into earnings in the period during which cash flows
on the hedged items affect income.

Notes Payable on Automobile Secured
Financing

The contracts originated and held by us are fixed
rate and, accordingly, we have exposure to changes in interest
rates. To protect against potential changes in interest rates
affecting interest payments on future securitization
transactions, we may enter into various hedge agreements prior
to closing the transaction. The market value of these hedge
agreements is designed to respond inversely to changes in
interest rates. Because of this inverse relationship, we can
effectively lock in a gross interest rate spread at the time of
entering into the hedge transaction. Gains and losses on these
agreements are recorded in accumulated other comprehensive
income (loss), net of tax, on our Consolidated Statements of
Financial Condition. Any ineffective portion is recognized in
interest expense during that period if the hedge is greater than
100% effective. Upon completion of the securitization
transaction, the gains or losses are recognized in full as an
adjustment to the gain or loss on the sale of the contracts if
the securitization transaction is treated as a sale or amortized
on a level yield basis over the duration of the notes issued if
the transaction is treated as a secured financing.

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

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

Results of Operations

Net Interest Income

Net interest income is affected by the difference
between the rate earned on our interest earning assets and the
rate paid on our interest bearing liabilities (interest rate
spread) and the relative amounts of our interest earning assets
and interest bearing liabilities. Net interest income totaled
$612 million in 2002 compared with $471 million and
$270 million in 2001 and 2000, respectively. The increase
in net interest income in 2002 is primarily the result of us
holding a greater percentage of contracts on balance sheet as we
utilized our own liquidity sources and completed public
securitizations totaling $6.2 billion and a conduit
financing totaling $775 million accounted for as secured
financings and as we experienced wider net interest margins on
the loans originated during 2002.

Our decision to account for our securitizations
as secured financings by changing the structure of our
securitizations was based upon a business philosophy that
focuses on presenting high quality, cash-based earnings and
maintaining a conservative, well-capitalized balance sheet. In
order to defeat sale treatment, some of our securitization
transactions include a provision that provides us with the right
to repurchase contracts at our option. The percentage of
contracts that we may repurchase was increased from 10% to 20%
as of March 2000. Other securitization transactions allow the
trust to invest in other financial assets. 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. In
addition, by accounting for our securitizations as secured
financings we no longer record a retained interest asset upon
completion of each securitization, the valuation of which is
based upon subjective assumptions.

34



---



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

|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |      |       |       |  
|-------------------------------------------- | ---------------------------------------------- | ------------------------------------- | ---------------------------------- | --------- | --------- | ---------- | ------- | ------- | ------- | --------- | ---- | ------ | ----- | ------- | - | --------- | --------- | --------- | ------- | ------- | ------- | ------- | ---- | ---- | ----- | ----- | - | --------- | --------- | --------- | ------- | ------- | ------- | ------- | ---- | ---- | ----- | ----- | -
|                                             |                                                |                                      
|                                             |                                                | For the Year Ended December 31,      
|                                             |                                                |                                      
|                                             |                                                |                                       |                                    |           |           |           
|                                             |                                                | 2002                                  |                                    | 2001      |           | 2000      
|                                             |                                                |                                       |                                    |           |           |           
|                                             |                                                | Average                               |                                    |           |           | Yield/     |         | Average |         |           |      | Yield/ |       | Average |   |           |           | Yield/   
|                                             |                                                | Balance                               |                                    | Interest  |           | Rate       |         | Balance |         | Interest  |      | Rate   |       | Balance |   | Interest  |           | Rate     
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |          
|                                             |                                                |                                      
|                                             |                                                | (Dollars in thousands)               
|Interest earning assets:                     |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             | Total investments:                             |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |      |      
|                                             |                                                | Mortgage-backed securities            |                                    | $         | 2,202,950 |            |         | $       | 113,327 |           |      |        | 5.14  | %       |   | $         | 2,245,861 |           |         | $       | 133,539 |         |      |      | 5.95  | %     |   | $         | 1,870,908 |           |         | $       | 128,231 |         |      |      | 6.85  | %    
|                                             |                                                | Other short-term investments          |                                    |           | 338,485   |            |         |         | 7,635   |           |      |        | 2.26  |         |   |           | 159,599   |           |         |         | 7,468   |         |      |      | 4.68  |       |   |           | 246,908   |           |         |         | 15,609  |         |      |      | 6.32  |      
|                                             |                                                | Investment securities                 |                                    |           | 5,105     |            |         |         | 318     |           |      |        | 6.22  |         |   |           | 7,194     |           |         |         | 433     |         |      |      | 6.02  |       |   |           | 10,216    |           |         |         | 535     |         |      |      | 5.24  |      
|                                             |                                                | Interest earning deposits with others |                                    |           | 30,044    |            |         |         | 343     |           |      |        | 1.14  |         |   |           | 2,628     |           |         |         | 74      |         |      |      | 2.80  |       |   |           | 2,069     |           |         |         | 110     |         |      |      | 5.32  |      
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total investments                  |           |           | 2,576,584  |         |         |         | 121,623   |      |        |       | 4.72    | % |           |           | 2,415,282 |         |         |         | 141,514 |      |      |       | 5.86  | % |           |           | 2,130,101 |         |         |         | 144,485 |      |      |       | 6.78  | %
|                                             | Total loans:                                   |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |      |      
|                                             |                                                | Consumer loans                        |                                    |           | 8,012,003 |            |         |         | 993,417 |           |      |        | 12.40 | %       |   |           | 5,746,413 |           |         |         | 779,256 |         |      |      | 13.56 | %     |   |           | 2,672,690 |           |         |         | 386,182 |         |      |      | 14.45 | %    
|                                             |                                                | Mortgage loans(1)                     |                                    |           | 329,693   |            |         |         | 22,865  |           |      |        | 6.94  |         |   |           | 441,804   |           |         |         | 34,536  |         |      |      | 7.82  |       |   |           | 551,498   |           |         |         | 44,225  |         |      |      | 8.02  |      
|                                             |                                                | Commercial loans                      |                                    |           | 90,642    |            |         |         | 5,035   |           |      |        | 5.55  |         |   |           | 99,904    |           |         |         | 7,321   |         |      |      | 7.33  |       |   |           | 97,586    |           |         |         | 8,929   |         |      |      | 9.15  |      
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total loans                        |           |           | 8,432,338  |         |         |         | 1,021,317 |      |        |       | 12.11   | % |           |           | 6,288,121 |         |         |         | 821,113 |      |      |       | 13.06 | % |           |           | 3,321,774 |         |         |         | 439,336 |      |      |       | 13.23 | %
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total interest earning assets      |           |           | 11,008,922 |         |         |         | 1,142,940 |      |        |       | 10.38   | % |           |           | 8,703,403 |         |         |         | 962,627 |      |      |       | 11.06 | % |           |           | 5,451,875 |         |         |         | 583,821 |      |      |       | 10.71 | %
|Noninterest earning assets:                  |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             | Amounts due from trusts                        |                                       |                                    | 121,627   |           |            |         |         |         |           |      |        |       |         |   | 227,890   |           |           |         |         |         |         |      |      |       |       |   | 413,653   |           |           |         |         |         |         |      |      |      
|                                             | Retained interest in securitized assets        |                                       |                                    | 15,888    |           |            |         |         |         |           |      |        |       |         |   | 74,509    |           |           |         |         |         |         |      |      |       |       |   | 141,724   |           |           |         |         |         |         |      |      |      
|                                             | Premises, equipment and real estate owned      |                                       |                                    | 80,277    |           |            |         |         |         |           |      |        |       |         |   | 82,277    |           |           |         |         |         |         |      |      |       |       |   | 84,627    |           |           |         |         |         |         |      |      |      
|                                             | Other assets                                   |                                       |                                    | 553,654   |           |            |         |         |         |           |      |        |       |         |   | 318,674   |           |           |         |         |         |         |      |      |       |       |   | 227,095   |           |           |         |         |         |         |      |      |      
|                                             | Less: allowance for credit losses              |                                       |                                    | 208,341   |           |            |         |         |         |           |      |        |       |         |   | 126,376   |           |           |         |         |         |         |      |      |       |       |   | 76,306    |           |           |         |         |         |         |      |      |      
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total                              |           | $         | 11,572,027 |         |         |         |           |      |        |       |         |   |           | $         | 9,280,377 |         |         |         |         |      |      |       |       |   |           | $         | 6,242,668 |         |         |         |         |      |      |       |       |  
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|Interest bearing liabilities:                |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             | Deposits                                       |                                       | $                                  | 2,196,261 |           |            |         | 80,015  |         |           |      | 3.64   | %     |         | $ | 2,319,466 |           |           |         | 114,831 |         |         |      | 4.95 | %     |       | $ | 2,380,155 |           |           |         | 133,610 |         |         |      | 5.61 | %    
|                                             | Securities sold under agreements to repurchase |                                       |                                    | 222,154   |           |            |         | 5,543   |         |           |      | 2.50   |       |         |   | 155,387   |           |           |         | 7,014   |         |         |      | 4.51 |       |       |   | 449,778   |           |           |         | 27,950  |         |         |      | 6.21 |      
|                                             | FHLB advances and other borrowings             |                                       |                                    | 244,284   |           |            |         | 5,281   |         |           |      | 2.16   |       |         |   | 443,337   |           |           |         | 20,424  |         |         |      | 4.61 |       |       |   | 270,043   |           |           |         | 16,694  |         |         |      | 6.18 |      
|                                             | Notes payable on automobile secured financing  |                                       |                                    | 7,426,265 |           |            |         | 406,851 |         |           |      | 5.48   |       |         |   | 5,018,456 |           |           |         | 333,768 |         |         |      | 6.65 |       |       |   | 1,655,936 |           |           |         | 118,421 |         |         |      | 7.15 |      
|                                             | Subordinated debentures                        |                                       |                                    | 331,990   |           |            |         | 33,226  |         |           |      | 10.01  |       |         |   | 170,531   |           |           |         | 15,907  |         |         |      | 9.33 |       |       |   | 192,025   |           |           |         | 17,197  |         |         |      | 8.96 |      
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total interest bearing liabilities |           |           | 10,420,954 |         |         |         | 530,916   |      |        |       | 5.09    | % |           |           | 8,107,177 |         |         |         | 491,944 |      |      |       | 6.07  | % |           |           | 4,947,937 |         |         |         | 313,872 |      |      |       | 6.34  | %
|Noninterest bearing liabilities:             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             | Amounts held on behalf of trustee              |                                       |                                    | 240,667   |           |            |         |         |         |           |      |        |       |         |   | 365,376   |           |           |         |         |         |         |      |      |       |       |   | 693,810   |           |           |         |         |         |         |      |      |      
|                                             | Other liabilities                              |                                       |                                    | 394,863   |           |            |         |         |         |           |      |        |       |         |   | 278,325   |           |           |         |         |         |         |      |      |       |       |   | 169,435   |           |           |         |         |         |         |      |      |      
|                                             | Shareholders equity                           |                                       |                                    | 515,543   |           |            |         |         |         |           |      |        |       |         |   | 529,499   |           |           |         |         |         |         |      |      |       |       |   | 431,486   |           |           |         |         |         |         |      |      |      
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|                                             |                                                |                                       | Total                              |           | $         | 11,572,027 |         |         |         |           |      |        |       |         |   |           | $         | 9,280,377 |         |         |         |         |      |      |       |       |   |           | $         | 6,242,668 |         |         |         |         |      |      |       |       |  
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|Net interest income and interest rate spread |                                                |                                       |                                    |           |           | $          | 612,024 |         |         |           | 5.29 | %      |       |         |   |           |           | $         | 470,683 |         |         |         | 4.99 | %    |       |       |   |           |           | $         | 269,949 |         |         |         | 4.37 | %   
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     
|Net yield on average interest earning assets |                                                |                                       |                                    |           |           |            |         |         |         |           | 5.56 | %      |       |         |   |           |           |           |         |         |         |         | 5.41 | %    |       |       |   |           |           |           |         |         |         |         | 4.95 | %   
|                                             |                                                |                                       |                                    |           |           |            |         |         |         |           |      |        |       |         |   |           |           |           |         |         |         |         |      |      |       |       |   |           |           |           |         |         |         |         |      |     



---



|    |                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------
|(1) | For the purpose of these computations,
    nonaccruing loans are included in the average loan amounts
    outstanding.

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The total interest rate spread increased 30 basis
points for 2002 compared with 2001 due to a decrease of 68 basis
points in the yield on interest earning assets combined with a
decrease in the cost of funds of 98 basis points. The decrease
in the yield on interest earning assets in 2002 is primarily due
to our shift to originating a higher percentage of prime credit
quality contracts and a lower interest rate environment. The
decrease in the cost of funds in 2002 compared with 2001 is due
primarily to a lower interest rate environment. The increase in
yield on interest earning assets for 2001 compared with 2000 was
due primarily to a higher percentage of contracts held on the
balance sheet. The decrease in the cost of funds in 2001
compared with 2000 was due to a lower interest rate environment.

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

|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |         |         | 
|--------------------------------- | ---------------------------------------------- | ---------------------------------- | - | ------------------------ | ------- | ----- | - | ------- | -------- | ---- | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | - | ------- | ------- | ------- | 
|                                  |                                                |                                    |   |                         
|                                  |                                                | 2002 Compared to 2001(1)           |   | 2001 Compared to 2000(1)
|                                  |                                                |                                    |   |                         
|                                  |                                                | Volume                             |   | Rate                     |         | Total |   | Volume  |          | Rate |         | Total  
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |        
|                                  |                                                |                                   
|                                  |                                                | (Dollars in thousands)            
|Interest income:                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  | Mortgage-backed securities                     |                                    | $ | (2,488                   | )       |       | $ | (17,724 | )        |      | $       | (20,212 | )       |  | $ | 23,547  |         |  | $ | (18,239 | )       |   | $       | 5,308   |        
|                                  | Other short-term investments                   |                                    |   | 5,400                    |         |       |   | (5,233  | )        |      |         | 167     |         |  |   | (4,696  | )       |  |   | (3,445  | )       |   |         | (8,141  | )      
|                                  | Investment securities                          |                                    |   | (129                     | )       |       |   | 14      |          |      |         | (115    | )       |  |   | (174    | )       |  |   | 72      |         |   |         | (102    | )      
|                                  | Interest earning deposits with others          |                                    |   | 339                      |         |       |   | (70     | )        |      |         | 269     |         |  |   | 25      |         |  |   | (61     | )       |   |         | (36     | )      
|Total loans:                      |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  | Consumer loans                                 |                                    |   | 285,525                  |         |       |   | (71,364 | )        |      |         | 214,161 |         |  |   | 418,248 |         |  |   | (25,174 | )       |   |         | 393,074 |        
|                                  | Mortgage loans                                 |                                    |   | (8,085                   | )       |       |   | (3,586  | )        |      |         | (11,671 | )       |  |   | (8,610  | )       |  |   | (1,079  | )       |   |         | (9,689  | )      
|                                  | Commercial loans                               |                                    |   | (631                     | )       |       |   | (1,655  | )        |      |         | (2,286  | )       |  |   | 206     |         |  |   | (1,814  | )       |   |         | (1,608  | )      
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  |                                                | Total interest earning assets      |   | $                        | 279,931 |       |   | $       | (99,618  | )    |         | $       | 180,313 |  |   | $       | 428,546 |  |   | $       | (49,740 | ) |         | $       | 378,806 | 
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Interest expense:                 |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  | Deposits                                       |                                    | $ | (5,820                   | )       |       | $ | (28,996 | )        |      | $       | (34,816 | )       |  | $ | (3,496  | )       |  | $ | (15,283 | )       |   | $       | (18,779 | )      
|                                  | Securities sold under agreements to repurchase |                                    |   | 2,344                    |         |       |   | (3,815  | )        |      |         | (1,471  | )       |  |   | (9,702  | )       |  |   | (11,234 | )       |   |         | (20,936 | )      
|                                  | FHLB advances and other borrowings             |                                    |   | (6,935                   | )       |       |   | (8,208  | )        |      |         | (15,143 | )       |  |   | 8,748   |         |  |   | (5,018  | )       |   |         | 3,730   |        
|                                  | Notes payable on automobile secured financings |                                    |   | 139,398                  |         |       |   | (66,315 | )        |      |         | 73,083  |         |  |   | 224,186 |         |  |   | (8,839  | )       |   |         | 215,347 |        
|                                  | Subordinated debentures                        |                                    |   | 16,081                   |         |       |   | 1,238   |          |      |         | 17,319  |         |  |   | (1,980  | )       |  |   | 690     |         |   |         | (1,290  | )      
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  |                                                | Total interest bearing liabilities |   | $                        | 145,068 |       |   | $       | (106,096 | )    |         | $       | 38,972  |  |   | $       | 217,756 |  |   | $       | (39,684 | ) |         | $       | 178,072 | 
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Net change in net interest income |                                                |                                    |   |                          |         |       |   |         |          | $    | 141,341 |         |         |  |   |         |         |  |   |         |         | $ | 200,734 |        
|                                  |                                                |                                    |   |                          |         |       |   |         |          |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        



---



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

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Provision for Credit Losses

We maintain an allowance for credit losses to
cover probable losses that can be reasonably estimated for the
loans 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 the loans or 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. The level
of allowance is based principally on the outstanding balance of
loans 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 loan portfolio
that can be reasonably estimated.

The provision for credit losses was
$306 million, $197 million and $82.1 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. Net chargeoffs were $215 million,
$123 million and $42.3 million for the same respective
periods. The increase in the provision for credit losses was the
result of a higher level of contracts held on balance sheet as
well as higher chargeoffs due to a slowing economy.

Noninterest Income

Automobile Lending Income

Since the first quarter of 2000, we have not
completed a securitization that has been accounted for as a
sale. For transactions treated as sales prior to April 2000, we
recorded a non-cash gain equal to the present value of the
estimated future cash flows from the portfolio of contracts sold
less the write-off of dealer participation balances and the
effect of hedging activities. For these securitizations, net
interest earned on the contracts sold are recognized over the
life of the transactions as contractual servicing income and
retained interest income or expense.

The components of automobile lending income were
as follows:

|                                                                 |                                 |                                 |         |        |  |      |         |        |  |   |        |         | 
|---------------------------------------------------------------- | ------------------------------- | ------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------ | ------- | 
|                                                                 |                                 |                                
|                                                                 |                                 | For the Year Ended December 31,
|                                                                 |                                 |                                
|                                                                 |                                 | 2002                            |         | 2001   |  | 2000
|                                                                 |                                 |                                 |         |        |  |     
|                                                                 |                                 |                                
|                                                                 |                                 | (Dollars in thousands)         
|Fee income                                                       |                                 | $                               | 78,723  |        |  | $    | 67,579  |        |  | $ | 57,786 |        
|Contractual servicing income                                     |                                 |                                 | 10,735  |        |  |      | 23,018  |        |  |   | 41,767 |        
|Retained interest (expense) income, net of
    RISA amortization |                                 |                                 | (29,490 | )      |  |      | (27,839 | )      |  |   | 51,429 |        
|Gain on sale of contracts                                        |                                 |                                 |         |        |  |      |         |        |  |   | 7,719  |        
|                                                                 |                                 |                                 |         |        |  |      |         |        |  |   |        |        
|                                                                 | Total automobile lending income |                                 | $       | 59,968 |  |      | $       | 62,758 |  |   | $      | 158,701 | 
|                                                                 |                                 |                                 |         |        |  |      |         |        |  |   |        |        

Automobile lending income decreased primarily as
a result of us no longer issuing asset-backed securities that
are treated as sales for accounting purposes. This change is
reflected in higher retained interest expense and lower
contractual servicing income, offset by increases in fee income.

37



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##### Table of Contents



Fee income consists primarily of documentation
fees, late charges and deferment fees on our managed portfolio,
including contracts securitized in transactions accounted for as
sales and secured financings, as well as contracts not
securitized. The increase in fee income is due to the growth in
our average managed portfolio to $8.8 billion in 2002 from
$7.6 billion in 2001 and $6.1 billion in 2000.

According to the terms of each securitization,
contractual servicing income is generally earned at rates
ranging from 1.0% to 1.25% per annum on the outstanding
balance of contracts securitized. For accounting purposes, this
income is only recognized on contracts sold through
securitizations treated as sales. Contractual servicing income
totaled $10.7 million, $23.0 million and
$41.8 million for the years ended December 31, 2002,
2001 and 2000, respectively. The decrease in contractual
servicing income is due to the decrease in the average balance
of the sold portfolio from 2000 to 2002.

Retained interest expense was $29.5 million
and $27.8 million for each of the years ended
December 31, 2002 and 2001, respectively, compared with
retained interest income of $51.4 million for the year
ended December 31, 2000. For accounting purposes, this
expense or income is only recognized on contracts sold through
securitizations treated as sales. Retained interest expense or
income 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 retained
interest expense recognized in 2002 and 2001 is the result of
higher chargeoff experience on our sold portfolio as well as
revised estimates of future chargeoffs due to continued slowing
in the economy. Net chargeoffs on the sold portfolio decreased
to $30.4 million in 2002 from $50.4 million in 2001
and $75.5 million in 2000. The outstanding sold portfolio
had a weighted average gross interest rate spread of 6.71% in
2002 compared with 6.97% and 7.38% in 2001 and 2000,
respectively. The average balance of the sold portfolio was
$840 million in 2002 compared with $1.8 billion in
2001 and $3.4 billion in 2000.

Gain on sale, retained interest income or expense
and contractual servicing income are not recognized on
securitizations accounted for as secured financings. Therefore,
we expect such income will not be recognized on our future
securitizations. Retained interest income or expense and
contractual servicing income will continue to be recognized on
existing securitizations accounted for as sales until such pools
are redeemed. Even as these amounts decrease, we expect net
interest income will increase as we retain contracts on our
balance sheet.

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

|                                                             |                                |                                    |   |           |           |      |   |           |           |      |       |           |           |   |        |           |           |   |        |           |           | 
|------------------------------------------------------------ | ------------------------------ | ---------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- | ---- | ----- | --------- | --------- | - | ------ | --------- | --------- | - | ------ | --------- | --------- | 
|                                                             |                                |                                   
|                                                             |                                | For the Year Ended December 31,   
|                                                             |                                |                                   
|                                                             |                                | 2002                               |   | 2001      |           | 2000 |   | 1999      |           | 1998
|                                                             |                                |                                    |   |           |           |      |   |           |           |     
|                                                             |                                |                                   
|                                                             |                                | (Dollars in thousands)            
|Contract sales and secured financings:                       |                                |                                    |   |           |           |      |   |           |           |      |       |           |           |   |        |           |           |   |        |          
|                                                             | Secured financings(1)          |                                    | $ | 6,925,000 |           |      | $ | 4,220,000 |           |      | $     | 3,930,000 |           |   | $      | 500,000   |           |   |        |           |          
|                                                             | Sales to securitization trusts |                                    |   |           |           |      |   |           |           |      |       | 660,000   |           |   |        | 2,500,000 |           |   | $      | 1,885,000 |          
|                                                             |                                |                                    |   |           |           |      |   |           |           |      |       |           |           |   |        |           |           |   |        |          
|                                                             |                                | Total secured financings and sales |   | $         | 6,925,000 |      |   | $         | 4,220,000 |      |       | $         | 4,590,000 |   |        | $         | 3,000,000 |   |        | $         | 1,885,000 | 
|                                                             |                                |                                    |   |           |           |      |   |           |           |      |       |           |           |   |        |           |           |   |        |          
|Gain on sale of contracts(2)                                 |                                |                                    |   |           |           |      |   |           |           | $    | 7,719 |           |           | $ | 51,345 |           |           | $ | 25,622 |          
|Hedge gain (loss) on sale of contracts(3)                    |                                |                                    |   |           |           |      |   |           |           |      | 5,300 |           |           |   | 7,419  |           |           |   | (8,396 | )        
|Gain on sale of contracts as a percent of total
    revenues |                                |                                    |   |           |           |      |   |           |           |      | 1.72  | %         |           |   | 14.47  | %         |           |   | 10.72  | %        



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information for 2002, 2001 and 1999 includes
    $775 million, $650 million, and $500 million,
    respectively, of contracts securitized in a privately placed
    conduit facility.
|   
|(2) | Net of the write-off of outstanding dealer
    participation balances and the effect of hedging activities.                                                                          
|   
|(3) | Included in gain on sale of contracts.                                                                                                                                               

38



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##### Table of Contents



The following table lists each of our public
securitizations. All securitizations prior to 1998-B were paid
in full on or before their contractual maturity dates.

Securitizations

|                       |           |            |  |          |                 |                   |  |                   |            |             |  |                     |              |               |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------- | --------- | ---------- |  | -------- | --------------- | ----------------- |  | ----------------- | ---------- | ----------- |  | ------------------- | ------------ | ------------- |  |  | ------ | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                       |           |            |  |          |                 | Remaining         |  | Remaining Balance |            | Original    |  | Original Weighted   |              | Gross        
|Issue                  |           |            |  | Original |                 | Balance at        |  | as a Percent of   |            | Weighted    |  | Average             |              | Interest Rate
|Number                 |           | Close Date |  | Balance  |                 | December 31, 2002 |  | Original Balance  |            | Average APR |  | Securitization Rate |              | Spread(1)    
|                       |           |            |  |          |                 |                   |  |                   |            |             |  |                     |              |              
|                      
|(Dollars in thousands)
|                       | 1985-A    |            |  |          | December, 1985  |                   |  | $                 | 110,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 18.50 | % |  |  | 8.38  | % |  |  | 10.12 | %
|                       | 1986-A    |            |  |          | November, 1986  |                   |  |                   | 191,930    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.20 |   |  |  | 6.63  |   |  |  | 7.57  |  
|                       | 1987-A    |            |  |          | March, 1987     |                   |  |                   | 125,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 12.42 |   |  |  | 6.75  |   |  |  | 5.67  |  
|                       | 1987-B    |            |  |          | July, 1987      |                   |  |                   | 110,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 12.68 |   |  |  | 7.80  |   |  |  | 4.88  |  
|                       | 1988-A    |            |  |          | February, 1988  |                   |  |                   | 155,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 13.67 |   |  |  | 7.75  |   |  |  | 5.92  |  
|                       | 1988-B    |            |  |          | May, 1988       |                   |  |                   | 100,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.01 |   |  |  | 8.50  |   |  |  | 5.51  |  
|                       | 1988-C    |            |  |          | July, 1988      |                   |  |                   | 100,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.41 |   |  |  | 8.50  |   |  |  | 6.91  |  
|                       | 1988-D    |            |  |          | October, 1988   |                   |  |                   | 105,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.95 |   |  |  | 8.85  |   |  |  | 6.10  |  
|                       | 1989-A    |            |  |          | March, 1989     |                   |  |                   | 75,000     |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.88 |   |  |  | 10.45 |   |  |  | 5.43  |  
|                       | 1989-B    |            |  |          | June, 1989      |                   |  |                   | 100,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.96 |   |  |  | 9.15  |   |  |  | 6.81  |  
|                       | 1990-A    |            |  |          | August, 1990    |                   |  |                   | 150,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 16.05 |   |  |  | 8.35  |   |  |  | 7.70  |  
|                       | 1990-1    |            |  |          | November, 1990  |                   |  |                   | 150,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.56 |   |  |  | 8.50  |   |  |  | 7.06  |  
|                       | 1991-1    |            |  |          | April, 1991     |                   |  |                   | 200,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 16.06 |   |  |  | 7.70  |   |  |  | 8.36  |  
|                       | 1991-2    |            |  |          | May, 1991       |                   |  |                   | 200,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.75 |   |  |  | 7.30  |   |  |  | 8.45  |  
|                       | 1991-3    |            |  |          | August, 1991    |                   |  |                   | 175,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.69 |   |  |  | 6.75  |   |  |  | 8.94  |  
|                       | 1991-4    |            |  |          | December, 1991  |                   |  |                   | 150,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.53 |   |  |  | 5.63  |   |  |  | 9.90  |  
|                       | 1992-1    |            |  |          | March, 1992     |                   |  |                   | 150,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.49 |   |  |  | 5.85  |   |  |  | 8.64  |  
|                       | 1992-2    |            |  |          | June, 1992      |                   |  |                   | 165,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.94 |   |  |  | 5.50  |   |  |  | 9.44  |  
|                       | 1992-3    |            |  |          | September, 1992 |                   |  |                   | 135,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.45 |   |  |  | 4.70  |   |  |  | 9.75  |  
|                       | 1993-1    |            |  |          | March, 1993     |                   |  |                   | 250,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 13.90 |   |  |  | 4.45  |   |  |  | 9.45  |  
|                       | 1993-2    |            |  |          | June, 1993      |                   |  |                   | 175,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 13.77 |   |  |  | 4.70  |   |  |  | 9.07  |  
|                       | 1993-3    |            |  |          | September, 1993 |                   |  |                   | 187,500    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 13.97 |   |  |  | 4.25  |   |  |  | 9.72  |  
|                       | 1993-4    |            |  |          | December, 1993  |                   |  |                   | 165,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 12.90 |   |  |  | 4.60  |   |  |  | 8.30  |  
|                       | 1994-1    |            |  |          | March, 1994     |                   |  |                   | 200,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 13.67 |   |  |  | 5.10  |   |  |  | 8.57  |  
|                       | 1994-2    |            |  |          | May, 1994       |                   |  |                   | 230,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.04 |   |  |  | 6.38  |   |  |  | 7.66  |  
|                       | 1994-3    |            |  |          | August, 1994    |                   |  |                   | 200,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.59 |   |  |  | 6.65  |   |  |  | 7.94  |  
|                       | 1994-4    |            |  |          | October, 1994   |                   |  |                   | 212,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.58 |   |  |  | 7.10  |   |  |  | 8.48  |  
|                       | 1995-1    |            |  |          | January, 1995   |                   |  |                   | 190,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.71 |   |  |  | 8.05  |   |  |  | 7.66  |  
|                       | 1995-2    |            |  |          | March, 1995     |                   |  |                   | 190,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 16.36 |   |  |  | 7.10  |   |  |  | 9.26  |  
|                       | 1995-3    |            |  |          | June, 1995      |                   |  |                   | 300,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.05 |   |  |  | 6.05  |   |  |  | 9.00  |  
|                       | 1995-4    |            |  |          | September, 1995 |                   |  |                   | 375,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.04 |   |  |  | 6.20  |   |  |  | 8.84  |  
|                       | 1995-5    |            |  |          | December, 1995  |                   |  |                   | 425,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.35 |   |  |  | 5.88  |   |  |  | 9.47  |  
|                       | 1996-A    |            |  |          | March, 1996     |                   |  |                   | 485,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.46 |   |  |  | 6.13  |   |  |  | 9.33  |  
|                       | 1996-B    |            |  |          | June, 1996      |                   |  |                   | 525,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.74 |   |  |  | 6.75  |   |  |  | 8.99  |  
|                       | 1996-C    |            |  |          | September, 1996 |                   |  |                   | 535,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.83 |   |  |  | 6.60  |   |  |  | 9.23  |  
|                       | 1996-D    |            |  |          | December, 1996  |                   |  |                   | 545,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-A    |            |  |          | March, 1997     |                   |  |                   | 500,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.33 |   |  |  | 6.60  |   |  |  | 8.73  |  
|                       | 1997-B    |            |  |          | June, 1997      |                   |  |                   | 590,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.36 |   |  |  | 6.37  |   |  |  | 8.99  |  
|                       | 1997-C    |            |  |          | September, 1997 |                   |  |                   | 600,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-D    |            |  |          | December, 1997  |                   |  |                   | 500,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 15.19 |   |  |  | 6.34  |   |  |  | 8.85  |  
|                       | 1998-A    |            |  |          | March, 1998     |                   |  |                   | 525,000    |             |  |                     | Paid in full |               |  |  |        |   |  |  | 14.72 |   |  |  | 6.01  |   |  |  | 8.71  |  
|                       | 1998-B    |            |  |          | June, 1998      |                   |  |                   | 660,000    |             |  |                     | $  30,398    |               |  |  | 4.61   | % |  |  | 14.68 |   |  |  | 6.06  |   |  |  | 8.62  |  
|                       | 1998-C    |            |  |          | November, 1998  |                   |  |                   | 700,000    |             |  |                     | 50,381       |               |  |  | 7.20   |   |  |  | 14.42 |   |  |  | 5.81  |   |  |  | 8.61  |  
|                       | 1999-A    |            |  |          | January, 1999   |                   |  |                   | 1,000,000  |             |  |                     | 96,552       |               |  |  | 9.66   |   |  |  | 14.42 |   |  |  | 5.70  |   |  |  | 8.72  |  
|                       | 1999-B    |            |  |          | July, 1999      |                   |  |                   | 1,000,000  |             |  |                     | 162,087      |               |  |  | 16.21  |   |  |  | 14.62 |   |  |  | 6.36  |   |  |  | 8.26  |  
|                       | 1999-C    |            |  |          | November, 1999  |                   |  |                   | 500,000    |             |  |                     | 108,805      |               |  |  | 21.76  |   |  |  | 14.77 |   |  |  | 7.01  |   |  |  | 7.76  |  
|                       | 2000-A    |            |  |          | March, 2000     |                   |  |                   | 1,200,000  |             |  |                     | 294,664      |               |  |  | 24.56  |   |  |  | 14.66 |   |  |  | 7.28  |   |  |  | 7.38  |  
|                       | 2000-B    |            |  |          | May, 2000       |                   |  |                   | 1,000,000  |             |  |                     | 274,923      |               |  |  | 27.49  |   |  |  | 14.84 |   |  |  | 7.78  |   |  |  | 7.06  |  
|                       | 2000-C    |            |  |          | August, 2000    |                   |  |                   | 1,390,000  |             |  |                     | 473,976      |               |  |  | 34.10  |   |  |  | 15.04 |   |  |  | 7.32  |   |  |  | 7.72  |  
|                       | 2000-D    |            |  |          | November, 2000  |                   |  |                   | 1,000,000  |             |  |                     | 416,366      |               |  |  | 41.64  |   |  |  | 15.20 |   |  |  | 6.94  |   |  |  | 8.26  |  
|                       | 2001-A    |            |  |          | January, 2001   |                   |  |                   | 1,000,000  |             |  |                     | 458,549      |               |  |  | 45.85  |   |  |  | 14.87 |   |  |  | 5.77  |   |  |  | 9.10  |  
|                       | 2001-B    |            |  |          | May, 2001       |                   |  |                   | 1,370,000  |             |  |                     | 651,944      |               |  |  | 47.59  |   |  |  | 14.41 |   |  |  | 4.23  |   |  |  | 10.18 |  
|                       | 2001-C    |            |  |          | August, 2001    |                   |  |                   | 1,200,000  |             |  |                     | 697,633      |               |  |  | 58.14  |   |  |  | 13.90 |   |  |  | 4.50  |   |  |  | 9.40  |  
|                       | 2002-1    |            |  |          | March, 2002(2)  |                   |  |                   | 1,800,000  |             |  |                     | 1,370,605    |               |  |  | 76.14  |   |  |  | 13.50 |   |  |  | 4.26  |   |  |  | 9.24  |  
|                       | 2002-2    |            |  |          | May, 2002       |                   |  |                   | 1,750,000  |             |  |                     | 1,506,738    |               |  |  | 86.10  |   |  |  | 12.51 |   |  |  | 3.89  |   |  |  | 8.62  |  
|                       | 2002-3    |            |  |          | August, 2002    |                   |  |                   | 1,250,000  |             |  |                     | 1,139,684    |               |  |  | 91.17  |   |  |  | 12.30 |   |  |  | 3.06  |   |  |  | 9.24  |  
|                       | 2002-4    |            |  |          | November, 2002  |                   |  |                   | 1,350,000  |             |  |                     | 1,350,000    |               |  |  | 100.00 |   |  |  | 12.18 |   |  |  | 2.66  |   |  |  | 9.52  |  
|                       | 2003-1(2) |            |  |          | February, 2003  |                   |  |                   | 1,343,250  |             |  |                     |              |               |  |  |        |   |  |  | 11.79 |   |  |  | 2.42  |   |  |  | 9.37  |  
|                       |           |            |  |          |                 |                   |  |                   |            |             |  |                     |              |               |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          | Total           |                   |  | $                 | 30,064,680 |             |  |                     | $9,083,305   |               |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          |                 |                   |  |                   |            |             |  |                     |              |               |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          |                 |                   |  |                   |            |             |  |                     |              |               |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the difference between the original
    weighted average annual percentage rate, also known as APR, and
    the estimated weighted average securitization rate on the
    closing date of the securitization.
|   
|(2) | The 2003-1 securitization closed on
    February 27, 2003.                                                                                                                                                              

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##### Table of Contents



Mortgage Banking Income

Mortgage banking operations included gains and
losses on the sale of loans and servicing rights and other
income, primarily late charges. During 2002, mortgage banking
income totaled $1.4 million compared with $1.5 million
and $6.9 million in 2001 and 2000, respectively. The 80%
decline in mortgage banking income from 2000 to 2002 is due to
our decision to exit the mortgage banking business. This
decision resulted in the sale of our remaining mortgage banking
operations in 1999.

The components of mortgage banking income were as
follows:

|                                                                        |                               |                        |        |        |  |      |        |        |  |  |        |        | 
|----------------------------------------------------------------------- | ----------------------------- | ---------------------- | ------ | ------ |  | ---- | ------ | ------ |  |  | ------ | ------ | 
|                                                                        |                               |                       
|                                                                        |                               | For the Year Ended    
|                                                                        |                               | December 31,          
|                                                                        |                               |                       
|                                                                        |                               | 2002                   |        | 2001   |  | 2000
|                                                                        |                               |                        |        |        |  |     
|                                                                        |                               |                       
|                                                                        |                               | (Dollars in thousands)
|Net gains from sale of mortgage loans and
    mortgage servicing rights |                               |                        | $1,394 |        |  |      | $1,384 |        |  |  | $6,704 |       
|Fee income                                                              |                               |                        | 27     |        |  |      | 111    |        |  |  | 148    |       
|                                                                        |                               |                        |        |        |  |      |        |        |  |  |        |       
|                                                                        | Total mortgage banking income |                        |        | $1,421 |  |      |        | $1,495 |  |  |        | $6,852 | 
|                                                                        |                               |                        |        |        |  |      |        |        |  |  |        |       

Other Noninterest Income

Other noninterest income consists primarily of
insurance income, which totaled $10.6 million,
$9.1 million and $7.0 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Insurance
income includes premiums and commissions earned on insurance and
insurance-related products, including collateral protection and
credit life insurance. Income from the sale of mutual funds and
annuities totaled $2.3 million, $2.4 million and
$2.4 million for the years ended December 31, 2002,
2001 and 2000, respectively. Income from the sale of mutual
funds and annuities is included in insurance income on the
Consolidated Statements of Income.

Miscellaneous income totaled $18.4 million,
$5.6 million, and $5.3 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
Miscellaneous income in 2002 consisted of demand deposit fees,
income from rental operations, and other income. The increase in
miscellaneous income from 2001 to 2002 was due to the sales of
seven Northern California bank branches in 2002.

Noninterest Expense

Total noninterest expense was $251 million,
$245 million and $221 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Noninterest
expense as a percentage of total revenues improved to 36% in
2002 compared to 45% in 2001 and 49% in 2000 as a result of
improved operating efficiencies achieved through the
centralization and automation of certain processes as well as
the deployment of new technologies. Noninterest expense
increased $6.4 million or 2.6% in 2002 compared with 2001
primarily as a result of higher collection costs due to a higher
frequency of losses resulting from a slowing economy.

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.

40



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##### Table of Contents



Income Taxes

We file federal and certain state tax returns on
a consolidated basis. Other state tax returns are filed for each
subsidiary separately. Our effective tax rate was 36% in 2002
compared with 39% and 40% in 2001 and 2000, respectively. The
decrease in the effective tax rate is a result of a one-time
benefit of new legislation enacted by the State of California
which eliminated the use of the reserve method of accounting for
bad debts for large banks and financial corporations for taxable
income purposes. In the first year of this change, 50% of the
ending reserve amount deducted from taxable income in prior
periods will be included in the current year California taxable
income. The remaining 50% of the reserve is not required to be
recaptured into income, but rather represents a permanent
difference between GAAP and California tax accounting. The
deferred tax liability related to this permanent difference has
been eliminated from our balance sheet and the current year
state income tax provision has been reduced accordingly. See
Business  Taxation.

Pro Forma Portfolio Basis Statements of
Income

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

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

The growth in our portfolio basis earnings
reflects the growth in our managed contract portfolio to
$9.4 billion at December 31, 2002, compared with
$8.2 billion and $6.8 billion at December 31,
2001 and 2000, respectively. We monitor the periodic portfolio
basis earnings of our managed contract portfolio and believe
these portfolio basis statements assist in better understanding
our business.

41



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##### Table of Contents



The following tables presents the portfolio basis
statements of income and reconciliation to net income as
reflected in our Consolidated Statements of Income:

Portfolio Basis Statements of Income

|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |         | 
|--------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------ | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                                                          |                                                           |                                                 
|                                                          |                                                           | For the Year Ended December 31,                 
|                                                          |                                                           |                                                 
|                                                          |                                                           | 2002                                             |           | 2001    |  | 2000
|                                                          |                                                           |                                                  |           |         |  |     
|                                                          |                                                           |                                                 
|                                                          |                                                           | (Dollars in thousands, except per share amounts)
|Interest income                                           |                                                           | $                                                | 1,246,992 |         |  | $    | 1,188,074 |         |  | $ | 1,011,637 |        
|Interest expense                                          |                                                           |                                                  | 596,826   |         |  |      | 628,045   |         |  |   | 549,476   |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Net interest income                                       |                                                  |           | 650,166 |  |      |           | 560,029 |  |   |           | 462,161 | 
|Net chargeoffs(1)                                         |                                                           |                                                  | 245,501   |         |  |      | 173,201   |         |  |   | 117,807   |        
|Provision for growth(2)                                   |                                                           |                                                  | 21,306    |         |  |      | 19,968    |         |  |   | 23,233    |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Provision for credit losses                               |                                                  |           | 266,807 |  |      |           | 193,169 |  |   |           | 141,040 | 
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Net interest income after provision for credit
    losses |                                                  |           | 383,359 |  |      |           | 366,860 |  |   |           | 321,121 | 
|Noninterest income                                        |                                                           |                                                  | 109,184   |         |  |      | 83,721    |         |  |   | 76,969    |        
|Noninterest expense                                       |                                                           |                                                  | 251,370   |         |  |      | 244,952   |         |  |   | 222,156   |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Income before income tax                                  |                                                  |           | 241,173 |  |      |           | 205,629 |  |   |           | 175,934 | 
|Income tax(3)                                             |                                                           |                                                  | 89,820    |         |  |      | 79,071    |         |  |   | 70,572    |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Income before minority interest                           |                                                  |           | 151,353 |  |      |           | 126,558 |  |   |           | 105,362 | 
|Minority interest in earnings                             |                                                           |                                                  | 20,186    |         |  |      | 19,970    |         |  |   | 14,963    |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|                                                          | Portfolio basis net income                                |                                                  | $         | 131,167 |  |      | $         | 106,588 |  |   | $         | 90,399  | 
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        
|Portfolio basis net income per common
    share  diluted |                                                           | $                                                | 3.37      |         |  | $    | 3.09      |         |  | $ | 3.06      |        
|                                                          |                                                           |                                                  |           |         |  |      |           |         |  |   |           |        



---



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

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##### Table of Contents



Reconciliation of GAAP Basis Net
Income

to Portfolio Basis Net Income


|                             |                                               |                                   |         |         |        |      |         |         |        |   |        |         |        | 
|---------------------------- | --------------------------------------------- | --------------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------ | ------- | ------ | 
|                             |                                               |                                  
|                             |                                               | For the Year Ended December 31,  
|                             |                                               |                                  
|                             |                                               | 2002                              |         | 2001    |        | 2000
|                             |                                               |                                   |         |         |        |     
|                             |                                               |                                  
|                             |                                               | (Dollars in thousands)           
|GAAP basis net income        |                                               | $                                 | 79,718  |         |        | $    | 55,690  |         |        | $ | 74,743 |        
|Portfolio basis adjustments: |                                               |                                   |         |         |        |      |         |         |        |   |        |        
|                             | Gain on sale of contracts                     |                                   |         |         |        |      |         |         |        |   |        | (7,719  | )     
|                             | Retained interest expense (income)            |                                   |         | 29,490  |        |      |         | 27,839  |        |   |        | (41,767 | )     
|                             | Contractual servicing income                  |                                   |         | (10,734 | )      |      |         | (23,018 | )      |   |        | (51,429 | )     
|                             | Net interest income                           |                                   |         | 38,142  |        |      |         | 89,346  |        |   |        | 191,994 |       
|                             | Provision for credit losses                   |                                   |         | 39,426  |        |      |         | 3,808   |        |   |        | (58,907 | )     
|                             | Operating expenses                            |                                   |         | (66     | )      |      |         | (80     | )      |   |        | (965    | )     
|                             | Minority interest in earnings of subsidiaries |                                   |         | (7,033  | )      |      |         | (9,601  | )      |   |        | (3,111  | )     
|                             |                                               |                                   |         |         |        |      |         |         |        |   |        |        
|                             |                                               | Total portfolio basis adjustments |         |         | 89,225 |      |         |         | 88,294 |   |        |         | 28,096 | 
|Net tax effect(1)            |                                               |                                   | 37,776  |         |        |      | 37,396  |         |        |   | 12,440 |        
|                             |                                               |                                   |         |         |        |      |         |         |        |   |        |        
|Portfolio basis net income   |                                               | $                                 | 131,167 |         |        | $    | 106,588 |         |        | $ | 90,399 |        
|                             |                                               |                                   |         |         |        |      |         |         |        |   |        |        



---



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

Financial Condition

Overview

We originated $5.4 billion of contracts in
2002 compared with $4.9 billion during 2001. As a result of
higher contract originations, our portfolio of managed contracts
reached $9.4 billion at December 31, 2002, up from
$8.2 billion at December 31, 2001.

As a result of our sale of our seven Northern
California branch offices, total demand deposits and money
market accounts at our retail banking division decreased
$322 million or 40% to $490 million at
December 31, 2002. Total demand deposit and money market
accounts represented 36% of total retail banking deposits at
December 31, 2002 compared with 39% at December 31,
2001. The commercial banking division had deposits of
$277 million and $161 million outstanding at
December 31, 2002 and 2001, respectively.

Investment and Other
Securities

Our investment and other securities portfolio
consists of short-term securities, including repurchase
agreements and overnight investments in federal funds. These
short-term securities are maintained primarily for liquidity
purposes. Additionally, we own FHLB stock as required by our
affiliation with the FHLB System and carry it at cost. The FHLB
stock is included in other assets on our Consolidated Statements
of Financial Condition. We also hold owner trust certificates
and, in prior years, United States Agency and Treasury
securities, which are classified as available for sale. The
owner trust certificates are recorded at cost, which
approximates fair value. The United States Agency and Treasury
securities are reported at fair value with unrealized gains and
losses reflected as a separate component of shareholders
equity on our Consolidated Statements of Financial Condition as
accumulated other comprehensive income (loss), net of applicable
taxes.

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##### Table of Contents



The following table summarizes our investment
securities at the dates indicated:

|                                                                |                                                                                                                          |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ---------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                |                                                                                                                          |                       
|                                                                |                                                                                                                          | December 31,          
|                                                                |                                                                                                                          |                       
|                                                                |                                                                                                                          | 2002                   |         | 2001   |  | 2000 |         | 1999   |  | 1998
|                                                                |                                                                                                                          |                        |         |        |  |      |         |        |  |     
|                                                                |                                                                                                                          |                       
|                                                                |                                                                                                                          | (Dollars in thousands)
|Interest bearing deposits with other financial
    institutions |                                                                                                                          | $                      | 59,004  |        |  | $    | 720     |        |  | $    | 720     |        |  | $ | 720     |        |  | $ | 515     |       
|Other short-term investments                                    |                                                                                                                          |                        |         |        |  |      | 35,000  |        |  |      | 66,500  |        |  |   | 137,000 |        |  |   | 22,864  |       
|Investment securities:                                          |                                                                                                                          |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                | U.S. Treasury securities and obligations of
    other U.S. government agencies and corporations 
    available for sale |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         | 75,592 | 
|                                                                | Obligations of states and political subdivisions                                                                         |                        |         | 1,046  |  |      |         | 1,549  |  |      |         | 1,533  |  |   |         | 1,506  |  |   |         | 1,572  | 
|                                                                | Owner trust certificates                                                                                                 |                        |         | 3,348  |  |      |         | 4,668  |  |      |         | 6,517  |  |   |         | 7,865  |  |   |         | 5,687  | 
|                                                                | FHLB stock                                                                                                               |                        |         | 46,341 |  |      |         | 64,446 |  |      |         | 24,367 |  |   |         | 23,313 |  |   |         | 24,555 | 
|                                                                | Other                                                                                                                    |                        |         | 6,031  |  |      |         | 4,294  |  |      |         | 2,684  |  |   |         | 739    |  |   |         | 632    | 
|                                                                |                                                                                                                          |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                |                                                                                                                          | $                      | 115,770 |        |  | $    | 110,677 |        |  | $    | 102,321 |        |  | $ | 171,143 |        |  | $ | 131,417 |       
|                                                                |                                                                                                                          |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       

The following table sets forth the stated
maturities of our investment securities at December 31,
2002:

|                                                                |                                                  |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   |        |        | 
|--------------------------------------------------------------- | ------------------------------------------------ | ---------------------- | ---- | ----------- |  | ------------ | ------ | --------- |  | --------- | ---- | --- |  |  |  |  |  | - | ------ | ------ | 
|                                                                |                                                  | Up to                  |      | One Year to |  | Five Years   |        | Ten Years |  | No Stated
|                                                                |                                                  | One Year               |      | Five Years  |  | to Ten Years |        | or More   |  | Maturity 
|                                                                |                                                  |                        |      |             |  |              |        |           |  |          
|                                                                |                                                  |                       
|                                                                |                                                  | (Dollars in thousands)
|Interest bearing deposits with other financial
    institutions |                                                  | $                      | 510  |             |  | $            | 58,494 |           |  |           |      |     |  |  |  |  |  |   |        |       
|Investment securities:                                          |                                                  |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   |        |       
|                                                                | Obligations of states and political subdivisions |                        |      |             |  |              |        | 526       |  |           | $    | 520 |  |  |  |  |  |   |        |        | 
|                                                                | Owner trust certificates                         |                        |      |             |  |              |        | 3,348     |  |           |      |     |  |  |  |  |  |   |        |        | 
|                                                                | FHLB stock                                       |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   | $      | 46,341 | 
|                                                                | Other                                            |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   |        | 6,031  | 
|                                                                |                                                  |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   |        |       
|                                                                |                                                  | $                      | 510  |             |  | $            | 62,368 |           |  | $         | 520  |     |  |  |  |  |  | $ | 52,372 |       
|                                                                |                                                  |                        |      |             |  |              |        |           |  |           |      |     |  |  |  |  |  |   |        |       
|Weighted average interest rate(1)                               |                                                  |                        | 1.58 | %           |  |              | 1.24   | %         |  |           | 5.44 | %   |  |  |  |  |  |   | 5.50   | %     



---



|    |                                    
|--- | -----------------------------------
|(1) | Calculated based on amortized cost.

Mortgage-Backed Securities

We invest in MBS to generate net interest margin,
manage interest rate risk, provide another source of liquidity
through repurchase agreements and meet regulatory requirements.
See Business  Supervision and Regulation.
Our MBS portfolio is classified as available for sale.
Accordingly, the portfolio is reported at fair value with
unrealized gains and losses reflected as a separate component of
shareholders equity on our

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##### Table of Contents



Consolidated Statements of Financial Condition as
accumulated other comprehensive income (loss), net of applicable
taxes. The following table summarizes our MBS portfolio by
issuer:


|                               |                                  |                        |           |           |  |   |           |           | 
|------------------------------ | -------------------------------- | ---------------------- | --------- | --------- |  | - | --------- | --------- | 
|                               |                                  |                       
|                               |                                  | December 31,          
|                               |                                  |                       
|                               |                                  | 2002                   |           | 2001     
|                               |                                  |                        |           |          
|                               |                                  |                       
|                               |                                  | (Dollars in thousands)
|Available for sale securities: |                                  |                        |           |           |  |   |           |          
|                               | GNMA certificates                |                        | $         | 2,607,457 |  |   | $         | 2,036,369 | 
|                               | FNMA participation certificates  |                        |           | 39,124    |  |   |           | 51,894    | 
|                               | FHLMC participation certificates |                        |           | 1,068     |  |   |           | 1,692     | 
|                               | Other                            |                        |           | 2,008     |  |   |           | 2,270     | 
|                               |                                  |                        |           |           |  |   |           |          
|                               |                                  | $                      | 2,649,657 |           |  | $ | 2,092,225 |          
|                               |                                  |                        |           |           |  |   |           |          

The portfolio has a weighted average yield
(including effects of amortization of premiums and discounts) of
5.14% for the year ended December 31, 2002 and a weighted
average coupon rate of 6.96% at December 31, 2002. Our MBS
portfolio had maturities of ten years or greater at
December 31, 2002, although payments are generally received
monthly throughout the life of these securities.

Loan Portfolios

At December 31, 2002, our loan portfolio
totaled $9.4 billion, of which 96% were contracts net of
unearned interest, 3% were loans secured by real property used
primarily for residential purposes, and 1% were commercial
loans. Our loan portfolio totaled $7.5 billion at
December 31, 2001, of which 94% were contracts net of
unearned interest, 5% were loans secured by real property used
primarily for residential purposes, and 1% were commercial
loans. Consumer loans serviced for the benefit of others totaled
$525 million at December 31, 2002 compared with
$1.2 billion at December 31, 2001.

The following table sets forth the composition of
our loan portfolio by type of loan, including loans held for
sale, as of the dates indicated:

|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |      |       |  
|------------------------------- | ------------------- | ---------------------- | --------- | --------- | --------- | ------ | ---- | ---- | ----- | ------ | --------- | --------- | --------- | ------ | ---- | ---- | ----- | ------ | --------- | --------- | --------- |  | ---- | ---- | ----- | - | --------- | --------- | --------- |  | ---- | ---- | ----- | - | --------- | ------- | --------- |  | ---- | ---- | ----- | -
|                                |                     |                       
|                                |                     | December 31,          
|                                |                     |                       
|                                |                     |                        |           |           |           |        |      |      |       |       
|                                |                     | 2002                   |           | 2001      |           | 2000   |      | 1999 |       | 1998  
|                                |                     |                        |           |           |           |        |      |      |       |       
|                                |                     | Amount                 |           | %         |           | Amount |      | %    |       | Amount |           | %         |           | Amount |      | %    |       | Amount |           | %        
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |          
|                                |                     |                       
|                                |                     | (Dollars in thousands)
|Consumer loans:                 |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                | Contracts           |                        | $         | 9,111,820 |           |        |      | 96.9 | %     |        | $         | 7,173,726 |           |        |      | 95.2 | %     |        | $         | 4,389,984 |           |  |      | 89.2 | %     |   | $         | 1,549,966 |           |  |      | 71.0 | %     |   | $         | 944,085 |           |  |      | 47.4 | %    
|                                | Other               |                        |           | 7,531     |           |        |      | 0.1  |       |        |           | 8,826     |           |        |      | 0.1  |       |        |           | 13,456    |           |  |      | 0.3  |       |   |           | 20,951    |           |  |      | 1.0  |       |   |           | 36,940  |           |  |      | 1.8  |      
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                |                     |                        | 9,119,351 |           |           |        | 97.0 |      |       |        | 7,182,552 |           |           |        | 95.3 |      |       |        | 4,403,440 |           |           |  | 89.5 |      |       |   | 1,570,917 |           |           |  | 72.0 |      |       |   | 981,025   |         |           |  | 49.2 |     
|Less: unearned interest         |                     |                        | 91,713    |           |           |        | 1.0  |      |       |        | 108,169   |           |           |        | 1.4  |      |       |        | 94,404    |           |           |  | 1.9  |      |       |   | 54,248    |           |           |  | 2.5  |      |       |   | 48,015    |         |           |  | 2.4  |     
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                |                     | Total consumer loans   |           |           | 9,027,638 |        |      |      | 96.0  |        |           |           | 7,074,383 |        |      |      | 93.9  |        |           |           | 4,309,036 |  |      |      | 87.6  |   |           |           | 1,516,669 |  |      |      | 69.5  |   |           |         | 933,010   |  |      |      | 46.8  |  
|Mortgage loans:                 |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                | Existing properties |                        |           | 277,233   |           |        |      | 2.9  |       |        |           | 361,115   |           |        |      | 4.8  |       |        |           | 498,963   |           |  |      | 10.1 |       |   |           | 589,286   |           |  |      | 27.0 |       |   |           | 993,645 |           |  |      | 49.9 |      
|                                | Construction        |                        |           | 14,150    |           |        |      | 0.2  |       |        |           | 15,638    |           |        |      | 0.2  |       |        |           | 14,784    |           |  |      | 0.3  |       |   |           | 23,190    |           |  |      | 1.1  |       |   |           | 18,345  |           |  |      | 0.9  |      
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                |                     |                        | 291,383   |           |           |        | 3.1  |      |       |        | 376,753   |           |           |        | 5.0  |      |       |        | 513,747   |           |           |  | 10.4 |      |       |   | 612,476   |           |           |  | 28.1 |      |       |   | 1,011,990 |         |           |  | 50.8 |     
|Less: undisbursed loan proceeds |                     |                        | 8,453     |           |           |        | 0.1  |      |       |        | 3,298     |           |           |        |      |      |       |        | 6,316     |           |           |  | 0.1  |      |       |   | 14,174    |           |           |  | 0.7  |      |       |   | 5,057     |         |           |  | 0.4  |     
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                |                     | Total mortgage loans   |           |           | 282,930   |        |      |      | 3.0   |        |           |           | 373,455   |        |      |      | 5.0   |        |           |           | 507,431   |  |      |      | 10.3  |   |           |           | 598,302   |  |      |      | 27.4  |   |           |         | 1,006,933 |  |      |      | 50.4  |  
|Commercial loans                |                     |                        | 97,216    |           |           |        | 1.0  |      |       |        | 85,312    |           |           |        | 1.1  |      |       |        | 107,586   |           |           |  | 2.1  |      |       |   | 66,927    |           |           |  | 3.1  |      |       |   | 52,940    |         |           |  | 2.8  |     
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     
|                                |                     | Total loans            |           | $         | 9,407,784 |        |      |      | 100.0 | %      |           | $         | 7,533,150 |        |      |      | 100.0 | %      |           | $         | 4,924,053 |  |      |      | 100.0 | % |           | $         | 2,181,898 |  |      |      | 100.0 | % |           | $       | 1,992,883 |  |      |      | 100.0 | %
|                                |                     |                        |           |           |           |        |      |      |       |        |           |           |           |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |         |           |  |      |     

45



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##### Table of Contents



The following table sets forth the composition of
loans serviced for the benefit of others:

|                                          |                |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |           |           |  |  |       |       |   |   |           |           |  |  |      |       |   |   |           |           |  |  |      |       |  
|----------------------------------------- | -------------- | ---------------------------------------------- | - | ------- | ------- | ------ |  | ----- | ----- | ------ | - | --------- | --------- | ------ |  | ----- | ----- | ------ | - | --------- | --------- |  |  | ----- | ----- | - | - | --------- | --------- |  |  | ---- | ----- | - | - | --------- | --------- |  |  | ---- | ----- | -
|                                          |                |                                               
|                                          |                | December 31,                                  
|                                          |                |                                               
|                                          |                |                                                |   |         |         |        |  |       |       |       
|                                          |                | 2002                                           |   | 2001    |         | 2000   |  | 1999  |       | 1998  
|                                          |                |                                                |   |         |         |        |  |       |       |       
|                                          |                | Amount                                         |   | %       |         | Amount |  | %     |       | Amount |   | %         |           | Amount |  | %     |       | Amount |   | %        
|                                          |                |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |          
|                                          |                |                                               
|                                          |                | (Dollars in thousands)                        
|Loans serviced for the benefit of others: |                |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |           |           |  |  |       |       |   |   |           |           |  |  |      |       |   |   |           |           |  |  |     
|                                          | Contracts      |                                                | $ | 524,531 |         |        |  | 100.0 | %     |        | $ | 1,215,058 |           |        |  | 100.0 | %     |        | $ | 2,608,017 |           |  |  | 100.0 | %     |   | $ | 3,890,685 |           |  |  | 97.0 | %     |   | $ | 3,491,457 |           |  |  | 68.4 | %    
|                                          | Mortgage loans |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |           |           |  |  |       |       |   |   | 120,832   |           |  |  | 3.0  |       |   |   | 1,612,103 |           |  |  | 31.6 |      
|                                          |                |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |           |           |  |  |       |       |   |   |           |           |  |  |      |       |   |   |           |           |  |  |     
|                                          |                | Total loans serviced for the benefit of others |   | $       | 524,531 |        |  |       | 100.0 | %      |   | $         | 1,215,058 |        |  |       | 100.0 | %      |   | $         | 2,608,017 |  |  |       | 100.0 | % |   | $         | 4,011,517 |  |  |      | 100.0 | % |   | $         | 5,103,560 |  |  |      | 100.0 | %
|                                          |                |                                                |   |         |         |        |  |       |       |        |   |           |           |        |  |       |       |        |   |           |           |  |  |       |       |   |   |           |           |  |  |      |       |   |   |           |           |  |  |     



| |                        
| | -----------------------
| | Mortgage Loan Portfolio

We have from time to time originated mortgage
products that we have held on our balance sheet rather than
selling through the secondary markets. Other than mortgage loans
originated through the commercial banking division on a limited
basis, we are not adding new mortgage loans to our balance sheet.

Our total mortgage loan portfolio consisted of
the following:

|                                 |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |      |       |  
|-------------------------------- | ------------------ | ---------------------- | ------- | ------ | ------- | ------ | ----- | ---- | ----- | - | ------- | ------- | ------- |  | ----- | ---- | ----- | -
|                                 |                    |                       
|                                 |                    | December 31,          
|                                 |                    |                       
|                                 |                    |                        |         |       
|                                 |                    | 2002                   |         | 2001  
|                                 |                    |                        |         |       
|                                 |                    | Amount                 |         | %      |         | Amount |       | %   
|                                 |                    |                        |         |        |         |        |       |     
|                                 |                    |                       
|                                 |                    | (Dollars in thousands)
|Single family residential loans: |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |     
|                                 | First trust deeds  |                        | $       | 96,137 |         |        |       | 34.0 | %     |   | $       | 146,895 |         |  |       | 39.3 | %    
|                                 | Second trust deeds |                        |         | 2,498  |         |        |       | 0.8  |       |   |         | 4,645   |         |  |       | 1.3  |      
|                                 |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |     
|                                 |                    |                        | 98,635  |        |         |        | 34.8  |      |       |   | 151,540 |         |         |  | 40.6  |     
|Multifamily residential loans    |                    |                        | 139,920 |        |         |        | 49.5  |      |       |   | 180,850 |         |         |  | 48.4  |     
|Construction loans               |                    |                        | 14,150  |        |         |        | 5.0   |      |       |   | 15,638  |         |         |  | 4.2   |     
|Other                            |                    |                        | 38,678  |        |         |        | 13.7  |      |       |   | 28,725  |         |         |  | 7.7   |     
|                                 |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |     
|                                 |                    |                        | 291,383 |        |         |        | 103.0 |      |       |   | 376,753 |         |         |  | 100.9 |     
|Less: undisbursed loan proceeds  |                    |                        | 8,453   |        |         |        | 3.0   |      |       |   | 3,298   |         |         |  | 0.9   |     
|                                 |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |     
|                                 |                    | Total mortgage loans   |         | $      | 282,930 |        |       |      | 100.0 | % |         | $       | 373,455 |  |       |      | 100.0 | %
|                                 |                    |                        |         |        |         |        |       |      |       |   |         |         |         |  |       |     

The following table sets forth information on the
amount of fixed rate mortgage loans and adjustable rate mortgage
loans, also known as ARMs, net of undisbursed loan proceeds, in
our portfolio:

|                       |                               |                        |        |         |         |        |     |      |       |   |        |         |         |  |     |      |       |  
|---------------------- | ----------------------------- | ---------------------- | ------ | ------- | ------- | ------ | --- | ---- | ----- | - | ------ | ------- | ------- |  | --- | ---- | ----- | -
|                       |                               |                       
|                       |                               | December 31,          
|                       |                               |                       
|                       |                               |                        |        |        
|                       |                               | 2002                   |        | 2001   
|                       |                               |                        |        |        
|                       |                               | Amount                 |        | %       |         | Amount |     | %   
|                       |                               |                        |        |         |         |        |     |     
|                       |                               |                       
|                       |                               | (Dollars in thousands)
|Fixed rate loans       |                               | $                      | 22,530 |         |         |        | 8.0 | %    |       | $ | 21,654 |         |         |  | 5.8 | %   
|Adjustable rate loans: |                               |                        |        |         |         |        |     |      |       |   |        |         |         |  |     |     
|                       | With negative amortization    |                        |        | 172,436 |         |        |     | 60.9 |       |   |        | 240,462 |         |  |     | 64.4 |      
|                       | Without negative amortization |                        |        | 87,964  |         |        |     | 31.1 |       |   |        | 111,339 |         |  |     | 29.8 |      
|                       |                               |                        |        |         |         |        |     |      |       |   |        |         |         |  |     |     
|                       |                               | Total mortgage loans   |        | $       | 282,930 |        |     |      | 100.0 | % |        | $       | 373,455 |  |     |      | 100.0 | %
|                       |                               |                        |        |         |         |        |     |      |       |   |        |         |         |  |     |     

46



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##### Table of Contents





| |                          
| | -------------------------
| | Commercial Loan Portfolio

We had outstanding commercial loan commitments of
$199 million at December 31, 2002 compared with
$135 million at December 31, 2001. We originated
$354 million and $292 million of commercial loans for
the years ended December 31, 2002 and 2001, respectively.
Though we continue to focus on expanding our commercial banking
operation, it was not a significant source of revenues for the
year ended December 31, 2002.



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

The excess cash flows generated by contracts sold
to each of the securitization trusts is deposited into spread
accounts in the name of the trustee under the terms of the
securitizations treated as sales. In addition, at the time a
securitization closes, we advance additional monies to our
subsidiary that originated the securitization trust to initially
fund these spread accounts. As these spread accounts reach the
balances required by the trust, excess amounts are released to
us and are used to pay down these amounts. The amounts due from
trusts represent initial advances made to spread accounts and
excess cash flows that are still under obligation to be held in
the spread accounts for securitizations treated as sales. The
amounts due from trusts at December 31, 2002 was
$101 million compared with $136 million at
December 31, 2001. The decrease is the result of a
reduction in the outstanding amount of securitizations treated
as sales for accounting purposes. Amounts due from trusts is
expected to continue to decline in 2003.



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

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

The following table sets forth the components of
the RISA:

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



---



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

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

|                                 |  |                                 |        |      |  |      |        |  |  |   |         | 
|-------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|                                 |  |                                
|                                 |  | For the Year Ended December 31,
|                                 |  |                                
|                                 |  | 2002                            |        | 2001 |  | 2000
|                                 |  |                                 |        |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  |                                 |        |      |  |      |        |  |  | $ | 660,000 | 
|Excess cash flows from trusts    |  | $                               | 6,971  |      |  | $    | 47,357 |  |  |   | 127,294 | 
|Servicing fees received          |  |                                 | 10,735 |      |  |      | 23,018 |  |  |   | 41,767  | 
|Servicing advances               |  |                                 | 18,547 |      |  |      | 20,203 |  |  |   | 38,060  | 
|Repayments on servicing advances |  |                                 | 17,585 |      |  |      | 23,893 |  |  |   | 49,531  | 

47



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##### Table of Contents



The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$35.2 million and $67.4 million at December 31,
2002 and 2001, respectively. Net chargeoffs for these
securitization trusts totaled $30.4 million,
$50.4 million and $75.5 million for the years ended
December 31, 2002, 2001 and 2000, respectively.



| |              
| | -------------
| | Asset Quality



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

Nonperforming assets, repossessions, loan
delinquency and credit losses are considered by us as key
measures of asset quality. Asset quality, in turn, affects our
determination of the allowance for credit losses. We also take
into consideration general economic conditions in the markets we
serve, individual loan reviews, and the level of assets relative
to reserves in determining the adequacy of the allowance for
credit losses. See Business  Underwriting and
Purchasing of Contracts;  Servicing of
Contracts.



| |                            
| | ---------------------------
| | Automobile Contract Quality

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  Automobile Lending.

At December 31, 2002, the percentage of
managed accounts delinquent 30 days or greater was 3.50%
compared with 3.72% at December 31, 2001 and 3.18% at
December 31, 2000. We calculate delinquency based on the
contractual due date. Net chargeoffs on average contracts
managed for the year ended December 31, 2002 were 2.77%
compared with 2.27% and 1.91% for the years ended
December 31, 2001 and 2000, respectively. The increase in
delinquency and credit loss experience is primarily a result of
a slowing economy.

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

|                                                                                      |                 |                        |           |         |  |        |      |      |   |        |           |         |  |  |      |      |   |   |           |         |  |  |      |      |  
|------------------------------------------------------------------------------------- | --------------- | ---------------------- | --------- | ------- |  | ------ | ---- | ---- | - | ------ | --------- | ------- |  |  | ---- | ---- | - | - | --------- | ------- |  |  | ---- | ---- | -
|                                                                                      |                 |                       
|                                                                                      |                 | December 31,          
|                                                                                      |                 |                       
|                                                                                      |                 |                        |           |         |  |       
|                                                                                      |                 | 2002                   |           | 2001    |  | 2000  
|                                                                                      |                 |                        |           |         |  |       
|                                                                                      |                 | Amount                 |           | %       |  | Amount |      | %    |   | Amount |           | %      
|                                                                                      |                 |                        |           |         |  |        |      |      |   |        |           |        
|                                                                                      |                 |                       
|                                                                                      |                 | (Dollars in thousands)
|Contracts managed                                                                     |                 | $                      | 9,389,974 |         |  |        |      |      |   | $      | 8,152,882 |         |  |  |      |      |   | $ | 6,818,182 |         |  |  |      |     
|                                                                                      |                 |                        |           |         |  |        |      |      |   |        |           |         |  |  |      |      |   |   |           |         |  |  |      |     
|Period of delinquency:                                                                |                 |                        |           |         |  |        |      |      |   |        |           |         |  |  |      |      |   |   |           |         |  |  |      |     
|                                                                                      | 30-59 days      |                        | $         | 238,204 |  |        |      | 2.54 | % |        | $         | 217,873 |  |  |      | 2.67 | % |   | $         | 157,843 |  |  |      | 2.32 | %
|                                                                                      | 60 days or more |                        |           | 90,291  |  |        |      | 0.96 |   |        |           | 85,290  |  |  |      | 1.05 |   |   |           | 59,166  |  |  |      | 0.86 |  
|                                                                                      |                 |                        |           |         |  |        |      |      |   |        |           |         |  |  |      |      |   |   |           |         |  |  |      |     
|Total contracts delinquent and delinquencies as a
    percentage of contracts managed |                 | $                      | 328,495   |         |  |        | 3.50 | %    |   | $      | 303,163   |         |  |  | 3.72 | %    |   | $ | 217,009   |         |  |  | 3.18 | %   
|                                                                                      |                 |                        |           |         |  |        |      |      |   |        |           |         |  |  |      |      |   |   |           |         |  |  |      |     

48



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##### Table of Contents



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

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

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

|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|----------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                              |  |                                
|                                                                              |  | For the Year Ended December 31,
|                                                                              |  |                                
|                                                                              |  | 2002                            |           | 2001 |  | 2000
|                                                                              |  |                                 |           |      |  |     
|                                                                              |  |                                
|                                                                              |  | (Dollars in thousands)         
|Contracts managed at end of period                                            |  | $                               | 9,389,974 |      |  | $    | 8,152,882 |   |  | $ | 6,818,182 |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Average contracts managed during period                                       |  | $                               | 8,845,635 |      |  | $    | 7,576,681 |   |  | $ | 6,076,814 |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Gross chargeoffs                                                              |  | $                               | 327,161   |      |  | $    | 236,834   |   |  | $ | 165,937   |  
|Recoveries                                                                    |  |                                 | 82,372    |      |  |      | 64,626    |   |  |   | 49,697    |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs                                                                |  | $                               | 244,789   |      |  | $    | 172,208   |   |  | $ | 116,240   |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs as a percentage of average
    contracts managed during period |  |                                 | 2.77      | %    |  |      | 2.27      | % |  |   | 1.91      | %
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  

49



---



##### Table of Contents



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

Cumulative Static Pool Loss Curves

At December 31, 2002


|           |              |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|---------- | ------------ | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|          
|          
|Period (1) |              | 1998-B |  | 1998-C |      | 1999-A |  | 1999-B |      | 1999-C |  | 2000-A |      | 2000-B |  | 2000-C |      | 2000-D |  | 2001-A |      | 2001-B |  | 2001-C |      | 2002-1 |  | 2002-2 |      | 2002-3 |  | 2002-4
|          
|          
|           | 1            |        |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | %      |  |        | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
|           | 2            |        |  |        | 0.02 |        |  |        | 0.04 |        |  |        | 0.04 |        |  |        | 0.04 |        |  |        | 0.02 |        |  |        | 0.03 |        |  |        | 0.02 |        |  |        | 0.04 |   |  |  | 0.04 |   |  |  | 0.03 |   |  |  | 0.03 |   |  |  | 0.04 |   |  |  | 0.01 |   |  |  | 0.00 |   |  |  | 0.02 |   |  |  | 0.02 |  
|           | 3            |        |  |        | 0.08 |        |  |        | 0.11 |        |  |        | 0.11 |        |  |        | 0.11 |        |  |        | 0.10 |        |  |        | 0.10 |        |  |        | 0.09 |        |  |        | 0.13 |   |  |  | 0.11 |   |  |  | 0.09 |   |  |  | 0.10 |   |  |  | 0.09 |   |  |  | 0.06 |   |  |  | 0.03 |   |  |  | 0.06 |   |  |  |      |  
|           | 4            |        |  |        | 0.18 |        |  |        | 0.23 |        |  |        | 0.20 |        |  |        | 0.26 |        |  |        | 0.25 |        |  |        | 0.20 |        |  |        | 0.24 |        |  |        | 0.27 |   |  |  | 0.24 |   |  |  | 0.20 |   |  |  | 0.21 |   |  |  | 0.20 |   |  |  | 0.15 |   |  |  | 0.10 |   |  |  | 0.14 |   |  |  |      |  
|           | 5            |        |  |        | 0.38 |        |  |        | 0.39 |        |  |        | 0.33 |        |  |        | 0.47 |        |  |        | 0.40 |        |  |        | 0.36 |        |  |        | 0.39 |        |  |        | 0.46 |   |  |  | 0.39 |   |  |  | 0.33 |   |  |  | 0.33 |   |  |  | 0.35 |   |  |  | 0.29 |   |  |  | 0.18 |   |  |  | 0.27 |   |  |  |      |  
|           | 6            |        |  |        | 0.59 |        |  |        | 0.50 |        |  |        | 0.46 |        |  |        | 0.66 |        |  |        | 0.56 |        |  |        | 0.55 |        |  |        | 0.59 |        |  |        | 0.65 |   |  |  | 0.54 |   |  |  | 0.50 |   |  |  | 0.50 |   |  |  | 0.49 |   |  |  | 0.43 |   |  |  | 0.32 |   |  |  |      |   |  |  |      |  
|           | 7            |        |  |        | 0.83 |        |  |        | 0.61 |        |  |        | 0.62 |        |  |        | 0.87 |        |  |        | 0.71 |        |  |        | 0.71 |        |  |        | 0.78 |        |  |        | 0.81 |   |  |  | 0.74 |   |  |  | 0.70 |   |  |  | 0.69 |   |  |  | 0.65 |   |  |  | 0.60 |   |  |  | 0.49 |   |  |  |      |   |  |  |      |  
|           | 8            |        |  |        | 1.03 |        |  |        | 0.75 |        |  |        | 0.76 |        |  |        | 1.00 |        |  |        | 0.86 |        |  |        | 0.91 |        |  |        | 0.99 |        |  |        | 0.93 |   |  |  | 0.93 |   |  |  | 0.84 |   |  |  | 0.87 |   |  |  | 0.81 |   |  |  | 0.84 |   |  |  | 0.66 |   |  |  |      |   |  |  |      |  
|           | 9            |        |  |        | 1.21 |        |  |        | 0.86 |        |  |        | 0.92 |        |  |        | 1.13 |        |  |        | 1.01 |        |  |        | 1.10 |        |  |        | 1.17 |        |  |        | 1.07 |   |  |  | 1.13 |   |  |  | 1.04 |   |  |  | 1.05 |   |  |  | 0.95 |   |  |  | 1.06 |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 10           |        |  |        | 1.40 |        |  |        | 1.00 |        |  |        | 1.11 |        |  |        | 1.24 |        |  |        | 1.14 |        |  |        | 1.27 |        |  |        | 1.33 |        |  |        | 1.24 |   |  |  | 1.34 |   |  |  | 1.24 |   |  |  | 1.22 |   |  |  | 1.07 |   |  |  | 1.28 |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 11           |        |  |        | 1.53 |        |  |        | 1.17 |        |  |        | 1.30 |        |  |        | 1.35 |        |  |        | 1.34 |        |  |        | 1.45 |        |  |        | 1.44 |        |  |        | 1.41 |   |  |  | 1.50 |   |  |  | 1.45 |   |  |  | 1.36 |   |  |  | 1.20 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 12           |        |  |        | 1.62 |        |  |        | 1.32 |        |  |        | 1.47 |        |  |        | 1.44 |        |  |        | 1.52 |        |  |        | 1.58 |        |  |        | 1.57 |        |  |        | 1.62 |   |  |  | 1.74 |   |  |  | 1.67 |   |  |  | 1.53 |   |  |  | 1.37 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 13           |        |  |        | 1.74 |        |  |        | 1.48 |        |  |        | 1.61 |        |  |        | 1.58 |        |  |        | 1.74 |        |  |        | 1.73 |        |  |        | 1.72 |        |  |        | 1.86 |   |  |  | 1.95 |   |  |  | 1.90 |   |  |  | 1.67 |   |  |  | 1.55 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 14           |        |  |        | 1.84 |        |  |        | 1.66 |        |  |        | 1.73 |        |  |        | 1.74 |        |  |        | 1.94 |        |  |        | 1.85 |        |  |        | 1.86 |        |  |        | 2.04 |   |  |  | 2.21 |   |  |  | 2.09 |   |  |  | 1.81 |   |  |  | 1.74 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 15           |        |  |        | 1.96 |        |  |        | 1.79 |        |  |        | 1.81 |        |  |        | 1.85 |        |  |        | 2.09 |        |  |        | 2.00 |        |  |        | 2.04 |        |  |        | 2.25 |   |  |  | 2.48 |   |  |  | 2.25 |   |  |  | 2.00 |   |  |  | 1.97 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 16           |        |  |        | 2.10 |        |  |        | 1.91 |        |  |        | 1.89 |        |  |        | 2.03 |        |  |        | 2.27 |        |  |        | 2.15 |        |  |        | 2.24 |        |  |        | 2.45 |   |  |  | 2.71 |   |  |  | 2.41 |   |  |  | 2.19 |   |  |  | 2.16 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 17           |        |  |        | 2.22 |        |  |        | 2.01 |        |  |        | 2.00 |        |  |        | 2.16 |        |  |        | 2.39 |        |  |        | 2.37 |        |  |        | 2.39 |        |  |        | 2.68 |   |  |  | 2.89 |   |  |  | 2.54 |   |  |  | 2.37 |   |  |  | 2.36 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 18           |        |  |        | 2.40 |        |  |        | 2.07 |        |  |        | 2.10 |        |  |        | 2.30 |        |  |        | 2.53 |        |  |        | 2.52 |        |  |        | 2.55 |        |  |        | 2.88 |   |  |  | 3.08 |   |  |  | 2.73 |   |  |  | 2.60 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 19           |        |  |        | 2.55 |        |  |        | 2.11 |        |  |        | 2.24 |        |  |        | 2.42 |        |  |        | 2.67 |        |  |        | 2.67 |        |  |        | 2.73 |        |  |        | 3.08 |   |  |  | 3.22 |   |  |  | 2.93 |   |  |  | 2.80 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 20           |        |  |        | 2.69 |        |  |        | 2.17 |        |  |        | 2.35 |        |  |        | 2.50 |        |  |        | 2.81 |        |  |        | 2.83 |        |  |        | 2.93 |        |  |        | 3.23 |   |  |  | 3.40 |   |  |  | 3.11 |   |  |  | 3.01 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 21           |        |  |        | 2.79 |        |  |        | 2.24 |        |  |        | 2.46 |        |  |        | 2.58 |        |  |        | 2.92 |        |  |        | 2.99 |        |  |        | 3.12 |        |  |        | 3.38 |   |  |  | 3.59 |   |  |  | 3.34 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 22           |        |  |        | 2.85 |        |  |        | 2.34 |        |  |        | 2.55 |        |  |        | 2.67 |        |  |        | 3.10 |        |  |        | 3.16 |        |  |        | 3.27 |        |  |        | 3.54 |   |  |  | 3.78 |   |  |  | 3.54 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 23           |        |  |        | 2.89 |        |  |        | 2.43 |        |  |        | 2.63 |        |  |        | 2.77 |        |  |        | 3.28 |        |  |        | 3.34 |        |  |        | 3.38 |        |  |        | 3.67 |   |  |  | 3.96 |   |  |  | 3.72 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 24           |        |  |        | 2.92 |        |  |        | 2.52 |        |  |        | 2.71 |        |  |        | 2.87 |        |  |        | 3.38 |        |  |        | 3.49 |        |  |        | 3.52 |        |  |        | 3.83 |   |  |  | 4.18 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 25           |        |  |        | 2.97 |        |  |        | 2.62 |        |  |        | 2.77 |        |  |        | 3.01 |        |  |        | 3.55 |        |  |        | 3.63 |        |  |        | 3.63 |        |  |        | 4.00 |   |  |  | 4.41 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 26           |        |  |        | 3.04 |        |  |        | 2.71 |        |  |        | 2.82 |        |  |        | 3.14 |        |  |        | 3.68 |        |  |        | 3.75 |        |  |        | 3.73 |        |  |        | 4.16 |   |  |  | 4.58 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 27           |        |  |        | 3.13 |        |  |        | 2.80 |        |  |        | 2.89 |        |  |        | 3.16 |        |  |        | 3.84 |        |  |        | 3.86 |        |  |        | 3.84 |        |  |        | 4.35 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 28           |        |  |        | 3.18 |        |  |        | 2.87 |        |  |        | 2.96 |        |  |        | 3.29 |        |  |        | 3.98 |        |  |        | 3.97 |        |  |        | 3.97 |        |  |        | 4.50 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 29           |        |  |        | 3.24 |        |  |        | 2.90 |        |  |        | 3.02 |        |  |        | 3.40 |        |  |        | 4.14 |        |  |        | 4.09 |        |  |        | 4.11 |        |  |        | 4.64 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 30           |        |  |        | 3.32 |        |  |        | 2.95 |        |  |        | 3.09 |        |  |        | 3.50 |        |  |        | 4.19 |        |  |        | 4.21 |        |  |        | 4.26 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 31           |        |  |        | 3.38 |        |  |        | 3.00 |        |  |        | 3.17 |        |  |        | 3.61 |        |  |        | 4.30 |        |  |        | 4.33 |        |  |        | 4.40 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 32           |        |  |        | 3.43 |        |  |        | 3.02 |        |  |        | 3.20 |        |  |        | 3.68 |        |  |        | 4.38 |        |  |        | 4.47 |        |  |        | 4.50 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 33           |        |  |        | 3.47 |        |  |        | 3.08 |        |  |        | 3.27 |        |  |        | 3.74 |        |  |        | 4.46 |        |  |        | 4.59 |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 34           |        |  |        | 3.48 |        |  |        | 3.14 |        |  |        | 3.35 |        |  |        | 3.81 |        |  |        | 4.57 |        |  |        | 4.68 |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 35           |        |  |        | 3.52 |        |  |        | 3.15 |        |  |        | 3.41 |        |  |        | 3.87 |        |  |        | 4.66 |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 36           |        |  |        | 3.54 |        |  |        | 3.21 |        |  |        | 3.47 |        |  |        | 3.91 |        |  |        | 4.76 |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 37           |        |  |        | 3.58 |        |  |        | 3.25 |        |  |        | 3.52 |        |  |        | 3.97 |        |  |        | 4.84 |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 38           |        |  |        | 3.63 |        |  |        | 3.30 |        |  |        | 3.55 |        |  |        | 4.03 |        |  |        | 4.96 |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 39           |        |  |        | 3.66 |        |  |        | 3.35 |        |  |        | 3.58 |        |  |        | 4.09 |        |  |        | 5.03 |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 40           |        |  |        | 3.65 |        |  |        | 3.39 |        |  |        | 3.61 |        |  |        | 4.13 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 41           |        |  |        | 3.69 |        |  |        | 3.39 |        |  |        | 3.63 |        |  |        | 4.18 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 42           |        |  |        | 3.73 |        |  |        | 3.42 |        |  |        | 3.66 |        |  |        | 4.23 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 43           |        |  |        | 3.75 |        |  |        | 3.45 |        |  |        | 3.68 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 44           |        |  |        | 3.79 |        |  |        | 3.47 |        |  |        | 3.72 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 45           |        |  |        | 3.81 |        |  |        | 3.48 |        |  |        | 3.75 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 46           |        |  |        | 3.81 |        |  |        | 3.50 |        |  |        | 3.79 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 47           |        |  |        | 3.83 |        |  |        | 3.52 |        |  |        | 3.80 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 48           |        |  |        | 3.84 |        |  |        | 3.56 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 49           |        |  |        | 3.85 |        |  |        | 3.58 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 50           |        |  |        | 3.86 |        |  |        | 3.60 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 51           |        |  |        | 3.87 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 52           |        |  |        | 3.88 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 53           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 54           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | 55           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|           | Prime Mix(2) |        |  |        | 67   | %      |  |        | 70   | %      |  |        | 70   | %      |  |        | 70   | %      |  |        | 67   | %      |  |        | 68   | %      |  |        | 69   | %      |  |        | 68   | % |  |  | 68   | % |  |  | 71   | % |  |  | 71   | % |  |  | 76   | % |  |  | 70   | % |  |  | 87   | % |  |  | 85   | % |  |  | 80   | %



---



|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(1) | Represents the number of months since the
    inception of the securitization.        
|   
|(2) | Represents the original percentage of prime
    contracts securitized within each pool

50



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Real Estate Loan Quality

Our only category of mortgage delinquencies over
60 days was single family mortgages. We had
$3.8 million mortgage loans, or 1.32% of total mortgage
loans, past due over 60 days at December 31, 2002
compared with $7.0 million, or 1.85% of total mortgage
loans, at December 31, 2001.

Nonperforming Assets

Nonperforming assets, also known as NPAs, consist
of nonperforming loans, also known as NPLs, Chapter 13
bankruptcy accounts greater than 120 days delinquent,
repossessed automobiles, and real estate owned, also known as
REO. For those accounts that are in Chapter 13 bankruptcy
and are contractually past due greater than 120 days, all
accrued interest is reversed and income is recognized on a cash
basis. REO is carried at lower of cost or fair value. NPLs are
defined as all nonaccrual loans. This includes mortgage loans
90 days or more past due and impaired loans where full
collection of principal and interest is not reasonably assured.
NPAs increased $16.2 million to $44.5 million at
December 31, 2002 compared with $28.3 million at
December 31, 2001. At December 31, 2002, NPAs
represented 0.4% of total assets compared with 0.3% at
December 31, 2001. There were no impaired loans at either
December 31, 2002 or 2001.

When a loan is designated as nonaccrual, all
previously accrued but unpaid interest is reversed. For the
years ended December 31, 2002, 2001 and 2000, interest on
nonperforming loans excluded from interest income totaled
$0.4 million, $0.6 million and $0.5 million,
respectively.

Allowance For Credit Losses

Our allowance for credit losses was
$259 million at December 31, 2002 compared with
$171 million at December 31, 2001. We have increased
our percentage of allowance for credit losses from 2.3% at
December 31, 2001 to 2.8% at December 31, 2002 as we
have experienced higher losses in our owned contract portfolio
due to a slowing economy. We reduced our reserves for
multifamily loans due to a decline in the portfolio, fewer
foreclosures and higher real estate values. Based on the
analysis we performed related to the allowance for credit losses
as described under Critical Accounting Policies, we believe that
our allowance for credit losses is currently adequate to cover
probable losses in our loan portfolio that can be reasonable
estimated.

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

|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |         |  
|-------------------------------------------------------------------------------------- | -------------- | ------------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                       |                |                                
|                                                                                       |                | For the Year Ended December 31,
|                                                                                       |                |                                
|                                                                                       |                | 2002                            |          | 2001     |   | 2000 |          | 1999     |   | 1998
|                                                                                       |                |                                 |          |          |   |      |          |          |   |     
|                                                                                       |                |                                
|                                                                                       |                | (Dollars in thousands)         
|Balance at beginning of period                                                         |                | $                               | 171,432  |          |   | $    | 104,006  |          |   | $    | 64,217  |         |   | $ | 37,660  |         |   | $ | 33,834  |        
|Chargeoffs:                                                                            |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|                                                                                       | Commercial     |                                 |          | (511     | ) |      |          |          |   |      |         |         |   |   |         |         |   |   |         |         |  
|                                                                                       | Mortgage loans |                                 |          | (260     | ) |      |          | (1,024   | ) |      |         | (1,234  | ) |   |         | (1,230  | ) |   |         | (4,820  | )
|                                                                                       | Consumer loans |                                 |          | (280,379 | ) |      |          | (162,878 | ) |      |         | (55,892 | ) |   |         | (20,052 | ) |   |         | (14,885 | )
|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|                                                                                       |                |                                 | (281,150 | )        |   |      | (163,902 | )        |   |      | (57,126 | )       |   |   | (21,282 | )       |   |   | (19,705 | )      
|Recoveries:                                                                            |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|                                                                                       | Mortgage loans |                                 |          |          |   |      |          | 17       |   |      |         | 51      |   |   |         | 1,847   |   |   |         | 427     |  
|                                                                                       | Consumer loans |                                 |          | 66,050   |   |      |          | 41,120   |   |      |         | 14,731  |   |   |         | 7,592   |   |   |         | 4,144   |  
|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|                                                                                       |                |                                 | 66,050   |          |   |      | 41,137   |          |   |      | 14,782  |         |   |   | 9,439   |         |   |   | 4,571   |        
|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|Net chargeoffs                                                                         |                |                                 | (215,100 | )        |   |      | (122,765 | )        |   |      | (42,344 | )       |   |   | (11,843 | )       |   |   | (15,134 | )      
|Write-down of non-performing assets(1)                                                 |                |                                 | (3,673   | )        |   |      | (6,786   | )        |   |      |         |         |   |   |         |         |   |   |         |        
|Provision for credit losses                                                            |                |                                 | 306,233  |          |   |      | 196,977  |          |   |      | 82,133  |         |   |   | 38,400  |         |   |   | 18,960  |        
|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|Balance at end of period                                                               |                | $                               | 258,892  |          |   | $    | 171,432  |          |   | $    | 104,006 |         |   | $ | 64,217  |         |   | $ | 37,660  |        
|                                                                                       |                |                                 |          |          |   |      |          |          |   |      |         |         |   |   |         |         |   |   |         |        
|Ratio of allowance for credit losses to loans at
    the end of the period             |                |                                 | 2.8      | %        |   |      | 2.3      | %        |   |      | 2.1     | %       |   |   | 2.9     | %       |   |   | 1.9     | %      
|Ratio of net chargeoffs during the period to
    average loans owned during the period |                |                                 | 2.6      | %        |   |      | 2.0      | %        |   |      | 1.3     | %       |   |   | 0.7     | %       |   |   | 0.8     | %      



---



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

The allowance for credit losses by loan category
was as follows:

|                          |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  
|------------------------- |  | ---------------------- | --------- | --------- |  | --------- | ----- | --------- |  | -------- | ------- | --------- |  | --------- | --- | --------- |  | - | --------- |  |  |  | ----- | - |  | - | ------- |  |  |  | --- | -
|                          |  |                       
|                          |  | December 31,          
|                          |  |                       
|                          |  |                        |           |          
|                          |  | 2002                   |           | 2001     
|                          |  |                        |           |          
|                          |  |                        |           | Loans in  |  |           |       |           |  | Loans in |         |          
|                          |  |                        |           | Each      |  |           |       |           |  | Each     |         |          
|                          |  |                        |           | Category  |  |           |       |           |  | Category |         |          
|                          |  |                        |           | as a % of |  |           |       | Allowance |  |          |         | as a % of |  |           |     | Allowance
|                          |  | Loan                   |           | Total     |  |           |       | as a % of |  | Loan     |         | Total     |  |           |     | as a % of
|                          |  | Balance                |           | Loans     |  | Allowance |       | Loans     |  | Balance  |         | Loans     |  | Allowance |     | Loans    
|                          |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |          
|                          |  |                       
|                          |  | (Dollars in thousands)
|Consumer loans            |  | $                      | 9,027,638 |           |  |           | 96.0  | %         |  | $        | 250,042 |           |  |           | 2.8 | %         |  | $ | 7,074,383 |  |  |  | 93.9  | % |  | $ | 160,772 |  |  |  | 2.3 | %
|Single family residential |  |                        | 98,635    |           |  |           | 1.0   |           |  |          | 3,912   |           |  |           | 4.0 |           |  |   | 151,540   |  |  |  | 2.1   |   |  |   | 4,422   |  |  |  | 2.9 |  
|Multifamily residential   |  |                        | 184,295   |           |  |           | 2.0   |           |  |          | 1,860   |           |  |           | 1.0 |           |  |   | 221,915   |  |  |  | 2.9   |   |  |   | 3,060   |  |  |  | 1.4 |  
|Commercial loans          |  |                        | 97,216    |           |  |           | 1.0   |           |  |          | 3,078   |           |  |           | 3.2 |           |  |   | 85,312    |  |  |  | 1.1   |   |  |   | 3,178   |  |  |  | 3.7 |  
|                          |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  
|                          |  | $                      | 9,407,784 |           |  |           | 100.0 | %         |  | $        | 258,892 |           |  |           | 2.8 | %         |  | $ | 7,533,150 |  |  |  | 100.0 | % |  | $ | 171,432 |  |  |  | 2.3 | %
|                          |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  

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|                             |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |        |  |  |  |      |  
|---------------------------- |  | ---------------------- | --------- | --------- |  | --------- | ----- | --------- |  | -------- | ------- | --------- |  | --------- | --- | --------- |  | - | --------- |  |  |  | ----- | - |  | - | ------ |  |  |  | ---- | -
|                             |  |                       
|                             |  | December 31,          
|                             |  |                       
|                             |  |                        |           |          
|                             |  | 2000                   |           | 1999     
|                             |  |                        |           |          
|                             |  |                        |           | Loans in  |  |           |       |           |  | Loans in |         |          
|                             |  |                        |           | Each      |  |           |       |           |  | Each     |         |          
|                             |  |                        |           | Category  |  |           |       |           |  | Category |         |          
|                             |  |                        |           | as a % of |  |           |       | Allowance |  |          |         | as a % of |  |           |     | Allowance
|                             |  |                        |           | Total     |  |           |       | as a % of |  | Loan     |         | Total     |  |           |     | as a % of
|                             |  | Loan Balance           |           | Loans     |  | Allowance |       | Loans     |  | Balance  |         | Loans     |  | Allowance |     | Loans    
|                             |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |          
|                             |  |                       
|                             |  | (Dollars in thousands)
|Consumer loans held for sale |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  | $ | 1,432,644 |  |  |  | 65.7  | % |  | $ | 31,936 |  |  |  | 2.2  | %
|Consumer loans               |  | $                      | 4,309,036 |           |  |           | 87.6  | %         |  | $        | 83,501  |           |  |           | 1.9 | %         |  |   | 84,025    |  |  |  | 3.8   |   |  |   | 8,403  |  |  |  | 10.0 |  
|Single family residential    |  |                        | 230,854   |           |  |           | 4.7   |           |  |          | 8,969   |           |  |           | 3.9 |           |  |   | 285,203   |  |  |  | 13.1  |   |  |   | 7,265  |  |  |  | 2.6  |  
|Multifamily residential      |  |                        | 276,577   |           |  |           | 5.6   |           |  |          | 7,510   |           |  |           | 2.7 |           |  |   | 313,099   |  |  |  | 14.3  |   |  |   | 13,760 |  |  |  | 4.4  |  
|Commercial loans             |  |                        | 107,586   |           |  |           | 2.1   |           |  |          | 4,026   |           |  |           | 3.7 |           |  |   | 66,927    |  |  |  | 3.1   |   |  |   | 2,853  |  |  |  | 4.3  |  
|                             |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |        |  |  |  |      |  
|                             |  | $                      | 4,924,053 |           |  |           | 100.0 | %         |  | $        | 104,006 |           |  |           | 2.1 | %         |  | $ | 2,181,898 |  |  |  | 100.0 | % |  | $ | 64,217 |  |  |  | 2.9  | %
|                             |  |                        |           |           |  |           |       |           |  |          |         |           |  |           |     |           |  |   |           |  |  |  |       |   |  |   |        |  |  |  |      |  

|                             |  |                        |           |             |  |           |       |           |  |   |        |  |  |  |      |  
|---------------------------- |  | ---------------------- | --------- | ----------- |  | --------- | ----- | --------- |  | - | ------ |  |  |  | ---- | -
|                             |  |                       
|                             |  | December 31, 1998     
|                             |  |                       
|                             |  |                        |           | Loans in    |  |          
|                             |  |                        |           | Each        |  |          
|                             |  |                        |           | Category as |  |           |       | Allowance
|                             |  |                        |           | a % of      |  |           |       | as a % of
|                             |  | Loan Balance           |           | Total Loans |  | Allowance |       | Loans    
|                             |  |                        |           |             |  |           |       |          
|                             |  |                       
|                             |  | (Dollars in thousands)
|Consumer loans held for sale |  | $                      | 856,871   |             |  |           | 43.0  | %         |  | $ | 6,357  |  |  |  | 0.7  | %
|Consumer loans               |  |                        | 76,139    |             |  |           | 3.8   |           |  |   | 7,614  |  |  |  | 10.0 |  
|Single family residential    |  |                        | 647,376   |             |  |           | 32.4  |           |  |   | 5,881  |  |  |  | 0.9  |  
|Multifamily residential      |  |                        | 359,557   |             |  |           | 18.0  |           |  |   | 15,467 |  |  |  | 4.3  |  
|Commercial loans             |  |                        | 52,940    |             |  |           | 2.8   |           |  |   | 2,341  |  |  |  | 4.4  |  
|                             |  |                        |           |             |  |           |       |           |  |   |        |  |  |  |      |  
|                             |  | $                      | 1,992,883 |             |  |           | 100.0 | %         |  | $ | 37,660 |  |  |  | 1.9  | %
|                             |  |                        |           |             |  |           |       |           |  |   |        |  |  |  |      |  

53



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The following table presents summarized data
relative to the allowances for loan and real estate losses at
the dates indicated:

|                                                                                             |                                |                        |           |         |   |      |           |         |   |      |           |         |   |   |           |       |   |   |           |       |  
|-------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------- | --------- | ------- | - | ---- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ----- | - | - | --------- | ----- | -
|                                                                                             |                                |                       
|                                                                                             |                                | At December 31,       
|                                                                                             |                                |                       
|                                                                                             |                                | 2002                   |           | 2001    |   | 2000 |           | 1999    |   | 1998
|                                                                                             |                                |                        |           |         |   |      |           |         |   |     
|                                                                                             |                                |                       
|                                                                                             |                                | (Dollars in thousands)
|Total loans(1)                                                                               |                                | $                      | 9,407,784 |         |   | $    | 7,533,150 |         |   | $    | 4,924,053 |         |   | $ | 2,181,898 |       |   | $ | 1,992,833 |      
|Allowance for credit losses                                                                  |                                |                        | 258,892   |         |   |      | 171,432   |         |   |      | 104,006   |         |   |   | 64,217    |       |   |   | 37,660    |      
|Allowance for real estate owned losses                                                       |                                |                        | 250       |         |   |      | 250       |         |   |      | 250       |         |   |   | 784       |       |   |   | 784       |      
|Loans past due 60 days or more                                                               |                                |                        | 86,199    |         |   |      | 74,851    |         |   |      | 37,911    |         |   |   | 17,514    |       |   |   | 16,365    |      
|Nonperforming loans(2)                                                                       |                                |                        | 3,115     |         |   |      | 6,772     |         |   |      | 9,132     |         |   |   | 11,279    |       |   |   | 12,227    |      
|Nonperforming assets(3)                                                                      |                                |                        | 44,463    |         |   |      | 28,341    |         |   |      | 14,683    |         |   |   | 14,034    |       |   |   | 18,088    |      
|Allowance for credit losses as a percentage of:                                              |                                |                        |           |         |   |      |           |         |   |      |           |         |   |   |           |       |   |   |           |      
|                                                                                             | Total loans                    |                        |           | 2.8     | % |      |           | 2.3     | % |      |           | 2.1     | % |   |           | 2.9   | % |   |           | 1.9   | %
|                                                                                             | Loans past due 60 days or more |                        |           | 300.3   | % |      |           | 229.0   | % |      |           | 274.3   | % |   |           | 366.7 | % |   |           | 230.1 | %
|                                                                                             | Nonperforming loans            |                        |           | 8,311.1 | % |      |           | 2,531.5 | % |      |           | 1,138.9 | % |   |           | 569.4 | % |   |           | 308.0 | %
|Total allowance for credit losses and REO losses
    as a percentage of nonperforming assets |                                |                        | 582.8     | %       |   |      | 605.8     | %       |   |      | 710.0     | %       |   |   | 463.2     | %     |   |   | 212.5     | %    
|Nonperforming loans as a percentage of total loans                                           |                                |                        | 0.0       | %       |   |      | 0.1       | %       |   |      | 0.2       | %       |   |   | 0.5       | %     |   |   | 0.6       | %    
|Nonperforming assets as a percentage of total
    assets                                     |                                |                        | 0.4       | %       |   |      | 0.3       | %       |   |      | 0.2       | %       |   |   | 0.3       | %     |   |   | 0.5       | %    



---



|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Loans net of unearned interest and undisbursed
    loan proceeds.                                                                           
|   
|(2) | All nonperforming loans are on nonaccrual.                                                                                                  
|   
|(3) | Nonperforming loans, Chapter 13 bankruptcy
    accounts greater than 120 days delinquent, repossessed
    automobiles and real estate owned.

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Capital Resources and Liquidity

Overview

We require substantial capital resources and cash
to support our business. Our ability to maintain positive cash
flows from operations is the result of our consistent managed
growth, our ability to manage risk-adjusted returns and our
efficient operations.

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

|                                         |  |                                 |          |      |  |      |          |  |  |  |          | 
|---------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- |  |  |  | -------- | 
|                                         |  |                                
|                                         |  | For the Year Ended December 31,
|                                         |  |                                
|                                         |  | 2002                            |          | 2001 |  | 2000
|                                         |  |                                 |          |      |  |     
|                                         |  |                                
|                                         |  | (Dollars in thousands)         
|Cash flows from owned loans              |  |                                 | $449,638 |      |  |      | $364,438 |  |  |  | $197,527 | 
|Cash flows from off balance sheet trusts |  |                                 | 6,971    |      |  |      | 47,357   |  |  |  | 127,294  | 
|Contractual servicing income             |  |                                 | 10,734   |      |  |      | 23,018   |  |  |  | 41,767   | 
|Fee income                               |  |                                 | 87,277   |      |  |      | 72,820   |  |  |  | 61,772   | 
|Less:                                    |  |                                 |          |      |  |      |          |  |  |  |          | 
|Dealer participation                     |  |                                 | 129,272  |      |  |      | 120,785  |  |  |  | 100,300  | 
|Operating costs                          |  |                                 | 210,165  |      |  |      | 207,603  |  |  |  | 186,781  | 
|                                         |  |                                 |          |      |  |      |          |  |  |  |          | 
|Operating cash flows                     |  |                                 | $215,183 |      |  |      | $179,245 |  |  |  | $141,279 | 
|                                         |  |                                 |          |      |  |      |          |  |  |  |          | 

Operating cash flows from automobile lending
operations improved 20% for 2002 compared with 2001 and 27% for
2001 compared with 2000 as a result of the growth in our managed
portfolio as well as improved operating efficiencies.

Principal Sources of Cash

We employ various sources to fund our operations,
including collections of principal and interest from loans,
deposits, securitizations, commercial paper, advances from the
FHLB, repurchase agreements, subordinated debentures and other
borrowings. The sources used vary depending on such factors as
rates paid, maturities, and the impact on capital.

Collections of Principal and Interest from
Loans

Our primary source of funds is the collection of
principal and interest from contracts originated and
securitized, to the extent that the transaction is an on balance
sheet transaction. These monies are deposited into collection
accounts established in connection with each securitization, or
into our accounts for non-securitized contracts. Pursuant to
reinvestment contracts entered into in connection with most
securitizations, we receive access to the amounts deposited into
collection accounts and amounts held in the spread accounts. We
use those amounts so received in our daily operations to fund
the purchase of contracts or to cover the day to day costs of
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.

55



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##### Table of Contents



For real estate loans and MBS, principal and
interest are deposited into our own accounts and such amounts
are also used in our daily operations. Total loan and MBS
principal and interest collections totaled $7.5 billion,
$6.4 billion and $4.6 billion for the years ended
December 31, 2002, 2001 and 2000, respectively. The
increase in principal and interest collections is due to an
increase in the amount of contracts managed and MBS held by us.

Deposits

We attract both short-term and long-term deposits
from the general public, commercial enterprises and institutions
by offering a variety of accounts and rates. We offer regular
passbook accounts, demand deposit accounts, money market
accounts, certificate of deposit accounts and individual
retirement accounts. Our retail banking division gathers
deposits from 18 retail branch locations throughout Southern
California. Our commercial banking division gathers deposits by
establishing commercial relationships with businesses located
throughout Southern California.

The following table sets forth the amount of our
deposits by type at the dates indicated:

|                      |                                      |                        |           |         |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |           | 
|--------------------- | ------------------------------------ | ---------------------- | --------- | ------- |  | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                      |                                      |                       
|                      |                                      | December 31,          
|                      |                                      |                       
|                      |                                      | 2002                   |           | 2001    |  | 2000 |           | 1999      |  | 1998
|                      |                                      |                        |           |         |  |      |           |           |  |     
|                      |                                      |                       
|                      |                                      | (Dollars in thousands)
|No minimum term:      |                                      |                        |           |         |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                      | Demand deposit accounts              |                        | $         | 1,037   |  |      | $         | 1,124     |  |      | $         | 8,229     |  |   | $         | 60,365    |  |   | $         | 38,511    | 
|                      | Passbook accounts                    |                        |           | 6,688   |  |      |           | 11,192    |  |      |           | 11,768    |  |   |           | 13,789    |  |   |           | 15,412    | 
|                      | Money market accounts                |                        |           | 730,245 |  |      |           | 858,371   |  |      |           | 810,169   |  |   |           | 574,589   |  |   |           | 320,160   | 
|                      | Noninterest bearing deposits         |                        |           | 165,844 |  |      |           | 100,170   |  |      |           | 67,984    |  |   |           | 47,770    |  |   |           | 75,240    | 
|Certificate accounts: |                                      |                        |           |         |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                      | Certificates (30 days to five years) |                        |           | 878,096 |  |      |           | 1,154,917 |  |      |           | 1,414,956 |  |   |           | 1,311,916 |  |   |           | 1,461,539 | 
|                      | Individual retirement accounts       |                        |           | 94,082  |  |      |           | 147,250   |  |      |           | 165,381   |  |   |           | 175,286   |  |   |           | 192,473   | 
|Brokered deposits     |                                      |                        | 98,992    |         |  |      | 56,302    |           |  |      |           |           |  |   | 28,594    |           |  |   | 75,400    |          
|                      |                                      |                        |           |         |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                      |                                      | $                      | 1,974,984 |         |  | $    | 2,329,326 |           |  | $    | 2,478,487 |           |  | $ | 2,212,309 |           |  | $ | 2,178,735 |          
|                      |                                      |                        |           |         |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          

The variety of deposits we offer has allowed us
to remain competitive in obtaining funds and provided us the
flexibility to respond to changes in customer demand and
competitive pressures. Generally, as other financial
institutions, we have become more subject to short-term
fluctuations in deposit flows as customers have become more
interest rate conscious. Our ability to attract and maintain
deposits and control our cost of funds has been, and will
continue to be, significantly affected by market conditions.

The following table summarizes our average
certificate and money market accounts outstanding:

|                                                        |  |                                 |           |      |  |      |           |   |  |   |           |  
|------------------------------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                        |  |                                
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2002                            |           | 2001 |  | 2000
|                                                        |  |                                 |           |      |  |     
|                                                        |  |                                
|                                                        |  | (Dollars in thousands)         
|Average certificate accounts outstanding                |  | $                               | 1,220,222 |      |  | $    | 1,441,256 |   |  | $ | 1,524,232 |  
|Average interest rate paid on certificate accounts      |  |                                 | 5.23      | %    |  |      | 5.82      | % |  |   | 5.96      | %
|Average money market accounts outstanding               |  | $                               | 748,814   |      |  | $    | 750,924   |   |  | $ | 788,603   |  
|Average interest rate paid on money market
    accounts |  |                                 | 1.97      | %    |  |      | 3.82      | % |  |   | 5.35      | %

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Deposit accounts, subject to certain FDIC
attribution rules, are insured by the FDIC up to
$100,000 per customer. Our maturities of certificate
accounts greater than or equal to $100,000 were as follows:

|                                     |  |                        |         |      |  |   |         | 
|------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | 
|                                     |  |                       
|                                     |  | December 31,          
|                                     |  |                       
|                                     |  | 2002                   |         | 2001
|                                     |  |                        |         |     
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|Three months or less                 |  | $                      | 1,970   |      |  | $ | 6,007   | 
|Over three months through six months |  |                        | 2,129   |      |  |   | 5,126   | 
|Over six months through one year     |  |                        | 180,374 |      |  |   | 237,831 | 
|Over one year through three years    |  |                        | 119,083 |      |  |   | 168,008 | 
|Over three years                     |  |                        | 1,726   |      |  |   | 9,522   | 
|                                     |  |                        |         |      |  |   |         | 
|                                     |  | $                      | 305,282 |      |  | $ | 426,494 | 
|                                     |  |                        |         |      |  |   |         | 



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

Our business depends on our ability to aggregate
and securitize contracts in the form of asset-backed securities.
These transactions generate cash proceeds that allow us to repay
amounts borrowed and to purchase additional contracts. Since
1985, we have securitized over $30 billion of automobile
receivables in 58 public offerings, making us the fourth largest
issuer of such securities in the nation. Changes in our
asset-backed securities program could materially adversely
affect our earnings or ability to purchase and resell contracts
on a timely basis. Such changes could include a:



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

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



| |                                          
| | -----------------------------------------
| | Borrowings and Other Sources of
    Funds

Our other sources of funds include commercial
paper, advances from the FHLB, sales of securities under
agreements to repurchase, other borrowings and cash generated
from operations. We select from among these funding alternatives
based on the timing and duration of our cash needs, as well as
the costs, maturities and other requirements of each funding
source.

The FHLB system functions in a reserve capacity
for savings institutions. As a member, we are required to own
capital stock in the FHLB and are authorized to apply for
advances from the FHLB on security of such stock and on certain
residential mortgage loans. The Bank has been pre-approved for
advances up to 25% of its assets, based on remaining
availability under credit facilities established by the Bank
with the FHLB, with 24 hours notice. Such borrowings may be
made pursuant to several different programs offered from time to
time by the FHLB. Additional funds are available subject to
additional collateral and other requirements. Each credit
program has its own interest rate, which may be fixed or
variable, and range of maturities. The FHLB prescribes the
acceptable uses to which advances pursuant to each program may
be put, as well as limitations on the sizes of advances and
repayment provisions.

Federal regulations have been promulgated which
connect CRA performance with access to long-term advances from
the FHLB to member institutions. The Bank received a
satisfactory rating in its most recent CRA
evaluation.

57



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##### Table of Contents





| |                                
| | -------------------------------
| | Subordinated Capital Debentures

In 1993, we issued $125 million of
8.5% subordinated capital debentures due in 2003. We
redeemed the subordinated debentures due in 2003 in July 2001.
In 1998 and 2002, we issued $150 million of 8.875% and
$300 million of 9.625% subordinated capital debentures
due in 2007 and 2012, respectively. At December 31, 2002,
$408 million was outstanding on the subordinated debentures
due in 2007 and 2012, gross of discounts and issue costs. In
addition to providing additional liquidity, the Bank is
permitted to include $380 million of these debentures in
supplementary capital for purposes of determining compliance
with risk-based capital requirements. See
Business  Supervision and
Regulation  Regulatory Capital Requirements.



| |                  
| | -----------------
| | Conduit Financing

We enter into secured conduit financing
transactions using a contract securitization structure for
short-term financing needs. For the years ended
December 31, 2002 and 2001, we issued $775 million and
$650 million, respectively, 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.



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

We completed rights offerings in March 2002 and
May 2001 in which we raised $51.3 million and
$61.0 million through the issuance of 3.3 million and
3.7 million additional common shares at a price of $15.75
and $16.25 per share, respectively. With the completion of
the March 2002 offering, our total number of common shares
issued and outstanding increased 9.1% to 39.1 million
shares at March 31, 2002, compared with an increase of 12%
to 35.7 million shares in May 2001.

WFS completed a rights offering in March 2002 and
May 2001 which raised a total of $110 million and
$116 million 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 WFS number of 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 by WFS 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. The net amount of proceeds received from WFS
and our rights offerings executed in March 2002 and May 2001
totaled $67.3 million and $80.6 million, respectively.
At December 31, 2002, the Bank owned 84% of WFS
common stock.



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

Cash flows from owned loans, trusts, servicing
income and other fee income less cash paid for dealer
participation and operating expenses represents our automobile
operating cash flows. We are able to use our automobile
operating cash flows as an additional source of cash. Automobile
operating cash flows were $215 million, $179 million
and $141 million for the years ended December 31,
2002, 2001 and 2000, respectively. Automobile operating cash
flows for 2002 have increased 52% since 2000 as a result in the
growth in our managed portfolio as well as improved operating
efficiencies.



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



| |                                                   
| | --------------------------------------------------
| | Acquisition of Loans and Investment
    Securities

Our most significant use of cash is for the
acquisition of contracts, MBS and other investment securities.
During 2002, loan originations totaled $5.8 billion
compared with $5.2 billion and $4.5 billion in 2001
and 2000, respectively. We purchased $1.6 billion of MBS
and other investment securities during 2002 compared with
$1.2 billion and $963 million during 2001 and 2000,
respectively.

58



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##### Table of Contents





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

Under the terms of our reinvestment contract, we
fund quarterly payments of interest and principal to security
holders derived from the cash flows received on the securitized
contracts that we service. Payments of principal and interest to
security holders totaled $5.6 billion during 2002 compared
with $3.7 billion and $2.7 billion during 2001 and
2000, respectively. Payments of principal and interest have
increased as a result of an increase in the amount of automobile
asset-backed securities outstanding.



| |                        
| | -----------------------
| | 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 2002
totaled $129 million compared with $121 million and
$100 million in 2001 and 2000, respectively. Typically, the
acquisition of prime quality contracts higher up the prime
credit quality spectrum requires a higher amount of
participation paid to the dealer due to increased level of
competition for such contracts. The amount of participation paid
to dealers increased primarily as a result of an increase in the
amount of contracts purchased.



| |                         
| | ------------------------
| | Advances Due to Servicer

As the servicer of securitized contracts, we
periodically make advances to the securitization trusts to
provide for temporary delays in the receipt of required payments
by borrowers in accordance with servicing agreements. We receive
reimbursement of these advances through payments from the
obligors on the contracts or from the trustee at the time a
contract liquidates.



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

Our largest operating expenditure is salaries and
benefits paid to our associates. Other amounts include occupancy
costs, costs associated with collection and repossession,
telephone and data processing costs. We also use substantial
amounts of cash in capital expenditures for automation and new
technologies to remain competitive and to become more efficient.
See Business  Our Business Strategy 
Create Operating Efficiencies Through Technology and Best
Practices.



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

The Bank is a federally chartered savings bank.
As such, it 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. In order to be considered well
capitalized, an institution must have a total risk-based
capital ratio of 10.0% or greater, a tier 1 risk-based
capital ratio of 6.0% or greater, a core capital ratio of 5.0%
or greater and not be subject to any OTS order. The Bank
currently meets all of the requirements of a well
capitalized institution. See Supervision and
Regulation  Regulatory Capital Requirements.

59



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##### Table of Contents



The following table summarizes the Banks
actual capital and required capital as of December 31, 2002
and 2001:

|                                          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |           |  
|----------------------------------------- | ------------- | ---------------------- | - | ------- | - | ---------- | - | ---------- | - |  | - | ------- | - |  | - | --------- | -
|                                          |               |                        |   |         |   | Tier 1     |   |           
|                                          |               | Tangible               |   | Core    |   | Risk-Based |   | Risk-Based
|                                          |               | Capital                |   | Capital |   | Capital    |   | Capital   
|                                          |               |                        |   |         |   |            |   |           
|                                          |               |                       
|                                          |               | (Dollars in thousands)
|December 31, 2002                         |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|Actual Capital:                           |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 728,631 |   |            | $ | 728,631    |   |  | $ | 655,142 |   |  | $ | 1,143,345 |  
|                                          | Capital ratio |                        |   | 6.43    | % |            |   | 6.43       | % |  |   | 7.67    | % |  |   | 13.38     | %
|FIRREA minimum required capital:          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 169,991 |   |            | $ | 339,981    |   |  |   | N/A     |   |  | $ | 683,481   |  
|                                          | Capital ratio |                        |   | 1.50    | % |            |   | 3.00       | % |  |   | N/A     |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 558,640 |   |            | $ | 388,650    |   |  |   | N/A     |   |  | $ | 459,864   |  
|FDICIA well capitalized required capital: |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        |   | N/A     |   |            | $ | 566,635    |   |  | $ | 512,611 |   |  | $ | 854,351   |  
|                                          | Capital ratio |                        |   | N/A     |   |            |   | 5.00       | % |  |   | 6.00    | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A     |   |            | $ | 161,996    |   |  | $ | 142,531 |   |  | $ | 288,994   |  
|December 31, 2001                         |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|Actual Capital:                           |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 602,491 |   |            | $ | 602,491    |   |  | $ | 602,491 |   |  | $ | 841,144   |  
|                                          | Capital ratio |                        |   | 7.29    | % |            |   | 7.29       | % |  |   | 8.49    | % |  |   | 11.86     | %
|FIRREA minimum required capital:          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 123,957 |   |            | $ | 247,915    |   |  |   | N/A     |   |  | $ | 567,523   |  
|                                          | Capital ratio |                        |   | 1.50    | % |            |   | 3.00       | % |  |   | N/A     |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 478,534 |   |            | $ | 354,576    |   |  |   | N/A     |   |  | $ | 273,621   |  
|FDICIA well capitalized required capital: |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        |   | N/A     |   |            | $ | 413,192    |   |  | $ | 425,642 |   |  | $ | 709,404   |  
|                                          | Capital ratio |                        |   | N/A     |   |            |   | 5.00       | % |  |   | 6.00    | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A     |   |            | $ | 189,299    |   |  | $ | 176,849 |   |  | $ | 131,740   |  

The following table reconciles the Banks
equity in accordance with GAAP to the Banks tangible, core
and risk-based capital:

|                                           |                                                  |                        |           |         |   |   |         |         |  
|------------------------------------------ | ------------------------------------------------ | ---------------------- | --------- | ------- | - | - | ------- | ------- | -
|                                           |                                                  |                       
|                                           |                                                  | December 31,          
|                                           |                                                  |                       
|                                           |                                                  | 2002                   |           | 2001   
|                                           |                                                  |                        |           |        
|                                           |                                                  |                       
|                                           |                                                  | (Dollars in thousands)
|Bank shareholders equity  GAAP
    basis |                                                  | $                      | 532,902   |         |   | $ | 472,132 |        
|                                           | Add: net unrealized losses                       |                        |           | 94,220  |   |   |         | 52,214  |  
|                                           | Add: minority interest in equity of subsidiaries |                        |           | 101,666 |   |   |         | 78,261  |  
|                                           | Less: non-permissible activities                 |                        |           | (157    | ) |   |         | (116    | )
|                                           |                                                  |                        |           |         |   |   |         |        
|Total tangible and core capital            |                                                  |                        | 728,631   |         |   |   | 602,491 |        
|Adjustments for risk-based capital:        |                                                  |                        |           |         |   |   |         |        
|                                           | Subordinated debentures(1)                       |                        |           | 380,314 |   |   |         | 149,554 |  
|                                           | General loan valuation allowance(2)              |                        |           | 107,889 |   |   |         | 89,099  |  
|                                           | Low-level recourse deduction                     |                        |           | (73,489 | ) |   |         |         |  
|                                           |                                                  |                        |           |         |   |   |         |        
|Risk-based capital                         |                                                  | $                      | 1,143,345 |         |   | $ | 841,144 |        
|                                           |                                                  |                        |           |         |   |   |         |        



---



|    |                                                
|--- | -----------------------------------------------
|(1) | Excludes capitalized discounts and issue costs.
|   
|(2) | Limited to 1.25% of risk-weighted assets.      

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Accounting Pronouncements

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

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations, also known as SFAS No. 143,
in which retirement obligations would be recorded as a liability
using the present value of the estimated cash flows and a
corresponding amount would be capitalized as part of the
assets carrying amount. The capitalized asset retirement
cost would be amortized to expense over the assets useful
life using a systematic and rational allocation method. The
estimate of the asset retirement obligation will change and have
to be revised over time. SFAS No. 143 is effective for
fiscal years beginning after September 15, 2002. If
applicable, an accounting change to adopt the standard would be
made as of the beginning of the companys 2003 fiscal year.
The adoption of SFAS No. 143 will not have a material
effect on our earnings or financial position.

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

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

In June 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, also known as
SFAS No. 146, in which liabilities for costs
associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liabilities are
incurred. SFAS No. 146 eliminated the recognition of
certain costs associated with exit or disposal activities that
were previously recognized as liabilities at a plan
(commitment) date under Emerging Issues Task

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Force Issue No. 94-3 that did not meet the
definition of a liability in FASB Concepts Statement No. 6,
Elements of Financial Statements. SFAS No. 146 is
effective for disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146
will not have a material effect on our earnings or financial
position.


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

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

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

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

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|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
    About Market Risk

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

The Asset/ Liability Committee closely monitors
interest rate and prepayment risks and recommends policies for
managing such risks. The primary measurement tool for evaluating
this risk is the use of interest rate shock analysis. This
analysis simulates the 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
rates changes plus the book value of non-interest rate sensitive
assets minus the book value of non-interest rate sensitive
liabilities. 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 following table summarizes our NPV
sensitivity analysis at December 31, 2002 based on guidance
from the OTS:

|                          |  |           |       |  
|------------------------- |  | --------- | ----- | -
|Changes in Interest Rates |  | NPV Ratio
|                          |  |          
|+100 basis points         |  |           | 10.44 | %
|Base case                 |  |           | 10.25 | %
|-100 basis points         |  |           | 10.38 | %

Another important measurement of our interest
rate risk is GAP analysis. GAP is defined as the
difference between the amount of interest sensitive assets that
reprice versus the amount of interest sensitive liabilities that
also reprice within a defined period of time. We have more
interest sensitive liabilities rather than assets repricing in
shorter term maturity buckets and more interest sensitive assets
rather than liabilities repricing in longer term maturity
buckets.

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The following table summarizes our maturity GAP
position:

|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |           |           |            | 
|-------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------- | ---------------------------------- | ----------- | ------- | --------- | ---------- | ---------- | ------- | --------- | ---------- | --------- | ------- | --------- | --------- | --------- | ----- | --------- | -------- | ------- | ----- | ------- | ------- | --------- | --------- | ---------- | 
|                                                                           |                                                   |                                                        
|                                                                           |                                                   | Interest Rate Sensitivity Analysis at December 31, 2002
|                                                                           |                                                   |                                                        
|                                                                           |                                                   | Within                                                  |                                    | 3 Months to |         | 1 Year to |            | 3 Years to |         | After     |            |          
|                                                                           |                                                   | 3 Months                                                |                                    | 1 Year      |         | 3 Years   |            | 5 Years    |         | 5 Years   |            | Total    
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |          
|                                                                           |                                                   |                                                        
|                                                                           |                                                   | (Dollars in thousands)                                 
|Interest earning assets:                                                   |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|                                                                           | Investment securities                             |                                                         | $                                  | 9,403       |         |           |            |            |         |           |            |           |         |           | $         | 516       |       |           | $        | 506     |       |         | $       | 10,425    |          
|                                                                           | Other investments                                 |                                                         |                                    | 58,804      |         |           | $          | 200        |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         | 59,004    |          
|                                                                           | Mortgage-backed securities                        |                                                         |                                    | 387,616     |         |           |            | 849,733    |         |           | $          | 999,334   |         |           |           | 287,247   |       |           |          | 125,727 |       |         |         | 2,649,657 |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|                                                                           |                                                   |                                                         | Total investments                  |             |         | 455,823   |            |            |         | 849,933   |            |           |         | 999,334   |           |           |       | 287,763   |          |         |       | 126,233 |         |           |           | 2,719,086  | 
|                                                                           | Consumer loans(1)                                 |                                                         |                                    | 611,776     |         |           |            | 2,401,421  |         |           |            | 4,370,498 |         |           |           | 1,594,352 |       |           |          | 49,593  |       |         |         | 9,027,640 |          
|                                                                           | Mortgage loans:                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |           |          
|                                                                           |                                                   | Adjustable rate(2)                                      |                                    |             | 216,886 |           |            |            | 37,816  |           |            |           |         |           |           |           |       |           |          |         |       |         |         |           | 254,702   |           
|                                                                           |                                                   | Fixed rate(2)                                           |                                    |             | 1,913   |           |            |            | 4,707   |           |            |           | 12,150  |           |           |           | 2,011 |           |          |         | 1,749 |         |         |           | 22,530    |           
|                                                                           | Construction loans(2)                             |                                                         |                                    | 5,697       |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         | 5,697     |          
|                                                                           | Commercial loans(2)                               |                                                         |                                    | 94,730      |         |           |            | 387        |         |           |            | 778       |         |           |           | 251       |       |           |          | 1,069   |       |         |         | 97,215    |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|                                                                           |                                                   |                                                         | Total interest earning assets      |             |         | 1,386,825 |            |            |         | 3,294,264 |            |           |         | 5,382,760 |           |           |       | 1,884,377 |          |         |       | 178,644 |         |           |           | 12,126,870 | 
|Interest bearing liabilities:                                              |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|                                                                           | Deposits:                                         |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |           |          
|                                                                           |                                                   | Passbook accounts(3)                                    |                                    |             | 710     |           |            |            | 2,558   |           |            |           | 3,420   |           |           |           |       |           |          |         |       |         |         |           | 6,688     |           
|                                                                           |                                                   | Demand deposit and money market accounts(3)             |                                    |             | 196,009 |           |            |            | 203,387 |           |            |           | 331,886 |           |           |           |       |           |          |         |       |         |         |           | 731,282   |           
|                                                                           |                                                   | Certificate accounts(4)                                 |                                    |             | 127,843 |           |            |            | 881,834 |           |            |           | 56,383  |           |           |           | 5,110 |           |          |         |       |         |         |           | 1,071,170 |           
|                                                                           | FHLB advances(4)                                  |                                                         |                                    | 333,572     |         |           |            | 205        |         |           |            | 475       |         |           |           | 384       |       |           |          | 1,639   |       |         |         | 336,275   |          
|                                                                           | Securities sold under agreements to repurchase(4) |                                                         |                                    | 276,600     |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         | 276,600   |          
|                                                                           | Notes payable on automobile secured financing(1)  |                                                         |                                    | 3,333,765   |         |           |            | 1,744,327  |         |           |            | 2,774,499 |         |           |           | 570,324   |       |           |          |         |       |         |         | 8,422,915 |          
|                                                                           | Subordinated debentures(4)                        |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           | 106,038   |       |           |          | 294,523 |       |         |         | 400,561   |          
|                                                                           | Other borrowings(4)                               |                                                         |                                    | 5,891       |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         | 5,891     |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|                                                                           |                                                   |                                                         | Total interest bearing liabilities |             |         | 4,274,390 |            |            |         | 2,832,311 |            |           |         | 3,166,663 |           |           |       | 681,856   |          |         |       | 296,162 |         |           |           | 11,251,382 | 
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|Excess interest earning/bearing assets
    (liabilities)                   |                                                   |                                                         | (2,887,565                         | )           |         |           | 461,953    |            |         |           | 2,216,097  |           |         |           | 1,202,521 |           |       |           | (117,518 | )       |       |         | 875,488 |          
|Effect of hedging activities(5)                                            |                                                   |                                                         | 4,178,720                          |             |         |           | (1,141,413 | )          |         |           | (1,875,456 | )         |         |           | (717,351  | )         |       |           | (444,500 | )       |       |         |         |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|Hedged excess (deficit)                                                    |                                                   | $                                                       | 1,291,155                          |             |         | $         | (679,460   | )          |         | $         | 340,641    |           |         | $         | 485,170   |           |       | $         | (562,018 | )       |       | $       | 875,488 |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|Cumulative excess                                                          |                                                   | $                                                       | 1,291,155                          |             |         | $         | 611,695    |            |         | $         | 952,336    |           |         | $         | 1,437,506 |           |       | $         | 875,488  |         |       | $       | 875,488 |          
|                                                                           |                                                   |                                                         |                                    |             |         |           |            |            |         |           |            |           |         |           |           |           |       |           |          |         |       |         |         |          
|Cumulative difference as a percentage of total
    interest earning assets |                                                   |                                                         | 10.65                              | %           |         |           | 5.04       | %          |         |           | 7.85       | %         |         |           | 11.85     | %         |       |           | 7.22     | %       |       |         | 7.22    | %        



---



|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on contractual maturities adjusted by our
    historical prepayment rate.                                               
|   
|(2) | Based on interest rate repricing adjusted for
    projected prepayments.                                                      
|   
|(3) | Based on historical retention rate.                                                                                           
|   
|(4) | Based on contractual maturity.                                                                                                
|   
|(5) | Includes effect of interest rate swaps designated
    against deposits and securities sold under agreements to
    repurchase.

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 securitizations, we enter
into various hedge agreements. We enter into Euro-dollar futures
contracts and

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forward swap 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, 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, 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 securitization is treated as a secured
financing. These hedge instruments are settled daily, and
therefore, there are no related financial instruments on the
Consolidated Statements of Financial Condition. Credit risk
related to these hedge instruments is minimal.


As we issued certain variable rate notes payable
in 2002 and 2001, we also entered into interest rate swap
agreements in order to hedge our variable interest rate exposure
on future interest payments. The fair value of the interest rate
swap agreements is included in notes payable on automobile
secured financing, and any change in the fair value is reported
as accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. Any
ineffective portion is recorded in interest expense during that
period if the hedge is greater than 100% effective. Related
interest income or expense is settled on a quarterly basis and
recognized as an adjustment to interest expense in our
Consolidated Statements of Income.

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

We have entered into or committed to interest
rate swaps as hedges against deposits and securities sold under
agreements to repurchase to manage interest rate risk exposure.
The fair value of the interest rate swap agreements is included
in deposits and securities sold under agreements to repurchase,
respectively 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. Related
interest income or expense is settled on a quarterly basis and
is recorded in accumulated other comprehensive income (loss) and
reclassified into earnings in the period during which cash flows
on the hedged items affect income.

The Asset/ Liability Committee monitors our
hedging activities to ensure that the value of hedges, their
correlation to the contracts being hedged and the amounts being
hedged continue to provide effective protection against interest
rate risk. The amount and timing of hedging transactions are
determined by our senior management based upon the monitoring
activities of the Asset/ Liability Committee. 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 loans, securities 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 real estate loans, contracts
and MBS. For passbook, money market and interest bearing demand
deposit accounts that have no contractual maturity, the table
presents principal cash flows and, as applicable, related
weighted average interest rates based on our historical
experience, managements judgment and statistical analysis,
as applicable, concerning their most likely withdrawal
behaviors. For interest rate swap agreements, the table presents
notional amounts and, as applicable, weighted average interest
rates by

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contractual maturity date. Notional amounts are
used to calculate the contractual payments to be exchanged under
the contracts.


Interest Rate Sensitive Instruments

|                                                                |                       |                        |           |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           |       |   |   |            |   | 
|--------------------------------------------------------------- | --------------------- | ---------------------- | --------- | ----- | - | ---- | ---------- | ----- | - | ---- | ---------- | ------ | - | ----- | --------- | ---------- | - | - | -------- | ----- | - | - | -------- | ----- | - | - | --------- | ----- | - | - | ---------- | - | 
|                                                                |                       |                        |           |       |   |      |            |       |   |      |            | There- |   |       |           |           
|                                                                |                       | 2003                   |           | 2004  |   | 2005 |            | 2006  |   | 2007 |            | after  |   | Total |           | Fair Value
|                                                                |                       |                        |           |       |   |      |            |       |   |      |            |        |   |       |           |           
|                                                                |                       |                       
|                                                                |                       | (Dollars in thousands)
|Rate sensitive assets:                                          |                       |                        |           |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           |       |   |   |            |  
|Fixed interest rate loans                                       |                       | $                      | 3,023,620 |       |   | $    | 2,532,497  |       |   | $    | 1,850,929  |        |   | $     | 1,122,544 |            |   | $ | 474,070  |       |   | $ | 52,410   |       |   | $ | 9,056,070 |       |   | $ | 10,080,528 |  
|                                                                | Average interest rate |                        |           | 12.43 | % |      |            | 12.52 | % |      |            | 12.45  | % |       |           | 12.11      | % |   |          | 11.37 | % |   |          | 10.00 | % |   |           | 12.35 | % |   |            |   | 
|Variable interest rate loans                                    |                       | $                      | 351,714   |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 351,714   |       |   | $ | 349,982    |  
|                                                                | Average interest rate |                        |           | 5.42  | % |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 5.42  | % |   |            |   | 
|Fixed interest rate securities                                  |                       | $                      | 951,178   |       |   | $    | 676,209    |       |   | $    | 301,248    |        |   | $     | 195,851   |            |   | $ | 85,789   |       |   | $ | 123,625  |       |   | $ | 2,333,900 |       |   | $ | 2,333,900  |  
|                                                                | Average interest rate |                        |           | 4.36  | % |      |            | 4.35  | % |      |            | 4.36   | % |       |           | 4.37       | % |   |          | 4.37  | % |   |          | 4.38  | % |   |           | 4.36  | % |   |            |   | 
|Variable interest rate securities                               |                       | $                      | 326,182   |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 326,182   |       |   | $ | 326,182    |  
|                                                                | Average interest rate |                        |           | 4.62  | % |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 4.62  | % |   |            |   | 
|Rate sensitive liabilities:                                     |                       |                        |           |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           |       |   |   |            |  
|Passbook deposits                                               |                       | $                      | 3,268     |       |   | $    | 2,178      |       |   | $    | 1,242      |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 6,688     |       |   | $ | 6,575      |  
|                                                                | Average interest rate |                        |           | 0.33  | % |      |            | 0.33  | % |      |            | 0.33   | % |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 0.33  | % |   |            |   | 
|Money market and interest bearing demand deposits               |                       | $                      | 399,396   |       |   | $    | 206,044    |       |   | $    | 125,842    |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 731,282   |       |   | $ | 729,232    |  
|                                                                | Average interest rate |                        |           | 1.50  | % |      |            | 2.09  | % |      |            | 1.86   | % |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 1.73  | % |   |            |   | 
|Certificates of deposit                                         |                       | $                      | 1,009,677 |       |   | $    | 37,273     |       |   | $    | 19,110     |        |   | $     | 1,412     |            |   | $ | 3,698    |       |   |   |          |       |   | $ | 1,071,170 |       |   | $ | 1,082,596  |  
|                                                                | Average interest rate |                        |           | 2.84  | % |      |            | 3.63  | % |      |            | 4.01   | % |       |           | 4.35       | % |   |          | 3.94  | % |   |          |       |   |   |           | 2.90  | % |   |            |   | 
|Notes payable under automobile secured
    financing  fixed    |                       | $                      | 2,451,383 |       |   | $    | 2,000,274  |       |   | $    | 774,225    |        |   | $     | 570,324   |            |   |   |          |       |   |   |          |       |   | $ | 5,796,206 |       |   | $ | 6,045,416  |  
|                                                                | Average interest rate |                        |           | 3.92  | % |      |            | 4.75  | % |      |            | 3.68   | % |       |           | 4.03       | % |   |          |       |   |   |          |       |   |   |           | 4.18  | % |   |            |   | 
|Notes payable under automobile secured
    financing  variable |                       | $                      | 2,626,709 |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 2,626,709 |       |   | $ | 2,626,709  |  
|                                                                | Average interest rate |                        |           | 1.88  | % |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 1.88  | % |   |            |   | 
|Other fixed interest rate borrowings                            |                       | $                      | 610,378   |       |   | $    | 250        |       |   | $    | 225        |        |   | $     | 202       |            |   | $ | 106,220  |       |   | $ | 296,161  |       |   | $ | 1,013,436 |       |   | $ | 1,032,557  |  
|                                                                | Average interest rate |                        |           | 1.41  | % |      |            | 6.54  | % |      |            | 6.54   | % |       |           | 6.54       | % |   |          | 8.87  | % |   |          | 9.62  | % |   |           | 4.51  | % |   |            |   | 
|Other variable interest rate borrowings                         |                       | $                      | 5,891     |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   | $ | 5,891     |       |   | $ | 5,897      |  
|                                                                | Average interest rate |                        |           | 3.23  | % |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           | 3.23  | % |   |            |   | 
|Rate sensitive derivative financial
    Instruments:            |                       |                        |           |       |   |      |            |       |   |      |            |        |   |       |           |            |   |   |          |       |   |   |          |       |   |   |           |       |   |   |            |  
|Pay variable interest rate swaps                                |                       | $                      | 4,228,719 |       |   | $    | (1,191,413 | )     |   | $    | (1,875,456 | )      |   | $     | (427,351  | )          |   | $ | (290,000 | )     |   | $ | (444,500 | )     |   |   |           |       |   | $ | (194,590   | )
|                                                                | Average pay rate      |                        |           | 3.73  | % |      |            | 3.63  | % |      |            | 3.10   | % |       |           | 2.49       | % |   |          | 6.51  | % |   |          | 6.00  | % |   |           | 3.73  | % |   |            |   | 
|                                                                | Average receive rate  |                        |           | 1.46  | % |      |            | 1.47  | % |      |            | 1.40   | % |       |           | 1.38       | % |   |          | 1.59  | % |   |          | 1.70  | % |   |           | 1.46  | % |   |            |   | 

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Glossary

ALLOWANCE FOR CREDIT LOSSES: Funds in an account
established to cover probable credit losses. If we believe a
loan 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 loan. If the loan is
charged off, we reduce the loan balance and the allowance by
equal amounts.

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

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

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

CHARGEOFF: A loan written off as uncollectible.

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

COMMERCIAL LOAN COMMITMENTS: Legally binding
agreements to provide commercial financing at a future date.

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

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

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

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

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

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

DIVIDEND PAYOUT RATIO: Dividends per share
divided by net income per share.

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.

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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.

FEDERAL FUNDS: Non-interest bearing deposits held
by member banks at the Federal Reserve Bank.

FEE INCOME: Income from documentation fees, late
charges, deferment fees, transaction processing fees, service
charges on deposit accounts 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.

FHLMC: The Federal Home Loan Mortgage
Corporation, a government-chartered corporation that buys
qualified mortgage loans from the financial institutions that
originate them, securitizes the loans, and distributes the
securities through the dealer community.

FNMA: The Federal National Mortgage Association,
a congressionally chartered corporation that buys mortgages on
the secondary market, pools them and sells them as
mortgage-backed securities to investors on the open market.

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.

GNMA: The Government National Mortgage
Association, a U.S. Government-owned corporation that
guarantees timely payment of principal and interest on specified
mortgage-backed certificates.

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

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

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

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

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

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

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

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

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

MINORITY INTEREST: Less than 50% ownership of a
corporations voting stock or not enough ownership to
control company operations. When a parent owns a majority (but
less than 100%) of a

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subsidiarys stock, the Consolidated
Financial Statements must reflect the minoritys interest
in the subsidiary. The minority interest as shown on the
Consolidated Statements of Income is equal to the
minoritys proportionate share of the subsidiarys net
income. The minority interest as shown on the Consolidated
Statements of Financial Condition is equal to the
minoritys proportionate share of the subsidiarys net
assets.


MORTGAGE-BACKED SECURITY (MBS): A security
secured by or representing an undivided interest in a pool of
mortgage loans each of which mortgage loans is secured by a
completed single family dwelling (one-to-four family units),
which security is either guaranteed by GNMA or issued or
guaranteed by FNMA or FHLMC.

MORTGAGE LOAN: Closed-end loans and revolving
lines of credit secured by first or second liens on residential
real estate.

NET CHARGEOFFS or NET CREDIT LOSSES: The amount
of loans written off as uncollectible, net of the recovery of
loans 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
receivables and other interest earning assets reduced by
interest expense as a percentage of the average balance of such
interest earning assets.

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

NONACCRUAL LOANS or NONPERFORMING LOANS: Loans on
which we no longer accrue interest because ultimate collection
is unlikely.

NONINTEREST EXPENSE: All expenses other than
interest expense.

NONINTEREST INCOME: All income other than
interest income.

NONPERFORMING ASSETS (NPAs): Nonperforming loans,
Chapter 13 bankruptcy accounts greater than 120 days
delinquent, repossessed automobiles and real estate owned.

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 LOANS: Loans held on our balance sheet.

PORTFOLIO BASIS: Method of reporting whereby net
interest margin, other revenues and credit losses on securitized
contracts are reported as if those contracts were still held on
our balance sheet.

PRIME BORROWERS: Borrowers who have strong credit
histories.

PROVISION FOR CREDIT LOSSES: A charge to earnings
to recognize that all loans 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.

REAL ESTATE LOAN: Closed-end loans and revolving
lines of credit secured by first or second liens on residential
real estate.

REAL ESTATE OWNED (REO): Real estate acquired in
foreclosure or comparable proceedings under which possession of
the collateral has been taken.

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

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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):
Represents our contractual right to receive interest and other
cash flows from our securitization trusts after the investors
receive their contractual return.

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

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

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

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

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

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

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
An agreement between a seller and a buyer, generally of
government or agency securities, whereby the seller agrees to
repurchase the securities at an agreed-upon price at a future
date.

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

SFAS: Statement of Financial Accounting Standards.

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

SPREAD ACCOUNT: An account of a securitization
trust into which excess cash flows generated by the assets
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

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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 it 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 our residual interests in securitized assets and
other recourse obligations. Prior to the Banks adoption of
new capital regulations in September 2002 regarding the
regulatory treatment of these credit-enhancing assets, its
tier 1 risk-based capital equaled its core capital.

TIER 1 RISK-BASED CAPITAL RATIO: A
regulatory measurement of capital adequacy. The ratio of
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
WFS and the Bank whereby the Bank allows WFS to utilize the
funds invested in the reinvestment contract at the Bank. In
return for the use of such funds, WFS pays the Bank a fee as
consideration for the pledge of collateral by the Bank.






|        |                                                
|------- | -----------------------------------------------
|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.

71



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##### Table of Contents






PART III

Certain information required by Part III is
omitted from this report, as we will file a definitive proxy
statement, also known as the Proxy Statement, within
120 days after the end of our fiscal year pursuant to
Regulation 14A of the Securities Exchange Act of 1934 for
our Annual Meeting of Shareholders to be held April 29,
2003, and the information included therein is incorporated
herein by reference. Information regarding Section 16(a)
Beneficial Ownership Reporting Compliance appears under that
caption in the Proxy Statement and is incorporated herein by
reference.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

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






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

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






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

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






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

None.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

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

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

72



---



##### Table of Contents






PART IV






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

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



| |                         
| | ------------------------
| | (1) Financial Statements



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following consolidated financial statements
    and report of independent auditors for us and our subsidiaries
    are included in this Report commencing on page F-2:



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Report of Independent Auditors                                                                                         
|
| | Consolidated Statements of Financial Condition at
    December 31, 2002 and 2001                                       
|
| | Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                             
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                         
|
| | Notes to Consolidated Financial Statements                                                                             



| |                                  
| | ---------------------------------
| | (2) Financial Statement Schedules



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



| |             
| | ------------
| | (3) Exhibits

|        |    |             |  |                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Certificate of Incorporation(12)                                                                                                                                                                                                                        
|        | 3  | .2          |  | Bylaws(12)                                                                                                                                                                                                                                              
|        | 4  | .1          |  | Indenture dated as of June 17, 1993 issued
    by Western Financial Bank, formerly Western Financial Savings
    Bank, F.S.B., with respect to $125,000,000 in aggregate
    principal amount of 8.5% Subordinated Capital Debentures
    due 2003(13)  
|        | 4  | .2          |  | Indenture dated as of June 25, 1998 issued
    by Western Financial Bank, formerly Western Financial Savings
    Bank, F.S.B., with respect to $150,000,000 in aggregate
    principal amount of 8.875% Subordinated Capital Debentures
    due 2007(14)
|        | 4  | .3          |  | Indenture dated as of May 3, 2002 issued by
    Western Financial Bank, formerly Western Financial Savings Bank,
    F.S.B., with respect to $300,000,000 in aggregate principal
    amount of 9.625% Subordinated Capital Debentures due
    2012(15)  
|        | 10 | .1          |  | Westcorp Incentive Stock Option Plan(2)                                                                                                                                                                                                                 
|        | 10 | .2          |  | Westcorp Employee Stock Ownership and Salary
    Savings Plan(3)                                                                                                                                                                                        
|        | 10 | .3          |  | Westcorp 1991 Stock Option Plan(4)                                                                                                                                                                                                                      
|        | 10 | .3.1        |  | Westcorp 2001 Stock Option Plan                                                                                                                                                                                                                         
|        | 10 | .4          |  | 1985 Executive Deferral Plan(1)                                                                                                                                                                                                                         
|        | 10 | .5          |  | 2000 Executive Deferral Plan V(15)                                                                                                                                                                                                                      
|        | 10 | .6          |  | Revolving Line of Credit Agreement between WFS
    Funding, Inc. and Western Financial Bank, dated
    November 30, 2001(15)                                                                                                                            
|        | 10 | .6.1        |  | Amended Revolving Line of Credit Agreement
    between WFS Funding, Inc. and Western Financial Bank, dated
    June 1, 2002                                                                                                                             

73



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                        
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .6.2        |  | First Amendment dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Funding, Inc.
    and Western Financial Bank         
|        | 10 | .7          |  | Transfer Agreement between WFS Financial Inc and
    Western Financial Bank, F.S.B., dated May 1, 1995(1)                                              
|        | 10 | .8          |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 1, 1995(1)                                              
|        | 10 | .9          |  | Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank, dated June 15,
    1999(11)                               
|        | 10 | .9.1        |  | Amendment No. 1, dated as of August 1,
    1999, to the Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank(11)
|        | 10 | .9.2        |  | Amendment No. 2, dated May 23, 2000, to
    the Revolving Line of Credit Agreement between WFS Financial Inc
    and Western Financial Bank            
|        | 10 | .9.3        |  | Amendment No. 3, dated January 1, 2002,
    to the Revolving Line of Credit Agreement between WFS Financial
    Inc and Western Financial Bank         
|        | 10 | .9.4        |  | Amendment No. 4, dated October 15, 2002, to the
    Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank        
|        | 10 | .10         |  | Tax Sharing Agreement between WFS Financial Inc
    and Western Financial Bank, F.S.B., dated January 1, 1994(1)                                       
|        | 10 | .10.1       |  | Amended and Restated Tax Sharing Agreement
    between Westcorp and its subsidiaries, dated September 30,
    2002                                     
|        | 10 | .11         |  | Master Reinvestment Contract between WFS
    Financial Inc and Western Financial Bank, F.S.B., dated
    May 1, 1995(1)                                
|        | 10 | .12         |  | Amendment No. 1, dated as of June 1,
    1995, to the Restated Master Reinvestment Reimbursement
    Agreement(10)                                     
|        | 10 | .13         |  | Amended and Restated Master Collateral Assignment
    Agreement, dated as of March 1, 2000(11)                                                         
|        | 10 | .14         |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                                          
|        | 10 | .15         |  | Form of WFS Financial Inc Loan Application(5)                                                                                                          
|        | 10 | .16         |  | Westcorp Employee Stock Ownership and Salary
    Savings Plan(15)                                                                                      
|        | 10 | .16.1       |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(15)                                          
|        | 10 | .16.2       |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(15)            
|        | 10 | .16.3       |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(15)            
|        | 10 | .17         |  | Amended and Restated WFS 1996 Incentive Stock
    Option Plan(6)                                                                                       
|        | 10 | .18         |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated August 1, 1997(10)                                          
|        | 10 | .18.1       |  | Amendment No. 1, dated February 23,
    1999, to the Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank(10)                   
|        | 10 | .18.2       |  | Amendment No. 2, dated July 30, 1999,
    to the Promissory Note of WFS Financial Inc in favor of Western
    Financial Bank(10)                       
|        | 10 | .18.3       |  | Amendment No. 3, dated January 1, 2002,
    to the Promissory Note of WFS Financial Inc in favor of Western
    Financial Bank                         
|        | 10 | .19         |  | Short-term Investment Agreement between WFS
    Financial Inc and Western Financial Bank, 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.    

74



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .20         |  | Allocation Agreement between WFS Financial Inc,
    Western Financial Bank, Westcorp, and their subsidiaries dated
    January 1, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .20.1       |  | Amendment No. 1, dated August 1, 2002,
    to the Allocation Agreement between WFS Financial Inc, Western
    Financial Bank, Westcorp, and their subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10 | .21         |  | Employment Agreement(8)(9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .22         |  | Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank, dated
    November 30, 2001(15)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .22.1       |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western Financial
    Bank, dated June 1, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .22.2       |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10 | .23         |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank, dated
    November 30, 2001(15)                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .23.1       |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .23.2       |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .24         |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .24.1       |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .25         |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10 | .26         |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .26.1       |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .27         |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .28         |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .29         |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .30         |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .31         |  | Logo License Agreement between Western Financial
    Bank, Westcorp, WFS Financial Inc, Western Consumer Products,
    WFS Receivables Corporation, WFS Receivables Corporation 2, WFS
    Receivables Corporation 3, WFS Financial Auto Loans, Inc., The
    Hammond Company, The Mortgage Bankers, WFS Funding Inc., WFS
    Investments, Inc., Westran Services Corporation, WestFin
    Insurance Agency, Inc., Western Auto Investments, Inc., Western
    Consumer Services, Inc., Westhrift Life Insurance Entity, Inc.,
    Western Reconveyance Entity, Inc., and WFS Web Investments, Inc.
|        | 10 | .32         |  | Travel Services Agreement between Westran
    Services Corporation and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .33         |  | Secured Deposit Account Agreement between Western
    Financial Bank and WFS Receivables Corporation, dated
    October 17, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .34         |  | Annuity Licensing Fee Agreement between Westfin
    Insurance Agency, Inc. and Western Financial Bank, dated
    September 9, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

75



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .35         |  | Sublease Agreement between WFS Financial Inc and
    WFS Receivables Corporation 2, WFS Financial Auto Loans,
    Inc., WFS Financial Auto Loans 2, Inc., Western Auto
    Investments, Inc., and WFS Funding, Inc., dated March 21,
    2002                                           
|        | 10 | .35.1       |  | First Amendment to Sublease between WFS Financial
    Inc., and WFS Receivables Corporation, WFS Receivables
    Corporation 2, WFS Financial Auto Loans, Inc., WFS
    Financial Auto Loans 2, Inc., Western Auto Investments,
    Inc., and WFS Funding, Inc., dated September 1, 2002
|        | 10 | .36         |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency, Inc. and WFS Financial Inc dated
    September 2002                                                                                                                                                     
|        | 21 | .1          |  | Subsidiaries of Westcorp                                                                                                                                                                                                                                                                
|        | 23 | .1          |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                  
|        | 99 | .1          |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                          



---



| |     |                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Exhibits previously filed with WFS Financial Inc
    Registration Statement on Form S-1 (File
    No. 33-93068), filed August 8, 1995 incorporated
    herein by reference under Exhibit Number indicated.
|
| | (2) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-1 (File No. 33-4295),
    filed May 2, 1986 incorporated herein by reference under
    Exhibit Number indicated.             
|
| | (3) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-4 (File
    No. 33-34286), filed April 11, 1990 incorporated
    herein by reference under Exhibit Number indicated.         
|
| | (4) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-8 (File
    No. 33-43898), filed December 11, 1991 incorporated
    herein by reference under Exhibit Number indicated.      
|
| | (5) | Amendment No. 1, dated as of July 14,
    1995 to the WFS Financial Inc Registration Statement on
    Form S-1 (File No. 33-93068) incorporated herein by
    reference under Exhibit Number indicated.   
|
| | (6) | Exhibit previously filed as Exhibit 4.1 to
    the WFS Financial Inc 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 the WFS Financial Inc, Westcorp and Mark Olson
    (will be provided to the SEC upon request).                                                  



|     |                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 1998 (File No. 33-93068) as filed on or
    about March 31, 1999.                                                  
|    
|(11) | Exhibits previously filed with WFS Registration
    Statements on Form S-2 (File No. 333-91277) filed
    November 19, 1999 and subsequently amended on
    January 20, 2000 incorporated by reference under
    Exhibit Number indicated.
|    
|(12) | 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 Numbers indicated.                                       
|    
|(13) | Exhibit previously filed with, Western Financial
    Bank, formerly Western Financial Savings Bank, F.S.B., Offering
    Circular with the OTS, dated June 17, 1993 (will be
    provided to the SEC upon request).                       
|    
|(14) | Exhibit previously filed with Western Financial
    Bank, formerly Western Financial Bank, F.S.B., Offering Circular
    with the OTS, dated July 25, 1998 (will be provided to the
    SEC upon request).                                
|    
|(15) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2001 as filed on or about March 29, 2002.                                                                                    

(b) Report on Form 8-K



| |      
| | -----
| | None.

76



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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.



| |         
| | --------
| | WESTCORP

Dated: March 18, 2003

| |    |                   
| | -- | ------------------
| | BY | /s/ ERNEST S. RADY

| |                          
| | -------------------------
| |                          
| | Ernest S. Rady           
| | Chairman of the Board 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
    Chief Executive Officer                                                                              |  | March 18, 2003
|                                          
|/s/ THOMAS A. WOLFEThomas A. Wolfe         |  | President and Director                                                                                                             |  | March 18, 2003
|                                          
|/s/ JUDITH M. BARDWICKJudith M. Bardwick   |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ ROBERT T. BARNUMRobert T. Barnum       |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ JAMES R. DOWLANJames R. Dowlan         |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ DUANE A. NELLESDuane A. Nelles         |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ HARRY RADYHarry Rady                   |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ CHARLES E. SCRIBNERCharles E. Scribner |  | Director                                                                                                                           |  | March 18, 2003
|                                          
|/s/ LEE A. WHATCOTTLee A. Whatcott         |  | Executive Vice President, Chief Financial Officer
    and Chief Operating Officer (Principal Financial and Accounting
    Officer) |  | March 18, 2003

77



---



##### Table of Contents



CERTIFICATIONS

I, Ernest S. Rady, certify that:



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



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



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



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



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

Date March 18, 2003



|   |                   
|-- | ------------------
|By | /s/ ERNEST S. RADY




Chairman of the Board and


Chief Executive Officer


78



---



##### Table of Contents



I, Lee A. Whatcott, certify that:



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



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



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



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



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

Date March 18, 2003



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




Lee A. Whatcott


Executive Vice President,


Chief Financial Officer and


Chief Operating Officer


(Principal Financial and Accounting Officer)


79



---



##### Table of Contents



WESTCORP AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORT OF INDEPENDENT AUDITORS


|                                                                                                                        |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                        |  | Page
|                                                                                                                        |  |     
|Report of Independent Auditors                                                                                          |  |      | F-2 | 
|Consolidated Financial Statements:                                                                                      |  |      |     | 
|Consolidated Statements of Financial Condition at
    December 31, 2002 and 2001                                        |  |      | F-3 | 
|Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                              |  |      | F-4 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                          |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                              |  |      | F-7 | 

F-1



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors

Westcorp


We have audited the accompanying consolidated
statements of financial condition of Westcorp and subsidiaries
as of December 31, 2002 and 2001, 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, 2002. These consolidated financial
statements are the responsibility of Westcorp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 Westcorp and
subsidiaries at December 31, 2002 and 2001 and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States.



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

Los Angeles, California

January 21, 2003


F-2



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |           |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------ | --------- | --------- | ---------- | - | --------- | --------- | ---------- | 
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | December 31,                              
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | 2002                                       |           | 2001     
|                                                                                                                                                                   |                         |                                            |           |          
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | (Dollars in thousands)                    
|ASSETS                                                                                                                                                             |                         |                                            |           |           |            |   |           |          
|Cash                                                                                                                                                               |                         | $                                          | 25,211    |           |            | $ | 68,607    |          
|Interest bearing deposits with other financial
    institutions                                                                                                    |                         |                                            | 59,004    |           |            |   | 720       |          
|Other short-term investments                                                                                                                                       |                         |                                            |           |           |            |   | 35,000    |          
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   | Cash and due from banks |                                            |           | 84,215    |            |   |           | 104,327   |           
|Investment securities available for sale                                                                                                                           |                         |                                            | 10,425    |           |            |   | 10,511    |          
|Mortgage-backed securities available for sale                                                                                                                      |                         |                                            | 2,649,657 |           |            |   | 2,092,225 |          
|Loans receivable                                                                                                                                                   |                         |                                            | 9,407,784 |           |            |   | 7,533,150 |          
|Allowance for credit losses                                                                                                                                        |                         |                                            | (258,892  | )         |            |   | (171,432  | )        
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   | Loans receivable, net   |                                            |           | 9,148,892 |            |   |           | 7,361,718 |           
|Amounts due from trusts                                                                                                                                            |                         |                                            | 101,473   |           |            |   | 136,131   |          
|Retained interest in securitized assets                                                                                                                            |                         |                                            |           |           |            |   | 37,392    |          
|Premises and equipment, net                                                                                                                                        |                         |                                            | 78,664    |           |            |   | 79,258    |          
|Other assets                                                                                                                                                       |                         |                                            | 337,550   |           |            |   | 250,835   |          
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   |                         | TOTAL ASSETS                               |           | $         | 12,410,876 |   |           | $         | 10,072,397 | 
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|LIABILITIES                                                                                                                                                        |                         |                                            |           |           |            |   |           |          
|Deposits                                                                                                                                                           |                         | $                                          | 1,974,984 |           |            | $ | 2,329,326 |          
|Notes payable on automobile secured financing                                                                                                                      |                         |                                            | 8,422,915 |           |            |   | 5,886,227 |          
|Securities sold under agreements to repurchase                                                                                                                     |                         |                                            | 276,600   |           |            |   | 155,190   |          
|Federal Home Loan Bank advances                                                                                                                                    |                         |                                            | 336,275   |           |            |   | 543,417   |          
|Amounts held on behalf of trustee                                                                                                                                  |                         |                                            | 177,642   |           |            |   | 280,496   |          
|Subordinated debentures                                                                                                                                            |                         |                                            | 400,561   |           |            |   | 147,714   |          
|Other borrowings                                                                                                                                                   |                         |                                            | 5,891     |           |            |   | 25,068    |          
|Other liabilities                                                                                                                                                  |                         |                                            | 101,145   |           |            |   | 85,994    |          
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   |                         | TOTAL LIABILITIES                          |           |           | 11,696,013 |   |           |           | 9,453,432  | 
|Minority interest                                                                                                                                                  |                         |                                            | 101,666   |           |            |   | 78,261    |          
|SHAREHOLDERS EQUITY                                                                                                                                               |                         |                                            |           |           |            |   |           |          
|Common stock (par value $1.00 per share;
    authorized 65,000,000 shares; issued and outstanding
    39,200,474 shares in 2002 and 35,802,491 shares
    in 2001) |                         |                                            | 39,200    |           |            |   | 35,802    |          
|Paid-in capital                                                                                                                                                    |                         |                                            | 350,018   |           |            |   | 301,955   |          
|Retained earnings                                                                                                                                                  |                         |                                            | 325,529   |           |            |   | 263,853   |          
|Accumulated other comprehensive loss, net of tax                                                                                                                   |                         |                                            | (101,550  | )         |            |   | (60,906   | )        
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   |                         | TOTAL SHAREHOLDERS EQUITY                 |           |           | 613,197    |   |           |           | 540,704    | 
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          
|                                                                                                                                                                   |                         | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |           | $         | 12,410,876 |   |           | $         | 10,072,397 | 
|                                                                                                                                                                   |                         |                                            |           |           |            |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |            |         | 
|--------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------ | ------- | ---------- | --------- | ---- | ------- | ---------- | ------- | - | ------- | ---------- | ------- | 
|                                                          |                                               |                                                 
|                                                          |                                               | For the Year Ended December 31,                 
|                                                          |                                               |                                                 
|                                                          |                                               | 2002                                             |         | 2001       |           | 2000
|                                                          |                                               |                                                  |         |            |           |     
|                                                          |                                               |                                                 
|                                                          |                                               | (Dollars in thousands, except per share amounts)
|Interest income:                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Loans, including fees                         |                                                  | $       | 1,021,317  |           |      | $       | 821,113    |         |   | $       | 439,336    |        
|                                                          | Mortgage-backed securities                    |                                                  |         | 113,327    |           |      |         | 133,539    |         |   |         | 128,231    |        
|                                                          | Investment securities                         |                                                  |         | 318        |           |      |         | 433        |         |   |         | 535        |        
|                                                          | Miscellaneous                                 |                                                  |         | 7,978      |           |      |         | 7,542      |         |   |         | 15,719     |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL INTEREST INCOME                            |         |            | 1,142,940 |      |         |            | 962,627 |   |         |            | 583,821 | 
|Interest expense:                                         |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Deposits                                      |                                                  |         | 80,015     |           |      |         | 114,831    |         |   |         | 133,610    |        
|                                                          | Notes payable on automobile secured financing |                                                  |         | 406,851    |           |      |         | 333,768    |         |   |         | 118,421    |        
|                                                          | Miscellaneous                                 |                                                  |         | 44,050     |           |      |         | 43,345     |         |   |         | 61,841     |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL INTEREST EXPENSE                           |         |            | 530,916   |      |         |            | 491,944 |   |         |            | 313,872 | 
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|NET INTEREST INCOME                                       |                                               |                                                  | 612,024 |            |           |      | 470,683 |            |         |   | 269,949 |           
|Provision for credit losses                               |                                               |                                                  | 306,233 |            |           |      | 196,977 |            |         |   | 82,133  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|NET INTEREST INCOME AFTER PROVISION FOR CREDIT
    LOSSES |                                               |                                                  | 305,791 |            |           |      | 273,706 |            |         |   | 187,816 |           
|Noninterest income:                                       |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Automobile lending                            |                                                  |         | 59,968     |           |      |         | 62,758     |         |   |         | 158,701    |        
|                                                          | Mortgage banking                              |                                                  |         | 1,421      |           |      |         | 1,495      |         |   |         | 6,852      |        
|                                                          | Insurance income                              |                                                  |         | 10,561     |           |      |         | 9,090      |         |   |         | 6,984      |        
|                                                          | Miscellaneous                                 |                                                  |         | 18,480     |           |      |         | 5,556      |         |   |         | 5,347      |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL NONINTEREST INCOME                         |         |            | 90,430    |      |         |            | 78,899  |   |         |            | 177,884 | 
|Noninterest expenses:                                     |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Salaries and associate benefits               |                                                  |         | 137,462    |           |      |         | 142,322    |         |   |         | 131,677    |        
|                                                          | Credit and collections                        |                                                  |         | 36,429     |           |      |         | 27,707     |         |   |         | 21,150     |        
|                                                          | Data processing                               |                                                  |         | 18,711     |           |      |         | 18,396     |         |   |         | 17,019     |        
|                                                          | Occupancy                                     |                                                  |         | 15,063     |           |      |         | 14,615     |         |   |         | 12,495     |        
|                                                          | Telephone                                     |                                                  |         | 5,394      |           |      |         | 6,187      |         |   |         | 5,868      |        
|                                                          | Miscellaneous                                 |                                                  |         | 38,247     |           |      |         | 35,644     |         |   |         | 32,764     |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL NONINTEREST EXPENSES                       |         |            | 251,306   |      |         |            | 244,871 |   |         |            | 220,973 | 
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|INCOME BEFORE INCOME TAX                                  |                                               |                                                  | 144,915 |            |           |      | 107,734 |            |         |   | 144,727 |           
|Income tax                                                |                                               |                                                  | 52,044  |            |           |      | 41,675  |            |         |   | 58,132  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|INCOME BEFORE MINORITY INTEREST                           |                                               |                                                  | 92,871  |            |           |      | 66,059  |            |         |   | 86,595  |           
|Minority interest in earnings of subsidiaries             |                                               |                                                  | 13,153  |            |           |      | 10,369  |            |         |   | 11,852  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|NET INCOME                                                |                                               | $                                                | 79,718  |            |           | $    | 55,690  |            |         | $ | 74,743  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|Earnings per common share:                                |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Basic                                         |                                                  | $       | 2.07       |           |      | $       | 1.62       |         |   | $       | 2.54       |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Diluted                                       |                                                  | $       | 2.05       |           |      | $       | 1.61       |         |   | $       | 2.53       |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|Weighted average number of common shares
    outstanding: |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Basic                                         |                                                  |         | 38,588,710 |           |      |         | 34,277,856 |         |   |         | 29,494,497 |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           
|                                                          | Diluted                                       |                                                  |         | 38,922,611 |           |      |         | 34,485,127 |         |   |         | 29,525,677 |        
|                                                          |                                               |                                                  |         |            |           |      |         |            |         |   |         |           

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |          |  
|---------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------- | --------- |  | ------- | ------ | -------- |  | -------------- | ------- | ------ | - | - | ------- | ------- | - | - | -------- | -------- | - | - | ------- | -------- | -
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  | Accumulated    |         |       
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  | Other          |         |       
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  | Comprehensive  |         |       
|                             |                                                                                                                       |                                              |            | Common    |  | Paid-in |        | Retained |  | Income (Loss), |         |       
|                             |                                                                                                                       | Shares                                       |            | Stock     |  | Capital |        | Earnings |  | Net of Tax     |         | Total 
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |       
|                             |                                                                                                                       |                                             
|                             |                                                                                                                       | (Dollars in thousands, except share amounts)
|Balance at January 1, 2000   |                                                                                                                       |                                              | 26,597,344 |           |  | $       | 26,597 |          |  | $              | 190,137 |        |   | $ | 157,465 |         |   | $ | (21,481  | )        |   | $ | 352,718 |         
|                             | Net income                                                                                                            |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | 74,743  |   |   |          |          |   |   |         | 74,743   |  
|                             | Unrealized gains on securities available for sale
    and retained interest in securitized assets, net of tax(1)      |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 6,665    |   |   |         | 6,665    |  
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|                             | Comprehensive income                                                                                                  |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         | 81,408   |  
|                             | Issuance of common stock                                                                                              |                                              |            | 5,334,482 |  |         |        | 5,335    |  |                |         | 50,349 |   |   |         |         |   |   |          |          |   |   |         | 55,684   |  
|                             | Issuance of subsidiary common stock                                                                                   |                                              |            |           |  |         |        |          |  |                |         | 6,403  |   |   |         |         |   |   |          |          |   |   |         | 6,403    |  
|                             | Cash dividends                                                                                                        |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | (9,045  | ) |   |          |          |   |   |         | (9,045   | )
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|Balance at December 31, 2000 |                                                                                                                       |                                              | 31,931,826 |           |  |         | 31,932 |          |  |                | 246,889 |        |   |   | 223,163 |         |   |   | (14,816  | )        |   |   | 487,168 |         
|                             | Net income                                                                                                            |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | 55,690  |   |   |          |          |   |   |         | 55,690   |  
|                             | Unrealized gains on securities available for sale
    and retained interest in securitized assets, net of tax(1)      |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 12,309   |   |   |         | 12,309   |  
|                             | Unrealized hedge losses on cash flow hedges, net
    of tax(2)                                                        |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | (75,048  | ) |   |         | (75,048  | )
|                             | Reclassification adjustment for losses on
    securities available for sale included in net income, net of
    tax(3) |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 1,050    |   |   |         | 1,050    |  
|                             | Reclassification adjustment for losses on cash
    flow hedges included in income, net of tax(4)                      |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 15,599   |   |   |         | 15,599   |  
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|                             | Comprehensive income                                                                                                  |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         | 9,600    |  
|                             | Issuance of common stock                                                                                              |                                              |            | 3,870,665 |  |         |        | 3,870    |  |                |         | 58,271 |   |   |         |         |   |   |          |          |   |   |         | 62,141   |  
|                             | Issuance of subsidiary common stock                                                                                   |                                              |            |           |  |         |        |          |  |                |         | (3,205 | ) |   |         |         |   |   |          |          |   |   |         | (3,205   | )
|                             | Cash dividends                                                                                                        |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | (15,000 | ) |   |          |          |   |   |         | (15,000  | )
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|Balance at December 31, 2001 |                                                                                                                       |                                              | 35,802,491 |           |  |         | 35,802 |          |  |                | 301,955 |        |   |   | 263,853 |         |   |   | (60,906  | )        |   |   | 540,704 |         
|                             | Net income                                                                                                            |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | 79,718  |   |   |          |          |   |   |         | 79,718   |  
|                             | Unrealized gains on securities available for sale
    and retained interest in securitized assets, net of tax(1)      |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 28,605   |   |   |         | 28,605   |  
|                             | Unrealized hedge losses on cash flow hedges, net
    of tax(2)                                                        |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | (135,422 | ) |   |         | (135,422 | )
|                             | Reclassification adjustment for gains on
    securities available for sale included in net income, net of
    tax(3)  |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | (3       | ) |   |         | (3       | )
|                             | Reclassification adjustment for losses on cash
    flow hedges included in income, net of tax(4)                      |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          | 66,176   |   |   |         | 66,176   |  
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|                             | Comprehensive income                                                                                                  |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         | 39,074   |  
|                             | Issuance of subsidiary common stock                                                                                   |                                              |            |           |  |         |        |          |  |                |         | (1,405 | ) |   |         |         |   |   |          |          |   |   |         | (1,405   | )
|                             | Issuance of common stock                                                                                              |                                              |            | 3,397,983 |  |         |        | 3,398    |  |                |         | 49,468 |   |   |         |         |   |   |          |          |   |   |         | 52,866   |  
|                             | Cash dividends                                                                                                        |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         | (18,042 | ) |   |          |          |   |   |         | (18,042  | )
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         
|Balance at December 31, 2002 |                                                                                                                       |                                              | 39,200,474 |           |  | $       | 39,200 |          |  | $              | 350,018 |        |   | $ | 325,529 |         |   | $ | (101,550 | )        |   | $ | 613,197 |         
|                             |                                                                                                                       |                                              |            |           |  |         |        |          |  |                |         |        |   |   |         |         |   |   |          |          |   |   |         |         



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pre-tax amount of unrealized gains on
    securities available for sale and retained interest in
    securitized assets was $48.5 million for the year ended
    December 31, 2002 compared with $20.9 million and
    $11.3 million for the years ended December 31, 2001
    and 2000, respectively.                                                                                          
|   
|(2) | The pre-tax amount of unrealized losses on cash
    flow hedges was $230 million for the year ended
    December 31, 2002 compared with and $127 million for
    the year ended December 31, 2001.                                                                                                                                                                                                  
|   
|(3) | The pre-tax amount of unrealized gains on
    securities available for sale reclassified into earnings was
    $5.0 thousand and $1.8 million for the years ended
    December 31, 2002 and 2001.                                                                                                                                                                                                   
|   
|(4) | The pre-tax amount of unrealized losses on cash
    flow hedges reclassified into earnings was $112 million for
    the year ended December 31, 2002 compared with
    $26.4 million for the year ended December 31, 2001.
    The amount reclassified into earnings in 2001 includes
    $1.8 million of the $4.8 million cumulative effect
    adjustment related to the adoption of SFAS No. 133.

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |            |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | For the Year Ended December 31,
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | 2002                            |            | 2001       |   | 2000
|                                                                                      |                                                             |                                 |            |            |   |     
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | (Dollars in thousands)         
|OPERATING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Net income                                                                            |                                                             | $                               | 79,718     |            |   | $    | 55,690     |            |   | $ | 74,743     |           
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Provision for credit losses                                 |                                 |            | 306,233    |   |      |            | 196,977    |   |   |            | 82,133     |  
|                                                                                      | Amortization of participation paid to dealers               |                                 |            | 92,309     |   |      |            | 64,177     |   |   |            | 25,140     |  
|                                                                                      | Amortization of retained interest in securitized
    assets |                                 |            | 36,461     |   |      |            | 75,545     |   |   |            | 75,958     |  
|                                                                                      | Amortization of losses on cash flow hedges                  |                                 |            | 54,509     |   |      |            | 11,689     |   |   |            |            |  
|                                                                                      | Amortization of premium on mortgage-backed
    securities   |                                 |            | 38,319     |   |      |            | 28,879     |   |   |            | 4,602      |  
|                                                                                      | Depreciation and amortization                               |                                 |            | 16,568     |   |      |            | 15,130     |   |   |            | 12,157     |  
|                                                                                      | (Gain) loss on sales, net                                   |                                 |            | (9,380     | ) |      |            | 1,779      |   |   |            |            |  
|Loans held for sale:                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Proceeds from contract sales                                |                                 |            |            |   |      |            |            |   |   |            | 660,000    |  
|                                                                                      | Proceeds from sale of mortgage loans                        |                                 |            | 554        |   |      |            | 3,382      |   |   |            | 3,394      |  
|Increase in other assets                                                              |                                                             |                                 | (40,956    | )          |   |      | (85,951    | )          |   |   | (46,718    | )         
|Increase in other liabilities                                                         |                                                             |                                 | 15,148     |            |   |      | 14,774     |            |   |   | 12,081     |           
|Other, net                                                                            |                                                             |                                 | 9,005      |            |   |      | 7,883      |            |   |   | 11,490     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |                                                             |                                 | 598,488    |            |   |      | 389,954    |            |   |   | 914,980    |           
|INVESTING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Loans receivable:                                                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Origination of loans                                        |                                 |            | (5,797,684 | ) |      |            | (5,184,915 | ) |   |            | (4,531,581 | )
|                                                                                      | Participation paid to dealers                               |                                 |            | (129,272   | ) |      |            | (120,194   | ) |   |            | (100,300   | )
|                                                                                      | Loan payments and payoffs                                   |                                 |            | 3,739,737  |   |      |            | 2,495,987  |   |   |            | 1,153,538  |  
|Investment securities available for sale:                                             |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchases                                                   |                                 |            | (4,853     | ) |      |            | (2,917     | ) |   |            | (2,194     | )
|                                                                                      | Proceeds from sale                                          |                                 |            | 486        |   |      |            |            |   |   |            |            |  
|                                                                                      | Proceeds from maturities                                    |                                 |            | 1,646      |   |      |            | 1,308      |   |   |            |            |  
|Mortgage-backed securities:                                                           |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchases                                                   |                                 |            | (1,624,936 | ) |      |            | (1,233,390 | ) |   |            | (960,876   | )
|                                                                                      | Proceeds from sale                                          |                                 |            |            |   |      |            | 507,839    |   |   |            | 17         |  
|                                                                                      | Payments received                                           |                                 |            | 1,077,868  |   |      |            | 881,094    |   |   |            | 168,433    |  
|Increase in retained interest in securitized
    assets                               |                                                             |                                 |            |            |   |      |            |            |   |   | (19,240    | )         
|Decrease in amounts due from trusts                                                   |                                                             |                                 | 34,658     |            |   |      | 220,920    |            |   |   | 81,971     |           
|Proceeds from sales of premises and equipment                                         |                                                             |                                 | 8,348      |            |   |      | 107        |            |   |   |            |           
|Purchase of premises and equipment                                                    |                                                             |                                 | (18,920    | )          |   |      | (9,993     | )          |   |   | (11,608    | )         
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                             |                                 | (2,712,922 | )          |   |      | (2,444,154 | )          |   |   | (4,221,840 | )         
|FINANCING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|(Decrease) increase in deposits                                                       |                                                             |                                 | (417,706   | )          |   |      | (194,310   | )          |   |   | 266,178    |           
|Increase (decrease) in securities sold under
    agreements to repurchase             |                                                             |                                 | 117,954    |            |   |      | (24,931    | )          |   |   | (70,854    | )         
|Proceeds from notes payable on automobile secured
    financing                       |                                                             |                                 | 6,912,058  |            |   |      | 3,519,112  |            |   |   | 3,867,220  |           
|Payments on notes payable on automobile secured
    financing                         |                                                             |                                 | (4,408,365 | )          |   |      | (1,156,604 | )          |   |   | (854,947   | )         
|(Decrease) increase in borrowings                                                     |                                                             |                                 | (19,178    | )          |   |      | (2,734     | )          |   |   | 19,320     |           
|Decrease in amounts held on behalf of trustee                                         |                                                             |                                 | (102,854   | )          |   |      | (214,361   | )          |   |   | (192,416   | )         
|(Decrease) increase in FHLB Advances                                                  |                                                             |                                 | (207,141   | )          |   |      | 133,847    |            |   |   | 168,826    |           
|Proceeds from issuance of subordinated debentures                                     |                                                             |                                 | 292,472    |            |   |      |            |            |   |   |            |           
|Payments on subordinated debentures                                                   |                                                             |                                 | (41,134    | )          |   |      | (42,892    | )          |   |   | (8,608     | )         
|Proceeds from issuance of common stock                                                |                                                             |                                 | 52,866     |            |   |      | 62,142     |            |   |   | 55,684     |           
|Proceeds from issuance of subsidiary common stock                                     |                                                             |                                 | 16,472     |            |   |      | 13,973     |            |   |   | 22,900     |           
|Cash dividends                                                                        |                                                             |                                 | (18,042    | )          |   |      | (15,000    | )          |   |   | (9,045     | )         
|Payments on cash flow hedges                                                          |                                                             |                                 | (83,080    | )          |   |      | (48,478    | )          |   |   |            |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                             |                                 | 2,094,322  |            |   |      | 2,029,764  |            |   |   | 3,264,258  |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|DECREASE IN CASH AND DUE FROM BANKS                                                   |                                                             |                                 | (20,112    | )          |   |      | (24,436    | )          |   |   | (42,602    | )         
|Cash and due from banks at beginning of year                                          |                                                             |                                 | 104,327    |            |   |      | 128,763    |            |   |   | 171,365    |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|CASH AND DUE FROM BANKS AT END OF YEAR                                                |                                                             | $                               | 84,215     |            |   | $    | 104,327    |            |   | $ | 128,763    |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Cash paid for:                                                                        |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Interest                                                    |                                 | $          | 513,944    |   |      | $          | 484,821    |   |   | $          | 286,306    |  
|                                                                                      | Income taxes                                                |                                 |            | 83,267     |   |      |            | 67,906     |   |   |            | 91,345     |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Acquisition of real estate acquired through
    foreclosure                           |                                                             |                                 | 1,107      |            |   |      | 3,047      |            |   |   | 5,396      |           

See accompanying notes to consolidated financial
statements.

F-6



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##### Table of Contents



WESTCORP 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 wholly
owned subsidiary, Western Financial Bank, also known as the
Bank, and its majority owned subsidiary, WFS Financial Inc, also
known as WFS. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
prior year amounts have been reclassified to conform with the
current years presentation.



| |                 
| | ----------------
| | 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 financial services company that
specializes primarily in automobile lending, which is funded by
our community banking operations and our asset-backed
securitization transactions. We have only one reportable segment.



| |                        
| | -----------------------
| | Cash and Due from Banks

Cash and due from banks include cash, interest
bearing deposits with other financial institutions and other
short-term investments, which have no material restrictions as
to withdrawal or usage.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Investment Securities and Mortgage-Backed
    Securities Available for Sale

Investment securities and mortgage-backed
securities, also known as MBS, are classified as available for
sale and carried at fair value. 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 decline in the fair value of the investments which is deemed
to be other than temporary is charged against current earnings.
The method used in determining the cost of investments sold is
specific identification.

Prior to January 1, 2001, we entered into or
committed to interest rate caps and interest rate swaps as
hedges against market value changes in designated portions of
our MBS portfolio to manage interest rate risk exposure. These
financial instruments were also recorded at fair value and
included in the basis of the designated available for sale
securities. The interest rate differential to be paid or
received was accrued and included as part of interest income,
thereby adjusting the overall yield on securities for which we
hedged our exposure to interest rate risk. Unrealized gains and
losses on these contracts were deferred and amortized into
interest income over the shorter of the remaining life of the
derivative instrument or the expected life of the associated
asset. When the related MBS was sold, settled or terminated, the
deferred gains or losses from these contracts were recognized in
the Consolidated Statements of Income as a component of MBS
gains and losses.

Effective January 1, 2001, we redesignated
these existing agreements from hedges on our MBS portfolio to
cash flow hedges on future interest payments on deposits and
securities sold under agreements to repurchase as a result of
adopting Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging
Activities, also known as SFAS No. 133, as amended.
See Derivative Financial Instruments for further
discussion.

F-7



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##### Table of Contents





| |                            
| | ---------------------------
| | Securitization Transactions

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

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

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 is calculated so as to recognize retained interest
income on an effective yield basis. These amounts are reported
as automobile lending income on our Consolidated Statements of
Income.

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

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

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

As servicer of these contracts, we hold and remit
funds collected from the borrowers on behalf of the trustee
pursuant to reinvestment contracts that we have entered into for
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.

F-8



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##### Table of Contents





| |                            
| | ---------------------------
| | 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 loan 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 loan portfolio,
and other relevant factors. The allowance is increased by
provisions for credit losses charged against income.



| |                 
| | ----------------
| | Nonaccrual Loans

Nonaccrual loans are loans on which accrual of
interest has been suspended. Interest is suspended on all real
estate loans when, in our judgement, the interest will not be
collectible in the normal course of business or when loans are
90 days or more past due or full collection of principal is
not assured. When a loan is placed on nonaccrual, interest
accrued is reversed against interest income. The accrual of
interest income is suspended on all loans, except consumer
loans. On these loans, interest continues to accrue until the
loans are charged off, which occurs automatically after the
loans are past due 120 days, except for accounts that are
in Chapter 13 bankruptcy. At the time that a loan is
charged off, all accrued interest is reversed. For those
accounts that are in Chapter 13 bankruptcy and are
contractually past due greater than 120 days, all accrued
interest is reversed and income is recognized on a cash basis.
As of December 31, 2002 and 2001, the amounts of accrued
interest reversed were 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 loans receivable to repossessed assets at fair
value with any adjustment recorded against the allowance for
credit losses. Repossessed assets were included in other assets
on the Consolidated Statements of Financial Condition and are
not material.



| |                     
| | --------------------
| | Nonperforming Assets

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



| |                  
| | -----------------
| | Real Estate Owned

Real estate acquired through foreclosure is
recorded at the lower of cost or fair value less estimated costs
to sell. These values are periodically reviewed and write-downs
are recorded, if appropriate. Costs of holding this real estate
and related gains and losses on disposition are credited or
charged to real estate operations as incurred.

Real estate owned is carried net of an allowance
for losses which is maintained at a level we believe to be
adequate to absorb any probable losses in the portfolio that can
be reasonably estimated. Our determination of the adequacy of
the allowance is based on an evaluation of past credit loss
experience, current economic conditions, selling costs and other
relevant factors.

F-9



---



##### Table of Contents





| |                               
| | ------------------------------
| | Interest Income and Fee Income

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

We defer certain loan origination fees,
commitment fees, premiums paid to dealers and loan origination
costs. The net amount is amortized as an adjustment to the
related loans yield over their contractual life.
Commitment fees based on a percentage of a customers
unused line of credit are recognized over the commitment period.
Fees for other services are recorded as income when earned.



| |                        
| | -----------------------
| | Mortgage Banking Income

Mortgage banking income consists primarily of
gain on sale of mortgage loans and mortgage servicing rights and
other mortgage servicing related fee income. Historically, we
originated mortgage loans and sold the loans to investors on
either a servicing rights retained or servicing rights released
basis. When we sold a mortgage loan with servicing rights
retained, we would record a gain related only to the sale of the
loan. Conversely, when we sold a mortgage loan with servicing
rights released, we would record a gain related to the value of
the loan and the value of the servicing rights.

Gain on sale of mortgage loans represented the
difference between the allocated cost basis of loans sold and
the proceeds from sale, which included the carrying value of
capitalized servicing rights, also known as CSRs, created as a
result of the sale. The carrying value of the CSRs represented
an allocation of the cost basis of loans sold between the CSRs
and the loans based upon their relative fair value at the date
the loans were originated or purchased. The fair value of CSRs
was calculated by estimating future servicing revenues,
including servicing fees, late charges, other ancillary income,
and float benefit, less the actual costs to service loans. The
amortization of the CSRs was a component of mortgage banking
income over the period of, and in proportion to, the expected
repayment term of the underlying loans. CSRs were evaluated for
impairment based on the excess of the carrying amount of the
CSRs over their fair value.



| |                      
| | ---------------------
| | Insurance Commissions

Commissions on insurance policies sold are
recognized as income over the life of the policies.



| |                   
| | ------------------
| | Insurance Premiums

Premiums for life and accident/health insurance
policies are recognized as income over the term of the insurance
contract.



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

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



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

We file a consolidated federal tax return , and
combined or consolidated returns in states where such filing
method is allowed, including subsidiaries as required by such
states. In other states, subsidiaries file separate state tax
returns.



| |                                     
| | ------------------------------------
| | Fair Values 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

F-10



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##### Table of Contents



on estimates using present value or other
valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rates
and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and in many cases, could not be realized in
immediate settlement of the instruments. Fair values for certain
financial instruments and all non-financial instruments are not
required to be disclosed. Accordingly, the aggregate fair value
amounts presented do not represent our underlying value.


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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and due from banks:The carrying amounts reported in the
    Consolidated Statements of Financial Condition for cash and due
    from banks approximate those assets fair values.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Investment securities and MBS: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.                                                                                                                                                                                                                                                                                                                                                
|
| | Loans receivable:The fair values for loans are
    estimated using discounted cash flow analysis, using interest
    rates currently being offered for loans with similar terms to
    borrowers of similar credit quality.                                                                                                                                                                                                                                                                                                                                                                            
|
| | Retained interest in securitized assets:RISA is carried at fair value. The
    fair value is determined by discounting estimated cash flows
    using a current market discount rate.                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Interest rate swaps, interest rate caps,
    forward agreements and Euro-dollar futures
    contract:The fair value is estimated
    by obtaining market quotes from brokers or internally valuing
    when market quotes are not readily available.                                                                                                                                                                                                                                                                                                                                                   
|
| | Loan commitments (including fixed and
    variable):The fair values of loan
    commitments are based on quoted market prices of similar loans
    sold in the secondary market.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Deposits:The fair
    values disclosed for demand deposit accounts, passbook accounts,
    certificate accounts, brokered certificate accounts and certain
    types of money market accounts are, by definition, equal to the
    amount payable on demand at the reporting date, i.e., their
    carrying amounts. Fair values for fixed rate certificates of
    deposit are estimated using a discounted cash flow calculation
    that applies interest rates currently being offered on
    certificates of deposit to a schedule of aggregated expected
    monthly maturities on time deposits.
|
| | Securities sold under agreements to
    repurchase, notes payable on automobile secured financing,
    Federal Home Loan Bank advances, and subordinated
    debentures:The fair value is
    estimated by using discounted cash flow analyses based on our
    current incremental borrowing rates for similar types of
    borrowing arrangements.                                                                                                                                                                                                                                                   
|
| | Short-term borrowings:The carrying amounts reported in the
    Consolidated Statements of Financial Condition approximate their
    fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Amounts held on behalf of trustee:The carrying amounts reported in the
    Consolidated Statements of Financial Condition approximate their
    fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                                 
| | --------------------------------
| | Derivative Financial Instruments

Effective January 1, 2001, we adopted
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 is 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

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analysis and discounted cash flow analysis to
test the effectiveness of our hedges on a quarterly basis. All
of our derivative instruments that are designated as hedges are
treated as cash flow hedges under SFAS No. 133.


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

As we issued certain variable rate notes payable
in 2002 and 2001, we also entered into interest rate swap
agreements in order to hedge our variable interest rate exposure
on future interest payments. The fair value of the interest rate
swap agreements is included in notes payable on automobile
secured financing, and any change in the fair value is reported
as accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. Any
ineffective portion is recorded in interest expense during that
period if the hedge is greater than 100% effective. Related
interest income or expense is settled on a quarterly basis and
recognized as an adjustment to interest expense in our
Consolidated Statements of Income.

Historically, to protect against market value
changes on our MBS portfolio, we entered into various hedge
agreements. As part of the adoption of SFAS No. 133,
we redesignated these existing agreements from hedges on our MBS
portfolio to cash flow hedges that will protect against
potential changes in interest rates affecting interest payments
on future deposits gathered by us and future securities sold
under agreements to repurchase. The fair value of the interest
rate swap agreements is included in deposits and securities sold
under agreements to repurchase, respectively, 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. Related interest income or expense is
settled on a quarterly basis and is recorded in accumulated
other comprehensive income (loss) and reclassified into earnings
in the period during which cash flows on the hedged items affect
income. In conjunction with this redesignation on
January 1, 2001, we recorded a transition adjustment to
earnings for the $33.7 million unrealized loss on these
derivatives offset by an equal amount of unrealized gain on our
MBS portfolio.

We also enter into interest rate swap agreements
or other derivatives that do not qualify for hedge accounting
under FAS 133 or that we choose not to designate as hedges.
These derivatives pertain to variable rate notes issued in
conjunction with the securitization of our contracts. Any change
in the market value of such derivatives is recorded to income
each month. Any income or expense recognized on such derivatives
is recognized as miscellaneous income or expense.

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.

Stock-based Compensation

As discussed below, Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123, also known as
SFAS No. 148, requires expanded disclosure of the
effects of a companys accounting policy for stock-based

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employee compensation. We use the intrinsic value
method to account for stock-based employee compensation. See
Note 20  Stock Options for further disclosure.


Accounting Pronouncements

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

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

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

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

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

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

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

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

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, also
known as FIN No. 46. FIN No. 46 changes the
consolidation requirements by requiring a variable interest
entity to be consolidated by a company if that company is
subject to the majority of the risk of loss from the variable
interest entitys activities or entitled to receive a
majority of the entitys residual returns or both. In
addition, FIN No. 46 requires disclosures about variable
interest entities that the company is not required to

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consolidate but in which it has a significant
variable interest. The consolidation requirements of FIN
No. 46 apply to variable interest entities created after
January 31, 2003 and apply to existing variable interest
entities in the first fiscal year or interim period beginning
after June 15, 2003. The adoption of FIN No. 46 will
not have a material effect on our earnings or financial position.


Note 2  Investment Securities
Available for Sale

Investment securities available for sale
consisted of the following:

|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 
|------------------------------------------------ |  | ---------------------- | ------ | ---------- |  | ---------- | -- | ----- |  |  |  |  |  | - | ------ | 
|                                                 |  |                       
|                                                 |  | December 31, 2002     
|                                                 |  |                       
|                                                 |  |                        |        | Gross      |  | Gross      |    |      
|                                                 |  | Amortized              |        | Unrealized |  | Unrealized |    | Fair 
|                                                 |  | Cost                   |        | Gain       |  | Loss       |    | Value
|                                                 |  |                        |        |            |  |            |    |      
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Obligations of states and political subdivisions |  | $                      | 1,023  |            |  | $          | 23 |       |  |  |  |  |  | $ | 1,046  | 
|Owner trust certificates                         |  |                        | 3,348  |            |  |            |    |       |  |  |  |  |  |   | 3,348  | 
|Other                                            |  |                        | 6,031  |            |  |            |    |       |  |  |  |  |  |   | 6,031  | 
|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 
|                                                 |  | $                      | 10,402 |            |  | $          | 23 |       |  |  |  |  |  | $ | 10,425 | 
|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 

|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 
|------------------------------------------------ |  | ---------------------- | ------ | ---------- |  | ---------- | -- | ----- |  |  |  |  |  | - | ------ | 
|                                                 |  |                       
|                                                 |  | December 31, 2001     
|                                                 |  |                       
|                                                 |  |                        |        | Gross      |  | Gross      |    |      
|                                                 |  | Amortized              |        | Unrealized |  | Unrealized |    | Fair 
|                                                 |  | Cost                   |        | Gain       |  | Loss       |    | Value
|                                                 |  |                        |        |            |  |            |    |      
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Obligations of states and political subdivisions |  | $                      | 1,508  |            |  | $          | 41 |       |  |  |  |  |  | $ | 1,549  | 
|Owner trust certificates                         |  |                        | 4,668  |            |  |            |    |       |  |  |  |  |  |   | 4,668  | 
|Other                                            |  |                        | 4,294  |            |  |            |    |       |  |  |  |  |  |   | 4,294  | 
|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 
|                                                 |  | $                      | 10,470 |            |  | $          | 41 |       |  |  |  |  |  | $ | 10,511 | 
|                                                 |  |                        |        |            |  |            |    |       |  |  |  |  |  |   |        | 

At December 31, 2002, the stated maturities
of our investment securities available for sale were as follows:

|                                                 |  |                        |       |               |  |              |       |                      |  |           |       |       |  |           |       |       |  |   |     |  |  |   |     |  |  |   |       |  |  |   |       | 
|------------------------------------------------ |  | ---------------------- | ----- | ------------- |  | ------------ | ----- | -------------------- |  | --------- | ----- | ----- |  | --------- | ----- | ----- |  | - | --- |  |  | - | --- |  |  | - | ----- |  |  | - | ----- | 
|                                                 |  |                        |       |               |  |              |       |                      |  |          
|                                                 |  |                        |       | One Year      |  | Five Years   |       | Ten Years           
|                                                 |  | Up to One Year         |       | to Five Years |  | to Ten Years |       | to Twenty-five Years
|                                                 |  |                        |       |               |  |              |       |                     
|                                                 |  | Amortized              |       | Fair          |  | Amortized    |       | Fair                 |  | Amortized |       | Fair  |  | Amortized |       | Fair 
|                                                 |  | Cost                   |       | Value         |  | Cost         |       | Value                |  | Cost      |       | Value |  | Cost      |       | Value
|                                                 |  |                        |       |               |  |              |       |                      |  |           |       |       |  |           |       |      
|                                                 |  |                       
|                                                 |  | (Dollars in thousands)
|Obligations of states and political subdivisions |  |                        |       |               |  |              |       |                      |  | $         | 515   |       |  | $         | 526   |       |  | $ | 508 |  |  | $ | 520 |  |  |   |       |  |  |   |       | 
|Owner trust certificates                         |  |                        |       |               |  |              |       |                      |  |           | 3,348 |       |  |           | 3,348 |       |  |   |     |  |  |   |     |  |  |   |       |  |  |   |       | 
|Other                                            |  | $                      | 1,742 |               |  | $            | 1,742 |                      |  |           | 490   |       |  |           | 490   |       |  |   |     |  |  |   |     |  |  | $ | 3,799 |  |  | $ | 3,799 | 
|                                                 |  |                        |       |               |  |              |       |                      |  |           |       |       |  |           |       |       |  |   |     |  |  |   |     |  |  |   |       |  |  |   |       | 
|                                                 |  | $                      | 1,742 |               |  | $            | 1,742 |                      |  | $         | 4,353 |       |  | $         | 4,364 |       |  | $ | 508 |  |  | $ | 520 |  |  | $ | 3,799 |  |  | $ | 3,799 | 
|                                                 |  |                        |       |               |  |              |       |                      |  |           |       |       |  |           |       |       |  |   |     |  |  |   |     |  |  |   |       |  |  |   |       | 

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Note 3  Mortgage-Backed
Securities Available for Sale

MBS available for sale consisted of the following:

|                                 |  |                        |           |            |  |            |        |       |  |   |       |  |  |   |           | 
|-------------------------------- |  | ---------------------- | --------- | ---------- |  | ---------- | ------ | ----- |  | - | ----- |  |  | - | --------- | 
|                                 |  |                       
|                                 |  | December 31, 2002     
|                                 |  |                       
|                                 |  |                        |           | Gross      |  | Gross      |        |      
|                                 |  | Amortized              |           | Unrealized |  | Unrealized |        | Fair 
|                                 |  | Cost                   |           | Gains      |  | Losses     |        | Value
|                                 |  |                        |           |            |  |            |        |      
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|GNMA certificates                |  | $                      | 2,562,459 |            |  | $          | 46,008 |       |  | $ | 1,010 |  |  | $ | 2,607,457 | 
|FNMA participation certificates  |  |                        | 38,647    |            |  |            | 477    |       |  |   |       |  |  |   | 39,124    | 
|FHLMC participation certificates |  |                        | 1,046     |            |  |            | 22     |       |  |   |       |  |  |   | 1,068     | 
|Other                            |  |                        | 2,008     |            |  |            |        |       |  |   |       |  |  |   | 2,008     | 
|                                 |  |                        |           |            |  |            |        |       |  |   |       |  |  |   |           | 
|                                 |  | $                      | 2,604,160 |            |  | $          | 46,507 |       |  | $ | 1,010 |  |  | $ | 2,649,657 | 
|                                 |  |                        |           |            |  |            |        |       |  |   |       |  |  |   |           | 

|                                 |  |                        |           |            |  |            |        |       |  |   |        |  |  |   |           | 
|-------------------------------- |  | ---------------------- | --------- | ---------- |  | ---------- | ------ | ----- |  | - | ------ |  |  | - | --------- | 
|                                 |  |                       
|                                 |  | December 31, 2001     
|                                 |  |                       
|                                 |  |                        |           | Gross      |  | Gross      |        |      
|                                 |  | Amortized              |           | Unrealized |  | Unrealized |        | Fair 
|                                 |  | Cost                   |           | Gains      |  | Losses     |        | Value
|                                 |  |                        |           |            |  |            |        |      
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|GNMA certificates                |  | $                      | 2,040,110 |            |  | $          | 12,527 |       |  | $ | 16,268 |  |  | $ | 2,036,369 | 
|FNMA participation certificates  |  |                        | 51,353    |            |  |            | 541    |       |  |   |        |  |  |   | 51,894    | 
|FHLMC participation certificates |  |                        | 1,679     |            |  |            | 13     |       |  |   |        |  |  |   | 1,692     | 
|Other                            |  |                        | 2,270     |            |  |            |        |       |  |   |        |  |  |   | 2,270     | 
|                                 |  |                        |           |            |  |            |        |       |  |   |        |  |  |   |           | 
|                                 |  | $                      | 2,095,412 |            |  | $          | 13,081 |       |  | $ | 16,268 |  |  | $ | 2,092,225 | 
|                                 |  |                        |           |            |  |            |        |       |  |   |        |  |  |   |           | 

Proceeds from the sale of MBS available for sale
for the years ended December 31, 2002, 2001 and 2000 were
as follows:

|                                              |  |                                 |  |      |  |      |         |   |  |   |    | 
|--------------------------------------------- |  | ------------------------------- |  | ---- |  | ---- | ------- | - |  | - | -- | 
|                                              |  |                                
|                                              |  | For the Year Ended December 31,
|                                              |  |                                
|                                              |  | 2002                            |  | 2001 |  | 2000
|                                              |  |                                 |  |      |  |     
|                                              |  |                                
|                                              |  | (Dollars in thousands)         
|Proceeds from sales of MBS available for sale |  |                                 |  |      |  | $    | 507,839 |   |  | $ | 17 | 
|Gross realized gains                          |  |                                 |  |      |  |      | 4,020   |   |  |   |    | 
|Gross realized losses                         |  |                                 |  |      |  |      | (3,479  | ) |  |   |    | 

Our MBS available for sale portfolio had
maturities of one month to thirty years at December 31,
2002 and 2001, although payments are generally received monthly
throughout the life of these securities.

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Note 4  Net Loans
Receivable

Net loans receivable consisted of the following:

|                                |                                                         |                        |           |           |   |   |           |           |  
|------------------------------- | ------------------------------------------------------- | ---------------------- | --------- | --------- | - | - | --------- | --------- | -
|                                |                                                         |                       
|                                |                                                         | December 31,          
|                                |                                                         |                       
|                                |                                                         | 2002                   |           | 2001     
|                                |                                                         |                        |           |          
|                                |                                                         |                       
|                                |                                                         | (Dollars in thousands)
|Real estate:                    |                                                         |                        |           |           |   |   |           |          
|                                | Mortgage                                                |                        | $         | 277,233   |   |   | $         | 361,115   |  
|                                | Construction                                            |                        |           | 14,150    |   |   |           | 15,638    |  
|                                |                                                         |                        |           |           |   |   |           |          
|                                |                                                         |                        | 291,383   |           |   |   | 376,753   |          
|Less: undisbursed loan proceeds |                                                         |                        | 8,453     |           |   |   | 3,298     |          
|                                |                                                         |                        |           |           |   |   |           |          
|                                |                                                         |                        | 282,930   |           |   |   | 373,455   |          
|Consumer:                       |                                                         |                        |           |           |   |   |           |          
|                                | Contracts                                               |                        |           | 8,957,149 |   |   |           | 7,045,578 |  
|                                | Dealer participation, net of deferred contract
    fees |                        |           | 154,671   |   |   |           | 128,148   |  
|                                | Other                                                   |                        |           | 7,531     |   |   |           | 8,826     |  
|                                | Unearned discounts                                      |                        |           | (91,713   | ) |   |           | (108,169  | )
|                                |                                                         |                        |           |           |   |   |           |          
|                                |                                                         |                        | 9,027,638 |           |   |   | 7,074,383 |          
|Commercial                      |                                                         |                        | 97,216    |           |   |   | 85,312    |          
|                                |                                                         |                        |           |           |   |   |           |          
|                                |                                                         |                        | 9,407,784 |           |   |   | 7,533,150 |          
|Allowance for credit losses     |                                                         |                        | (258,892  | )         |   |   | (171,432  | )        
|                                |                                                         |                        |           |           |   |   |           |          
|                                |                                                         | $                      | 9,148,892 |           |   | $ | 7,361,718 |          
|                                |                                                         |                        |           |           |   |   |           |          

Loans managed by us totaled $9.8 billion and
$8.6 billion as of December 31, 2002 and 2001,
respectively. Of the $9.8 billion loans managed at
December 31, 2002, $9.3 billion were owned by us and
$525 million were owned by securitization trusts. Of the
$8.6 billion loans managed at December 31, 2001,
$7.4 billion were owned by us and $1.2 billion were
owned by securitization trusts.

There were no impaired loans at December 31,
2002 and 2001.

Note 5  Allowance for Credit
Losses

Changes in the allowance for credit losses were
as follows:

|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  
|------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                      |  |                                
|                                      |  | For the Year Ended December 31,
|                                      |  |                                
|                                      |  | 2002                            |          | 2001 |  | 2000
|                                      |  |                                 |          |      |  |     
|                                      |  |                                
|                                      |  | (Dollars in thousands)         
|Balance at beginning of year          |  | $                               | 171,432  |      |  | $    | 104,006  |   |  | $ | 64,217  |  
|Provision for credit losses           |  |                                 | 306,233  |      |  |      | 196,977  |   |  |   | 82,133  |  
|Chargeoffs                            |  |                                 | (281,150 | )    |  |      | (163,902 | ) |  |   | (57,126 | )
|Write-down of nonperforming assets(1) |  |                                 | (3,673   | )    |  |      | (6,786   | ) |  |   |         |  
|Recoveries                            |  |                                 | 66,050   |      |  |      | 41,137   |   |  |   | 14,782  |  
|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  
|Balance at end of year                |  | $                               | 258,892  |      |  | $    | 171,432  |   |  | $ | 104,006 |  
|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  



---



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

F-17



---



##### Table of Contents



Note 6  Retained Interest in
Securitized Assets

The following table presents the activity of the
RISA:

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



---



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

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

|                                 |  |                                 |        |      |  |      |        |  |  |   |         | 
|-------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|                                 |  |                                
|                                 |  | For the Year Ended December 31,
|                                 |  |                                
|                                 |  | 2002                            |        | 2001 |  | 2000
|                                 |  |                                 |        |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  |                                 |        |      |  |      |        |  |  | $ | 660,000 | 
|Excess cash flows from trust     |  | $                               | 6,971  |      |  | $    | 47,357 |  |  |   | 127,294 | 
|Servicing fees received          |  |                                 | 10,735 |      |  |      | 23,018 |  |  |   | 41,767  | 
|Servicing advances               |  |                                 | 18,547 |      |  |      | 20,203 |  |  |   | 38,060  | 
|Repayments of servicing advances |  |                                 | 17,585 |      |  |      | 23,893 |  |  |   | 49,531  | 

The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$35.2 million and $67.4 million at December 31,
2002 and 2001, respectively. Net chargeoffs for these
securitization trusts totaled $30.4 million,
$50.4 million and $75.5 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

Note 7  Premises and
Equipment

Premises and equipment consisted of the following:

|                               |  |                        |         |      |  |   |         |  
|------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                               |  |                       
|                               |  | December 31,          
|                               |  |                       
|                               |  | 2002                   |         | 2001
|                               |  |                        |         |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Land                           |  | $                      | 15,949  |      |  | $ | 16,275  |  
|Buildings and improvements     |  |                        | 50,738  |      |  |   | 51,272  |  
|Computers and software         |  |                        | 51,780  |      |  |   | 44,519  |  
|Furniture and equipment        |  |                        | 20,037  |      |  |   | 18,757  |  
|Other                          |  |                        | 9,092   |      |  |   | 6,974   |  
|                               |  |                        |         |      |  |   |         |  
|                               |  |                        | 147,596 |      |  |   | 137,797 |  
|Less: accumulated depreciation |  |                        | (68,932 | )    |  |   | (58,539 | )
|                               |  |                        |         |      |  |   |         |  
|                               |  | $                      | 78,664  |      |  | $ | 79,258  |  
|                               |  |                        |         |      |  |   |         |  

F-18



---



##### Table of Contents



Note 8  Accrued Interest
Receivable

Accrued interest receivable consisted of the
following:

|                             |  |                        |        |      |  |   |        | 
|---------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                             |  |                       
|                             |  | December 31,          
|                             |  |                       
|                             |  | 2002                   |        | 2001
|                             |  |                        |        |     
|                             |  |                       
|                             |  | (Dollars in thousands)
|Interest on loans receivable |  | $                      | 62,411 |      |  | $ | 53,354 | 
|Interest on securities       |  |                        | 15,170 |      |  |   | 13,388 | 
|                             |  |                        |        |      |  |   |        | 
|                             |  | $                      | 77,581 |      |  | $ | 66,742 | 
|                             |  |                        |        |      |  |   |        | 

Accrued interest receivable at December 31,
2002 and 2001 is included in other assets in the Consolidated
Statements of Financial Condition.

Note 9  Deposits

Deposits consisted of the following:

|                              |  |                   |     |                   |  |              |     |      |  |   |           |  |  |   |           | 
|----------------------------- |  | ----------------- | --- | ----------------- |  | ------------ | --- | ---- |  | - | --------- |  |  | - | --------- | 
|                              |  |                   |     | Weighted          |  |             
|                              |  | Weighted          |     | Average Rate for  |  | December 31,
|                              |  | Average Rate at   |     | the Year Ended    |  |             
|                              |  | December 31, 2002 |     | December 31, 2002 |  | 2002         |     | 2001
|                              |  |                   |     |                   |  |              |     |     
|Noninterest bearing deposits  |  |                   |    |                   |  |              |    |      |  | $ | 165,844   |  |  | $ | 100,170   | 
|Demand deposit accounts       |  |                   | 0.2 | %                 |  |              | 0.2 | %    |  |   | 1,037     |  |  |   | 1,124     | 
|Passbook accounts             |  |                   | 0.3 |                   |  |              | 0.4 |      |  |   | 6,688     |  |  |   | 11,192    | 
|Money market deposit accounts |  |                   | 2.1 |                   |  |              | 2.0 |      |  |   | 730,245   |  |  |   | 858,371   | 
|Brokered certificate accounts |  |                   | 2.1 |                   |  |              | 3.5 |      |  |   | 98,992    |  |  |   | 56,302    | 
|Certificate accounts          |  |                   | 3.0 |                   |  |              | 5.2 |      |  |   | 972,178   |  |  |   | 1,302,167 | 
|                              |  |                   |     |                   |  |              |     |      |  |   |           |  |  |   |           | 
|                              |  |                   |     |                   |  |              |     |      |  | $ | 1,974,984 |  |  | $ | 2,329,326 | 
|                              |  |                   |     |                   |  |              |     |      |  |   |           |  |  |   |           | 

The aggregate amount of certificate accounts in
denominations greater than or equal to $100,000 was
$305 million and $426 million at December 31,
2002 and 2001, respectively. Deposit amounts in excess of
$100,000 are not federally insured.

Scheduled maturities of certificate accounts at
December 31, 2002 were as follows:

|                                        |  |                        |      |        |  |   |         | 
|--------------------------------------- |  | ---------------------- | ---- | ------ |  | - | ------- | 
|                                        |  | Weighted               |      |       
|                                        |  | Average Rate           |      | Amount
|                                        |  |                        |      |       
|                                        |  |                       
|                                        |  | (Dollars in thousands)
|Six months or less                      |  |                        | 2.96 | %      |  | $ | 395,468 | 
|More than six months through one year   |  |                        | 2.94 |        |  |   | 523,132 | 
|More than one year through three years  |  |                        | 3.78 |        |  |   | 48,920  | 
|More than three years through ten years |  |                        | 4.05 |        |  |   | 4,658   | 
|                                        |  |                        |      |        |  |   |         | 
|                                        |  |                        |      |        |  | $ | 972,178 | 
|                                        |  |                        |      |        |  |   |         | 

F-19



---



##### Table of Contents



Interest expense on deposits consisted of the
following:

|                              |  |                                 |        |      |  |      |         |  |  |   |         | 
|----------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------- |  |  | - | ------- | 
|                              |  |                                
|                              |  | For the Year Ended December 31,
|                              |  |                                
|                              |  | 2002                            |        | 2001 |  | 2000
|                              |  |                                 |        |      |  |     
|                              |  |                                
|                              |  | (Dollars in thousands)         
|Demand deposit accounts       |  | $                               | 117    |      |  | $    | 70      |  |  | $ | 373     | 
|Passbook accounts             |  |                                 | 39     |      |  |      | 169     |  |  |   | 296     | 
|Money market deposit accounts |  |                                 | 14,772 |      |  |      | 28,648  |  |  |   | 42,160  | 
|Certificate accounts          |  |                                 | 63,867 |      |  |      | 83,859  |  |  |   | 90,460  | 
|Brokered certificate accounts |  |                                 | 1,220  |      |  |      | 2,085   |  |  |   | 321     | 
|                              |  |                                 |        |      |  |      |         |  |  |   |         | 
|                              |  | $                               | 80,015 |      |  | $    | 114,831 |  |  | $ | 133,610 | 
|                              |  |                                 |        |      |  |      |         |  |  |   |         | 

Accrued interest payable on deposits at
December 31, 2002 and 2001 was $5.7 million and
$7.0 million, respectively, including accrued interest
payable on related interest rate swap agreements, and is
included in other liabilities in the Consolidated Statements of
Financial Condition.

The following table summarizes certificate
accounts by interest rate within maturity categories at:

|              |  |                        |         |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |         | 
|------------- |  | ---------------------- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ----- |  | - | ----- |  |  | - | ----- |  |  | - | ------- | 
|              |  |                       
|              |  | December 31, 2002     
|              |  |                       
|              |  | 2003                   |         | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Total
|              |  |                        |         |      |  |      |        |      |  |      |        |      
|              |  |                       
|              |  | (Dollars in thousands)
|0%  3.99%    |  | $                      | 862,104 |      |  | $    | 11,358 |      |  | $    | 10,406 |       |  |   |       |  |  | $ | 2,177 |  |  | $ | 886,045 | 
|4.00%  5.99% |  |                        | 56,490  |      |  |      | 20,899 |      |  |      | 6,262  |       |  | $ | 1,220 |  |  |   | 1,262 |  |  |   | 86,133  | 
|              |  |                        |         |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |         | 
|              |  | $                      | 918,594 |      |  | $    | 32,257 |      |  | $    | 16,668 |       |  | $ | 1,220 |  |  | $ | 3,439 |  |  | $ | 972,178 | 
|              |  |                        |         |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |         | 

|              |  |                        |           |      |  |      |         |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |           | 
|------------- |  | ---------------------- | --------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ----- |  | - | ----- |  |  | - | ----- |  |  | - | --------- | 
|              |  |                       
|              |  | December 31, 2001     
|              |  |                       
|              |  | 2002                   |           | 2003 |  | 2004 |         | 2005 |  | 2006 |        | Total
|              |  |                        |           |      |  |      |         |      |  |      |        |      
|              |  |                       
|              |  | (Dollars in thousands)
|0%  3.99%    |  | $                      | 377,482   |      |  | $    | 65,209  |      |  | $    | 2,660  |       |  |   |       |  |  | $ | 12    |  |  | $ | 445,363   | 
|4.00%  5.99% |  |                        | 728,454   |      |  |      | 78,835  |      |  |      | 12,723 |       |  | $ | 1,555 |  |  |   | 1,749 |  |  |   | 823,316   | 
|6.00%  7.99% |  |                        | 33,376    |      |  |      | 112     |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   | 33,488    | 
|              |  |                        |           |      |  |      |         |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |           | 
|              |  | $                      | 1,139,312 |      |  | $    | 144,156 |      |  | $    | 15,383 |       |  | $ | 1,555 |  |  | $ | 1,761 |  |  | $ | 1,302,167 | 
|              |  |                        |           |      |  |      |         |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |           | 



|          |                                                  
|--------- | -------------------------------------------------
|Note 10  | Notes Payable on Automobile Secured
    Financing

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

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 facility are due monthly, in arrears, based on the
respective notes interest rate. Interest expense on all
notes payable on automobile secured financing, including
interest payments under interest rate swap agreements, totaled
$407 million for the year ended December 31, 2002
compared with $334 million and $124 million for the
years ended December 31, 2001 and 2000, respectively.

F-20



---



##### Table of Contents



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:

|           |  |               |           |                 |  |  |      |  
|---------- |  | ------------- | --------- | --------------- |  |  | ---- | -
|           |  | (Dollars      |           | Weighed Average
|           |  | in thousands) |           | Interest Rate  
|           |  |               |           |                
|2003       |  | $             | 440,595   |                 |  |  | 1.74 | %
|2004       |  |               | 67,764    |                 |  |  | 7.69 |  
|2005       |  |               | 2,233,975 |                 |  |  | 3.70 |  
|2006       |  |               | 1,183,839 |                 |  |  | 4.86 |  
|2007       |  |               | 1,518,270 |                 |  |  | 3.40 |  
|Thereafter |  |               | 2,978,472 |                 |  |  | 5.13 |  
|           |  |               |           |                 |  |  |      |  
|           |  | $             | 8,422,915 |                 |  |  | 4.25 | %
|           |  |               |           |                 |  |  |      |  



|          |                                                   
|--------- | --------------------------------------------------
|Note 11  | Securities Sold Under Agreements to
    Repurchase

Securities sold under agreements to repurchase
are summarized as follows:

|                                                                        |  |                        |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                                        |  |                       
|                                                                        |  | December 31,          
|                                                                        |  |                       
|                                                                        |  | 2002                   |         | 2001
|                                                                        |  |                        |         |     
|                                                                        |  |                       
|                                                                        |  | (Dollars in thousands)
|Balance at end of period                                                |  | $                      | 276,600 |      |  | $ | 155,190 |  
|Estimated fair value at end of period                                   |  |                        | 276,932 |      |  |   | 155,237 |  
|Average amount outstanding during the period                            |  |                        | 222,154 |      |  |   | 155,387 |  
|Maximum amount outstanding at any given month-end
    during the period |  |                        | 356,450 |      |  |   | 177,698 |  
|Weighted average interest rate during the period                        |  |                        | 2.5     | %    |  |   | 4.5     | %
|Weighted average interest rate at end of period                         |  |                        | 1.4     | %    |  |   | 1.9     | %

MBS available for sale sold under agreements to
repurchase were delivered to dealers who arranged the
transactions. The dealers may have sold, loaned, or otherwise
disposed of such securities to other parties in the normal
course of their operations, and have agreed to resell to us
substantially identical securities at the maturities of the
agreements. At December 31, 2002, we had $220 million
and $49.3 million outstanding with our counterparties,
Salomon Smith Barney and Nomura Securities Co., Ltd.,
respectively. At December 31, 2001, we had
$71.2 million and $80.0 million outstanding with our
counterparties, Salomon Smith Barney and Nomura Securities Co.,
Ltd., respectively. The agreements at December 31, 2002 and
2001 mature within 30 days. Average amounts are computed
based upon daily ending balances.



|          |                                
|--------- | -------------------------------
|Note 12  | Federal Home Loan Bank Advances

Advances from the Federal Home Loan Bank are
collateralized with eligible real estate loans and MBS. The FHLB
advances were collateralized with mortgage loans totaling
$206 million and $304 million at December 31,
2002 and 2001, respectively, and MBS totaling $1.3 billion
and $1.0 billion at December 31, 2002 and 2001,
respectively.

F-21



---



##### Table of Contents



Information as to interest rates and maturities
on advances from the FHLB is as follows:

|                               |            |                        |            |         |  |   |            |         | 
|------------------------------ | ---------- | ---------------------- | ---------- | ------- |  | - | ---------- | ------- | 
|                               |            |                       
|                               |            | December 31,          
|                               |            |                       
|                               |            | 2002                   |            | 2001   
|                               |            |                        |            |        
|                               |            |                       
|                               |            | (Dollars in thousands)
|Range of interest rates        |            |                        | 1.4%  7.1 | %       |  |   | 1.9%  8.2 | %      
|Weighted average interest rate |            |                        | 1.4        | %       |  |   | 2.0        | %      
|Year due:                      |            |                        |            |         |  |   |            |        
|                               | 2002       |                        |            |         |  |   | $          | 540,500 | 
|                               | 2003       |                        | $          | 333,500 |  |   |            |         | 
|                               | Thereafter |                        |            | 2,775   |  |   |            | 2,917   | 
|                               |            |                        |            |         |  |   |            |        
|                               |            | $                      | 336,275    |         |  | $ | 543,417    |        
|                               |            |                        |            |         |  |   |            |        

We had available credit with the FHLB of
approximately $1.0 billion and $733 million at
December 31, 2002 and 2001, respectively.



|          |                 
|--------- | ----------------
|Note 13  | Other Borrowings

We have a line of credit with a bank which has a
maximum availability of $30.0 million and
$20.0 million at December 31, 2002 and 2001. There was
no amount and $20.0 million outstanding at
December 31, 2002 and 2001, respectively, and amounts due
are included in other borrowings in the Consolidated Statements
of Financial Condition. The line of credit has an interest rate
tied to either the Prime rate or the London Interbank Offer
Rate, also known as LIBOR, based on our choice. The weighted
average interest rate was 4.5%, 4.0%, and 8.4% at
December 31, 2002, 2001, and 2000, respectively. Interest
expense totaled $0.1 million, $0.6 million, and
$1.3 million for the years ended December 31, 2002,
2001, and 2000, respectively.

Note 14  Subordinated
Debentures

Subordinated debentures consisted of the
following:

|                            |  |                        |          |      |  |  |          |  
|--------------------------- |  | ---------------------- | -------- | ---- |  |  | -------- | -
|                            |  |                       
|                            |  | December 31,          
|                            |  |                       
|                            |  | 2002                   |          | 2001
|                            |  |                        |          |     
|                            |  |                       
|                            |  | (Dollars in thousands)
|Subordinated debentures     |  |                        | $408,010 |      |  |  | $150,000 |  
|Discount and issuance costs |  |                        | (7,449   | )    |  |  | (2,286   | )
|                            |  |                        |          |      |  |  |          |  
|Net subordinated debentures |  |                        | $400,561 |      |  |  | $147,714 |  
|                            |  |                        |          |      |  |  |          |  

The subordinated debentures are unsecured and
consist of two issuances with outstanding balances of
$107 million with an interest rate of 8.875% per annum
due in 2007 and $293 million with an interest rate of
9.625% per annum due in 2012. They are redeemable at our
option, in whole or in part, on or after August 1, 2004 and
May 15, 2009, respectively, both at 100% of the principal
amount being redeemed plus accrued interest as of the date of
redemption. In addition, the 9.625% debentures may be
redeemed in part prior to May 15, 2005, provided at least
65% of the debentures remain outstanding, the redemption is with
the proceeds of and within 90 days of an equity issuance by
the Bank and the redemption price is not less than 109.625%. For
regulatory purposes, the subordinated debentures are included as
part of the Banks supplementary capital, subject to
certain limitations.

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##### Table of Contents



Note 15  Commitments and
Contingencies

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

|           |  |                        |        | 
|---------- |  | ---------------------- | ------ | 
|           |  | December 31, 2002     
|           |  |                       
|           |  | (Dollars in thousands)
|2003       |  | $                      | 6,546  | 
|2004       |  |                        | 6,125  | 
|2005       |  |                        | 5,057  | 
|2006       |  |                        | 2,841  | 
|2007       |  |                        | 1,819  | 
|Thereafter |  |                        | 3,197  | 
|           |  |                        |        | 
|           |  | $                      | 25,585 | 
|           |  |                        |        | 

In certain cases, these agreements include
various renewal options and contingent rental agreements. Rental
expense for premises and equipment totaled $7.1 million,
$6.9 million and $6.0 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

Our commercial and mortgage loan commitments and
mortgage loans sold with recourse were as follows:

|                                                                     |                     |                        |         |         |  |   |         |         | 
|-------------------------------------------------------------------- | ------------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                                     |                     |                       
|                                                                     |                     | December 31,          
|                                                                     |                     |                       
|                                                                     |                     | 2002                   |         | 2001   
|                                                                     |                     |                        |         |        
|                                                                     |                     |                       
|                                                                     |                     | (Dollars in thousands)
|Commercial letters of credit and unused lines of
    credit provided |                     | $                      | 214,574 |         |  | $ | 147,077 |        
|                                                                     |                     |                        |         |         |  |   |         |        
|Commitments to fund commercial and mortgage loans:                   |                     |                        |         |         |  |   |         |        
|                                                                     | Fixed rate loans    |                        | $       | 98,923  |  |   | $       | 21,089  | 
|                                                                     | Variable rate loans |                        |         | 111,596 |  |   |         | 119,808 | 
|                                                                     |                     |                        |         |         |  |   |         |        
|                                                                     |                     | $                      | 210,519 |         |  | $ | 140,897 |        
|                                                                     |                     |                        |         |         |  |   |         |        
|Mortgage loans sold with recourse                                    |                     | $                      | 45,424  |         |  | $ | 63,615  |        
|                                                                     |                     |                        |         |         |  |   |         |        

At December 31, 2002, we had commitments to
fund fixed rate loans at rates ranging from 2.42% to 10.09% with
loan terms ranging from one month to 137 months.

We have pledged certain assets relative to
amounts held on behalf of trustee, including amounts related to
securitization transactions treated as secured financings, as
follows:

|                                |  |                        |           |      |  |   |           | 
|------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                                |  |                       
|                                |  | December 31,          
|                                |  |                       
|                                |  | 2002                   |           | 2001
|                                |  |                        |           |     
|                                |  |                       
|                                |  | (Dollars in thousands)
|FNMA participation certificates |  | $                      | 30,204    |      |  | $ | 38,386    | 
|GNMA certificates               |  |                        | 692,908   |      |  |   | 637,162   | 
|Automobile contracts            |  |                        | 473,775   |      |  |   | 440,615   | 
|Multifamily first mortgages     |  |                        | 22,834    |      |  |   | 29,906    | 
|                                |  |                        |           |      |  |   |           | 
|                                |  | $                      | 1,219,721 |      |  | $ | 1,146,069 | 
|                                |  |                        |           |      |  |   |           | 

We issued certain MBS that include recourse
provisions. Subject to certain limitations, we are required, for
the life of the loans, to repurchase the buyers interest
in individual loans on which foreclosure proceedings have been
completed. Securities with recourse issued by us had a total
outstanding balance of $45.4 million and $63.6 million
at December 31, 2002 and 2001, respectively. The maximum
remaining exposure under these recourse provisions was
$45.4 million and $63.6 million at December 31,
2002 and 2001, respectively. We have pledged approximately
$11.7 million of MBS as collateral under these recourse
provisions at both December 31, 2002 and 2001.

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##### Table of Contents



We have provided for probable losses which can be
reasonably estimated that may occur as a result of our recourse
obligations. The amount reserved for probable losses on recourse
obligations totaled $0.6 million and $0.8 million at
December 31, 2002 and 2001, respectively. The amount of
reserves held was determined based upon historical experience of
losses on repurchased loans.

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 16  | Accumulated Other Comprehensive Loss, Net of
    Tax

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

|                                                |                                                |                        |          |         |   |   |         |         |  
|----------------------------------------------- | ---------------------------------------------- | ---------------------- | -------- | ------- | - | - | ------- | ------- | -
|                                                |                                                |                       
|                                                |                                                | December 31,          
|                                                |                                                |                       
|                                                |                                                | 2002                   |          | 2001   
|                                                |                                                |                        |          |        
|                                                |                                                |                       
|                                                |                                                | (Dollars in thousands)
|Unrealized gain/(loss) on marketable securities |                                                | $                      | 27,145   |         |   | $ | (1,457  | )      
|Unrealized loss on interest rate swaps: (1)     |                                                |                        |          |         |   |   |         |        
|                                                | Deposits                                       |                        |          | (53,081 | ) |   |         | (12,223 | )
|                                                | Automobile secured financing                   |                        |          | (43,624 | ) |   |         | (26,550 | )
|                                                | Securities sold under agreements to repurchase |                        |          | (3,092  | ) |   |         | (845    | )
|                                                |                                                |                        |          |         |   |   |         |        
|                                                |                                                |                        | (99,797  | )       |   |   | (39,618 | )      
|Realized loss on settled cash flow hedges: (1)  |                                                |                        |          |         |   |   |         |        
|                                                | Deposits                                       |                        |          | (11,367 | ) |   |         | (7,910  | )
|                                                | Automobile secured financing                   |                        |          | (17,531 | ) |   |         | (11,921 | )
|                                                |                                                |                        |          |         |   |   |         |        
|                                                |                                                |                        | (28,898  | )       |   |   | (19,831 | )      
|                                                |                                                |                        |          |         |   |   |         |        
|Total other accumulated comprehensive loss      |                                                | $                      | (101,550 | )       |   | $ | (60,906 | )      
|                                                |                                                |                        |          |         |   |   |         |        



---



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

Note 17  Equity
Offerings

We completed rights offerings in March 2002 and
May 2001 in which we raised $51.3 million and
$61.0 million through the issuance of 3.3 million and
3.7 million additional common shares at a price of $15.75
and $16.25 per share, respectively. With the completion of
the March 2002 offering, our total number of common shares
issued and outstanding increased 9.1% to 39.1 million
shares at March 31, 2002, compared with an increase of 12%
to 35.7 million shares in May 2001.

WFS completed a rights offering in March 2002 and
May 2001 which raised a total of $110 million and
$116 million 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 WFS number of 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 by WFS 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. The net amount of proceeds received from WFS
and our rights offerings executed in March 2002 and May
2001 totaled $67.3 million and $80.6 million,
respectively. At December 31, 2002, the Bank owned 84% of
WFS common stock.

F-24



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##### Table of Contents



Note 18  Automobile Lending
Income

Automobile lending income consisted of the
following components:

|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 
|---------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | 
|                                                                 |  |                                
|                                                                 |  | For the Year Ended December 31,
|                                                                 |  |                                
|                                                                 |  | 2002                            |         | 2001 |  | 2000
|                                                                 |  |                                 |         |      |  |     
|                                                                 |  |                                
|                                                                 |  | (Dollars in thousands)         
|Fee income                                                       |  | $                               | 78,724  |      |  | $    | 67,579  |   |  | $ | 57,786  | 
|Contractual servicing income                                     |  |                                 | 10,734  |      |  |      | 23,018  |   |  |   | 41,767  | 
|Retained interest (expense) income, net of
    RISA amortization |  |                                 | (29,490 | )    |  |      | (27,839 | ) |  |   | 51,429  | 
|Gain on sale of contracts                                        |  |                                 |         |      |  |      |         |   |  |   | 7,719   | 
|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 
|Total automobile lending income                                  |  | $                               | 59,968  |      |  | $    | 62,758  |   |  | $ | 158,701 | 
|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 

Fee income consists primarily of documentation
fees, late charges and deferment fees. According to the terms of
each securitization transaction, contractual servicing income is
earned at rates ranging from 1.0% to 1.25% per annum on the
outstanding balance of contracts securitized.

Note 19  Employee Benefit
Plans

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

The Westcorp Employee Stock Ownership Plan, also
known as the ESOP, covers essentially all associates who have
completed six months of service, excluding contract or temporary
employees. Contributions to the ESOP are discretionary and
determined by the Board of Directors within limits set forth
under the Employee Retirement Income Security Act of 1974. These
contributions are allocated to the associates account
based upon years of service and annual compensation. All shares
purchased by the ESOP are allocated to associates who
participate in the ESOP. The Salary Savings Plan, also known as
the 401(k) Plan, covers essentially all associates who have
completed three months of service, excluding contract or
temporary employees. Contributions to the 401(k) Plan are
guaranteed and based on a fixed percent of the associates
payroll deferral for the calendar year. Contributions to the
ESOP and 401(k) Plan totaled $2.8 million,
$8.4 million and $8.0 million in 2002, 2001 and 2000,
respectively. Compensation expense related to the ESOP and
401(k) Plan totaled $1.4 million, $4.8 million and
$7.3 million in 2002, 2001 and 2000, respectively. As of
December 31, 2002, the ESOP and 401(k) plan held a total of
1,927,643 shares of our common stock. All shares are
considered outstanding for purposes of calculating our earnings
per share.

The Executive Deferral Plan, also known as the
EDP, covers a select group of our management or highly
compensated associates as determined by our 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 our Board of Directors. For the year ended
December 31, 2002, expense related to the EDP for us and
our subsidiaries totaled $0.7 million compared with
$0.3 million and $0.5 million for the years ended
December 31, 2001 and 2000, respectively.

The Long Term Incentive Plan, also known as the
LTIP, covers certain key executive officers in which such
officers will be entitled to receive a fixed incentive amount
provided that our tangible net book value per common share as of
December 31, 2004 equals or exceeds $28.08, as adjusted at
our sole discretion, and the executive officer remains
continuously employed by us or our subsidiaries through
April 30, 2005. We expensed $0.8 million and
$0.9 million in 2002 and 2001, respectively, related to the
LTIP.

Note 20  Stock
Options

In May 2001, we adopted the 2001 Westcorp Stock
Option Plan, also known as the 2001 Plan, an incentive stock
option plan for certain associates and directors. The 2001 Plan
replaced the 1991 Stock Option

F-25



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##### Table of Contents



Plan, also known as the 1991 Plan, that expired
on April 15, 2001. Those who received options prior to the
approval of the 2001 Plan are still subject to the 1991 Plan and
may continue to exercise the remaining shares that are
outstanding and exercisable, however, any and all shares
reserved for the 1991 Plan are no longer available for future
grants. As such, no further grants will be made under the
expired 1991 Plan.


Under the 2001 Plan, we reserved a total of
3,000,000 shares of common stock for future issuance. As of
December 31, 2002, a total of 2,614,500 shares were
available for future grants. The options may be exercised within
seven years after the date of the grant. Additionally, the
weighted average life of the options outstanding at
December 31, 2002 was 3.83 years and the exercise
prices ranged from $9.94 to $20.41 per share.

Options outstanding and exercisable at
December 31, 2002 were as follows:

|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 
|--------------- | ------------- | ------------------- |  | ------------------- | --------- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |               |                     |  |                    
|                |               | Options Outstanding |  | Options Exercisable
|                |               |                     |  |                    
|Range of        |               | Number              |  | Weighted Average    |           | Weighted Average |  | Number      |      | Weighted Average
|Exercise Prices |               | Outstanding         |  | Remaining Life      |           | Exercise Price   |  | Exercisable |      | Exercise Price  
|                |               |                     |  |                     |           |                  |  |             |      |                 
|$               | 9.00  10.00  |                     |  |                     | 750       |                  |  |             | 2.52 |                  |  | $ | 9.94  |  |  |  | 750     |  |  | $ | 9.94  | 
|                | 12.00  13.00 |                     |  |                     | 232,313   |                  |  |             | 2.93 |                  |  |   | 12.63 |  |  |  | 192,938 |  |  |   | 12.62 | 
|                | 13.00  14.00 |                     |  |                     | 230,125   |                  |  |             | 4.05 |                  |  |   | 13.25 |  |  |  | 100,810 |  |  |   | 13.25 | 
|                | 15.00  16.00 |                     |  |                     | 1,000     |                  |  |             | 4.76 |                  |  |   | 15.25 |  |  |  | 500     |  |  |   | 15.25 | 
|                | 17.00  18.00 |                     |  |                     | 317,750   |                  |  |             | 5.05 |                  |  |   | 17.32 |  |  |  | 73,116  |  |  |   | 17.32 | 
|                | 18.00  19.00 |                     |  |                     | 377,500   |                  |  |             | 6.02 |                  |  |   | 18.30 |  |  |  | 2,750   |  |  |   | 18.22 | 
|                | 19.00  20.00 |                     |  |                     | 5,000     |                  |  |             | 6.51 |                  |  |   | 19.85 |  |  |  |         |  |  |   |       | 
|                | 20.00  21.00 |                     |  |                     | 3,000     |                  |  |             | 6.76 |                  |  |   | 20.41 |  |  |  |         |  |  |   |       | 
|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 
|                | 9.00  21.00  |                     |  |                     | 1,167,438 |                  |  |             | 4.75 |                  |  | $ | 15.91 |  |  |  | 370,864 |  |  | $ | 13.76 | 
|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 

Stock option activity is summarized as follows:

|                                 |           |        |           |                  |   |   |       |       | 
|-------------------------------- | --------- | ------ | --------- | ---------------- | - | - | ----- | ----- | 
|                                 |           |        |           | Weighted Average
|                                 |           | Shares |           | Exercise Price  
|                                 |           |        |           |                 
|Outstanding at January 1, 2000   |           |        | 533,819   |                  |   | $ | 12.76 |      
|                                 | Granted   |        |           | 363,500          |   |   |       | 13.27 | 
|                                 | Exercised |        |           | (15,013          | ) |   |       | 12.10 | 
|                                 | Canceled  |        |           | (61,591          | ) |   |       | 12.78 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2000 |           |        | 820,715   |                  |   |   | 12.94 |      
|                                 | Granted   |        |           | 444,250          |   |   |       | 17.37 | 
|                                 | Exercised |        |           | (113,834         | ) |   |       | 12.68 | 
|                                 | Canceled  |        |           | (74,317          | ) |   |       | 14.76 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2001 |           |        | 1,076,814 |                  |   |   | 14.67 |      
|                                 | Granted   |        |           | 414,500          |   |   |       | 18.33 | 
|                                 | Exercised |        |           | (143,251         | ) |   |       | 13.29 | 
|                                 | Canceled  |        |           | (180,625         | ) |   |       | 16.06 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2002 |           |        | 1,167,438 |                  |   | $ | 15.91 |      
|                                 |           |        |           |                  |   |   |       |      

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

F-26



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##### Table of Contents



Nonetheless, the fair value of options granted in
2002, 2001 and 2000 was estimated at the date of grant using a
Black-Scholes option pricing model with the following
assumptions:


|                        |  |              |         |      |  |      |         |   |  |  |              |  
|----------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------------ | -
|                        |  |             
|                        |  | December 31,
|                        |  |             
|                        |  | 2002         |         | 2001 |  | 2000
|                        |  |              |         |      |  |     
|Risk-free interest rate |  |              | 3.4     | %    |  |      | 4.7     | % |  |  | 4.8          | %
|Volatility factor       |  |              | 0.31    |      |  |      | 0.40    |   |  |  | 0.39         |  
|Expected option life    |  |              | 7 years |      |  |      | 7 years |   |  |  | 5 to 7 years |  

The weighted average fair value of options
granted during 2002, 2001 and 2000 was $7.35, $8.70 and $8.28,
respectively.

We elected to follow Accounting Principles Board
Opinion No. 25, also known as APB No. 25, and related
Interpretations in accounting for our employee stock options.
Under APB No. 25, the exercise price of our employee stock
options equals the market price of the underlying stock on the
date of grant and, therefore, no compensation expense is
recognized. Pro forma information regarding net income and
earnings per share is required by SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by
SFAS No. 148 and has been determined as if we had
accounted for our employee stock options under the fair value
method of that statement.

Pro forma net income and diluted earnings per
share for the respective periods were as follows:

|                                                |  |                                   |        |      |  |      |        |  |  |   |        | 
|----------------------------------------------- |  | --------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                |  |                                  
|                                                |  | For the Year Ended December 31,  
|                                                |  |                                  
|                                                |  | 2002                              |        | 2001 |  | 2000
|                                                |  |                                   |        |      |  |     
|                                                |  |                                  
|                                                |  | (Dollars in thousands, except per
|                                                |  | share amounts)                   
|Net income                                      |  | $                                 | 79,718 |      |  | $    | 55,690 |  |  | $ | 74,743 | 
|Stock based compensation included above         |  |                                   |        |      |  |      |        |  |  |   |        | 
|Stock based compensation that would be included |  |                                   | 858    |      |  |      | 800    |  |  |   | 617    | 
|                                                |  |                                   |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                            |  | $                                 | 78,860 |      |  | $    | 54,890 |  |  | $ | 74,126 | 
|                                                |  |                                   |        |      |  |      |        |  |  |   |        | 
|Earnings per share  basic                      |  | $                                 | 2.07   |      |  | $    | 1.62   |  |  | $ | 2.54   | 
|Earnings per share  diluted                    |  | $                                 | 2.05   |      |  | $    | 1.61   |  |  | $ | 2.53   | 
|Pro forma earnings per share  basic            |  | $                                 | 2.04   |      |  | $    | 1.60   |  |  | $ | 2.51   | 
|Pro forma earnings per share  diluted          |  | $                                 | 2.03   |      |  | $    | 1.59   |  |  | $ | 2.51   | 

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

Note 21  Dividends

We paid cash dividends of $0.47, $0.43 and
$0.30 per share for the years ended December 31, 2002,
2001 and 2000, respectively. There are no restrictions on the
payment of dividends by Westcorp.

Our wholly owned subsidiary, the Bank, is
restricted by regulation and by the indentures relating to its
subordinated debentures as to the amount of funds which can be
transferred to us in the form of dividends. Under the most
restrictive of these terms, on December 31, 2002, the
Banks restricted shareholders equity was
$393 million with a maximum dividend of $140 million.

The Bank must notify the Office of Thrift
Supervision, also known as the OTS, of its intent to declare
cash dividends thirty days before declaration and may not make a
loan to us for any purpose to the extent we engage in any
activities not permitted for a bank holding company.

F-27



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##### Table of Contents



Note 22  Income
Taxes

Income tax expense consisted of the following:

|          |         |                                 |         |         |   |      |         |         |   |   |         |         |  
|--------- | ------- | ------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|          |         |                                
|          |         | For the Year Ended December 31,
|          |         |                                
|          |         | 2002                            |         | 2001    |   | 2000
|          |         |                                 |         |         |   |     
|          |         |                                
|          |         | (Dollars in thousands)         
|Current   |         |                                 |         |         |   |      |         |         |   |   |         |        
|          | Federal |                                 | $       | 71,960  |   |      | $       | 74,383  |   |   | $       | 66,254  |  
|          | State   |                                 |         | 14,088  |   |      |         | 10,123  |   |   |         | 10,851  |  
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         |                                 | 86,048  |         |   |      | 84,506  |         |   |   | 77,105  |        
|Deferred: |         |                                 |         |         |   |      |         |         |   |   |         |        
|          | Federal |                                 |         | (24,816 | ) |      |         | (38,623 | ) |   |         | (20,336 | )
|          | State   |                                 |         | (9,188  | ) |      |         | (4,208  | ) |   |         | 1,363   |  
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         |                                 | (34,004 | )       |   |      | (42,831 | )       |   |   | (18,973 | )      
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         | $                               | 52,044  |         |   | $    | 41,675  |         |   | $ | 58,132  |        
|          |         |                                 |         |         |   |      |         |         |   |   |         |        

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

|                                       |  |                                 |        |      |  |      |        |  |  |   |        |  
|-------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                       |  |                                
|                                       |  | For the Year Ended December 31,
|                                       |  |                                
|                                       |  | 2002                            |        | 2001 |  | 2000
|                                       |  |                                 |        |      |  |     
|                                       |  |                                
|                                       |  | (Dollars in thousands)         
|Tax at statutory rate                  |  | $                               | 50,720 |      |  | $    | 37,707 |  |  | $ | 50,655 |  
|State tax (net of federal tax benefit) |  |                                 | 3,185  |      |  |      | 3,844  |  |  |   | 7,939  |  
|Other                                  |  |                                 | (1,861 | )    |  |      | 124    |  |  |   | (462   | )
|                                       |  |                                 |        |      |  |      |        |  |  |   |        |  
|                                       |  | $                               | 52,044 |      |  | $    | 41,675 |  |  | $ | 58,132 |  
|                                       |  |                                 |        |      |  |      |        |  |  |   |        |  

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.

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

|                                                                 |                                |                        |         |         |   |   |         |         |  
|---------------------------------------------------------------- | ------------------------------ | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                 |                                |                       
|                                                                 |                                | December 31,          
|                                                                 |                                |                       
|                                                                 |                                | 2002                   |         | 2001   
|                                                                 |                                |                        |         |        
|                                                                 |                                |                       
|                                                                 |                                | (Dollars in thousands)
|Deferred tax assets:                                             |                                |                        |         |         |   |   |         |        
|Reserves for credit losses                                       |                                | $                      | 94,599  |         |   | $ | 61,582  |        
|State tax deferred benefit                                       |                                |                        | 4,446   |         |   |   | 6,464   |        
|Deferred compensation accrual                                    |                                |                        | 4,007   |         |   |   | 4,091   |        
|Tax basis difference  marketable
    securities and derivatives |                                |                        | 91,543  |         |   |   | 40,023  |        
|Other, net                                                       |                                |                        | 10,324  |         |   |   | 4,849   |        
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Total deferred tax assets      |                        |         | 204,919 |   |   |         | 117,009 |  
|Deferred tax liabilities:                                        |                                |                        |         |         |   |   |         |        
|Loan fee income deferred for tax purposes                        |                                |                        | (529    | )       |   |   | (946    | )      
|FHLB dividends                                                   |                                |                        | (7,259  | )       |   |   | (6,674  | )      
|Accelerated depreciation for tax purposes                        |                                |                        | (2,265  | )       |   |   | (2,140  | )      
|Loan costs                                                       |                                |                        | (321    | )       |   |   | (251    | )      
|Asset securitization income recognized for book
    purposes     |                                |                        |         |         |   |   | (12,079 | )      
|Deferred taxes on unrealized gains                               |                                |                        | (18,375 | )       |   |   | (10,341 | )      
|Tax basis difference  mortgage-backed
    securities            |                                |                        | (20,684 | )       |   |   | (687    | )      
|Other, net                                                       |                                |                        | (20,382 | )       |   |   | (15,934 | )      
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Total deferred tax liabilities |                        |         | (69,815 | ) |   |         | (49,052 | )
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Net deferred tax assets        |                        | $       | 135,104 |   |   | $       | 67,957  |  
|                                                                 |                                |                        |         |         |   |   |         |        

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Note 23  Fair Values of
Financial Instruments

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

|                       |                                                                           |                        |   |            |          |          |   |            |          |   |   |           |         |   |   |           |         |  
|---------------------- | ------------------------------------------------------------------------- | ---------------------- | - | ---------- | -------- | -------- | - | ---------- | -------- | - | - | --------- | ------- | - | - | --------- | ------- | -
|                       |                                                                           |                       
|                       |                                                                           | December 31,          
|                       |                                                                           |                       
|                       |                                                                           |                        |   |           
|                       |                                                                           | 2002                   |   | 2001      
|                       |                                                                           |                        |   |           
|                       |                                                                           | Carrying               |   |            |          | Carrying |   |           
|                       |                                                                           | Amounts                |   | Fair Value |          | Amounts  |   | Fair Value
|                       |                                                                           |                        |   |            |          |          |   |           
|                       |                                                                           |                       
|                       |                                                                           | (Dollars in thousands)
|Financial assets:      |                                                                           |                        |   |            |          |          |   |            |          |   |   |           |         |   |   |          
|                       | Cash and due from banks                                                   |                        | $ | 84,215     |          |          | $ | 84,215     |          |   | $ | 69,327    |         |   | $ | 69,327    |        
|                       | Other short-term investments                                              |                        |   |            |          |          |   |            |          |   |   | 35,000    |         |   |   | 35,000    |        
|                       | Investment securities and MBS                                             |                        |   | 2,660,082  |          |          |   | 2,660,082  |          |   |   | 2,102,736 |         |   |   | 2,102,736 |        
|                       | Loans receivable                                                          |                        |   | 9,407,784  |          |          |   | 10,430,510 |          |   |   | 7,533,150 |         |   |   | 8,245,735 |        
|                       | Retained interest in securitized assets                                   |                        |   |            |          |          |   |            |          |   |   | 37,392    |         |   |   | 37,392    |        
|                       | Financial instrument agreements held for purposes
    other than trading: |                        |   |            |          |          |   |            |          |   |   |           |         |   |   |           |        
|                       |                                                                           | Interest rate swaps    |   |            | (194,590 | )        |   |            | (194,590 | ) |   |           | (95,984 | ) |   |           | (95,984 | )
|Financial liabilities: |                                                                           |                        |   |            |          |          |   |            |          |   |   |           |         |   |   |          
|                       | Deposits                                                                  |                        |   | 1,974,984  |          |          |   | 1,984,247  |          |   |   | 2,329,326 |         |   |   | 2,339,154 |        
|                       | Securities sold under agreements to repurchase                            |                        |   | 276,600    |          |          |   | 276,932    |          |   |   | 155,190   |         |   |   | 155,237   |        
|                       | Short-term borrowings                                                     |                        |   | 5,891      |          |          |   | 5,897      |          |   |   | 25,068    |         |   |   | 25,075    |        
|                       | Notes payable on automobile secured financing                             |                        |   | 8,422,915  |          |          |   | 8,672,125  |          |   |   | 5,886,227 |         |   |   | 6,026,564 |        
|                       | Federal Home Loan Bank advances                                           |                        |   | 336,275    |          |          |   | 333,679    |          |   |   | 543,417   |         |   |   | 543,580   |        
|                       | Amounts held on behalf of trustee                                         |                        |   | 177,642    |          |          |   | 177,642    |          |   |   | 280,496   |         |   |   | 280,496   |        
|                       | Subordinated debentures                                                   |                        |   | 400,561    |          |          |   | 418,947    |          |   |   | 147,714   |         |   |   | 144,760   |        

Note 24  Financial Instrument
Agreements

Our interest rate swap agreements are with
counterparties to exchange, at specified intervals, the
difference between fixed rate and floating rate interest amounts
calculated by reference to an agreed notional amount and a
specified index. We pay a fixed interest rate and receive a
floating interest rate on all of our interest rate swap
agreements. At December 31, 2002 and 2001, the terms of our
interest rate swaps were to pay a weighted average fixed rate of
4.8% and 5.5% and to receive a weighted average variable rate of
1.6% and 2.3%, respectively, with expiration dates ranging from
2002 to 2011 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 other parties and, thus are not a measure of our
exposure to loss through our use of these agreements. The
amounts exchanged are determined by reference to the notional
amounts and the other terms of the agreements.

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

For the year ended December 31, 2002, the
unrealized loss on cash flow hedges was $135 million, net
of taxes of $94.1 million, compared with an unrealized loss
on cash flow hedges of $75.0 million, net of taxes of
$52.2 million, for the year ended December 31, 2001.
We reclassified $66.2 million and $15.6 million into
earnings, net of tax, for the years ended December 31, 2002
and 2001, respectively, which is included in interest expense on
the Consolidated Statements of Income. The amount recognized in
earnings due to

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ineffectiveness was immaterial. We estimate that
we will reclassify into earnings during the next twelve months
approximately $22 million to $28 million of the
unrealized loss on these instruments that was recorded in
accumulated other comprehensive loss as of December 31,
2002.


Note 25  Earnings Per
Share

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

|                                          |  |                                                  |            |      |  |      |            |  |  |   |            | 
|----------------------------------------- |  | ------------------------------------------------ | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                          |  |                                                 
|                                          |  | For the Year Ended December 31,                 
|                                          |  |                                                 
|                                          |  | 2002                                             |            | 2001 |  | 2000
|                                          |  |                                                  |            |      |  |     
|                                          |  |                                                 
|                                          |  | (Dollars in thousands, except per share amounts)
|Basic:                                    |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 79,718     |      |  | $    | 55,690     |  |  | $ | 74,743     | 
|Average basic common shares outstanding   |  |                                                  | 38,588,710 |      |  |      | 34,277,856 |  |  |   | 29,494,497 | 
|Net income per common share  basic       |  | $                                                | 2.07       |      |  | $    | 1.62       |  |  | $ | 2.54       | 
|Diluted:                                  |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 79,718     |      |  | $    | 55,690     |  |  | $ | 74,743     | 
|Average basic common shares outstanding   |  |                                                  | 38,588,710 |      |  |      | 34,277,856 |  |  |   | 29,494,497 | 
|Stock option adjustment                   |  |                                                  | 333,901    |      |  |      | 207,271    |  |  |   | 31,180     | 
|Average diluted common shares outstanding |  |                                                  | 38,922,611 |      |  |      | 34,485,127 |  |  |   | 29,525,677 | 
|Earnings per common share  diluted       |  | $                                                | 2.05       |      |  | $    | 1.61       |  |  | $ | 2.53       | 

Options to purchase 26,000, and
12,700 share of common stock at prices ranging from $15.25
to $18.69 per share were outstanding at December 31,
2001 and 2000, respectively, but were not included in the
computation of diluted earnings per share because the
options exercise prices were greater than the average
market price of the common shares and therefore, the effect
would be antidilutive.

Note 26  Regulatory
Capital

At December 31, 2002 and 2001, the Office of
Thrift Supervision categorized the Bank as well
capitalized. To be categorized as well
capitalized, the Bank must maintain minimum capital ratios
as set forth in the table below. The Banks capital is
subject to review by federal regulators for the components,
amounts, risk weighting classifications and other factors. There
are no conditions or events since December 31, 2002 that we
believe have changed the Banks category.

The following table summarizes the Banks
actual capital and required capital as of December 31, 2002
and 2001:

|                                          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |           |  
|----------------------------------------- | ------------- | ---------------------- | - | ------- | - | ---------- | - | ---------- | - |  | - | ------- | - |  | - | --------- | -
|                                          |               |                        |   |         |   | Tier 1     |   |           
|                                          |               | Tangible               |   | Core    |   | Risk-Based |   | Risk-Based
|                                          |               | Capital                |   | Capital |   | Capital    |   | Capital   
|                                          |               |                        |   |         |   |            |   |           
|                                          |               |                       
|                                          |               | (Dollars in thousands)
|December 31, 2002                         |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|Actual Capital:                           |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 728,631 |   |            | $ | 728,631    |   |  | $ | 655,142 |   |  | $ | 1,143,345 |  
|                                          | Capital ratio |                        |   | 6.43    | % |            |   | 6.43       | % |  |   | 7.67    | % |  |   | 13.38     | %
|FIRREA minimum required capital:          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        | $ | 169,991 |   |            | $ | 339,981    |   |  |   | N/A     |   |  | $ | 683,481   |  
|                                          | Capital ratio |                        |   | 1.50    | % |            |   | 3.00       | % |  |   | N/A     |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 558,640 |   |            | $ | 388,650    |   |  |   | N/A     |   |  | $ | 459,864   |  
|FDICIA well capitalized required capital: |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |          
|                                          | Amount        |                        |   | N/A     |   |            | $ | 566,635    |   |  | $ | 512,611 |   |  | $ | 854,351   |  
|                                          | Capital ratio |                        |   | N/A     |   |            |   | 5.00       | % |  |   | 6.00    | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A     |   |            | $ | 161,996    |   |  | $ | 142,531 |   |  | $ | 288,994   |  

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|                                          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |         |  
|----------------------------------------- | ------------- | ---------------------- | - | ------- | - | ---------- | - | ---------- | - |  | - | ------- | - |  | - | ------- | -
|                                          |               |                        |   |         |   | Tier 1     |   |           
|                                          |               | Tangible               |   | Core    |   | Risk-Based |   | Risk-Based
|                                          |               | Capital                |   | Capital |   | Capital    |   | Capital   
|                                          |               |                        |   |         |   |            |   |           
|                                          |               |                       
|                                          |               | (Dollars in thousands)
|December 31, 2001                         |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |        
|Actual Capital:                           |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |        
|                                          | Amount        |                        | $ | 602,491 |   |            | $ | 602,491    |   |  | $ | 602,491 |   |  | $ | 841,144 |  
|                                          | Capital ratio |                        |   | 7.29    | % |            |   | 7.29       | % |  |   | 8.49    | % |  |   | 11.86   | %
|FIRREA minimum required capital:          |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |        
|                                          | Amount        |                        | $ | 123,957 |   |            | $ | 247,915    |   |  |   | N/A     |   |  | $ | 567,523 |  
|                                          | Capital ratio |                        |   | 1.50    | % |            |   | 3.00       | % |  |   | N/A     |   |  |   | 8.00    | %
|                                          | Excess        |                        | $ | 478,534 |   |            | $ | 354,576    |   |  |   | N/A     |   |  | $ | 273,621 |  
|FDICIA well capitalized required capital: |               |                        |   |         |   |            |   |            |   |  |   |         |   |  |   |        
|                                          | Amount        |                        |   | N/A     |   |            | $ | 413,192    |   |  | $ | 425,642 |   |  | $ | 709,404 |  
|                                          | Capital ratio |                        |   | N/A     |   |            |   | 5.00       | % |  |   | 6.00    | % |  |   | 10.00   | %
|                                          | Excess        |                        |   | N/A     |   |            | $ | 189,299    |   |  | $ | 176,849 |   |  | $ | 131,740 |  

The following table reconciles the Banks
equity to the Banks tangible, core and risk-based capital:

|                                           |                                                           |                        |           |         |   |   |         |         |  
|------------------------------------------ | --------------------------------------------------------- | ---------------------- | --------- | ------- | - | - | ------- | ------- | -
|                                           |                                                           |                       
|                                           |                                                           | December 31,          
|                                           |                                                           |                       
|                                           |                                                           | 2002                   |           | 2001   
|                                           |                                                           |                        |           |        
|                                           |                                                           |                       
|                                           |                                                           | (Dollars in thousands)
|Bank shareholders equity  GAAP
    basis |                                                           | $                      | 532,902   |         |   | $ | 472,132 |        
|Adjustments for tangible and core capital: |                                                           |                        |           |         |   |   |         |        
|                                           | Unrealized losses under SFAS No. 115
    and SFAS No. 133 |                        |           | 94,220  |   |   |         | 52,214  |  
|                                           | Non-permissible activities                                |                        |           | (157    | ) |   |         | 78,261  |  
|                                           | Minority interest in equity of subsidiaries               |                        |           | 101,666 |   |   |         | (116    | )
|                                           |                                                           |                        |           |         |   |   |         |        
|Total tangible and core capital            |                                                           |                        | 728,631   |         |   |   | 602,491 |        
|Adjustments for risk-based capital:        |                                                           |                        |           |         |   |   |         |        
|                                           | Subordinated debentures(1)                                |                        |           | 380,314 |   |   |         | 149,554 |  
|                                           | General loan valuation allowance(2)                       |                        |           | 107,889 |   |   |         | 89,099  |  
|                                           | Low-level recourse deduction                              |                        |           | (73,489 | ) |   |         |         |  
|                                           |                                                           |                        |           |         |   |   |         |        
|Risk-based capital                         |                                                           | $                      | 1,143,345 |         |   | $ | 841,144 |        
|                                           |                                                           |                        |           |         |   |   |         |        



---



|    |                                                
|--- | -----------------------------------------------
|(1) | Excludes capitalized discounts and issue costs.
|   
|(2) | Limited to 1.25% of risk-weighted assets.      

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Note 27  Westcorp (Parent
Company Only) Financial Information

STATEMENTS OF FINANCIAL CONDITION

|                     |                            |                                            |         |         |         |  |         |         |         | 
|-------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                     |                            |                                           
|                     |                            | December 31,                              
|                     |                            |                                           
|                     |                            | 2002                                       |         | 2001   
|                     |                            |                                            |         |        
|                     |                            |                                           
|                     |                            | (Dollars in thousands)                    
|Assets               |                            |                                            |         |         |         |  |         |        
|                     | Cash                       |                                            | $       | 8,420   |         |  | $       | 11,245  |        
|                     | Investment in subsidiaries |                                            |         | 617,598 |         |  |         | 563,514 |        
|                     | Other                      |                                            |         | 4,258   |         |  |         | 3,414   |        
|                     |                            |                                            |         |         |         |  |         |        
|                     |                            | Total assets                               |         | $       | 630,276 |  |         | $       | 578,173 | 
|                     |                            |                                            |         |         |         |  |         |        
|Liabilities          |                            |                                            |         |         |         |  |         |        
|                     | Other liabilities          |                                            | $       | 3,495   |         |  | $       | 23,579  |        
|                     |                            |                                            |         |         |         |  |         |        
|                     |                            | Total liabilities                          |         |         | 3,495   |  |         |         | 23,579  | 
|Shareholders equity |                            |                                            | 626,781 |         |         |  | 554,594 |        
|                     |                            |                                            |         |         |         |  |         |        
|                     |                            | Total liabilities and shareholders equity |         | $       | 630,276 |  |         | $       | 578,173 | 
|                     |                            |                                            |         |         |         |  |         |        

STATEMENTS OF INCOME

|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |       | 
|----------------------------------------------------------------------- | ------------- | ------------------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ----- | 
|                                                                        |               |                                
|                                                                        |               | For the Year Ended December 31,
|                                                                        |               |                                
|                                                                        |               | 2002                            |        | 2001   |  | 2000
|                                                                        |               |                                 |        |        |  |     
|                                                                        |               |                                
|                                                                        |               | (Dollars in thousands)         
|Income:                                                                 |               |                                 |        |        |  |      |        |        |  |   |        |      
|Dividends from subsidiaries                                             |               | $                               | 16,100 |        |  | $    | 60,100 |        |  | $ | 3,500  |      
|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |      
|                                                                        | Total income  |                                 |        | 16,100 |  |      |        | 60,100 |  |   |        | 3,500 | 
|Expense:                                                                |               |                                 |        |        |  |      |        |        |  |   |        |      
|Net interest expense                                                    |               |                                 | 138    |        |  |      | 620    |        |  |   | 1,328  |      
|Net noninterest expenses                                                |               |                                 | 5,071  |        |  |      | 3,536  |        |  |   | 2,341  |      
|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |      
|                                                                        | Total expense |                                 |        | 5,209  |  |      |        | 4,156  |  |   |        | 3,669 | 
|Income before income taxes and equity in net
    income of subsidiaries |               |                                 | 10,891 |        |  |      | 55,944 |        |  |   | (169   | )    
|Income tax benefit                                                      |               |                                 | (2,087 | )      |  |      | (1,623 | )      |  |   | (1,507 | )    
|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |      
|Income before equity in net income of subsidiaries                      |               |                                 | 12,978 |        |  |      | 57,567 |        |  |   | 1,338  |      
|Equity in undistributed net income of subsidiaries                      |               |                                 | 67,698 |        |  |      | 10,860 |        |  |   | 71,902 |      
|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |      
|Net income                                                              |               | $                               | 80,676 |        |  | $    | 68,427 |        |  | $ | 73,240 |      
|                                                                        |               |                                 |        |        |  |      |        |        |  |   |        |      

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STATEMENTS OF CASH FLOWS

|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | For the Year Ended December 31,
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | 2002                            |         | 2001    |   | 2000
|                                                                                      |                                                    |                                 |         |         |   |     
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | (Dollars in thousands)         
|OPERATING ACTIVITIES                                                                  |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|Net income                                                                            |                                                    | $                               | 80,676  |         |   | $    | 68,427  |         |   | $ | 73,240  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|                                                                                      | Depreciation and amortization                      |                                 |         |         |   |      |         |         |   |   |         | 14      |  
|                                                                                      | Equity in undistributed net income of subsidiaries |                                 |         | (67,698 | ) |      |         | (10,860 | ) |   |         | (71,902 | )
|                                                                                      | Other, net                                         |                                 |         | (927    | ) |      |         | (2,127  | ) |   |         | 4,958   |  
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |                                                    |                                 | 12,051  |         |   |      | 55,440  |         |   |   | 6,310   |        
|INVESTING ACTIVITIES                                                                  |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|Capital contribution to subsidiary                                                    |                                                    |                                 | (29,700 | )       |   |      | (94,000 | )       |   |   | (69,848 | )      
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                    |                                 | (29,700 | )       |   |      | (94,000 | )       |   |   | (69,848 | )      
|FINANCING ACTIVITIES                                                                  |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|(Decrease) increase in short-term borrowings                                          |                                                    |                                 | (20,000 | )       |   |      | (2,300  | )       |   |   | 19,800  |        
|Dividends paid                                                                        |                                                    |                                 | (18,042 | )       |   |      | (15,000 | )       |   |   | (9,045  | )      
|Issuance of common stock                                                              |                                                    |                                 | 52,866  |         |   |      | 62,141  |         |   |   | 55,684  |        
|Other, net                                                                            |                                                    |                                 |         |         |   |      |         |         |   |   | 52      |        
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                    |                                 | 14,824  |         |   |      | 44,841  |         |   |   | 66,491  |        
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|(DECREASE) INCREASE IN CASH                                                           |                                                    |                                 | (2,825  | )       |   |      | 6,281   |         |   |   | 2,953   |        
|Cash at beginning of year                                                             |                                                    |                                 | 11,245  |         |   |      | 4,964   |         |   |   | 2,011   |        
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        
|CASH AT END OF YEAR                                                                   |                                                    | $                               | 8,420   |         |   | $    | 11,245  |         |   | $ | 4,964   |        
|                                                                                      |                                                    |                                 |         |         |   |      |         |         |   |   |         |        

Note 28  Subsequent
Events (Unaudited)

On February 19, 2003, we declared a cash
dividend of $0.13 per share for shareholders of record as
of May 6, 2003, with a payable date of May 20, 2003.

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

Effective January 1, 2003, we regained
control over assets of the trusts for all of our outstanding
securitization transactions treated as sales for accounting
purposes. We regained control of these assets when each trust
was given the ability to invest in financial assets not related
to the securitization of contracts. In accordance with Emerging
Issues Task Force 02-9, Accounting for Changes that Result
in a Transferor Regaining Control of Financial Assets Sold, we
recorded $525 million of automobile contracts and the
related notes payable on automobile secured financings on our
Consolidated Statements of Financial Condition and have
eliminated all remaining amounts due from trusts and amounts
held on behalf of trustee for these transactions. We will no
longer recognize retained interest income or expense or
contractual servicing income for these securitization
transactions on our Consolidated Statements of Income. Rather,
we will recognize interest income on automobile contracts held
in these trusts and record interest expense on notes payable on
automobile secured financings.

F-34



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|          |                                                
|--------- | -----------------------------------------------
|Note 29  | Quarterly Results of Operations
    (Unaudited)

The following is a summary of unaudited quarterly
results of operations for the years ended December 31, 2002
and 2001. Certain quarterly amounts have been adjusted to
conform with the year-end presentation.

|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|--------------------------------------------- |  | ------------------------------------------------ | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                              |  |                                                 
|                                              |  | For the Three Months Ended                      
|                                              |  |                                                 
|                                              |  | March 31                                         |         | June 30 |  | September 30 |         | December 31
|                                              |  |                                                  |         |         |  |              |         |            
|                                              |  |                                                 
|                                              |  | (Dollars in thousands, except per share amounts)
|2002                                          |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                               |  | $                                                | 262,196 |         |  | $            | 280,008 |             |  | $ | 299,006 |  |  | $ | 301,730 | 
|Interest expense                              |  |                                                  | 120,070 |         |  |              | 133,111 |             |  |   | 139,976 |  |  |   | 137,759 | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net interest income                           |  |                                                  | 142,126 |         |  |              | 146,897 |             |  |   | 159,030 |  |  |   | 163,971 | 
|Provision for credit losses                   |  |                                                  | 65,698  |         |  |              | 62,350  |             |  |   | 80,996  |  |  |   | 97,189  | 
|Noninterest income                            |  |                                                  | 17,159  |         |  |              | 20,732  |             |  |   | 26,387  |  |  |   | 26,152  | 
|Noninterest expense                           |  |                                                  | 60,859  |         |  |              | 64,774  |             |  |   | 62,207  |  |  |   | 63,466  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before income taxes                    |  |                                                  | 32,728  |         |  |              | 40,505  |             |  |   | 42,214  |  |  |   | 29,468  | 
|Income taxes                                  |  |                                                  | 12,964  |         |  |              | 15,185  |             |  |   | 16,801  |  |  |   | 7,094   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before minority interest               |  |                                                  | 19,764  |         |  |              | 25,320  |             |  |   | 25,413  |  |  |   | 22,374  | 
|Minority interest in earnings of subsidiaries |  |                                                  | 2,911   |         |  |              | 3,612   |             |  |   | 3,740   |  |  |   | 2,890   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net income                                    |  | $                                                | 16,853  |         |  | $            | 21,708  |             |  | $ | 21,673  |  |  | $ | 19,484  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  basic             |  | $                                                | 0.46    |         |  | $            | 0.55    |             |  | $ | 0.55    |  |  | $ | 0.50    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  diluted           |  | $                                                | 0.46    |         |  | $            | 0.55    |             |  | $ | 0.55    |  |  | $ | 0.49    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|2001                                          |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                               |  | $                                                | 212,667 |         |  | $            | 235,600 |             |  | $ | 253,041 |  |  | $ | 261,319 | 
|Interest expense                              |  |                                                  | 119,427 |         |  |              | 126,650 |             |  |   | 125,398 |  |  |   | 120,469 | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net interest income                           |  |                                                  | 93,240  |         |  |              | 108,950 |             |  |   | 127,643 |  |  |   | 140,850 | 
|Provision for credit losses                   |  |                                                  | 26,982  |         |  |              | 39,640  |             |  |   | 60,501  |  |  |   | 69,854  | 
|Noninterest income                            |  |                                                  | 30,476  |         |  |              | 26,480  |             |  |   | 8,326   |  |  |   | 13,617  | 
|Noninterest expense                           |  |                                                  | 61,325  |         |  |              | 62,957  |             |  |   | 59,880  |  |  |   | 60,709  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before income taxes                    |  |                                                  | 35,409  |         |  |              | 32,833  |             |  |   | 15,588  |  |  |   | 23,904  | 
|Income taxes                                  |  |                                                  | 14,333  |         |  |              | 12,515  |             |  |   | 6,119   |  |  |   | 8,708   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before minority interest               |  |                                                  | 21,076  |         |  |              | 20,318  |             |  |   | 9,469   |  |  |   | 15,196  | 
|Minority interest in earnings of subsidiaries |  |                                                  | 3,360   |         |  |              | 3,421   |             |  |   | 1,255   |  |  |   | 2,333   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net income                                    |  | $                                                | 17,716  |         |  | $            | 16,897  |             |  | $ | 8,214   |  |  | $ | 12,863  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  basic             |  | $                                                | 0.55    |         |  | $            | 0.50    |             |  | $ | 0.23    |  |  | $ | 0.36    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  diluted           |  | $                                                | 0.55    |         |  | $            | 0.50    |             |  | $ | 0.23    |  |  | $ | 0.36    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 

F-35



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##### Table of Contents






EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1          |  | Certificate of Incorporation(12)                                                                                                                                                                                                                        
|        | 3  | .2          |  | Bylaws(12)                                                                                                                                                                                                                                              
|        | 4  | .1          |  | Indenture dated as of June 17, 1993 issued
    by Western Financial Bank, formerly Western Financial Savings
    Bank, F.S.B., with respect to $125,000,000 in aggregate
    principal amount of 8.5% Subordinated Capital Debentures
    due 2003(13)  
|        | 4  | .2          |  | Indenture dated as of June 25, 1998 issued
    by Western Financial Bank, formerly Western Financial Savings
    Bank, F.S.B., with respect to $150,000,000 in aggregate
    principal amount of 8.875% Subordinated Capital Debentures
    due 2007(14)
|        | 4  | .3          |  | Indenture dated as of May 3, 2002 issued by
    Western Financial Bank, formerly Western Financial Savings Bank,
    F.S.B., with respect to $300,000,000 in aggregate principal
    amount of 9.625% Subordinated Capital Debentures due
    2012(15)  
|        | 10 | .1          |  | Westcorp Incentive Stock Option Plan(2)                                                                                                                                                                                                                 
|        | 10 | .2          |  | Westcorp Employee Stock Ownership and Salary
    Savings Plan(3)                                                                                                                                                                                        
|        | 10 | .3          |  | Westcorp 1991 Stock Option Plan(4)                                                                                                                                                                                                                      
|        | 10 | .3.1        |  | Westcorp 2001 Stock Option Plan                                                                                                                                                                                                                         
|        | 10 | .4          |  | 1985 Executive Deferral Plan(1)                                                                                                                                                                                                                         
|        | 10 | .5          |  | 2000 Executive Deferral Plan V(15)                                                                                                                                                                                                                      
|        | 10 | .6          |  | Revolving Line of Credit Agreement between WFS
    Funding, Inc. and Western Financial Bank, dated
    November 30, 2001(15)                                                                                                                            
|        | 10 | .6.1        |  | Amended Revolving Line of Credit Agreement
    between WFS Funding, Inc. and Western Financial Bank, dated
    June 1, 2002                                                                                                                             
|        | 10 | .6.2        |  | First Amendment dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Funding, Inc.
    and Western Financial Bank                                                                                                          
|        | 10 | .7          |  | Transfer Agreement between WFS Financial Inc and
    Western Financial Bank, F.S.B., dated May 1, 1995(1)                                                                                                                                               
|        | 10 | .8          |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 1, 1995(1)                                                                                                                                               
|        | 10 | .9          |  | Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank, dated June 15,
    1999(11)                                                                                                                                
|        | 10 | .9.1        |  | Amendment No. 1, dated as of August 1,
    1999, to the Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank(11)                                                                                                 
|        | 10 | .9.2        |  | Amendment No. 2, dated May 23, 2000, to
    the Revolving Line of Credit Agreement between WFS Financial Inc
    and Western Financial Bank                                                                                                             
|        | 10 | .9.3        |  | Amendment No. 3, dated January 1, 2002,
    to the Revolving Line of Credit Agreement between WFS Financial
    Inc and Western Financial Bank                                                                                                          
|        | 10 | .9.4        |  | Amendment No. 4, dated October 15, 2002, to the
    Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank                                                                                                         
|        | 10 | .10         |  | Tax Sharing Agreement between WFS Financial Inc
    and Western Financial Bank, F.S.B., dated January 1, 1994(1)                                                                                                                                        
|        | 10 | .10.1       |  | Amended and Restated Tax Sharing Agreement
    between Westcorp and its subsidiaries, dated September 30,
    2002                                                                                                                                      
|        | 10 | .11         |  | Master Reinvestment Contract between WFS
    Financial Inc and Western Financial Bank, F.S.B., dated
    May 1, 1995(1)                                                                                                                                 
|        | 10 | .12         |  | Amendment No. 1, dated as of June 1,
    1995, to the Restated Master Reinvestment Reimbursement
    Agreement(10)                                                                                                                                      
|        | 10 | .13         |  | Amended and Restated Master Collateral Assignment
    Agreement, dated as of March 1, 2000(11)                                                                                                                                                          
|        | 10 | .14         |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                                                                                                                                           
|        | 10 | .15         |  | Form of WFS Financial Inc Loan Application(5)                                                                                                                                                                                                           



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                  
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .16         |  | Westcorp Employee Stock Ownership and Salary
    Savings Plan(15)                                                                                                
|        | 10 | .16.1       |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(15)                                                    
|        | 10 | .16.2       |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(15)                      
|        | 10 | .16.3       |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(15)                      
|        | 10 | .17         |  | Amended and Restated WFS 1996 Incentive Stock
    Option Plan(6)                                                                                                 
|        | 10 | .18         |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated August 1, 1997(10)                                                    
|        | 10 | .18.1       |  | Amendment No. 1, dated February 23,
    1999, to the Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank(10)                             
|        | 10 | .18.2       |  | Amendment No. 2, dated July 30, 1999,
    to the Promissory Note of WFS Financial Inc in favor of Western
    Financial Bank(10)                                 
|        | 10 | .18.3       |  | Amendment No. 3, dated January 1, 2002,
    to the Promissory Note of WFS Financial Inc in favor of Western
    Financial Bank                                   
|        | 10 | .19         |  | Short-term Investment Agreement between WFS
    Financial Inc and Western Financial Bank, dated January 1,
    1996(10)                                          
|        | 10 | .19.1       |  | Amendment No. 1, dated January 1, 2002,
    to the Short-term Investment Agreement between WFS Financial Inc
    and Western Financial Bank, F.S.B.              
|        | 10 | .20         |  | Allocation Agreement between WFS Financial Inc,
    Western Financial Bank, Westcorp, and their subsidiaries dated
    January 1, 2002                           
|        | 10 | .20.1       |  | Amendment No. 1, dated August 1, 2002,
    to the Allocation Agreement between WFS Financial Inc, Western
    Financial Bank, Westcorp, and their subsidiaries   
|        | 10 | .21         |  | Employment Agreement(8)(9)                                                                                                                                       
|        | 10 | .22         |  | Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank, dated
    November 30, 2001(15)                        
|        | 10 | .22.1       |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western Financial
    Bank, dated June 1, 2002                         
|        | 10 | .22.2       |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank     
|        | 10 | .23         |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank, dated
    November 30, 2001(15)                           
|        | 10 | .23.1       |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002                            
|        | 10 | .23.2       |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank        
|        | 10 | .24         |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002                                
|        | 10 | .24.1       |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank      
|        | 10 | .25         |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002                                                           
|        | 10 | .26         |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998                              
|        | 10 | .26.1       |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency
|        | 10 | .27         |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002         



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .28         |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .29         |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .30         |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .31         |  | Logo License Agreement between Western Financial
    Bank, Westcorp, WFS Financial Inc, Western Consumer Products,
    WFS Receivables Corporation, WFS Receivables Corporation 2, WFS
    Receivables Corporation 3, WFS Financial Auto Loans, Inc., The
    Hammond Company, The Mortgage Bankers, WFS Funding Inc., WFS
    Investments, Inc., Westran Services Corporation, WestFin
    Insurance Agency, Inc., Western Auto Investments, Inc., Western
    Consumer Services, Inc., Westhrift Life Insurance Entity, Inc.,
    Western Reconveyance Entity, Inc., and WFS Web Investments, Inc.
|        | 10 | .32         |  | Travel Services Agreement between Westran
    Services Corporation and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .33         |  | Secured Deposit Account Agreement between Western
    Financial Bank and WFS Receivables Corporation, dated
    October 17, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .34         |  | Annuity Licensing Fee Agreement between Westfin
    Insurance Agency, Inc. and Western Financial Bank, dated
    September 9, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10 | .35         |  | Sublease Agreement between WFS Financial Inc and
    WFS Receivables Corporation 2, WFS Financial Auto Loans,
    Inc., WFS Financial Auto Loans 2, Inc., Western Auto
    Investments, Inc., and WFS Funding, Inc., dated March 21,
    2002                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .35.1       |  | First Amendment to Sublease between WFS Financial
    Inc., and WFS Receivables Corporation, WFS Receivables
    Corporation 2, WFS Financial Auto Loans, Inc., WFS
    Financial Auto Loans 2, Inc., Western Auto Investments,
    Inc., and WFS Funding, Inc., dated September 1, 2002                                                                                                                                                                                                                                                                                                            
|        | 10 | .36         |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency, Inc. and WFS Financial Inc dated
    September 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 21 | .1          |  | Subsidiaries of Westcorp                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 23 | .1          |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 99 | .1          |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                      



---



| |     |                                                                                                                                                                                                           
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Exhibits previously filed with WFS Financial Inc
    Registration Statement on Form S-1 (File
    No. 33-93068), filed August 8, 1995 incorporated
    herein by reference under Exhibit Number indicated.
|
| | (2) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-1 (File No. 33-4295),
    filed May 2, 1986 incorporated herein by reference under
    Exhibit Number indicated.             
|
| | (3) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-4 (File
    No. 33-34286), filed April 11, 1990 incorporated
    herein by reference under Exhibit Number indicated.         
|
| | (4) | Exhibits previously filed with Westcorp
    Registration Statement on Form S-8 (File
    No. 33-43898), filed December 11, 1991 incorporated
    herein by reference under Exhibit Number indicated.      
|
| | (5) | Amendment No. 1, dated as of July 14,
    1995 to the WFS Financial Inc Registration Statement on
    Form S-1 (File No. 33-93068) incorporated herein by
    reference under Exhibit Number indicated.   
|
| | (6) | Exhibit previously filed as Exhibit 4.1 to
    the WFS Financial Inc 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 the WFS Financial Inc, Westcorp and Mark Olson
    (will be provided to the SEC upon request).                                                  



---



##### Table of Contents





|     |                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 1998 (File No. 33-93068) as filed on or
    about March 31, 1999.                                                  
|    
|(11) | Exhibits previously filed with WFS Registration
    Statements on Form S-2 (File No. 333-91277) filed
    November 19, 1999 and subsequently amended on
    January 20, 2000 incorporated by reference under
    Exhibit Number indicated.
|    
|(12) | 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 Numbers indicated.                                       
|    
|(13) | Exhibit previously filed with, Western Financial
    Bank, formerly Western Financial Savings Bank, F.S.B., Offering
    Circular with the OTS, dated June 17, 1993 (will be
    provided to the SEC upon request).                       
|    
|(14) | Exhibit previously filed with Western Financial
    Bank, formerly Western Financial Bank, F.S.B., Offering Circular
    with the OTS, dated July 25, 1998 (will be provided to the
    SEC upon request).                                
|    
|(15) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2001 as filed on or about March 29, 2002.