##### 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,
    2004           
|                                                          
|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

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

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of June 30,
2004:

Common Stock, $1.00 Par Value 
$1,051,217,868

The number of shares outstanding of the
issuers class of common stock as of February 28, 2005:

Common Stock, $1.00 Par Value 
51,962,940

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for
the Annual Meeting of Shareholders to be held April 26,
2005 are incorporated by reference into Part III.



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WESTCORP AND SUBSIDIARIES

TABLE OF CONTENTS

|                                                            |  |                                                                                           |   |      |    | 
|----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | - | ---- | -- | 
|                                                            |  |                                                                                           |   | Page
|                                                            |  |                                                                                           |   |     
|Forwarding-Looking Statements and Available
    Information |  |                                                                                           | 1 |     
|                                                           
|PART I                                                     
|                                                           
|Item 1.                                                     |  | Business                                                                                  |   |      | 2  | 
|Item 2.                                                     |  | Properties                                                                                |   |      | 25 | 
|Item 3.                                                     |  | Legal Proceedings                                                                         |   |      | 25 | 
|Item 4.                                                     |  | Submission of Matters to a
    Vote of Security Holders                                   |   |      | 26 | 
|                                                           
|PART II                                                    
|                                                           
|Item 5.                                                     |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |   |      | 27 | 
|Item 6.                                                     |  | Selected Financial Data                                                                   |   |      | 28 | 
|Item 7.                                                     |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |   |      | 30 | 
|Item 7A.                                                    |  | Quantitative and Qualitative
    Disclosure About Market Risk                             |   |      | 59 | 
|Item 8.                                                     |  | Financial Statements and
    Supplementary Data                                           |   |      | 67 | 
|Item 9.                                                     |  | Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure  |   |      | 67 | 
|Item 9A.                                                    |  | Controls and Procedures                                                                   |   |      | 67 | 
|Item 9B.                                                    |  | Other Information                                                                         |   |      | 67 | 
|                                                           
|PART III                                                   
|                                                           
|Item 10.                                                    |  | Directors and Executive
    Officers of the Registrant                                    |   |      | 68 | 
|Item 11.                                                    |  | Executive Compensation                                                                    |   |      | 68 | 
|Item 12.                                                    |  | Security Ownership of
    Certain Beneficial Owners and Management                        |   |      | 68 | 
|Item 13.                                                    |  | Certain Relationships and
    Related Transactions                                        |   |      | 68 | 
|Item 14.                                                    |  | Principal Accounting Fees
    and Services                                                |   |      | 68 | 
|                                                           
|PART IV                                                    
|                                                           
|Item 15.                                                    |  | Financial Statement
    Schedules, Exhibits and Reports on Form 8-K                       |   |      | 69 | 
|EXHIBIT 10.4                                               
|EXHIBIT 10.4.1                                             
|EXHIBIT 10.5                                               
|EXHIBIT 10.6                                               
|EXHIBIT 10.6.1                                             
|EXHIBIT 10.7                                               
|EXHIBIT 10.10.8                                            
|EXHIBIT 10.12                                              
|EXHIBIT 10.12.1                                            
|EXHIBIT 10.14                                              
|EXHIBIT 10.15                                              
|EXHIBIT 10.15.1                                            
|EXHIBIT 10.16                                              
|EXHIBIT 10.16.1                                            
|EXHIBIT 10.17.2                                            
|EXHIBIT 10.17.3                                            
|EXHIBIT 10.18                                              
|EXHIBIT 10.18.1                                            
|EXHIBIT 21.1                                               
|EXHIBIT 23.1                                               
|EXHIBIT 31.1                                               
|EXHIBIT 31.2                                               
|EXHIBIT 32.1                                               
|EXHIBIT 32.2                                               





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Forward-Looking Statements

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

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

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



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | changes in general economic and business
    conditions;                                               
|
| |  | interest rate fluctuations, including hedging
    activities;                                          
|
| |  | our financial condition and liquidity, as well as
    future cash flows and earnings;                  
|
| |  | competition;                                                                                           
|
| |  | our level of operating expenses;                                                                       
|
| |  | the effect, interpretation or application of new
    or existing laws, regulations and court decisions;
|
| |  | the exercise of discretionary authority by
    regulatory agencies;                                    
|
| |  | a decision to change our corporate structure;                                                          
|
| |  | the availability of sources of funding;                                                                
|
| |  | the level of chargeoffs on the automobile
    contracts that we originate; and                         
|
| |  | significant litigation.                                                                                

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

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

INDUSTRY DATA

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

Available Information

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

1



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PART I




Item 1.Business

General

We are a 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, which we refer to as the Bank. The Bank
currently owns 84% of the capital stock of WFS. We primarily
earn income by originating assets, including automobile
contracts, that generate a yield in excess of the cost of the
liabilities, including deposits, that fund these assets.

We have grown substantially over the past three
years. As of December 31, 2004, we had $15.5 billion
in total assets, $11.6 billion in automobile contracts and
$1.5 billion in total equity excluding other accumulated
comprehensive loss and including minority interest, representing
a three-year compounded annual growth rate of 15.6%, 12.4% and
31.4%, respectively. For the year ended December 31, 2004,
we originated $6.6 billion of automobile contracts and
generated $208 million of net income and earnings per
diluted share of $3.96. We achieved a return on average assets
of 1.38%, 0.90% and 0.69% for the years ended December 31,
2004, 2003 and 2002, respectively.

Automobile Lending Operations

We are one of the nations largest
independent automobile finance companies with 32 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 approximately
$500 billion of loan originations during 2004. We originate
installment contracts, otherwise known as contracts, secured by
new and pre-owned automobiles through our relationships with
franchised and independent automobile dealers nationwide. We
originated $6.6 billion of contracts during 2004 and owned
a portfolio of $11.6 billion contracts at December 31,
2004.

For the year ended December 31, 2004,
approximately 34% of our contract originations were for the
purchase of new automobiles and approximately 66% of our
contract originations were for the purchase of pre-owned
automobiles. Approximately 80% of our contract originations were
what we refer to as prime contracts, and approximately 20% of
our contract originations were what we refer to as non-prime
contracts. Our determination of whether a contract is
categorized as prime, non-prime or other is based on a number of
factors including the borrowers credit history and our
expectation of credit loss, and may differ from definitions of
these categories utilized by others, including competitors and
regulators. All references made throughout this document
regarding prime, non-prime or subprime automobile contracts are
based on our determination.

We underwrite contracts through a credit approval
process that is supported and controlled by a centralized,
automated front-end system. This system incorporates proprietary
credit scoring models and industry credit scoring models and
tools, which enhance our credit analysts ability to tailor
each contracts pricing and structure to maximize
risk-adjusted returns. We believe that as a result of our
sophisticated credit and underwriting systems, we are able to
earn attractive risk-adjusted returns on our contracts. For the
year ended December 31, 2004, the average net interest
spread on our automobile contract originations was 7.02% and the
net interest spread on our managed automobile portfolio was
6.65% while net credit losses averaged 1.99% 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 42 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. For
long-term financing, we issue automobile contract asset-backed
securities. Since 1985, we have sold or securitized over
$42.0 billion of contracts in 66

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public offerings of asset-backed securities,
making us the fourth largest issuer of such securities in the
nation. We have employed a range of securitization structures
and our most recent $1.6 billion issuance of asset-backed
securities was structured as a senior/subordinated transaction
with a weighted average interest rate of 3.66%.


The following table presents a summary of our
contracts purchased:

|                    |              |                                 |           |           |  |      |           |           |  |   |           |           | 
|------------------- | ------------ | ------------------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                    |              |                                
|                    |              | For the Year Ended December 31,
|                    |              |                                
|                    |              | 2004                            |           | 2003      |  | 2002
|                    |              |                                 |           |           |  |     
|                    |              |                                
|                    |              | (Dollars in thousands)         
|New vehicles        |              | $                               | 2,273,423 |           |  | $    | 1,928,268 |           |  | $ | 1,548,372 |          
|Pre-owned vehicles  |              |                                 | 4,361,447 |           |  |      | 4,050,308 |           |  |   | 3,867,362 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 6,634,870 |  |      | $         | 5,978,576 |  |   | $         | 5,415,734 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|Prime contracts     |              | $                               | 5,324,206 |           |  | $    | 4,942,654 |           |  | $ | 4,346,212 |          
|Non-prime contracts |              |                                 | 1,310,664 |           |  |      | 1,035,922 |           |  |   | 1,069,522 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 6,634,870 |  |      | $         | 5,978,576 |  |   | $         | 5,415,734 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          

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. The Bank has the ability
to raise significant amounts of liquidity by attracting both
short-term and long-term deposits from the general public,
commercial enterprises and institutions by offering a variety of
accounts and rates. These funds are generated through the
Banks retail and commercial banking divisions. The Bank
also may raise funds by obtaining advances from the Federal Home
Loan Bank, or FHLB, selling securities under agreements to
repurchase and utilizing other borrowings. The Banks
retail banking division serves the needs of individuals and
small businesses by offering a broad range of products through
20 retail branches located throughout Southern California. The
Banks commercial banking division focuses on medium-sized
businesses in Southern California. At December 31, 2004,
the total deposits gathered by both the retail and commercial
banking divisions were $2.2 billion. Approximately 90% of
these accounts were demand deposits, money market accounts and
certificate of deposit accounts under $100,000 in principal,
which we believe represents a stable and attractive source of
funding.

The Bank also invests deposits generated by its
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 that provides us with additional funding
security. Net interest income from Bank operations totaled
$54.5 million, $32.9 million, and $57.6 million
for the years ended December 31, 2004, 2003 and 2002,
respectively. Net interest income from Bank operations
represented 7%, 5% and 9% of our total net interest
income 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,
|                        |                                     |                                
|                        |                                     | 2004                            |                        | 2003    |           | 2002      |           | 2001    |           | 2000     
|                        |                                     |                                 |                        |         |           |           |           |         |           |          
|                        |                                     |                                
|                        |                                     | (Dollars in thousands)         
|Loans originated:       |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        | Consumer loans:                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |         |          
|                        |                                     | Contracts(1)                    |                        | $       | 6,634,870 |           |           | $       | 5,978,576 |           |           | $       | 5,415,734 |           |           | $       | 4,863,279 |           |           | $       | 4,219,227 |          
|                        |                                     | Other                           |                        |         | 5,068     |           |           |         | 4,916     |           |           |         | 3,562     |           |           |         | 6,691     |           |           |         | 12,888    |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        |                                     |                                 | Total consumer loans   |         |           | 6,639,938 |           |         |           | 5,983,492 |           |         |           | 5,419,296 |           |         |           | 4,869,970 |           |         |           | 4,232,115 | 
|                        | Mortgage loans:                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |         |          
|                        |                                     | Existing property               |                        |         | 41,587    |           |           |         | 7,675     |           |           |         | 21,100    |           |           |         | 9,714     |           |           |         | 17,382    |          
|                        |                                     | Construction                    |                        |         | 24,105    |           |           |         | 17,534    |           |           |         | 2,022     |           |           |         | 12,318    |           |           |         | 14,718    |          
|                        |                                     | Equity                          |                        |         | 61        |           |           |         | 413       |           |           |         | 828       |           |           |         | 969       |           |           |         | 1,024     |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        |                                     |                                 | Total mortgage loans   |         |           | 65,753    |           |         |           | 25,622    |           |         |           | 23,950    |           |         |           | 23,001    |           |         |           | 33,124    | 
|                        | Commercial loans                    |                                 |                        | 342,356 |           |           |           | 407,387 |           |           |           | 354,439 |           |           |           | 291,944 |           |           |           | 266,342 |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        |                                     |                                 | Total loans originated |         |           | 7,048,047 |           |         |           | 6,416,501 |           |         |           | 5,797,685 |           |         |           | 5,184,915 |           |         |           | 4,531,581 | 
|Loans purchased:        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        | Mortgage loans on existing property |                                 |                        |         |           |           |           |         |           |           |           | 46      |           |           |           | 229     |           |           |           | 488     |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        |                                     |                                 | Total loans purchased  |         |           |           |           |         |           |           |           |         |           | 46        |           |         |           | 229       |           |         |           | 488       | 
|Loans sold:             |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        | Contracts                           |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           | 660,000 |          
|                        | Mortgage loans                      |                                 |                        |         |           |           |           |         |           |           |           | 554     |           |           |           | 3,382   |           |           |           | 3,394   |          
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|                        |                                     |                                 | Total loans sold       |         |           |           |           |         |           |           |           |         |           | 554       |           |         |           | 3,382     |           |         |           | 663,394   | 
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|Principal reductions(2) |                                     |                                 | 6,050,782              |         |           |           | 4,721,919 |         |           |           | 3,922,542 |         |           |           | 2,572,665 |         |           |           | 1,126,520 |        
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        
|Increase in total loans |                                     | $                               | 997,265                |         |           | $         | 1,694,582 |         |           | $         | 1,874,635 |         |           | $         | 2,609,097 |         |           | $         | 2,742,155 |        
|                        |                                     |                                 |                        |         |           |           |           |         |           |           |           |         |           |           |           |         |           |           |           |        



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

Western Thrift & Loan Association
was involved in automobile finance activities from its
incorporation until its merger with Evergreen Savings and
Loan Association. Since such time, the Bank continued the
automobile finance activities of Western Thrift &
Loan Association. In 1988, 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

4



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##### Table of Contents



all assets relating to its automobile finance
division, including the contracts held on balance sheet and all
interests in the excess spread payable from outstanding
securitization transactions. The Bank also transferred to WFS
all of the outstanding stock of WFS Financial Auto Loans, Inc.,
also known as WFAL, and WFS Financial Auto Loans 2, Inc.,
also known as WFAL2, the securitization entities of the Bank,
thereby making these companies subsidiaries of WFS. In 1995, WFS
sold approximately 20% of its shares in a public offering. At
December 31, 2004, the Bank owned 84% of the common stock
of WFS.


Proposed Conversion and Merger

On May 23, 2004, we entered into a
definitive agreement pursuant to which we will acquire the
outstanding 16% common stock minority interest of WFS not
already owned by our wholly owned subsidiary, the Bank. The
transaction is structured as a merger of WFS with and into the
Bank. If the merger is consummated, the public holders of WFS
shares would receive 1.11 shares of our common stock for each
share of WFS common stock held by them in a tax-free exchange.
Based on the $42.60 closing price of our common stock on
May 21, 2004, the last business day prior to the execution
of the agreement, the transaction has an indicated value of
$47.29 per share of WFS common stock.

In connection with the merger, the Bank has filed
an application with the California Department of Financial
Institutions, also known as the DFI, to convert its federal
thrift charter to a California state bank charter. Among other
things, the merger is conditioned upon the conversion of the
charter and the transaction is subject to, among other closing
conditions, the receipt of regulatory approvals and the approval
of a majority of WFSs minority shareholders, other than
shares controlled by us. The DFI and the Office of Thrift
Supervision, also known as the OTS, have approved the
Banks application to convert from a federal savings bank
to a California state commercial bank subject to receipt of all
other required regulatory approvals. The FDIC approved the
application to merge WFS into the Bank as part of the
acquisition of the minority interest in WFS.

The conversion is still contingent upon the
approval by the Board of Governors of the Federal Reserve, also
known as the Federal Reserve, of our application to become a
bank holding company, which process is taking longer than
originally expected. As a result, we believe that the proposed
conversion will not occur until the latter half of 2005, if at
all. The Federal Reserve recently has raised some questions and
potential concerns with our proposal and has requested
additional information from us. Assembling the information and
responding to the Federal Reserves concerns and questions
will take additional time. Those concerns and questions will
need to be addressed to the Federal Reserves satisfaction
before the Federal Reserve will deem our application complete.

Although we intend to continue to pursue Federal
Reserve approval, there can be no assurance that such approval
will ultimately be granted or that any conditions to such
approval imposed on the Bank will not affect the feasibility of
moving forward with the proposed conversion and the related
merger of WFS into the Bank. We are currently exploring other
alternatives in the event that the proposed conversion and
related merger cannot go forward as planned. In that regard, WFS
has begun the process of filing for state licenses.

If the conversion is completed, we will be
subject to the laws, regulation and oversight of the DFI, the
FDIC and the Federal Reserve.

Market and Competition

The automobile finance industry is generally
segmented according to the type of vehicle sold (new versus
pre-owned) and the credit characteristics of the borrower
(prime, non-prime or subprime). Based upon industry data, we
believe that during 2004, prime, non-prime and subprime loan
originations in the United States were approximately
$350 billion, $100 billion and $50 billion,
respectively. The United States captive automobile finance
companies, General Motors Acceptance Corporation, Ford Motor
Credit Company and Chrysler Financial Corporation, account for
approximately 25% 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 6% market
share. Other market participants include the captive automobile
finance companies of other

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manufacturers, banks, credit unions, independent
automobile finance companies and other financial institutions.


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

The competition for contracts available within
the prime and non-prime credit quality contract spectrum is more
intense when the rate of automobile sales declines. Although we
have experienced consistent growth for many years, we can give
no assurance that we will continue to do so. Several of our
competitors have greater financial resources than we have and
may have a lower cost of funds. Many of our competitors also
have longstanding relationships with automobile dealers and may
offer dealers or their customers other forms of financing or
services not provided by us. The finance company that provides
floor planning for the dealers inventory is ordinarily one
of the dealers primary sources of financing for automobile
sales. We do not currently provide financing on dealers
inventories. We 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 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 have
locations in Southern California. We compete for deposits
primarily on the basis of interest rates paid and the quality of
service provided to our customers.

Competition in the commercial banking business
comes primarily from other commercial banks that maintain a
presence in Southern California. We have differentiated
ourselves by providing high 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 contracts that generate strong and consistent
risk-adjusted returns. We achieve this objective by employing
our business strategy, which includes the following key elements:



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

Produce Consistent Growth Through Our
Strong Dealer Relationships

Over the past five years, we have experienced a
compounded annual growth rate in contract purchases of 15%. We
believe we provide a high degree of personalized service to our
dealer base by marketing, underwriting and purchasing contracts
on a local level. Our focus is to provide each dealer superior
service by providing a single source of contact to meet the
dealers prime and non-prime financing needs. We believe
that the level of our service surpasses that of our competitors.
We provide personalized, efficient, and consistently excellent
service by making our business development representatives
available when a dealer is open, making

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prompt credit decisions, negotiating credit
decisions within available programs by providing structural
alternatives, and funding promptly.


|                                            |  |                                       |            |      |  |      |            |      |  |      |           |   |  |   |           |   |  |   |           |  
|------------------------------------------- |  | ------------------------------------- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                            |  |                                      
|                                            |  | At or For the Year Ended December 31,
|                                            |  |                                      
|                                            |  | 2004                                  |            | 2003 |  | 2002 |            | 2001 |  | 2000
|                                            |  |                                       |            |      |  |      |            |      |  |     
|                                            |  |                                      
|                                            |  | (Dollars in thousands)               
|Total automobile contract originations      |  | $                                     | 6,634,870  |      |  | $    | 5,978,576  |      |  | $    | 5,415,734 |   |  | $ | 4,863,279 |   |  | $ | 4,219,227 |  
|Percentage growth                           |  |                                       | 11.0       | %    |  |      | 10.4       | %    |  |      | 11.4      | % |  |   | 15.3      | % |  |   | 26.3      | %
|Total automobile contract portfolio managed |  | $                                     | 11,560,890 |      |  | $    | 10,596,665 |      |  | $    | 9,389,974 |   |  | $ | 8,152,882 |   |  | $ | 6,818,182 |  
|Percentage growth                           |  |                                       | 9.1        | %    |  |      | 12.9       | %    |  |      | 15.2      | % |  |   | 19.6      | % |  |   | 27.3      | %

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. 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 automobile finance companies. Additionally, we
continue to explore other distribution channels, including the
Internet. In December 2001, we acquired an interest in
DealerTrack Holdings, Inc., also known as DealerTrack, an
Internet business-to-business portal that brings together
finance companies and dealers. DealerTrack has signed up over
100 finance companies and approximately 24,000 dealers. As
of December 31, 2004, we owned approximately 6.3% of
DealerTrack. Currently, over 80% of our applications are
processed through DealerTrack.

We currently have a 2% market share of the United
States auto finance industry. However, we are the largest
originator of pre-owned automobile contracts in California, by a
two to one margin to our nearest competitor, with a
9% market share. Our leading market share in California
enables us to earn a higher risk-adjusted margin in this market.
We are seeking to expand our market share in other states to
achieve similar returns.



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

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

To achieve the return anticipated at origination,
we have developed a disciplined behavioral servicing process for
the early identification and cure of delinquent contracts and
for loss mitigation. In addition, we provide incentives to our
associates based on credit performance and profitability
measurements on both an individual and company level.

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

|                           |  |                                 |      |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|-------------------------- |  | ------------------------------- | ---- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                           |  |                                
|                           |  | For the Year Ended December 31,
|                           |  |                                
|                           |  | 2004                            |      | 2003 |  | 2002 |       | 2001 |  | 2000
|                           |  |                                 |      |      |  |      |       |      |  |     
|Weighted average coupon(1) |  |                                 | 9.88 | %    |  |      | 10.03 | %    |  |      | 11.35 | % |  |  | 12.74 | % |  |  | 13.95 | %
|Interest on borrowings(1)  |  |                                 | 3.17 |      |  |      | 2.70  |      |  |      | 3.74  |   |  |  | 5.37  |   |  |  | 6.74  |  
|                           |  |                                 |      |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net interest margins       |  |                                 | 6.71 |      |  |      | 7.33  |      |  |      | 7.61  |   |  |  | 7.37  |   |  |  | 7.21  |  
|Credit losses(2)           |  |                                 | 1.99 |      |  |      | 2.60  |      |  |      | 2.77  |   |  |  | 2.27  |   |  |  | 1.91  |  
|                           |  |                                 |      |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Risk-adjusted margins      |  |                                 | 4.72 | %    |  |      | 4.73  | %    |  |      | 4.84  | % |  |  | 5.10  | % |  |  | 5.30  | %
|                           |  |                                 |      |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  



---



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



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

We evaluate all aspects of our operations in
order to streamline processes and employ best practices
throughout the organization. Our key technology systems
implemented through this process include:



| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | automated front-end loan origination system that
    calculates borrower ratios, maintains lending parameters and
    approval limits, accepts electronic applications and directs
    applications to the appropriate credit analyst, all of which
    have reduced the cost of receiving, underwriting and funding
    contracts;
|
| |  | custom designed proprietary scoring models that
    rank order the risk of loss occurring on a particular contract;                                                                                                                                                                                                                
|
| |  | 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, over the last five
years we have reduced our operating costs as a percent of
managed contracts to 2.2% for 2004 from 3.1% in 2000. We will
continue to evaluate new technology and best practices to
further improve our operating efficiencies.



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

Cash flows from our automobile operations provide
a significant source of liquidity for us. In addition, we are
able to raise additional liquidity through the asset-backed
securities market. Over the last year we held an average of
approximately $654 million of unencumbered automobile
contracts on our balance sheet, which provides another source of
liquidity. The Bank provides liquidity through its retail and
commercial banking divisions in the form of deposits. At
December 31, 2004, the Bank also had a $2.6 billion
mortgage-backed securities portfolio that it can use to obtain
advances from the FHLB and securities repurchase agreements.
These sources of funds provide us with additional funding
security.

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

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

Since March 2000, we have structured our
automobile contract securitizations as secured financings. By
accounting for these securitizations as secured financings, the
contracts and asset-backed notes issued remain on our balance
sheet with the earnings of the contracts in the trust and the
related financing costs reflected over the life of the
underlying pool of contracts as net interest income on our
Consolidated Statements of Income. Additionally, no retained
interest in securitized assets, also known as RISA, is recorded
on the balance sheet and no corresponding non-cash gain on sale
is recorded on the income statement. 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.

Our allowance for credit losses was
$315 million at December 31, 2004 compared with
$302 million at December 31, 2003. The increase in the
allowance for credit losses was the result of a higher level of
automobile contracts held on balance sheet. The allowance for
credit losses as a percentage of owned loans outstanding was
2.6% at December 31, 2004 compared with 2.7% at
December 31, 2003. Based on the analysis we performed
related to the allowance for credit losses as described in
Note 1  Summary of Significant Accounting
Policies in our Consolidated Financial Statements, we
believe that our allowance for credit losses is currently
adequate to cover probable losses in our loan portfolio that can
be reasonably estimated.

Total shareholders equity, excluding
accumulated other comprehensive loss and including minority
interest, was $1.5 billion or 9.9% of total assets at
December 31, 2004. This compares with total
shareholders equity of $1.3 billion or 9.0% of total
assets at December 31, 2003.

Operations

Automobile Lending

Locations

We currently originate contracts nationwide
through our 42 offices. Each regional business center manager is
accountable for the performance of contracts originated in that
office throughout the life of the contracts, including
acquisition, underwriting, funding and collection. We have two
national service centers located in California and Texas with
functions including data verification, records management,
remittance processing, customer service call centers, automated
dialers and asset recovery. We also maintain four regional
bankruptcy and remarketing centers. Our corporate offices are
located in Irvine, California.

Business Development

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

Business development representatives target
selected dealers within their territory based upon volume,
potential for business, financing needs of the dealers, and
competitors that are doing business with such dealers. Before we
decide to do business with a new dealer, we perform a review
process of the dealer and its business. If we then determine to
proceed, we enter into a non-exclusive dealership agreement with
the dealer. This agreement contains certain representations
regarding the contracts the dealer will sell to us. Due to the

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non-exclusive nature of our relationship with
dealers, the dealers retain discretion to determine whether to
sell contracts to us or another financial institution. The
business development representative is responsible for educating
the dealers finance managers about the types of contracts
that meet our underwriting standards. We believe this
educational process helps to minimize the number of applications
we receive that are outside of our underwriting guidelines,
thereby increasing our efficiency and lowering our overall cost
to originate contracts.


After the dealer relationship is established, the
business development representative continues to actively
monitor the relationship with the objective of maximizing the
overall profitability of each dealer relationship within his or
her territory. This includes monitoring the number of approved
applications received from each dealer that are converted into
contracts, verifying that the contracts meet our underwriting
standards, monitoring the risk-based pricing of contracts
acquired and reviewing the actual performance of the contracts
purchased. To the extent that a dealer does not meet minimum
conversion ratios, lending volume standards or overall
profitability targets, the dealer may be precluded from sending
us applications in the future. Our dealer base increased during
the year from approximately 8,000 to 8,200, primarily as a
result of us expanding our nationwide presence. Our increase in
volume is the result of this increase in our dealer base, in
addition to funding more contracts from our existing dealers.

Underwriting and Purchasing of
Contracts

The underwriting process begins when an
application is sent to us via the Internet or fax. Internet
applications are automatically loaded into our front-end
underwriting computer system. Applicant information from faxed
applications is manually entered into our front-end system. Once
an application is in the front-end system, the system
automatically obtains the applicants credit bureau
information and calculates our proprietary credit score.

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

Our credit analysts are responsible for properly
structuring and pricing deals to meet our risk-based criteria.
They review the applicants information and the structure
and price of an application and determine whether to approve,
decline or make a counteroffer to the dealer. Each credit
analysts lending levels and approval authorities are
established based on the individual analysts credit
experience and portfolio performance, credit manager audit
results and quality control review results. Higher levels of
approvals are required for higher credit risk and are controlled
by system driven parameters and limits. System driven controls
include limits on minimum contract buy rates, contract terms,
contract advances, payment to income ratios, debt to income
ratios, collateral values and low side overrides.

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

If the dealer accepts the terms of the approval,
the dealer is required to deliver the necessary documentation
for each contract to us. Our funding group audits such documents
for completeness and consistency with the application and
provides final approval and funding of the contract. A direct
deposit is made or a check is prepared and promptly sent to the
dealer for payment. The dealers proceeds may include

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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.

11



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

|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |        | 
|-------------- | ----- | ------------------------------- | --------- | -------------------- |  | ---- | --------- | ----------------- |  | -------------------- | --------- | --------- |  | - | --------- | ---------- |  |  | ----- | ------ | 
|               |       |                                 |           |                      |  |     
|               |       | Contracts Originated            |           |                     
|               |       | For the Year Ended December 31, |           | At December 31, 2004
|               |       |                                 |           |                     
|State          |       | 2004                            |           | 2003                 |  | 2002 |           | Managed Portfolio |  | Number of Dealers(1)
|               |       |                                 |           |                      |  |      |           |                   |  |                     
|               |       |                                
|               |       | (Dollars in thousands)         
|California     |       | $                               | 2,569,659 |                      |  | $    | 2,228,877 |                   |  | $                    | 2,091,347 |           |  | $ | 4,298,323 |            |  |  | 2,973 |       
|Washington     |       |                                 | 393,675   |                      |  |      | 373,111   |                   |  |                      | 310,189   |           |  |   | 649,237   |            |  |  | 517   |       
|Arizona        |       |                                 | 337,670   |                      |  |      | 299,918   |                   |  |                      | 283,528   |           |  |   | 605,388   |            |  |  | 473   |       
|Texas          |       |                                 | 244,456   |                      |  |      | 204,065   |                   |  |                      | 171,761   |           |  |   | 427,999   |            |  |  | 760   |       
|Oregon         |       |                                 | 219,666   |                      |  |      | 206,875   |                   |  |                      | 214,683   |           |  |   | 373,529   |            |  |  | 476   |       
|Virginia       |       |                                 | 215,054   |                      |  |      | 162,148   |                   |  |                      | 123,403   |           |  |   | 339,472   |            |  |  | 449   |       
|New York       |       |                                 | 174,508   |                      |  |      | 117,377   |                   |  |                      | 63,519    |           |  |   | 255,041   |            |  |  | 360   |       
|Nevada         |       |                                 | 172,531   |                      |  |      | 142,957   |                   |  |                      | 131,094   |           |  |   | 269,562   |            |  |  | 155   |       
|Illinois       |       |                                 | 167,334   |                      |  |      | 147,635   |                   |  |                      | 104,576   |           |  |   | 274,709   |            |  |  | 508   |       
|Ohio           |       |                                 | 162,936   |                      |  |      | 161,846   |                   |  |                      | 171,109   |           |  |   | 350,790   |            |  |  | 741   |       
|Florida        |       |                                 | 162,866   |                      |  |      | 132,238   |                   |  |                      | 147,931   |           |  |   | 304,737   |            |  |  | 693   |       
|Colorado       |       |                                 | 161,998   |                      |  |      | 248,667   |                   |  |                      | 200,153   |           |  |   | 356,970   |            |  |  | 316   |       
|North Carolina |       |                                 | 142,731   |                      |  |      | 148,786   |                   |  |                      | 144,859   |           |  |   | 293,720   |            |  |  | 524   |       
|Idaho          |       |                                 | 142,336   |                      |  |      | 129,838   |                   |  |                      | 102,475   |           |  |   | 233,440   |            |  |  | 192   |       
|Georgia        |       |                                 | 134,693   |                      |  |      | 98,224    |                   |  |                      | 77,294    |           |  |   | 224,316   |            |  |  | 424   |       
|Michigan       |       |                                 | 122,840   |                      |  |      | 109,323   |                   |  |                      | 82,542    |           |  |   | 214,502   |            |  |  | 378   |       
|Maryland       |       |                                 | 118,727   |                      |  |      | 100,620   |                   |  |                      | 62,145    |           |  |   | 189,374   |            |  |  | 251   |       
|Missouri       |       |                                 | 88,989    |                      |  |      | 77,273    |                   |  |                      | 70,070    |           |  |   | 154,782   |            |  |  | 324   |       
|Tennessee      |       |                                 | 84,568    |                      |  |      | 90,156    |                   |  |                      | 86,228    |           |  |   | 177,107   |            |  |  | 309   |       
|South Carolina |       |                                 | 76,478    |                      |  |      | 88,511    |                   |  |                      | 145,892   |           |  |   | 204,316   |            |  |  | 300   |       
|Utah           |       |                                 | 75,011    |                      |  |      | 74,993    |                   |  |                      | 84,897    |           |  |   | 139,617   |            |  |  | 291   |       
|New Jersey     |       |                                 | 70,799    |                      |  |      | 60,255    |                   |  |                      | 42,210    |           |  |   | 119,819   |            |  |  | 210   |       
|Massachusetts  |       |                                 | 69,999    |                      |  |      | 69,343    |                   |  |                      | 39,086    |           |  |   | 117,625   |            |  |  | 185   |       
|Wisconsin      |       |                                 | 59,387    |                      |  |      | 52,304    |                   |  |                      | 44,318    |           |  |   | 98,792    |            |  |  | 220   |       
|Pennsylvania   |       |                                 | 56,202    |                      |  |      | 47,813    |                   |  |                      | 50,699    |           |  |   | 104,689   |            |  |  | 327   |       
|Minnesota      |       |                                 | 50,056    |                      |  |      | 46,398    |                   |  |                      | 29,708    |           |  |   | 78,686    |            |  |  | 131   |       
|New Mexico     |       |                                 | 47,519    |                      |  |      | 34,010    |                   |  |                      | 23,930    |           |  |   | 70,959    |            |  |  | 91    |       
|Connecticut    |       |                                 | 45,291    |                      |  |      | 35,183    |                   |  |                      | 22,928    |           |  |   | 72,337    |            |  |  | 109   |       
|Alabama        |       |                                 | 38,027    |                      |  |      | 43,343    |                   |  |                      | 36,570    |           |  |   | 82,461    |            |  |  | 183   |       
|Kentucky       |       |                                 | 37,242    |                      |  |      | 23,112    |                   |  |                      | 41,754    |           |  |   | 70,836    |            |  |  | 187   |       
|Indiana        |       |                                 | 30,191    |                      |  |      | 46,530    |                   |  |                      | 37,904    |           |  |   | 76,809    |            |  |  | 227   |       
|Delaware       |       |                                 | 29,195    |                      |  |      | 32,750    |                   |  |                      | 26,697    |           |  |   | 62,396    |            |  |  | 74    |       
|New Hampshire  |       |                                 | 27,382    |                      |  |      | 32,619    |                   |  |                      | 24,275    |           |  |   | 52,049    |            |  |  | 91    |       
|Kansas         |       |                                 | 26,386    |                      |  |      | 26,398    |                   |  |                      | 19,448    |           |  |   | 48,139    |            |  |  | 123   |       
|Iowa           |       |                                 | 21,899    |                      |  |      | 20,712    |                   |  |                      | 20,552    |           |  |   | 37,948    |            |  |  | 97    |       
|Mississippi    |       |                                 | 10,402    |                      |  |      | 10,245    |                   |  |                      | 18,051    |           |  |   | 29,142    |            |  |  | 93    |       
|Rhode Island   |       |                                 | 7,126     |                      |  |      | 5,170     |                   |  |                      | 4,385     |           |  |   | 11,204    |            |  |  | 33    |       
|Wyoming        |       |                                 | 6,848     |                      |  |      | 8,105     |                   |  |                      | 12,507    |           |  |   | 14,884    |            |  |  | 37    |       
|Nebraska       |       |                                 | 6,839     |                      |  |      | 8,165     |                   |  |                      | 9,824     |           |  |   | 14,471    |            |  |  | 57    |       
|Montana        |       |                                 | 5,684     |                      |  |      | 3,590     |                   |  |                      |           |           |  |   | 7,085     |            |  |  | 6     |       
|Maine          |       |                                 | 5,172     |                      |  |      | 3,782     |                   |  |                      | 492       |           |  |   | 7,138     |            |  |  | 18    |       
|Oklahoma       |       |                                 | 4,538     |                      |  |      | 12,874    |                   |  |                      | 27,390    |           |  |   | 23,186    |            |  |  | 79    |       
|South Dakota   |       |                                 | 3,553     |                      |  |      | 4,971     |                   |  |                      | 3,843     |           |  |   | 7,101     |            |  |  | 13    |       
|West Virginia  |       |                                 | 3,223     |                      |  |      | 7,111     |                   |  |                      | 9,447     |           |  |   | 13,104    |            |  |  | 82    |       
|Vermont        |       |                                 | 3,184     |                      |  |      | 355       |                   |  |                      | 21        |           |  |   | 3,071     |            |  |  | 10    |       
|Hawaii         |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   | 28        |            |  |  | 12    |       
|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |       
|               | Total |                                 | $         | 6,634,870            |  |      | $         | 5,978,576         |  |                      | $         | 5,415,734 |  |   | $         | 11,560,890 |  |  |       | 14,109 | 
|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |       



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|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents number of dealers from which contracts
    were originated that remain outstanding in our servicing
    portfolio at December 31, 2004.

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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. We utilize a decision support system that
incorporates behavioral scoring models and we purchase credit
bureau information on all borrowers, which is updated each
quarter. We believe these processes are the most efficient and
effective collection methods.

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

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

If an account is delinquent and satisfactory
payment arrangements are not made, the automobile is generally
repossessed within 60 to 90 days of the date of
delinquency, subject to compliance with applicable law. We use
independent contractors to perform repossessions. The automobile
remains in our custody for 10 days, or longer if required
by applicable law, to provide the obligor the opportunity to
redeem the automobile. If after the redemption period the
delinquency is not cured, we write down the vehicle to fair
value and reclassify the contract as a repossessed asset. After
the redemption period expires, we prepare the automobile for
sale. We sell substantially all repossessed automobiles through
wholesale automobile auctions, subject to applicable law. We do
not provide the financing on repossessions sold. We use regional
remarketing departments to sell our repossessed vehicles. Once
the vehicles are sold, we charge off any remaining deficiency
balances. At December 31, 2004, repossessed automobiles
outstanding managed by us were $8.0 million or 0.07% of the
total managed contract portfolio, compared with
$10.3 million or 0.10% of the total managed contract
portfolio at December 31, 2003.

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.

Retail Banking

Our retail banking operations are conducted
through 20 branch offices located throughout Southern
California. The total deposits gathered by the retail banking
division were $1.4 billion at December 31, 2004
compared to $1.3 billion at December 31, 2003. Due to
our limited number of branch offices, we have

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historically focused on certificate of deposit
accounts as the primary product offered by the retail banking
division. More recently, we have focused on raising low cost
demand deposits and money market accounts in order to lower our
overall cost of deposits.


Demand deposits and money market accounts
obtained through our retail banking operations totaled
$799 million at December 31, 2004 compared with
$608 million at December 31, 2003. At
December 31, 2004, demand deposits and money market
accounts represented 57% of our total retail banking deposits
compared with 48% at December 31, 2003. In addition, demand
deposits, money market accounts and certificate of deposit
accounts of $100,000 or less in principal represented
approximately 90% of our total deposit accounts.

Commercial Banking

We focus our commercial banking operations in
Southern California, 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 loans
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 Offered 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 the Commercial Bank President, Chairman
of the Board, Board members or other executive officers. 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 to
observe and continually evaluate customers for potential credit
problems.

At December 31, 2004, the commercial banking
division had $734 million in deposits compared with
$638 million at December 31, 2003. Commercial loans
outstanding totaled $166 million and $124 million at
December 31, 2004 and 2003, respectively.

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

|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2004                            |         | 2003 |  | 2002
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Average balance  loans                   |  | $                               | 322,969 |      |  | $    | 377,848 |   |  | $ | 427,035 |  
|Average balance  deposits                |  |                                 | 951,109 |      |  |      | 734,147 |   |  |   | 487,102 |  
|Interest income                           |  |                                 | 17,217  |      |  |      | 19,957  |   |  |   | 28,516  |  
|Interest expense                          |  |                                 | 6,992   |      |  |      | 5,478   |   |  |   | 6,615   |  
|Average interest rate earned on loans     |  |                                 | 5.33    | %    |  |      | 5.28    | % |  |   | 6.68    | %
|Average interest rate paid on deposits(1) |  |                                 | 0.74    | %    |  |      | 0.75    | % |  |   | 1.36    | %



---



|    |                                       
|--- | --------------------------------------
|(1) | Excludes effect of hedging activities.

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.

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Transactions with Related Parties

We believe that the transactions with or between
our subsidiaries described below are on terms no less favorable
to us than could be obtained from unaffiliated parties. These
transactions were approved by our Board of Directors and the
Boards of Directors of the Bank, WFS and other subsidiaries,
including their respective independent directors. For accounting
purposes, each of the transactions described below 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 WFS currently
utilizes 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.

WFS borrowed $150 million from the Bank
under the terms of a $150 million note, as amended. This
notes original maturity was August 1, 2007, although
WFS paid off this note in the third quarter of 2004. Interest
payments on the $150 million note were due quarterly in
arrears, calculated at the rate of 8.875% per annum.
Pursuant to the terms of this note, WFS could not incur any
other indebtedness that was senior to the obligations evidenced
by this note except for (i) indebtedness collateralized or
secured under the $1.8 billion line of credit discussed
below and (ii) indebtedness for similar types of warehouse
lines of credit. WFS made principal payments on this note
totaling $101 million and $7.2 million during the
years ended December 31, 2004 and 2003, respectively. There
was no amount outstanding on this note at December 31, 2004
compared with $101 million at December 31, 2003.
Interest expense on this note totaled $5.0 million,
$9.1 million and $12.4 million for the years ended
December 31, 2004, 2003 and 2002, 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,
2004 and 2003. Interest expense on this note totaled
$30.8 million, $30.8 million and $20.3 million
for the years ended December 31, 2004, 2003 and 2002,
respectively.

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, 2009. There was $161 million outstanding
at December 31, 2004 and no amount outstanding at
December 31, 2003. The average amount outstanding on the
line was $20.5 million for 2004 and $14.7 million for
2003. The $1.8 billion line of credit carries an interest
rate based on the one-month LIBOR plus 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.

Various subsidiaries of WFS have entered into
lines of credit with the Bank. These lines permit these
subsidiaries to draw up to a total of $320 million to fund
activities related to securitizations. The $320 million in
lines of credit terminate on January 1, 2010, although the
terms may be extended by these subsidiaries for additional
periods of up to 60 months. At December 31, 2004, the
amount outstanding on these lines of credit totaled
$52.7 million compared with $21.8 million at
December 31, 2003. These lines of credit carry an interest
rate based on the one-month LIBOR on the last day of the prior
month plus an interest spread of 335 basis points when
unsecured and 275 basis points when secured.

Interest on the amounts outstanding under the
lines of credit is paid monthly, in arrears, and is calculated
on the daily average amount outstanding that month. Interest
expense for these lines of credit totaled $1.8 million,
$1.0 million and $3.0 million for the years ended
December 31, 2004, 2003 and 2002,

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respectively. For the years ended
December 31, 2004, 2003 and 2002, the weighted average
interest rates for the lines of credit were 3.38%, 2.28% and
2.74%, respectively. At December 31, 2004, 2003 and 2002,
the weighted average interest rates for the lines of credit were
3.65%, 2.28% and 2.55%, respectively.


Short-Term Investment

WFS invests its excess cash at the Bank under an
investment agreement. The Bank pays WFS an interest rate on this
excess cash equal to the one-month LIBOR. The weighted average
interest rate was 1.37%, 1.23% and 1.77% for the years ended
December 31, 2004, 2003 and 2002, respectively. WFS held no
amount and $764 million excess cash with the Bank under the
investment agreement at December 31, 2004 and 2003,
respectively. The average investment during 2004 was
$529 million compared with $660 million during 2003.
Interest income earned by WFS under this agreement totaled
$7.5 million, $8.2 million and $10.2 million for
the years ended December 31, 2004, 2003 and 2002,
respectively. The interest rate was 2.29% at December 31,
2004 compared with 1.17% at December 31, 2003.

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 a sale and servicing
agreement.

In accordance with these agreements, the Bank and
WFAL2 pledge property owned by each of them for the benefit of
the trustee of each trust and the surety. WFS paid the Bank a
fee equal to 55 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 in 2004. Prior to January 1, 2004,
this fee was 12.5 basis points. WFS paid the Bank
$4.2 million, $1.2 million and $1.2 million for
the years ended December 31, 2004, 2003 and 2002,
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 Inc., 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 are an eligible investment for the related
securitization. There was $465 million and
$789 million outstanding on the trust reinvestment
contracts at December 31, 2004 and 2003, respectively.

Whole Loan Sales

We purchased $1.5 billion and
$1.7 billion of contracts from WFS in whole loan sales for
the years ended December 31, 2004 and 2003, respectively.
We purchased no contracts from WFS for the year ended
December 31, 2002. In these transactions, WFS received cash
for the amount of the principal outstanding on the contracts
plus a premium of $48.5 million and $49.7 million for
the years ended December 31, 2004 and 2003, respectively.
These premiums were recorded by WFS as a cash gain on sale, net
of the write-off of

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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. These whole loan sale transactions
are eliminated upon consolidation for accounting purposes.


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

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. 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.

On January 1, 2004, WFS and the Bank entered
into a services agreement with Western Financial Associate
Solutions, also known as WFAS, a subsidiary of the Bank,
pursuant to which they transferred their human resources
function and the majority of their employees to WFAS, and WFAS
provides employees to perform certain business functions and
provides human resource functions for their remaining employees.
This service agreement may be terminated by any party upon
30 days prior written notice without cause, or immediately
in the event of the other partys breach of any covenant,
obligation, or duty contained in the applicable management
agreement or for violation of law, ordinance, statute, rule or
regulation governing either party to the applicable management
agreement.

Supervision and Regulation

General

The following discussion describes federal and
state laws and regulations that have a material effect on our
business. These laws and regulations generally are intended to
protect consumers, depositors, federal deposit insurance funds
and the banking system as a whole, rather than stockholders and
creditors. To the extent that this section refers to statutory
or regulatory provisions, it is qualified in its entirety by
reference to these provisions. The federal banking regulatory
agencies have substantial enforcement powers over the depository
institutions that they regulate. Civil and criminal penalties
may be imposed on such institutions and persons associated with
those institutions for violations of laws or regulation.
Further, these statutes and regulations are subject to change by
Congress and federal or state regulators. A change in the laws,
regulations or regulatory policies applicable to us could have a
material effect on our business.

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Bank Operations

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

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

Automobile Lending Operations

We purchase automobile installment contracts in
45 states and are subject to both state and federal
regulation of our automobile lending operations. We must comply
with each states consumer finance, automobile finance,
licensing and titling laws and regulations to the extent those
laws and regulations are not pre-empted by OTS regulations or
federal law.

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

Affiliate Transaction
Restrictions

The Home Owners Loan Act, also known
as HOLA, and regulations of the OTS that incorporate
Sections 23A and 23B of the Federal Reserve Act and
Regulation W promulgated thereunder, limit the type of
activities and investments in which the Bank or its subsidiaries
may participate if the investment or activity involves an
affiliate of the Bank. In addition, transactions between the
Bank or its subsidiaries and an affiliate must be on terms that
are at least as favorable to the Bank or its subsidiaries as are
the terms of the transactions with unaffiliated companies.
Sections 23A and 23B and Regulation W limit the risks
to a bank from transactions between the bank and its affiliates
and limit the ability of a bank to transfer to its affiliates
the benefits arising from the banks access to insured
deposits, the payment system and the discount window and other
benefits of the Federal Reserve System. The statute and rule
impose quantitative and qualitative limits on the ability of a
bank to extend credit to, or engage in certain other
transactions with, an affiliate (and a nonaffiliate if an
affiliate benefits from the transaction). The OTS enforces
Sections 23A and 23B and Regulation W to the extent
applicable to the Bank. This permits the OTS to, as necessary,
limit transactions between us, the Bank, our subsidiaries or
affiliates and the subsidiaries or affiliates of the Bank, and
limit any of Westcorps activities that might create a
serious risk that our liabilities and the liabilities of our
affiliates may be imposed on the Bank.

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Investment Restrictions

HOLA regulations limit certain of the Bank
activities and the activities of our operating subsidiaries to a
percentage of the Banks total consolidated assets,
excluding for these purposes, assets held by our service
corporations. The Bank is precluded from holding consumer loans,
including automobile contracts, on its consolidated balance
sheet, in an aggregate principal balance in excess of 30% of its
total consolidated assets. The limitation is increased to 35% of
consolidated assets if all of the consumer loans in excess of
the 30% limit are obtained by the Bank and its operating
subsidiaries directly from consumers. Our securitization
activities are structured to enable the Bank to remove
securitized automobile contracts from the HOLA consumer loan
limitation calculation. As a result, securitized automobile
contracts are not included in the calculation of the percentage
of the Banks consolidated assets subject to either the 30%
or 35% limitation on consumer loans. The Bank is precluded from
holding commercial loans, including loans to our service
corporations, on its consolidated balance sheet, in an aggregate
principal balance in excess of 10% of its total consolidated
assets. Commercial loans secured by real estate and small
business loans with $2.0 million or less in outstanding
principal are not included in the calculation of the percentage
of commercial loans. The Bank is precluded from investing more
than 2% of its consolidated assets in service corporations,
although it may invest an additional 1% in service corporations
devoted to community service activities as specified in the
regulations. Retained earnings or losses from the operations of
our service corporations are not included in the calculation of
its investment in service corporations.

Capital Requirements

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

HOLA mandates that the OTS promulgate capital
regulations that include capital standards no less stringent
than the capital standards applicable to national banks. The OTS
in its regulations has defined total risk-based capital as core
capital plus supplementary capital less direct equity
investments not permissible to national banks (subject to a
phase-in schedule) and reciprocal holdings that other depository
institutions may count in their regulatory capital.
Supplementary capital is limited to 100% of core capital.
Supplementary capital is comprised of permanent capital
instruments not included in core capital, general valuation loan
and lease loss allowance, and maturing capital instruments such
as subordinated debentures. The amount of general valuation loan
and lease allowance that may be included in supplementary
capital is limited to 1.25% of risk-weighted assets. At
December 31, 2004, there was one debenture issuance
remaining with an outstanding balance, excluding discounts and
issuance costs, of $300 million and an interest rate of
9.625% due in 2012. Pursuant to the approval from the OTS to
treat those debentures as supplementary capital, the total
amount of debentures issued by the Bank that may be included as
supplementary capital may not exceed the total amount of the
Banks core capital. Presently, $296 million is
included as supplementary capital. The 9.625% debentures
will not begin to be phased out as supplementary capital until
May 15, 2007.

The Bank currently meets all capital requirements
to which it is subject and satisfies the requirements of a
well capitalized institution. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Capital
Resources and Liquidity  Capital Requirements
for an analysis of the Banks actual capital and required
capital. Because the Bank is well capitalized, it
may accept brokered

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deposits without restriction. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Capital
Resources and Liquidity  Principal Sources of
Cash  Deposits. Federal regulators must take
prompt corrective action to resolve the problems of insured
depository institutions that fall below certain capital ratios.


Safety and Soundness
Standards

The federal banking agencies have adopted
guidelines establishing safety and soundness standards for all
insured depository institutions. Those guidelines relate to
internal controls, information systems, internal audit systems,
loan underwriting and documentation, compensation and interest
rate exposure. In general, the standards are designed to assist
the federal banking agencies in identifying and addressing
problems at insured depository institutions before capital
becomes impaired. If an institution fails to meet these
standards, the appropriate federal banking agency may require
the institution to submit a compliance plan and institute
enforcement proceedings if an acceptable compliance plan is not
submitted.

Distributions

The OTS has adopted regulations for determining
if capital distributions of a savings association are permitted.
Capital distributions are permissible unless the Bank would be
undercapitalized, the proposed distribution raises safety and
soundness concerns, or violates a prohibition in any statute,
regulation or agreement between the Bank and the OTS. The Bank
also is subject to certain limitations on the payment of
dividends by the terms of the indentures for its debentures.
Those limitations are more severe than the OTS capital
distribution regulations. Under the most restrictive of those
limitations arising in connection with the Banks sale of
debentures, the greatest capital distribution that the Bank
could currently make is $358 million. See
Note 18  Dividends in our
Consolidated Financial Statements for a more detailed
description of limits on dividends the Bank is allowed to pay.

Insurance of Accounts

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

Subprime Lending Programs

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

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Community Reinvestment Act

The Bank is subject to certain requirements and
reporting obligations involving activities in connection with
the Community Reinvestment Act, also known as the CRA. The CRA
generally requires the federal banking agencies to evaluate the
record of a financial institution in meeting the credit needs of
its local communities, including low-and moderate-income
neighborhoods. The CRA further requires the agencies to take
into account a financial institutions record of meeting
its community credit needs when evaluating applications for,
among other things, domestic branches, consummating mergers or
acquisitions, or holding company formations. In measuring a
banks compliance with its CRA obligations, the regulators
utilize a performance-based evaluation system which bases CRA
ratings on the banks actual lending, service and
investment performance, rather than on the extent to which the
institution conducts needs assessments, documents community
outreach activities or complies with other procedural
requirements. In connection with its assessment of CRA
performance, the FDIC assigns a rating of
outstanding, satisfactory, needs
to improve or substantial noncompliance. The
Banks most recent rating was satisfactory.

Other Consumer Protection Laws and
Regulations

Examination and enforcement have become intense,
and banks have been advised to monitor carefully compliance with
various consumer protection laws and their implementing
regulations. In addition to the other laws and regulations
discussed herein, the Bank is subject to certain consumer and
public interest laws and regulations that are designed to
protect customers in transactions with banks and certain other
financial services companies. While the list set forth below is
not exhaustive, these laws and regulations include the Truth in
Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Fair
Debt Collection Practices Act and the Right to Financial Privacy
Act, as well as various state consumer protection laws. These
laws and regulations mandate certain disclosure requirements and
regulate the manner in which financial institutions must deal
with customers when taking deposits, making loans, collecting
loans and providing other services. We also are subject to the
federal Servicemembers Civil Relief Act and similar state laws
affecting enforcement of loans to those in military service. The
Bank must comply with the applicable provisions of these laws
and regulations as part of its ongoing customer relations.
Failure to comply with these laws and regulations can subject
the Bank to various penalties, including but not limited to
enforcement actions, injunctions, fines or criminal penalties,
punitive damages to consumers and the loss of certain
contractual rights. The installment sales contracts purchased by
WFS are typically subject to stringent state laws. Violations of
these state laws by the sellers could subject WFS, as the holder
of the contracts, to severe remedies, including, in some
instances, the loss of the right to collect interest or
principal.

Taxation

Federal Income Taxes

We file a calendar year consolidated federal
income tax return with our subsidiaries. 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. During 2003, the
remaining $1.7 million of reserves were recaptured.

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.

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California Franchise Tax and Other State
Provisions

At the end of 2004, we had a tax presence in
approximately 39 states. However, we expect that
approximately 50% of the activity of the group and the resulting
income will be taxed as California source income, with the
remaining amounts apportioned or allocated outside California.

The California franchise tax applicable to
financial corporations such as 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%.

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. The
California Franchise Tax Board has completed an examination of
tax years 1998 through 2001.

Subsidiaries

The following subsidiaries are included in our
Consolidated Financial Statements.

WFS Receivables Corporation 2

WFS Receivables Corporation 2, also known as
WFSRC2, is a wholly owned, Nevada based, limited purpose
corporation. WFSRC2 was organized for the purpose of purchasing
contracts from WFS and securitizing them in the asset-backed
securities market. Securitizations originated by WFSRC2 are
guaranteed under a financial guaranty insurance policy issued by
FSA. Securitization transactions in which contracts are sold
through WFSRC2 are treated as secured financings for accounting
purposes. At December 31, 2004, WFSRC2 had
$1.2 billion in notes payable on automobile secured
financing outstanding.

WFS Receivables Corporation 4

WFS Receivables Corporation 4, also known as
WFSRC4, is a wholly owned, Nevada based, limited purpose
corporation. WFSRC4 was organized for the purpose of purchasing
contracts from WFS and securitizing them in the asset-backed
securities market. Securitizations originated by WFSRC4 include
senior notes which are credit enhanced through the issuance of
subordinated notes. Securitization transactions in which
contracts are sold through WFSRC4 are treated as secured
financings for accounting purposes. At December 31, 2004,
WFSRC4 had $986 million in notes payable on automobile
secured financing outstanding.

Westran Services Corp.

Westran Services Corp., also known as Westran, is
a 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, also known as WCP, is
a wholly owned, California based subsidiary, which markets
non-lending related products such as automobile warranties,
maintenance agreements and vehicle security systems.

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Western Financial Bank

The Bank is a 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 WFAL2, 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 WFAS, Western Auto Investments, Inc., also known as
WAI, Westfin Insurance Agency, also known as WFIA, 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. WFAL, WFS
Investments, Inc., also known as WFSII, Westhrift and WestFin
Securities Corporation, also known as WestFin, were subsidiaries
of the Bank or WFS but have been dissolved as of
December 31, 2004. Each of these entities are described in
further detail below.

WFS Financial Inc

WFS is an 84% owned operating 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,
WFSFI, WFSRC, WFSRC3 and formerly by WFAL or are sold to WFSRC2
or WFSRC4 for securitization by those entities. See
General  Automobile Lending Operations.
During 2004, WFS originated $6.6 billion of contracts.

WFS Financial Auto Loans,
Inc.

WFAL was a wholly owned, Nevada based, limited
purpose service corporation 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 were
treated as sales for accounting purposes. WFAL has not purchased
any automobile contracts since March 2000. In January 2003, we
regained control over the assets of the outstanding
securitization trusts accounted for as sales for accounting
purposes and consolidated all remaining contracts and related
notes payable on automobile secured financing outstanding under
these trusts. At December 31, 2004, WFAL had been dissolved.

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 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.

WFS Investments, Inc.

WFSII was 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 was limited by its Articles of Incorporation
from engaging in any business activities not incidental or
necessary to its stated purpose. At December 31, 2004,
WFSII had been dissolved.

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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 FSA.
Securitization transactions in which contracts are sold through
WFSRC are treated as secured financings for accounting purposes.
At December 31, 2004, WFSRC had $1.8 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 that
are credit enhanced through the issuance of subordinated notes.
Securitization transactions in which contracts are sold through
WFSRC3 are treated as secured financings for accounting
purposes. At December 31, 2004, WFSRC3 had
$6.3 billion in notes payable on automobile secured
financing outstanding.

WFS Web Investments

WFSWEB is a 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 opportunity to be involved with
a company that provides a business-to-business Internet portal
specifically designed for the indirect automobile lending market.

Western Financial Associate
Solutions

WFAS is a wholly owned, California based,
operating subsidiary of the Bank. WFAS provides employees and
human resource functions to our subsidiaries.

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 was a wholly owned, California based,
insurance agency and service corporation subsidiary of the Bank.
WFIA acts as an agent for independent insurers in providing
property and casualty insurance and collateral protection
insurance on contracts made by WFS. WFIA is also an insurance
agency, 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 was a wholly owned, Arizona based,
operating subsidiary of the Bank. Westhrift had a Certificate of
Authority from the California Insurance Commissioner authorizing
it to conduct insurance business in California. At
December 31, 2004, Westhrift had been dissolved.

WestFin Securities
Corporation

WestFin was a wholly owned service corporation
subsidiary of the Bank. WestFin was a National Association of
Securities Dealers licensed securities broker-dealer of the
Bank. At December 31, 2004, Westfin had been dissolved.

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Western Reconveyance Company,
Inc.

RECON is a wholly owned, California based,
service corporation 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, service
corporation 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, 2004, we had
2,239 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, 2004, we owned six
properties in California and one property in Texas and leased 60
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, 2004, the net book value of property and
leasehold improvements was approximately $49.0 million. We
lease space at one location from a company controlled by the
Chairman of the Board of our company and our majority
shareholder.






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

We or our subsidiaries are involved as a party to
certain legal proceedings incidental to our business, including
Lee, et al v. WFS Financial Inc, United States
District Court, Middle District of Tennessee at Nashville,
No. 3-02-0570 filed June 17, 2002 (raising claims
under the Equal Credit Opportunity Act) and Thompson,
et al v. WFS Financial Inc, California Superior
Court, County of Alameda Civil Action No. RG03088926, Court
of Appeal No. A104967 (raising claims under Californias
Unfair Competition Law and related claims). We reached a
settlement in the Lee, et al v. WFS Financial Incand Thompson, et al v. WFS Financial Inccases. The United States District Court, Middle District of
Tennessee at Nashville, granted final approval of these
settlements and entered judgment on November 15, 2004, and
the settlement became effective on December 20, 2004 after
the expiration of the time for appeal. The pending appeal in the
Thompson, et al v. WFS Financial Inccase was
dismissed on December 15, 2004, pursuant to the terms of
the settlement.

Beginning on May 24, 2004 and continuing
thereafter, a total of four separate purported class action
lawsuits relating to the announcement by us and WFS that we were
commencing an exchange offer for WFS outstanding public
shares were filed in the Orange County, California Superior
Court against us, WFS, our individual board members, and
individual board members of WFS. On June 24, 2004, the
actions were consolidated under the caption In re WFS
Financial Shareholder Litigation, Case No. 04CC00559,
also known as the Action. On July 16, 2004, the court
granted a motion by plaintiff Alaska Hotel & Restaurant

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Employees Pension Trust Fund, in Case
No. 04CC00573, to amend the consolidation order to
designate it the lead plaintiff in the litigation. The lead
plaintiff filed a consolidated amended complaint on
August 9, 2004, and then filed the present
corrected consolidated amended complaint on
September  15, 2004. All of the shareholder-related
actions allege, among other things, that the defendants breached
their respective fiduciary duties and seek to enjoin or rescind
the transaction and obtain an unspecified sum in damages and
costs, including attorneys fees and expenses. The parties
have tentatively agreed to a full and final resolution of the
Action and, on January 19, 2005, the parties entered into a
Memorandum of Understanding, also known as the MOU, concerning
the terms of the tentative settlement. The parties are in the
process of preparing a formal settlement agreement based on the
terms of the MOU and will present it to the Court for approval.
Pursuant to the terms of the MOU, the parties have agreed, among
other things, that additional disclosures will be made in our
Registration Statement on Form S-4 (as filed with the SEC
on July 16, 2004), the claims asserted in the Action will
be fully released, and the Action will be dismissed with
prejudice. Further, pursuant to the MOU, WFS has agreed to pay
plaintiffs attorneys fees and expenses in the amount
of $675,000, or in such lesser amount as the Court may order.


We do not believe that the outcome of any of
these proceedings will have a material effect upon our financial
condition, results of operations and cash flows.




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

None.

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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 2004 and 2003, as reported by the NYSE, which prices are
believed to represent actual transactions:

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2004 |       | 2003
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 44.72 |      |  | $    | 35.07 |     |  | $ | 23.25 |  |  | $ | 18.30 | 
|Second Quarter |  |      | 46.80 |      |  |      | 41.42 |     |  |   | 29.80 |  |  |   | 18.60 | 
|Third Quarter  |  |      | 46.10 |      |  |      | 39.51 |     |  |   | 36.86 |  |  |   | 27.30 | 
|Fourth Quarter |  |      | 46.35 |      |  |      | 37.25 |     |  |   | 39.25 |  |  |   | 34.13 | 

We had 3,139 shareholders of our common
stock at February 28, 2005. 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 $0.55, $0.51 and
$0.47 per share for the years ended December 31, 2004,
2003 and 2002, respectively. On March 3, 2005, we declared
a quarterly cash dividend of $0.15 per share for
shareholders of record as of May 3, 2005. This dividend is
payable on May 17, 2005. There are no restrictions on the
payment of dividends by Westcorp.

The Bank is restricted by regulation and by the
indenture relating to the subordinated debentures as to the
amount of funds that can be transferred to us in the form of
dividends or other capital distributions. See
Note 18  Dividends in our
Consolidated Financial Statements. Under the most restrictive of
these terms, on December 31, 2004, the Banks
restricted shareholders equity totaled $635 million
with a maximum dividend of $358 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.

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

The following table presents summary audited
financial data for the years ended December 31, 2004, 2003,
2002, 2001 and 2000. 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,           
|                                                                             |                                                           |                                                 
|                                                                             |                                                           | 2004                                             |                                            | 2003       |            | 2002       |            | 2001       |            | 2000      
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |           
|                                                                             |                                                           |                                                 
|                                                                             |                                                           | (Dollars in thousands, except per share amounts)
|Consolidated Statements of
    Operations:                                   |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Interest income                                                              |                                                           | $                                                | 1,270,885                                  |            |            | $          | 1,245,017  |            |            | $          | 1,142,940  |           |           | $          | 962,627    |           |           | $          | 583,821    |          
|Interest expense                                                             |                                                           |                                                  | 463,127                                    |            |            |            | 530,742    |            |            |            | 530,269    |           |           |            | 491,313    |           |           |            | 313,360    |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             | Net interest income                                       |                                                  |                                            | 807,758    |            |            |            | 714,275    |            |            |            | 612,671   |           |            |            | 471,314   |           |            |            | 270,461   |          
|Provision for credit losses                                                  |                                                           |                                                  | 235,248                                    |            |            |            | 294,006    |            |            |            | 306,233    |           |           |            | 196,977    |           |           |            | 82,133     |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             | Net interest income after provision for credit
    losses |                                                  |                                            | 572,510    |            |            |            | 420,269    |            |            |            | 306,438   |           |            |            | 274,337   |           |            |            | 188,328   |          
|Noninterest income                                                           |                                                           |                                                  | 116,122                                    |            |            |            | 110,157    |            |            |            | 90,653     |           |           |            | 78,899     |           |           |            | 177,884    |          
|Noninterest expense                                                          |                                                           |                                                  | 295,607                                    |            |            |            | 282,482    |            |            |            | 251,953    |           |           |            | 245,502    |           |           |            | 221,485    |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Income before income tax                                                     |                                                           |                                                  | 393,025                                    |            |            |            | 247,944    |            |            |            | 145,138    |           |           |            | 107,734    |           |           |            | 144,727    |          
|Income tax                                                                   |                                                           |                                                  | 155,797                                    |            |            |            | 98,275     |            |            |            | 52,267     |           |           |            | 41,675     |           |           |            | 58,132     |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Income before minority interest                                              |                                                           |                                                  | 237,228                                    |            |            |            | 149,669    |            |            |            | 92,871     |           |           |            | 66,059     |           |           |            | 86,595     |          
|Minority interest in earnings of subsidiaries                                |                                                           |                                                  | 29,266                                     |            |            |            | 26,064     |            |            |            | 13,153     |           |           |            | 10,369     |           |           |            | 11,852     |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Net income                                                                   |                                                           | $                                                | 207,962                                    |            |            | $          | 123,605    |            |            | $          | 79,718     |           |           | $          | 55,690     |           |           | $          | 74,743     |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Weighted average number of shares and common
    share equivalents  diluted |                                                           |                                                  | 52,568,834                                 |            |            |            | 43,397,211 |            |            |            | 38,922,611 |           |           |            | 34,485,127 |           |           |            | 29,525,677 |          
|Earnings per common share  diluted                                          |                                                           | $                                                | 3.96                                       |            |            | $          | 2.85       |            |            | $          | 2.05       |           |           | $          | 1.61       |           |           | $          | 2.53       |          
|Dividends declared per common share                                          |                                                           |                                                  | 0.56                                       |            |            |            | 0.52       |            |            |            | 0.48       |           |           |            | 0.44       |           |           |            | 0.30       |          
|Dividend payout ratio                                                        |                                                           |                                                  | 14.1                                       | %          |            |            | 18.2       | %          |            |            | 23.4       | %         |           |            | 27.3       | %         |           |            | 11.9       | %        
|                                                                            
|Consolidated Statements of Financial
    Condition:                          |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Assets:                                                                      |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             | Cash and due from banks                                   |                                                  | $                                          | 218,510    |            |            | $          | 382,082    |            |            | $          | 84,215    |           |            | $          | 104,327   |           |            | $          | 128,763   |          
|                                                                             | Loans:                                                    |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |           |          
|                                                                             |                                                           | Consumer(1)                                      |                                            |            | 11,756,178 |            |            |            | 10,777,829 |            |            |           | 9,063,755 |            |            |           | 7,092,959 |            |            |           | 4,309,317 |          
|                                                                             |                                                           | Mortgage(2)                                      |                                            |            | 213,764    |            |            |            | 236,223    |            |            |           | 282,930   |            |            |           | 373,455   |            |            |           | 507,431   |          
|                                                                             |                                                           | Commercial                                       |                                            |            | 165,806    |            |            |            | 124,431    |            |            |           | 97,216    |            |            |           | 85,312    |            |            |           | 107,586   |          
|                                                                             | Mortgage-backed securities                                |                                                  |                                            | 2,649,758  |            |            |            | 2,701,797  |            |            |            | 2,649,657 |           |            |            | 2,092,225 |           |            |            | 2,230,448 |          
|                                                                             | Investments and time deposits                             |                                                  |                                            | 537,644    |            |            |            | 363,148    |            |            |            | 128,529   |           |            |            | 74,957    |           |            |            | 35,101    |          
|                                                                             | Other assets                                              |                                                  |                                            | 319,082    |            |            |            | 332,012    |            |            |            | 445,689   |           |            |            | 427,380   |           |            |            | 653,270   |          
|                                                                             | Less: Allowance for credit losses                         |                                                  |                                            | 315,402    |            |            |            | 301,602    |            |            |            | 269,352   |           |            |            | 178,218   |           |            |            | 104,006   |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             |                                                           |                                                  | Total assets                               |            | $          | 15,545,340 |            |            | $          | 14,615,920 |            |           | $         | 12,482,639 |            |           | $         | 10,072,397 |            |           | $         | 7,867,910 | 
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|Liabilities:                                                                 |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             | Deposits                                                  |                                                  | $                                          | 2,183,499  |            |            | $          | 1,972,856  |            |            | $          | 1,974,984 |           |            | $          | 2,329,326 |           |            | $          | 2,478,487 |          
|                                                                             | Notes payable on automobile secured financing             |                                                  |                                            | 10,242,900 |            |            |            | 10,254,641 |            |            |            | 8,494,678 |           |            |            | 5,886,227 |           |            |            | 3,473,377 |          
|                                                                             | FHLB advances and other borrowings                        |                                                  |                                            | 1,148,098  |            |            |            | 560,179    |            |            |            | 618,766   |           |            |            | 723,675   |           |            |            | 616,193   |          
|                                                                             | Subordinated debt                                         |                                                  |                                            | 295,321    |            |            |            | 394,854    |            |            |            | 400,561   |           |            |            | 147,714   |           |            |            | 189,962   |          
|                                                                             | Amounts held on behalf of trustee                         |                                                  |                                            |            |            |            |            |            |            |            |            | 177,642   |           |            |            | 280,496   |           |            |            | 494,858   |          
|                                                                             | Other liabilities                                         |                                                  |                                            | 170,362    |            |            |            | 179,471    |            |            |            | 101,145   |           |            |            | 85,994    |           |            |            | 71,221    |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             |                                                           |                                                  | Total liabilities                          |            |            | 14,040,180 |            |            |            | 13,362,001 |            |           |           | 11,767,776 |            |           |           | 9,453,432  |            |           |           | 7,324,098 | 
|                                                                             | Minority interest in equity of subsidiaries               |                                                  |                                            | 165,484    |            |            |            | 131,434    |            |            |            | 101,666   |           |            |            | 78,261    |           |            |            | 56,644    |          
|                                                                             | Shareholders equity                                      |                                                  |                                            | 1,339,676  |            |            |            | 1,122,485  |            |            |            | 613,197   |           |            |            | 540,704   |           |            |            | 487,168   |          
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          
|                                                                             |                                                           |                                                  | Total liabilities and shareholders equity |            | $          | 15,545,340 |            |            | $          | 14,615,920 |            |           | $         | 12,482,639 |            |           | $         | 10,072,397 |            |           | $         | 7,867,910 | 
|                                                                             |                                                           |                                                  |                                            |            |            |            |            |            |            |            |            |           |           |            |            |           |           |            |            |          

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|                                          |                   |                                                  |            |           |           |      |            |           |           |      |           |           |           |   |           |           |           |   |           |           |           | 
|----------------------------------------- | ----------------- | ------------------------------------------------ | ---------- | --------- | --------- | ---- | ---------- | --------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                          |                   |                                                 
|                                          |                   | At or For the Year Ended December 31,           
|                                          |                   |                                                 
|                                          |                   | 2004                                             |            | 2003      |           | 2002 |            | 2001      |           | 2000
|                                          |                   |                                                  |            |           |           |      |            |           |           |     
|                                          |                   |                                                 
|                                          |                   | (Dollars in thousands, except per share amounts)
|Other Selected Financial Data:            |                   |                                                  |            |           |           |      |            |           |           |      |           |           |           |   |           |           |           |   |           |          
|Average managed automobile contracts      |                   | $                                                | 11,113,411 |           |           | $    | 10,051,754 |           |           | $    | 8,845,635 |           |           | $ | 7,576,681 |           |           | $ | 6,076,814 |          
|Average shareholders equity(3)           |                   | $                                                | 1,277,781  |           |           | $    | 858,927    |           |           | $    | 654,109   |           |           | $ | 570,298   |           |           | $ | 450,323   |          
|Return on average shareholders equity(3) |                   |                                                  | 16.28      | %         |           |      | 14.39      | %         |           |      | 12.19     | %         |           |   | 9.77      | %         |           |   | 16.60     | %        
|Total equity to assets(4)                 |                   |                                                  | 9.92       | %         |           |      | 9.04       | %         |           |      | 6.54      | %         |           |   | 6.75      | %         |           |   | 7.10      | %        
|Book value per share(3)                   |                   | $                                                | 26.51      |           |           | $    | 23.00      |           |           | $    | 18.23     |           |           | $ | 16.80     |           |           | $ | 15.72     |          
|Originations:                             |                   |                                                  |            |           |           |      |            |           |           |      |           |           |           |   |           |           |           |   |           |          
|                                          | Consumer loans(1) |                                                  | $          | 6,639,938 |           |      | $          | 5,983,492 |           |      | $         | 5,419,296 |           |   | $         | 4,869,970 |           |   | $         | 4,232,115 |          
|                                          | Mortgage loans(2) |                                                  |            | 65,753    |           |      |            | 25,622    |           |      |           | 23,950    |           |   |           | 23,001    |           |   |           | 33,124    |          
|                                          | Commercial loans  |                                                  |            | 342,356   |           |      |            | 407,387   |           |      |           | 354,439   |           |   |           | 291,944   |           |   |           | 266,342   |          
|                                          |                   |                                                  |            |           |           |      |            |           |           |      |           |           |           |   |           |           |           |   |           |          
|                                          |                   | Total loan originations                          |            | $         | 7,048,047 |      |            | $         | 6,416,501 |      |           | $         | 5,797,685 |   |           | $         | 5,184,915 |   |           | $         | 4,531,581 | 
|                                          |                   |                                                  |            |           |           |      |            |           |           |      |           |           |           |   |           |           |           |   |           |          
|Interest rate spread                      |                   |                                                  | 5.05       | %         |           |      | 4.95       | %         |           |      | 5.14      | %         |           |   | 4.85      | %         |           |   | 4.37      | %        



---



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | Net of unearned discounts.                                                       
|   
|(2) | Net of undisbursed loan proceeds.                                                
|   
|(3) | Excludes accumulated other comprehensive loss.                                   
|   
|(4) | Excludes accumulated other comprehensive loss and
    includes minority interest.

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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, sale of real estate loans, contractual
servicing income on contracts in securitization transactions
treated as sales for accounting purposes and retained interest
income or expense. Since March 2000, we have structured our
securitizations as secured financings and no longer record
non-cash gain on sale at the time of each securitization or
subsequent contractual servicing and retained interest income,
the valuation of which is based upon subjective assumptions.
Rather, the earnings of the contracts in the trust and the
related financing costs are reflected over the life of the
underlying pool of contracts as net interest income.

The following are highlights for 2004:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | We produced record earnings of $208 million
    in net income, a 68% increase over 2003.                                           
|
| |  | Earnings per share increased to a record
    $3.96 per share.                                                                      
|
| |  | Net interest income rose 13% to $808 million
    while risk-adjusted spreads were nearly identical to 2003 at
    5.05%.           
|
| |  | Credit losses declined in 2004 to 1.99% of
    contracts.                                                                          
|
| |  | Operating expenses represent 32% of total
    revenues, our most efficient year ever.                                              
|
| |  | We originated $6.6 billion in automobile
    contracts through our relationships with 8,200 dealers
    throughout the country.    
|
| |  | Our portfolio of automobile contracts of
    $11.6 billion consists of more than 80% prime credit
    quality contracts.           
|
| |  | Delinquencies at year end were 2.24% of total
    outstanding contracts, which is 0.66% lower than a year earlier.                 
|
| |  | We maintained a successful securitization program
    by continuing to offer senior/subordinated securities on a
    regular basis.
|
| |  | We managed $10.3 billion of
    automobile-backed securities outstanding under our
    securitization program.                     

Business Risks

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

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Risks Related to the Merger

Anticipated benefits of the merger may not
be realized.

WFS board of directors and our board of
directors each believe that conversion of the Bank from a
federal savings bank to a California state commercial bank and
the merger of WFS with and into the Bank will yield certain
benefits. These anticipated benefits are based on certain
assumptions and, if the merger is consummated, the combined
company may not realize the anticipated benefits of the merger
to the extent or in the timeframe anticipated.

Our operating results may suffer as a
result of purchase accounting treatment.

We will account for the merger, if consummated,
using the purchase method of accounting under generally accepted
accounting principles in the United States, also known as GAAP.
Under the purchase method of accounting, we will record the
market value of our common stock issued in connection with the
merger and the amount of direct transaction costs as the cost of
acquiring the minority interest of WFS. We will allocate that
cost to the individual assets acquired and liabilities assumed.
As a result, purchase accounting treatment of the merger could
adversely impact our income, which could have an adverse effect
on the market value of our common stock following completion of
the merger.

If the conversion and merger are not
completed, WFS and our stock prices and future business
and operations could be harmed.

If the current market prices of WFS and our
common stock reflect an assumption that the merger will be
completed, the price of our respective securities may decline if
the merger is not completed. In addition, WFS and our
costs related to the merger, including legal, accounting and
other fees, must be paid and expensed even if the merger is not
completed.

The completion of the merger is subject to
the satisfaction of conditions.

WFS obligation and our obligation to
complete the merger are subject to the satisfaction or waiver,
where permissible, of certain conditions set forth in the merger
agreement. Some of these conditions cannot be waived, including
obtaining the requisite approval of the WFS minority
shareholders, and converting the Bank from a federal savings
bank to a California state commercial bank. If the conditions of
the merger are not satisfied or waived (to the extent any such
conditions may be waived), the merger will not be completed.
Among the conditions that cannot be waived is that we must be
approved by the Federal Reserve to become a bank holding
company. The Federal Reserve has not yet approved our
application to become a bank holding company, and may impose
conditions to such approval that are not acceptable to us.

In addition, pursuant to the terms of the merger
agreement, because the merger was not consummated on or prior to
February 28, 2005, any party to the merger agreement has
the right to unilaterally terminate the agreement.

If the conversion and merger are not
consummated, we may need to make significant changes in our
operations or corporate structure.

If the conversion and merger are not consummated,
the regulatory requirements imposed by HOLA, particularly the
limitations on the percentage of the Banks assets that may
be invested in consumer loans and the guidance issued by the OTS
as to the amount of capital that must be held with respect to
loans which the OTS deems to be subprime, may cause significant
changes in our operations or corporate structure. We may
determine to separate our automobile finance business from our
banking business, substantially reduce our automobile finance
operations or cease operations as a regulated banking entity. It
is uncertain whether one or more of these changes in our
operations or corporate structure would be more or less
profitable than the pending conversion and merger.

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Regulatory Requirements May Restrict Our
Ability to Do Business

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

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

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

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

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

Other Regulatory and Legislation
Requirements May Affect Our Ability to Do Business

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

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

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

We believe that we maintain all material licenses
and permits required for our current operations and are in
substantial compliance with all applicable local, state and
federal regulations. There can be no assurance, however, that we
will be able to maintain all requisite licenses and permits, and
the failure to satisfy those and other regulatory requirements
could have a material adverse effect on our operations. Other
legislative and regulatory initiatives that could affect us, the
Bank and the banking industry in general are pending, and
additional initiatives may be proposed or introduced, before the
U.S. Congress, the California legislature and other
governmental bodies in the future. Such proposals, if enacted,
may further alter the structure, regulation and competitive
relationship among financial institutions, and may subject us
and the Bank to increased regulation, disclosure and reporting
requirements. In addition, the various banking regulatory
agencies often adopt new rules and regulations to implement and
enforce existing legislation. It cannot be predicted whether, or
in what form, any such legislation or regulations may be enacted
or the extent to which our business would be affected, but a
change in the laws, regulations or regulatory policies
applicable to us could have a material effect on our business.

We are subject to routine periodic examinations
by the OTS on a variety of financial and regulatory matters. The
Banks most recent annual safety and soundness examination
by the OTS was completed in September 2004.

Adverse Economic Conditions May Impact Our
Profitability

Delinquencies, defaults, repossessions and credit
losses generally increase during periods of economic slowdown,
recession or higher unemployment. These periods also may be
accompanied by decreased consumer demand for automobiles and
declining values of automobiles securing outstanding contracts,
which weakens collateral coverage and increases the amount of
loss in the event of default. Significant increases in the
inventory of pre-owned automobiles during periods of economic
recession also may depress the prices at which repossessed
automobiles may be sold or delay the timing of these sales.
Because a portion of our borrowers are considered non-prime
borrowers, the actual rates of delinquencies, defaults,
repossessions and credit losses on these contracts are higher
than those experienced in the general automobile finance
industry for borrowers considered to be prime borrowers and
could be more dramatically affected by a general economic
downturn. In addition, during an economic slowdown or recession,
our servicing costs may increase without a corresponding
increase in our servicing fee income. While we seek to manage
the higher risk inherent in non-prime contracts through the
underwriting criteria and collection methods we employ, we
cannot assure you that these criteria or methods will afford
adequate protection against these risks. Any

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sustained period of increased delinquencies,
defaults, repossessions, credit losses or servicing costs could
adversely affect our financial position, liquidity and results
of operations and our ability to enter into future
securitizations.


Interest Rate Fluctuations May Impact Our
Profitability

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

Wholesale Auction Values May Impact Our
Profitability

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

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

Ernest S. Rady is our founder, Chairman of the
Board of Directors and Chief Executive Officer. Mr. Rady is
also the Chairman of the Board of Directors and Chief Executive
Officer of the Bank and the Chairman of the Board of Directors
of WFS. Mr. Rady is the beneficial owner of approximately
53% of our outstanding shares of common stock and is able to
exercise significant control over our company. The Westcorp
common stock ownership of Mr. Rady enables him to elect all
of our directors and effectively control the vote on all matters
submitted to a vote of our shareholders, including mergers,
sales of all or substantially all of our assets, going
private transactions, conversions and other corporate
restructurings or reorganizations. Because of the significant
block of our common stock controlled by Mr. Rady, decisions
may be made that, while in the best interest of Mr. Rady,
may not be in the best interest of other stockholders.

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

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



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | the rates and amounts of loan delinquencies,
    defaults and net credit losses;
|
| |  | how quickly and at what price repossessed
    vehicles can be resold;           
|
| |  | the ages of the contracts in the portfolio;                                     
|
| |  | levels of voluntary prepayments; and                                            

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

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

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

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



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

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

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

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



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

Critical Accounting Estimates

Managements Discussion and Analysis of
Financial Condition and Results of Operations, also known as
MD&A, is based on our consolidated financial statements and
accompanying notes that have been prepared in accordance with
GAAP. Our significant accounting policies are described in
Note 1  Summary of Significant Accounting
Policies in our Consolidated Financial Statements and are
essential in understanding our MD&A. The preparation of
financial statements in accordance with GAAP requires us to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, income, and expenses in our Consolidated
Financial Statements and accompanying notes. Actual results
could differ from those estimates. We have identified accounting
for the allowance for credit losses as the most critical
accounting estimate to understanding and evaluating our reported
financial results of operations. This estimate is critical
because it requires us to make difficult, subjective and complex
judgments about matters that are inherently uncertain and
because it is possible that materially different amounts would
be reported under different conditions or using different
assumptions. Additionally, the accounting for derivative
financial instruments and accrued taxes requires the use of
assumptions and accounting estimates that are also inherently
subjective.

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Allowance for Credit Losses

The allowance for credit losses is our estimate
of probable losses in our loan portfolio as of the balance sheet
date. Our determination of the amount of the allowance for
credit losses was based on a review of various quantitative and
qualitative analyses. Our process for determining the allowance
for credit losses is discussed in detail in
Note 1  Summary of Significant Accounting
Policies in our Consolidated Financial Statements.

Key analyses considered in the process of
establishing our allowance for credit losses include chargeoff
trends by loan program, migration analysis of delinquent and
current accounts by risk category, analysis of historical
cumulative losses, econometric forecasts, the evaluation of the
size of any particular asset group, the concentration of any
credit tier, the percentage of delinquency, chargeoffs over
various time periods and at various statistical midpoints and
high points, the severity of depreciated values of
repossessions, trends in the number of days repossessions are
held in inventory, trends in the number of loan modifications,
trends in delinquency roll rates, trends in deficiency balance
collections both internally and from collection agencies, trends
in custom scores and the effectiveness of our custom scores, and
trends in the economy generally or in specific geographic
locations. The process of determining the level of the allowance
for credit losses based upon the foregoing analyses requires a
high degree of judgment. It is possible that others, given the
same information, may reach different conclusions and such
differences could be material. To the extent that the analyses
considered in determining the allowance for credit losses are
not indicative of future performance or other assumptions used
by us do not prove to be accurate, loss experience could differ
significantly from our estimate, resulting in either higher or
lower future provision for credit losses.

Derivative Financial
Instruments

We use derivatives in connection with our
interest rate risk management activities. We record all
derivative instruments at fair value. Fair value information for
our derivative 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 readily
available, fair values are based on estimates using present
value or other valuation techniques.

Some of our derivatives qualify for hedge
accounting. To qualify for hedge accounting, we must
demonstrate, on an ongoing basis, that our derivatives are
highly effective in protecting us against interest rate risk. We
employ regression analysis and discounted cash flow analysis to
determine the effectiveness of our hedging activity.

The techniques used in estimating fair values and
hedge effectiveness are significantly affected by the
assumptions used, including the discount rates and estimates of
future cash flows. It is possible that others, given the same
information, may reach different conclusions and such
differences could be material.

Accrued Taxes

We estimate tax expenses based on the amount we
expect to owe various tax jurisdictions. We currently file tax
returns in approximately 39 states. Our estimate of tax
expense is reported in our Consolidated Statements of Income.
Accrued taxes represent the net estimated amount due or to be
received from taxing jurisdictions either currently or in the
future and are reported as a component of other assets on our
Consolidated Statements of Financial Condition. In estimating
accrued taxes, we assess the relative merits and risks of the
appropriate tax treatment of transactions taking into account
statutory, judicial and regulatory guidance in the context of
our tax position.

Changes to our estimate of accrued taxes occur
periodically due to changes in the tax rates, implementation of
new tax planning strategies, resolution with taxing authorities
of issues with previously taken tax positions, and newly enacted
statutory, judicial and regulatory guidance. These changes, when
they occur, affect accrued taxes and could be material. See
Note 22  Income Taxes in our
Consolidated Financial Statements for additional detail on our
income taxes.

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Off Balance Sheet Arrangements

Prior to April 1, 2000, our securitization
transactions were structured as sales for accounting purposes.
Under this structure, the notes issued by our unconsolidated
securitization trusts were not recorded as a liability on our
Consolidated Statements of Financial Condition. Effective
January 1, 2003, we regained control over assets of the
securitization trusts for all of our outstanding securitization
transactions treated as sales for accounting purposes. We
recorded $525 million of automobile contracts and the
related notes payable on automobile secured financing on our
Consolidated Statements of Financial Condition and have
eliminated all remaining off balance sheet amounts related to
these transactions. At December 31, 2004, we had no off
balance sheet arrangements.

Results of Operations

Net Interest Income

Net interest income is affected by our interest
rate spread, which is the difference between the rate earned on
our interest earning assets and the rate paid on our interest
bearing liabilities, and the relative amounts of our interest
earning assets and interest bearing liabilities. Net interest
income totaled $808 million, $714 million and
$612 million for the years ended December 31, 2004,
2003 and 2002, respectively. The increase in net interest income
for the past three years is primarily the result of us holding a
greater percentage of contracts on balance sheet.

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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,        
|                                             |                                               |                                        
|                                             |                                               |                                         |                                    |                               |            |           
|                                             |                                               | 2004                                    |                                    | 2003                          |            | 2002      
|                                             |                                               |                                         |                                    |                               |            |           
|                                             |                                               | 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              |                                    | $                             | 2,592,864  |            |            | $       | 98,430    |          |           |        | 3.80  | %       |      | $         | 2,528,870  |            |            | $       | 83,663    |         |           |      | 3.31  | %    |       | $         | 2,196,539 |            |            | $       | 113,154 |         |           |       | 5.15  | %   
|                                             |                                               | Other short-term investments            |                                    |                               | 648,926    |            |            |         | 9,319     |          |           |        | 1.44  |         |      |           | 377,762    |            |            |         | 4,464     |         |           |      | 1.18  |      |       |           | 320,388   |            |            |         | 5,556   |         |           |       | 1.73  |     
|                                             |                                               | Investment securities                   |                                    |                               | 121,805    |            |            |         | 4,150     |          |           |        | 3.41  |         |      |           | 80,626     |            |            |         | 3,057     |         |           |      | 3.79  |      |       |           | 47,983    |            |            |         | 2,815   |         |           |       | 5.87  |     
|                                             |                                               | Interest earning deposits with others   |                                    |                               | 5,637      |            |            |         | 51        |          |           |        | 0.90  |         |      |           | 7,869      |            |            |         | 65        |         |           |      | 0.83  |      |       |           | 7,106     |            |            |         | 98      |         |           |       | 1.38  |     
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         |                                    | Total investments             |            |            | 3,369,232  |         |           |          | 111,950   |        |       |         | 3.32 | %         |            |            | 2,995,127  |         |           |         | 91,249    |      |       |      | 3.05  | %         |           |            | 2,572,016  |         |         |         | 121,623   |       |       |      | 4.73  | %
|                                             | Total loans:(1)                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |       |      
|                                             |                                               | Consumer loans                          |                                    |                               | 11,303,131 |            |            |         | 1,141,994 |          |           |        | 10.10 | %       |      |           | 10,225,488 |            |            |         | 1,134,294 |         |           |      | 11.09 | %    |       |           | 8,181,117 |            |            |         | 993,417 |         |           |       | 12.14 | %   
|                                             |                                               | Mortgage loans                          |                                    |                               | 197,888    |            |            |         | 9,959     |          |           |        | 5.03  |         |      |           | 249,905    |            |            |         | 13,577    |         |           |      | 5.43  |      |       |           | 321,742   |            |            |         | 22,501  |         |           |       | 6.99  |     
|                                             |                                               | Commercial loans                        |                                    |                               | 109,997    |            |            |         | 6,462     |          |           |        | 5.78  |         |      |           | 110,296    |            |            |         | 5,409     |         |           |      | 4.90  |      |       |           | 90,642    |            |            |         | 5,035   |         |           |       | 5.55  |     
|                                             |                                               | Construction loans                      |                                    |                               | 9,900      |            |            |         | 520       |          |           |        | 5.17  |         |      |           | 10,177     |            |            |         | 488       |         |           |      | 4.80  |      |       |           | 7,951     |            |            |         | 364     |         |           |       | 4.57  |     
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         |                                    | Total loans                   |            |            | 11,620,916 |         |           |          | 1,158,935 |        |       |         | 9.97 | %         |            |            | 10,595,866 |         |           |         | 1,153,768 |      |       |      | 10.89 | %         |           |            | 8,601,452  |         |         |         | 1,021,317 |       |       |      | 11.87 | %
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         |                                    | Total interest earning assets |            |            | 14,990,148 |         |           |          | 1,270,885 |        |       |         | 8.48 | %         |            |            | 13,590,993 |         |           |         | 1,245,017 |      |       |      | 9.16  | %         |           |            | 11,173,468 |         |         |         | 1,142,940 |       |       |      | 10.23 | %
|Noninterest earning assets:                  |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               | Amounts due from trusts                 |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           | 121,627   |            |            |         |         |         |           |       |       |     
|                                             |                                               | Retained interest in securitized assets |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           | 15,888    |            |            |         |         |         |           |       |       |     
|                                             |                                               | Premises and equipment, net             |                                    |                               | 79,662     |            |            |         |           |          |           |        |       |         |      |           | 80,711     |            |            |         |           |         |           |      |       |      |       |           | 80,277    |            |            |         |         |         |           |       |       |     
|                                             |                                               | Other assets                            |                                    |                               | 293,728    |            |            |         |           |          |           |        |       |         |      |           | 308,927    |            |            |         |           |         |           |      |       |      |       |           | 392,358   |            |            |         |         |         |           |       |       |     
|                                             |                                               | Less: Allowance for credit losses       |                                    |                               | 307,611    |            |            |         |           |          |           |        |       |         |      |           | 288,058    |            |            |         |           |         |           |      |       |      |       |           | 211,591   |            |            |         |         |         |           |       |       |     
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         |                                    | Total                         |            | $          | 15,055,927 |         |           |          |           |        |       |         |      |           |            | $          | 13,692,573 |         |           |         |           |      |       |      |       |           |           | $          | 11,572,027 |         |         |         |           |       |       |      |       |  
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|Interest bearing liabilities:                |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             | Deposits                                      |                                         | $                                  | 2,052,754                     |            |            |            | 58,055  |           |          |           | 2.83   | %     |         | $    | 1,982,205 |            |            |            | 64,634  |           |         |           | 3.26 | %     |      | $     | 2,196,262 |           |            |            | 80,015  |         |         |           | 3.64  | %    
|                                             | Securities sold under agreements to purchase  |                                         |                                    | 8,170                         |            |            |            | 94      |           |          |           | 1.13   |       |         |      | 220,989   |            |            |            | 4,544   |           |         |           | 2.06 |       |      |       | 222,154   |           |            |            | 5,543   |         |         |           | 2.50  |      
|                                             | FHLB advances and other borrowings            |                                         |                                    | 635,337                       |            |            |            | 9,499   |           |          |           | 1.47   |       |         |      | 430,372   |            |            |            | 5,527   |           |         |           | 1.26 |       |      |       | 234,779   |           |            |            | 4,634   |         |         |           | 1.97  |      
|                                             | Notes payable on automobile secured financing |                                         |                                    | 10,453,952                    |            |            |            | 360,625 |           |          |           | 3.45   |       |         |      | 9,592,483 |            |            |            | 416,577 |           |         |           | 4.34 |       |      |       | 7,426,265 |           |            |            | 406,851 |         |         |           | 5.48  |      
|                                             | Subordinated debentures                       |                                         |                                    | 348,001                       |            |            |            | 34,854  |           |          |           | 10.02  |       |         |      | 396,211   |            |            |            | 39,460  |           |         |           | 9.96 |       |      |       | 331,990   |           |            |            | 33,226  |         |         |           | 10.01 |      
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         | Total interest bearing liabilities |                               |            | 13,498,214 |            |         |           | 463,127  |           |        |       | 3.43    | %    |           |            | 12,622,260 |            |         |           | 530,742 |           |      |       | 4.21 | %     |           |           | 10,411,450 |            |         |         | 530,269 |           |       |       | 5.09 | %    
|Noninterest bearing liabilities:             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             | Amounts held on behalf of trustee             |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       | 240,667   |           |            |            |         |         |         |           |       |      
|                                             | Other liabilities                             |                                         |                                    | 332,173                       |            |            |            |         |           |          |           |        |       |         |      | 303,199   |            |            |            |         |           |         |           |      |       |      |       | 333,149   |           |            |            |         |         |         |           |       |      
|                                             | Shareholders equity                          |                                         |                                    | 1,225,540                     |            |            |            |         |           |          |           |        |       |         |      | 767,114   |            |            |            |         |           |         |           |      |       |      |       | 586,761   |           |            |            |         |         |         |           |       |      
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|                                             |                                               |                                         |                                    | Total                         |            | $          | 15,055,927 |         |           |          |           |        |       |         |      |           |            | $          | 13,692,573 |         |           |         |           |      |       |      |       |           |           | $          | 11,572,027 |         |         |         |           |       |       |      |       |  
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|Net interest income and interest rate spread |                                               |                                         |                                    |                               |            | $          | 807,758    |         |           |          | 5.05      | %      |       |         |      |           |            | $          | 714,275    |         |           |         | 4.95      | %    |       |      |       |           |           | $          | 612,671    |         |         |         | 5.14      | %    
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      
|Net yield on average interest earning assets |                                               |                                         |                                    |                               |            |            |            |         |           |          | 5.39      | %      |       |         |      |           |            |            |            |         |           |         | 5.26      | %    |       |      |       |           |           |            |            |         |         |         | 5.48      | %    
|                                             |                                               |                                         |                                    |                               |            |            |            |         |           |          |           |        |       |         |      |           |            |            |            |         |           |         |           |      |       |      |       |           |           |            |            |         |         |         |           |      



---



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

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##### Table of Contents



The total interest rate spread increased
10 basis points for 2004 compared with 2003 due to a
decrease of 68 basis points in the yield on interest
earning assets while the costs of funds decreased 78 basis
points. The decrease in the yield on interest earning assets in
2004 was primarily due to a lower interest rate environment. The
decrease in the cost of funds in 2004 was primarily due a lower
interest rate environment, an improvement of credit spreads on
our automobile secured financings and a shift to a higher
concentration of low-cost core deposits.

The total interest rate spread decreased
19 basis points for 2003 compared with 2002 due to a
decrease of 107 basis points in the yield on interest
earning assets while the costs of funds decreased 88 basis
points. The decrease in the yield on interest earning assets in
2003 was primarily due to our shift to originating a higher
percentage of prime credit quality contracts and an overall
lower interest rate environment. The decrease in the cost of
funds in 2003 was primarily due to a declining interest rate
environment moderated by the increase in the amount of
subordinated debentures held by us during 2003 compared to 2002.

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):

|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |         |         |         | 
|---------------------------------------- | ---------------------------------------------- | ------------------------ | ---------------------- | ------------------------ | ------- | ------- | - | ------- | -------- | ------- | ------ | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | -------- | ------- | ------- | ------- | ------- | 
|                                         |                                                |                          |                        |                         
|                                         |                                                | 2004 Compared to 2003(1) |                        | 2003 Compared to 2002(1)
|                                         |                                                |                          |                        |                         
|                                         |                                                | Volume                   |                        | Rate                     |         | Total   |   | Volume  |          | Rate    |        | Total  
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |        
|                                         |                                                |                         
|                                         |                                                | (Dollars in thousands)  
|Increase (decrease) in interest income:  |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|                                         | Mortgage-backed securities                     |                          | $                      | 2,156                    |         |         | $ | 12,611  |          |         | $      | 14,767  |        |         | $ | 15,274  |         |         | $ | (44,765 | )       |          | $       | (29,491 | )      
|                                         | Other short-term investments                   |                          |                        | 3,715                    |         |         |   | 1,140   |          |         |        | 4,855   |        |         |   | 877     |         |         |   | (1,969  | )       |          |         | (1,092  | )      
|                                         | Investment securities                          |                          |                        | 1,426                    |         |         |   | (333    | )        |         |        | 1,093   |        |         |   | 1,472   |         |         |   | (1,230  | )       |          |         | 242     |        
|                                         | Interest earning deposits with others          |                          |                        | (20                      | )       |         |   | 6       |          |         |        | (14     | )      |         |   | 10      |         |         |   | (43     | )       |          |         | (33     | )      
|                                         | Total loans:                                   |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |         |        
|                                         |                                                | Consumer loans           |                        |                          | 113,783 |         |   |         | (106,083 | )       |        |         | 7,700  |         |   |         | 232,283 |         |   |         | (91,406 | )        |         |         | 140,877 |        
|                                         |                                                | Mortgage loans           |                        |                          | (2,672  | )       |   |         | (946     | )       |        |         | (3,618 | )       |   |         | (4,463  | )       |   |         | (4,461  | )        |         |         | (8,924  | )      
|                                         |                                                | Commercial loans         |                        |                          | (14     | )       |   |         | 1,067    |         |        |         | 1,053  |         |   |         | 1,008   |         |   |         | (634    | )        |         |         | 374     |        
|                                         |                                                | Construction loans       |                        |                          | (11     | )       |   |         | 43       |         |        |         | 32     |         |   |         | 105     |         |   |         | 19      |          |         |         | 124     |        
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|                                         |                                                |                          | Total interest income  |                          | $       | 118,363 |   |         | $        | (92,495 | )      |         |        | 25,868  |   |         | $       | 246,566 |   |         | $       | (144,489 | )       |         |         | 102,077 | 
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|Increase (decrease) in interest expense: |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|                                         | Deposits                                       |                          | $                      | 2,224                    |         |         | $ | (8,803  | )        |         |        | (6,579  | )      |         | $ | (7,426  | )       |         | $ | (7,955  | )       |          |         | (15,381 | )      
|                                         | Securities sold under agreements to repurchase |                          |                        | (3,030                   | )       |         |   | (1,420  | )        |         |        | (4,450  | )      |         |   | (29     | )       |         |   | (970    | )       |          |         | (999    | )      
|                                         | FHLB advances and other borrowings             |                          |                        | 2,942                    |         |         |   | 1,030   |          |         |        | 3,972   |        |         |   | 2,950   |         |         |   | (2,057  | )       |          |         | 893     |        
|                                         | Notes payable on automobile secured financings |                          |                        | 34,962                   |         |         |   | (90,914 | )        |         |        | (55,952 | )      |         |   | 104,511 |         |         |   | (94,785 | )       |          |         | 9,726   |        
|                                         | Subordinated debentures                        |                          |                        | (4,842                   | )       |         |   | 236     |          |         |        | (4,606  | )      |         |   | 6,401   |         |         |   | (167    | )       |          |         | 6,234   |        
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|                                         |                                                |                          | Total interest expense |                          | $       | 32,256  |   |         | $        | (99,871 | )      |         |        | (67,615 | ) |         | $       | 106,407 |   |         | $       | (105,934 | )       |         |         | 473     | 
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        
|Increase in net interest income          |                                                |                          |                        |                          |         |         |   |         |          | $       | 93,483 |         |        |         |   |         |         |         |   |         |         | $        | 101,604 |        
|                                         |                                                |                          |                        |                          |         |         |   |         |          |         |        |         |        |         |   |         |         |         |   |         |         |          |         |        



---



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

Provision for Credit Losses

We maintain an allowance for credit losses to
cover probable losses that can be reasonably estimated for the
loans held on the balance sheet. The allowance for credit losses
is increased by charging the provision for

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credit losses and decreased by actual losses on
such loans. 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
$235 million, $294 million and $306 million for
the years ended December 31, 2004, 2003 and 2002,
respectively. Net chargeoffs were $221 million,
$262 million and $215 million for the same respective
periods. The decrease in provision for credit losses from 2003
to 2004 was primarily a result of an improving economy as well
as our continued emphasis on risk-focused underwriting. The
reduction in the provision for credit losses from 2002 to 2003
was the result of holding a greater percentage of prime credit
quality contracts, which require a lower percentage of allowance
for credit losses.

Noninterest Income

Automobile Lending Income

Since the first quarter of 2000, we have not
completed a securitization that has been accounted for as an off
balance sheet arrangement. For transactions treated as off
balance sheet arrangements prior to April 2000, we recorded a
non-cash gain equal to the present value of the estimated future
cash flows from the portfolio of contracts sold less the
write-off of dealer participation balances and the effect of
hedging activities. For these securitizations, net interest
earned on the contracts sold was recognized over the life of the
transactions as contractual servicing income and retained
interest income or expense. Effective January 1, 2003, we
regained control over assets of the securitization trusts for
all of our outstanding securitization transactions treated as
sales for accounting purposes. We no longer recognize retained
interest income or expense or contractual servicing income for
these securitization transactions on our Consolidated Statements
of Income. Rather, we recognize interest income on automobile
contracts held in these trusts and record interest expense on
notes payable on automobile secured financings.

The components of automobile lending income were
as follows:

|                                                        |                                 |                                 |         |         |  |      |        |        |  |   |         |        | 
|------------------------------------------------------- | ------------------------------- | ------------------------------- | ------- | ------- |  | ---- | ------ | ------ |  | - | ------- | ------ | 
|                                                        |                                 |                                
|                                                        |                                 | For the Year Ended December 31,
|                                                        |                                 |                                
|                                                        |                                 | 2004                            |         | 2003    |  | 2002
|                                                        |                                 |                                 |         |         |  |     
|                                                        |                                 |                                
|                                                        |                                 | (Dollars in thousands)         
|Fee income                                              |                                 | $                               | 103,689 |         |  | $    | 90,511 |        |  | $ | 81,087  |       
|Contractual servicing income                            |                                 |                                 |         |         |  |      |        |        |  |   | 10,735  |       
|Retained interest expense, net of RISA
    amortization |                                 |                                 |         |         |  |      |        |        |  |   | (29,490 | )     
|                                                        |                                 |                                 |         |         |  |      |        |        |  |   |         |       
|                                                        | Total automobile lending income |                                 | $       | 103,689 |  |      | $      | 90,511 |  |   | $       | 62,332 | 
|                                                        |                                 |                                 |         |         |  |      |        |        |  |   |         |       

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 $11.1 billion in 2004 from
$10.1 billion in 2003 and $8.8 billion in 2002.

There was no contractual servicing income for the
years ended December 31, 2004 or 2003 due to our transition
to treating our securitizations as secured financings rather
than as sales as well as our regaining control over the assets
of the trusts for all our outstanding securitization
transactions previously treated as sales for accounting
purposes. For securitization transactions previously treated as
sales for accounting purposes, we earned contractual servicing
income in 2002 on the outstanding balance of contracts serviced.

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##### Table of Contents



There was no retained interest expense for the
years ended December 31, 2004 or 2003 as a result of our
reconsolidating all remaining off balance sheet trusts on
January 1, 2003. For accounting purposes, this expense is
recognized only on contracts sold through securitizations
treated as sales. Retained interest expense is dependent upon
the average excess spread on the contracts sold, credit losses,
the size of the sold portfolio and the amount of amortization of
the RISA. The retained interest expense recognized in 2002 was
the result of higher chargeoffs 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 were
$30.4 million for the year ended December 31, 2002.
The outstanding sold portfolio had a weighted average gross
interest rate spread of 6.71% for the year ended
December 31, 2002. The average balance of the sold
portfolio was $840 million for the year ended
December 31, 2002.

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

|                                                             |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   |       |           |           | 
|------------------------------------------------------------ | ------------------------------ | ---------------------------------- | - | ---------------------- | --------- | ---- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | - | ----- | --------- | --------- | 
|                                                             |                                |                                   
|                                                             |                                | For the Year Ended December 31,   
|                                                             |                                |                                   
|                                                             |                                | 2004                               |   | 2003                   |           | 2002 |   | 2001      |           | 2000
|                                                             |                                |                                    |   |                        |           |      |   |           |           |     
|                                                             |                                |                                    |   |                        |           |     
|                                                             |                                |                                    |   | (Dollars in thousands) |           |     
|Contract sales and secured financings:                       |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   |       |          
|                                                             | Secured financings(1)          |                                    | $ | 5,865,000              |           |      | $ | 5,889,375 |           |      | $ | 6,925,000 |           |  | $ | 4,220,000 |           |   | $     | 3,930,000 |          
|                                                             | Sales to securitization trusts |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   |       | 660,000   |          
|                                                             |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   |       |          
|                                                             |                                | Total sales and secured financings |   | $                      | 5,865,000 |      |   | $         | 5,889,375 |      |   | $         | 6,925,000 |  |   | $         | 4,220,000 |   |       | $         | 4,590,000 | 
|                                                             |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   |       |          
|Gain on sale of contracts(2)                                 |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           | $ | 7,719 |          
|Hedge gain on sale of contracts(3)                           |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   | 5,300 |          
|Gain on sale of contracts as a percent of total
    revenues |                                |                                    |   |                        |           |      |   |           |           |      |   |           |           |  |   |           |           |   | 1.72  | %        



---



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

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##### Table of Contents



The following table lists each of our public
securitizations:

|                       |        |            |  |          |                 |                      |  |                      |            |             |  |                     |              |               |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------- | ------ | ---------- |  | -------- | --------------- | -------------------- |  | -------------------- | ---------- | ----------- |  | ------------------- | ------------ | ------------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                       |        |            |  |          |                 |                      |  | Remaining Balance    |            |             |  |                     |              |              
|                       |        |            |  |          |                 |                      |  | at December 31, 2004 |            | Original    |  | Original            |              | Gross        
|Issue                  |        |            |  | Original |                 | Remaining Balance at |  | as a Percent of      |            | Weighted    |  | Weighted Average    |              | Interest Rate
|Number                 |        | Close Date |  | Balance  |                 | December 31, 2004(1) |  | Original Balance     |            | Average APR |  | Securitization Rate |              | Spread(2)    
|                       |        |            |  |          |                 |                      |  |                      |            |             |  |                     |              |              
|                      
|(Dollars in thousands)
|                       | 1985-A |            |  |          | December, 1985  |                      |  | $                    | 110,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 18.50 | % |  |  | 8.38  | % |  |  | 10.12 | %
|                       | 1986-A |            |  |          | November, 1986  |                      |  |                      | 191,930    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.20 |   |  |  | 6.63  |   |  |  | 7.57  |  
|                       | 1987-A |            |  |          | March, 1987     |                      |  |                      | 125,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 12.42 |   |  |  | 6.75  |   |  |  | 5.67  |  
|                       | 1987-B |            |  |          | July, 1987      |                      |  |                      | 110,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 12.68 |   |  |  | 7.80  |   |  |  | 4.88  |  
|                       | 1988-A |            |  |          | February, 1988  |                      |  |                      | 155,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 13.67 |   |  |  | 7.75  |   |  |  | 5.92  |  
|                       | 1988-B |            |  |          | May, 1988       |                      |  |                      | 100,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.01 |   |  |  | 8.50  |   |  |  | 5.51  |  
|                       | 1988-C |            |  |          | July, 1988      |                      |  |                      | 100,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.41 |   |  |  | 8.50  |   |  |  | 6.91  |  
|                       | 1988-D |            |  |          | October, 1988   |                      |  |                      | 105,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.95 |   |  |  | 8.85  |   |  |  | 6.10  |  
|                       | 1989-A |            |  |          | March, 1989     |                      |  |                      | 75,000     |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.88 |   |  |  | 10.45 |   |  |  | 5.43  |  
|                       | 1989-B |            |  |          | June, 1989      |                      |  |                      | 100,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.96 |   |  |  | 9.15  |   |  |  | 6.81  |  
|                       | 1990-A |            |  |          | August, 1990    |                      |  |                      | 150,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 16.05 |   |  |  | 8.35  |   |  |  | 7.70  |  
|                       | 1990-1 |            |  |          | November, 1990  |                      |  |                      | 150,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.56 |   |  |  | 8.50  |   |  |  | 7.06  |  
|                       | 1991-1 |            |  |          | April, 1991     |                      |  |                      | 200,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 16.06 |   |  |  | 7.70  |   |  |  | 8.36  |  
|                       | 1991-2 |            |  |          | May, 1991       |                      |  |                      | 200,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.75 |   |  |  | 7.30  |   |  |  | 8.45  |  
|                       | 1991-3 |            |  |          | August, 1991    |                      |  |                      | 175,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.69 |   |  |  | 6.75  |   |  |  | 8.94  |  
|                       | 1991-4 |            |  |          | December, 1991  |                      |  |                      | 150,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.53 |   |  |  | 5.63  |   |  |  | 9.90  |  
|                       | 1992-1 |            |  |          | March, 1992     |                      |  |                      | 150,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.49 |   |  |  | 5.85  |   |  |  | 8.64  |  
|                       | 1992-2 |            |  |          | June, 1992      |                      |  |                      | 165,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.94 |   |  |  | 5.50  |   |  |  | 9.44  |  
|                       | 1992-3 |            |  |          | September, 1992 |                      |  |                      | 135,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.45 |   |  |  | 4.70  |   |  |  | 9.75  |  
|                       | 1993-1 |            |  |          | March, 1993     |                      |  |                      | 250,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 13.90 |   |  |  | 4.45  |   |  |  | 9.45  |  
|                       | 1993-2 |            |  |          | June, 1993      |                      |  |                      | 175,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 13.77 |   |  |  | 4.70  |   |  |  | 9.07  |  
|                       | 1993-3 |            |  |          | September, 1993 |                      |  |                      | 187,500    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 13.97 |   |  |  | 4.25  |   |  |  | 9.72  |  
|                       | 1993-4 |            |  |          | December, 1993  |                      |  |                      | 165,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 12.90 |   |  |  | 4.60  |   |  |  | 8.30  |  
|                       | 1994-1 |            |  |          | March, 1994     |                      |  |                      | 200,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 13.67 |   |  |  | 5.10  |   |  |  | 8.57  |  
|                       | 1994-2 |            |  |          | May, 1994       |                      |  |                      | 230,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.04 |   |  |  | 6.38  |   |  |  | 7.66  |  
|                       | 1994-3 |            |  |          | August, 1994    |                      |  |                      | 200,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.59 |   |  |  | 6.65  |   |  |  | 7.94  |  
|                       | 1994-4 |            |  |          | October, 1994   |                      |  |                      | 212,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.58 |   |  |  | 7.10  |   |  |  | 8.48  |  
|                       | 1995-1 |            |  |          | January, 1995   |                      |  |                      | 190,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.71 |   |  |  | 8.05  |   |  |  | 7.66  |  
|                       | 1995-2 |            |  |          | March, 1995     |                      |  |                      | 190,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 16.36 |   |  |  | 7.10  |   |  |  | 9.26  |  
|                       | 1995-3 |            |  |          | June, 1995      |                      |  |                      | 300,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.05 |   |  |  | 6.05  |   |  |  | 9.00  |  
|                       | 1995-4 |            |  |          | September, 1995 |                      |  |                      | 375,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.04 |   |  |  | 6.20  |   |  |  | 8.84  |  
|                       | 1995-5 |            |  |          | December, 1995  |                      |  |                      | 425,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.35 |   |  |  | 5.88  |   |  |  | 9.47  |  
|                       | 1996-A |            |  |          | March, 1996     |                      |  |                      | 485,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.46 |   |  |  | 6.13  |   |  |  | 9.33  |  
|                       | 1996-B |            |  |          | June, 1996      |                      |  |                      | 525,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.74 |   |  |  | 6.75  |   |  |  | 8.99  |  
|                       | 1996-C |            |  |          | September, 1996 |                      |  |                      | 535,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.83 |   |  |  | 6.60  |   |  |  | 9.23  |  
|                       | 1996-D |            |  |          | December, 1996  |                      |  |                      | 545,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-A |            |  |          | March, 1997     |                      |  |                      | 500,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.33 |   |  |  | 6.60  |   |  |  | 8.73  |  
|                       | 1997-B |            |  |          | June, 1997      |                      |  |                      | 590,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.36 |   |  |  | 6.37  |   |  |  | 8.99  |  
|                       | 1997-C |            |  |          | September, 1997 |                      |  |                      | 600,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-D |            |  |          | December, 1997  |                      |  |                      | 500,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.19 |   |  |  | 6.34  |   |  |  | 8.85  |  
|                       | 1998-A |            |  |          | March, 1998     |                      |  |                      | 525,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.72 |   |  |  | 6.01  |   |  |  | 8.71  |  
|                       | 1998-B |            |  |          | June, 1998      |                      |  |                      | 660,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.68 |   |  |  | 6.06  |   |  |  | 8.62  |  
|                       | 1998-C |            |  |          | November, 1998  |                      |  |                      | 700,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.42 |   |  |  | 5.81  |   |  |  | 8.61  |  
|                       | 1999-A |            |  |          | January, 1999   |                      |  |                      | 1,000,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.42 |   |  |  | 5.70  |   |  |  | 8.72  |  
|                       | 1999-B |            |  |          | July, 1999      |                      |  |                      | 1,000,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.62 |   |  |  | 6.36  |   |  |  | 8.26  |  
|                       | 1999-C |            |  |          | November, 1999  |                      |  |                      | 500,000    |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.77 |   |  |  | 7.01  |   |  |  | 7.76  |  
|                       | 2000-A |            |  |          | March, 2000     |                      |  |                      | 1,200,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.66 |   |  |  | 7.28  |   |  |  | 7.38  |  
|                       | 2000-B |            |  |          | May, 2000       |                      |  |                      | 1,000,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 14.84 |   |  |  | 7.78  |   |  |  | 7.06  |  
|                       | 2000-C |            |  |          | August, 2000    |                      |  |                      | 1,390,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.04 |   |  |  | 7.32  |   |  |  | 7.72  |  
|                       | 2000-D |            |  |          | November, 2000  |                      |  |                      | 1,000,000  |             |  |                     | Paid in full |               |  |  |       |   |  |  | 15.20 |   |  |  | 6.94  |   |  |  | 8.26  |  
|                       | 2001-A |            |  |          | January, 2001   |                      |  |                      | 1,000,000  |             |  | $                   | 109,157      |               |  |  | 10.92 | % |  |  | 14.87 |   |  |  | 5.77  |   |  |  | 9.10  |  
|                       | 2001-B |            |  |          | May, 2001       |                      |  |                      | 1,370,000  |             |  |                     | 160,387      |               |  |  | 11.71 |   |  |  | 14.41 |   |  |  | 4.23  |   |  |  | 10.18 |  
|                       | 2001-C |            |  |          | August, 2001    |                      |  |                      | 1,200,000  |             |  |                     | 194,240      |               |  |  | 16.19 |   |  |  | 13.90 |   |  |  | 4.50  |   |  |  | 9.40  |  
|                       | 2002-1 |            |  |          | March, 2002     |                      |  |                      | 1,800,000  |             |  |                     | 421,883      |               |  |  | 23.44 |   |  |  | 13.50 |   |  |  | 4.26  |   |  |  | 9.24  |  
|                       | 2002-2 |            |  |          | May, 2002       |                      |  |                      | 1,750,000  |             |  |                     | 497,790      |               |  |  | 28.45 |   |  |  | 12.51 |   |  |  | 3.89  |   |  |  | 8.62  |  
|                       | 2002-3 |            |  |          | August, 2002    |                      |  |                      | 1,250,000  |             |  |                     | 410,108      |               |  |  | 32.81 |   |  |  | 12.30 |   |  |  | 3.06  |   |  |  | 9.24  |  
|                       | 2002-4 |            |  |          | November, 2002  |                      |  |                      | 1,350,000  |             |  |                     | 537,558      |               |  |  | 39.82 |   |  |  | 12.18 |   |  |  | 2.66  |   |  |  | 9.52  |  
|                       | 2003-1 |            |  |          | February, 2003  |                      |  |                      | 1,343,250  |             |  |                     | 562,748      |               |  |  | 41.89 |   |  |  | 11.79 |   |  |  | 2.42  |   |  |  | 9.37  |  
|                       | 2003-2 |            |  |          | May, 2003       |                      |  |                      | 1,492,500  |             |  |                     | 715,232      |               |  |  | 47.92 |   |  |  | 11.57 |   |  |  | 2.13  |   |  |  | 9.44  |  
|                       | 2003-3 |            |  |          | August, 2003    |                      |  |                      | 1,650,000  |             |  |                     | 993,743      |               |  |  | 60.23 |   |  |  | 10.59 |   |  |  | 2.66  |   |  |  | 7.93  |  
|                       | 2003-4 |            |  |          | November, 2003  |                      |  |                      | 1,403,625  |             |  |                     | 857,934      |               |  |  | 61.12 |   |  |  | 10.89 |   |  |  | 2.70  |   |  |  | 8.19  |  
|                       | 2004-1 |            |  |          | February, 2004  |                      |  |                      | 1,477,500  |             |  |                     | 987,663      |               |  |  | 66.85 |   |  |  | 10.89 |   |  |  | 2.35  |   |  |  | 8.54  |  
|                       | 2004-2 |            |  |          | May, 2004       |                      |  |                      | 1,477,500  |             |  |                     | 1,140,607    |               |  |  | 77.20 |   |  |  | 10.98 |   |  |  | 3.02  |   |  |  | 7.96  |  
|                       | 2004-3 |            |  |          | August, 2004    |                      |  |                      | 1,552,000  |             |  |                     | 1,362,657    |               |  |  | 87.80 |   |  |  | 10.64 |   |  |  | 3.49  |   |  |  | 7.15  |  
|                       | 2004-4 |            |  |          | October, 2004   |                      |  |                      | 1,358,000  |             |  |                     | 1,307,371    |               |  |  | 96.27 |   |  |  | 11.19 |   |  |  | 3.10  |   |  |  | 8.09  |  
|                       | 2005-1 |            |  |          | January, 2005   |                      |  |                      | 1,552,000  |             |  |                     |              |               |  |  |       |   |  |  | 11.25 |   |  |  | 3.66  |   |  |  | 7.59  |  
|                       |        |            |  |          |                 |                      |  |                      |            |             |  |                     |              |               |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |        |            |  |          | Total           |                      |  | $                    | 42,027,805 |             |  | $                   | 10,259,078   |               |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |        |            |  |          |                 |                      |  |                      |            |             |  |                     |              |               |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents only the note payable amounts
    outstanding at the date indicated.                                                                                                                                         
|   
|(2) | Represents the difference between the original
    weighted average annual percentage rate, also known as APR, and
    the estimated weighted average securitization rate on the
    closing date of the securitization.

42



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##### Table of Contents



Other Noninterest Income

Other noninterest income consists primarily of
insurance income, mortgage banking income and miscellaneous
income. Other noninterest income totaled $12.4 million,
$19.6 million and $28.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively. Noninterest
income decreased for the year ended December 31, 2004
compared with the year ended December 31, 2003 due to lower
gains on sale of MBS securities. Noninterest income decreased
for the year ended December 31, 2003 compared with the year
ended December 31, 2002 due to the sale of our seven
Northern California branch offices in 2002.

Noninterest Expense

Total noninterest expense was $296 million,
$282 million and $252 million for the years ended
December 31, 2004, 2003 and 2002, respectively. Noninterest
expense as a percentage of total revenues improved to 32% in
2004 compared to 34% in 2003 and 36% in 2002. The improvement in
operating efficiencies from 2002 to 2004 was achieved primarily
by updating proprietary credit scorecards, implementing an
integrated desktop servicing application, upgrading hardware to
support the loan origination system, and enhancing our
behavioral scoring collection system.

Income Taxes

We file federal and certain state tax returns
with our subsidiaries. We file other state tax returns as a
separate entity. Tax liabilities from the consolidated returns
are allocated in accordance with a tax sharing agreement based
on the relative income or loss of each entity on a stand-alone
basis. Our effective tax rate was approximately 40% in 2004
compared with 40% in 2003 and 36% in 2002. The relatively lower
effective tax rate for the year ended December 31, 2002 was
a result of a one-time benefit of legislation enacted by the
State of California that eliminated the use of the reserve
method of accounting for bad debts for large banks and financial
corporations for taxable income purposes for tax years after
January 1, 2002. In the first year of this change, 50% of
the ending reserve amount deducted from taxable income in prior
periods was included in California taxable income. The remaining
50% of the reserve was not required to be recaptured into
income, but rather represented a permanent difference between
GAAP and California tax accounting. The deferred tax liability
related to this permanent difference was eliminated from our
balance sheet and the state income tax provision for 2002 was
reduced accordingly. See Business 
Taxation.

Financial Condition

Overview

We originated $6.6 billion and
$6.0 billion of contracts for the year ended
December 31, 2004 and 2003, respectively. As a result of
higher contract originations, our portfolio of managed contracts
reached $11.6 billion at December 31, 2004, up from
$10.6 billion at December 31, 2003.

Total demand deposits and money market accounts
at our retail banking division were $799 million at
December 31, 2004 compared with $608 million at
December 31, 2003. Total demand deposit and money market
accounts represented 57% of total retail banking deposits at
December 31, 2004 compared with 48% at December 31,
2003. The commercial banking division had deposits of
$593 million at December 31, 2004 compared with
$424 million at December 31, 2003.

43



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##### Table of Contents



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 investment securities available for sale on
our Consolidated Statements of Financial Condition. We also hold
owner trust certificates and obligations of states and political
subdivisions, which are classified as available for sale. The
owner trust certificates are recorded at cost, which
approximates fair value. The obligations of states and political
subdivisions 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.

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

|                                                                |                                                  |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|--------------------------------------------------------------- | ------------------------------------------------ | ---------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                |                                                  |                       
|                                                                |                                                  | December 31,          
|                                                                |                                                  |                       
|                                                                |                                                  | 2004                   |         | 2003   |  | 2002 |         | 2001   |  | 2000
|                                                                |                                                  |                        |         |        |  |      |         |        |  |     
|                                                                |                                                  |                       
|                                                                |                                                  | (Dollars in thousands)
|Interest bearing deposits with other financial
    institutions |                                                  | $                      | 4,092   |        |  | $    | 41,009  |        |  | $    | 59,004  |        |  | $ | 720     |        |  | $ | 720     |       
|Other short-term investments                                    |                                                  |                        | 125,000 |        |  |      | 291,000 |        |  |      |         |        |  |   | 35,000  |        |  |   | 66,500  |       
|Investment securities:                                          |                                                  |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                | Obligations of states and political subdivisions |                        |         |        |  |      |         |        |  |      |         | 1,046  |  |   |         | 1,549  |  |   |         | 1,533  | 
|                                                                | U.S. government agencies and corporations        |                        |         | 49,774 |  |      |         | 50,493 |  |      |         |        |  |   |         |        |  |   |         |        | 
|                                                                | Owner trust certificates                         |                        |         |        |  |      |         |        |  |      |         | 3,348  |  |   |         | 4,668  |  |   |         | 6,517  | 
|                                                                | FHLB stock                                       |                        |         | 60,612 |  |      |         | 58,803 |  |      |         | 46,341 |  |   |         | 64,446 |  |   |         | 24,367 | 
|                                                                | Other                                            |                        |         | 9,425  |  |      |         | 8,453  |  |      |         | 6,031  |  |   |         | 4,294  |  |   |         | 2,684  | 
|                                                                |                                                  |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                                |                                                  | $                      | 248,903 |        |  | $    | 449,758 |        |  | $    | 115,770 |        |  | $ | 110,677 |        |  | $ | 102,321 |       
|                                                                |                                                  |                        |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       

The following table sets forth the stated
maturities of our investment securities at December 31,
2004:

|                                                                |                                           |                        |         |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |        | 
|--------------------------------------------------------------- | ----------------------------------------- | ---------------------- | ------- | ------------- |  | ------------ | ------ | --------- |  | --------- | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                                                                |                                           | Up to                  |         | One Year      |  | Five Years   |        | Ten Years |  | No Stated
|                                                                |                                           | One Year               |         | to Five Years |  | to Ten Years |        | or More   |  | Maturity 
|                                                                |                                           |                        |         |               |  |              |        |           |  |          
|                                                                |                                           |                       
|                                                                |                                           | (Dollars in thousands)
|Interest bearing deposits with other financial
    institutions |                                           | $                      | 4,092   |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |       
|Other short-term investments                                    |                                           |                        | 125,000 |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |       
|Investment securities:                                          |                                           |                        |         |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |       
|                                                                | U.S. government agencies and corporations |                        |         |               |  |              | $      | 49,774    |  |           |       |       |  |   |       |       |  |   |        |        | 
|                                                                | FHLB stock                                |                        |         |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   | $      | 60,612 | 
|                                                                | Other                                     |                        |         |               |  |              |        | 791       |  |           | $     | 2,031 |  |   | $     | 3,596 |  |   |        | 3,007  | 
|                                                                |                                           |                        |         |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |       
|                                                                |                                           | $                      | 129,092 |               |  | $            | 50,565 |           |  | $         | 2,031 |       |  | $ | 3,596 |       |  | $ | 63,619 |       
|                                                                |                                           |                        |         |               |  |              |        |           |  |           |       |       |  |   |       |       |  |   |        |       
|Weighted average interest rate(1)                               |                                           |                        | 2.52    | %             |  |              | 2.21   | %         |  |           | 4.70  | %     |  |   | 3.07  | %     |  |   | 4.67   | %     



---



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

44



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##### Table of Contents



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.
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 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,          
|                               |                                  |                       
|                               |                                  | 2004                   |           | 2003     
|                               |                                  |                        |           |          
|                               |                                  |                       
|                               |                                  | (Dollars in thousands)
|Available for sale securities: |                                  |                        |           |           |  |   |           |          
|                               | GNMA certificates                |                        | $         | 2,581,796 |  |   | $         | 2,638,085 | 
|                               | FNMA participation certificates  |                        |           | 30,175    |  |   |           | 25,273    | 
|                               | FHLMC participation certificates |                        |           | 36,222    |  |   |           | 36,665    | 
|                               | Other                            |                        |           | 1,565     |  |   |           | 1,774     | 
|                               |                                  |                        |           |           |  |   |           |          
|                               |                                  | $                      | 2,649,758 |           |  | $ | 2,701,797 |          
|                               |                                  |                        |           |           |  |   |           |          

The portfolio had a weighted average yield,
including effects of amortization of premiums and discounts, of
3.87%, 3.31% and 5.14% for the years ended December 31,
2004, 2003 and 2002, respectively. The weighted average coupon
rate was 5.14%, 5.87% and 6.96% at December 31, 2004, 2003
and 2002, respectively. Our MBS portfolio had maturities of one
month to thirty years at December 31, 2004, although
payments are generally received monthly throughout the life of
these securities.

Loan Portfolios

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,          
|                                |                     |                       
|                                |                     |                        |            |            |            |        |      |      |       |       
|                                |                     | 2004                   |            | 2003       |            | 2002   |      | 2001 |       | 2000  
|                                |                     |                        |            |            |            |        |      |      |       |       
|                                |                     | Amount                 |            | %          |            | Amount |      | %    |       | Amount |            | %          |            | Amount |      | %    |       | Amount |           | %        
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |          
|                                |                     |                       
|                                |                     | (Dollars in thousands)
|Consumer loans:                 |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                | Contracts           |                        | $          | 11,790,663 |            |        |      | 97.2 | %     |        | $          | 10,833,127 |            |        |      | 97.3 | %     |        | $         | 9,147,937 |           |  |      | 96.9 | %     |   | $         | 7,192,302 |           |  |      | 95.2 | %     |   | $         | 4,390,265 |           |  |      | 89.2 | %    
|                                | Other               |                        |            | 4,386      |            |        |      | 0.0  |       |        |            | 6,002      |            |        |      | 0.1  |       |        |           | 7,531     |           |  |      | 0.1  |       |   |           | 8,826     |           |  |      | 0.1  |       |   |           | 13,456    |           |  |      | 0.3  |      
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                |                     |                        | 11,795,049 |            |            |        | 97.2 |      |       |        | 10,839,129 |            |            |        | 97.4 |      |       |        | 9,155,468 |           |           |  | 97.0 |      |       |   | 7,201,128 |           |           |  | 95.3 |      |       |   | 4,403,721 |           |           |  | 89.5 |     
|Less: Unearned interest         |                     |                        | 38,871     |            |            |        | 0.3  |      |       |        | 61,300     |            |            |        | 0.6  |      |       |        | 91,713    |           |           |  | 1.0  |      |       |   | 108,169   |           |           |  | 1.4  |      |       |   | 94,404    |           |           |  | 1.9  |     
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                |                     | Total consumer loans   |            |            | 11,756,178 |        |      |      | 96.9  |        |            |            | 10,777,829 |        |      |      | 96.8  |        |           |           | 9,063,755 |  |      |      | 96.0  |   |           |           | 7,092,959 |  |      |      | 93.9  |   |           |           | 4,309,317 |  |      |      | 87.6  |  
|Mortgage loans:                 |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                | Existing properties |                        |            | 202,095    |            |        |      | 1.7  |       |        |            | 237,668    |            |        |      | 2.1  |       |        |           | 277,233   |           |  |      | 3.0  |       |   |           | 361,115   |           |  |      | 4.8  |       |   |           | 498,963   |           |  |      | 10.1 |      
|                                | Construction        |                        |            | 48,730     |            |        |      | 0.4  |       |        |            | 16,503     |            |        |      | 0.2  |       |        |           | 14,150    |           |  |      | 0.1  |       |   |           | 15,638    |           |  |      | 0.2  |       |   |           | 14,784    |           |  |      | 0.3  |      
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                |                     |                        | 250,825    |            |            |        | 2.1  |      |       |        | 254,171    |            |            |        | 2.3  |      |       |        | 291,383   |           |           |  | 3.1  |      |       |   | 376,753   |           |           |  | 5.0  |      |       |   | 513,747   |           |           |  | 10.4 |     
|Less: Undisbursed loan proceeds |                     |                        | 37,061     |            |            |        | 0.3  |      |       |        | 17,948     |            |            |        | 0.2  |      |       |        | 8,453     |           |           |  | 0.1  |      |       |   | 3,298     |           |           |  | 0.0  |      |       |   | 6,316     |           |           |  | 0.1  |     
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                |                     | Total mortgage loans   |            |            | 213,764    |        |      |      | 1.8   |        |            |            | 236,223    |        |      |      | 2.1   |        |           |           | 282,930   |  |      |      | 3.0   |   |           |           | 373,455   |  |      |      | 5.0   |   |           |           | 507,431   |  |      |      | 10.3  |  
|Commercial loans                |                     |                        | 165,806    |            |            |        | 1.3  |      |       |        | 124,431    |            |            |        | 1.1  |      |       |        | 97,216    |           |           |  | 1.0  |      |       |   | 85,312    |           |           |  | 1.1  |      |       |   | 107,586   |           |           |  | 2.1  |     
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     
|                                |                     | Total loans            |            | $          | 12,135,748 |        |      |      | 100.0 | %      |            | $          | 11,138,483 |        |      |      | 100.0 | %      |           | $         | 9,443,901 |  |      |      | 100.0 | % |           | $         | 7,551,726 |  |      |      | 100.0 | % |           | $         | 4,924,334 |  |      |      | 100.0 | %
|                                |                     |                        |            |            |            |        |      |      |       |        |            |            |            |        |      |      |       |        |           |           |           |  |      |      |       |   |           |           |           |  |      |      |       |   |           |           |           |  |      |     

There were no consumer loans serviced for the
benefit of others at December 31, 2004 and 2003 compared
with $525 million at December 31, 2002.

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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 do not expect to add mortgage loans to our balance
sheet.

Commercial Loan Portfolio

We had outstanding commercial loan commitments of
$327 million at December 31, 2004 compared with
$225 million at December 31, 2003. We originated
$342 million and $407 million of commercial loans for
the years ended December 31, 2004 and 2003, respectively.
Though we continue to focus on expanding our commercial banking
operation, it is not a significant source of revenue.

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.

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  Operations.

We calculate delinquency based on the contractual
due date. The following table sets forth information with
respect to the delinquency of our portfolio of automobile
contracts managed:

|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |            |            |  |  |      |      |   |   |           |         |  |  |      |      |  
|---------------------------------------------------------------------------------------- | --------------- | ---------------------- | ---------- | ---------- |  | ------ | ---- | ---------- | - | ------ | ---------- | ---------- |  |  | ---- | ---- | - | - | --------- | ------- |  |  | ---- | ---- | -
|                                                                                         |                 |                       
|                                                                                         |                 | December 31,          
|                                                                                         |                 |                       
|                                                                                         |                 |                        |            |            |  |       
|                                                                                         |                 | 2004                   |            | 2003       |  | 2002  
|                                                                                         |                 |                        |            |            |  |       
|                                                                                         |                 | Amount                 |            | Percentage |  | Amount |      | Percentage |   | Amount |            | Percentage
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |            |           
|                                                                                         |                 |                       
|                                                                                         |                 | (Dollars in thousands)
|Automobile contracts managed                                                             |                 | $                      | 11,560,890 |            |  |        |      |            |   | $      | 10,596,665 |            |  |  |      |      |   | $ | 9,389,974 |         |  |  |      |     
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |            |            |  |  |      |      |   |   |           |         |  |  |      |     
|Period of delinquency:                                                                   |                 |                        |            |            |  |        |      |            |   |        |            |            |  |  |      |      |   |   |           |         |  |  |      |     
|                                                                                         | 30-59 days      |                        | $          | 191,001    |  |        |      | 1.65       | % |        | $          | 219,937    |  |  |      | 2.08 | % |   | $         | 238,204 |  |  |      | 2.54 | %
|                                                                                         | 60 days or more |                        |            | 67,660     |  |        |      | 0.59       |   |        |            | 87,129     |  |  |      | 0.82 |   |   |           | 90,291  |  |  |      | 0.96 |  
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |            |            |  |  |      |      |   |   |           |         |  |  |      |     
|Total contracts delinquent and delinquencies as a
    percentage of contracts managed(1) |                 | $                      | 258,661    |            |  |        | 2.24 | %          |   | $      | 307,066    |            |  |  | 2.90 | %    |   | $ | 328,495   |         |  |  | 3.50 | %   
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |            |            |  |  |      |      |   |   |           |         |  |  |      |     



---



|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes Chapter 13 bankruptcy accounts
    greater than 120 days past due of $46.1 million,
    $45.6 million and $41.5 million at December 31,
    2004, 2003 and 2002, respectively.

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

|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |            |  |  |  |         |  |  |   |           | 
|------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ------ |  | --------- | ---------- | ------ |  | --------- | ------- | ------ |  | - | ---------- |  |  |  | ------- |  |  | - | --------- | 
|                                                                                     |  |                       
|                                                                                     |  | December 31,          
|                                                                                     |  |                       
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | 2004                   |         | 2003   |  | 2002     
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | Number of              |         |        |  | Number of |            |        |  | Number of |         |       
|                                                                                     |  | Contracts              |         | Amount |  | Contracts |            | Amount |  | Contracts |         | Amount
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |       
|                                                                                     |  |                       
|                                                                                     |  | (Dollars in thousands)
|Automobile contracts managed                                                         |  |                        | 876,695 |        |  | $         | 11,560,890 |        |  |           | 862,122 |        |  | $ | 10,596,665 |  |  |  | 757,269 |  |  | $ | 9,389,974 | 
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |            |  |  |  |         |  |  |   |           | 
|Repossessed vehicles                                                                 |  |                        | 1,049   |        |  | $         | 7,982      |        |  |           | 1,522   |        |  | $ | 10,331     |  |  |  | 2,375   |  |  | $ | 16,433    | 
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |            |  |  |  |         |  |  |   |           | 
|Repossessed assets as a percentage of number and
    amount of contracts outstanding |  |                        | 0.12%   |        |  |           | 0.07%      |        |  |           | 0.18%   |        |  |   | 0.10%      |  |  |  | 0.31%   |  |  |   | 0.18%     | 

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

|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                                                                         |  |                                
|                                                                                         |  | For the Year Ended December 31,
|                                                                                         |  |                                
|                                                                                         |  | 2004                            |            | 2003 |  | 2002
|                                                                                         |  |                                 |            |      |  |     
|                                                                                         |  |                                
|                                                                                         |  | (Dollars in thousands)         
|Automobile contracts managed at end of period                                            |  | $                               | 11,560,890 |      |  | $    | 10,596,665 |   |  | $ | 9,389,974 |  
|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  
|Average contracts managed during period                                                  |  | $                               | 11,113,411 |      |  | $    | 10,051,754 |   |  | $ | 8,845,635 |  
|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  
|Gross chargeoffs                                                                         |  | $                               | 312,586    |      |  | $    | 350,714    |   |  | $ | 327,161   |  
|Recoveries                                                                               |  |                                 | 91,704     |      |  |      | 89,027     |   |  |   | 82,372    |  
|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  
|Net chargeoffs                                                                           |  | $                               | 220,882    |      |  | $    | 261,687    |   |  | $ | 244,789   |  
|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  
|Net chargeoffs as a percentage of average
    automobile contracts managed during period |  |                                 | 1.99       | %    |  |      | 2.60       | % |  |   | 2.77      | %
|                                                                                         |  |                                 |            |      |  |      |            |   |  |   |           |  

The decrease in delinquency and credit loss
experience for 2004 compared to 2003 was a result of an
improving economy and our continued emphasis on risk-focused
underwriting. The decrease in delinquency and credit loss
experience for 2003 compared to 2002 was primarily a result of
our originating a higher percentage of prime credit quality
contracts and some stabilization of wholesale pre-owned car
prices.

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

Cumulative Static Pool Loss Curves

At December 31, 2004


|          |              |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|--------- | ------------ | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|         
|         
|Period(1) |              | 2001-A |  | 2001-B |      | 2001-C |  | 2002-1 |      | 2002-2 |  | 2002-3 |      | 2002-4 |  | 2003-1 |      | 2003-2 |  | 2003-3 |      | 2003-4 |  | 2004-1 |      | 2004-2 |  | 2004-3 |      | 2004-4
|         
|         
|          | 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 | %
|          | 2            |        |  |        | 0.03 | %      |  |        | 0.03 | %      |  |        | 0.04 | %      |  |        | 0.01 | %      |  |        | 0.00 | %      |  |        | 0.02 | %      |  |        | 0.02 | %      |  |  | 0.01 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.01 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.02 | % |  |  | 0.00 | %
|          | 3            |        |  |        | 0.09 | %      |  |        | 0.10 | %      |  |        | 0.09 | %      |  |        | 0.06 | %      |  |        | 0.03 | %      |  |        | 0.06 | %      |  |        | 0.07 | %      |  |  | 0.04 | % |  |  | 0.02 | % |  |  | 0.02 | % |  |  | 0.03 | % |  |  | 0.02 | % |  |  | 0.03 | % |  |  | 0.06 | % |  |  | 0.04 | %
|          | 4            |        |  |        | 0.20 | %      |  |        | 0.21 | %      |  |        | 0.20 | %      |  |        | 0.15 | %      |  |        | 0.10 | %      |  |        | 0.14 | %      |  |        | 0.16 | %      |  |  | 0.11 | % |  |  | 0.06 | % |  |  | 0.06 | % |  |  | 0.08 | % |  |  | 0.06 | % |  |  | 0.07 | % |  |  | 0.13 | % |  |  |      |  
|          | 5            |        |  |        | 0.33 | %      |  |        | 0.33 | %      |  |        | 0.35 | %      |  |        | 0.29 | %      |  |        | 0.18 | %      |  |        | 0.27 | %      |  |        | 0.26 | %      |  |  | 0.18 | % |  |  | 0.14 | % |  |  | 0.13 | % |  |  | 0.14 | % |  |  | 0.11 | % |  |  | 0.15 | % |  |  | 0.21 | % |  |  |      |  
|          | 6            |        |  |        | 0.50 | %      |  |        | 0.50 | %      |  |        | 0.49 | %      |  |        | 0.43 | %      |  |        | 0.32 | %      |  |        | 0.44 | %      |  |        | 0.38 | %      |  |  | 0.29 | % |  |  | 0.25 | % |  |  | 0.23 | % |  |  | 0.21 | % |  |  | 0.19 | % |  |  | 0.24 | % |  |  |      |   |  |  |      |  
|          | 7            |        |  |        | 0.70 | %      |  |        | 0.69 | %      |  |        | 0.65 | %      |  |        | 0.60 | %      |  |        | 0.49 | %      |  |        | 0.57 | %      |  |        | 0.50 | %      |  |  | 0.41 | % |  |  | 0.36 | % |  |  | 0.32 | % |  |  | 0.28 | % |  |  | 0.27 | % |  |  | 0.33 | % |  |  |      |   |  |  |      |  
|          | 8            |        |  |        | 0.84 | %      |  |        | 0.87 | %      |  |        | 0.81 | %      |  |        | 0.84 | %      |  |        | 0.66 | %      |  |        | 0.70 | %      |  |        | 0.61 | %      |  |  | 0.53 | % |  |  | 0.48 | % |  |  | 0.40 | % |  |  | 0.35 | % |  |  | 0.34 | % |  |  | 0.41 | % |  |  |      |   |  |  |      |  
|          | 9            |        |  |        | 1.04 | %      |  |        | 1.05 | %      |  |        | 0.95 | %      |  |        | 1.06 | %      |  |        | 0.82 | %      |  |        | 0.82 | %      |  |        | 0.78 | %      |  |  | 0.66 | % |  |  | 0.59 | % |  |  | 0.47 | % |  |  | 0.44 | % |  |  | 0.42 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 10           |        |  |        | 1.24 | %      |  |        | 1.22 | %      |  |        | 1.07 | %      |  |        | 1.28 | %      |  |        | 0.96 | %      |  |        | 0.96 | %      |  |        | 0.94 | %      |  |  | 0.80 | % |  |  | 0.70 | % |  |  | 0.55 | % |  |  | 0.54 | % |  |  | 0.52 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 11           |        |  |        | 1.45 | %      |  |        | 1.36 | %      |  |        | 1.20 | %      |  |        | 1.48 | %      |  |        | 1.10 | %      |  |        | 1.10 | %      |  |        | 1.08 | %      |  |  | 0.93 | % |  |  | 0.80 | % |  |  | 0.62 | % |  |  | 0.61 | % |  |  | 0.59 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 12           |        |  |        | 1.67 | %      |  |        | 1.53 | %      |  |        | 1.37 | %      |  |        | 1.67 | %      |  |        | 1.26 | %      |  |        | 1.24 | %      |  |        | 1.28 | %      |  |  | 1.06 | % |  |  | 0.89 | % |  |  | 0.71 | % |  |  | 0.73 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 13           |        |  |        | 1.90 | %      |  |        | 1.67 | %      |  |        | 1.55 | %      |  |        | 1.82 | %      |  |        | 1.39 | %      |  |        | 1.38 | %      |  |        | 1.43 | %      |  |  | 1.21 | % |  |  | 0.98 | % |  |  | 0.80 | % |  |  | 0.83 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 14           |        |  |        | 2.09 | %      |  |        | 1.81 | %      |  |        | 1.74 | %      |  |        | 1.99 | %      |  |        | 1.51 | %      |  |        | 1.53 | %      |  |        | 1.59 | %      |  |  | 1.31 | % |  |  | 1.08 | % |  |  | 0.88 | % |  |  | 0.93 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 15           |        |  |        | 2.25 | %      |  |        | 2.00 | %      |  |        | 1.97 | %      |  |        | 2.14 | %      |  |        | 1.68 | %      |  |        | 1.70 | %      |  |        | 1.77 | %      |  |  | 1.40 | % |  |  | 1.20 | % |  |  | 0.97 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 16           |        |  |        | 2.41 | %      |  |        | 2.19 | %      |  |        | 2.16 | %      |  |        | 2.27 | %      |  |        | 1.83 | %      |  |        | 1.88 | %      |  |        | 1.92 | %      |  |  | 1.50 | % |  |  | 1.31 | % |  |  | 1.07 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 17           |        |  |        | 2.54 | %      |  |        | 2.37 | %      |  |        | 2.36 | %      |  |        | 2.45 | %      |  |        | 1.99 | %      |  |        | 2.03 | %      |  |        | 2.05 | %      |  |  | 1.60 | % |  |  | 1.41 | % |  |  | 1.16 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 18           |        |  |        | 2.73 | %      |  |        | 2.60 | %      |  |        | 2.59 | %      |  |        | 2.62 | %      |  |        | 2.16 | %      |  |        | 2.15 | %      |  |        | 2.16 | %      |  |  | 1.70 | % |  |  | 1.53 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 19           |        |  |        | 2.93 | %      |  |        | 2.80 | %      |  |        | 2.78 | %      |  |        | 2.80 | %      |  |        | 2.31 | %      |  |        | 2.28 | %      |  |        | 2.25 | %      |  |  | 1.85 | % |  |  | 1.66 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 20           |        |  |        | 3.11 | %      |  |        | 3.01 | %      |  |        | 2.95 | %      |  |        | 2.99 | %      |  |        | 2.46 | %      |  |        | 2.41 | %      |  |        | 2.37 | %      |  |  | 1.99 | % |  |  | 1.76 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 21           |        |  |        | 3.34 | %      |  |        | 3.19 | %      |  |        | 3.14 | %      |  |        | 3.15 | %      |  |        | 2.60 | %      |  |        | 2.52 | %      |  |        | 2.49 | %      |  |  | 2.14 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 22           |        |  |        | 3.54 | %      |  |        | 3.34 | %      |  |        | 3.29 | %      |  |        | 3.31 | %      |  |        | 2.72 | %      |  |        | 2.62 | %      |  |        | 2.62 | %      |  |  | 2.27 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 23           |        |  |        | 3.72 | %      |  |        | 3.49 | %      |  |        | 3.41 | %      |  |        | 3.45 | %      |  |        | 2.86 | %      |  |        | 2.74 | %      |  |        | 2.73 | %      |  |  | 2.37 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 24           |        |  |        | 3.92 | %      |  |        | 3.62 | %      |  |        | 3.57 | %      |  |        | 3.58 | %      |  |        | 2.95 | %      |  |        | 2.83 | %      |  |        | 2.84 | %      |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 25           |        |  |        | 4.10 | %      |  |        | 3.75 | %      |  |        | 3.73 | %      |  |        | 3.69 | %      |  |        | 3.03 | %      |  |        | 2.96 | %      |  |        | 2.95 | %      |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 26           |        |  |        | 4.23 | %      |  |        | 3.87 | %      |  |        | 3.88 | %      |  |        | 3.80 | %      |  |        | 3.13 | %      |  |        | 3.08 | %      |  |        | 3.06 | %      |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 27           |        |  |        | 4.36 | %      |  |        | 4.00 | %      |  |        | 4.04 | %      |  |        | 3.92 | %      |  |        | 3.22 | %      |  |        | 3.21 | %      |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 28           |        |  |        | 4.47 | %      |  |        | 4.15 | %      |  |        | 4.20 | %      |  |        | 4.02 | %      |  |        | 3.33 | %      |  |        | 3.31 | %      |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 29           |        |  |        | 4.56 | %      |  |        | 4.28 | %      |  |        | 4.35 | %      |  |        | 4.12 | %      |  |        | 3.41 | %      |  |        | 3.41 | %      |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 30           |        |  |        | 4.67 | %      |  |        | 4.40 | %      |  |        | 4.46 | %      |  |        | 4.22 | %      |  |        | 3.50 | %      |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 31           |        |  |        | 4.81 | %      |  |        | 4.52 | %      |  |        | 4.57 | %      |  |        | 4.30 | %      |  |        | 3.58 | %      |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 32           |        |  |        | 4.92 | %      |  |        | 4.64 | %      |  |        | 4.69 | %      |  |        | 4.39 | %      |  |        | 3.66 | %      |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 33           |        |  |        | 5.04 | %      |  |        | 4.73 | %      |  |        | 4.77 | %      |  |        | 4.49 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 34           |        |  |        | 5.13 | %      |  |        | 4.83 | %      |  |        | 4.85 | %      |  |        | 4.56 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 35           |        |  |        | 5.24 | %      |  |        | 4.93 | %      |  |        | 4.92 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 36           |        |  |        | 5.31 | %      |  |        | 4.99 | %      |  |        | 5.01 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 37           |        |  |        | 5.39 | %      |  |        | 5.05 | %      |  |        | 5.09 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 38           |        |  |        | 5.45 | %      |  |        | 5.11 | %      |  |        | 5.16 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 39           |        |  |        | 5.50 | %      |  |        | 5.17 | %      |  |        | 5.22 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 40           |        |  |        | 5.56 | %      |  |        | 5.24 | %      |  |        | 5.27 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 41           |        |  |        | 5.61 | %      |  |        | 5.29 | %      |  |        | 5.32 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 42           |        |  |        | 5.66 | %      |  |        | 5.33 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 43           |        |  |        | 5.70 | %      |  |        | 5.39 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 44           |        |  |        | 5.75 | %      |  |        | 5.43 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 45           |        |  |        | 5.81 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 46           |        |  |        | 5.84 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 47           |        |  |        | 5.87 | %      |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | Prime Mix(2) |        |  |        | 71   | %      |  |        | 71   | %      |  |        | 76   | %      |  |        | 70   | %      |  |        | 87   | %      |  |        | 85   | %      |  |        | 80   | %      |  |  | 80   | % |  |  | 82   | % |  |  | 84   | % |  |  | 82   | % |  |  | 82   | % |  |  | 82   | % |  |  | 81   | % |  |  | 78   | %



---



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

48



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##### Table of Contents



Real Estate Loan Quality

Our mortgage delinquencies over 60 days
include both single family and multi-family mortgages. We had
0.85% of total mortgage loans past due over 60 days at
December 31, 2004 compared with 1.25% at December 31,
2003.

Nonperforming Assets

Nonperforming loans, also known as NPLs, are
defined as all nonaccrual loans. This includes mortgage loans
90 days or more past due, impaired loans where full
collection of principal and interest is not reasonably assured
and Chapter 13 bankruptcy accounts that were contractually
past due over 120 days. For those accounts that are in
Chapter 13 bankruptcy that are contractually past due over
120 days, all accrued interest is reversed and income is
recognized on a cash basis. When a loan is designated as
nonaccrual, all previously accrued but unpaid interest is
reversed. For the years ended December 31, 2004, 2003 and
2002, interest on NPLs excluded from interest income was
$1.4 million, $3.3 million and $3.5 million,
respectively. The decrease between 2003 and 2004 was due to
improvement in the economy.

Nonperforming assets, also known as NPAs, consist
of NPLs, repossessed automobiles and real estate owned, also
known as REO. Repossessed automobiles are carried at fair value.
REO is carried at lower of cost or fair value. NPAs were
$60.2 million at December 31, 2004 compared with
$63.6 million at December 31, 2003. NPAs represented
0.4% of total assets at both December 31, 2004 and 2003.
There were no impaired loans at December 31, 2004 and 2003.

Allowance For Credit Losses

Our allowance for credit losses was
$315 million at December 31, 2004 compared with
$302 million at December 31, 2003. We decreased our
percentage of allowance for credit losses from 2.7% at
December 31, 2003 to 2.6% at December 31, 2004 as we
experienced lower losses in our loan portfolio due to an
improving economy as well as our continued emphasis on
risk-focused underwriting. Based on the analysis we performed
related to the allowance for credit losses as described in
Note 1  Summary of Significant Accounting
Policies in our Consolidated Financial Statements, we
believe that our allowance for credit losses is currently
adequate to cover probable losses in our loan portfolio that can
be reasonably estimated.

49



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##### Table of Contents



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

|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |         |  
|-------------------------------------------------------------------------------------- | ---------------- | ------------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | - | - | ------- | ------- | -
|                                                                                       |                  |                                
|                                                                                       |                  | For the Year Ended December 31,
|                                                                                       |                  |                                
|                                                                                       |                  | 2004                            |          | 2003     |   | 2002 |          | 2001     |   | 2000
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |     
|                                                                                       |                  |                                
|                                                                                       |                  | (Dollars in thousands)         
|Balance at beginning of period                                                         |                  | $                               | 301,602  |          |   | $    | 269,352  |          |   | $    | 178,218  |          |   | $ | 104,006  |          |   | $ | 64,217  |        
|Chargeoffs:                                                                            |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|                                                                                       | Consumer loans   |                                 |          | (312,594 | ) |      |          | (350,718 | ) |      |          | (280,378 | ) |   |          | (162,878 | ) |   |         | (55,892 | )
|                                                                                       | Commercial loans |                                 |          | (492     | ) |      |          |          |   |      |          | (511     | ) |   |          |          |   |   |         |         |  
|                                                                                       | Mortgage loans   |                                 |          | (203     | ) |      |          | (352     | ) |      |          | (260     | ) |   |          | (1,024   | ) |   |         | (1,234  | )
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|                                                                                       |                  |                                 | (313,289 | )        |   |      | (351,070 | )        |   |      | (281,149 | )        |   |   | (163,902 | )        |   |   | (57,126 | )      
|Recoveries:                                                                            |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|                                                                                       | Consumer loans   |                                 |          | 91,792   |   |      |          | 89,196   |   |      |          | 66,050   |   |   |          | 41,120   |   |   |         | 14,731  |  
|                                                                                       | Commercial loans |                                 |          | 49       |   |      |          | 78       |   |      |          |          |   |   |          |          |   |   |         |         |  
|                                                                                       | Mortgage loans   |                                 |          |          |   |      |          | 40       |   |      |          |          |   |   |          | 17       |   |   |         | 51      |  
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|                                                                                       |                  |                                 | 91,841   |          |   |      | 89,314   |          |   |      | 66,050   |          |   |   | 41,137   |          |   |   | 14,782  |        
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|Net chargeoffs                                                                         |                  |                                 | (221,448 | )        |   |      | (261,756 | )        |   |      | (215,099 | )        |   |   | (122,765 | )        |   |   | (42,344 | )      
|Provision for credit losses                                                            |                  |                                 | 235,248  |          |   |      | 294,006  |          |   |      | 306,233  |          |   |   | 196,977  |          |   |   | 82,133  |        
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|Balance at end of period                                                               |                  | $                               | 315,402  |          |   | $    | 301,602  |          |   | $    | 269,352  |          |   | $ | 178,218  |          |   | $ | 104,006 |        
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |      |          |          |   |   |          |          |   |   |         |        
|Ratio of net chargeoffs during the period to
    average loans owned during the period |                  |                                 | 1.9      | %        |   |      | 2.5      | %        |   |      | 2.6      | %        |   |   | 2.0      | %        |   |   | 1.3     | %      
|Ratio of allowance for credit losses to loans at
    the end of the period             |                  |                                 | 2.6      | %        |   |      | 2.7      | %        |   |      | 2.9      | %        |   |   | 2.4      | %        |   |   | 2.1     | %      

50



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##### Table of Contents



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

|                          |  |                        |            |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |            |  |  |  |       |   |  |   |         |  |  |  |     |  
|------------------------- |  | ---------------------- | ---------- | -------- |  | --------- | ----- | --------- |  | -------- | ------- | -------- |  | --------- | --- | --------- |  | - | ---------- |  |  |  | ----- | - |  | - | ------- |  |  |  | --- | -
|                          |  |                       
|                          |  | December 31,          
|                          |  |                       
|                          |  |                        |            |         
|                          |  | 2004                   |            | 2003    
|                          |  |                        |            |         
|                          |  |                        |            | Loans in |  |           |       |           |  | Loans in |         |         
|                          |  |                        |            | Each     |  |           |       |           |  | Each     |         |         
|                          |  |                        |            | Category |  |           |       |           |  | Category |         |         
|                          |  |                        |            | as a %   |  |           |       | Allowance |  |          |         | as a %   |  |           |     | Allowance
|                          |  | Loan                   |            | of Total |  |           |       | as a % of |  | Loan     |         | of Total |  |           |     | as a % of
|                          |  | Balance                |            | Loans    |  | Allowance |       | Loans     |  | Balance  |         | Loans    |  | Allowance |     | Loans    
|                          |  |                        |            |          |  |           |       |           |  |          |         |          |  |           |     |          
|                          |  |                       
|                          |  | (Dollars in thousands)
|Consumer loans            |  | $                      | 11,756,178 |          |  |           | 96.9  | %         |  | $        | 310,595 |          |  |           | 2.6 | %         |  | $ | 10,777,829 |  |  |  | 96.8  | % |  | $ | 297,058 |  |  |  | 2.8 | %
|Single family residential |  |                        | 45,437     |          |  |           | 0.4   |           |  |          | 721     |          |  |           | 1.6 |           |  |   | 61,628     |  |  |  | 0.6   |   |  |   | 1,477   |  |  |  | 2.4 |  
|Multifamily residential   |  |                        | 149,167    |          |  |           | 1.2   |           |  |          | 1,440   |          |  |           | 1.0 |           |  |   | 169,473    |  |  |  | 1.5   |   |  |   | 1,065   |  |  |  | 0.6 |  
|Construction loans        |  |                        | 19,160     |          |  |           | 0.1   |           |  |          | 251     |          |  |           | 1.3 |           |  |   | 5,122      |  |  |  | 0.0   |   |  |   | 260     |  |  |  | 5.1 |  
|Commercial loans          |  |                        | 165,806    |          |  |           | 1.4   |           |  |          | 2,395   |          |  |           | 1.4 |           |  |   | 124,431    |  |  |  | 1.1   |   |  |   | 1,742   |  |  |  | 1.4 |  
|                          |  |                        |            |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |            |  |  |  |       |   |  |   |         |  |  |  |     |  
|                          |  | $                      | 12,135,748 |          |  |           | 100.0 | %         |  | $        | 315,402 |          |  |           | 2.6 | %         |  | $ | 11,138,483 |  |  |  | 100.0 | % |  | $ | 301,602 |  |  |  | 2.7 | %
|                          |  |                        |            |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |            |  |  |  |       |   |  |   |         |  |  |  |     |  

|                          |  |                        |           |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  
|------------------------- |  | ---------------------- | --------- | -------- |  | --------- | ----- | --------- |  | -------- | ------- | -------- |  | --------- | --- | --------- |  | - | --------- |  |  |  | ----- | - |  | - | ------- |  |  |  | --- | -
|                          |  |                       
|                          |  | December 31,          
|                          |  |                       
|                          |  |                        |           |         
|                          |  | 2002                   |           | 2001    
|                          |  |                        |           |         
|                          |  |                        |           | Loans in |  |           |       |           |  | Loans in |         |         
|                          |  |                        |           | Each     |  |           |       |           |  | Each     |         |         
|                          |  |                        |           | Category |  |           |       |           |  | Category |         |         
|                          |  |                        |           | as a %   |  |           |       | Allowance |  |          |         | as a %   |  |           |     | Allowance
|                          |  | Loan                   |           | of Total |  |           |       | as a % of |  | Loan     |         | of Total |  |           |     | as a % of
|                          |  | Balance                |           | Loans    |  | Allowance |       | Loans     |  | Balance  |         | Loans    |  | Allowance |     | Loans    
|                          |  |                        |           |          |  |           |       |           |  |          |         |          |  |           |     |          
|                          |  |                       
|                          |  | (Dollars in thousands)
|Consumer loans            |  | $                      | 9,063,755 |          |  |           | 96.0  | %         |  | $        | 260,634 |          |  |           | 2.9 | %         |  | $ | 7,092,959 |  |  |  | 94.0  | % |  | $ | 167,659 |  |  |  | 2.4 | %
|Single family residential |  |                        | 98,635    |          |  |           | 1.0   |           |  |          | 3,924   |          |  |           | 4.0 |           |  |   | 151,540   |  |  |  | 2.0   |   |  |   | 4,432   |  |  |  | 2.9 |  
|Multifamily residential   |  |                        | 178,598   |          |  |           | 1.9   |           |  |          | 2,392   |          |  |           | 1.3 |           |  |   | 209,575   |  |  |  | 2.8   |   |  |   | 3,257   |  |  |  | 1.6 |  
|Construction loans        |  |                        | 5,697     |          |  |           | 0.1   |           |  |          | 133     |          |  |           | 2.3 |           |  |   | 12,340    |  |  |  | 0.1   |   |  |   | 153     |  |  |  | 1.2 |  
|Commercial loans          |  |                        | 97,216    |          |  |           | 1.0   |           |  |          | 2,269   |          |  |           | 2.3 |           |  |   | 85,312    |  |  |  | 1.1   |   |  |   | 2,717   |  |  |  | 3.2 |  
|                          |  |                        |           |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  
|                          |  | $                      | 9,443,901 |          |  |           | 100.0 | %         |  | $        | 269,352 |          |  |           | 2.9 | %         |  | $ | 7,551,726 |  |  |  | 100.0 | % |  | $ | 178,218 |  |  |  | 2.4 | %
|                          |  |                        |           |          |  |           |       |           |  |          |         |          |  |           |     |           |  |   |           |  |  |  |       |   |  |   |         |  |  |  |     |  

|                          |  |                        |           |             |  |           |       |           |  |   |         |  |  |  |     |  
|------------------------- |  | ---------------------- | --------- | ----------- |  | --------- | ----- | --------- |  | - | ------- |  |  |  | --- | -
|                          |  |                       
|                          |  | December 31, 2000     
|                          |  |                       
|                          |  |                        |           | Loans in    |  |          
|                          |  |                        |           | Each        |  |          
|                          |  |                        |           | Category as |  |           |       | Allowance
|                          |  | Loan                   |           | a % of      |  |           |       | as a % of
|                          |  | Balance                |           | Total Loans |  | Allowance |       | Loans    
|                          |  |                        |           |             |  |           |       |          
|                          |  |                       
|                          |  | (Dollars in thousands)
|Consumer loans            |  | $                      | 4,309,317 |             |  |           | 87.5  | %         |  | $ | 83,687  |  |  |  | 1.9 | %
|Single family residential |  |                        | 230,854   |             |  |           | 4.7   |           |  |   | 9,020   |  |  |  | 3.9 |  
|Multifamily residential   |  |                        | 268,109   |             |  |           | 5.4   |           |  |   | 7,909   |  |  |  | 2.9 |  
|Construction loans        |  |                        | 8,468     |             |  |           | 0.2   |           |  |   | 139     |  |  |  | 1.6 |  
|Commercial loans          |  |                        | 107,586   |             |  |           | 2.2   |           |  |   | 3,251   |  |  |  | 3.0 |  
|                          |  |                        |           |             |  |           |       |           |  |   |         |  |  |  |     |  
|                          |  | $                      | 4,924,334 |             |  |           | 100.0 | %         |  | $ | 104,006 |  |  |  | 2.1 | %
|                          |  |                        |           |             |  |           |       |           |  |   |         |  |  |  |     |  

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

|                                                                                             |                                |                        |            |       |   |      |            |       |   |      |           |       |   |   |           |       |   |   |           |         |  
|-------------------------------------------------------------------------------------------- | ------------------------------ | ---------------------- | ---------- | ----- | - | ---- | ---------- | ----- | - | ---- | --------- | ----- | - | - | --------- | ----- | - | - | --------- | ------- | -
|                                                                                             |                                |                       
|                                                                                             |                                | At December 31,       
|                                                                                             |                                |                       
|                                                                                             |                                | 2004                   |            | 2003  |   | 2002 |            | 2001  |   | 2000
|                                                                                             |                                |                        |            |       |   |      |            |       |   |     
|                                                                                             |                                |                       
|                                                                                             |                                | (Dollars in thousands)
|Total loans(1)                                                                               |                                | $                      | 12,135,748 |       |   | $    | 11,138,483 |       |   | $    | 9,433,901 |       |   | $ | 7,551,726 |       |   | $ | 4,924,334 |        
|Allowance for credit losses                                                                  |                                |                        | 315,402    |       |   |      | 301,602    |       |   |      | 269,352   |       |   |   | 178,218   |       |   |   | 104,006   |        
|Allowance for real estate owned losses                                                       |                                |                        | 100        |       |   |      | 100        |       |   |      | 250       |       |   |   | 250       |       |   |   | 250       |        
|Loans past due 60 days or more(2)                                                            |                                |                        | 69,645     |       |   |      | 91,381     |       |   |      | 86,199    |       |   |   | 74,851    |       |   |   | 37,911    |        
|Nonperforming loans(3)                                                                       |                                |                        | 51,883     |       |   |      | 53,026     |       |   |      | 39,231    |       |   |   | 25,347    |       |   |   | 9,413     |        
|Nonperforming assets(4)                                                                      |                                |                        | 60,229     |       |   |      | 63,600     |       |   |      | 54,923    |       |   |   | 35,127    |       |   |   | 14,684    |        
|Allowance for credit losses as a percentage of:                                              |                                |                        |            |       |   |      |            |       |   |      |           |       |   |   |           |       |   |   |           |        
|                                                                                             | Total loans                    |                        |            | 2.6   | % |      |            | 2.7   | % |      |           | 2.9   | % |   |           | 2.4   | % |   |           | 2.1     | %
|                                                                                             | Loans past due 60 days or more |                        |            | 452.9 | % |      |            | 330.0 | % |      |           | 312.5 | % |   |           | 238.1 | % |   |           | 274.3   | %
|                                                                                             | Nonperforming loans            |                        |            | 607.9 | % |      |            | 568.8 | % |      |           | 686.6 | % |   |           | 703.1 | % |   |           | 1,104.9 | %
|Total allowance for credit losses and REO losses
    as a percentage of nonperforming assets |                                |                        | 523.8      | %     |   |      | 474.4      | %     |   |      | 490.9     | %     |   |   | 508.1     | %     |   |   | 710.0     | %      
|Nonperforming loans as a percentage of total loans                                           |                                |                        | 0.4        | %     |   |      | 0.5        | %     |   |      | 0.4       | %     |   |   | 0.3       | %     |   |   | 0.2       | %      
|Nonperforming assets as a percentage of total
    assets                                     |                                |                        | 0.4        | %     |   |      | 0.4        | %     |   |      | 0.4       | %     |   |   | 0.3       | %     |   |   | 0.2       | %      



---



|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Loans net of unearned interest and undisbursed
    loan proceeds.                        
|   
|(2) | Excludes Chapter 13 bankruptcy accounts
    greater than 120 days past due.              
|   
|(3) | All nonperforming loans are on nonaccrual.                                               
|   
|(4) | Nonperforming loans, repossessed automobiles and
    real estate owned, net of allowance.

Capital Resources and Liquidity

Overview

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

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.

Automobile Contract Sales and
Securitizations

Our primary source of funds is the 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. Contract sales and securitizations totaled
$5.9 billion for the year ended December 31, 2004
compared with $5.9 billion and $6.9 billion for the
years ended December 31, 2003 and 2002, respectively. The
$5.9 billion issued in 2004 and 2003 were through public
securitization transactions. Of the $6.9 billion issued in
2002, $775 million was through a privately placed conduit
facility and $6.2 billion was through public securitization
transactions.

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Collections of Principal and Interest from
Loans and MBS and Release of Cash from Spread Accounts

The collection of principal and interest from
contracts originated and securitized and the release of cash
from spread accounts is another significant source of funds for
us. Collections of principal and interest are deposited into
collection accounts established in connection with each
securitization or into our accounts for non-securitized
contracts. Pursuant to reinvestment contracts entered into in
connection with securitizations guaranteed under a financial
guarantee insurance policy issued by FSA, we receive access to
the amounts deposited into collection accounts and amounts held
in the spread accounts for these securitizations. We use those
amounts so received in our daily operations to fund the purchase
of contracts or to cover the day to day costs of our operations.
If delinquency or chargeoff rates in a securitization exceed
established triggers, amounts required to be held in spread
accounts will increase, requiring us to pledge additional
collateral. We may bear additional expense due to an increase in
required collateral. If the reinvestment contracts were no
longer deemed an eligible investment, which determination would
be made by the rating agencies or FSA, we would no longer have
the ability to use this cash in the ordinary course of business
and would need to obtain alternative financing, which may only
be available on less attractive terms. See
Business  Transactions with Related
Parties  Reinvestment Contracts. If we were
unable to obtain additional financing, we may have to curtail
our contract purchasing activities, which would also have a
material adverse effect on our financial position, liquidity and
results of operations. Also, a significant increase in credit
losses could have a material adverse impact on our collections
of principal and interest from contracts.

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

For real estate loans and MBS, principal and
interest are deposited into our own accounts and are used in our
daily operations.

Total principal and interest collections on MBS,
loans owned by us, loans securitized under a financial guarantee
insurance policy issued by FSA, and release of cash from spread
accounts on securitizations that are credit enhanced through the
issuance of subordinated notes totaled $5.1 billion,
$6.8 billion and $6.4 billion for the years ended
December 31, 2004, 2003 and 2002, respectively. The
decrease in principal and interest collections from 2002 to 2004
is due to our shift to senior/subordinated securitizations where
principal and interest collections are held at the trustee in
collection and spread accounts until certain predetermined
levels are reached.

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 20 retail branch locations throughout Southern
California. Our commercial banking division gathers deposits by
establishing commercial relationships with businesses located
throughout Southern California.

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

|                      |                                      |                        |           |           |  |      |           |         |  |      |           |         |  |   |           |           |  |   |           |           | 
|--------------------- | ------------------------------------ | ---------------------- | --------- | --------- |  | ---- | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                      |                                      |                       
|                      |                                      | December 31,          
|                      |                                      |                       
|                      |                                      | 2004                   |           | 2003      |  | 2002 |           | 2001    |  | 2000
|                      |                                      |                        |           |           |  |      |           |         |  |     
|                      |                                      |                       
|                      |                                      | (Dollars in thousands)
|No minimum term:      |                                      |                        |           |           |  |      |           |         |  |      |           |         |  |   |           |           |  |   |           |          
|                      | Demand deposit accounts              |                        | $         | 705       |  |      | $         | 1,145   |  |      | $         | 1,037   |  |   | $         | 1,124     |  |   | $         | 8,229     | 
|                      | Passbook accounts                    |                        |           | 5,880     |  |      |           | 7,282   |  |      |           | 6,688   |  |   |           | 11,192    |  |   |           | 11,768    | 
|                      | Money market accounts                |                        |           | 1,257,074 |  |      |           | 963,004 |  |      |           | 730,245 |  |   |           | 858,371   |  |   |           | 810,169   | 
|                      | Noninterest bearing deposits         |                        |           | 268,556   |  |      |           | 210,405 |  |      |           | 165,844 |  |   |           | 100,170   |  |   |           | 67,984    | 
|Certificate accounts: |                                      |                        |           |           |  |      |           |         |  |      |           |         |  |   |           |           |  |   |           |          
|                      | Certificates (30 days to five years) |                        |           | 586,678   |  |      |           | 646,868 |  |      |           | 878,096 |  |   |           | 1,154,917 |  |   |           | 1,414,956 | 
|                      | Individual retirement accounts       |                        |           | 64,606    |  |      |           | 81,701  |  |      |           | 94,082  |  |   |           | 147,250   |  |   |           | 165,381   | 
|Brokered deposits     |                                      |                        |           |           |  |      | 62,451    |         |  |      | 98,992    |         |  |   | 56,302    |           |  |   |           |          
|                      |                                      |                        |           |           |  |      |           |         |  |      |           |         |  |   |           |           |  |   |           |          
|                      |                                      | $                      | 2,183,499 |           |  | $    | 1,972,856 |         |  | $    | 1,974,984 |         |  | $ | 2,329,326 |           |  | $ | 2,478,487 |          
|                      |                                      |                        |           |           |  |      |           |         |  |      |           |         |  |   |           |           |  |   |           |          

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,
|                                                        |  |                                
|                                                        |  | 2004                            |           | 2003 |  | 2002
|                                                        |  |                                 |           |      |  |     
|                                                        |  |                                
|                                                        |  | (Dollars in thousands)         
|Average certificate accounts outstanding                |  | $                               | 577,649   |      |  | $    | 783,720 |   |  | $ | 1,154,090 |  
|Average interest rate paid on certificate accounts      |  |                                 | 2.02      | %    |  |      | 2.63    | % |  |   | 3.58      | %
|Average money market accounts outstanding               |  | $                               | 1,121,461 |      |  | $    | 855,460 |   |  | $ | 748,814   |  
|Average interest rate paid on money market
    accounts |  |                                 | 1.58      | %    |  |      | 1.33    | % |  |   | 1.97      | %

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

|                                     |  |                        |         |      |  |   |         | 
|------------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | 
|                                     |  |                       
|                                     |  | December 31,          
|                                     |  |                       
|                                     |  | 2004                   |         | 2003
|                                     |  |                        |         |     
|                                     |  |                       
|                                     |  | (Dollars in thousands)
|Three months or less                 |  | $                      | 957     |      |  | $ | 2,449   | 
|Over three months through six months |  |                        | 2,308   |      |  |   | 1,497   | 
|Over six months through one year     |  |                        | 198,047 |      |  |   | 186,647 | 
|Over one year through three years    |  |                        | 15,064  |      |  |   | 27,458  | 
|Over three years                     |  |                        | 2,206   |      |  |   | 1,844   | 
|                                     |  |                        |         |      |  |   |         | 
|                                     |  | $                      | 218,582 |      |  | $ | 219,895 | 
|                                     |  |                        |         |      |  |   |         | 

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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 concluded in July 2003.

Subordinated Capital Debentures

In 1997 and 2002, the Bank issued
$150 million of 8.875% and $300 million of
9.625% subordinated capital debentures due in 2007 and
2012, respectively. The outstanding balance of the
$150 million issuance was redeemed on August 1, 2004.
At December 31, 2004, $300 million was outstanding on
the subordinated debentures due in 2012 excluding discounts and
issue costs. The subordinated debentures are redeemable at our
option, in whole or in part, on or after May  15,
2009, at 100% of the principal amount being redeemed plus
accrued interest as of the date of redemption. In addition to
providing additional liquidity, the Bank is permitted to include
$296 million of these debentures in supplementary capital
for purposes of determining compliance with risk-based capital
requirements. The Banks subordinated debentures are
included in supplementary capital for regulatory purposes. The
9.625% debentures will not begin to be phased out as
supplementary capital until May 15, 2007. See
Business  Supervision and
Regulation  Capital Requirements.

Conduit Financing

We have previously entered into secured conduit
financing transactions using an automobile receivable
securitization structure for short-term financing needs. For the
year ended December 31, 2002, we issued $775 million
of notes secured by contracts through a conduit facility
established in January 2002. This facility was terminated in May
2002 in conjunction with a $1.8 billion public asset-backed
securitization. We did not enter into a secured conduit
financing in 2004 or 2003.

Equity Offerings

We completed common stock offerings in July 2003
and November 2003 in which we raised a total of
$163 million and $207 million through the issuance of
6.1 million and 6.3 million additional common shares
at a price of $28.00 and $34.39 per share, respectively.
With the completion of these offerings, our total number of
common shares issued and outstanding increased 31.6% to
51.7 million shares at December 31, 2003.

We completed a rights offering in March 2002 in
which we raised $51.3 million through the issuance of
3.3 million additional common shares at a price of
$15.75 per share. 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.

WFS completed a rights offering in March 2002
that raised a total of $110 million through the issuance of
6.1 million additional common shares at a price of
$18.00 per share. With the completion of the March

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2002 offering, the number of WFS common shares
issued and outstanding increased by 18% to 41.1 million
shares. Of the 6.1 million additional common shares issued
by WFS in 2002, the Bank purchased 5.2 million shares in
the amount of $94.4 million.


The net amount of proceeds received from
WFS and our rights offerings executed in March 2002
totaled $67.3 million. At December 31, 2004, the Bank
owned 84% of WFS common stock.

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.
Loan originations totaled $7.0 billion during 2004 compared
with $6.4 billion and $5.8 billion in 2003 and 2002,
respectively. We purchased $1.2 billion of MBS and other
investment securities during 2004 compared with
$2.2 billion and $1.6 billion during 2003 and 2002,
respectively.

Payments of Principal and Interest on
Securitizations

Payments of principal and interest to noteholders
and certificateholders related to securitizations totaled
$6.2 billion in 2004 compared with $4.9 billion and
$5.6 billion in 2003 and 2002, respectively. Payments of
principal and interest in 2002 include $1.5 billion of
payments on conduit financings.

Amounts Paid to Dealers

Consistent with industry practice, we generally
pay dealer participation to the originating dealer for each
contract purchased. Participation paid to dealers during 2004
totaled $154 million compared with $141 million and
$129 million in 2003 and 2002, respectively. Typically, the
acquisition of contracts higher up the prime credit quality
spectrum requires a higher amount of participation paid to the
dealers due to the increased level of competition for such
contracts. The amount of participation paid to dealers increased
primarily as a result of an increase in the amount of contracts
purchased.

Advances to Spread Accounts

At the time a securitization transaction closes,
we are required to advance monies to initially fund the spread
account. On senior/subordinated securitizations, the spread
account balance is invested in eligible mutual fund investments
by the trustee. The advanced monies are included in restricted
cash on our Consolidated Statements of Financial Condition. The
amount of such initial advances included in restricted cash was
$52.7 million at December 31, 2004 compared with
$21.7 million at December 31, 2003.

Operating Our Business

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

Dividends

Historically, we have paid a quarterly dividend
to the holders of our common stock. Cash payments of dividends
totaled $28.5 million in 2004 compared with
$21.6 million and $18.0 million in 2003 and 2002,
respectively.

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Contractual Obligations

The following table lists our contractual
obligations:

|                                                 |                               |                        |           |             |  |              |           |            |  |           |           |           |  |   |           |           |  |   |       |       |  |   |            |            | 
|------------------------------------------------ | ----------------------------- | ---------------------- | --------- | ----------- |  | ------------ | --------- | ---------- |  | --------- | --------- | --------- |  | - | --------- | --------- |  | - | ----- | ----- |  | - | ---------- | ---------- | 
|                                                 |                               |                       
|                                                 |                               | At December 31, 2004  
|                                                 |                               |                       
|                                                 |                               |                        |           | More Than   |  | More Than    |           |           
|                                                 |                               |                        |           | One Year    |  | Three Years  |           |           
|                                                 |                               | One Year               |           | through     |  | through Five |           | More Than  |  | No Stated |           |          
|                                                 |                               | or Less                |           | Three Years |  | Years        |           | Five Years |  | Maturity  |           | Total    
|                                                 |                               |                        |           |             |  |              |           |            |  |           |           |          
|                                                 |                               |                       
|                                                 |                               | (Dollars in thousands)
|Certificates of deposit                          |                               | $                      | 632,708   |             |  | $            | 18,233    |            |  | $         | 343       |           |  |   |           |           |  |   |       |       |  | $ | 651,284    |           
|Notes payable on automobile secured financing(1) |                               |                        | 235,599   |             |  |              | 2,381,263 |            |  |           | 3,024,278 |           |  | $ | 4,601,760 |           |  |   |       |       |  |   | 10,242,900 |           
|Federal Home Loan Bank advances                  |                               |                        | 1,137,000 |             |  |              |           |            |  |           |           |           |  |   | 2,521     |           |  |   |       |       |  |   | 1,139,521  |           
|Subordinated debentures                          |                               |                        |           |             |  |              |           |            |  |           |           |           |  |   | 295,321   |           |  |   |       |       |  |   | 295,321    |           
|Other borrowings                                 |                               |                        | 8,577     |             |  |              |           |            |  |           |           |           |  |   |           |           |  |   |       |       |  |   | 8,577      |           
|Loan commitments                                 |                               |                        | 623,034   |             |  |              | 1,218     |            |  |           |           |           |  |   | 1         |           |  | $ | 1,615 |       |  |   | 625,868    |           
|Operating leases                                 |                               |                        | 7,022     |             |  |              | 10,154    |            |  |           | 5,229     |           |  |   | 3,603     |           |  |   |       |       |  |   | 26,008     |           
|                                                 |                               |                        |           |             |  |              |           |            |  |           |           |           |  |   |           |           |  |   |       |       |  |   |            |           
|                                                 | Total contractual obligations |                        | $         | 2,643,940   |  |              | $         | 2,410,868  |  |           | $         | 3,029,850 |  |   | $         | 4,903,206 |  |   | $     | 1,615 |  |   | $          | 12,989,479 | 
|                                                 |                               |                        |           |             |  |              |           |            |  |           |           |           |  |   |           |           |  |   |       |       |  |   |            |           



---



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

Capital Requirements

The Bank is subject to certain minimum capital
requirements imposed by FIRREA and FDICIA. See
Business  Supervision and
Regulation  Capital Requirements. The Bank
currently meets all of the requirements of a well
capitalized financial institution.

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The following table summarizes the Banks
actual capital and required capital as of December 31, 2004
and 2003:

|                                          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |           |  
|----------------------------------------- | ------------- | ---------------------- | - | --------- | - | ---------- | - | ---------- | - |  | - | --------- | - |  | - | --------- | -
|                                          |               |                        |   |           |   | Tier 1     |   |           
|                                          |               | Tangible               |   | Core      |   | Risk-Based |   | Risk-Based
|                                          |               | Capital                |   | Capital   |   | Capital    |   | Capital   
|                                          |               |                        |   |           |   |            |   |           
|                                          |               |                       
|                                          |               | (Dollars in thousands)
|December 31, 2004                         |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|Actual capital:                           |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 1,196,579 |   |            | $ | 1,196,579  |   |  | $ | 1,193,529 |   |  | $ | 1,619,317 |  
|                                          | Capital ratio |                        |   | 8.99      | % |            |   | 8.99       | % |  |   | 11.59     | % |  |   | 15.72     | %
|FIRREA minimum required capital:          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 199,654   |   |            | $ | 399,308    |   |  |   | N/A       |   |  | $ | 824,105   |  
|                                          | Capital ratio |                        |   | 1.50      | % |            |   | 3.00       | % |  |   | N/A       |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 996,925   |   |            | $ | 797,271    |   |  |   | N/A       |   |  | $ | 795,212   |  
|FDICIA well capitalized required capital: |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        |   | N/A       |   |            | $ | 665,513    |   |  | $ | 618,079   |   |  | $ | 1,030,131 |  
|                                          | Capital ratio |                        |   | N/A       |   |            |   | 5.00       | % |  |   | 6.00      | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A       |   |            | $ | 531,066    |   |  | $ | 575,450   |   |  | $ | 589,186   |  
|December 31, 2003                         |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|Actual capital:                           |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 884,536   |   |            | $ | 884,536    |   |  | $ | 881,517   |   |  | $ | 1,357,744 |  
|                                          | Capital ratio |                        |   | 7.06      | % |            |   | 7.06       | % |  |   | 9.20      | % |  |   | 14.17     | %
|FIRREA minimum required capital:          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 187,923   |   |            | $ | 375,845    |   |  |   | N/A       |   |  | $ | 766,665   |  
|                                          | Capital ratio |                        |   | 1.50      | % |            |   | 3.00       | % |  |   | N/A       |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 696,613   |   |            | $ | 508,691    |   |  |   | N/A       |   |  | $ | 591,079   |  
|FDICIA well capitalized required capital: |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        |   | N/A       |   |            | $ | 626,409    |   |  | $ | 574,999   |   |  | $ | 958,332   |  
|                                          | Capital ratio |                        |   | N/A       |   |            |   | 5.00       | % |  |   | 6.00      | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A       |   |            | $ | 258,127    |   |  | $ | 306,518   |   |  | $ | 399,412   |  

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

|                                           |                                                  |                        |           |         |   |   |           |         |  
|------------------------------------------ | ------------------------------------------------ | ---------------------- | --------- | ------- | - | - | --------- | ------- | -
|                                           |                                                  |                       
|                                           |                                                  | December 31,          
|                                           |                                                  |                       
|                                           |                                                  | 2004                   |           | 2003   
|                                           |                                                  |                        |           |        
|                                           |                                                  |                       
|                                           |                                                  | (Dollars in thousands)
|Bank shareholders equity  GAAP
    basis |                                                  | $                      | 993,959   |         |   | $ | 685,045   |        
|                                           | Add: Net unrealized losses                       |                        |           | 37,529  |   |   |           | 68,203  |  
|                                           | Add: Minority interest in equity of subsidiaries |                        |           | 165,484 |   |   |           | 131,434 |  
|                                           | Less: Non-permissible activities                 |                        |           | (393    | ) |   |           | (146    | )
|                                           |                                                  |                        |           |         |   |   |           |        
|Total tangible and core capital            |                                                  |                        | 1,196,579 |         |   |   | 884,536   |        
|Adjustments for risk-based capital:        |                                                  |                        |           |         |   |   |           |        
|                                           | Subordinated debentures(1)                       |                        |           | 295,838 |   |   |           | 355,370 |  
|                                           | General loan valuation allowance(2)              |                        |           | 129,950 |   |   |           | 120,857 |  
|                                           | Low-level recourse deduction                     |                        |           | (3,050  | ) |   |           | (3,019  | )
|                                           |                                                  |                        |           |         |   |   |           |        
|Risk-based capital                         |                                                  | $                      | 1,619,317 |         |   | $ | 1,357,744 |        
|                                           |                                                  |                        |           |         |   |   |           |        



---



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

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We manage the Bank to higher internal capital
targets than the standards defined by FDICIA for qualification
as well capitalized because, among other reasons,
many of the contracts we originate possess one or more of the
factors identified by the OTS as factors indicative of subprime
loans. See Business Risks  OTS Guidance
Regarding Subprime Lending May Affect the Banks Capital
Requirements.






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

Fluctuations in interest rates and early
prepayment of contracts are the primary market risks facing us.
Our 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
rate changes plus the book value of non-interest rate sensitive
assets minus the book value of non-interest rate sensitive
liabilities. It should be noted that shock analysis is objective
but not entirely realistic in that it assumes an instantaneous
and isolated set of events. The NPV ratio is the NPV as a
percentage of the discounted value of the future cash flows of
all assets. At December 31, 2004, we maintained minimal
interest rate risk exposure within a change in interest rates of
plus or minus 100 basis points.

The following table summarizes our NPV
sensitivity analysis at December 31, 2004 based on guidance
from the OTS:

|                          |  |           |       |  
|------------------------- |  | --------- | ----- | -
|Changes in Interest Rates |  | NPV Ratio
|                          |  |          
|+100 basis points         |  |           | 12.10 | %
|Base case                 |  |           | 12.15 | %
|-100 basis points         |  |           | 12.02 | %

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.

The contracts originated and held by us are fixed
rate and, accordingly, we have exposure to changes in interest
rates. To protect against potential changes in interest rates
affecting interest payments on future securitization
transactions, we may enter into various hedge agreements prior
to closing the transaction. We enter into Euro-dollar future
contracts and forward agreements in order to hedge our future
interest payments on our notes payable on automobile secured
financing. The market value of these hedge agreements is
designed to respond inversely to changes in interest rates.
Because of this inverse relationship, we can effectively lock in
a gross interest rate spread at the time of entering into the
hedge transaction. Gains and losses on these agreements are
recorded in accumulated other comprehensive income (loss), net
of tax, on our Consolidated Statements of Financial Condition.
Any ineffective portion is recognized in noninterest income
during that period if the hedge is greater than 100% effective.
Upon completion of the securitization transaction, the gains or
losses are amortized on a level yield basis over the duration of
the notes issued. These hedge instruments are settled daily, and
therefore, there are no related financial instruments recorded
on the Consolidated Statements of Financial Condition. Credit
risk related to these hedge instruments is minimal. As a result
of our approach to interest rate risk management and our hedging
strategies, we do not anticipate that

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changes in interest rates will materially affect
our results of operations or liquidity, although we can provide
no assurance in this regard.


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

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

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 activities 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.

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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.
For interest rate swap agreements, the table presents notional
amounts and, as applicable, weighted average interest rates by
contractual maturity date. Notional amounts are used to
calculate the contractual payments to be exchanged under the
contracts.

|                                                             |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   |            |      |   |   |            |   | 
|------------------------------------------------------------ | --------------------- | ---------------------- | --------- | ---- | - | ---- | --------- | ---- | - | ---- | --------- | ---------- | - | ----- | --------- | ---------- | - | - | -------- | ---- | - | - | -------- | ---- | - | - | ---------- | ---- | - | - | ---------- | - | 
|                                                             |                       | 2005                   |           | 2006 |   | 2007 |           | 2008 |   | 2009 |           | Thereafter |   | Total |           | Fair Value
|                                                             |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |           
|                                                             |                       |                       
|                                                             |                       | (Dollars in thousands)
|Rate sensitive assets:                                       |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   |            |      |   |   |            |  
|Fixed interest rate loans                                    |                       | $                      | 4,135,805 |      |   | $    | 3,363,571 |      |   | $    | 2,275,711 |            |   | $     | 1,342,606 |            |   | $ | 576,560  |      |   | $ | 68,177   |      |   | $ | 11,762,430 |      |   | $ | 12,386,280 |  
|                                                             | Average interest rate |                        |           | 9.66 | % |      |           | 9.61 | % |      |           | 9.39       | % |       |           | 9.12       | % |   |          | 8.88 | % |   |          | 8.18 | % |   |            | 9.49 | % |   |            |   | 
|Variable interest rate loans                                 |                       | $                      | 373,318   |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 373,318    |      |   | $ | 372,551    |  
|Average interest rate                                        |                       |                        | 5.42      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 5.42       | %    |   |   |            |  
|Fixed interest rate securities                               |                       | $                      | 1,164,842 |      |   | $    | 308,093   |      |   | $    | 199,796   |            |   | $     | 133,657   |            |   | $ | 92,176   |      |   | $ | 397,408  |      |   | $ | 2,295,972  |      |   | $ | 2,295,972  |  
|Average interest rate                                        |                       |                        | 3.23      | %    |   |      | 4.66      | %    |   |      | 4.78      | %          |   |       | 4.89      | %          |   |   | 4.99     | %    |   |   | 5.21     | %    |   |   | 4.07       | %    |   |   |            |  
|Variable interest rate securities                            |                       | $                      | 1,020,522 |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 1,020,522  |      |   | $ | 1,020,522  |  
|Average interest rate                                        |                       |                        | 3.68      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 3.68       | %    |   |   |            |  
|Rate sensitive liabilities:                                  |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   |            |      |   |   |            |  
|Passbook deposits                                            |                       | $                      | 5,880     |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 5,880      |      |   | $ | 5,821      |  
|Average interest rate                                        |                       |                        | 0.10      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 0.10       | %    |   |   |            |  
|Money market and interest bearing demand deposits            |                       | $                      | 1,257,779 |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 1,257,779  |      |   | $ | 1,241,202  |  
|Average interest rate                                        |                       |                        | 2.05      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 2.05       | %    |   |   |            |  
|Certificates of deposit                                      |                       | $                      | 632,707   |      |   | $    | 13,462    |      |   | $    | 4,772     |            |   | $     | 330       |            |   | $ | 13       |      |   |   |          |      |   | $ | 651,284    |      |   | $ | 650,113    |  
|Average interest rate                                        |                       |                        | 2.31      | %    |   |      | 2.78      | %    |   |      | 3.47      | %          |   |       | 2.10      | %          |   |   | 2.84     | %    |   |   |          |      |   |   | 2.33       | %    |   |   |            |  
|Notes payable under automobile secured
    financing  fixed |                       | $                      | 4,100,539 |      |   | $    | 2,822,875 |      |   | $    | 1,666,065 |            |   | $     | 627,021   |            |   |   |          |      |   |   |          |      |   | $ | 9,216,500  |      |   | $ | 9,373,462  |  
|Average interest rate                                        |                       |                        | 2.74      | %    |   |      | 3.03      | %    |   |      | 3.15      | %          |   |       | 3.62      | %          |   |   |          |      |   |   |          |      |   |   | 2.97       | %    |   |   |            |  
|Notes payable on automobile secured
    financing  variable |                       | $                      | 1,026,400 |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 1,026,400  |      |   | $ | 1,026,400  |  
|Average interest rate                                        |                       |                        | 2.56      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 2.56       | %    |   |   |            |  
|Subordinated debentures  fixed                              |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   | $ | 295,321  |      |   | $ | 295,321    |      |   | $ | 337,048    |  
|Average interest rate                                        |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   | 9.68     | %    |   |   | 9.68       | %    |   |   |            |  
|Other fixed interest rate borrowings                         |                       | $                      | 1,137,000 |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   | $ | 2,521    |      |   | $ | 1,139,521  |      |   | $ | 1,139,908  |  
|Average interest rate                                        |                       |                        | 2.28      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   | 6.53     | %    |   |   | 2.29       | %    |   |   |            |  
|Other variable interest rate borrowings                      |                       | $                      | 8,577     |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   | $ | 8,577      |      |   | $ | 8,582      |  
|Average interest rate                                        |                       |                        | 3.81      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 3.81       | %    |   |   |            |  
|Rate sensitive derivative financial
    instruments:         |                       |                        |           |      |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   |            |      |   |   |            |  
|Interest rate swap agreements                                |                       | $                      | 846,141   |      |   | $    | (217,691  | )    |   | $    | (183,950  | )          |   |       |           |            |   | $ | (244,500 | )    |   | $ | (200,000 | )    |   |   |            |      |   | $ | (57,167    | )
|Average pay rate                                             |                       |                        | 3.95      | %    |   |      | 2.72      | %    |   |      | 7.28      | %          |   |       |           |            |   |   | 5.94     | %    |   |   | 6.08     | %    |   |   | 4.71       | %    |   |   |            |  
|Average receive rate                                         |                       |                        | 2.37      | %    |   |      |           |      |   |      |           |            |   |       |           |            |   |   |          |      |   |   |          |      |   |   | 2.37       | %    |   |   |            |  
|Euro-dollar futures contracts                                |                       | $                      | 680,323   |      |   | $    | (276,556  | )    |   | $    | (214,842  | )          |   | $     | (188,925  | )          |   |   |          |      |   |   |          |      |   |   |            |      |   |   |            |  

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Glossary

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

COMMITTEE OF SPONSORING ORGANIZATIONS OF THE
TREADWAY COMMISSION (COSO): A voluntary private sector
organization dedicated to improving the quality of financial
reporting through business ethics, effective internal controls
and corporate governance.

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 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

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that have the potential of causing additional
shares of common stock to be issued, such as unexercised stock
options.


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

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, as amended, also known as
SFAS No. 133. Under SFAS No. 133, a
derivative must be expected to be highly effective in reducing
the hedged risk in order to utilize the special accounting
allowed for hedges. In addition, the hedge must be assessed as
being highly effective on an ongoing basis throughout its life.
The ineffective portion of a hedge is recorded in earnings
immediately.

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

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

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

INTEREST RATE SPREAD: The difference between the
yield on 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.

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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 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 loan or revolving line
of credit secured by a first or second lien 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: The average interest rate
earned on interest earning assets less the average interest rate
paid on interest bearing liabilities.

NET YIELD ON AVERAGE INTEREST EARNING ASSETS:
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.

NONINTEREST EXPENSE: All expenses other than
interest expense.

NONINTEREST INCOME: All income other than
interest income.

NONPERFORMING ASSETS (NPAs): Nonperforming loans,
repossessed automobiles and real estate owned.

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

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.

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.

PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
(PCAOB): A private-sector, non-profit corporation, created by
the Sarbanes-Oxley Act of 2002, to oversee the auditors of
public companies in order to protect the interests of investors
and further the public interest in the preparation of
informative, fair and independent audit reports.

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REAL ESTATE LOAN: Closed-end loan or revolving
line of credit secured by a first or second lien 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 and
made available to WFS through the WFS Reinvestment Contract.
Funds invested at WFAL2 are collateralized by automobile
contracts, which WFAL2 purchases from WFS.

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

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

RETURN ON AVERAGE SHAREHOLDERS EQUITY: A
measure of how effective we have been in investing our 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.

RETURN ON AVERAGE TOTAL ASSETS: A measure of how
effective we have been in managing our assets. Return on average
total assets is expressed as a ratio, calculated by dividing net
income by average total assets.

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

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

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

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 its common stock.

SPREAD ACCOUNT: An account of a securitization
trust into which excess cash flows generated by the contracts
securitized are deposited. The terms of the account, which vary
with each securitization, typically state a maximum balance,
generally expressed as a percentage of the original or current
principal balance of the notes and certificates. The initial
deposit is generally funded by the company securitizing the
assets and is

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expressed as a percentage of the original balance
of the notes and certificates. The amount in excess of the
required spread account balance is typically released to the
certificate holder.


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

SUBSIDIARY: An organization controlled by another
organization or company.

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

TANGIBLE CAPITAL: A capital measure applicable to
savings institutions. The Banks tangible capital is the
same as its core capital because 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 its residual interests in securitized assets and
other recourse obligations.

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

TOTAL EQUITY: The sum of shareholders
equity excluding other comprehensive income or loss and
including minority interest.

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.

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

Our Consolidated Financial Statements begin on
page F-5 of this report.






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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

As of December 31, 2004, an evaluation was
carried out by our Disclosure Control Committee, with the
participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures were
effective as of the end of the period covered by this report.

Managements Report on Internal Control
over Financial Reporting

Our management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial
reporting as of December 31, 2004 based on the framework in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management concluded that
our internal control over financial reporting was effective as
of December 31, 2004.

Managements assessment of the effectiveness
of our internal control over financial reporting as of
December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included elsewhere herein.

Managements Report on Internal Control over
Financial Reporting and the Report of Independent Registered
Public Accounting Firm thereon are set forth in Part IV,
Item 15(a)(1) of the Annual Report on Form 10-K.

Changes in Internal Control over Financial
Reporting

There were no changes in our internal control
over financial reporting (as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934) during 2004 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




Item 9B. Other
Information

None.

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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 26,
2005, and the information included therein is incorporated
herein by reference.






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

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






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

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






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

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






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

None.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

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

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##### 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 registered public accounting firm for
    us and our subsidiaries are included in this report commencing
    on page F-2:
|
| | Managements Report on Internal Control over
    Financial Reporting                                                                                                                                   
|
| | Report of Independent Registered Public
    Accounting Firm                                                                                                                                            
|
| | Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial Reporting                                                                                               
|
| | Consolidated Statements of Financial Condition at
    December 31, 2004 and 2003                                                                                                                       
|
| | Consolidated Statements of Income for the years
    ended December 31, 2004, 2003 and 2002                                                                                                             
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2004, 2003 and 2002                                                                                
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2004, 2003 and 2002                                                                                                         
|
| | Notes to Consolidated Financial Statements                                                                                                                                                             



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



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



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

|        |    |                        |  |                                                                                                                                                                                                                                            
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|        | 2  | .1                     |  | Agreement and Plan of Merger and Reorganization,
    dated May 23, 2004, among Westcorp, Western Financial Bank
    and WFS Financial Inc(1)                                                                                               
|        | 3  | .1                     |  | Articles of Incorporation(2)                                                                                                                                                                                                               
|        | 3  | .1.1                   |  | Certificate of Amendment of the Articles of
    Incorporation of Westcorp as filed May 14, 2001(3)                                                                                                                                         
|        | 3  | .1.2                   |  | Certificate of Amendment of the Articles of
    Incorporation of Westcorp, dated April 26, 2004(1)                                                                                                                                         
|        | 3  | .2                     |  | Bylaws(2)                                                                                                                                                                                                                                  
|        | 4  | .2                     |  | Indenture dated 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(4)
|        | 10 | .1                     |  | Amended and Restated 1991 Stock Option Plan of
    Westcorp(5)                                                                                                                                                                             
|        | 10 | .2                     |  | Westcorp 2001 Stock Option Plan(6)                                                                                                                                                                                                         
|        | 10 | .3                     |  | 2000 Executive Deferral Plan V(4)                                                                                                                                                                                                          
|        | 10 | .3.1                   |  | First Amendment to the Westcorp Executive
    Deferral Plan V, dated April 1, 2003(5)                                                                                                                                                      
|        | 10 | .4                     |  | Master Tax Sharing Agreement between Westcorp and
    its subsidiaries, dated January 1, 2004                                                                                                                                              
|        | 10 | .4.1                   |  | First Amendment to the Master Tax Sharing
    Agreement, dated June 10, 2004                                                                                                                                                               
|        | 10 | .5                     |  | Amended and Restated Reinvestment Contract
    between WFS Financial Inc and Western Financial Bank, F.S.B.,
    dated January 1, 2004                                                                                                     

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|        |    |                        |  |                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|        | 10 | .6                     |  | Westcorp Cafeteria Plan with Flexible Spending
    Agreement between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc, WestFin
    Insurance Agency, Inc., WFS Receivables Corporation, and Westran
    Services Corp., dated January 1, 2004                            
|        | 10 | .6.1                   |  | First Amendment to the Westcorp Cafeteria Plan
    with Flexible Spending Agreement between Westcorp, Western
    Financial Associate Solutions, Western Financial Bank, WFS
    Financial Inc, WestFin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Westran Services Corp.,
    dated December 1, 2004
|        | 10 | .7                     |  | Fourth Amended and Restated Master Collateral
    Assignment Agreement, dated as of September 1, 2004                                                                                                                                                                                                                  
|        | 10 | .8                     |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                                                                                                                                                                                                          
|        | 10 | .9                     |  | Form of WFS Financial Inc
    Loan Application(5)                                                                                                                                                                                                                                                                      
|        | 10 | .10                    |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(8)                                                                                                                                                                                                           
|        | 10 | .10.1                  |  | Amendment No. 1, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(4)                                                                                                                                                                         
|        | 10 | .10.2                  |  | Amendment No. 2, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(4)                                                                                                                                                                         
|        | 10 | .10.3                  |  | Amendment No. 3, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                         
|        | 10 | .10.4                  |  | Amendment No. 4, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                         
|        | 10 | .10.5                  |  | Amendment No. 5, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                         
|        | 10 | .10.6                  |  | Amendment No. 6, dated as of
    November 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(3)                                                                                                                                                                            
|        | 10 | .10.7                  |  | Amendment No. 7, dated as of
    December 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(3)                                                                                                                                                                            
|        | 10 | .10.8                  |  | Amendment No. 8, dated as of
    December 30, 2004, to Amended and Restated Westcorp
    Employee Stock Ownership and Salary Savings Plan                                                                                                                                                                              
|        | 10 | .11                    |  | Amended and Restated WFS 1996 Incentive
    Stock Option Plan(7)                                                                                                                                                                                                                                                       
|        | 10 | .12                    |  | Master Allocation Agreement between Westcorp and
    its subsidiaries, dated January 1, 2004                                                                                                                                                                                                                           
|        | 10 | .12.1                  |  | First Amendment to the Master Allocation
    Agreement between Westcorp and its subsidiaries, dated
    December 1, 2004                                                                                                                                                                                               
|        | 10 | .13                    |  | Employment Agreements(8)(9)                                                                                                                                                                                                                                                                                            
|        | 10 | .14                    |  | Intellectual Property Licensing Agreement between
    Westcorp and its subsidiaries and affiliates, dated as of
    January 1, 2004                                                                                                                                                                                    
|        | 10 | .15                    |  | Master Travel Services Agreement between Westran
    Services Corp., Westcorp, Western Financial Bank,
    WFS Financial Inc, Westfin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Western Financial
    Associate Solutions, dated January 1, 2004                                                    
|        | 10 | .15.1                  |  | First Amendment to the Master Travel Services
    Agreement, dated December 1, 2004                                                                                                                                                                                                                                    
|        | 10 | .16                    |  | Westcorp ESOP and Salary Savings Plan between
    Westcorp, Western Financial Associate Solutions, Western
    Financial Bank, WFS Financial Inc, WestFin Insurance
    Agency, Inc., WFS Receivables Corporation, and Westran
    Services Corp., dated January 1, 2004                                               

70



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|        |    |                        |  |                                                                                                                                                                                                                                                                                                                          
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|        | 10 | .16.1                  |  | First Amendment to the Westcorp ESOP and Salary
    Savings Plan between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc.,
    WestFin Insurance Agency, Inc., WFS Receivables
    Corporation, and Westran Services Corp., dated December 1,
    2004                    
|        | 10 | .17                    |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, Westcorp, and WFS Receivables
    Corporation 2, dated May 10, 2001(5)                                                                                                                                                                        
|        | 10 | .17.1                  |  | First Amendment to the Interest Rate Swap
    Guarantee Agreement, dated March 3, 2003(5)                                                                                                                                                                                                                                
|        | 10 | .17.2                  |  | Second Amendment to the Interest Rate Swap
    Guarantee Agreement, dated August 5, 2003                                                                                                                                                                                                                                 
|        | 10 | .17.3                  |  | Third Amendment to the Interest Rate Swap
    Guarantee Agreement, dated July 1, 2004                                                                                                                                                                                                                                    
|        | 10 | .18                    |  | Westcorp Executive Deferral Plan V Participation
    Agreement between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc,
    WestFin Insurance Agency, Inc., WFS Receivables
    Corporation, and Westran Services Corp., dated January 1,
    2004                        
|        | 10 | .18.1                  |  | First Amendment to the Westcorp Executive
    Deferral Plan V Participation Agreement between Westcorp,
    Western Financial Associate Solutions, Western Financial Bank,
    WFS Financial Inc, WestFin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Westran Services Corp.,
    dated December 1, 2004
|        | 21 | .1                     |  | Subsidiaries of Westcorp                                                                                                                                                                                                                                                                                                 
|        | 23 | .1                     |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                   
|        | 31 | .1                     |  | CEO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                          
|        | 31 | .2                     |  | CFO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                          
|        | 32 | .1                     |  | Certification of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            
|        | 32 | .2                     |  | Certification of the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            



---



| |     |                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Exhibit previously filed with Westcorp
    Registration Statement on Form S-4
    (File No. 333-117424), filed July 16, 2004,
    incorporated herein by reference under Exhibit Number
    indicated                                         
|
| | (2) | Exhibit previously filed with Westcorp
    Registration Statement on Form S-4
    (File No. 333-34286) filed April 11, 1990,
    incorporated herein by reference under Exhibit Numbers
    indicated                                         
|
| | (3) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2003 as filed on or about March 12, 2004 incorporated
    herein by reference                                                    
|
| | (4) | 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 26, 2002                                                                                         
|
| | (5) | Exhibit previously filed with Westcorp
    Registration Statements on Form S-3
    (File No. 333-110244) filed November 5, 2003 and
    subsequently amended on November 10, 2003 incorporated by
    reference under Exhibit Number indicated
|
| | (6) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2002 as filed on or about March 26, 2003                                                                                         
|
| | (7) | 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                                            
|
| | (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)                                                                                       

71



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##### Table of Contents



(b) Reports on Form 8-K



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | On October 28, 2004, we filed a current
    report on Form 8-K dated October 26, 2004, reporting
    information under Items 2, 7 and 9.
|
| | On October 28, 2004, we filed a current
    report on Form 8-K dated October 27, 2004, reporting
    information under Items 7 and 9.   
|
| | On October 29, 2004, we filed a current
    report on Form 8-K dated October 28, 2004, reporting
    information under Items 7 and 9.   

72



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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 11, 2005

| |     |                   
| | --- | ------------------
| | 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 11, 2005
|                                          
|/s/ THOMAS A. WOLFEThomas A. Wolfe         |  | President and Director                                                                      |  | March 11, 2005
|                                          
|/s/ JUDITH M. BARDWICKJudith M. Bardwick   |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ ROBERT T. BARNUMRobert T. Barnum       |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ JAMES R. DOWLANJames R. Dowlan         |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ DUANE A. NELLESDuane A. Nelles         |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ HARRY RADYHarry Rady                   |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ CHARLES E. SCRIBNERCharles E. Scribner |  | Director                                                                                    |  | March 11, 2005
|                                          
|/s/ MARK K. OLSONMark K. Olson             |  | Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | March 11, 2005

73



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WESTCORP AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                        |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                        |  | Page
|                                                                                                                        |  |     
|Managements Report on Internal Control over
    Financial Reporting                                                    |  |      | F-2 | 
|Report of Independent Registered Public
    Accounting Firm                                                             |  |      | F-3 | 
|Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial Reporting                |  |      | F-4 | 
|Consolidated Financial Statements:                                                                                      |  |      |     | 
|Consolidated Statements of Financial Condition at
    December 31, 2004 and 2003                                        |  |      | F-5 | 
|Consolidated Statements of Income for the years
    ended December 31, 2004, 2003 and 2002                              |  |      | F-6 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2004, 2003 and 2002 |  |      | F-7 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2004, 2003 and 2002                          |  |      | F-8 | 
|Notes to Consolidated Financial Statements                                                                              |  |      | F-9 | 

F-1



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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING

Shareholders and Board of Directors

Westcorp


Management of Westcorp is responsible for
establishing and maintaining adequate internal control over
financial reporting. Westcorps internal control over
financial reporting is a process designed under the supervision
of the principal executive and principal financial officers to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of Westcorps
financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the
United States.

As of December 31, 2004, management
conducted an assessment of the effectiveness of Westcorps
internal control over financial reporting based on the framework
established in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management has
determined that Westcorps internal control over financial
reporting as of December 31, 2004 was effective.

Westcorps internal control over financial
reporting includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect transactions and dispositions of assets;
provide reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures are being made
only in accordance with authorizations of Westcorps
management and directors; and provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Westcorps assets that
could have a material effect on Westcorps financial
statements.

Managements assessment of the effectiveness
of Westcorps internal control over financial reporting as
of December 31, 2004 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report which is included herein, which expresses
unqualified opinions on managements assessment and on the
effectiveness of Westcorps internal control over financial
reporting as of December 31, 2004.



|                                  | 
|--------------------------------- | 
|/s/ ERNEST S. RADY                | 
|                                  | 
|Ernest S. Rady                    | 
|Chairman of the Board and         | 
|Chief Executive Officer           | 
|                                 
|/s/ THOMAS A. WOLFE               | 
|                                  | 
|Thomas A. Wolfe                   | 
|President and Director            | 
|                                 
|/s/ MARK K. OLSON                 | 
|                                  | 
|Mark K. Olson                     | 
|Vice President and Chief          | 
|Financial Officer (Principal      | 
|Financial and Accounting Officer) | 

F-2



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors and Shareholders

Westcorp


We have audited the accompanying consolidated
balance sheets of Westcorp and subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended
December 31, 2004. These financial statements are the
responsibility of the Westcorps management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(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 financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Westcorp and subsidiaries at
December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Westcorp and
subsidiaries internal control over financial reporting as
of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 8, 2005 expressed an unqualified
opinion thereon.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Los Angeles, California

March 8, 2005


F-3



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


The Board of Directors and Shareholders

Westcorp


We have audited managements assessment,
included in the accompanying Managements Report on
Internal Control over Financial Reporting, that Westcorp
maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Westcorps management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of Westcorps internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A companys internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

In our opinion, managements assessment that
Westcorp and subsidiaries maintained effective internal control
over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Westcorp and subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the COSO
criteria.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Westcorp and
subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income, shareholders
equity, and cash flows for each of the three years in the period
ended December 31, 2004, and our report dated March 8,
2005 expressed an unqualified opinion thereon.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Los Angeles, California

March 8, 2005


F-4



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------ | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | December 31,                              
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | 2004                                       |            | 2003      
|                                                                                                                                                                   |                         |                                            |            |           
|                                                                                                                                                                   |                         |                                           
|                                                                                                                                                                   |                         | (Dollars in thousands)                    
|ASSETS                                                                                                                                                             |                         |                                            |            |            |            |   |            |           
|Cash                                                                                                                                                               |                         | $                                          | 89,418     |            |            | $ | 50,073     |           
|Interest bearing deposits with other financial
    institutions                                                                                                    |                         |                                            | 4,092      |            |            |   | 41,009     |           
|Other short-term investments                                                                                                                                       |                         |                                            | 125,000    |            |            |   | 291,000    |           
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   | Cash and due from banks |                                            |            | 218,510    |            |   |            | 382,082    |           
|Restricted cash                                                                                                                                                    |                         |                                            | 417,833    |            |            |   | 245,399    |           
|Investment securities available for sale                                                                                                                           |                         |                                            | 119,811    |            |            |   | 117,749    |           
|Mortgage-backed securities available for sale                                                                                                                      |                         |                                            | 2,649,758  |            |            |   | 2,701,797  |           
|Loans receivable                                                                                                                                                   |                         |                                            | 12,135,748 |            |            |   | 11,138,483 |           
|Allowance for credit losses                                                                                                                                        |                         |                                            | (315,402   | )          |            |   | (301,602   | )         
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   | Loans receivable, net   |                                            |            | 11,820,346 |            |   |            | 10,836,881 |           
|Interest receivable                                                                                                                                                |                         |                                            | 79,825     |            |            |   | 80,957     |           
|Premises and equipment, net                                                                                                                                        |                         |                                            | 76,526     |            |            |   | 81,814     |           
|Other assets                                                                                                                                                       |                         |                                            | 162,731    |            |            |   | 169,241    |           
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   |                         | TOTAL ASSETS                               |            | $          | 15,545,340 |   |            | $          | 14,615,920 | 
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                  
|LIABILITIES                                                                                                                                                        |                         |                                            |            |            |            |   |            |           
|Deposits                                                                                                                                                           |                         | $                                          | 2,183,499  |            |            | $ | 1,972,856  |           
|Notes payable on automobile secured financing                                                                                                                      |                         |                                            | 10,242,900 |            |            |   | 10,254,641 |           
|Securities sold under agreements to repurchase                                                                                                                     |                         |                                            |            |            |            |   | 222,489    |           
|Federal Home Loan Bank advances                                                                                                                                    |                         |                                            | 1,139,521  |            |            |   | 328,644    |           
|Subordinated debentures                                                                                                                                            |                         |                                            | 295,321    |            |            |   | 394,854    |           
|Other liabilities                                                                                                                                                  |                         |                                            | 178,939    |            |            |   | 188,517    |           
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   |                         | TOTAL LIABILITIES                          |            |            | 14,040,180 |   |            |            | 13,362,001 | 
|Minority interest                                                                                                                                                  |                         |                                            | 165,484    |            |            |   | 131,434    |           
|                                                                                                                                                                  
|SHAREHOLDERS EQUITY                                                                                                                                               |                         |                                            |            |            |            |   |            |           
|Common stock (par value $1.00 per share;
    authorized 65,000,000 shares; issued and outstanding
    51,895,258 shares in 2004 and 51,698,398 shares in
    2003) |                         |                                            | 51,895     |            |            |   | 51,698     |           
|Paid-in capital                                                                                                                                                    |                         |                                            | 717,098    |            |            |   | 710,001    |           
|Retained earnings                                                                                                                                                  |                         |                                            | 606,987    |            |            |   | 427,527    |           
|Accumulated other comprehensive loss, net of tax                                                                                                                   |                         |                                            | (36,304    | )          |            |   | (66,741    | )         
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   |                         | TOTAL SHAREHOLDERS EQUITY                 |            |            | 1,339,676  |   |            |            | 1,122,485  | 
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           
|                                                                                                                                                                   |                         | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |            | $          | 15,545,340 |   |            | $          | 14,615,920 | 
|                                                                                                                                                                   |                         |                                            |            |            |            |   |            |           

See accompanying notes to consolidated financial
statements.

F-5



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##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |            |           | 
|--------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------ | ------- | ---------- | --------- | ---- | ------- | ---------- | --------- | - | ------- | ---------- | --------- | 
|                                                          |                                               |                                                 
|                                                          |                                               | For the Year Ended December 31,                 
|                                                          |                                               |                                                 
|                                                          |                                               | 2004                                             |         | 2003       |           | 2002
|                                                          |                                               |                                                  |         |            |           |     
|                                                          |                                               |                                                 
|                                                          |                                               | (Dollars in thousands, except per share amounts)
|Interest income:                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Loans, including fees                         |                                                  | $       | 1,158,935  |           |      | $       | 1,153,768  |           |   | $       | 1,021,317  |          
|                                                          | Mortgage-backed securities                    |                                                  |         | 98,430     |           |      |         | 83,663     |           |   |         | 113,154    |          
|                                                          | Investment securities                         |                                                  |         | 4,150      |           |      |         | 3,057      |           |   |         | 2,815      |          
|                                                          | Other                                         |                                                  |         | 9,370      |           |      |         | 4,529      |           |   |         | 5,654      |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          |                                               | TOTAL INTEREST INCOME                            |         |            | 1,270,885 |      |         |            | 1,245,017 |   |         |            | 1,142,940 | 
|Interest expense:                                         |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Deposits                                      |                                                  |         | 58,055     |           |      |         | 64,634     |           |   |         | 80,015     |          
|                                                          | Notes payable on automobile secured financing |                                                  |         | 360,625    |           |      |         | 416,577    |           |   |         | 406,851    |          
|                                                          | Other                                         |                                                  |         | 44,447     |           |      |         | 49,531     |           |   |         | 43,403     |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          |                                               | TOTAL INTEREST EXPENSE                           |         |            | 463,127   |      |         |            | 530,742   |   |         |            | 530,269   | 
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|NET INTEREST INCOME                                       |                                               |                                                  | 807,758 |            |           |      | 714,275 |            |           |   | 612,671 |           
|Provision for credit losses                               |                                               |                                                  | 235,248 |            |           |      | 294,006 |            |           |   | 306,233 |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|NET INTEREST INCOME AFTER PROVISION FOR CREDIT
    LOSSES |                                               |                                                  | 572,510 |            |           |      | 420,269 |            |           |   | 306,438 |           
|Noninterest income:                                       |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Automobile lending                            |                                                  |         | 103,689    |           |      |         | 90,511     |           |   |         | 62,332     |          
|                                                          | Insurance income                              |                                                  |         | 8,052      |           |      |         | 8,680      |           |   |         | 10,561     |          
|                                                          | Mortgage banking                              |                                                  |         | 769        |           |      |         | 1,335      |           |   |         | 1,421      |          
|                                                          | Other                                         |                                                  |         | 3,612      |           |      |         | 9,631      |           |   |         | 16,339     |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          |                                               | TOTAL NONINTEREST INCOME                         |         |            | 116,122   |      |         |            | 110,157   |   |         |            | 90,653    | 
|Noninterest expense:                                      |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Salaries and associate benefits               |                                                  |         | 176,024    |           |      |         | 163,436    |           |   |         | 137,462    |          
|                                                          | Credit and collections                        |                                                  |         | 33,245     |           |      |         | 35,977     |           |   |         | 36,429     |          
|                                                          | Data processing                               |                                                  |         | 17,623     |           |      |         | 17,751     |           |   |         | 18,711     |          
|                                                          | Occupancy                                     |                                                  |         | 15,650     |           |      |         | 15,678     |           |   |         | 15,063     |          
|                                                          | Other                                         |                                                  |         | 53,065     |           |      |         | 49,640     |           |   |         | 44,288     |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          |                                               | TOTAL NONINTEREST EXPENSE                        |         |            | 295,607   |      |         |            | 282,482   |   |         |            | 251,953   | 
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|INCOME BEFORE INCOME TAX                                  |                                               |                                                  | 393,025 |            |           |      | 247,944 |            |           |   | 145,138 |           
|Income tax                                                |                                               |                                                  | 155,797 |            |           |      | 98,275  |            |           |   | 52,267  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|INCOME BEFORE MINORITY INTEREST                           |                                               |                                                  | 237,228 |            |           |      | 149,669 |            |           |   | 92,871  |           
|Minority interest in earnings of subsidiaries             |                                               |                                                  | 29,266  |            |           |      | 26,064  |            |           |   | 13,153  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|NET INCOME                                                |                                               | $                                                | 207,962 |            |           | $    | 123,605 |            |           | $ | 79,718  |           
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|Earnings per common share:                                |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Basic                                         |                                                  | $       | 4.01       |           |      | $       | 2.88       |           |   | $       | 2.07       |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Diluted                                       |                                                  | $       | 3.96       |           |      | $       | 2.85       |           |   | $       | 2.05       |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|Weighted average number of common shares
    outstanding: |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Basic                                         |                                                  |         | 51,826,412 |           |      |         | 42,867,262 |           |   |         | 38,588,710 |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Diluted                                       |                                                  |         | 52,568,834 |           |      |         | 43,397,211 |           |   |         | 38,922,611 |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           
|                                                          | Dividends declared                            |                                                  | $       | 0.56       |           |      | $       | 0.52       |           |   | $       | 0.48       |          
|                                                          |                                               |                                                  |         |            |           |      |         |            |           |   |         |           

See accompanying notes to consolidated financial
statements.

F-6



---



##### 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, 2002   |                                                                                                                      |                                              | 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 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 net income, net of tax(4)                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | 66,176   |   |   |           | 66,176    |  
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|                             | Comprehensive income                                                                                                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           | 39,074    |  
|                             | Issuance of common stock                                                                                             |                                              |            | 3,397,983  |  |         |        | 3,398    |  |                |         | 49,468  |   |   |         |         |   |   |          |          |   |   |           | 52,866    |  
|                             | Issuance of subsidiary common stock                                                                                  |                                              |            |            |  |         |        |          |  |                |         | (1,405  | ) |   |         |         |   |   |          |          |   |   |           | (1,405    | )
|                             | Cash dividends                                                                                                       |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         | (18,042 | ) |   |          |          |   |   |           | (18,042   | )
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|Balance at December 31, 2002 |                                                                                                                      |                                              | 39,200,474 |            |  |         | 39,200 |          |  |                | 350,018 |         |   |   | 325,529 |         |   |   | (101,550 | )        |   |   | 613,197   |          
|                             | Net income                                                                                                           |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         | 123,605 |   |   |          |          |   |   |           | 123,605   |  
|                             | Unrealized losses on securities available for
    sale, net of tax(1)                                                |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (7,315   | ) |   |           | (7,315    | )
|                             | Unrealized losses on cash flow hedges, net of
    tax(2)                                                             |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (21,285  | ) |   |           | (21,285   | )
|                             | Reclassification adjustment for gains on
    securities available for sale included in net income, net of
    tax(3) |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (5,058   | ) |   |           | (5,058    | )
|                             | Reclassification adjustment for losses on cash
    flow hedges included in net income, net of tax(4)                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | 68,467   |   |   |           | 68,467    |  
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|                             | Comprehensive income                                                                                                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           | 158,414   |  
|                             | Issuance of common stock                                                                                             |                                              |            | 12,371,500 |  |         |        | 12,372   |  |                |         | 356,863 |   |   |         |         |   |   |          |          |   |   |           | 369,235   |  
|                             | Issuance of subsidiary common stock                                                                                  |                                              |            |            |  |         |        |          |  |                |         | 702     |   |   |         |         |   |   |          |          |   |   |           | 702       |  
|                             | Stock options expensed(5)                                                                                            |                                              |            |            |  |         |        |          |  |                |         | 669     |   |   |         |         |   |   |          |          |   |   |           | 669       |  
|                             | Stock options exercised                                                                                              |                                              |            | 126,424    |  |         |        | 126      |  |                |         | 1,749   |   |   |         |         |   |   |          |          |   |   |           | 1,875     |  
|                             | Cash dividends                                                                                                       |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         | (21,607 | ) |   |          |          |   |   |           | (21,607   | )
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|Balance at December 31, 2003 |                                                                                                                      |                                              | 51,698,398 |            |  |         | 51,698 |          |  |                | 710,001 |         |   |   | 427,527 |         |   |   | (66,741  | )        |   |   | 1,122,485 |          
|                             | Net income                                                                                                           |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         | 207,962 |   |   |          |          |   |   |           | 207,962   |  
|                             | Unrealized losses on securities available for
    sale, net of tax(1)                                                |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (9,677   | ) |   |           | (9,677    | )
|                             | Unrealized losses on cash flow hedges, net of
    tax(2)                                                             |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (1,570   | ) |   |           | (1,570    | )
|                             | Reclassification adjustment for gains on
    securities available for sale included in net income, net of
    tax(3) |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | (1,446   | ) |   |           | (1,446    | )
|                             | Reclassification adjustment for losses on cash
    flow hedges included in net income, net of tax(4)                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          | 43,130   |   |   |           | 43,130    |  
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|                             | Comprehensive income                                                                                                 |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           | 238,399   |  
|                             | Issuance of subsidiary common stock                                                                                  |                                              |            |            |  |         |        |          |  |                |         | (47     | ) |   |         |         |   |   |          |          |   |   |           | (47       | )
|                             | Stock options expensed(5)                                                                                            |                                              |            |            |  |         |        |          |  |                |         | 2,665   |   |   |         |         |   |   |          |          |   |   |           | 2,665     |  
|                             | Stock options exercised                                                                                              |                                              |            | 196,860    |  |         |        | 197      |  |                |         | 4,479   |   |   |         |         |   |   |          |          |   |   |           | 4,676     |  
|                             | Cash dividends                                                                                                       |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         | (28,502 | ) |   |          |          |   |   |           | (28,502   | )
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          
|                             | Balance at December 31, 2004                                                                                         |                                              |            | 51,895,258 |  |         | $      | 51,895   |  |                | $       | 717,098 |   |   | $       | 606,987 |   |   | $        | (36,304  | ) |   | $         | 1,339,676 |  
|                             |                                                                                                                      |                                              |            |            |  |         |        |          |  |                |         |         |   |   |         |         |   |   |          |          |   |   |           |          



---



|    |                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pre-tax amount of unrealized losses on
    securities available for sale and retained interest in
    securitized assets was $16.1 million for the year ended
    December 31, 2004, compared with unrealized losses of
    $12.2 million and unrealized gains of $48.5 million
    for the years ended December 31, 2003 and 2002,
    respectively.
|(2) | The pre-tax amount of unrealized losses on cash
    flow hedges was $2.6 million for the year ended
    December 31, 2004 compared with $35.5 million and
    $230 million for the years ended December 31, 2003 and
    2002, respectively.                                                                                                             
|(3) | The pre-tax amount of gains on securities
    available for sale reclassified into earnings was
    $2.4 million for the year ended December 31, 2004
    compared with $8.4 million and $5.0 thousand for the years
    ended December 31, 2003 and 2002.                                                                                               
|(4) | The pre-tax amount of losses on cash flow hedges
    reclassified into earnings was $71.9 million for the year
    ended December 31, 2004 compared with $114 million and
    $112 million for the year ended December 31, 2003 and
    2002, respectively.                                                                                              
|(5) | Amount represents expense related to stock
    options granted.                                                                                                                                                                                                                                                                                          

See accompanying notes to consolidated financial
statements.

F-7



---



##### Table of Contents



WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |            |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | For the Year Ended December 31,
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | 2004                            |            | 2003       |   | 2002
|                                                                                      |                                                             |                                 |            |            |   |     
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | (Dollars in thousands)         
|OPERATING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Net income                                                                            |                                                             | $                               | 207,962    |            |   | $    | 123,605    |            |   | $ | 79,718     |           
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Provision for credit losses                                 |                                 |            | 235,248    |   |      |            | 294,006    |   |   |            | 306,233    |  
|                                                                                      | Depreciation                                                |                                 |            | 12,879     |   |      |            | 13,771     |   |   |            | 14,654     |  
|                                                                                      | Amortization of losses on cash flow hedges                  |                                 |            | 37,830     |   |      |            | 54,523     |   |   |            | 54,509     |  
|                                                                                      | Amortization of premium on mortgage-backed
    securities   |                                 |            | 38,751     |   |      |            | 70,177     |   |   |            | 38,319     |  
|                                                                                      | Amortization of participation paid to dealers               |                                 |            | 127,205    |   |      |            | 110,120    |   |   |            | 92,151     |  
|                                                                                      | Amortization of retained interest in securitized
    assets |                                 |            |            |   |      |            |            |   |   |            | 36,461     |  
|                                                                                      | Amortization, other                                         |                                 |            | 4,884      |   |      |            | 1,927      |   |   |            | 2,073      |  
|                                                                                      | Gain on sales, net                                          |                                 |            | (6,917     | ) |      |            | (12,396    | ) |   |            | (9,380     | )
|                                                                                      | Other                                                       |                                 |            | 511        |   |      |            | (6,119     | ) |   |            | (2,652     | )
|Loans held for sale:                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Proceeds from sales of mortgage loans                       |                                 |            |            |   |      |            |            |   |   |            | 554        |  
|                                                                                      | (Increase) decrease in other assets                         |                                 |            | (9,078     | ) |      |            | 1,220      |   |   |            | (45,195    | )
|                                                                                      | (Decrease) increase in other liabilities                    |                                 |            | (9,111     | ) |      |            | 72,961     |   |   |            | 15,148     |  
|                                                                                      | Other, net                                                  |                                 |            | 31,284     |   |      |            | 27,019     |   |   |            | 9,215      |  
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |                                                             |                                 | 671,448    |            |   |      | 750,814    |            |   |   | 591,808    |           
|INVESTING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Loans receivable:                                                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Origination of loans                                        |                                 |            | (7,048,047 | ) |      |            | (6,416,501 | ) |   |            | (5,797,684 | )
|                                                                                      | Participation paid to dealers                               |                                 |            | (154,156   | ) |      |            | (141,079   | ) |   |            | (129,272   | )
|                                                                                      | Loan payments and payoffs                                   |                                 |            | 5,855,964  |   |      |            | 5,015,241  |   |   |            | 3,725,870  |  
|Investment securities available for sale:                                             |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchases                                                   |                                 |            | (81,952    | ) |      |            | (139,912   | ) |   |            | (59,449    | )
|                                                                                      | Proceeds from sale                                          |                                 |            | 81,254     |   |      |            | 82,288     |   |   |            | 75,629     |  
|                                                                                      | Proceeds from maturities                                    |                                 |            | 459        |   |      |            | 427        |   |   |            | 1,646      |  
|Mortgage-backed securities:                                                           |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchases                                                   |                                 |            | (1,209,978 | ) |      |            | (2,165,051 | ) |   |            | (1,624,936 | )
|                                                                                      | Proceeds from sale                                          |                                 |            | 52,295     |   |      |            | 157,828    |   |   |            |            |  
|                                                                                      | Payments received                                           |                                 |            | 1,155,441  |   |      |            | 1,872,193  |   |   |            | 1,077,868  |  
|Decrease in amounts due from trusts                                                   |                                                             |                                 |            |            |   |      |            |            |   |   | 34,658     |           
|Purchase of premises and equipment                                                    |                                                             |                                 | (11,398    | )          |   |      | (22,577    | )          |   |   | (18,920    | )         
|Proceeds from sales of premises and equipment                                         |                                                             |                                 | 4,510      |            |   |      | 7,940      |            |   |   | 8,348      |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                             |                                 | (1,355,608 | )          |   |      | (1,749,203 | )          |   |   | (2,706,242 | )         
|FINANCING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Increase (decrease) in deposits                                                       |                                                             |                                 | 225,799    |            |   |      | 24,011     |            |   |   | (417,706   | )         
|(Decrease) increase in securities sold under
    agreements to repurchase             |                                                             |                                 | (218,741   | )          |   |      | (53,103    | )          |   |   | 117,954    |           
|Proceeds from notes payable on automobile secured
    financing                       |                                                             |                                 | 5,853,702  |            |   |      | 5,877,506  |            |   |   | 6,912,058  |           
|Payments on notes payable on automobile secured
    financing                         |                                                             |                                 | (5,829,495 | )          |   |      | (4,677,911 | )          |   |   | (4,336,602 | )         
|(Decrease) increase in borrowings                                                     |                                                             |                                 | (469       | )          |   |      | 3,155      |            |   |   | (19,178    | )         
|Increase in amounts held on behalf of trustee                                         |                                                             |                                 |            |            |   |      |            |            |   |   | (102,854   | )         
|Increase (decrease) in FHLB Advances                                                  |                                                             |                                 | 810,877    |            |   |      | (7,631     | )          |   |   | (207,141   | )         
|Proceeds from issuance of subordinated debentures                                     |                                                             |                                 |            |            |   |      |            |            |   |   | 292,472    |           
|Payments on subordinated debentures                                                   |                                                             |                                 | (104,683   | )          |   |      | (7,315     | )          |   |   | (41,134    | )         
|Increase in restricted cash                                                           |                                                             |                                 | (172,434   | )          |   |      | (173,636   | )          |   |   | (71,763    | )         
|Cash dividends                                                                        |                                                             |                                 | (28,502    | )          |   |      | (21,607    | )          |   |   | (18,042    | )         
|Payments on cash flow hedges                                                          |                                                             |                                 | (18,733    | )          |   |      | (38,428    | )          |   |   | (83,080    | )         
|Proceeds from issuance of common stock                                                |                                                             |                                 | 3,229      |            |   |      | 371,110    |            |   |   | 52,866     |           
|Proceeds from issuance of subsidiary common stock                                     |                                                             |                                 | 38         |            |   |      | 105        |            |   |   | 16,472     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                             |                                 | 520,588    |            |   |      | 1,296,256  |            |   |   | 2,094,322  |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|(DECREASE) INCREASE IN CASH AND DUE FROM BANKS                                        |                                                             |                                 | (163,572   | )          |   |      | 297,867    |            |   |   | (20,112    | )         
|Cash and due from banks at beginning of year                                          |                                                             |                                 | 382,082    |            |   |      | 84,215     |            |   |   | 104,327    |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|CASH AND DUE FROM BANKS AT END OF YEAR                                                |                                                             | $                               | 218,510    |            |   | $    | 382,082    |            |   | $ | 84,215     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Cash paid for:                                                                        |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Interest                                                    |                                 | $          | 473,622    |   |      | $          | 524,146    |   |   | $          | 513,944    |  
|                                                                                      | Income taxes                                                |                                 |            | 171,822    |   |      |            | 108,403    |   |   |            | 83,267     |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Acquisition of real estate acquired through
    foreclosure |                                 |            | 321        |   |      |            | 412        |   |   |            | 1,107      |  

See accompanying notes to consolidated financial
statements.

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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.

Restricted Cash

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

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. We amortize premiums and discounts
using the effective interest method.

Loans Receivable

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

Allowance for Credit Losses

The allowance for credit losses is maintained at
a level that we believe is adequate to absorb probable losses in
our loan portfolio that can be reasonably estimated. Our
determination of the amount of the

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allowance for credit losses is based on a review
of various quantitative and qualitative analyses. Quantitative
analyses include the review of chargeoff trends by loan program,
migration analysis of delinquent and current accounts by risk
category, analysis of historical cumulative losses, and
econometric forecasts. Other quantitative analyses include the
evaluation of the size of any particular asset group, the
concentration of any credit tier 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.


The analysis of the adequacy of the allowance for
credit losses is not only dependent upon effective quantitative
and qualitative analyses, but also effective loan review and
asset classification. We classify our assets in accordance with
regulatory guidance into five categories based on delinquency
and whether the account is in bankruptcy or repossession status.
Some accounts may be split into more than one asset
classification due to fair value or net realizable value
calculations. Based upon our asset classifications, we establish
specific and general valuation allowances.

The specific valuation allowance is determined as
the difference between the wholesale book value and contract
balance for contracts where the borrower has filed bankruptcy or
the vehicle has been repossessed by us and is subject to a
redemption period. The general valuation allowance is determined
by applying various factors to the loan balances in each asset
classification.

Actual losses on contracts are charged to the
allowance at various times during the servicing process. When a
vehicle is repossessed and the redemption period has expired,
the excess of the contract balance over the estimated wholesale
value of the vehicle is charged off against the allowance. At
the time the vehicle is sold, any difference between the sales
price and the estimated wholesale value of the vehicle is
recorded to the allowance as either an additional chargeoff or a
recovery. All accounts that are 120 days delinquent are
charged off against the allowance, except accounts that are in
Chapter 13 bankruptcy status. For accounts in
Chapter 13 bankruptcy status, the difference between the
contact value and the related Chapter 13 plan of
reorganization is charged against the allowance. Accounts in
Chapter 13 bankruptcy status that are no longer in
compliance with their Chapter 13 plans of reorganization
and are 120 days delinquent are charged off against the
allowance.

The allowance for credit losses is increased by
charging the provision for credit losses and decreased by actual
losses on the loans or based on credit trends or economic
conditions.

Nonaccrual Contracts

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, 2004 and 2003, 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

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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 are 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.

Nonperforming Assets

Nonperforming assets consist of nonperforming
loans (defined as all nonaccrual loans), repossessed assets, and
real estate owned. Nonperforming assets were included in other
assets on the Consolidated Statements of Financial Condition and
are not material.

Securitization Transactions

Automobile contract asset-backed securitization
transactions are treated as either sales or secured financings
for accounting purposes depending upon the securitization
structure. 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, 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.

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. 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.

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 most loans is earned using the
effective yield method. Interest income earned but not collected
is reported as interest receivable on the Consolidated
Statements of Financial Condition. Other loans use different
methods that approximate the effective interest method.

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##### Table of Contents



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 other mortgage servicing
related fee income.

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

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



| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and due from
    banks:The carrying amounts reported
    on the Consolidated Statements of Financial Condition
    approximate those assets fair values.                                                                                                         
|
| | Restricted cash:The
    carrying amounts reported on the Consolidated Statements of
    Financial Condition approximate those assets fair values.                                                                                                                     
|
| | Investment securities and
    MBS:Fair values for investment
    securities and MBS 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, based on interest rates currently being offered
    for loans with similar terms to borrowers of similar credit
    quality.                                         
|
| | Interest rate swap
    agreements:The fair value is
    estimated by obtaining market quotes from brokers or internally
    valuing when market quotes are not readily available.                                                                                      

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
    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 on the Consolidated Statements of Financial Condition
    approximate their fair values.                                                                                                                                                                                                                                                                                                                                                                                          

Derivative Financial Instruments

All derivatives are 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
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.

The contracts originated and held by us are fixed
rate and, accordingly, we have exposure to changes in interest
rates. To protect against potential changes in interest rates
affecting interest payments on future securitization
transactions, we enter into various hedge agreements. We enter
into Euro-dollar futures contracts and forward agreements in
order to hedge our future interest payments on our notes payable
on automobile secured financing. The market value of these hedge
agreements 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. Any ineffective portion is recognized in noninterest
income during that period if the hedge is greater than 100%
effective. Upon completion of the securitization transaction,
the gains or losses are amortized on a level yield basis over
the duration of the notes issued. These hedge instruments are
settled daily, and therefore, there are no related financial
instruments recorded on the Consolidated Statements of Financial
Condition. Credit risk related to these hedge instruments is
minimal.

As we issued certain variable rate notes payable,
we also entered into interest rate swap agreements in order to
hedge our variable interest rate exposure on future interest
payments. The fair value of the interest rate swap agreements is
included in notes payable on automobile secured financing, and
any change in the fair value is reported as accumulated other
comprehensive income (loss), net of tax, on our Consolidated
Statements of Financial Condition. Any ineffective portion is
recorded in noninterest income 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 entered into interest rate swap
agreements to 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

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##### Table of Contents



income (loss) and reclassified into earnings in
the period during which cash flows on the hedged items affect
income.


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

Stock-Based Compensation

We use the fair value method to account for
stock-based employee compensation. See
Note 21  Stock Options for further
disclosure.

Accounting Pronouncements

In December 2004, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment, also
known as SFAS No. 123(R). SFAS No. 123(R) requires all
share-based payments to employees to be recognized in the
financial statements based on their fair values. SFAS
No. 123(R) is effective for public companies at the
beginning of the first interim or annual period beginning after
June 15, 2005. We adopted the prospective application
method of transition to the fair value based method as provided
for in Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition
and Disclosure  an amendment of FASB Statement
No. 123 on January 1, 2003 and currently account for
our stock-based payments issued since that date based on their
fair values. The adoption of SFAS No. 123(R) 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, 2004     
|                                          |  |                       
|                                          |  |                        |         | Gross       |  |           
|                                          |  | Amortized              |         | Unrealized  |  |           
|                                          |  | Cost                   |         | (Loss) Gain |  | Fair Value
|                                          |  |                        |         |             |  |           
|                                          |  |                       
|                                          |  | (Dollars in thousands)
|U.S. government agencies and corporations |  | $                      | 50,119  |             |  | $          | (345 | ) |  | $ | 49,774  | 
|FHLB securities                           |  |                        | 60,612  |             |  |            |      |   |  |   | 60,612  | 
|Other                                     |  |                        | 9,419   |             |  |            | 6    |   |  |   | 9,425   | 
|                                          |  |                        |         |             |  |            |      |   |  |   |         | 
|                                          |  | $                      | 120,150 |             |  | $          | (339 | ) |  | $ | 119,811 | 
|                                          |  |                        |         |             |  |            |      |   |  |   |         | 

|                                          |  |                        |         |            |  |            |     |  |  |   |         | 
|----------------------------------------- |  | ---------------------- | ------- | ---------- |  | ---------- | --- |  |  | - | ------- | 
|                                          |  |                       
|                                          |  | December 31, 2003     
|                                          |  |                       
|                                          |  |                        |         | Gross      |  |           
|                                          |  | Amortized              |         | Unrealized |  |           
|                                          |  | Cost                   |         | Gain       |  | Fair Value
|                                          |  |                        |         |            |  |           
|                                          |  |                       
|                                          |  | (Dollars in thousands)
|U.S. government agencies and corporations |  | $                      | 50,241  |            |  | $          | 252 |  |  | $ | 50,493  | 
|FHLB securities                           |  |                        | 58,803  |            |  |            |     |  |  |   | 58,803  | 
|Other                                     |  |                        | 8,446   |            |  |            | 7   |  |  |   | 8,453   | 
|                                          |  |                        |         |            |  |            |     |  |  |   |         | 
|                                          |  | $                      | 117,490 |            |  | $          | 259 |  |  | $ | 117,749 | 
|                                          |  |                        |         |            |  |            |     |  |  |   |         | 

F-14



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##### Table of Contents



At December 31, 2004, the stated maturities
of our investment securities available for sale were as follows:

|                                          |  |               |        |              |  |                      |        |                    |  |           |       |       |  |           |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   |        | 
|----------------------------------------- |  | ------------- | ------ | ------------ |  | -------------------- | ------ | ------------------ |  | --------- | ----- | ----- |  | --------- | ----- | ----- |  | - | ----- |  |  | - | ----- |  |  | - | ------ |  |  | - | ------ | 
|                                          |  |               |        |              |  |                      |        |                    |  |          
|                                          |  | One Year      |        | Five Years   |  | Ten Years            |        |                   
|                                          |  | to Five Years |        | to Ten Years |  | to Twenty-five Years |        | No Stated Maturity
|                                          |  |               |        |              |  |                      |        |                   
|                                          |  | Amortized     |        | Fair         |  | Amortized            |        | Fair               |  | Amortized |       | Fair  |  | Amortized |       | Fair 
|                                          |  | Cost          |        | Value        |  | Cost                 |        | Value              |  | Cost      |       | Value |  | Cost      |       | Value
|                                          |  |               |        |              |  |                      |        |                    |  |           |       |       |  |           |       |      
|Other                                     |  | $             | 791    |              |  | $                    | 791    |                    |  | $         | 2,031 |       |  | $         | 2,031 |       |  | $ | 3,596 |  |  | $ | 3,596 |  |  | $ | 3,001  |  |  | $ | 3,007  | 
|U.S. government agencies and corporations |  |               | 50,119 |              |  |                      | 49,774 |                    |  |           |       |       |  |           |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   |        | 
|FHLB securities                           |  |               |        |              |  |                      |        |                    |  |           |       |       |  |           |       |       |  |   |       |  |  |   |       |  |  |   | 60,612 |  |  |   | 60,612 | 
|                                          |  |               |        |              |  |                      |        |                    |  |           |       |       |  |           |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   |        | 
|                                          |  | $             | 50,910 |              |  | $                    | 50,565 |                    |  | $         | 2,031 |       |  | $         | 2,031 |       |  | $ | 3,596 |  |  | $ | 3,596 |  |  | $ | 63,613 |  |  | $ | 63,619 | 
|                                          |  |               |        |              |  |                      |        |                    |  |           |       |       |  |           |       |       |  |   |       |  |  |   |       |  |  |   |        |  |  |   |        | 



|         |                                                  
|-------- | -------------------------------------------------
|Note 3  | Mortgage-Backed Securities Available for
    Sale

MBS available for sale consisted of the following:

|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 
|-------------------------------- |  | ---------------------- | --------- | ---------- |  | ---------- | ------ | ---------- |  | - | ----- |  |  | - | --------- | 
|                                 |  |                       
|                                 |  | December 31, 2004     
|                                 |  |                       
|                                 |  |                        |           | Gross      |  | Gross      |        |           
|                                 |  | Amortized              |           | Unrealized |  | Unrealized |        |           
|                                 |  | Cost                   |           | Gains      |  | Losses     |        | Fair Value
|                                 |  |                        |           |            |  |            |        |           
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|GNMA certificates                |  | $                      | 2,575,317 |            |  | $          | 15,232 |            |  | $ | 8,753 |  |  | $ | 2,581,796 | 
|FNMA participation certificates  |  |                        | 30,195    |            |  |            | 123    |            |  |   | 143   |  |  |   | 30,175    | 
|FHLMC participation certificates |  |                        | 36,261    |            |  |            | 154    |            |  |   | 193   |  |  |   | 36,222    | 
|Other                            |  |                        | 1,565     |            |  |            |        |            |  |   |       |  |  |   | 1,565     | 
|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 
|                                 |  | $                      | 2,643,338 |            |  | $          | 15,509 |            |  | $ | 9,089 |  |  | $ | 2,649,758 | 
|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 

|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 
|-------------------------------- |  | ---------------------- | --------- | ---------- |  | ---------- | ------ | ---------- |  | - | ----- |  |  | - | --------- | 
|                                 |  |                       
|                                 |  | December 31, 2003     
|                                 |  |                       
|                                 |  |                        |           | Gross      |  | Gross      |        |           
|                                 |  | Amortized              |           | Unrealized |  | Unrealized |        |           
|                                 |  | Cost                   |           | Gains      |  | Losses     |        | Fair Value
|                                 |  |                        |           |            |  |            |        |           
|                                 |  |                       
|                                 |  | (Dollars in thousands)
|GNMA certificates                |  | $                      | 2,613,962 |            |  | $          | 28,607 |            |  | $ | 4,484 |  |  | $ | 2,638,085 | 
|FNMA participation certificates  |  |                        | 24,967    |            |  |            | 306    |            |  |   |       |  |  |   | 25,273    | 
|FHLMC participation certificates |  |                        | 36,734    |            |  |            | 9      |            |  |   | 78    |  |  |   | 36,665    | 
|Other                            |  |                        | 1,774     |            |  |            |        |            |  |   |       |  |  |   | 1,774     | 
|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 
|                                 |  | $                      | 2,677,437 |            |  | $          | 28,922 |            |  | $ | 4,562 |  |  | $ | 2,701,797 | 
|                                 |  |                        |           |            |  |            |        |            |  |   |       |  |  |   |           | 

Proceeds from the sale of MBS available for sale
for the years ended December 31, 2004, 2003 and 2002 were
as follows:

|                                              |  |                                 |        |      |  |      |         |  |  |  |  | 
|--------------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------- |  |  |  |  | 
|                                              |  |                                
|                                              |  | For the Year Ended December 31,
|                                              |  |                                
|                                              |  | 2004                            |        | 2003 |  | 2002
|                                              |  |                                 |        |      |  |     
|                                              |  |                                
|                                              |  | (Dollars in thousands)         
|Proceeds from sales of MBS available for sale |  | $                               | 52,295 |      |  | $    | 157,828 |  |  |  |  | 
|Gross realized gains                          |  |                                 | 2,410  |      |  |      | 8,423   |  |  |  |  | 
|Gross realized losses                         |  |                                 |        |      |  |      |         |  |  |  |  | 

Our MBS available for sale portfolio had
maturities of one month to thirty years at December 31,
2004 and 2003, although payments are generally received monthly
throughout the life of these securities.

F-15



---



##### Table of Contents





|         |                     
|-------- | --------------------
|Note 4  | Net Loans Receivable

Net loans receivable consisted of the following:

|                                                        |                      |                        |            |            |   |   |            |            |  
|------------------------------------------------------- | -------------------- | ---------------------- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                        |                      |                       
|                                                        |                      | December 31,          
|                                                        |                      |                       
|                                                        |                      | 2004                   |            | 2003      
|                                                        |                      |                        |            |           
|                                                        |                      |                       
|                                                        |                      | (Dollars in thousands)
|Consumer:                                               |                      |                        |            |            |   |   |            |           
|                                                        | Automobile contracts |                        | $          | 11,599,528 |   |   | $          | 10,657,864 |  
|                                                        | Other                |                        |            | 4,386      |   |   |            | 6,002      |  
|                                                        | Unearned discounts   |                        |            | (38,871    | ) |   |            | (61,300    | )
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      |                        | 11,565,043 |            |   |   | 10,602,566 |           
|Real estate:                                            |                      |                        |            |            |   |   |            |           
|                                                        | Mortgage             |                        |            | 202,095    |   |   |            | 237,668    |  
|                                                        | Construction         |                        |            | 48,730     |   |   |            | 16,503     |  
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      |                        | 250,825    |            |   |   | 254,171    |           
|Undisbursed loan proceeds                               |                      |                        | (37,061    | )          |   |   | (17,948    | )         
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      |                        | 213,764    |            |   |   | 236,223    |           
|Commercial                                              |                      |                        | 165,806    |            |   |   | 124,431    |           
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      |                        | 11,944,613 |            |   |   | 10,963,220 |           
|Dealer participation, net of deferred contract
    fees |                      |                        | 191,135    |            |   |   | 175,263    |           
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      |                        | 12,135,748 |            |   |   | 11,138,483 |           
|Allowance for credit losses                             |                      |                        | (315,402   | )          |   |   | (301,602   | )         
|                                                        |                      |                        |            |            |   |   |            |           
|                                                        |                      | $                      | 11,820,346 |            |   | $ | 10,836,881 |           
|                                                        |                      |                        |            |            |   |   |            |           

Loans owned and managed by us excluding dealer
participation totaled $11.9 billion and $11.0 billion
as of December 31, 2004 and 2003, respectively. There were
no impaired loans at December 31, 2004 and 2003.
Nonperforming loans, or loans on which we have discontinued the
accrual of interest income, included in net loans receivable
were $51.9 million and $53.0 million at
December 31, 2004 and 2003, respectively. Repossessed
assets and real estate owned were $8.3 million and
$10.6 million at December 31, 2004 and 2003,
respectively, and are included in other assets on our
Consolidated Statement of Financial Condition.

F-16



---



##### Table of Contents





|         |                            
|-------- | ---------------------------
|Note 5  | Allowance for Credit Losses

Changes in the allowance for credit losses were
as follows:

|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |          |  
|-------------------------------------------------------------------------------------- | ---------------- | ------------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                                                                       |                  |                                
|                                                                                       |                  | For the Year Ended December 31,
|                                                                                       |                  |                                
|                                                                                       |                  | 2004                            |          | 2003     |   | 2002
|                                                                                       |                  |                                 |          |          |   |     
|                                                                                       |                  |                                
|                                                                                       |                  | (Dollars in thousands)         
|Balance at beginning of year                                                           |                  | $                               | 301,602  |          |   | $    | 269,352  |          |   | $ | 178,218  |         
|Chargeoffs:                                                                            |                  |                                 |          |          |   |      |          |          |   |   |          |         
|                                                                                       | Consumer loans   |                                 |          | (312,594 | ) |      |          | (350,718 | ) |   |          | (280,378 | )
|                                                                                       | Commercial loans |                                 |          | (492     | ) |      |          |          |   |   |          | (511     | )
|                                                                                       | Mortgage loans   |                                 |          | (203     | ) |      |          | (352     | ) |   |          | (260     | )
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |         
|                                                                                       |                  |                                 | (313,289 | )        |   |      | (351,070 | )        |   |   | (281,149 | )       
|Recoveries:                                                                            |                  |                                 |          |          |   |      |          |          |   |   |          |         
|                                                                                       | Consumer loans   |                                 |          | 91,792   |   |      |          | 89,196   |   |   |          | 66,050   |  
|                                                                                       | Commercial loans |                                 |          | 49       |   |      |          | 78       |   |   |          |          |  
|                                                                                       | Mortgage loans   |                                 |          |          |   |      |          | 40       |   |   |          |          |  
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |         
|                                                                                       |                  |                                 | 91,841   |          |   |      | 89,314   |          |   |   | 66,050   |         
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |         
|Net chargeoffs                                                                         |                  |                                 | (221,448 | )        |   |      | (261,756 | )        |   |   | (215,099 | )       
|Provision for credit losses                                                            |                  |                                 | 235,248  |          |   |      | 294,006  |          |   |   | 306,233  |         
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |         
|Balance at end of year                                                                 |                  | $                               | 315,402  |          |   | $    | 301,602  |          |   | $ | 269,352  |         
|                                                                                       |                  |                                 |          |          |   |      |          |          |   |   |          |         
|Ratio of net chargeoffs during the period to
    average loans owned during the period |                  |                                 | 1.9      | %        |   |      | 2.5      | %        |   |   | 2.6      | %       
|Ratio of allowance for credit losses to loans at
    the end of the period             |                  |                                 | 2.6      | %        |   |      | 2.7      | %        |   |   | 2.9      | %       



|         |                       
|-------- | ----------------------
|Note 6  | Premises and Equipment

Premises and equipment consisted of the following:

|                               |  |                        |         |      |  |   |         |  
|------------------------------ |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                               |  |                       
|                               |  | December 31,          
|                               |  |                       
|                               |  | 2004                   |         | 2003
|                               |  |                        |         |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Land                           |  | $                      | 14,510  |      |  | $ | 16,985  |  
|Buildings and improvements     |  |                        | 49,308  |      |  |   | 52,522  |  
|Computers and software         |  |                        | 56,516  |      |  |   | 57,626  |  
|Furniture and equipment        |  |                        | 20,577  |      |  |   | 21,110  |  
|Other                          |  |                        | 12,383  |      |  |   | 12,478  |  
|                               |  |                        |         |      |  |   |         |  
|                               |  |                        | 153,294 |      |  |   | 160,721 |  
|Less: Accumulated depreciation |  |                        | (76,768 | )    |  |   | (78,907 | )
|                               |  |                        |         |      |  |   |         |  
|                               |  | $                      | 76,526  |      |  | $ | 81,814  |  
|                               |  |                        |         |      |  |   |         |  

F-17



---



##### Table of Contents





|         |                            
|-------- | ---------------------------
|Note 7  | Accrued Interest Receivable

Accrued interest receivable consisted of the
following:

|                             |  |                        |        |      |  |   |        | 
|---------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                             |  |                       
|                             |  | December 31,          
|                             |  |                       
|                             |  | 2004                   |        | 2003
|                             |  |                        |        |     
|                             |  |                       
|                             |  | (Dollars in thousands)
|Interest on loans receivable |  | $                      | 68,168 |      |  | $ | 67,663 | 
|Interest on securities       |  |                        | 11,657 |      |  |   | 13,294 | 
|                             |  |                        |        |      |  |   |        | 
|                             |  | $                      | 79,825 |      |  | $ | 80,957 | 
|                             |  |                        |        |      |  |   |        | 



|         |         
|-------- | --------
|Note 8  | Deposits

Deposits consisted of the following:

|                              |  |                        |     |                    |  |                 |     |                    |  |  |     |   |  |  |     |  
|----------------------------- |  | ---------------------- | --- | ------------------ |  | --------------- | --- | ------------------ |  |  | --- | - |  |  | --- | -
|                              |  |                        |     | Weighted Average   |  |                 |     | Weighted Average  
|                              |  |                        |     | Rate for the       |  | Effects of      |     | Rate for the      
|                              |  | Weighted               |     | Year Ended         |  | Hedging for the |     | Year Ended        
|                              |  | Average Rate at        |     | December 31, 2004  |  | Year Ended      |     | December 31, 2004 
|                              |  | December 31,           |     | Excluding the      |  | December 31,    |     | Including the     
|                              |  | 2004(1)                |     | Effects of Hedging |  | 2004            |     | Effects of Hedging
|                              |  |                        |     |                    |  |                 |     |                   
|                              |  |                       
|                              |  | (Dollars in thousands)
|Demand deposit accounts       |  |                        | 0.1 | %                  |  |                 | 0.1 | %                  |  |  |     |   |  |  | 0.1 | %
|Passbook accounts             |  |                        | 0.1 |                    |  |                 | 0.1 |                    |  |  |     |   |  |  | 0.1 |  
|Money market deposit accounts |  |                        | 1.8 |                    |  |                 | 1.4 |                    |  |  | 0.2 | % |  |  | 1.6 |  
|Brokered certificate accounts |  |                        |     |                    |  |                 | 1.7 |                    |  |  |     |   |  |  | 1.7 |  
|Certificate accounts          |  |                        | 2.5 |                    |  |                 | 1.8 |                    |  |  | 4.4 |   |  |  | 6.2 |  



---



|    |                  
|--- | -----------------
|(1) | Contractual rate.

|                              |  |                        |           |      |  |   |           | 
|----------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | 
|                              |  |                       
|                              |  | December 31,          
|                              |  |                       
|                              |  | 2004                   |           | 2003
|                              |  |                        |           |     
|                              |  |                       
|                              |  | (Dollars in thousands)
|Noninterest bearing deposits  |  | $                      | 268,556   |      |  | $ | 210,405   | 
|Demand deposit accounts       |  |                        | 705       |      |  |   | 1,145     | 
|Passbook accounts             |  |                        | 5,880     |      |  |   | 7,282     | 
|Money market deposit accounts |  |                        | 1,257,074 |      |  |   | 963,004   | 
|Brokered certificate accounts |  |                        |           |      |  |   | 62,451    | 
|Certificate accounts          |  |                        | 651,284   |      |  |   | 728,569   | 
|                              |  |                        |           |      |  |   |           | 
|                              |  | $                      | 2,183,499 |      |  | $ | 1,972,856 | 
|                              |  |                        |           |      |  |   |           | 

The aggregate amount of certificate accounts in
denominations greater than or equal to $100,000 was
$219 million and $220 million at December 31,
2004 and 2003, respectively. Deposit amounts in excess of
$100,000 are not federally insured.

Scheduled maturities of certificate accounts at
December 31, 2004 were as follows:

|                                        |  |                        |         |          |  |  |      |  
|--------------------------------------- |  | ---------------------- | ------- | -------- |  |  | ---- | -
|                                        |  |                        |         | Weighted
|                                        |  |                        |         | Average 
|                                        |  | Amount                 |         | Rate    
|                                        |  |                        |         |         
|                                        |  |                       
|                                        |  | (Dollars in thousands)
|Six months or less                      |  | $                      | 208,091 |          |  |  | 2.01 | %
|More than six months through one year   |  |                        | 424,617 |          |  |  | 2.69 |  
|More than one year through three years  |  |                        | 18,233  |          |  |  | 2.96 |  
|More than three years through ten years |  |                        | 343     |          |  |  | 2.13 |  
|                                        |  |                        |         |          |  |  |      |  
|                                        |  | $                      | 651,284 |          |  |  |      |  
|                                        |  |                        |         |          |  |  |      |  

F-18



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##### Table of Contents



Interest expense on deposits consisted of the
following:

|                              |  |                                 |        |      |  |      |        |  |  |   |        | 
|----------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                              |  |                                
|                              |  | For the Year Ended December 31,
|                              |  |                                
|                              |  | 2004                            |        | 2003 |  | 2002
|                              |  |                                 |        |      |  |     
|                              |  |                                
|                              |  | (Dollars in thousands)         
|Demand deposit accounts       |  | $                               | 27     |      |  | $    | 48     |  |  | $ | 117    | 
|Passbook accounts             |  |                                 | 7      |      |  |      | 16     |  |  |   | 39     | 
|Money market deposit accounts |  |                                 | 17,730 |      |  |      | 11,359 |  |  |   | 14,772 | 
|Certificate accounts          |  |                                 | 39,493 |      |  |      | 51,154 |  |  |   | 63,867 | 
|Brokered certificate accounts |  |                                 | 798    |      |  |      | 2,057  |  |  |   | 1,220  | 
|                              |  |                                 |        |      |  |      |        |  |  |   |        | 
|                              |  | $                               | 58,055 |      |  | $    | 64,634 |  |  | $ | 80,015 | 
|                              |  |                                 |        |      |  |      |        |  |  |   |        | 

Accrued interest payable on deposits at
December 31, 2004 and 2003 was $4.3 million and
$5.7 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.

Certificate accounts by maturity categories at
December 31, 2004 were as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2005 |  | $ | 632,707 | 
|2006 |  |   | 13,462  | 
|2007 |  |   | 4,772   | 
|2008 |  |   | 330     | 
|2009 |  |   | 13      | 
|     |  |   |         | 
|     |  | $ | 651,284 | 
|     |  |   |         | 



|         |                                                  
|-------- | -------------------------------------------------
|Note 9  | Notes Payable on Automobile Secured
    Financing

We issued $5.9 billion of notes secured by
automobile contracts through public transactions for both the
years ended December 31, 2004 and 2003.

Interest payments on these transactions based on
the respective notes interest rate are due either monthly
or quarterly, in arrears. Interest expense on all notes payable
on automobile secured financing, including interest payments
under interest rate swap agreements, totaled $361 million
for the year ended December 31, 2004 compared with
$417 million and $407 million for the years ended
December 31, 2003 and 2002, respectively.

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

|           |  |                        |            |                 |  |  |      |  
|---------- |  | ---------------------- | ---------- | --------------- |  |  | ---- | -
|           |  |                       
|           |  | December 31, 2004     
|           |  |                       
|           |  |                        |            | Weighed Average
|           |  | Amount                 |            | Interest Rate  
|           |  |                        |            |                
|           |  |                       
|           |  | (Dollars in thousands)
|2005       |  | $                      | 235,599    |                 |  |  | 2.03 | %
|2006       |  |                        | 1,890      |                 |  |  | 4.20 |  
|2007       |  |                        | 2,379,373  |                 |  |  | 2.24 |  
|2008       |  |                        | 1,712,941  |                 |  |  | 2.75 |  
|2009       |  |                        | 1,311,337  |                 |  |  | 4.01 |  
|Thereafter |  |                        | 4,601,760  |                 |  |  | 3.32 |  
|           |  |                        |            |                 |  |  |      |  
|           |  | $                      | 10,242,900 |                 |  |  | 3.03 | %
|           |  |                        |            |                 |  |  |      |  

F-19



---



##### Table of Contents





|          |                                                   
|--------- | --------------------------------------------------
|Note 10  | Securities Sold Under Agreements to
    Repurchase

Securities sold under agreements to repurchase
are summarized as follows:

|                                                                        |  |                        |         |  
|----------------------------------------------------------------------- |  | ---------------------- | ------- | -
|                                                                        |  | December 31, 2003     
|                                                                        |  |                       
|                                                                        |  | (Dollars in thousands)
|Balance at end of period                                                |  | $                      | 222,489 |  
|Estimated fair value at end of period                                   |  |                        | 222,489 |  
|Average amount outstanding during the period                            |  |                        | 220,989 |  
|Maximum amount outstanding at any given month-end
    during the period |  |                        | 273,094 |  
|Weighted average interest rate during the period                        |  |                        | 2.0     | %
|Weighted average interest rate at end of period                         |  |                        | 1.1     | %

MBS 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 maturity of the agreements. At December 31, 2004, we
had no agreements outstanding. At December 31, 2003, we had
$118 million and $99.4 million outstanding with our
counterparties, Salomon Smith Barney and Nomura Securities Co.,
Ltd., respectively. The agreements at December 31, 2003
matured within 30 days. Average amounts are computed based
upon daily ending balances.



|          |                                
|--------- | -------------------------------
|Note 11  | 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
$106 million and $147 million at December 31,
2004 and 2003, respectively, and MBS totaling $1.9 billion
and $1.1 billion at December 31, 2004 and 2003,
respectively.

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

|                               |            |                        |            |           |  |   |              |         | 
|------------------------------ | ---------- | ---------------------- | ---------- | --------- |  | - | ------------ | ------- | 
|                               |            |                       
|                               |            | December 31,          
|                               |            |                       
|                               |            | 2004                   |            | 2003     
|                               |            |                        |            |          
|                               |            |                       
|                               |            | (Dollars in thousands)
|Range of interest rates        |            |                        | 2.0%  7.1 |           |  |   | % 0.9%  7.1 | %      
|Weighted average interest rate |            |                        | 2.3        | %         |  |   | 1.0          | %      
|Year due:                      |            |                        |            |           |  |   |              |        
|                               | 2004       |                        |            |           |  |   | $            | 326,000 | 
|                               | 2005       |                        | $          | 1,137,000 |  |   |              |         | 
|                               | Thereafter |                        |            | 2,521     |  |   |              | 2,644   | 
|                               |            |                        |            |           |  |   |              |        
|                               |            | $                      | 1,139,521  |           |  | $ | 328,644      |        
|                               |            |                        |            |           |  |   |              |        

We had available credit with the FHLB of
approximately $703 million and $779 million at
December 31, 2004 and 2003, respectively.



|          |                 
|--------- | ----------------
|Note 12  | Other Borrowings

We have an unsecured line of credit with a bank
which has a maximum availability of $15.0 million and
$30.0 million at December 31, 2004 and 2003,
respectively. There was no amount outstanding at both
December 31, 2004 and 2003. The line of credit has an
interest rate tied to either the Prime Rate or the London
Interbank Offered Rate, also known as LIBOR, based on our
choice. The weighted average interest rate was 4.40%, 3.12%, and
4.5% at December 31, 2004, 2003 and 2002, respectively.
There was no interest expense for the year ended
December 31, 2004 compared with no interest expense and
$0.1 million for the years ended December 31, 2003 and
2002, respectively.

F-20



---



##### Table of Contents





|          |                        
|--------- | -----------------------
|Note 13  | Subordinated Debentures

Subordinated debentures consisted of the
following:

|                            |  |                        |         |      |  |   |         |  
|--------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                            |  |                       
|                            |  | December 31,          
|                            |  |                       
|                            |  | 2004                   |         | 2003
|                            |  |                        |         |     
|                            |  |                       
|                            |  | (Dollars in thousands)
|Subordinated debentures     |  | $                      | 300,000 |      |  | $ | 400,820 |  
|Discount and issuance costs |  |                        | (4,679  | )    |  |   | (5,966  | )
|                            |  |                        |         |      |  |   |         |  
|Net subordinated debentures |  | $                      | 295,321 |      |  | $ | 394,854 |  
|                            |  |                        |         |      |  |   |         |  

The subordinated debentures are unsecured and
consist of a $150 million 8.875% issuance and a
$300 million 9.625% issuance. The outstanding balance of
the $150 million issuance was redeemed on August 1,
2004. The outstanding balance of the $300 million issuance
is due in 2012 and is redeemable on or after May 15, 2009
at our option, in whole or in part at 100% of the principal
amount being redeemed plus accrued interest as of the date of
redemption. In addition, these 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.



|          |                              
|--------- | -----------------------------
|Note 14  | 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, 2004     
|           |  |                       
|           |  | (Dollars in thousands)
|2005       |  | $                      | 7,022  | 
|2006       |  |                        | 5,741  | 
|2007       |  |                        | 4,413  | 
|2008       |  |                        | 3,129  | 
|2009       |  |                        | 2,100  | 
|Thereafter |  |                        | 3,603  | 
|           |  |                        |        | 
|           |  | $                      | 26,008 | 
|           |  |                        |        | 

In certain cases, these agreements include
various renewal options and contingent rental agreements. Rental
expense for premises and equipment totaled $7.8 million,
$7.4 million and $7.1 million for the years ended
December 31, 2004, 2003 and 2002, respectively.

Commitments to fund consumer loans, mortgage
loans, letters of credit and unused lines of credit were as
follows:

|                                  |  |                        |         |      |  |   |         | 
|--------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | 
|                                  |  |                       
|                                  |  | December 31,          
|                                  |  |                       
|                                  |  | 2004                   |         | 2003
|                                  |  |                        |         |     
|                                  |  |                       
|                                  |  | (Dollars in thousands)
|Fixed rate loans                  |  | $                      | 443,504 |      |  | $ | 383,772 | 
|Variable rate loans               |  |                        | 182,364 |      |  |   | 126,140 | 
|                                  |  |                        |         |      |  |   |         | 
|                                  |  | $                      | 625,868 |      |  | $ | 509,912 | 
|                                  |  |                        |         |      |  |   |         | 
|Mortgage loans sold with recourse |  | $                      | 24,651  |      |  | $ | 31,448  | 
|                                  |  |                        |         |      |  |   |         | 

At December 31, 2004, we had commitments to
fund fixed rate loans at rates ranging from 5.12% to 10.09% with
loan terms ranging from one month to 46 years.

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##### Table of Contents



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,          
|                                |  |                       
|                                |  | 2004                   |         | 2003
|                                |  |                        |         |     
|                                |  |                       
|                                |  | (Dollars in thousands)
|FNMA participation certificates |  | $                      | 15,754  |      |  | $ | 19,744    | 
|GNMA certificates               |  |                        | 619,560 |      |  |   | 1,058,908 | 
|Automobile contracts            |  |                        | 272,850 |      |  |   | 375,230   | 
|Multifamily first mortgages     |  |                        | 13,662  |      |  |   | 18,680    | 
|                                |  |                        |         |      |  |   |           | 
|                                |  | $                      | 921,826 |      |  | $ | 1,472,562 | 
|                                |  |                        |         |      |  |   |           | 

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 $24.7 million and $31.4 million
at December 31, 2004 and 2003, respectively. The maximum
remaining exposure under these recourse provisions was
$24.7 million and $31.4 million at December 31,
2004 and 2003, respectively. We have pledged approximately
$5.0 million of MBS as collateral under these recourse
provisions at both December 31, 2004 and 2003, respectively.

We have provided for probable losses that can be
reasonably estimated which may occur as a result of our recourse
obligations. The amount reserved for probable losses on recourse
obligations totaled $1.0 million at both December 31,
2004 and 2003. 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 to
certain legal proceedings incidental to our business, including
Lee, et al v. WFS Financial Inc, United States
District Court, Middle District of Tennessee at Nashville,
No. 3-02-0570 filed June 17, 2002 (raising claims
under the Equal Credit Opportunity Act) and Thompson,
et al v. WFS Financial Inc, California Superior
Court, County of Alameda Civil Action No. RG03088926, Court
of Appeal No. A104967 (raising claims under Californias
Unfair Competition Law and related claims). WFS has reached a
settlement in the Lee, et al v. WFS Financial
Inc and Thompson, et al v. WFS Financial Inccases. The United States District Court, Middle District of
Tennessee at Nashville, granted final approval of these
settlements and entered judgment on November 15, 2004, and
the settlement became effective on December 20, 2004 after
the expiration of the time for appeal. The pending appeal in the
Thompson, et al v. WFS Financial Inccase was
dismissed on December 15, 2004, pursuant to the terms of
the settlement.

Beginning on May 24, 2004 and continuing
thereafter, a total of four separate purported class action
lawsuits relating to the announcement by us and WFS that we were
commencing an exchange offer for the outstanding public shares
of WFS were filed in the Orange County, California Superior
Court against us, WFS, our individual board members, and
individual board members of WFS. On June 24, 2004, the
actions were consolidated under the caption In re WFS
Financial Shareholder Litigation, Case No. 04CC00559,
also known as the Action. On July 16, 2004, the court
granted a motion by plaintiff Alaska Hotel & Restaurant
Employees Pension Trust Fund, in Case No. 04CC00573, to
amend the consolidation order to designate it the lead plaintiff
in the litigation. The lead plaintiff filed a consolidated
amended complaint on August 9, 2004, and then filed the
present corrected consolidated amended complaint on
September 15, 2004. All of the shareholder-related actions
allege, among other things, that the defendants breached their
respective fiduciary duties and seek to enjoin or rescind the
transaction and obtain an unspecified sum in damages and costs,
including attorneys fees and expenses. The parties have
tentatively agreed to a full and final resolution of the Action
and, on January 19, 2005, the parties entered into a
Memorandum of Understanding, also known as MOU, concerning the
terms of the tentative settlement. The parties are in the
process of preparing a formal settlement agreement based on the
terms of the MOU and will present it to the Court for approval.
Pursuant to the terms of the MOU, the parties have agreed, among
other things, that additional disclosures will be made in
Westcorps Registration Statement on Form S-4 (as
filed with the SEC on July 16, 2004), the claims

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##### Table of Contents



asserted in the Action will be fully released,
and the Action will be dismissed with prejudice. Further,
pursuant to the MOU, WFS has agreed to pay plaintiffs
attorneys fees and expenses in the amount of $675,000, or
in such lesser amount as the Court may order.


We do not believe that the outcome of any of
these proceedings will have a material effect upon our financial
condition, results of operations and cash flows.



|          |                                                     
|--------- | ----------------------------------------------------
|Note 15  | Accumulated Other Comprehensive Loss, Net of
    Tax

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

|                                               |                                                |                        |         |         |   |   |         |         |  
|---------------------------------------------- | ---------------------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                               |                                                |                       
|                                               |                                                | December 31,          
|                                               |                                                |                       
|                                               |                                                | 2004                   |         | 2003   
|                                               |                                                |                        |         |        
|                                               |                                                |                       
|                                               |                                                | (Dollars in thousands)
|Unrealized gain on marketable securities       |                                                | $                      | 3,648   |         |   | $ | 14,771  |        
|Unrealized loss on interest rate swaps: (1)    |                                                |                        |         |         |   |   |         |        
|                                               | Deposits                                       |                        |         | (29,203 | ) |   |         | (38,297 | )
|                                               | Automobile secured financing                   |                        |         | (353    | ) |   |         | (19,539 | )
|                                               | Securities sold under agreements to repurchase |                        |         |         |   |   |         | (2,248  | )
|                                               |                                                |                        |         |         |   |   |         |        
|                                               |                                                |                        | (29,556 | )       |   |   | (60,084 | )      
|Realized loss on settled cash flow hedges: (1) |                                                |                        |         |         |   |   |         |        
|                                               | Deposits                                       |                        |         | (8,369  | ) |   |         | (9,539  | )
|                                               | Automobile secured financing                   |                        |         | (2,027  | ) |   |         | (11,889 | )
|                                               |                                                |                        |         |         |   |   |         |        
|                                               |                                                |                        | (10,396 | )       |   |   | (21,428 | )      
|                                               |                                                |                        |         |         |   |   |         |        
|Total accumulated other comprehensive loss     |                                                | $                      | (36,304 | )       |   | $ | (66,741 | )      
|                                               |                                                |                        |         |         |   |   |         |        



---



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

Note 16  Comprehensive
income

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

|                                                                                                              |  |                                 |         |      |  |      |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                                                                              |  |                                
|                                                                                                              |  | For the Year Ended December 31,
|                                                                                                              |  |                                
|                                                                                                              |  | 2004                            |         | 2003 |  | 2002
|                                                                                                              |  |                                 |         |      |  |     
|                                                                                                              |  |                                
|                                                                                                              |  | (Dollars in thousands)         
|Net income                                                                                                    |  | $                               | 207,962 |      |  | $    | 123,605 |   |  | $ | 79,718   |  
|Unrealized (losses) gains on securities available
    for sale, net of tax                                    |  |                                 | (9,677  | )    |  |      | (7,315  | ) |  |   | 28,605   |  
|Unrealized losses on cash flow hedges, net of tax                                                             |  |                                 | (1,570  | )    |  |      | (21,285 | ) |  |   | (135,422 | )
|Reclassification adjustment for gains on
    securities available for sale included in net income, net of tax |  |                                 | (1,446  | )    |  |      | (5,058  | ) |  |   | (3       | )
|Reclassification adjustment for losses on cash
    flow hedges included in net income, net of tax             |  |                                 | 43,130  |      |  |      | 68,467  |   |  |   | 66,176   |  
|                                                                                                              |  |                                 |         |      |  |      |         |   |  |   |          |  
|Comprehensive income                                                                                          |  | $                               | 238,399 |      |  | $    | 158,414 |   |  | $ | 39,074   |  
|                                                                                                              |  |                                 |         |      |  |      |         |   |  |   |          |  



|          |                 
|--------- | ----------------
|Note 17  | Equity Offerings

We completed common stock offerings in July 2003
and November 2003 in which we raised a total of
$163 million and $207 million through the issuance of
6.1 million and 6.3 million additional common shares
at a price of $28.00 and $34.39 per share, respectively.
With the completion of these offerings, our total number of
common shares issued and outstanding increased 31.6% to
51.7 million shares at December 31, 2003.

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Note 18  Dividends

We paid cash dividends of $0.55, $0.51 and
$0.47 per share for the years ended December 31, 2004,
2003 and 2002, 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 indenture relating to its
subordinated debenture 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, 2004, the
Banks restricted shareholders equity was
$635 million with a maximum dividend of $358 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.

Note 19  Automobile Lending
Income

Automobile lending income consisted of the
following components:

|                                                        |  |                                 |         |      |  |      |        |  |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------ |  |  | - | ------- | -
|                                                        |  |                                
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2004                            |         | 2003 |  | 2002
|                                                        |  |                                 |         |      |  |     
|                                                        |  |                                
|                                                        |  | (Dollars in thousands)         
|Fee income                                              |  | $                               | 103,689 |      |  | $    | 90,511 |  |  | $ | 81,087  |  
|Contractual servicing income                            |  |                                 |         |      |  |      |        |  |  |   | 10,735  |  
|Retained interest expense, net of RISA
    amortization |  |                                 |         |      |  |      |        |  |  |   | (29,490 | )
|                                                        |  |                                 |         |      |  |      |        |  |  |   |         |  
|Total automobile lending income                         |  | $                               | 103,689 |      |  | $    | 90,511 |  |  | $ | 62,332  |  
|                                                        |  |                                 |         |      |  |      |        |  |  |   |         |  

Fee income consists primarily of documentation
fees, late charges and deferment fees.



|          |                       
|--------- | ----------------------
|Note 20  | Employee Benefit Plans

We have various 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. As of December 31,
2004, the ESOP and 401(k) plan held a total of
1,741,296 shares of our common stock. All shares are
considered outstanding for purposes of calculating our earnings
per share.

The following table shows our cash contributions
and compensation expense related to our ESOP and 401(k) Plan:

|                     |  |                        |       |      |  |      |       |  |  |   |       | 
|-------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                     |  |                       
|                     |  | For the Year Ended    
|                     |  | December 31,          
|                     |  |                       
|                     |  | 2004                   |       | 2003 |  | 2002
|                     |  |                        |       |      |  |     
|                     |  |                       
|                     |  | (Dollars in thousands)
|Cash contribution    |  | $                      | 7,291 |      |  | $    | 5,803 |  |  | $ | 2,753 | 
|Compensation expense |  |                        | 8,611 |      |  |      | 9,789 |  |  |   | 1,376 | 

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

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##### Table of Contents



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, 2004, expense
related to the EDP for us and our subsidiaries totaled
$2.2 million compared with $2.1 million and
$0.7 million for the years ended December 31, 2003 and
2002, 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 $1.0 million,
$0.9 million and $0.8 million for the years ended
December 31, 2004, 2003 and 2002, respectively, related to
the LTIP.

Note 21  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 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, 2004, a total of 1,693,544 shares were
available for future grants. The options may be exercised within
five to seven years after the date of the grant, depending upon
the grant date. Additionally, the weighted average life of the
options outstanding at December 31, 2004 was
3.31 years and the exercise prices ranged from $12.63 to
$42.19 per share.

Options outstanding and exercisable at
December 31, 2004 were as follows:

|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 
|--------------- | ------------- | ------------------- |  | ------------------- | --------- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |               |                     |  |                    
|                |               | Options Outstanding |  | Options Exercisable
|                |               |                     |  |                    
|                |               | Number              |  | Weighted Average    |           | Weighted Average |  | Number      |      | Weighted Average
|Exercise Prices |               | Outstanding         |  | Remaining Life      |           | Exercise Price   |  | Exercisable |      | Exercise Price  
|                |               |                     |  |                     |           |                  |  |             |      |                 
|$               | 12.00  13.00 |                     |  |                     | 168,103   |                  |  |             | 1.00 |                  |  | $ | 12.63 |  |  |  | 168,103 |  |  | $ | 12.63 | 
|                | 13.00  14.00 |                     |  |                     | 152,125   |                  |  |             | 2.14 |                  |  |   | 13.25 |  |  |  | 152,125 |  |  |   | 13.25 | 
|                | 15.00  16.00 |                     |  |                     | 1,000     |                  |  |             | 2.86 |                  |  |   | 15.25 |  |  |  | 1,000   |  |  |   | 15.25 | 
|                | 17.00  18.00 |                     |  |                     | 212,446   |                  |  |             | 3.14 |                  |  |   | 17.32 |  |  |  | 139,883 |  |  |   | 17.32 | 
|                | 18.00  19.00 |                     |  |                     | 685,708   |                  |  |             | 3.56 |                  |  |   | 18.57 |  |  |  | 238,299 |  |  |   | 18.52 | 
|                | 19.00  20.00 |                     |  |                     | 5,000     |                  |  |             | 4.60 |                  |  |   | 19.85 |  |  |  | 2,500   |  |  |   | 19.85 | 
|                | 20.00  21.00 |                     |  |                     | 3,000     |                  |  |             | 4.85 |                  |  |   | 20.41 |  |  |  | 1,500   |  |  |   | 20.41 | 
|                | 42.00  43.00 |                     |  |                     | 519,500   |                  |  |             | 4.13 |                  |  |   | 42.19 |  |  |  |         |  |  |   |       | 
|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 
|                |               |                     |  |                     | 1,746,882 |                  |  |             | 3.31 |                  |  | $ | 24.41 |  |  |  | 703,410 |  |  | $ | 15.74 | 
|                |               |                     |  |                     |           |                  |  |             |      |                  |  |   |       |  |  |  |         |  |  |   |       | 

F-25



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##### Table of Contents



Stock option activity is summarized as follows:

|                                 |           |        |           |                  |   |   |       |       | 
|-------------------------------- | --------- | ------ | --------- | ---------------- | - | - | ----- | ----- | 
|                                 |           |        |           | Weighted Average
|                                 |           | Shares |           | Exercise Price  
|                                 |           |        |           |                 
|Outstanding at January 1, 2002   |           |        | 1,076,814 |                  |   | $ | 14.67 |      
|                                 | Granted   |        |           | 414,500          |   |   |       | 18.33 | 
|                                 | Exercised |        |           | (143,251         | ) |   |       | 13.29 | 
|                                 | Forfeited |        |           | (180,625         | ) |   |       | 16.06 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2002 |           |        | 1,167,438 |                  |   |   | 15.91 |      
|                                 | Granted   |        |           | 444,000          |   |   |       | 18.78 | 
|                                 | Exercised |        |           | (126,424         | ) |   |       | 14.84 | 
|                                 | Forfeited |        |           | (24,478          | ) |   |       | 17.19 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2003 |           |        | 1,460,536 |                  |   |   | 16.86 |      
|                                 | Granted   |        |           | 540,900          |   |   |       | 42.19 | 
|                                 | Exercised |        |           | (196,860         | ) |   |       | 16.40 | 
|                                 | Forfeited |        |           | (57,694          | ) |   |       | 27.10 | 
|                                 |           |        |           |                  |   |   |       |      
|Outstanding at December 31, 2004 |           |        | 1,746,882 |                  |   | $ | 24.41 |      
|                                 |           |        |           |                  |   |   |       |      

Option valuation models require the input of
highly subjective assumptions including the expected stock price
volatility. Our stock options have characteristics significantly
different from traded options, and changes in the subjective
input assumptions can materially affect the fair value estimate.
We utilize the Binomial option valuation model for all stock
options expensed as we feel it provides a better measure of
value for companies that pay dividends than other valuation
models. In our opinion, no option valuation model necessarily
provides a reliable single measure of the fair value of our
employee stock options. Nonetheless, the fair value of options
granted in 2004, 2003, and 2002 was estimated with the following
assumptions:

|                        |  |              |          |      |  |      |          |   |  |  |          |  
|----------------------- |  | ------------ | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                        |  |             
|                        |  | December 31,
|                        |  |             
|                        |  | 2004         |          | 2003 |  | 2002
|                        |  |              |          |      |  |     
|Risk-free interest rate |  |              | 2.3      | %    |  |      | 2.2      | % |  |  | 3.4      | %
|Expected dividend       |  |              | 0.49     |      |  |      | 0.45     |   |  |  |          |  
|Volatility factor       |  |              | 0.47     |      |  |      | 0.46     |   |  |  | 0.31     |  
|Expected option life    |  |              | 3  years |      |  |      | 3  years |   |  |  | 7  years |  

The weighted average fair value of options
granted during the year ended December 31, 2004 was $13.26
compared to $5.48 for the options granted during the year ended
December 31, 2003.

F-26



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##### Table of Contents



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

|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | --------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ | ---- | 
|                                                                                                                                                        |                       |                                  
|                                                                                                                                                        |                       | For the Year Ended December 31,  
|                                                                                                                                                        |                       |                                  
|                                                                                                                                                        |                       | 2004                              |         | 2003 |  | 2002
|                                                                                                                                                        |                       |                                   |         |      |  |     
|                                                                                                                                                        |                       |                                  
|                                                                                                                                                        |                       | (Dollars in thousands, except per
|                                                                                                                                                        |                       | share amounts)                   
|Net income, as reported                                                                                                                                 |                       | $                                 | 207,962 |      |  | $    | 123,605 |      |  | $ | 79,718 |     
|Add: Stock-based employee compensation
    expense included in reported net
    income, net of related tax effects                                      |                       |                                   | 1,609   |      |  |      | 404     |      |  |   |        |     
|Deduct: Total stock-based employee
    compensation expense determined under fair
    value based method for all awards, net of
    related tax effects |                       |                                   | 2,143   |      |  |      | 1,225   |      |  |   | 858    |     
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     
|Pro forma net income                                                                                                                                    |                       | $                                 | 207,428 |      |  | $    | 122,784 |      |  | $ | 78,860 |     
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     
|Earnings per share                                                                                                                                      |                       |                                   |         |      |  |      |         |      |  |   |        |     
|                                                                                                                                                        | Basic  as reported   |                                   | $       | 4.01 |  |      | $       | 2.88 |  |   | $      | 2.07 | 
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     
|                                                                                                                                                        | Basic  pro forma     |                                   | $       | 4.00 |  |      | $       | 2.86 |  |   | $      | 2.04 | 
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     
|Earnings per share                                                                                                                                      |                       |                                   |         |      |  |      |         |      |  |   |        |     
|                                                                                                                                                        | Diluted  as reported |                                   | $       | 3.96 |  |      | $       | 2.85 |  |   | $      | 2.05 | 
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     
|                                                                                                                                                        | Diluted  pro forma   |                                   | $       | 3.95 |  |      | $       | 2.83 |  |   | $      | 2.03 | 
|                                                                                                                                                        |                       |                                   |         |      |  |      |         |      |  |   |        |     

Note 22  Income
Taxes

Income tax expense consisted of the following:

|          |         |                                 |         |         |   |      |         |         |   |   |         |         |  
|--------- | ------- | ------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|          |         |                                
|          |         | For the Year Ended December 31,
|          |         |                                
|          |         | 2004                            |         | 2003    |   | 2002
|          |         |                                 |         |         |   |     
|          |         |                                
|          |         | (Dollars in thousands)         
|Current:  |         |                                 |         |         |   |      |         |         |   |   |         |        
|          | Federal |                                 | $       | 136,755 |   |      | $       | 94,149  |   |   | $       | 72,144  |  
|          | State   |                                 |         | 30,447  |   |      |         | 16,587  |   |   |         | 14,127  |  
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         |                                 | 167,202 |         |   |      | 110,736 |         |   |   | 86,271  |        
|Deferred: |         |                                 |         |         |   |      |         |         |   |   |         |        
|          | Federal |                                 |         | (10,032 | ) |      |         | (13,300 | ) |   |         | (24,816 | )
|          | State   |                                 |         | (1,373  | ) |      |         | 839     |   |   |         | (9,188  | )
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         |                                 | (11,405 | )       |   |      | (12,461 | )       |   |   | (34,004 | )      
|          |         |                                 |         |         |   |      |         |         |   |   |         |        
|          |         | $                               | 155,797 |         |   | $    | 98,275  |         |   | $ | 52,267  |        
|          |         |                                 |         |         |   |      |         |         |   |   |         |        

F-27



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##### Table of Contents



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

|                                          |  |                                 |         |      |  |      |        |  |  |   |        |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2004                            |         | 2003 |  | 2002
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Tax at statutory rate                     |  | $                               | 137,559 |      |  | $    | 86,780 |  |  | $ | 50,601 |  
|State tax (net of federal tax benefit)(1) |  |                                 | 18,897  |      |  |      | 11,327 |  |  |   | 3,211  |  
|Other                                     |  |                                 | (659    | )    |  |      | 168    |  |  |   | (1,545 | )
|                                          |  |                                 |         |      |  |      |        |  |  |   |        |  
|                                          |  | $                               | 155,797 |      |  | $    | 98,275 |  |  | $ | 52,267 |  
|                                          |  |                                 |         |      |  |      |        |  |  |   |        |  



---



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

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

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

|                                                                 |                                |                        |         |         |   |   |         |         |  
|---------------------------------------------------------------- | ------------------------------ | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                 |                                |                       
|                                                                 |                                | December 31,          
|                                                                 |                                |                       
|                                                                 |                                | 2004                   |         | 2003   
|                                                                 |                                |                        |         |        
|                                                                 |                                |                       
|                                                                 |                                | (Dollars in thousands)
|Deferred tax assets:                                             |                                |                        |         |         |   |   |         |        
|Reserves for credit losses                                       |                                | $                      | 115,814 |         |   | $ | 108,416 |        
|State tax deferred benefit                                       |                                |                        | 8,972   |         |   |   | 5,291   |        
|Deferred compensation accrual                                    |                                |                        | 8,982   |         |   |   | 7,158   |        
|Tax basis difference  marketable
    securities and derivatives |                                |                        | 27,021  |         |   |   | 57,861  |        
|Other, net                                                       |                                |                        | 16,373  |         |   |   | 14,262  |        
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Total deferred tax assets      |                        |         | 177,162 |   |   |         | 192,988 |  
|Deferred tax liabilities:                                        |                                |                        |         |         |   |   |         |        
|Loan fee income deferred for tax purposes                        |                                |                        | (159    | )       |   |   | (281    | )      
|FHLB dividends                                                   |                                |                        | (8,812  | )       |   |   | (7,947  | )      
|Accelerated depreciation for tax purposes                        |                                |                        | (13,419 | )       |   |   | (12,012 | )      
|Loan costs                                                       |                                |                        | (321    | )       |   |   | (317    | )      
|Deferred taxes on unrealized gains                               |                                |                        | (2,432  | )       |   |   | (9,847  | )      
|Tax basis difference  mortgage-backed
    securities            |                                |                        | (17,615 | )       |   |   | (17,818 | )      
|Other, net                                                       |                                |                        | (26,520 | )       |   |   | (24,860 | )      
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Total deferred tax liabilities |                        |         | (69,278 | ) |   |         | (73,082 | )
|                                                                 |                                |                        |         |         |   |   |         |        
|                                                                 | Net deferred tax assets        |                        | $       | 107,884 |   |   | $       | 119,906 |  
|                                                                 |                                |                        |         |         |   |   |         |        

F-28



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##### Table of Contents



Note 23  Fair Values of
Financial Instruments

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

|                       |                                                                          |                        |   |            |  |          |   |            |  |  |   |            |  |  |   |            | 
|---------------------- | ------------------------------------------------------------------------ | ---------------------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ---------- |  |  | - | ---------- | 
|                       |                                                                          |                       
|                       |                                                                          | December 31,          
|                       |                                                                          |                       
|                       |                                                                          |                        |   |           
|                       |                                                                          | 2004                   |   | 2003      
|                       |                                                                          |                        |   |           
|                       |                                                                          | Carrying               |   |            |  | Carrying |   |           
|                       |                                                                          | Amounts                |   | Fair Value |  | Amounts  |   | Fair Value
|                       |                                                                          |                        |   |            |  |          |   |           
|                       |                                                                          |                       
|                       |                                                                          | (Dollars in thousands)
|Financial assets:      |                                                                          |                        |   |            |  |          |   |            |  |  |   |            |  |  |   |           
|                       | Cash and interest bearing deposits with other
    financial institutions |                        | $ | 93,510     |  |          | $ | 93,510     |  |  | $ | 91,082     |  |  | $ | 91,082     | 
|                       | Other short-term investments                                             |                        |   | 125,000    |  |          |   | 125,000    |  |  |   | 291,000    |  |  |   | 291,000    | 
|                       | Restricted cash                                                          |                        |   | 417,833    |  |          |   | 417,833    |  |  |   | 245,399    |  |  |   | 245,399    | 
|                       | Investment securities and MBS                                            |                        |   | 2,769,569  |  |          |   | 2,769,569  |  |  |   | 2,819,546  |  |  |   | 2,819,546  | 
|                       | Loans receivable                                                         |                        |   | 12,135,748 |  |          |   | 12,758,831 |  |  |   | 11,138,483 |  |  |   | 12,004,390 | 
|Financial liabilities: |                                                                          |                        |   |            |  |          |   |            |  |  |   |            |  |  |   |           
|                       | Deposits(1)                                                              |                        |   | 2,183,499  |  |          |   | 2,165,692  |  |  |   | 1,972,856  |  |  |   | 1,965,945  | 
|                       | Securities sold under agreements to repurchase(2)                        |                        |   |            |  |          |   |            |  |  |   | 222,489    |  |  |   | 222,489    | 
|                       | Short-term borrowings                                                    |                        |   | 8,577      |  |          |   | 8,582      |  |  |   | 9,046      |  |  |   | 9,049      | 
|                       | Notes payable on automobile secured financing(3)                         |                        |   | 10,242,900 |  |          |   | 10,399,862 |  |  |   | 10,254,641 |  |  |   | 10,511,044 | 
|                       | Federal Home Loan Bank advances                                          |                        |   | 1,139,521  |  |          |   | 1,139,908  |  |  |   | 328,644    |  |  |   | 328,644    | 
|                       | Subordinated debentures                                                  |                        |   | 295,321    |  |          |   | 337,048    |  |  |   | 394,854    |  |  |   | 395,699    | 
|Other:                 |                                                                          |                        |   |            |  |          |   |            |  |  |   |            |  |  |   |           
|                       | Loan commitments                                                         |                        |   |            |  |          |   | 635,493    |  |  |   |            |  |  |   | 518,723    | 



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in deposits are interest rate swap
    agreements with a carrying amount equal to their fair value of
    $55.4 million and $72.8 million at December 31,
    2004 and 2003, respectively.                                        
|   
|(2) | Included in securities sold under agreements to
    repurchase are interest rate swap agreements with a carrying
    amount equal to their fair value of $5.4 million at
    December 31, 2003.                                            
|   
|(3) | Included in notes payable on automobile secured
    financing are interest rate swap agreements with a carrying
    amount equal to their fair value of $1.7 million and
    $37.3 million at December 31, 2004 and 2003,
    respectively.

The methods and assumptions used in estimating
the fair values of our financial instruments are included in
Note 1  Summary of Significant Accounting
Policies.

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, 2004 and 2003, the terms of our
interest rate swaps were to pay a weighted average fixed rate of
4.6% and 4.5% and to receive a weighted average variable rate of
2.5% and 1.4%, respectively, with expiration dates ranging from
2005 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, therefore, are not a measure
of our exposure to loss through our use of these agreements. The
amounts exchanged are determined by reference to the notional
amounts and the other terms of the agreements.

F-29



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##### Table of Contents



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, 2004, the
unrealized loss on cash flow hedges was $1.6 million, net
of taxes of $1.0 million, compared with $21.3 million,
net of taxes of $14.2 million, for the year ended
December 31, 2003. We reclassified $43.1 million and
$68.5 million into earnings, net of tax, for the years
ended December 31, 2004 and 2003, respectively, which is
included in interest expense on the Consolidated Statements of
Income. The amount recognized in earnings due to ineffectiveness
was immaterial. We estimate that we will reclassify into
earnings during the next twelve months approximately
$14 million of the realized loss on settled cash flow
hedges that was recorded in accumulated other comprehensive loss
as of December 31, 2004.

Note 25  Proposed Conversion
and Merger

On May 23, 2004, we entered into a
definitive agreement pursuant to which we will acquire the
outstanding 16% common stock minority interest of WFS not
already owned by our wholly owned subsidiary, the Bank. The
transaction is structured as a merger of WFS with and into the
Bank. In connection with the merger, the Bank has filed an
application with the California Department of Financial
Institutions to convert its federal thrift charter to a
California state bank charter. The merger agreement is
conditioned upon the conversion of the charter. The transaction
is subject to, among other closing conditions, the receipt of
regulatory approvals and the approval of a majority of WFS
Financials shareholders, other than shares controlled by
Westcorp.

The California Department of Financial
Institutions and the Office of Thrift Supervision have approved
the Banks application to convert from a federal savings
bank to a California state commercial bank subject to receipt of
all other required regulatory approvals. The Federal Deposit
Insurance Corporation approved the application to merge WFS into
the Bank as part of the acquisition of the minority interest in
WFS. The conversion is still contingent upon the approval of our
application to become a bank holding company by the Board of
Governors of the Federal Reserve. After the conversion, we will
be subject to the laws, regulation and oversight of the
California Department of Financial Institutions, the Federal
Deposit Insurance Corporation and the Federal Reserve. The
merger is also subject to approval by the majority of WFS
minority shareholders.

Note 26  Earnings Per
Share

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

|                                          |  |                                                  |            |      |  |      |            |  |  |   |            | 
|----------------------------------------- |  | ------------------------------------------------ | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                          |  |                                                 
|                                          |  | For the Year Ended December 31,                 
|                                          |  |                                                 
|                                          |  | 2004                                             |            | 2003 |  | 2002
|                                          |  |                                                  |            |      |  |     
|                                          |  |                                                 
|                                          |  | (Dollars in thousands, except per share amounts)
|Basic:                                    |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 207,962    |      |  | $    | 123,605    |  |  | $ | 79,718     | 
|Average basic common shares outstanding   |  |                                                  | 51,826,412 |      |  |      | 42,867,262 |  |  |   | 38,588,710 | 
|Net income per common share  basic       |  | $                                                | 4.01       |      |  | $    | 2.88       |  |  | $ | 2.07       | 
|Diluted:                                  |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 207,962    |      |  | $    | 123,605    |  |  | $ | 79,718     | 
|Average basic common shares outstanding   |  |                                                  | 51,826,412 |      |  |      | 42,867,262 |  |  |   | 38,588,710 | 
|Stock option adjustment                   |  |                                                  | 742,422    |      |  |      | 529,949    |  |  |   | 333,901    | 
|Average diluted common shares outstanding |  |                                                  | 52,568,834 |      |  |      | 43,397,211 |  |  |   | 38,922,611 | 
|Earnings per common share  diluted       |  | $                                                | 3.96       |      |  | $    | 2.85       |  |  | $ | 2.05       | 

F-30



---



##### Table of Contents



Note 27  Regulatory
Capital

At December 31, 2004 and 2003, 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, 2004 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, 2004
and 2003:

|                                          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |           |  
|----------------------------------------- | ------------- | ---------------------- | - | --------- | - | ---------- | - | ---------- | - |  | - | --------- | - |  | - | --------- | -
|                                          |               |                        |   |           |   | Tier 1     |   |           
|                                          |               | Tangible               |   | Core      |   | Risk-Based |   | Risk-Based
|                                          |               | Capital                |   | Capital   |   | Capital    |   | Capital   
|                                          |               |                        |   |           |   |            |   |           
|                                          |               |                       
|                                          |               | (Dollars in thousands)
|December 31, 2004                         |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|Actual Capital:                           |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 1,196,579 |   |            | $ | 1,196,579  |   |  | $ | 1,193,529 |   |  | $ | 1,619,317 |  
|                                          | Capital ratio |                        |   | 8.99      | % |            |   | 8.99       | % |  |   | 11.59     | % |  |   | 15.72     | %
|FIRREA minimum required capital:          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 199,654   |   |            | $ | 399,308    |   |  |   | N/A       |   |  | $ | 824,105   |  
|                                          | Capital ratio |                        |   | 1.50      | % |            |   | 3.00       | % |  |   | N/A       |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 996,925   |   |            | $ | 797,271    |   |  |   | N/A       |   |  | $ | 795,212   |  
|FDICIA well capitalized required capital: |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        |   | N/A       |   |            | $ | 665,513    |   |  | $ | 618,079   |   |  | $ | 1,030,131 |  
|                                          | Capital ratio |                        |   | N/A       |   |            |   | 5.00       | % |  |   | 6.00      | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A       |   |            | $ | 531,066    |   |  | $ | 575,450   |   |  | $ | 589,186   |  
|December 31, 2003                         |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|Actual Capital:                           |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 884,536   |   |            | $ | 884,536    |   |  | $ | 881,517   |   |  | $ | 1,357,744 |  
|                                          | Capital ratio |                        |   | 7.06      | % |            |   | 7.06       | % |  |   | 9.20      | % |  |   | 14.17     | %
|FIRREA minimum required capital:          |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        | $ | 187,923   |   |            | $ | 375,845    |   |  |   | N/A       |   |  | $ | 766,665   |  
|                                          | Capital ratio |                        |   | 1.50      | % |            |   | 3.00       | % |  |   | N/A       |   |  |   | 8.00      | %
|                                          | Excess        |                        | $ | 696,313   |   |            | $ | 508,691    |   |  |   | N/A       |   |  | $ | 591,079   |  
|FDICIA well capitalized required capital: |               |                        |   |           |   |            |   |            |   |  |   |           |   |  |   |          
|                                          | Amount        |                        |   | N/A       |   |            | $ | 626,409    |   |  | $ | 574,999   |   |  | $ | 958,332   |  
|                                          | Capital ratio |                        |   | N/A       |   |            |   | 5.00       | % |  |   | 6.00      | % |  |   | 10.00     | %
|                                          | Excess        |                        |   | N/A       |   |            | $ | 258,127    |   |  | $ | 306,518   |   |  | $ | 399,412   |  

F-31



---



##### Table of Contents



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

|                                           |                                                                             |                        |           |         |   |   |           |         |  
|------------------------------------------ | --------------------------------------------------------------------------- | ---------------------- | --------- | ------- | - | - | --------- | ------- | -
|                                           |                                                                             |                       
|                                           |                                                                             | December 31,          
|                                           |                                                                             |                       
|                                           |                                                                             | 2004                   |           | 2003   
|                                           |                                                                             |                        |           |        
|                                           |                                                                             |                       
|                                           |                                                                             | (Dollars in thousands)
|Bank shareholders equity  GAAP
    basis |                                                                             | $                      | 993,959   |         |   | $ | 685,045   |        
|Adjustments for tangible and core capital: |                                                                             |                        |           |         |   |   |           |        
|                                           | Unrealized losses on securities available for
    sale and cash flow hedges |                        |           | 37,529  |   |   |           | 68,203  |  
|                                           | Non-permissible activities                                                  |                        |           | (393    | ) |   |           | (146    | )
|                                           | Minority interest in equity of subsidiaries                                 |                        |           | 165,484 |   |   |           | 131,434 |  
|                                           |                                                                             |                        |           |         |   |   |           |        
|Total tangible and core capital            |                                                                             |                        | 1,196,579 |         |   |   | 884,536   |        
|Adjustments for risk-based capital:        |                                                                             |                        |           |         |   |   |           |        
|                                           | Subordinated debentures(1)                                                  |                        |           | 295,838 |   |   |           | 355,370 |  
|                                           | General loan valuation allowance(2)                                         |                        |           | 129,950 |   |   |           | 120,857 |  
|                                           | Low-level recourse deduction                                                |                        |           | (3,050  | ) |   |           | (3,019  | )
|                                           |                                                                             |                        |           |         |   |   |           |        
|Risk-based capital                         |                                                                             | $                      | 1,619,317 |         |   | $ | 1,357,744 |        
|                                           |                                                                             |                        |           |         |   |   |           |        



---



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

Note 28  Westcorp (Parent
Company Only) Financial Information

STATEMENTS OF FINANCIAL CONDITION

|                     |                               |                                            |   |           |           |  |   |           |           | 
|-------------------- | ----------------------------- | ------------------------------------------ | - | --------- | --------- |  | - | --------- | --------- | 
|                     |                               |                                           
|                     |                               | December 31,                              
|                     |                               |                                           
|                     |                               | 2004                                       |   | 2003     
|                     |                               |                                            |   |          
|                     |                               |                                           
|                     |                               | (Dollars in thousands)                    
|Assets               |                               |                                            |   |           |           |  |   |          
|                     | Cash                          |                                            | $ | 58,150    |           |  | $ | 287,730   |          
|                     | Interest receivable           |                                            |   | 65        |           |  |   |           |          
|                     | Intercompany notes receivable |                                            |   | 26,014    |           |  |   |           |          
|                     | Investment in subsidiaries    |                                            |   | 1,300,799 |           |  |   | 847,447   |          
|                     | Income tax receivable         |                                            |   | 1,849     |           |  |   |           |          
|                     | Other                         |                                            |   | 2,813     |           |  |   | 129       |          
|                     |                               |                                            |   |           |           |  |   |          
|                     |                               | Total assets                               |   | $         | 1,389,690 |  |   | $         | 1,135,306 | 
|Liabilities          |                               |                                            |   |           |           |  |   |          
|                     | Short-term borrowing          |                                            | $ | 43,522    |           |  |   |           |          
|                     | Income tax payable            |                                            |   |           |           |  | $ | 1,159     |          
|                     | Other liabilities             |                                            |   | 110       |           |  |   | 1,793     |          
|                     |                               |                                            |   |           |           |  |   |          
|                     |                               | Total liabilities                          |   |           | 43,632    |  |   |           | 2,952     | 
|Shareholders Equity |                               |                                            |   |           |           |  |   |          
|                     | Shareholders equity          |                                            |   | 1,346,058 |           |  |   | 1,132,354 |          
|                     |                               |                                            |   |           |           |  |   |          
|                     |                               | Total liabilities and shareholders equity |   | $         | 1,389,690 |  |   | $         | 1,135,306 | 
|                     |                               |                                            |   |           |           |  |   |          

F-32



---



##### Table of Contents



STATEMENTS OF INCOME

|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |        | 
|----------------------------------------------------------------------- | ------------- | ------------------------------- | ------- | ----- |  | ---- | ------- | ------ |  | - | ------ | ------ | 
|                                                                        |               |                                
|                                                                        |               | For the Year Ended December 31,
|                                                                        |               |                                
|                                                                        |               | 2004                            |         | 2003  |  | 2002
|                                                                        |               |                                 |         |       |  |     
|                                                                        |               |                                
|                                                                        |               | (Dollars in thousands)         
|Income:                                                                 |               |                                 |         |       |  |      |         |        |  |   |        |       
|Dividends from subsidiaries                                             |               | $                               | 7,000   |       |  | $    | 19,250  |        |  | $ | 16,100 |       
|Interest income                                                         |               |                                 | 2,711   |       |  |      | 251     |        |  |   |        |       
|Noninterest income                                                      |               |                                 | (5      | )     |  |      | 29      |        |  |   |        |       
|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |       
|                                                                        | Total income  |                                 |         | 9,706 |  |      |         | 19,530 |  |   |        | 16,100 | 
|Expense:                                                                |               |                                 |         |       |  |      |         |        |  |   |        |       
|Interest expense                                                        |               |                                 | 444     |       |  |      |         |        |  |   | 138    |       
|Noninterest expense                                                     |               |                                 | 3,097   |       |  |      | 1,298   |        |  |   | 5,071  |       
|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |       
|                                                                        | Total expense |                                 |         | 3,541 |  |      |         | 1,298  |  |   |        | 5,209  | 
|Income before income taxes and equity in net
    income of subsidiaries |               |                                 | 6,165   |       |  |      | 18,232  |        |  |   | 10,891 |       
|Income tax benefit                                                      |               |                                 | (392    | )     |  |      | (369    | )      |  |   | (2,087 | )     
|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |       
|Income before equity in net income of subsidiaries                      |               |                                 | 6,557   |       |  |      | 18,601  |        |  |   | 12,978 |       
|Equity in undistributed net income of subsidiaries                      |               |                                 | 195,652 |       |  |      | 105,230 |        |  |   | 67,698 |       
|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |       
|Net income                                                              |               | $                               | 202,209 |       |  | $    | 123,831 |        |  | $ | 80,676 |       
|                                                                        |               |                                 |         |       |  |      |         |        |  |   |        |       

STATEMENTS OF CASH FLOWS

|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |         |   | 
|------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------- | -------- | -------- | ------- | ---- | ------- | -------- | - | - | ------- | ------- | - | 
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | For the Year Ended December 31,
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | 2004                            |          | 2003     |         | 2002
|                                                                                      |                                                    |                                 |          |          |         |     
|                                                                                      |                                                    |                                
|                                                                                      |                                                    | (Dollars in thousands)         
|OPERATING ACTIVITIES                                                                  |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|Net income                                                                            |                                                    | $                               | 202,209  |          |         | $    | 123,831 |          |   | $ | 80,676  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|                                                                                      | Amortization                                       |                                 |          | (80      | )       |      |         |          |   |   |         |         |  
|                                                                                      | Equity in undistributed net income of subsidiaries |                                 |          | (195,652 | )       |      |         | (105,230 | ) |   |         | (67,698 | )
|                                                                                      | Other, net                                         |                                 |          | (30,833  | )       |      |         | 4,256    |   |   |         | (927    | )
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|NET CASH (USED IN) PROVIDED BY OPERATING
    ACTIVITIES                               |                                                    |                                 | (24,356  | )        |         |      | 22,857  |          |   |   | 12,051  |        
|INVESTING ACTIVITIES                                                                  |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|Investment securities available for sale:                                             |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|                                                                                      |                                                    | Purchases                       |          |          | (79,920 | )    |         |          |   |   |         |         |   | 
|                                                                                      |                                                    | Payments                        |          |          | 80,000  |      |         |          |   |   |         |         |   | 
|Capital contribution to subsidiary                                                    |                                                    |                                 | (225,000 | )        |         |      | (93,050 | )        |   |   | (29,700 | )      
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                    |                                 | (224,920 | )        |         |      | (93,050 | )        |   |   | (29,700 | )      
|FINANCING ACTIVITIES                                                                  |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|Increase (decrease) in short-term borrowings                                          |                                                    |                                 | 43,522   |          |         |      |         |          |   |   | (20,000 | )      
|Dividends paid                                                                        |                                                    |                                 | (28,502  | )        |         |      | (21,607 | )        |   |   | (18,042 | )      
|Issuance of common stock                                                              |                                                    |                                 | 4,676    |          |         |      | 371,110 |          |   |   | 52,866  |        
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                    |                                 | 19,696   |          |         |      | 349,503 |          |   |   | 14,824  |        
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|(DECREASE) INCREASE IN CASH                                                           |                                                    |                                 | (229,580 | )        |         |      | 279,310 |          |   |   | (2,825  | )      
|Cash at beginning of year                                                             |                                                    |                                 | 287,730  |          |         |      | 8,420   |          |   |   | 11,245  |        
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        
|CASH AT END OF YEAR                                                                   |                                                    | $                               | 58,150   |          |         | $    | 287,730 |          |   | $ | 8,420   |        
|                                                                                      |                                                    |                                 |          |          |         |      |         |          |   |   |         |        

F-33



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##### Table of Contents



Note 29  Quarterly Results of
Operations (Unaudited)

The following is a summary of unaudited quarterly
results of operations for the years ended December 31, 2004
and 2003. Certain quarterly amounts have been adjusted to
conform with the year-end presentation.

|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|--------------------------------------------- |  | ------------------------------------------------ | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                              |  |                                                 
|                                              |  | For the Three Months Ended                      
|                                              |  |                                                 
|                                              |  | March 31                                         |         | June 30 |  | September 30 |         | December 31
|                                              |  |                                                  |         |         |  |              |         |            
|                                              |  |                                                 
|                                              |  | (Dollars in thousands, except per share amounts)
|2004                                          |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                               |  | $                                                | 313,659 |         |  | $            | 310,983 |             |  | $ | 321,238 |  |  | $ | 325,005 | 
|Interest expense                              |  |                                                  | 119,236 |         |  |              | 113,835 |             |  |   | 115,000 |  |  |   | 115,056 | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net interest income                           |  |                                                  | 194,423 |         |  |              | 197,148 |             |  |   | 206,238 |  |  |   | 209,949 | 
|Provision for credit losses                   |  |                                                  | 62,294  |         |  |              | 51,539  |             |  |   | 60,337  |  |  |   | 61,078  | 
|Noninterest income                            |  |                                                  | 28,690  |         |  |              | 27,554  |             |  |   | 30,027  |  |  |   | 29,851  | 
|Noninterest expense                           |  |                                                  | 71,400  |         |  |              | 73,635  |             |  |   | 74,946  |  |  |   | 75,626  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before income taxes                    |  |                                                  | 89,419  |         |  |              | 99,528  |             |  |   | 100,982 |  |  |   | 103,096 | 
|Income taxes                                  |  |                                                  | 35,313  |         |  |              | 39,725  |             |  |   | 40,188  |  |  |   | 40,571  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before minority interest               |  |                                                  | 54,106  |         |  |              | 59,803  |             |  |   | 60,794  |  |  |   | 62,525  | 
|Minority interest in earnings of subsidiaries |  |                                                  | 10,741  |         |  |              | 5,388   |             |  |   | 6,122   |  |  |   | 7,015   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net income                                    |  | $                                                | 43,365  |         |  | $            | 54,415  |             |  | $ | 54,672  |  |  | $ | 55,510  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  basic             |  | $                                                | 0.84    |         |  | $            | 1.05    |             |  | $ | 1.05    |  |  | $ | 1.07    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  diluted           |  | $                                                | 0.83    |         |  | $            | 0.80    |             |  | $ | 1.04    |  |  | $ | 1.06    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|2003                                          |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                               |  | $                                                | 307,862 |         |  | $            | 309,562 |             |  | $ | 310,911 |  |  | $ | 316,682 | 
|Interest expense                              |  |                                                  | 141,405 |         |  |              | 135,470 |             |  |   | 129,870 |  |  |   | 123,997 | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net interest income                           |  |                                                  | 166,457 |         |  |              | 174,092 |             |  |   | 181,041 |  |  |   | 192,685 | 
|Provision for credit losses                   |  |                                                  | 79,884  |         |  |              | 68,036  |             |  |   | 73,150  |  |  |   | 72,936  | 
|Noninterest income                            |  |                                                  | 27,753  |         |  |              | 27,731  |             |  |   | 27,833  |  |  |   | 26,840  | 
|Noninterest expense                           |  |                                                  | 68,606  |         |  |              | 72,824  |             |  |   | 66,923  |  |  |   | 74,129  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before income taxes                    |  |                                                  | 45,720  |         |  |              | 60,963  |             |  |   | 68,801  |  |  |   | 72,460  | 
|Income taxes                                  |  |                                                  | 18,226  |         |  |              | 23,975  |             |  |   | 27,343  |  |  |   | 28,731  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Income before minority interest               |  |                                                  | 27,494  |         |  |              | 36,988  |             |  |   | 41,458  |  |  |   | 43,729  | 
|Minority interest in earnings of subsidiaries |  |                                                  | 3,945   |         |  |              | 5,385   |             |  |   | 12,123  |  |  |   | 4,611   | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Net income                                    |  | $                                                | 23,549  |         |  | $            | 31,603  |             |  | $ | 29,335  |  |  | $ | 39,118  | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  basic             |  | $                                                | 0.60    |         |  | $            | 0.81    |             |  | $ | 0.65    |  |  | $ | 0.82    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Earnings per common share  diluted           |  | $                                                | 0.60    |         |  | $            | 0.80    |             |  | $ | 0.64    |  |  | $ | 0.80    | 
|                                              |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 

Note 30  Subsequent Events
(Unaudited)

On March 3, 2005, we declared a cash
dividend of $0.15 per share for shareholders of record as
of May 3, 2005, with a payable date of May 17, 2005.

On January 28, 2005, we completed the
issuance of $1.6 billion of notes secured by contracts with
a weighted average interest rate of 3.66% through a
securitization transaction accounted for as a secured financing.
The senior notes issued are credit enhanced through the issuance
of subordinated notes.

F-34



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##### Table of Contents



EXHIBIT INDEX

|        |    |                        |  |                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|        | 2  | .1                     |  | Agreement and Plan of Merger and Reorganization,
    dated May 23, 2004, among Westcorp, Western Financial Bank
    and WFS Financial Inc(1)                                                                                                                                                                          
|        | 3  | .1                     |  | Articles of Incorporation(2)                                                                                                                                                                                                                                                                                          
|        | 3  | .1.1                   |  | Certificate of Amendment of the Articles of
    Incorporation of Westcorp as filed May 14, 2001(3)                                                                                                                                                                                                                    
|        | 3  | .1.2                   |  | Certificate of Amendment of the Articles of
    Incorporation of Westcorp, dated April 26, 2004(1)                                                                                                                                                                                                                    
|        | 3  | .2                     |  | Bylaws(2)                                                                                                                                                                                                                                                                                                             
|        | 4  | .2                     |  | Indenture dated 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(4)                                                                           
|        | 10 | .1                     |  | Amended and Restated 1991 Stock Option Plan of
    Westcorp(5)                                                                                                                                                                                                                                                        
|        | 10 | .2                     |  | Westcorp 2001 Stock Option Plan(6)                                                                                                                                                                                                                                                                                    
|        | 10 | .3                     |  | 2000 Executive Deferral Plan V(4)                                                                                                                                                                                                                                                                                     
|        | 10 | .3.1                   |  | First Amendment to the Westcorp Executive
    Deferral Plan V, dated April 1, 2003(5)                                                                                                                                                                                                                                 
|        | 10 | .4                     |  | Master Tax Sharing Agreement between Westcorp and
    its subsidiaries, dated January 1, 2004                                                                                                                                                                                                                         
|        | 10 | .4.1                   |  | First Amendment to the Master Tax Sharing
    Agreement, dated June 10, 2004                                                                                                                                                                                                                                          
|        | 10 | .5                     |  | Amended and Restated Reinvestment Contract
    between WFS Financial Inc and Western Financial Bank, F.S.B.,
    dated January 1, 2004                                                                                                                                                                                
|        | 10 | .6                     |  | Westcorp Cafeteria Plan with Flexible Spending
    Agreement between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc, WestFin
    Insurance Agency, Inc., WFS Receivables Corporation, and Westran
    Services Corp. dated January 1, 2004                            
|        | 10 | .6.1                   |  | First Amendment to the Westcorp Cafeteria Plan
    with Flexible Spending Agreement between Westcorp, Western
    Financial Associate Solutions, Western Financial Bank, WFS
    Financial Inc, WestFin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Westran Services Corp.
    dated December 1, 2004
|        | 10 | .7                     |  | Fourth Amended and Restated Master Collateral
    Assignment Agreement, dated as of September 1, 2004                                                                                                                                                                                                                 
|        | 10 | .8                     |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                                                                                                                                                                                                         
|        | 10 | .9                     |  | Form of WFS Financial Inc
    Loan Application(5)                                                                                                                                                                                                                                                                     
|        | 10 | .10                    |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(8)                                                                                                                                                                                                          
|        | 10 | .10.1                  |  | Amendment No. 1, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(4)                                                                                                                                                                        
|        | 10 | .10.2                  |  | Amendment No. 2, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(4)                                                                                                                                                                        
|        | 10 | .10.3                  |  | Amendment No. 3, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                        
|        | 10 | .10.4                  |  | Amendment No. 4, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                        
|        | 10 | .10.5                  |  | Amendment No. 5, effective as of
    January 1, 2001, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(5)                                                                                                                                                                        
|        | 10 | .10.6                  |  | Amendment No. 6, dated as of
    November 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(3)                                                                                                                                                                           
|        | 10 | .10.7                  |  | Amendment No. 7, dated as of
    December 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan(3)                                                                                                                                                                           



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                          
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|        | 10 | .10.8                  |  | Amendment No. 8, dated as of
    December 30, 2004, to Amended and Restated Westcorp
    Employee Stock Ownership and Salary Savings Plan                                                                                                                                                                                
|        | 10 | .11                    |  | Amended and Restated WFS 1996 Incentive
    Stock Option Plan(7)                                                                                                                                                                                                                                                         
|        | 10 | .12                    |  | Master Allocation Agreement between Westcorp and
    its subsidiaries, dated January 1, 2004                                                                                                                                                                                                                             
|        | 10 | .12.1                  |  | First Amendment to the Master Allocation
    Agreement between Westcorp and its subsidiaries, dated
    December 1, 2004                                                                                                                                                                                                 
|        | 10 | .13                    |  | Employment Agreements(8)(9)                                                                                                                                                                                                                                                                                              
|        | 10 | .14                    |  | Intellectual Property Licensing Agreement between
    Westcorp and its subsidiaries and affiliates, dated as of
    January 1, 2004                                                                                                                                                                                      
|        | 10 | .15                    |  | Master Travel Services Agreement between Westran
    Services Corp., Westcorp, Western Financial Bank,
    WFS Financial Inc, Westfin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Western Financial
    Associate Solutions, dated January 1, 2004                                                      
|        | 10 | .15.1                  |  | First Amendment to the Master Travel Services
    Agreement, dated December 1, 2004                                                                                                                                                                                                                                      
|        | 10 | .16                    |  | Westcorp ESOP and Salary Savings Plan between
    Westcorp, Western Financial Associate Solutions, Western
    Financial Bank, WFS Financial Inc, WestFin Insurance
    Agency, Inc., WFS Receivables Corporation, and Westran
    Services Corp., dated January 1, 2004                                                 
|        | 10 | .16.1                  |  | First Amendment to the Westcorp ESOP and Salary
    Savings Plan between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc.,
    WestFin Insurance Agency, Inc., WFS Receivables
    Corporation, and Westran Services Corp., dated December 1,
    2004                    
|        | 10 | .17                    |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, Westcorp, and WFS Receivables
    Corporation 2, dated May 10, 2001(5)                                                                                                                                                                        
|        | 10 | .17.1                  |  | First Amendment to the Interest Rate Swap
    Guarantee Agreement, dated March 3, 2003(5)                                                                                                                                                                                                                                
|        | 10 | .17.2                  |  | Second Amendment to the Interest Rate Swap
    Guarantee Agreement, dated August 5, 2003                                                                                                                                                                                                                                 
|        | 10 | .17.3                  |  | Third Amendment to the Interest Rate Swap
    Guarantee Agreement, dated July 1, 2004                                                                                                                                                                                                                                    
|        | 10 | .18                    |  | Westcorp Executive Deferral Plan V Participation
    Agreement between Westcorp, Western Financial Associate
    Solutions, Western Financial Bank, WFS Financial Inc,
    WestFin Insurance Agency, Inc., WFS Receivables
    Corporation, and Westran Services Corp., dated January 1,
    2004                        
|        | 10 | .18.1                  |  | First Amendment to the Westcorp Executive
    Deferral Plan V Participation Agreement between Westcorp,
    Western Financial Associate Solutions, Western Financial Bank,
    WFS Financial Inc, WestFin Insurance Agency, Inc.,
    WFS Receivables Corporation, and Westran Services Corp.,
    dated December 1, 2004
|        | 21 | .1                     |  | Subsidiaries of Westcorp                                                                                                                                                                                                                                                                                                 
|        | 23 | .1                     |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                   
|        | 31 | .1                     |  | CEO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                          
|        | 31 | .2                     |  | CFO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                          
|        | 32 | .1                     |  | Certification of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            
|        | 32 | .2                     |  | Certification of the Chief Financial Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                            



---



| |     |                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Exhibit previously filed with Westcorp
    Registration Statement on Form S-4
    (File No. 333-117424), filed July 16, 2004,
    incorporated herein by reference under Exhibit Number
    indicated
|
| | (2) | Exhibit previously filed with Westcorp
    Registration Statement on Form S-4
    (File No. 333-34286) filed April 11, 1990,
    incorporated herein by reference under Exhibit Numbers
    indicated
|
| | (3) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2003 as filed on or about March 12, 2004 incorporated
    herein by reference           



---



##### Table of Contents





| |     |                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (4) | 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 26, 2002                                                                                         
|
| | (5) | Exhibit previously filed with Westcorp
    Registration Statements on Form S-3
    (File No. 333-110244) filed November 5, 2003 and
    subsequently amended on November 10, 2003 incorporated by
    reference under Exhibit Number indicated
|
| | (6) | Exhibit previously filed with Annual Report on
    Form 10-K of Westcorp for the year ended December 31,
    2002 as filed on or about March 26, 2003                                                                                         
|
| | (7) | 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                                            
|
| | (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)