WFS FINANCIAL INC, S-2, 1999-11-19

WFS FINANCIAL INC
S-2, 1999-11-19
PERSONAL CREDIT INSTITUTIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1999

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

WFS FINANCIAL INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

6141
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

33-0291646
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

23 PASTEUR ROAD
IRVINE, CALIFORNIA 92618-3816
(949) 727-1002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOY SCHAEFER
CHIEF EXECUTIVE OFFICER
WFS FINANCIAL INC
23 PASTEUR ROAD
IRVINE, CALIFORNIA 92618-3816
(949) 727-1002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES TO:

ANDREW E. KATZ, ESQ.
MITCHELL, SILBERBERG & KNUPP LLP
11377 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064-1683
(310) 312-2000
PETER F. ZIEGLER, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 S. GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-3197
(213) 229-7000

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value............. 2,300,000 Shares(2) $20.00 $46,000,000 $12,788.00
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee as of
November 12, 1999 pursuant to Rule 457 under the Securities Act of 1933.

(2) Includes 300,000 shares of common stock that the underwriters have the
option to purchase from WFS to cover over-allotments, if any.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1999

PROSPECTUS

2,000,000 SHARES

WFS LOGO

COMMON STOCK

------------------------

WFS Financial Inc is offering 2,300,000 shares of its common stock to be
sold in the offering. Our common stock is traded on the Nasdaq National Market
under the symbol "WFSI". The last reported sale price of our common stock on the
Nasdaq National Market on November 12, 1999 was $20.00 per share.

At our request, the underwriters will reserve at the public offering price
up to shares of common stock for sale to Western Financial Bank, which
has expressed a non-binding interest in obtaining these shares in order to
maintain at least an 80% ownership interest and as of the date of this
prospectus held 22,367,036 shares of our common stock or approximately 87% of
the total outstanding shares of our common stock.

SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AUTHORITY OR AGENCY.

------------------------

<TABLE>
<CAPTION>
PER
SHARE TOTAL
----- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>

------------------------

We have granted the underwriters a 30-day option to purchase up to 300,000
additional shares of common stock from us at the public offering price less the
underwriting discount.

The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York, on
, 1999.

------------------------

BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE

THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3

Map of the United States showing states in which WFS originates contracts and
location of offices.

Pie chart showing relative percentage of prime and non-prime borrowers and pie
chart showing relative percentage of new and used cars financed by WFS.

Bar chart showing dollar amount of contracts outstanding in 1994, 1995, 1996,
1997, 1998 and at September 30, 1999, and line showing dollar amounts of
contracts originated in 1994, 1995, 1996, 1997, 1998 and annualized for
September 30, 1999.
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights certain information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors," before deciding to invest in shares of our
common stock. Unless we indicate otherwise, all information in this prospectus
assumes the underwriters will not exercise their over-allotment option.

WFS FINANCIAL INC

OUR COMPANY

We are one of the nation's largest independent automobile finance companies
with over 25 years of experience in the auto finance industry. We originate,
service and securitize new and used automobile installment sales contracts which
are generated through our relationships with over 8,000 franchised and
independent automobile dealers in 43 states. During the first nine months of
1999, we originated $2.5 billion of automobile contracts and as of September 30,
1999, we serviced a portfolio of $5.2 billion.

We provide outstanding service to dealers through our nationwide network of
business development representatives. Our business development representatives
provide dealers with a single contact to whom they can sell most of their
automobile contracts. Unlike many of our competitors, we offer programs for both
prime and non-prime borrowers. Approximately 70% of our contract originations
are with borrowers who have strong credit histories, otherwise known as prime
borrowers, and approximately 30% of our contracts are with borrowers who have
overcome past credit difficulties, otherwise known as non-prime borrowers. Our
programs do not include contracts with borrowers who currently are experiencing
or recently have experienced credit difficulties, otherwise known as sub-prime
borrowers.

We underwrite contracts through a credit approval process that is supported
and controlled by a centralized, automated front-end system. This system
incorporates proprietary credit scoring models, an industry credit scoring model
and tools which enhance our credit analysts' ability to tailor each contract's
pricing and structure to maximize risk-adjusted returns. Our underwriters earn
incentives based on the profitability rather than the volume of the contracts
that they purchase.

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 45 offices.
All other operations are centralized.

We fund our initial purchases of contracts with borrowings under our $1.3
billion committed line of credit with our parent company, Western Financial
Bank, and through our positive operating cash flows. The line of credit is
indirectly supported at the Bank by FDIC-insured retail deposits. We securitize
the contracts we have purchased on a regular basis. Since 1985, we have
securitized over $14 billion of automobile contracts in 46 public offerings of
asset-backed securities, making us the fourth largest issuer of such securities
in the nation.

To improve our long-term profitability, we restructured our operations in
1998. As a result, we incurred a net loss of $16.6 million due to higher credit
losses and a $15.0 million charge related to the restructuring. The higher
credit losses were due to purchasing a higher percentage of non-prime contracts
during 1996 and 1997, as well as servicing disruptions created by our
restructuring. As part of this restructuring, we merged our prime and non-prime
operations and offices, changed our purchasing strategy to emphasize prime
contracts, eliminated unprofitable dealer relationships, implemented new
underwriting and servicing technology, closed 96 underperforming offices and
reduced our number of employees by approximately 20%.

As a result of this restructuring, we have:

- returned to profitability, realizing net income of $36.4 million for the
first nine months of 1999;

- increased operating cash flows from $13.6 million in 1997, to $16.4
million in 1998 and to $93.1 million for the first nine months of 1999;

1
<PAGE> 5

- increased contract originations from $2.3 billion in 1997, to $2.7
billion in 1998 and to $2.5 billion for the first nine months of 1999;

- improved the percentage of applications funded to applications received
from 12.8% in the first quarter of 1998 to 18.6% for the third quarter of
1999;

- lowered operating expenses as a percentage of average serviced contracts
from 5.0% in 1997, to 4.1% in 1998 and to 3.7% in the first nine months
of 1999; and

- reduced net chargeoffs as a percentage of average serviced contracts from
3.0% in 1997 and 3.4% in 1998 to 2.0% in the first nine months of 1999.

OUR INDUSTRY

We believe that the automobile finance industry is the second largest
consumer finance industry in the United States with over $603 billion of loan
and lease originations during 1998. The industry is generally segmented
according to the type of car sold, new or used, and the credit characteristics
of the borrower, prime, non-prime or sub-prime. Competition in the field of
automobile finance is intense. The U.S. captive auto finance companies, General
Motors Acceptance Corporation, Ford Motor Credit Company and Chrysler Credit
Corporation, account for up to 30% of the auto finance market. We believe that
the balance of the market is highly fragmented and that no other single entity
has greater than a 1% market share. Other market participants include the
captive auto finance companies of other manufacturers, banks, credit unions,
independent auto finance companies and other financial institutions.

OUR STRATEGY

Our business objective is to maximize long term profitability by
efficiently purchasing and servicing prime and non-prime credit quality
contracts. We believe we will be able to achieve this objective by:

- producing measured growth in contract originations;

- leveraging technology to improve our business; and

- effectively pricing contracts relative to risk.

OUR ADDRESS

Our principal executive office and mailing address is 23 Pasteur Road,
Irvine, California 92618-3816, and our telephone number is (949) 727-1002. Our
website address is http://www.wfsfinancial.com. The information contained in our
website does not constitute part of this prospectus.

THE OFFERING

Common stock offered by us.......... 2,000,000 shares

Common stock to be outstanding after
the offering........................ 27,758,533 shares

Use of proceeds..................... The net proceeds of the offering will
be used by us to finance our growth in
automobile contracts purchased and for
general corporate purposes. Pending
those uses, we will use the net
proceeds to reduce the outstanding
balance on the line of credit with our
parent company.

Nasdaq National Market Symbol....... WFSI

2
<PAGE> 6

SUMMARY FINANCIAL DATA

The following table presents summary unaudited financial data for the nine
months ended September 30, 1999 and 1998 and summary audited financial data for
the years ended 1998, 1997, 1996, 1995 and 1994. Since the information in this
table is only a summary and does not provide all of the information contained in
our financial statements, including the related notes, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements contained elsewhere in
this prospectus.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.................. $ 70,542 $ 44,074 $ 64,978 $ 52,657 $ 53,533 $ 44,248 $ 24,104
Servicing income..................... 105,503 57,490 76,110 137,753 111,969 71,824 67,683
Gain on sale of contracts............ 48,506 18,949 25,438 39,399 41,518 18,856 1,321
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............... 224,551 120,513 166,526 229,809 207,020 134,928 93,108
Provision for credit losses.......... 31,304 9,389 15,146 8,248 10,275 6,483 8,037
Operating expenses................... 130,247 125,501 165,042 167,418 130,325 77,315 52,627
Restructuring charge(2).............. 15,000 15,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses............... 161,551 149,890 195,188 175,666 140,600 83,798 60,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
(benefit).......................... 63,000 (29,377) (28,662) 54,143 66,420 51,130 32,444
Income tax (benefit)................. 26,552 (12,379) (12,095) 22,829 27,779 20,963 13,951
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641 $ 30,167 $ 18,493
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common share --
diluted(3)......................... $ 1.41 $ (0.66) $ (0.64) $ 1.22 $ 1.50 $ 1.33 $ 0.90
========== ========== ========== ========== ========== ========== ==========
OPERATING DATA:
Prime contract purchases............. $1,768,389 $1,350,819 $1,808,013 $1,245,027 $1,129,314 $ 936,429 $ 848,486
Non-prime contract purchases......... 760,026 671,979 862,683 1,040,252 992,375 591,220 328,545
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total contract purchases..... $2,528,415 $2,022,798 $2,670,696 $2,285,279 $2,121,689 $1,527,649 $1,177,031
========== ========== ========== ========== ========== ========== ==========
Contracts securitized................ $2,000,000 $1,185,000 $1,885,000 $2,190,000 $2,090,000 $1,480,000 $ 842,000
Operating cash flows(4).............. $ 93,101 $ 8,522 $ 16,380 $ 13,567 $ 22,746 $ 25,636 $ 34,325
Operating expenses (annualized) as a
percentage of average serviced
contracts.......................... 3.7% 4.3% 4.1% 5.0% 5.0% 4.1% 3.7%
Number of states in which contracts
were purchased..................... 43 41 42 37 31 16 7
Number of dealers from which
contracts were purchased........... 8,760 12,044 11,323 11,978 9,372 6,247 4,491
SERVICING DATA:
Contracts serviced at end of
period............................. $5,152,194 $4,246,814 $4,367,099 $3,680,817 $3,046,585 $2,209,594 $1,633,177
Average contracts serviced during the
period............................. $4,701,213 $3,935,742 $4,006,185 $3,383,570 $2,627,622 $1,886,359 $1,438,582
Contracts delinquent 60 days or
greater as a percentage of amount
of contracts outstanding at end of
period(5).......................... 0.78% 1.16% 1.07% 0.72% 0.55% 0.40% 0.22%
Net chargeoffs (annualized) as a
percentage of the average amount of
contracts outstanding during the
period(5).......................... 2.01% 3.34% 3.42% 3.02% 2.30% 1.61% 1.09%
</TABLE>

3
<PAGE> 7

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31,
------------------------------- ------------
ACTUAL AS ADJUSTED(6) 1998
------------- --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Contracts receivable, net................................... $1,227,883 $1,227,883 $ 884,825
Retained interest in securitized assets..................... 174,472 174,472 171,230
Total assets................................................ 1,914,226 1,914,226 1,444,340
Secured lines............................................... 833,778 796,478 554,836
Notes payable -- parent..................................... 184,008 184,008 160,000
Total equity................................................ 199,194 236,494 164,341
</TABLE>

- ---------------
(1) The data presented reflect the combined operations of both the auto finance
division of the Bank and its wholly-owned operating subsidiaries, WFS, WFS
Financial Auto Loans, Inc. and WFS Financial Auto Loans 2, Inc. See
"Consolidated Financial Statements -- Note 1 -- Summary of Significant
Accounting Policies".

(2) See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Overview".

(3) Restated to reflect a 10% stock dividend in 1996.

(4) Operating cash flows are defined as cash flows from securitizations, net
interest margin on owned loans and other fee income less dealer
participation and operating costs.

(5) Includes delinquency and loss information relating to contracts that were
sold, but which were originated and serviced by us. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Asset Quality".

(6) As adjusted to reflect the receipt by us of the net proceeds of this
offering.

4
<PAGE> 8

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the related notes.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words such
as "expects," "anticipates," "intends," and "plans" and similar expressions. Our
actual results could differ materially from those discussed in these statements.
Factors that could contribute to such differences include, but are not limited
to, those discussed below and elsewhere in this prospectus.

RISKS RELATED TO US

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 OTHER
STOCKHOLDERS.

Immediately following the completion of the offering, our parent entity,
Western Financial Bank, will own approximately 81% of our outstanding shares of
common stock, or 80% if the underwriters' over-allotment option is exercised in
full, and will be able to exercise significant control of our company. In
addition, Ernest S. Rady, a founder and the Chairman of the Board of Directors
and the Chief Executive Officer of Westcorp, the parent entity of the Bank, is
the beneficial owner of approximately 66% of the outstanding shares of common
stock of Westcorp.

Mr. Rady is also the Chairman of the Board of Directors of the Bank and our
company. Additionally, the Bank intends to retain control of at least 80% of the
outstanding shares of our common stock to ensure that it may consolidate with us
for federal tax purposes. Accordingly, the common stock ownership of the Bank
and Mr. Rady will enable the Bank, and Mr. Rady, to elect all of our directors
and effectively control the vote on all matters submitted to a vote of our
stockholders, including mergers, sales of all or substantially all of our assets
and "going private" transactions. The ongoing relationships between Mr. Rady,
the Bank and us, could result in conflicts of interest between the Bank and our
company. Because of the significant block of common stock controlled by the Bank
and Mr. Rady, decisions may be made that, while in the best interests of the
Bank and Mr. Rady, may not be in the best interests of other stockholders. See
"Management", "Description of Capital Stock" and "Business -- Transactions with
Related Parties".

THE AVAILABILITY OF OUR FINANCING SOURCES DEPENDS ON FACTORS OUTSIDE OF OUR
CONTROL.

We depend on a significant amount of financing from our parent entity to
operate our business and to fund the purchase of contracts pending
securitization. We have three separate borrowing arrangements with our parent
entity. The senior note and the promissory note are longer term, unsecured debt,
while our $1.3 billion line of credit agreement is designed to provide
short-term financing for the purchases of contracts. See
"Business -- Transactions with Related Parties". The availability of these
financing sources depends on factors outside of our control, including
regulatory issues such as the capital requirements of the Bank and availability
of funds at our parent entity. If we were unable to extend this financing, we
would have to replace it with outside sources or curtail our contract purchasing
activities, which would have a material adverse effect on our financial
position, liquidity and results of operations.

5
<PAGE> 9

WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO RUN OUR BUSINESS.

Our business requires substantial cash. Cash requirements include amounts
paid to dealers for acquisition of contracts, expenses incurred in connection
with the securitization of contracts, capital expenditures for new technologies
and ongoing operating costs. Our primary source of operating cash comes from the
excess cash flows received from securitization trusts and contracts held on the
balance sheet. The timing and amount of excess cash flow from contracts varies
based on a number of factors, including but not limited to:

- the rates of loan delinquencies, defaults and net losses;

- how quickly and at what price repossessed vehicles can be resold;

- ages of the loans in the portfolio; and

- levels of voluntary prepayments.

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 publicly offered asset-backed securities. These sales
generate cash proceeds that allow us to repay amounts outstanding under our line
of credit with our parent and to purchase additional contracts. In addition, the
sale of contracts to a securitization trust in preparation for securitization,
creates an accounting gain on sale that forms a material part of our reported
earnings for each quarter. Changes in our asset-backed securities program could
materially adversely affect our earnings or ability to purchase and resell
contracts on a timely basis. Such changes could include a:

- change in the securitization structure which results in gain on sale not
being recognized;

- delay in the completion of a planned securitization;

- negative market perception of us; and

- failure of the contracts we intend to sell to conform to insurance
company and rating agency requirements.

If we are unable to use a securitization program, we may have to curtail
our contract purchasing activities, which would have a material adverse effect
on our financial position, liquidity and results of operations and may cause our
market price to drop.

WE DEPEND ON OUR CREDIT ENHANCEMENTS TO MAINTAIN FAVORABLE INTEREST RATES AND
CASH REQUIREMENTS FOR OUR SECURITIZATIONS.

To date, all of our securitizations have used credit enhancement in the
form of financial guaranty insurance policies issued by Financial Security
Assurance Inc., which is known as FSA. These insurance policies are currently
one of the most effective and least capital intensive forms of credit
enhancement. We use this credit enhancement to achieve "AAA/Aaa" ratings on our
securitizations, which reduces the overall costs of a transaction relative to
alternative forms of financing available to us. FSA is not required to insure
our securitizations and we cannot assure you that it will continue to do so or
that our future securitizations will be similarly rated. Likewise, we are not
required to use financial guaranty insurance policies issued by FSA or any other
form of credit enhancement in connection with our securitizations. A downgrading
of FSA's credit rating, FSA's withdrawal of credit enhancement or the lack of
availability of reinsurance or other alternative credit enhancements could
result in higher interest costs for our future securitizations and/or larger
initial cash deposit requirements if we are unable to obtain similar policies on

6
<PAGE> 10

similar terms. These events could have a material adverse effect on our
financial position, liquidity and results of operations.

IF WE LOSE OUR REINVESTMENT CONTRACT RELATIONSHIP OR IF OUR REINVESTMENT
CONTRACTS ARE NO LONGER DEEMED ELIGIBLE INVESTMENTS, WE MAY NOT BE ABLE TO
OBTAIN COMPARABLE FINANCING.

We have access to the cash flows of each of the outstanding securitization
transactions and the cash held in each spread account through a series of
agreements into which we, our parent company, our subsidiary, WFS Auto Loans 2,
Inc., or WFAL2 as we refer to it, and other parties have entered. We are
permitted to use that cash as we determine, including in the ordinary business
activities of originating contracts. In each securitization transaction, the
Bank and WFAL2 have entered into a reinvestment contract, which 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 an eligible investment as
determined by FSA. FSA has decided that reinvestment contract between the Bank
and WFAL2 are eligible investments. A limited portion of the invested funds may
be used by WFAL2 and the balance may be used by the Bank.

Our parent entity makes its portion of the invested funds available to us
through a reinvestment contract. Under our reinvestment contract with the Bank,
we receive access to all of the cash available to the Bank under each trust
reinvestment contract. We are obligated to repay to the Bank an amount equal to
the cash we used, when needed by the Bank, to meet its obligations under the
individual trust reinvestment contracts. With the portion of the cash available
to WFAL2 under the individual trust reinvestment contracts, WFAL2 purchases
contracts from us according to the terms of sale and servicing agreements
entered into with us. If the reinvestment contracts were no longer deemed an
eligible investment, which determination is made by FSA in its sole discretion,
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. 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.

PREPAYMENTS AND LOSSES MAY HAVE A MATERIAL EFFECT ON THE VALUE OF OUR RETAINED
INTEREST IN SECURITIZED ASSETS.

We usually sell contracts to a grantor or owner trust in a manner which
requires that we account for the transaction as a sale. This gain on sale is not
an actual amount of cash received, but rather an asset which represents the
expected future earnings we will receive based upon the amount of interest we
expect to receive from our borrowers less the interest we expect to pay our
investors in the securitization. The benefit of this difference is then reduced
by the servicing and guarantor fees we must pay as well as the prepayment and
credit losses expected to occur on the contracts in the trust. We make
assumptions about prepayment rates and credit losses based upon our historical
experience and other factors. The resulting gain on sale asset is called
retained interest in securitized assets, or RISA. The RISA is amortized on a
monthly basis over the life of the securitization. We reevaluate the assumptions
we use to calculate the RISA every quarter. We adjust those assumptions and the
RISA to the extent our actual experience with the performance of the contracts
in a securitization trusts deviates from the experience we initially
anticipated. If actual prepayment and credit loss rates are higher than the
assumptions we initially used, we must write-down the value of the RISA. If the
write-down is large enough, it will have a material adverse effect on our
earnings and capital.

A LOSS OF CONTRACT SERVICING RIGHTS COULD HAVE A MATERIAL EFFECT ON OUR
BUSINESS.

As servicer of all our securitized contracts, we are entitled to receive
contractual servicing fees. Contractual servicing fees are earned at rates
ranging from 1.0% to 1.25% per annum on the outstanding balance of contracts
securitized. FSA, as guarantor, can terminate our right to act as servicer upon
the occurrence of events defined in the pooling and servicing agreements for
securitized contracts such as our

7
<PAGE> 11

bankruptcy or material breach of warranties or covenants. Any loss of such
servicing rights could 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 AND OUR STOCKHOLDERS.

Our results of operations have fluctuated in the past and are expected to
fluctuate in the future principally as a result of the timing, size, pricing and
structure of our securitizations. Other factors that could affect our quarterly
earnings include but are not limited to:

- variations in the volume of contracts purchased;

- interest rate spreads;

- the effectiveness of our hedging strategies;

- credit losses;

- operating costs; and

- whether a securitization is treated as a sale or a financing.

FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY COULD ADVERSELY AFFECT OUR
OPERATIONS.

Our financial position and results of operations depend on our ability to
execute our business strategy, which includes the following key elements:

- producing measured growth in contract originations;

- leveraging technology to improve our business; and

- effectively pricing contracts relative to risk.

Our failure or inability to execute any element of our business strategy could
materially adversely affect our financial position, liquidity and results of
operations.

WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING AND MAY
USE THEM IN WAYS WITH WHICH YOU DISAGREE.

We have not allocated specific amounts of the net proceeds to any
particular growth plans. Accordingly, our management will have significant
flexibility in applying the net proceeds of this offering. The failure of
management to use such funds effectively could have a material adverse effect on
our financial position, liquidity and results of operations.

RISKS RELATED TO FACTORS OUTSIDE OUR CONTROL

INTEREST RATE FLUCTUATIONS CAN HARM OUR PROFITABILITY.

Our profitability is largely determined by the difference between the
effective rate of interest earned on contracts purchased by us and the interest
paid on our lines of credit prior to securitization as well as the interest rate
paid for notes and certificates issued in securitization transactions. Several
factors affect our ability to manage interest rate risk. Our contracts are
purchased at fixed interest rates, while our lines of credit bear interest at
variable rates that are subject to frequent adjustment to reflect prevailing
market rates for short-term borrowings. To protect against changes in interest
rates, we hedge contracts by purchasing two-year Treasury securities forward
agreements until the contracts are securitized. Generally, we enter into forward
agreements in amounts that correspond to the principal amount of the contracts
originated. The market value of these forward agreements is designed to respond
inversely to the market value changes of the underlying contracts. Because of
this inverse relationship, we can effectively lock in a gross interest rate
spread at the time of entering into the hedge transaction. We cannot assure you,

8
<PAGE> 12

however, that this strategy will consistently or completely offset adverse
changes in interest rates or that we will not sustain losses on hedging
transactions. In addition, in a rising interest rate environment we may not be
able to increase rates charged to borrowers fast enough to compensate for an
increase in the interest rates we pay.

ECONOMIC SLOWDOWNS OR RECESSIONS MAY AFFECT OUR BUSINESS.

Periods of economic slowdown or recession, whether general, regional or
industry-related, may increase the default probability on automobile contracts.
These periods may also be accompanied by decreased consumer demand for
automobiles which would result in reduced demand for automobile contracts and
could reduce business for us. Decreased consumer demand for automobiles also
contributes to a decline in the value of automobiles securing outstanding
contracts, which weakens collateral coverage and increases the possibility of
losses in the event of a default. We cannot assure you that we could remain
profitable under any such conditions or that such conditions will not result in
such severe reductions in the cash flows available to us to permit us to remain
current on our current financings.

ADVERSE CHANGES IN USED CAR PRICES MAY HARM OUR BUSINESS.

Significant increases in the inventory of used automobiles may depress the
prices at which we can sell our inventory of repossessed vehicles or may delay
sales. Factors that may affect the level of used car inventory include consumer
preferences, leasing programs offered by captive finance companies and
seasonality. In addition, average used car prices have fluctuated in the past,
and any softening in the future of the used car market could cause our recovery
rate on repossessed vehicles to decline below current levels. Lower recovery
rates would increase the level of credit losses incurred by us that would, in
turn, lower the amount of cash flows received.

WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN OUR INDUSTRY.

The auto finance business is highly competitive. We compete with captive
auto finance companies owned by major automobile manufacturers, banks, credit
unions, savings associations and independent consumer finance companies that
conduct business in the geographic regions in which we operate. Many of these
competitors have greater financial and marketing resources than us.
Additionally, on occasion the captive finance companies provide financing on
terms significantly more favorable to auto purchasers than we can offer. For
example, the captive finance companies can offer special low interest loan
programs as incentives to purchasers of selected models of automobiles
manufactured by their respective parent manufacturers.

Many of our competitors also have long standing relationships with
automobile dealers and may offer dealers or their customers other forms of
financing, including dealer floor plan financing and leasing, which we do not
provide. Providers of automobile financing have traditionally competed on the
basis of interest rate charged, the quality of credit accepted, the flexibility
of loan terms offered and the quality of service provided to dealers and
customers. In seeking to establish ourself as one of the principal financing
sources of the dealers we serve, we compete predominately on the basis of our
high level of dealer service and strong dealer relationships and by offering
flexible loan terms. We cannot assure you that we will be able to compete
successfully in this market or against these competitors.

LEGAL AND REGULATORY REQUIREMENTS MAY RESTRICT OUR ABILITY TO DO BUSINESS.

As an "operating subsidiary" of a bank, we are subject to inspection and
regulation by the Office of Thrift Supervision, the primary federal banking
agency responsible for the supervision and regulation of the Bank. The most
significant impact of such regulation and supervision is that absent approval by
the OTS, we are precluded from holding, on-balance sheet, consumer loans,
including contracts, in an aggregate principal balance in excess of 30% of the
total consolidated assets of the Bank. The limitation is increased to 35% of the
Bank's consolidated assets if all of the consumer loans, including contracts
purchased by us, in excess of the 30% limit are obtained directly from
consumers. Our securitization activities, however,

9
<PAGE> 13

enable us to remove contracts that are securitized from our balance sheet. As a
result, those securitized contracts are not included in the calculation of the
percentage of the Bank's consolidated assets subject to either the 30% or 35%
limitation on consumer loans.

We are also subject to numerous federal and state consumer protection laws
and regulations, which, among other things may affect:

- the interest rates, fees and other charges which we may impose;

- the terms and conditions of the contracts;

- the disclosures which must be made to obligors; and

- the collection, repossession and foreclosure rights with respect to
delinquent obligors.

The extent and nature of such laws and regulations vary from state to state. We
believe that we are in compliance in all material respects with all such
applicable laws. Prospective changes in such laws or the enactment of new laws
may have an adverse effect on our business or the results of our operations. See
"Supervision and Regulation".

ADVERSE OUTCOMES OF LITIGATION AGAINST US COULD HAVE A MATERIAL EFFECT UPON OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATION.

We are involved in and will likely continue to be a party to litigation. As
a result of the consumer-oriented nature of the industry in which we operate and
uncertainties with respect to the application of various laws and regulations in
some circumstances, industry participants are named from time to time as
defendants in litigation, including class action suits, involving alleged
violations of federal and state consumer lending or other similar laws and
regulations. A significant judgment against us in connection with any litigation
could have a material adverse effect on our financial condition and results of
operations. In addition, a decision that a material number of contracts
purchased by us involved violations of applicable lending laws by automobile
dealers could materially adversely affect our financial condition and results of
operations.

WE EXPECT OUR STOCK PRICE TO CONTINUE TO FLUCTUATE.

The market price of our common stock has fluctuated in the past and is
likely to fluctuate in the future. In addition, the securities markets have
experienced significant price and volume fluctuations and the market prices of
the securities of finance-related companies including automobile finance
companies have been especially volatile. Such fluctuations can result from:

- quarterly variations in operating results;

- changes in analysts' estimates;

- short-selling of our common stock;

- events affecting other companies that investors deem to be comparable to
us;

- fluctuations in interest rates; or

- factors which have the effect of increasing, or which investors believe
may have the effect of increasing, our cost of funds and general economic
trends and conditions.

Investors may be unable to resell their shares of our common stock at or
above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been subject to securities
class action litigation.

OUR OPERATIONS MIGHT SUFFER FROM YEAR 2000 COMPUTER PROBLEMS.

The Year 2000 issue is the result of computer programs and embedded
hardware systems having been developed using two digits rather than four to
define the applicable year. Computer programs or hardware
10
<PAGE> 14

that have date-sensitive software or embedded chips and define a year using "00"
may interpret the year to be 1900 rather than the year 2000. This could result
in system failures or miscalculations causing disruptions or failure to our
operations including, among other things, a temporary inability to transact new
business or communicate with our customers online. We believe that we are Year
2000 compliant. However, we may experience degradation in the performance of our
systems or complete systems failure if our assessment is erroneous or if we
encounter unforeseen difficulties. Any of these events, whether occurring in our
systems, or the systems of others with whom we transact business, such as
outside vendors, could have a material adverse effect on our business, financial
condition and results of operations.

USE OF PROCEEDS

We will receive net proceeds from the sale of the 2,000,000 shares of
common stock offered by us of $37.3 million (or $43.0 million if the
underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us. The primary purpose of the offering is to provide us with additional
capital to fund our growth, including increasing the amount of contracts we can
acquire and hold prior to sale in the asset-backed securities market, and for
other working capital needs and general corporate purposes. The net proceeds may
be used to reduce the $334 million outstanding balance as of September 30, 1999,
on our line of credit from the Bank which terminates on December 31, 2004. When
secured, the line of credit carries an interest rate equal to one-month London
Interbank Offer Rate plus 62.5 basis points. When unsecured, the line of credit
carries an interest rate equal to one-month LIBOR plus 112.5 basis points.

PRICE RANGE OF COMMON STOCK

The common stock of our company has been publicly traded since August 8,
1995 on the Nasdaq National Market identified by the symbol WFSI. The following
table illustrates the high and low sale prices by quarter in 1999, 1998 and
1997, as reported by Nasdaq, which prices are believed to represent actual
transactions.

<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ----------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter......................... $ 8.31 $ 5.13 $14.88 $9.00 $23.25 $10.75
Second Quarter........................ 14.56 7.81 11.85 7.00 16.75 8.69
Third Quarter......................... 21.50 14.50 8.50 5.00 22.50 16.31
Fourth Quarter........................ 6.94 4.63 22.13 8.63
</TABLE>

The last reported sale price of our common stock on the Nasdaq National
Market on November 12, 1999 was $20.00 per share. There were approximately 600
stockholders of our common stock at October 21, 1999. The number of stockholders
was determined by the number of record holders, including the number of
individual participants, in security position listings.

DIVIDEND POLICY

We have never declared or paid any cash dividend on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

11
<PAGE> 15

CAPITALIZATION

The following table sets forth certain information regarding our debt and
capitalization as of September 30, 1999, and as adjusted to reflect the receipt
by us of the net proceeds of this offering. This table should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this prospectus. The notes payable -- parent is the
balance due to our parent under notes executed by us for general corporate
purposes. Secured lines of credit represent the balance due to our parent under
a line of credit which we use for liquidity purposes in the amount of $334
million and $296 million (as adjusted) as of September 30, 1999 and amounts due
under our conduit facility in the amount of $500 million.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Liabilities:
Secured lines of credit..................................... $ 833,778 $796,478
Notes payable -- parent................................... 184,008 184,008
---------- --------
Total liabilities................................. $1,017,786 $980,486
========== ========
Stockholders' equity:
Common stock, (no par value; authorized 50,000,000 shares;
issued and outstanding 25,756,054 shares).............. $ 73,892 $111,192
Paid-in capital........................................... 4,000 4,000
Retained earnings......................................... 121,763 121,763
Accumulated other comprehensive loss, net of tax.......... (461) (461)
---------- --------
Total stockholders' equity........................ $ 199,194 $236,494
========== ========
</TABLE>

12
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.......... $ 70,542 $ 44,074 $ 64,978 $ 52,657 $ 53,533 $ 44,248 $ 24,104
Servicing income............. 105,503 57,490 76,110 137,753 111,969 71,824 67,683
Gain on sale on contracts.... 48,506 18,949 25,438 39,399 41,518 18,856 1,321
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues...... 224,551 120,513 166,526 229,809 207,020 134,928 93,108
Provision for credit
losses..................... 31,304 9,389 15,146 8,248 10,275 6,483 8,037
Operating expenses........... 130,247 125,501 165,042 167,418 130,325 77,315 52,627
Restructuring charge(2)...... 15,000 15,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses...... 161,551 149,890 195,188 175,666 140,600 83,798 60,664
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
tax (benefit).............. 63,000 (29,377) (28,662) 54,143 66,420 51,130 32,444
Income tax (benefit)......... 26,552 (12,379) (12,095) 22,829 27,779 20,963 13,951
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............ $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641 $ 30,167 $ 18,493
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share -- diluted(3)........ $ 1.41 $ (0.66) $ (0.64) $ 1.22 $ 1.50 $ 1.33 $ 0.90
========== ========== ========== ========== ========== ========== ==========
OPERATING DATA:
Prime contract purchases..... $1,768,389 $1,350,819 $1,808,013 $1,245,027 $1,129,314 $ 936,429 $ 848,486
Non-prime contract
purchases.................. 760,026 671,979 862,683 1,040,252 992,375 591,220 328,545
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total contract
purchases........... $2,528,415 $2,022,798 $2,670,696 $2,285,279 $2,121,689 $1,527,649 $1,177,031
========== ========== ========== ========== ========== ========== ==========
Contracts securitized........ $2,000,000 $1,185,000 $1,885,000 $2,190,000 $2,090,000 $1,480,000 $ 842,000
Operating cash flows(4)...... $ 93,101 $ 8,522 $ 16,380 $ 13,567 $ 22,746 $ 25,636 $ 34,325
Operating expenses
(annualized) as a
percentage of average
serviced contracts......... 3.7% 4.3% 4.1% 5.0% 5.0% 4.1% 3.7%
Number of states in which
contracts were purchased... 43 41 42 37 31 16 7
Number of dealers from which
contracts were purchased... 8,760 12,044 11,323 11,978 9,372 6,247 4,491
SERVICING DATA:
Contracts serviced at end of
period..................... $5,152,194 $4,246,814 $4,367,099 $3,680,817 $3,046,585 $2,209,594 $1,633,177
Average contracts serviced
during the period.......... $4,701,213 $3,935,742 $4,006,185 $3,383,570 $2,627,622 $1,886,359 $1,438,582
Contracts delinquent 60 days
or greater as a percentage
of amount of contracts
outstanding at end of
period(5).................. 0.78% 1.16% 1.07% 0.72% 0.55% 0.40% 0.22%
Net chargeoffs (annualized)
as a percentage of the
average amount of contracts
outstanding during the
period(5).................. 2.01% 3.34% 3.42% 3.02% 2.30% 1.61% 1.09%
</TABLE>

13
<PAGE> 17

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------------------------------------
1999 1998 1997 1996 1995 1994(2)
------------- ------------ -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Contracts receivable, net.............. $1,227,883 $ 884,825 $229,338 $231,942 $316,036 $426,467
Retained interest in securitized
assets............................... 174,472 171,230 181,177 121,597 78,045 43,426
Total assets........................... 1,914,226 1,444,340 878,160 675,572 583,588 547,961
Secured lines.......................... 833,778 554,836
Notes payable -- parent................ 184,008 160,000 175,000 125,000 125,000
Total equity........................... 199,194 164,341 179,893 147,692 109,051 8,774
</TABLE>

(2) See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Overview".

(3) Restated to reflect a 10% stock dividend in 1996.

(4) Operating cash flows are defined as cash flows from securitizations, net
interest margin on owned loans and other fee income less dealer
participation and operating costs.

14
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

We are one of the nation's largest independent automobile finance companies
with over 25 years of experience in the auto finance industry. We originate,
securitize and service new and used retail automobile installment sales
contracts generated through our relationships with over 8,000 franchised and
select independent automobile dealers in 43 states. At September 30, 1999, we
had a portfolio of $5.2 billion which consisted of approximately 65% prime and
35% non-prime contracts.

Unlike many of our competitors, we finance both what are generally referred
to as prime and non-prime borrowers, providing dealers with a single contact to
whom they can sell most of their automobile contracts. The following chart
represents selected key events in the purchase and servicing of contracts and
their respective financial statement impact:

<TABLE>
<CAPTION>
EVENT FINANCIAL STATEMENT IMPACT
----- --------------------------
<S> <C>
Purchase and fund contract from dealer - Pay principal amount of contract to dealer and
record contract receivable
- Pay dealer participation to dealer and record dealer
participation as part of contract receivable
- Establish allowance for credit losses
- Fund purchase using line of credit and operating
cash flows

Sell contract to a securitization trust - Pay down line of credit with securitization proceeds
- Remove contract receivable from balance sheet
- Capitalize retained interest in securitized asset,
or RISA, which represents the present value of the
estimated future retained interest earnings net of
credit losses and adjusted for prepayments
- Record gain on sale which is equal to the RISA less
dealer participation, issuance costs and the effect of
hedging activities
- Reduce the allowance for credit losses

Collect payment for on-balance sheet - Recognize net interest income
contract
- Reduce line of credit

- Collect late charges and other fees

Collect payment for off-balance sheet - Amortize the RISA asset. Actual cash flows in excess
contract of the amortization of the RISA are shown in our
income statement as retained interest income
- Reduce the outstanding amount of the respective
securitization transaction by the amount of
principal received which is paid through to the
asset backed investor
- Receive contractual servicing fees, late charges and
other fees

Charge off on-balance sheet contract - Reduce the allowance for credit losses

Charge off off-balance sheet contract - Reduce the actual cash flows recognized from
securitization trusts thereby increasing the
amortization of the RISA
</TABLE>

15
<PAGE> 19

To improve our long-term profitability, we restructured our operations in
1998. Our restructuring had three objectives:

- to reduce operating costs;

- to increase contract production volume; and

- to strengthen credit quality.

As part of this restructuring, we merged our prime and non-prime operations and
offices, providing each dealer with a single point of contact for most of its
prime and non-prime financing needs while retaining separate prime and non-prime
underwriters. We also centralized collection efforts into our regional business
centers and standardized our operating practices. As a result of the
restructuring, we closed 96 underperforming offices and reduced our number of
employees by approximately 20%.

The total pre-tax restructuring charge in 1998 for the completed plan was
$15.0 million. Restructuring related costs included $1.8 million for employee
severance and $13.2 million of lease termination fees and the write off of
disposed assets. The restructuring charge was substantially used during 1998.

As a result of this restructuring we:

- returned to profitability, realizing net income of $36.4 million for the
first nine months of 1999;

- increased operating cash flows from $13.6 million in 1997, to $16.4
million in 1998 and to $93.1 million for the first nine months of 1999;

- increased contract originations from $2.3 billion in 1997, to $2.7
billion in 1998 and to $2.5 billion for the first nine months of 1999;

- improved the percentage of applications funded to applications received
from 12.8% in the first quarter of 1998 to 18.6% for the third quarter of
1999;

- lowered operating expenses as a percentage of average serviced contracts
from 5.0% in 1997, to 4.1% in 1998 and to 3.7% in the first nine months
of 1999; and

- reduced net chargeoffs as a percentage of average serviced contracts from
3.0% in 1997 and 3.4% in 1998 to 2.0% in the first nine months of 1999.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the difference between the rate earned on contracts
held on balance sheet and the interest costs associated with our borrowings. Net
interest income totaled $65.0 million in 1998 compared with $52.7 million in
1997 and $53.5 million in 1996. For the nine months ended September 30, 1999 net
interest income totaled $70.5 million compared with $44.1 for the same period in
1998. The increase in net interest income is the result of holding contracts on
balance sheet for a longer period before securitizing and the increase in
contract originations. As we securitize our contracts, revenue previously
recognized as net interest income will, upon securitization, be recognized as
gain on sale, contractual servicing and retained interest income.

The following table shows the average rate earned on contracts and the
average rate paid on borrowings together with the corresponding net interest
rate spread for the periods indicated. The average cost of borrowings represents
the average combined rate of the senior note, promissory note, line of credit
and conduit facility.

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- -----------------------
1999 1998 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Yield on interest-earning assets................... 14.51% 13.90% 14.37% 13.81% 14.83%
Cost of borrowings................................. 6.13 7.47 7.37 8.16 6.44
----- ----- ----- ----- -----
Net interest rate spread........................... 8.38% 6.43% 7.00% 5.65% 8.39%
===== ===== ===== ===== =====
</TABLE>

16
<PAGE> 20

The increase in the net interest rate spread in 1998 compared with 1997 and
for the nine months ended September 30, 1999 compared with the same period a
year earlier was the result of lower overall financing costs as we expanded our
utilization of our lines of credit in order to retain contracts on our balance
sheet while obtaining higher yields on the contracts retained.

Servicing Income

The components of servicing income were as follows:

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------- -------------------------------
1999 1998 1998 1997 1996
-------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retained interest income.............. $ 37,888 $ 2,228 $ 1,961 $ 69,844 $ 55,219
Contractual servicing income.......... 34,443 27,482 37,180 30,803 24,404
Other fee income...................... 33,172 27,780 36,969 37,106 32,346
-------- ------- ------- -------- --------
Total servicing income................ $105,503 $57,490 $76,110 $137,753 $111,969
======== ======= ======= ======== ========
</TABLE>

Total servicing income was $76.1 million in 1998, $138 million in 1997 and
$112 million in 1996. The decline in servicing income in 1998 compared with 1997
is due primarily to lower retained interest income. Retained interest income is
dependent upon the average excess spread on the contracts sold, credit losses
and the size of the sold portfolio. Retained interest income was lower because
of higher amortization of the RISA due to higher credit losses. For the nine
months ended September 30, 1999, total servicing income was $106 million
compared with $57.5 million for the same period a year earlier. The increase is
primarily the result of higher retained interest income due to lower
amortization of the RISA as a result of lower credit losses.

According to the terms of each securitization transaction, contractual
servicing income is earned at rates ranging from 1.0% to 1.25% per annum on the
outstanding balance of contracts securitized. Other fee income consists
primarily of documentation fees, late charges and deferment fees and has
increased as a direct result of the increase in the number of contracts
originated and outstanding. During the past three years, our average serviced
portfolio has increased to $4.0 billion for 1998 from $3.4 billion for 1997 and
$2.6 billion for 1996. For the nine months ended September 30, 1999 the average
serviced portfolio was $4.7 billion compared with $3.9 billion for the same
period a year earlier.

Gain on Sale of Contracts

We recorded gain on sale of contracts of $25.4 million in 1998, $39.4
million in 1997 and $41.5 million in 1996. For the nine months ended September
30, 1999, we recorded gain on sale of contracts of $48.5 million compared with
$18.9 million in the same period a year earlier. The amount of gain on sale
recorded in each period is dependent upon the amount of contracts securitized as
well as other factors including the gross interest rate spread on contracts
securitized, the amount of dealer participation paid, changes in credit loss
assumptions, and the effect of hedging activities. Gross interest rate spread is
affected by product mix, general market conditions and overall market interest
rates. The risks inherent in interest rate fluctuations are reduced through
hedging activities.

The following table lists each of our securitization transactions. The
first issue, in 1985, was rated AA by Standard & Poors Rating Service, a
division of McGraw-Hill, Inc. and Aa by Moody's Investor Service, Inc. and all
issues since that time were rated AAA by S&P, and Aaa by Moody's, their
respective highest long-term ratings. The money market securities for each
applicable transaction was rated A-1+ by S&P and P-1 by Moody's, their
respective highest short-term ratings. All securitization transactions prior to
1995-4 were paid in full on or before their contractual maturity date.

17
<PAGE> 21

<TABLE>
<CAPTION>
REMAINING ORIGINAL
REMAINING BALANCE AS A WEIGHTED
BALANCE AT PERCENT OF ORIGINAL AVERAGE
ISSUE ORIGINAL SEPTEMBER 30, ORIGINAL WEIGHTED SECURITIZATION GROSS INTEREST
NUMBER CLOSE DATE BALANCE 1999 BALANCE AVERAGE APR RATE RATE SPREAD(1)
- ------ --------------- ----------- ------------- ------------ ----------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1985-A December, 1985 $ 110,000 Paid in full 0% 18.50% 8.38% 10.12%
1986-A November, 1996 191,930 Paid in full 0 14.20 6.63 7.57
1987-A March, 1987 125,000 Paid in full 0 12.42 6.75 5.67
1987-B July, 1987 110,000 Paid in full 0 12.68 7.80 4.88
1988-A February, 1988 155,000 Paid in full 0 13.67 7.75 5.92
1988-B May, 1988 100,000 Paid in full 0 14.01 8.50 5.51
1988-C July, 1988 100,000 Paid in full 0 15.41 8.50 6.91
1988-D October, 1988 105,000 Paid in full 0 14.95 8.85 6.10
1989-A March, 1989 75,000 Paid in full 0 15.88 10.45 5.43
1989-B June, 1989 100,000 Paid in full 0 15.96 9.15 6.81
1990-A August, 1990 150,000 Paid in full 0 16.05 8.35 7.70
1990-1 November, 1990 150,000 Paid in full 0 15.56 8.50 7.06
1991-1 April, 1991 200,000 Paid in full 0 16.06 7.70 8.36
1991-2 May, 1991 200,000 Paid in full 0 15.75 7.30 8.45
1991-3 August, 1991 175,000 Paid in full 0 15.69 6.75 8.94
1991-4 December, 1991 150,000 Paid in full 0 15.53 5.63 9.90
1992-1 March, 1992 150,000 Paid in full 0 14.49 5.85 8.64
1992-2 June, 1992 165,000 Paid in full 0 14.94 5.50 9.44
1992-3 September, 1992 135,000 Paid in full 0 14.45 4.70 9.75
1993-1 March, 1993 250,000 Paid in full 0 13.90 4.45 9.45
1993-2 June, 1993 175,000 Paid in full 0 13.90 4.70 9.20
1993-3 September, 1993 187,500 Paid in full 0 13.77 4.25 9.52
1993-4 December, 1993 165,000 Paid in full 0 13.97 4.60 9.37
1994-1 March, 1994 200,000 Paid in full 0 12.90 5.10 7.80
1994-2 May, 1994 230,000 Paid in full 0 13.67 6.38 7.29
1994-3 August, 1994 200,000 Paid in full 0 14.04 6.65 7.39
1994-4 October, 1994 212,000 Paid in full 0 14.59 7.10 7.49
1995-1 January, 1995 190,000 Paid in full 0 15.58 8.05 7.53
1995-2 March, 1995 190,000 Paid in full 0 15.71 7.10 8.61
1995-3 June, 1995 300,000 Paid in full 0 16.36 6.05 10.31
1995-4 September, 1995 375,000 $ 22,590 6.02 15.05 6.20 8.85
1995-5 December, 1995 425,000 35,502 8.35 15.04 5.88 9.16
1996-A March, 1996 485,000 51,602 10.64 15.35 6.13 9.22
1996-B June, 1996 525,000 73,625 14.02 15.46 6.75 8.71
1996-C September, 1996 535,000 93,998 17.57 15.74 6.66 9.08
1996-D December, 1996 545,000 113,310 20.79 15.83 6.17 9.66
1997-A March, 1997 500,000 128,064 25.61 15.43 6.60 8.83
1997-B June, 1997 590,000 180,039 30.52 15.33 6.37 8.96
1997-C September, 1997 600,000 221,037 36.84 15.36 6.17 9.19
1997-D December, 1997 500,000 206,872 41.37 15.43 6.34 9.09
1998-A March, 1998 525,000 247,620 47.17 15.19 6.01 9.18
1998-B June, 1998 660,000 367,940 55.75 14.72 6.06 8.66
1998-C November, 1998 700,000 486,143 69.45 14.68 5.81 8.87
1999-A January, 1999 1,000,000 768,118 76.81 14.42 5.70 8.72
1999-B July, 1999 1,000,000 921,504 92.15 14.62 6.36 8.26
1999-C November, 1999 500,000 (2) (2) 14.77 7.01 7.76
----------- ------------
Total $14,411,430 $ 3,917,964
=========== ============
</TABLE>

- ---------------
(1) Represents the difference between the original weighted average annual
percentage rate, or APR, and the estimated weighted average securitization
rate on the closing date of the securitization transaction.

(2) This transaction closed on November 3, 1999.

18
<PAGE> 22

Provision for Credit Losses

We maintain an allowance for credit losses to cover anticipated losses for
contracts held on balance sheet. The allowance for credit losses is increased by
charging the provision for credit losses and decreased by actual losses on such
contracts held on balance sheet or by the reduction of the amount of contracts
held on balance sheet from securitization transactions. The level of the
allowance is based principally on the outstanding balance of contracts held on
balance sheet, pending sales of contracts and historical loss trends. When we
sell contracts in a securitization transaction, we reduce our allowance for
credit losses and factor potential losses into our calculation of gain on sale.

We believe that the allowance for credit losses is currently adequate to
absorb potential losses in our owned portfolio. During 1998, the provision for
credit losses totaled $15.1 million compared with $8.2 million in 1997 and $10.3
million in 1996. Provision for credit losses totaled $31.3 million for the nine
months ended September 30, 1999 compared with $9.4 million for the same period a
year earlier. The increase in provision for credit losses in 1998 and for the
nine months ended September 30, 1999 compared with the same respective periods a
year earlier was primarily the result of a higher level of contracts held on the
balance sheet.

Operating Expenses

Total operating expenses were $165 million for 1998, $167 million for 1997
and $130 million for 1996. For the nine months ended September 30, 1999,
operating expenses were $130 million compared with $126 million for the same
period a year earlier. Operating expenses as a percentage of average serviced
contracts declined 83 basis points to 4.1% in 1998 compared with 5.0% in 1997
and 1996. For the nine months ended September 30, 1999 operating expenses as a
percentage of average serviced contracts declined to 3.7% compared with 4.3% for
the same period a year earlier.

We reduced our cost of operations in 1998 in both absolute dollars and as a
percentage of average serviced contracts with the completion of the
restructuring programs, as well as other operating efficiencies achieved during
the past three years. These efficiencies include the automation of the loan
application and underwriting system, the centralization of data entry and
verification processes, implementation of proprietary credit scorecards and
electronic funds transfers for our dealers. Operating efficiencies also include
the implementation of auto-dialers, the centralization and upgrade of payment
processing and asset recovery processes, the upgrading of 800 lines for customer
service and interactive voice response technology, direct debit for our
borrowers, imaging for record retention and retrieval, and the implementation of
a new collection system.

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

Income Taxes

We file federal and certain state tax returns as part of a consolidated
group that includes the Bank and Westcorp, the holding company parent of the
Bank. We file other state tax returns as a separate entity. Tax 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 42% for 1998, 1997 and 1996. Our effective tax
rate was also 42% for the nine months ended September 30, 1999 and 1998. See
"Business -- Transactions with Related Parties -- Tax Sharing Agreement".

19
<PAGE> 23

Pro-Forma Statements of Operations

Under generally accepted accounting principles, our securitization
transactions to date have been treated as sales. At the time of sale, in
accordance with SFAS 125, we record a gain equal to the present value of the
estimated future earnings from the portfolio of contracts sold. Net interest
earned on such contracts and fees earned for servicing the contract portfolios
are recognized over the life of the securitization transaction as contractual
servicing and retained interest income and other fee income. SFAS 125 changes
the timing of income recognition through the recording of a gain at the time of
sale while the ultimate realization of such income remains dependent on the
actual performance, over time, of the contracts that were securitized.

The following pro-forma statements of operations present our results under
the assumption that the securitization transactions are treated as financings
rather than as sales. We believe that such a presentation is an important
performance measure of our operations. If treated as financings, no gain on sale
or subsequent contractual servicing and retained interest income is recognized.
Instead, the earnings of the contracts in the trusts and the related financing
costs are reflected over the life of the underlying pool of loans. We refer to
these pro-forma results as "portfolio basis" statements of operations since the
contracts would have remained in our on-balance sheet contract portfolio if we
accounted for the transaction as a financing. We monitor the periodic "portfolio
basis" earnings of our serviced contract portfolio and believe these "portfolio
basis" statements assist in a better understanding of our business.

20
<PAGE> 24

The following tables presents the "portfolio basis" statements of
operations, both in dollars and as a percent of average serviced contracts and a
reconciliation to net income (loss) as reflected in our consolidated statements
of operations.

WFS FINANCIAL AND SUBSIDIARIES

PORTFOLIO BASIS STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1999(1) 1998 1998(1)
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.............................. $467,450 13.3% $392,763 13.3%
Interest expense............................. 216,787 6.1 191,847 6.5
-------- ---------- -------- ----------
Net interest income.......................... 250,663 7.2 200,916 6.8

Net chargeoffs(2).......................... 70,956 2.0 98,705 3.3
Provision for growth(3).................... 14,615 0.4 17,169 0.6
-------- ---------- -------- ----------
Provision for credit losses.................. 85,571 2.4 115,874 3.9
-------- ---------- -------- ----------

Net interest income after provision for
credit losses.............................. 165,092 4.8 85,042 2.9
Other income................................. 33,173 0.9 27,780 0.9
Operating expenses........................... 135,114 3.9 129,715 4.4
Restructuring charge......................... 15,000 0.5
-------- ---------- -------- ----------
Income (loss) before income tax (benefit).... 63,151 1.8 (31,893) (1.1)
Income tax (benefit)(4)...................... 26,615 0.8 (13,439) (0.5)
-------- ---------- -------- ----------
Portfolio basis net income (loss)............ $ 36,536 1.0% $(18,454) (0.6)%
======== ========== ======== ==========
Portfolio basis net income (loss) per common
share -- diluted........................... $ 1.41 $ (0.72)
======== ========
Average serviced contracts................... $4,701,213 $3,935,742
========== ==========
</TABLE>

- ---------------
(1) Rates are calculated by annualizing income statement amounts and dividing by
average serviced contracts.

(2) Represents actual chargeoffs incurred during the period.

(3) Provision for growth represents additional allowance for credit losses set
aside due to an increase in the serviced portfolio.

(4) Such tax effect is based upon our tax rate for the respective period.

21
<PAGE> 25

WFS FINANCIAL AND SUBSIDIARIES

RECONCILIATION OF GAAP BASIS NET INCOME TO PORTFOLIO BASIS NET INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GAAP net income (loss)...................................... $ 36,448 $ (16,998)
Portfolio basis adjustments:
Gain on sales of contracts................................ (48,506) (18,949)
Retained interest income.................................. (37,888) (2,228)
Contractual servicing income.............................. (34,443) (27,482)
Net interest income....................................... 180,121 156,842
Provision for credit losses............................... (54,268) (106,485)
Operating expenses........................................ (4,864) (4,214)
-------- ---------
Total portfolio basis adjustments........................... 152 (2,516)
Net tax effect(1)........................................... 64 (1,060)
-------- ---------
Portfolio basis net income.................................. $ 36,536 $ (18,454)
======== =========
</TABLE>

- ---------------
(1) Such tax effect is based upon the Company's tax rate for the respective
period.

FINANCIAL CONDITION

Contracts Receivable and Contracts Held for Sale

We held a portfolio of contracts on balance sheet for investment that
totaled $67.9 million at September 30, 1999, $70.8 million at December 31, 1998
and $52.6 million at December 31, 1997. Contracts held for sale totaled $1.2
billion at September 30, 1999 compared with $825 million at December 31, 1998
and $184 million at December 31, 1997. The balance of contracts held for sale is
largely dependent upon the timing of the origination and securitization of
contracts. By utilizing additional liquidity sources from our parent entity, we
were able to delay our securitization transactions in both the second quarter of
1999 and the third quarter of 1998 at times when the asset-backed securities
market had been adversely affected by wider spreads and higher pricing. Our
increase in contracts held for sale is a result of these decisions. We plan to
continue to use the liquidity of our parent or our conduit facility and
securitize contracts on an opportunistic basis.

Amounts Due From Trusts

The excess cash flow generated by contracts sold to each of the
securitization trusts is deposited into collection and spread accounts by the
trustee under the terms of the securitization transactions. In addition, at the
time a securitization transaction closes, we advance additional monies to
initially fund these spread accounts. We establish a liability associated with
the use of the spread account funds which is reduced as such funds reach
predetermined funding levels. We are released from these obligations after the
spread account reaches a predetermined funding level. The amounts due from
trusts represent amounts due to us that are still under obligation to be held in
the spread accounts. The amounts due from trusts at September 30, 1999 were $420
million compared with $333 million at December 31, 1998 and $295 million at
December 31, 1997. The increase is due to the timing of releases from the spread
account.

Retained Interest in Securitized Assets

RISA is capitalized upon the sale of contracts to securitization trusts.
RISA represents the present value of the estimated future earnings to be
received by us from the excess spread created in securitization

22
<PAGE> 26

transactions. Excess spread is calculated by taking the difference between the
coupon rate of the contracts sold less the interest rate paid to the investors
less contractually specified servicing, guarantor fees, credit losses and
prepayments.

Prepayment and credit loss assumptions are also utilized to estimate future
excess spread. We currently use a prepayment rate of 1.6% ABS. Credit losses are
estimated using a cumulative loss rate estimated by management to reduce the
likelihood of impairment to the value of the RISA. We determine the cumulative
loss rate based upon our review of historical cumulative loss experience,
collection and repossession data, estimates of the value of the underlying
collateral, economic conditions and trends, the mix of prime and non-prime
contracts and other information. Cumulative net credit loss assumptions utilized
during 1999 and 1998 ranged from 6% to 7%. Future earnings are discounted at a
rate management believes to be representative of the market at the time of
securitization. Currently, we use a discount rate of 425 basis points over the
two-year Treasury rate. All assumptions used are evaluated each quarter and
adjusted, if appropriate, to reflect actual performance of the contracts.

The balance of the RISA is amortized on a monthly basis over the expected
repayment life of the underlying contracts. Actual cash flows in excess of the
amortization of the RISA are shown in our income statement as retained interest
income. RISA is classified in a manner similar to available for sale securities
and as such is marked to market each quarter. Market value changes are
calculated by discounting the excess spread using a current market discount
rate. Any changes in the market value of the RISA is reported as a separate
component of stockholders' equity on our consolidated statements of financial
condition as accumulated other comprehensive income (loss), net of applicable
taxes.

The following table presents the activity of the RISA:

<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- -------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance...................... $171,230 $181,177 $ 181,177 $121,597 $ 78,045
Additions.............................. 93,541 55,058 91,914 112,230 104,071
Amortization........................... (86,983) (81,421) (103,610) (53,421) (60,519)
Change in unrealized loss on securities
available for sale(1)................ (3,316) 2,292 1,749 771
-------- -------- --------- -------- --------
Ending balance......................... $174,472 $157,106 $ 171,230 $181,177 $121,597
======== ======== ========= ======== ========
</TABLE>

- ---------------
(1) Change in unrealized loss on securities available for sale represents the
effect that current changes in interest rates have on the valuation of the
RISA. Such amount will not be realized unless the RISA is sold.

23
<PAGE> 27

The following table presents the estimated future undiscounted retained
interest earnings to be received from securitizations. Estimated future
undiscounted RISA earnings are calculated by taking the difference between the
coupon rate of the contracts sold and the interest rate paid to the investors,
less the contractually specified servicing fee and guarantor fees, after giving
effect to estimated prepayments and assuming no losses. To arrive at the RISA,
this amount is reduced by the off balance sheet allowance established for
potential future losses and by discounting to present value.

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1999 1998 1997
------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Estimated net undiscounted RISA earnings.............. $ 410,530 $ 361,209 $ 438,190
Off balance sheet allowance for losses................ (212,253) (170,664) (236,796)
Discount to present value............................. (23,805) (19,315) (20,217)
---------- ---------- ----------
Retained interest in securitized assets............... $ 174,472 $ 171,230 $ 181,177
========== ========== ==========
Outstanding balance of contracts sold through
securitizations..................................... $3,917,964 $3,491,452 $3,449,590
Off balance sheet allowance for losses as a percent of
contracts sold through securitizations.............. 5.42% 4.89% 6.86%
</TABLE>

We believe that the off balance sheet allowance for losses is currently
adequate to absorb potential losses in the sold portfolio.

Asset 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 losses we incur, we monitor delinquent accounts, promptly
repossess and remarket vehicles and seek to collect on deficiency balances.

At September 30, 1999 the percentage of accounts delinquent 30 days or
greater was 2.54% compared with 3.64% at December 31, 1998 and 2.20% at December
31, 1997. Delinquency is calculated by us based on the contractual due date. Net
chargeoffs on average contracts outstanding for the year ended December 31, 1998
was 3.42% compared with 3.02% and 2.30% at December 31, 1997 and 1996. For the
nine months ended September 30, 1999, chargeoffs on average contracts
outstanding was 2.01% compared with 3.34% for the same period a year earlier.

The improvement in credit loss experience and delinquency is the result of
improved underwriting and servicing. Stricter underwriting guidelines, the
successful implementation of our multiple credit scoring models, and a greater
concentration of prime automobile contracts in our portfolio have all
contributed to better asset quality. Collection and recovery efforts have also
improved as the effects of the disruption created by the restructuring program
completed in 1998 have dissipated.

24
<PAGE> 28

The following table reflects our delinquency on a total serviced basis.

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- -----------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Contracts serviced(1)......... 513,488 $5,152,194 464,257 $4,367,099 408,958 $3,680,817
======= ========== ======= ========== ======= ==========
Period of delinquency(2)
31-59 days.................. 11,283 $ 90,800 13,885 $ 112,208 6,605 $ 54,450
60-89 days.................. 3,482 28,879 3,966 32,100 2,161 18,652
90 days or more............. 1,419 11,220 1,768 14,441 918 7,762
------- ---------- ------- ---------- ------- ----------
Total contracts delinquent.... 16,184 $ 130,899 19,619 $ 158,749 9,684 $ 80,864
======= ========== ======= ========== ======= ==========
Delinquencies as a percentage
of number and amount of
contracts outstanding....... 3.15% 2.54% 4.23% 3.64% 2.37% 2.20%
</TABLE>

- ---------------
(1) Includes delinquency information relating to contracts which are owned by us
and contracts which have been sold and securitized but continue to be
serviced by us.

(2) The period of delinquency is based on the number of days payments are
contractually past due.

The following table reflects repossessed assets on a serviced basis.

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- -----------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Contracts serviced(1)......... 513,488 $5,152,194 464,257 $4,367,099 408,958 $3,680,817
======= ========== ======= ========== ======= ==========
Repossessed assets............ 472 $ 2,988 1,232 $ 7,790 1,554 $ 9,672
======= ========== ======= ========== ======= ==========
Repossessed assets as a
percentage of number and
amount of contracts
outstanding................. 0.09% 0.06% 0.27% 0.18% 0.38% 0.26%
</TABLE>

- ---------------
(1) Includes information relating to repossessed vehicles which are owned by us
and repossessed vehicles which have been sold and securitized but continue
to be serviced by us.

25
<PAGE> 29

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

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts serviced at end of
period(1)........................... $5,152,194 $4,246,814 $4,367,099 $3,680,817 $3,046,585
========== ========== ========== ========== ==========
Average contracts serviced during
period................................ $4,701,213 $3,935,742 $4,006,185 $3,383,570 $2,627,622
========== ========== ========== ========== ==========
Gross chargeoffs of contracts during
period.............................. $ 106,661 $ 124,901 $ 173,422 $ 136,773 $ 86,464
Recoveries of contracts charged off in
prior periods....................... 35,705 26,196 36,230 34,634 25,946
---------- ---------- ---------- ---------- ----------
Net chargeoffs........................ $ 70,956 $ 98,705 $ 137,192 $ 102,139 $ 60,518
========== ========== ========== ========== ==========
Net chargeoffs (annualized) as a
percentage of contracts outstanding
during period....................... 2.01% 3.34% 3.42% 3.02% 2.30%
</TABLE>

- ---------------
(1) Includes contract loss information relating to contracts which are owned by
us and contracts which have been sold and securitized but continue to be
serviced by us.

26
<PAGE> 30

The following table sets forth the cumulative static pool losses by month
for all outstanding securitized pools:

CUMULATIVE STATIC POOL LOSS CURVES(1)
AT SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
MONTH(2) 1995-4 1995-5 1996-A 1996-B 1996-C 1996-D 1997-A 1997-B 1997-C 1997-D
- -------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.................................... 0.00% 0.01% 0.00% 0.01% 0.00% 0.02% 0.00% 0.00% 0.00% 0.00%
2.................................... 0.06% 0.09% 0.06% 0.09% 0.09% 0.10% 0.08% 0.06% 0.05% 0.05%
3.................................... 0.16% 0.16% 0.17% 0.20% 0.22% 0.24% 0.20% 0.15% 0.12% 0.14%
4.................................... 0.31% 0.32% 0.29% 0.35% 0.52% 0.44% 0.36% 0.33% 0.29% 0.31%
5.................................... 0.52% 0.48% 0.48% 0.61% 0.74% 0.71% 0.62% 0.56% 0.46% 0.56%
6.................................... 0.70% 0.62% 0.63% 0.88% 0.98% 0.93% 0.85% 0.77% 0.67% 0.75%
7.................................... 0.86% 0.78% 0.81% 1.14% 1.27% 1.16% 1.12% 1.10% 0.93% 0.99%
8.................................... 1.02% 0.98% 1.08% 1.42% 1.52% 1.43% 1.45% 1.40% 1.16% 1.24%
9.................................... 1.13% 1.16% 1.35% 1.67% 1.77% 1.72% 1.70% 1.70% 1.37% 1.47%
10................................... 1.26% 1.32% 1.63% 1.91% 1.98% 2.03% 2.02% 2.00% 1.66% 1.75%
11................................... 1.41% 1.54% 1.87% 2.18% 2.21% 2.34% 2.32% 2.22% 1.94% 2.06%
12................................... 1.52% 2.01% 2.06% 2.38% 2.49% 2.62% 2.61% 2.43% 2.16% 2.35%
13................................... 1.66% 2.03% 2.28% 2.58% 2.73% 2.97% 2.92% 2.66% 2.40% 2.63%
14................................... 1.86% 2.25% 2.47% 2.79% 2.99% 3.27% 3.14% 2.91% 2.65% 2.86%
15................................... 2.07% 2.41% 2.63% 2.95% 3.21% 3.53% 3.30% 3.15% 2.90% 3.05%
16................................... 2.26% 2.59% 2.79% 3.14% 3.47% 3.79% 3.55% 3.47% 3.15% 3.19%
17................................... 2.47% 2.77% 2.97% 3.38% 3.70% 4.02% 3.77% 3.77% 3.36% 3.32%
18................................... 2.59% 2.88% 3.12% 3.55% 3.94% 4.19% 3.94% 3.97% 3.55% 3.42%
19................................... 2.72% 3.00% 3.31% 3.80% 4.18% 4.43% 4.21% 4.20% 3.70% 3.50%
20................................... 2.88% 3.12% 3.49% 3.98% 4.36% 4.65% 4.40% 4.39% 3.81% 3.60%
21................................... 2.95% 3.24% 3.63% 4.14% 4.53% 4.80% 4.59% 4.53% 3.91% 3.69%
22................................... 3.04% 3.39% 3.80% 4.31% 4.67% 5.07% 4.81% 4.67% 4.00% 3.81%
23................................... 3.13% 3.53% 3.95% 4.46% 4.84% 5.27% 5.00% 4.75% 4.11%
24................................... 3.22% 3.64% 4.10% 4.58% 5.01% 5.47% 5.14% 4.81% 4.21%
25................................... 3.30% 3.72% 4.22% 4.74% 5.17% 5.65% 5.24% 4.88% 4.30%
26................................... 3.37% 3.83% 4.33% 4.87% 5.34% 5.80% 5.33% 4.94%
27................................... 3.47% 3.95% 4.41% 4.98% 5.50% 5.91% 5.39% 5.04%
28................................... 3.50% 4.08% 4.51% 5.11% 5.67% 5.98% 5.44% 5.11%
29................................... 3.58% 4.16% 4.60% 5.21% 5.78% 6.06% 5.50%
30................................... 3.65% 4.25% 4.70% 5.31% 5.89% 6.12% 5.56%
31................................... 3.75% 4.31% 4.79% 5.42% 5.98% 6.17% 5.64%
32................................... 3.80% 4.35% 4.85% 5.50% 6.02% 6.24%
33................................... 3.83% 4.40% 4.91% 5.55% 6.06% 6.29%
34................................... 3.87% 4.46% 4.99% 5.58% 6.11% 6.34%
35................................... 3.91% 4.54% 5.03% 5.60% 6.14%
36................................... 3.94% 4.58% 5.07% 5.62% 6.16%
37................................... 3.96% 4.61% 5.11% 5.65% 6.17%
38................................... 3.99% 4.64% 5.11% 5.68%
39................................... 4.01% 4.66% 5.12% 5.70%
40................................... 4.04% 4.69% 5.12% 5.71%
41................................... 4.06% 4.69% 5.13%
42................................... 4.07% 4.69% 5.13%
43................................... 4.07% 4.68% 5.13%
44................................... 4.07% 4.68%
45................................... 4.06% 4.68%
46................................... 4.05% 4.68%
47................................... 4.05%
48................................... 4.05%
49................................... 4.03%
Prime Mix(3)......................... 65% 64% 59% 58% 55% 51% 54% 55% 53% 49%

<CAPTION>
MONTH(2) 1998-A 1998-B 1998-C 1999-A 1999-B 1999-C
- -------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1.................................... 0.00% 0.00% 0.00% 0.00% 0.00% (4)
2.................................... 0.04% 0.02% 0.04% 0.04% 0.04%
3.................................... 0.11% 0.08% 0.11% 0.11% 0.11%
4.................................... 0.25% 0.18% 0.23% 0.20%
5.................................... 0.44% 0.38% 0.39% 0.33%
6.................................... 0.66% 0.59% 0.50% 0.46%
7.................................... 0.95% 0.83% 0.61% 0.62%
8.................................... 1.23% 1.03% 0.75% 0.76%
9.................................... 1.50% 1.21% 0.86%
10................................... 1.79% 1.40% 1.00%
11................................... 2.03% 1.53% 1.17%
12................................... 2.21% 1.62%
13................................... 2.39% 1.74%
14................................... 2.49% 1.84%
15................................... 2.60% 1.96%
16................................... 2.72% 2.10%
17................................... 2.85%
18................................... 2.98%
19................................... 3.11%
20...................................
21...................................
22...................................
23...................................
24...................................
25...................................
26...................................
27...................................
28...................................
29...................................
30...................................
31...................................
32...................................
33...................................
34...................................
35...................................
36...................................
37...................................
38...................................
39...................................
40...................................
41...................................
42...................................
43...................................
44...................................
45...................................
46...................................
47...................................
48...................................
49...................................
Prime Mix(3)......................... 57% 67% 70% 70% 70% 67%
</TABLE>

- ---------------
(1) Cumulative static pool losses are equal to the cumulative amount of loss
actually recognized up to and including a given month divided by the
original principal balance of the securitization transaction.

(2) Represents the number of months since the inception of the securitization
transaction.

(3) Represents the original percentage of prime contracts sold within each pool.

(4) This transaction closed on November 3, 1999.

27
<PAGE> 31

CAPITAL RESOURCES AND LIQUIDITY

We require substantial capital resources and cash to support our business.
Our ability to maintain positive cash flows from operations, which we believe is
unusual among independent auto finance companies, is the result of our
consistent, managed growth, favorable loss experience and efficient operation.

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

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------
1999 1998 1997
-------------------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from trust.......................... $124,871 $ 97,730 $108,717
Contractual servicing income................... 34,443 37,180 30,803
Net interest margin-owned loans................ 85,973 81,798 67,021
Other fee income............................... 33,173 36,969 37,106
Less:
Dealer participation........................... 55,112 72,255 62,662
Operating costs................................ 130,247 165,042 167,418
-------- -------- --------
Operating cash flows........................... $ 93,101 $ 16,380 $ 13,567
======== ======== ========
</TABLE>

Operating cash flows have improved dramatically for the nine months ended
September 30, 1999 compared with 1998 as a result of the improving credit
quality of our portfolio as well as improved operating efficiency and declining
dealer participation rates.

PRINCIPAL SOURCES OF CASH

Collections of Principal and Interest from Contracts

Our primary source of funds is the collection of principal and interest
from contracts originated. These monies are deposited into collection accounts
established in connection with each securitization transaction, or into our
accounts for contracts not in a securitization. Pursuant to reinvestment
contracts entered into in connection with each securitization transaction, our
parent entity, the Bank, and our subsidiary, WFS Financial Auto Loans 2, Inc.,
or WFAL2, receive access to the amounts deposited into each collection account
and the amounts held in the spread accounts for each securitization transaction.
The Bank and WFAL2 then make those funds available to us, in the case of the
Bank pursuant to our reinvestment contract with the Bank and in the case of
WFAL2 through its purchase of contracts from us. We are then permitted to 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. For the nine
months ended September 30, 1999, we received $2.4 billion in cash from the
collections of principal and interest from contracts compared with $1.9 billion
for the same period a year earlier. Principal and interest collections totaled
$2.6 billion for the year ended December 31, 1998, $2.1 billion for the year
ended December 31, 1997 and $1.6 billion for the year ended December 31, 1996.

Contract Securitizations

Since 1985, we have securitized over $14 billion of automobile receivables
in 46 public offerings making us the fourth largest issuer of such securities in
the nation. For the nine months ended September 30, 1999, we securitized $2.0
billion, and for the nine months ended in 1998, we securitized $1.2 billion in
contracts. For the year ended December 31, 1998, we securitized $1.9 billion, as
compared to $2.2 billion securitized for the year ended December 31, 1997 and
$2.1 billion securitized for the year ended December 31, 1996. We expect to
continue to use securitization transactions as part of our liquidity strategy
when appropriate market conditions exist.

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<PAGE> 32

Borrowings from Parent

Our parent company is a federally insured savings institution. It has the
ability to raise significant amounts of liquidity by attracting both short-term
and long-term deposits from the general public, commercial enterprises and
institutions by offering a variety of accounts and rates. The Bank may also
raise funds by issuing commercial paper, obtaining advances from the Federal
Home Loan Bank, selling securities under agreements to repurchase and other
borrowings.

We are able to utilize these liquidity sources through agreements entered
into by us and our parent. These include the senior note, promissory note, line
of credit and the WFS Reinvestment Contract. See "Business -- Transactions with
Related Parties".

These financing arrangements provide us with another source of liquidity
beyond the secondary markets, thereby affording us a greater ability to choose
the timing of a securitization.

Conduit Financing

On September 30, 1999, we issued $500 million in notes to a conduit
facility in a private placement through our wholly-owned subsidiary, WFS
Funding, Inc. This arrangement provides us with another source of liquidity.

PRINCIPAL USES OF CASH

Purchase of Automobile Contracts

Our most significant use of cash is the purchase of automobile contracts.
We acquire these contracts through our nationwide relationship of franchised and
select independent automobile dealers. Payments for such contracts are sent to
our dealers either via an electronic funds transfer or check. We purchased $2.7
billion of contracts during 1998 compared with $2.3 billion and $2.1 billion
during 1997 and 1996. For the nine months ended September 30, 1999, contracts
purchased totaled $2.5 billion compared with $2.0 billion for the same period a
year earlier.

Payments of Principal and Interest on Securitized Borrowings

Under the terms of our reinvestment contract and the conduit financing
transactions, we are required to make quarterly payments of interest and
principal to noteholders and certificateholders. For the nine-months ended
September 30, 1999 and 1998, payment of principal and interest to noteholders
and certificateholders was $1.7 billion and $1.5 billion, and for the twelve
months ended December 31, 1998, 1997 and 1996 was $2.1 billion, $1.7 billion,
and $1.3 billion.

Dealer Participation

Consistent with industry practice, we generally pay an up-front dealer
participation to the originating dealer for each contract purchased.
Participation paid by us to dealers during 1998 totaled $76.7 million compared
with $68.0 million and $68.6 million in 1997 and 1996. Dealer participation paid
for the nine months ended September 30, 1999 was $63.9 million compared with
$58.4 million for the same period a year earlier. Typically, the acquisition of
prime quality contracts requires a higher amount of participation paid to the
dealer due to the increased level of competition for such contracts. However,
despite our increasing the relative percentage of prime contracts purchased
during the past two years, our yield participation with the dealer has declined
to 1.0% for the third quarter of 1999 compared with 1.3% during the first
quarter of 1998. The improvement is the result of our efforts to standardize
dealer programs throughout the nation and to target dealer relationships that
provide the highest level of profitability.

Advances to Spread Accounts

At the time a securitization transaction closes, we are required to advance
monies to initially fund spread accounts. Additionally, these spread accounts
are required to increase beyond the initial spread

29
<PAGE> 33

account funding to predetermined levels. These spread accounts increase through
receipt of excess cash flow until these predetermined levels are met. The
amounts due from trust represent funds due to us that have not yet been
disbursed from the spread accounts. The amounts due from trusts at September 30,
1999, including initial advances not yet returned, was $420 million compared
with $333 million at December 31, 1998 and $295 million at December 31, 1997.
See "Business -- Transactions with Related Parties -- WFS Reinvestment
Contract".

Operating Our Business

Our largest operating expenditure is salaries and benefits paid to our
associates. Other amounts include occupancy costs, costs associated with
collection and repossession, telephone and data processing costs. We also use
substantial amounts of cash in capital expenditures for automation and new
technologies to remain competitive and to become more efficient. See
"Business -- Our Business Strategy -- Leverage Technology to Improve Our
Business".

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Fluctuation in interest rates and early prepayment of our contracts are the
primary market risks facing our company. This committee is responsible for
setting credit and pricing policies and for monitoring credit quality. See
"Business -- Operations -- Underwriting and Purchasing of Contracts". 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 primary measurement tool for evaluating this risk is the use of
interest rate shock analysis. It should be noted that shock analysis is
objective but not entirely realistic in that it assumes an instantaneous and
isolated set of events. This committee closely monitors interest rate and
prepayment risks and recommends policies for managing such risks.

The contracts originated and held by us are all fixed rate and accordingly
we have exposure to changes in interest rates. Our prepayment experience on
contracts has not been historically sensitive to changes in interest rates and
we, therefore, believe that we are not exposed to significant prepayment risk
relative to changes in interest rates.

To protect against changes in interest rates, we hedge contracts purchased
with two-year Treasury securities forward agreements until they are securitized.
Generally, we enter into forward agreements in amounts that correspond to the
principal amount of the contracts originated. The market value of these forward
agreements is designed to respond inversely to the market value changes of the
underlying contracts. Because of this inverse relationship, we can effectively
lock in a gross interest rate spread at the time of entering into the hedge
transaction. We enter into these forward agreements either with highly rated
counterparties or the Bank, which further reduces our risk by avoiding any
material concentration with a single counterparty. Credit exposure is limited to
those agreements with a positive fair value and only to the extent of that fair
value. We currently hedge substantially all of our contracts pending
securitization. See "Consolidated Financial Statements -- Note 15 -- Financial
Instrument Agreements".

We then sell contracts to securitization trusts that in turn sell
asset-backed securities to investors. By securitizing our contracts, we are able
to lock in the gross interest rate spread between the yield on such contracts
and the interest rate on the asset-backed securities. Gains and losses relative
to these forward agreements are deferred and recognized in full at the time of
securitization as an adjustment to the gain or loss on the sale of the
contracts.

The Asset/Liability Committee monitors our hedging activities to ensure
that the value of hedges, their correlation to the contracts being hedged and
the amounts being hedged continue to provide effective protection against
interest rate risk. The amount and timing of hedging transactions are determined
by our senior management based upon the monitoring activities of the
Asset/Liability Committee. As a result of

30
<PAGE> 34

this approach to interest rate management, combined with our hedging strategies,
we do not anticipate that changes in interest rate will materially affect our
results of operations or liquidity, although we can provide no assurance in this
regard.

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 and liabilities with contractual maturities, the
table presents principal cash flows and related weighted average interest rates
by contractual maturities as well as our historical experience of the impact of
interest rate fluctuations on the prepayment of contracts.

<TABLE>
<CAPTION>
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed interest rate contracts..... $343,703 $300,802 $246,610 $201,683 $139,834 $30,117 $1,262,749 $1,358,939
Average interest rate......... 14.86% 14.90% 14.95% 15.00% 14.67% 13.00% 14.84%
RATE SENSITIVE LIABILITIES:
Fixed interest rate
borrowings:................... $ 25,000 $ 91,508 $ 67,500 $ 184,008 $ 172,250
Average interest rate......... 7.25% 8.85% 9.42% 8.84%
Variable interest rate
borrowings.................... $833,778 $ 833,778 $ 833,778
Average interest rate......... 6.06% 6.06%
RATE SENSITIVE DERIVATIVE
FINANCIAL INSTRUMENTS:
Forward agreements in net
receivable position........... $ (840)
</TABLE>

YEAR 2000

The Year 2000 issue arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs may
not properly recognize a year that begins with "20" instead of the familiar
"19". This problem is pervasive and complex. If not corrected, the potential
impact is that date sensitive calculations would be based on erroneous data or
could cause a system failure. This affects all forms of financial accounting,
including interest computations, due dates, pensions, personnel benefits,
investments, and legal commitments. It can also affect record keeping, such as
inventory, maintenance, and file retention. Reliable information is necessary
for financial institutions to conduct business.

In July 1997, we initiated a five-phase program to address Year 2000
related issues. These phases were awareness, assessment, remediation, validation
and implementation.

The board of directors provides oversight and direction through the Year
2000 Committee. The Year 2000 Committee is responsible for assessing all risks,
evaluating current systems, coordinating system upgrades and replacements, and
building facility management and reporting Year 2000 status. The Year 2000
Committee reports monthly to executive management and quarterly to the board of
directors on their Year 2000 efforts.

We have completed all five phases on our Year 2000 program. Nonetheless, we
are engaged in an ongoing due diligence process that includes monitoring
procedures to verify that key service providers are taking appropriate Year 2000
action. We recognize that our business and operations could be adversely
affected if key service providers fail to achieve timely Year 2000 compliance.
Although we are establishing reasonable safeguards, we cannot assure you that
all key service providers will adequately address their respective Year 2000
issues.

We have incurred direct costs of $0.4 million in 1998 and $0.8 million in
1999 and currently estimate that the company will incur additional direct costs
of approximately $0.1 million to address the Year 2000 issues. The costs
incurred include conducting individual and integrated systems testing,
developing contingency plans, and monitoring the Year 2000 compliance
preparations of our key service providers. The estimated costs include the cost
of consultants to supplement our staff and management assigned to

31
<PAGE> 35

the project. Any potential additional costs to implement contingency plans that
address possible Year 2000 failures of third-party systems or our systems are
not included in the estimate. These estimated Year 2000 costs for 1999 have been
incorporated into our 1999 operating expense budget. The costs incurred in 1998
did not have a material effect on our net income for 1998, and we do not expect
the costs currently estimated to be in incurred in 1999 to have a material
impact on our net income for 1999.

Year 2000 planning, assessment, renovation, validation, and implementation
are iterative processes. All statements made in this document are based on our
reasonable belief, knowledge and investigation. We believe that we are taking
reasonable steps to address the Year 2000 issues within our control. However, we
make no representation that all of our systems or those of our service providers
will be Year 2000-compliant or that Year 2000 issues will not adversely affect
the company.

This document may contain forward-looking statements regarding the
expectations, intentions, and estimations of, among other things, the cost of
remediations, the timing of projects, the testing of systems and plans for
projections of future events. These forward-looking statements involve risks or
uncertainties and actual results may differ from anticipated results. These
risks and uncertainties may involve, among other things, unanticipated problems
in computer systems and applications and unexpected events or delays.

EFFECT OF INFLATION AND CHANGING PRICES

Unlike many industrial companies, substantially all of the assets and
liabilities of our company are monetary in nature. As a result, interest rates
have a more significant effect on our performance than the general level of
inflation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Quantitative and Qualitative Disclosure about Market
Risk".

CURRENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". This statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". These
statements provide guidance for the way public enterprises report information
about derivatives and hedging in annual financial statements and in interim
financial reports. The derivatives and hedging disclosure is required for
financial statements of all fiscal quarters of all fiscal years beginning after
June 15, 2000. These statements will require us to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in earnings. The ineffective
portion of a derivative's change in fair value will be immediately recognized in
earnings. We are in the process of evaluating the effect that SFAS 137, if any,
will have on our earnings and financial position.

FORWARD-LOOKING STATEMENTS

Included in our Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this prospectus are several
"forward-looking statements." Forward-looking statements are those which use
words such as "believe", "expect", "anticipate", "intend", "plan", "may",
"will", "should", "estimate", "continue" or other comparable expressions. These
words indicate future events and trends. Forward-looking statements are our
current views with respect to future events and financial performance. These
forward-looking statements are subject to many risks and uncertainties that

32
<PAGE> 36

could cause actual results to differ significantly from historical results or
from those anticipated by us. The most significant risks and uncertainties we
face are:

- the level of chargeoffs, as an increase in the level of chargeoffs will
decrease our earnings;

- the ability to originate new contracts in a sufficient amount to reach
our needs, as a decrease in the amount of contracts we originate will
decrease our earnings;

- a decrease in the difference between the average interest rate we receive
on the contracts we originate and the rate of interest we must pay to
fund our cost of originating those contracts; as a decrease will reduce
our earnings;

- the continued availability of sources of funding for our operations, as a
reduction in the availability of funding will reduce our ability to
originate contracts;

- the level of operating costs; as an increase in those costs will reduce
our net earnings;

- a change in general economic conditions; and

- the Year 2000 issues; as a disruption of our collection efforts as a
result of Year 2000 problems or an increase in our costs to correct Year
2000 issues will reduce earnings.

There are other risks and uncertainties we face, including the effect of
changes in general economic conditions and the effect of new laws, regulations
and court decisions and those described under the caption "Risk Factors." You
are cautioned not to place undue reliance on our forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

33
<PAGE> 37

BUSINESS

GENERAL

With over 25 years of experience in the auto finance industry, we are one
of the nation's largest independent automobile finance companies. We purchase
automobile contracts from over 8,000 franchised and select independent
automobile dealers. We originate and service prime and non-prime credit quality
contracts in 43 states through 45 offices. Approximately 70% of our originations
are prime credit quality contracts. At September 30, 1999, our portfolio of
outstanding contracts totaled $5.2 billion.

We originate contracts through our nationwide network of business
development representatives who offer dealers our full range of financing
products. These representatives seek to develop and maintain close professional
relationships with automobile dealers. By financing both prime and non-prime
borrowers, we provide dealers with a single contact to whom they can sell most
of their automobile contracts. We emphasize highly personalized service,
consistent business practices, prompt credit decisions and immediate funding of
contracts in order to earn and maintain a dealer's business. Our experience and
longevity in the business combined with our local, dealer based marketing
approach have enabled us to enjoy compounded annual origination growth rates of
over 25% during the past five years.

We underwrite the purchase of contracts through a regional credit approval
process that is supported and controlled by an automated front-end system. The
front-end system includes proprietary credit scoring models and tools which
enhance our credit analysts' ability to tailor each loan's pricing and structure
to maximize risk-adjusted returns.

We fund our contract purchases by a combination of sources including
positive cash flows from operations, a $1.3 billion line of credit with our
parent company, Western Financial Bank, a conduit facility and regular
securitizations. Since 1985, we have securitized over $14 billion of automobile
receivables in 46 public offerings making us the fourth largest issues of such
securities in the nation.

The following table presents a summary of our production volumes.

THE HISTORY OF WFS

Westcorp, the ultimate parent of WFS, was formed in 1973 as the holding
company for Western Thrift and Loan Association, a California licensed thrift
and loan association founded in 1972. Western Thrift was involved in auto
finance activities from its incorporation until its merger with Western
Financial Bank in 1982, at which time the auto finance activities of Western
Thrift were continued by the Bank. In 1988, Westcorp Financial Services, Inc.
was incorporated as a wholly-owned consumer finance subsidiary of the Bank to
provide auto finance services to a market not serviced by the Bank's auto
finance division.

In 1995, the Bank transferred its auto finance division to Westcorp
Financial Services and changed the name of Westcorp Financial Services to WFS
Financial Inc. In connection with that restructuring, the Bank transferred to
WFS all assets relating to its auto finance division including the contracts
held on balance sheet and all interests of the Bank in the excess spread payable
from outstanding securitization transactions. The Bank

34
<PAGE> 38

also transferred all of the outstanding stock of WFS Financial Auto Loans, Inc.,
or WFAL as we refer to it, and WFS Financial Auto Loans 2, Inc., or WFAL2 as we
refer to it, the securitization entities of the Bank, thereby making these
companies subsidiaries of WFS. In August 1995, WFS sold approximately 20% of its
shares in a public offering. Currently, the Bank owns 87% of WFS' stock. The
Bank intends to retain control of at least 80% of the outstanding shares of WFS'
common stock to ensure that it may consolidate WFS for federal tax purposes.

MARKET AND COMPETITION

Our dealer servicing and underwriting capabilities enable us to compete
effectively in the auto finance market. Our ability to compete successfully
depends largely upon our strong personal relationships with dealers and their
willingness to offer to us those contracts that meet our underwriting criteria.
Our relationship is fostered by the promptness with which we can 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 used vehicles.

The competition for contracts available within the prime and non-prime
credit quality contract spectrum is more intense when the rate of sales of autos
declines. Although we have experienced consistent growth for many years, we can
give no assurance that we will be able to continue to do so. Although auto
leasing has increased significantly in recent years, we have no present
intention of offering leases. We believe that many of such leases are for
relatively short terms of two or three years; therefore, the number of used auto
contracts available will continue to increase as these leases terminate. We
believe that this will continue to provide us opportunities to purchase
contracts secured by used autos in the quantity and the quality we seek.

We believe that the automobile finance industry is the second largest
consumer finance industry in the United States with over $603 billion of loan
and lease originations during 1998. The industry is generally segmented
according to the type of car sold, new versus used, and the credit
characteristics of the borrower, prime, non-prime or sub-prime. Competition in
the field of automobile finance is intense. The U.S. captive auto finance
companies, General Motors Acceptance Corporation, Ford Motor Credit Company and
Chrysler Credit Corporation account for up to 30% of the auto finance market. We
believe that the balance of the market is highly fragmented and that no other
market participant has greater than a 1% market share. Other market participants
include the captive auto finance companies of other manufacturers, banks, credit
unions, independent auto finance companies and other financial institutions.

Several of these competitors have greater financial resources than us and
may have a significantly lower cost of funds. Many of these competitors also
have longstanding relationships with automobile dealers and may offer dealers or
their customers other forms of financing or services not provided by us. The
finance company that provides floor planning for the dealer's inventory is also
ordinarily one of the dealer's primary sources of financings for auto sales. We
do not currently provide financing on dealers' inventories. We must also compete
with dealer interest rate subsidy programs offered by the captive auto finance
companies. However, frequently those programs are limited to certain models or
to certain loan terms which may not be attractive to many new auto purchasers.
Also, these programs are rarely offered on used vehicles.

OUR BUSINESS STRATEGY

Our business objective is to maximize long term profitability by
efficiently purchasing and servicing prime and non-prime credit quality
contracts that generate strong and consistent risk-adjusted returns. We believe
we will be able to achieve this objective by employing our business strategies:

- produce measured growth in contract originations;

- leverage technology to improve our business; and

- effectively price contracts relative to risk.

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Produce Measured Growth in Contract Originations

Over the past five years, we have experienced a compounded annual growth
rate in contract originations in excess of 26%.

[Produce Measured Growth in Contract Originations Bar Graph]

We provide a high degree of personalized service to our dealership base by
marketing, underwriting and purchasing contracts on a local level. Our focus is
to provide each dealer superior service by providing a single source of contact
to meet the dealer's prime and non-prime financing needs. We believe that the
level of our service surpasses that of our competitors by making our business
development representatives available any time a dealer is open, making prompt
credit decisions, negotiating credit decisions within available programs by
providing structural alternatives and funding promptly.

Growth of originations primarily will be through increased dealer
penetration. We intend to increase contract purchases from our current dealer
base and as well as develop new dealer relationships. Prior to 1995, we
originated contracts in seven, primarily western states. Subsequently, we
increased our penetration to 36 additional states. Although our presence is well
established throughout the country, we believe that we still have greater
opportunities to build market share especially in those states which we entered
since 1994. In addition to increased geographic penetration, we have improved
our dealer education and delivery systems to improve the efficiency of our
relationships by increasing the ratio of contracts purchased to the amount of
applications received from a dealer. 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 improved efficiencies.

Leverage Technology to Improve Our Business

We are focused on leveraging technology to improve all aspects of our
business. Over the past three years, we have implemented technology and
streamlined operations to improve credit quality, enhance and manage growth and
improve operating efficiency. We plan to realize additional benefits with
ongoing investments in the future.

Key technological initiatives implemented to date include our:

- new automated front end originating system which calculates borrower
ratios, maintains lending parameters and approval limits, accepts
electronic applications and directs applications to the appropriate
credit analyst and which has 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;

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<PAGE> 40

- new collection system platform utilizing new hardware and software to
improve our ability to queue according to the level of risk, monitor
collector performance and track delinquent accounts;

- centralized and upgraded borrower services department which includes
remittance processing, interactive voice response technology and direct
debit services; and

- centralized imaging system that provides for the electronic retention and
retrieval of account records.

We are currently developing behavioral scoring models to enhance both the
efficiency and effectiveness of our collection processes. We are also developing
a second generation data warehouse to enhance our ability to maximize our
profitability by dealer, and we are developing an on-line, internet-based credit
application to further enhance our growth.

Effectively Price Contracts Relative to Risk

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 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 servicing process for the early identification and cure of
delinquent contracts and for loss mitigation. In addition, we provide credit and
profitability incentives to our employees to make decisions consistent with our
underwriting policies by offering bonuses based both on individual and
office-wide performance.

OPERATIONS

Locations

We currently originate contracts in 43 states through 45 offices. These
offices are organized in three geographic divisions: Western, Northwestern and
Eastern. Each office manager is accountable for the performance of contracts
originated in that office throughout the life of the contracts, including
acquisition, underwriting, funding and collection. We have two regional
production and servicing centers with functions including data entry and
verification, records management, remittance processing, customer service call
centers and auto-dialers located in Texas and California. We maintain three
regional bankruptcy and remarketing centers and we have a centralized asset
recovery center located in California. Our corporate offices are located in
Irvine, California.

Business Development

Our marketing research staff locate geographic areas which exhibit
demographic characteristics that we believe will provide us the level of
originations necessary to provide us the maximum return given the costs
associated with establishing an office. These characteristics include population
size, number of dealers, the regulatory environment and competition. Within the
geographic area, we locate our offices in sections of high dealer concentration
to facilitate personal service in the local markets, including consistent buying
practices, quick credit decisions, operations open seven days a week,
competitive rates, a dedicated customer service staff and prompt funding. This
personal service is provided by a team of experienced business development
representatives with an established reputation for responsiveness and integrity
that call on dealers in a consistent and professional manner. We believe that
our local presence and service provide the opportunity to build strong and
lasting relationships with dealers.

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

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<PAGE> 41

dealer. If we decide to do business with a new dealer, we perform a review
process. This process includes verifying that the dealer holds a current
business license and determining the length of time the dealer has been in
business. Additionally, we may review current financial statements, inventory on
hand and floor planning or other financing arrangements that the dealer
maintains.

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

After this relationship is established, the business development
representative continues to actively monitor the relationship with the objective
of maximizing the overall profitability of each dealer relationship within his
or her territory. This includes ensuring that a significant number of
applications received from a particular dealer are actually funded by us,
ensuring that the type of contract received meets our underwriting standards,
monitoring the risk-based pricing of contracts acquired and reviewing the actual
performance of the contracts purchased. To the extent that a dealer does not
meet minimum conversion ratio or lending volume standards, the dealer may be
precluded from sending us applications in the future. During the past twelve
months, our dealer base has declined from 12,044 to 8,760, primarily as a result
of our eliminating dealers that did not meet our standards. Business development
managers, within each regional business center, provide direct management
oversight to each business development representative. In addition, the director
of sales and marketing provides oversight management to ensure that all business
development managers and representatives are following overall corporate
guidelines.

Underwriting and Purchasing of Contracts

The underwriting process begins when an application is faxed to our
centralized data entry center. Our data entry group enters the applicant
information into our front-end underwriting computer system. Once the
application has been entered, the computer system will automatically pull credit
bureau information on the applicant which is then routed through one of our
multiple proprietary credit scorecards.

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

Given the different risk characteristics of the contracts we acquire, we
have separate credit analysts who specialize in reviewing either prime or
non-prime contracts. Credit analysts are responsible for properly structuring
and pricing deals to meet our risked-based criteria. Credit analysts review the
information, structure and price of an application and make a determination
whether to approve, decline or make a counteroffer to the dealer. Each credit
analyst's lending levels and approval authorities are established based on the
individual's credit experience and portfolio performance, credit manager audit
results and quality control review results. Higher levels of approvals are
required for higher credit risk and are controlled by system driven parameters
and limits. System driven controls include limits on interest rates, contract
term, contract advances, payment to income ratios, debt to income ratios,
collateral values and low side overrides.

Once adequate approval has been received, the computer system automatically
sends a fax back to the dealer with our credit decision, specifying approval,
denial or conditional approval based upon modification to the structure such as
increase in downpayment, reduction of term, or the addition of a co-signer. As
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<PAGE> 42

part of the approval process, the system or the credit analyst may require that
some of the information be verified, such as income, employment, residence or
credit history of the applicant. The system increases efficiency by
automatically denying approval in certain circumstances without additional
underwriting being performed. These automated notices are controlled by
parameters set by us consistent with our credit policy.

If the dealer accepts the terms of the approval, the dealer is required to
deliver the necessary documentation for each contract to the appropriate office.
The operations group audits such documents for completeness and consistency with
the application, providing final approval and funding of the contract. A direct
deposit is made or a check is prepared and is promptly sent to the dealer for
payment. The dealer's proceeds include an up-front dealer participation paid to
the dealer for consideration of the acquisition of the contract. The completed
contract file is then forwarded to the appropriate records center for imaging.

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

Servicing of Contracts

We service all of the contracts we purchase, both those held by us and
those sold in securitization transactions. The servicing process includes the
routine collection and processing of payments, responding to borrower inquiries,
maintaining the security interest in the vehicle, maintaining physical damage
insurance coverage and repossessing and selling collateral when necessary.

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. Approximately 15 days before a borrower's payment is
due, we mail the borrower a billing statement directing the borrower to mail
payments to our lockbox address. Payments received in the mail or through our
offices are processed by our remittance processing center using state of the art
lockbox equipment. To expedite the collection process, we accept payments from
borrowers through automated payment programs including PC banking, direct debits
and third party payment processing services. Our customer service center uses
interactive voice response technology to answer routine account questions and
route calls to the appropriate service counselor.

Our fully integrated servicing and collections system automatically
forwards accounts based on estimated likelihood of default and delinquency
status to our automated dialers or to our collection centers throughout the
country. Borrowers who are past due initially receive a call from a collector
queued by our automated telephone dialing system. If the system is unable to
reach a borrower within a specified number of days or if the account is beyond
30 days delinquent, the account is forwarded to a collection specialist within
the office that originated the contract. This process balances the efficiency of
centralized collection efforts with the effectiveness of decentralized personal
collection efforts. Our systems also track delinquencies and chargeoffs, monitor
the performance of our collection associates and forecast potential future
delinquency. To assist in the collections 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 deferments over the
life of the contract and rarely rewrite contracts.

If satisfactory payment arrangements are not made, the automobile is
generally repossessed within 60 to 90 days of the date of delinquency, subject
to compliance with applicable law. We use independent contractors to perform
repossessions. The automobile remains in our custody generally for 15 days, or
longer if required by local law, to provide the obligor the opportunity to
redeem the contract. 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.
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<PAGE> 43

We sell substantially all repossessed automobiles through wholesale auto
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 vehicle is sold, any remaining deficiency
balances are then charged off. At September 30, 1999, the total amount of
repossessed autos managed by us was $3.0 million or 0.06% of the total serviced
contracts compared with $7.8 million or 0.18% of total serviced contracts at
December 31, 1998 and $9.7 million or 0.26% of total serviced contracts at
December 31, 1997.

It is our policy to charge off an account when it becomes contractually
delinquent by 120 days, even if we have not yet repossessed the vehicle. At the
time that the contract is charged off, all accrued interest is also 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 a formal
judicial action where necessary. In some cases, particularly where recovery is
believed to be less likely, the account may be assigned to a collection agency
for final resolution. We also monitor payment plans on those obligors who have
filed for bankruptcy.

TRANSACTIONS WITH RELATED PARTIES

Relationship with the Bank and its Controlling Parties

In our opinion, the transactions described herein under the caption
"Transactions with Related Parties" have been on terms no less favorable to us
than could be obtained from unaffiliated parties, notwithstanding that the
transactions were not negotiated at arm's length. However, the transactions were
approved by our entire board of directors and the entire board of directors of
the Bank and Westcorp, including all of their respective independent directors.
Furthermore, any future transactions with the Bank or affiliated persons will
continue to be approved by a majority of disinterested directors of the Company.
See "Supervision and Regulation -- Regulations Applicable to Westcorp Which May
Affect Us".

Advances From Parent

We have three separate borrowing arrangements with our parent, Western
Financial Bank. The senior note and the promissory note are longer term,
unsecured debt, while the line of credit is designed to provide short-term
financing for the purchases of contracts.

The principal amount outstanding under the senior note payable to the Bank
is $49.0 million. The original principal amount under the senior note payable
was $125 million. The senior note provides for principal payments of $25.0
million per year, commencing on April 30, 1999 and continuing through its final
maturity, April 30, 2003. During 1999, we made paydowns of $61.0 million without
prepayment penalties. Interest payments on the senior note are due quarterly, in
arrears, calculated at the rate of 7.25% per annum. The senior note had interest
expense of $4.6 million for the nine months ended September 30, 1999 and $6.8
million for the nine months ended September 30, 1998. Interest expense totaled
$9.0 million for the year ended December 31, 1998, $9.1 million for the year
ended December 31, 1997 and $9.1 million for the year ended December 31, 1996.

We have $135 million outstanding under the terms of the promissory note
from the Bank. The promissory note provides for principal payments of $67.5
million per year, commencing July 31, 2001 and continuing through its final
maturity, July 31, 2002. Interest payments on the senior note are due quarterly,
in arrears, calculated at the rate of 9.42% per annum. The promissory note had
interest expense of $6.1 million for the nine months ended September 30, 1999
and $3.5 million for the nine months ended September 30, 1998. Interest expense
totaled $4.7 million for the year ended December 31, 1998 and $2.0 million for
the year ended December 31, 1997.

Pursuant to the terms of the senior note and promissory note, we have
agreed that until the senior note and promissory note are paid in full, we will
not incur any other indebtedness which is senior to the obligations evidenced by
the senior note and promissory note except for indebtedness collateralized or
secured under the line of credit described below and indebtedness for similar
types of warehouse lines of credit.

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The line of credit extended by the Bank permits us to draw up to $1.3
billion. We do not pay a commitment fee for the line of credit. The line of
credit terminates on December 31, 2004 although we may extend the line of credit
for additional periods up to 60 months. When secured, the line of credit carries
an interest rate equal to one-month London Interbank Offer Rate plus 62.5 basis
points. When unsecured, the line of credit carries an interest rate equal to
one-month LIBOR plus 112.5 basis points. Interest on the amount outstanding
under the line of credit is paid monthly, in arrears, and is calculated on the
daily average amount outstanding that month. At September 30, 1999, $334 million
was outstanding on the line of credit. Interest expense totaled $14.6 million
for the nine months ended September 30, 1999 and $3.3 million for the nine
months ended September 30, 1998. Interest expense was $16.8 million for the year
ended December 31, 1998, $6.1 million for the year ended December 31, 1997 and
$8.1 million for the ended December 31, 1996.

Short Term Investments -- Parent

We invest our cash at the Bank under an investment agreement. The Bank pays
us an interest rate equal to the Federal composite commercial paper rate on this
cash. At September 30, 1999, December 31, 1998 and December 31, 1997, we held no
excess cash with the Bank under the investment agreement. Interest earned on the
short term investment totaled $0.1 million for the nine months ended September
30, 1999 and $0.5 million for the nine months ended September 30, 1998. Interest
earned totaled $0.5 million for the year ended December 31, 1998, $1.7 million
for the year ended December 31, 1997 and $0.8 million for the year ended
December 31, 1996.

WFS Reinvestment Contract

Through a series of agreements which we, our parent company, our
subsidiary, WFS Auto Loans 2, Inc, or WFAL2 as we refer to it, and other parties
have entered into, we have access to the cash flows of each of the outstanding
securitization transactions and the cash held in each spread account. We are
permitted to use that cash as we determine, including in the ordinary business
activities of originating contracts. In each securitization transaction, the
Bank and WFAL2 have entered into a reinvestment contract, which is deemed to be
an eligible investment under the relevant securitization agreements. The
securitization agreements require, provided certain conditions are met, that all
cash flows of the relevant trust and the associated spread accounts be invested
in the applicable reinvestment contract. A limited portion of the invested funds
may be used by WFAL2 and the balance may be used by the Bank.

Our parent entity makes its portion available to us through the terms of
our reinvestment contract. Under our reinvestment contract with the Bank, we
receive access to all of the cash available to the Bank under each trust
reinvestment contract. We are obligated to repay to the Bank an amount equal to
the cash we used, when needed by the Bank, to meet its obligations under the
individual trust reinvestment contracts. With the portion of the cash available
to it under the individual trust reinvestment contracts, WFAL2 purchases
contracts from us through the terms of sale and servicing agreements.

Tax Sharing Agreement

We and our subsidiaries, WFAL, WFAL2 and WFS Investments, Inc., are parties
to a tax sharing agreement with Westcorp, the Bank and other subsidiaries of
Westcorp, pursuant to which a consolidated federal tax return is filed for all
of the parties to the agreement. Under the agreement, the tax due by the group
is allocated to each member based upon the relative percentage of each member's
taxable income to that of all members. Each member pays Westcorp its estimated
share of that tax liability when otherwise due, but in no event may the amount
paid exceed the amount of tax which 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, which permit the filing of a consolidated or combined return.
Tax liabilities to states which require the filing of separate tax returns for
each company are paid by each company. The term of the tax sharing agreement
commenced on the first day of the consolidated return year beginning January 1,
1994 and continues in effect until the parties to the tax sharing agreement
agree in writing to terminate it. See "Consolidated Financial Statements -- Note
13 -- Income Taxes".
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<PAGE> 45

Management Agreements

We have entered into certain management agreements with the Bank and
Westcorp pursuant to which we pay our allocated portion of certain costs and
expenses incurred by the Bank and Westcorp for services or facilities of the
Bank and Westcorp used by us or our subsidiaries, including our principal office
facilities, certain field offices and overhead and employee benefits pertaining
to Bank and Westcorp employees who also provide services to us or our
subsidiaries. Additionally, as part of these management agreements, the Bank and
Westcorp have agreed to reimburse us for similar costs incurred. The management
agreements may be terminated by any party upon 5 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, statue, rule or regulation governing either
party to the applicable management agreement.

We have entered into an agreement with Westran Services Corp, which is a
subsidiary of Westcorp, to receive travel related services. We believe that the
services rendered by Westran are reasonable and representative of what such
costs would have been had we used an unaffiliated entity for such services.
Total amounts paid to Westran in 1998 were $0.2 million, in 1997 were $0.1
million and in 1996 were $0.4 million. For the nine months ended September 30,
1999 and 1998, we have paid to Westran amount of $0.1 million in each period.

We lease office space for one of our offices from an affiliate of Mr. Rady,
who is our Chairman of the Board of Directors as well as the Chairman of the
Boards of Directors of the Bank and Westcorp. The basic annual rent is adjusted
annually and includes a portion of direct operating expenses. The lease expires
in 2001. We paid $0.2 million in rent to affiliates in 1999.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following is a brief account setting forth the business experience of
our directors:

ERNEST S. RADY has been our Chairman of the Board of Directors since 1995.
He has also served as Chairman of the Board of Directors and Chief Executive
Officer of Westcorp since 1982. He has been Chairman of the Board of Directors
of Western Financial Bank, our parent entity, since 1992; a director since 1982;
and President and Chief Executive Officer from June, 1994 to January, 1996, and
again, from March 23, 1998 to March 23, 1999. He also served as chairman of the
board of directors of Western Thrift and Loan Association, a predecessor of the
Bank, from 1972 until 1983. Mr. Rady is a principal shareholder, manager and
consultant to a group of companies engaged in real estate management and
development, property and casualty insurance, oil and gas exploration and
development and beverage distribution.

JOY SCHAEFER is our Chief Executive Officer and Vice Chairman of the Board
of Directors. She was elected to be our President in 1996 and Chief Executive
Officer in 1997. Ms. Schaefer joined the Bank in January, 1990 and was named
Vice President and Treasurer in May, 1990. She became the Bank's Chief Financial
Officer and a Senior Vice President in 1992. In January, 1994, she was named
Executive Vice President and later Chief Operating Officer and Senior Executive
Vice President in December, 1994.

HOWARD C. REESE, a director since 1990, joined us in 1987 as President and
Chief Executive Officer of Westcorp Financial Services, Inc., which is now WFS.
He retired as President and Chief Executive Officer in 1996, and continues to
serve in a consulting capacity. He began his career in consumer finance with
Household Finance Corporation in 1953 where he managed several branch offices in
southern California. In 1963, he joined Fireside Thrift Company as a manager. He
progressed through the ranks as Supervisor, Assistant Vice President and
Regional Director, and ultimately to Operations Vice President in charge of 73
branch offices within California.

JAMES R. DOWLAN has been a director since 1995 and was our Senior Executive
Vice President from 1995 through January, 1999. He started as Senior Vice
President of the Bank in 1984 and served as Executive Vice President of the Bank
from 1989 until the Auto Finance Division of the Bank was combined into WFS in
1995. He also served as Chairman of the Board of Directors of Western Financial
Insurance Agency, Inc., and Chairman of the Board of Directors of Westhrift Life
Insurance Company, subsidiaries of the Bank; and President and Chief Executive
Officer of WFS Financial Auto Loans, Inc., and WFS Financial Auto Loans 2, Inc.,
subsidiaries of WFS. Prior to his association with the Bank, Mr. Dowlan was Vice
President, Loan Administration of Union Bank where he held several positions
since 1973. He served for several years on the National Advisory Board, American
Bankers Association and the Consumer Lending Committee of the California Bankers
Association.

BERNARD E. FIPP has been a director since 1995. Mr. Fipp has been active in
commercial real estate development, general contracting, real estate acquisition
and marketing since 1976. Investments in automobile dealers in 1988 brought him
into the retail automobile industry where he acted as president of Ritchey-Fipp
Chevrolet for six years and served as president of the San Diego County
Chevrolet Dealer's Association and Chairman of the San Diego County New Car
Dealer's Association. Mr. Fipp is President of Fipp Investments LLC, a real
estate acquisition, management and development company.

DUANE A. NELLES has been a director since 1995. Mr. Nelles has been in the
private and personal investment business since 1987. Prior to 1987, Mr. Nelles
was a partner in the international accounting firm which is now known as
PriceWaterhouseCoopers L.L.P., which he joined in 1968. Since 1988,

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Mr. Nelles has been a member of the board of directors of QUALCOMM, Inc., a
world leader in digital wireless communications.

STANLEY E. FOSTER was elected to our board of directors in 1998 and has
been a director of the Bank since 1992 and of Westcorp since 1978. Mr. Foster
has been President and Chief Executive Officer of Foster Investment Corporation
and its predecessor Ratner Corporation, an apparel manufacturing and investment
company headquartered in San Diego, California, since 1954. Mr. Foster also
serves as the Chairman of the Board of Directors of Hang Ten International,
Inc., and is a director of Postal Annex Plus, Inc.; Accucom, Inc.; Cartronics,
Inc.; and Hot Topic, Inc.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

The following information is provided with respect to our executive
officers who are not directors. Some officers providing services to us are
employed by our related companies, and provide those services at fair market
value to us, while also serving as our officers.

<TABLE>
<CAPTION>
OFFICER
NAME POSITION AGE SINCE
- ---- -------- --- -------
<S> <C> <C> <C>
Thomas Wolfe......................... President, Chief Operating Officer 40 1998
Lee A. Whatcott...................... Senior Executive Vice President, Chief Financial 40 1992
Officer
Richard W. Stephan................... Executive Vice President 61 1994
Dawn M. Martin....................... Executive Vice President, Chief Information 40 1997
Officer
Donna Lesch.......................... Executive Vice President, Human Performance 40 1998
J. Keith Palmer...................... Senior Vice President, Treasurer 39 1995
Mark Olson........................... Senior Vice President, Controller 36 1995
Guy Du Bose.......................... Senior Vice President, General Counsel and 45 1995
Secretary
Dennis Morris........................ Senior Vice President, Chief Credit Officer 35 1998
</TABLE>

The following is a brief account of the business experience of each
executive officer who is not a director:

THOMAS WOLFE became our President and Chief Operating Officer in March,
1999. He joined us as an Executive Vice President and National Production
Manager in April, 1998. Prior to joining us, he held the position of National
Production Manager at Key Auto Finance, where he oversaw the production of the
indirect auto finance business which included prime, sub-prime, leasing and
commercial lending. Mr. Wolfe has been in the auto finance and consumer credit
industry since 1982. He previously held positions with Citibank, Inc., and
General Motors Acceptance Corporation.

LEE A. WHATCOTT currently serves as Senior Executive Vice President and has
served in that capacity since 1999. He has served as an Executive Vice President
since 1996 and as our Chief Financial Officer since 1995. Mr. Whatcott joined us
in 1988 and became Vice President, Controller in 1992. He also serves as Senior
Executive Vice President and Chief Financial Officer of the Bank. Prior to
joining us, he was employed by what is now known as Ernst & Young LLP. He is
licensed as a Certified Public Accountant in California and is a member of the
American Institute of Certified Public Accountants.

RICHARD W. STEPHAN has served as an Executive Vice President with us since
1996; and as our Chief Information Officer from 1996 to December, 1998. He also
became Executive Vice President of the Bank in 1996 and Chief Technology Officer
of the Bank in 1999. Mr. Stephan has over 25 years of experience in the
information technology field, with the last 20 years in the financial
institution services industry. Prior to his association with us, Mr. Stephan was
an Executive Vice President of FiServ, Inc., a major provider of information
services to the banking industry and he was a partner with the company now known
as Ernst & Young LLP, where he managed the consulting practice for the Western
Region, served as the Senior Technology Partner for the firm for the banking

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industry and was a member of the planning committee for the firm-wide banking
practice. Mr. Stephan is a member of the Chief Information Officer National
Association and is a Certified Systems Professional.

DAWN M. MARTIN has been an Executive Vice President with us since 1999 and
our Chief Information Officer since 1998. Ms. Martin joined us in April, 1997 as
Senior Vice President, Manager of Network Computing. In February, 1998, she was
named Manager of Business Unit Support. She also became an Executive Vice
President and Chief Information Officer of the Bank in 1999. Prior to joining
us, Ms. Martin was Senior Vice President and System Integration Officer at
American Savings Bank where she was employed from 1984 to 1997. Ms. Martin has
more than 19 years of experience in information technology within the financial
services industry.

DONNA J. LESCH has served as Executive Vice President, Human Performance
for us and for the Bank since 1999. Human Performance is responsible for all
administrative functions related to compensation and training of our associates.
This includes human resources, payroll, training, project management and
corporate communication. Donna has over 20 years experience in the training and
education field. Prior to joining us in 1998 as Director of Performance Support,
she managed training functions at American Savings Bank and Executrain.

J. KEITH PALMER has served as our Treasurer since 1995, and of the Bank
since 1993. He became a Senior Vice President of us and of the Bank in 1997.
Prior to joining the Bank in 1993, Mr. Palmer served as a Capital Markets
Examiner with the Office of Thrift Supervision from 1991 to 1993. From 1986 to
1991, Mr. Palmer served in various capacities with the Office of Thrift
Supervision. Mr. Palmer has worked in the banking industry for 14 years.

MARK K. OLSON has served as our Controller since 1995 and was named Senior
Vice President in 1997. He also serves as Senior Vice President, Controller of
Western Financial Bank. He joined the Bank in 1991 as Accounting Systems
Director. Prior to joining the Bank, Mr. Olson was employed by what is now known
as Ernst & Young LLP. Mr. Olson is a licensed Certified Public Accountant in
California and is a member of the American Institute of Certified Public
Accountants.

GUY DU BOSE has served as General Counsel and Secretary for us since 1999
and as Senior Vice President since 1998. He started as Vice President and Legal
Counsel of the Bank in November, 1992. He became Senior Vice President of the
Bank in 1997 and General Counsel and Secretary of the Bank in 1999. Prior to his
association with WFS, Mr. Du Bose was Chief Operating Officer and General
Counsel of Guardian Federal Savings, Senior Vice President and General Counsel
of Mercury Federal Savings and Loan Association and Corporate Counsel of
Southern California Savings. Mr. Du Bose is an active member of the California
State Bar Association and a member of various professional associations.

DENNIS MORRIS has been our Senior Vice President and Chief Credit Officer
since January, 1998. His background includes over 10 years experience in
national indirect automotive finance and leasing with American Honda Finance
Corporation and Nissan Motor Acceptance Corporation. Among the positions held
within these companies, Dennis was responsible for implementation of first
generation, custom developed credit scoring technology and risk based pricing in
both centralized and regionalized processing environments.

45
<PAGE> 49

SUPERVISION AND REGULATION

REGULATIONS APPLICABLE TO US

We purchase automobile loans in 43 states and are subject to both state and
federal regulations. Since we are owned by the Bank, we are regulated by the
Office of Thrift Supervision, the primary federal banking agency responsible for
the supervision and regulation of the Bank, as well as by the Federal Deposit
Insurance Corporation, the federal banking agency which insures deposits to the
Bank. We must also comply with each state's consumer finance, auto finance,
licensing and titling laws and regulations to the extent those laws and
regulations are not pre-empted by OTS regulations. To ensure compliance with
such laws, we hire experienced legal counsel. We believe that we are in
compliance with OTS and FDIC regulations as well as state laws applicable to its
purchase and securitization of automobile loans.

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

We must also comply with OTS regulations regarding ownership and
operations. The Bank is permitted by OTS regulations to have operating
subsidiaries and service corporation subsidiaries. We are an operating
subsidiary of the Bank. As an operating subsidiary, we are prohibited from
engaging in any business activity that the Bank may not itself engage in. All of
our business activities are activities that the Bank is permitted to engage in.
Furthermore, prior to engaging in any new business activity, acquiring a
business from a third party or creating a new subsidiary, we must first give
notice to the OTS and the FDIC. Finally, at all times, a majority of our voting
stock must be held by the Bank.

REGULATIONS APPLICABLE TO THE BANK WHICH MAY AFFECT US

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

As an operating subsidiary, our investments are required to be consolidated
with those of the Bank for purposes of determining whether the Bank, on a
consolidated basis, is in full compliance with regulations limiting certain of
its activities to a percentage of its total consolidated assets. The regulations
allow the Bank to invest up to 35% of its consolidated assets in consumer loans,
commercial paper and qualifying corporate debt instruments; provided however,
that all consumer loans in excess of 30% of the Bank's consolidated assets must
be made directly to the consumer. Thus, not more than 30% of the Bank's
consolidated assets may be invested in automobile contracts purchased from new
and used car dealers. For the preceding nine months, we were purchasing
contracts at the average rate of $281 million per month. However, the Bank was
able to remain in compliance with this regulatory limitation on its consolidated
activities, as we directly, and through WFS Funding, Inc., securitized
automobile contracts worth $2.5 billion and transferred other contracts worth
$500 million to WFS Funding, Inc. for securitization by it. We intend to
regularly securitize directly, and through WFS Funding, Inc., automobile
contracts

46
<PAGE> 50

purchased from dealers to insure that the Bank will remain in compliance with
this regulatory limitation on its consolidated activities.

As an operating subsidiary of the Bank, we are subject to examination and
supervision by the OTS to the same extent as the Bank. Following such an
examination, the OTS may direct the Bank to take any action needed to prevent
violation of any law, regulation or OTS policy, including disposing of all or
part of its ownership of us. In addition, the OTS may, for supervisory, legal,
safety or soundness reasons, limit the Bank's activities, limit the Bank's
investment in us or limit our activities. We are not aware of any actions the
Bank or we have taken or are planning to take which we believe the OTS would
find to be unsafe or unsound.

REGULATIONS APPLICABLE TO WESTCORP WHICH MAY AFFECT US

The Bank is wholly owned by Westcorp. As a result, Westcorp is a savings
and loan holding company, and therefore, Westcorp and its relationship with
subsidiaries, including us, is extensively regulated under federal laws.

The OTS is permitted to regulate Westcorp when it determines that there is
reasonable cause to believe that the continuation by Westcorp of any particular
activity creates a serious risk to the financial safety, soundness or stability
of the Bank. Specifically, the OTS may, as necessary:

- limit the payment of dividends by the Bank;

- limit transactions between the Bank, Westcorp and other companies which
Westcorp owns or controls; and

- limit any activities of Westcorp that might create a serious risk that
the Bank or companies owned by the Bank, such as ourselves, may be
required to pay for the liabilities of Westcorp and/or any other
companies over which Westcorp exerts control.

As subsidiaries of Westcorp, the Bank and ourselves are limited in the type
of activities and investments we may participate in if the investment and/or
activity involves a company which Westcorp controls and which is not the Bank or
a subsidiary of the Bank. The transactions with these controlled companies which
are subject to limitations based on the Bank's capital are:

- loans or extensions of credit to a controlled company;

- the purchase of or investment in securities issued by a controlled
company;

- the purchase of certain assets from a controlled company;

- the acceptance of securities issued by a controlled company as security
for a loan or extension of credit to any person; or

- the issuance of a guarantee, acceptance or letter of credit on behalf of
a controlled company.

In addition, transactions between the Bank or its subsidiaries, including
ourselves, and a company controlled by Westcorp must be on terms at least as
favorable to the Bank or its subsidiary, including ourselves, as transactions
with companies not under Westcorp's control. The Bank and Westcorp are also
prohibited from making a loan or extending credit to a company under their
control, which also includes, under most circumstances, a purchase of assets
from a controlled company that is subject to the controlled company's agreement
to repurchase those assets, unless the controlled company engages only in
activities permitted to bank holding companies under Section 4(c) of the Bank
Holding Company Act. The Bank and its subsidiaries, including ourselves, are
also prohibited from purchasing or investing in the securities of a controlled
company.

The OTS regulations limiting transactions between Westcorp or a controlled
company and the Bank or its subsidiaries exclude transactions between the Bank
and its subsidiaries from those limitations. However, the OTS regulations define
certain subsidiaries to be affiliates and therefore subject to the

47
<PAGE> 51

requirements of the OTS regulations. At the present time, neither we nor any of
our subsidiaries are within the definition of an affiliate for purposes of the
OTS regulations.

RECENT LEGISLATION

Congress passed and the President has signed the Gramm-Leach-Bliley Act to
substantially modernize how financial services are provided to the American
public. The Act's most significant provisions are to permit insurance, banking
and securities firms to be owned by a single owner and to prohibit unitary
savings and loan holding companies, like Westcorp, from being acquired by
commercial companies. However, the Act permits Westcorp to continue to engage in
all business opportunities to which it currently has the right to engage. The
bill does not have any effect on the business we do. It neither encourages nor
discourages other financial service companies from engaging in automobile
finance. None of the provisions of the Act are expected to have an adverse
effect on our operations or financial condition.

YEAR 2000 STANDARDS FOR SAFETY AND SOUNDNESS

We must comply with guidelines issued by the OTS establishing Year 2000
safety and soundness standards. In the initial assessment period, we were
required to develop and implement a written plan by which we would investigate,
monitor and evaluate the adequacy of the efforts of our third-party service
providers and software vendors to meet Year 2000 compliance standards. The
guidelines also require us to develop and adopt a written plan describing each
phase of our Year 2000 compliance process. We are expected to perform adequate
testing of our technology systems and operating structure. We must also design
contingency plans to mitigate risks associated with a system failure, failure to
complete renovation testing or implementation of an emission critical system. In
addition, the guidelines require us to identify customers posing potential Year
2000 risk, evaluate such customers' Year 2000 preparedness, assess the amount of
risk such customers potentially pose and implement appropriate risk controls.
Finally, the guidelines require that our board of directors and management must
be involved in all stages of our efforts to achieve Year 2000 readiness. As of
this date, we are in full compliance with the OTS guidelines.

LEGAL PROCEEDINGS

We are involved as a party in certain legal proceedings incidental to our
business. We believe that the outcome of these proceedings will not have a
material effect upon our business or our financial condition on a consolidated
basis with our subsidiaries and affiliates.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50,000,000 shares of common stock,
without par value, and 10,000,000 shares of preferred stock, without par value.
The common stock represents non-withdrawable capital and is not insured by the
FDIC or any other governmental authority or agency.

Our board of directors has the power to issue, from time to time,
additional shares of common stock or preferred stock authorized by our articles
of incorporation without obtaining approval of our stockholders.

COMMON STOCK

As of September 30, 1999, there were 25,756,054 shares of common stock
issued and outstanding. Holders of common stock are entitled to one vote per
share of common stock held of record on all matters submitted to a vote of
holders of the stockholders. The shares are not entitled to cumulative voting
rights because our articles of incorporation eliminated such rights upon the
listing of the common stock on Nasdaq National Market. Holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared, from
time to time, by our board of directors out of funds legally available
therefore. See "Dividend Policy". In the event of our liquidation, dissolution
or winding up, holders of common stock

48
<PAGE> 52

would be entitled to receive all of our assets, pro rata, after payment of all
our debts and liabilities. Holders of common stock do not have preemptive rights
with respect to newly issued shares. The common stock is not subject to call or
redemption. The outstanding shares of common stock are, and the shares of common
stock offered hereby, when issued and upon receipt by the company of the full
purchase price therefor, will be, fully paid and nonassessable. See "Risk
Factors -- Risks Related to Us -- 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 other stockholders".

Our articles of incorporation provide for the classification of the board
of directors into two or three classes depending upon the number of directors.
Based on the current number of seven directors, the board of directors is
divided into two classes with staggered two-year terms. If, in the future, the
board of directors is expanded to nine or more directors, the board of directors
will be split into three classes with staggered three-year terms.

PREFERRED STOCK

The board of directors is authorized to issue up to 10,000,000 shares of
preferred stock in one or more series. The board of directors may fix or alter
the rights, preferences, privileges and restrictions granted to and imposed upon
any wholly unissued class or series of preferred stock, fix the number of shares
of any series of preferred stock and change the designation of any such series
of preferred stock. The board of directors may also, within the limits and
restrictions stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, may increase or
decrease, but not below the number of shares of such series then outstanding,
the number of any series subsequent to the issues of shares of that series. At
present, no shares of preferred stock are outstanding and the directors of our
company have no plans to issue shares of preferred stock.

The transfer agent and registrar for our common stock is Chemical Mellon
Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

We currently have 25,758,533 shares of our common stock outstanding. Other
than the 22,367,036 shares owned by the Bank and other affiliates, the balance
of our outstanding shares are freely tradeable. Upon completion of the offering,
we will have outstanding 27,758,533 shares of common stock (or a maximum of
28,058,533 shares of common stock if the underwriters' over-allotment option is
exercised in full). The 2,000,000 shares sold in the offering (or a maximum of
2,300,000 shares if the underwriters' over-allotment option is exercised in
full) will be freely tradable by persons other than "affiliates" of WFS without
restriction or further registration under the Securities Act. In addition, we
have reserved shares of our common stock for issuance to employees and
directors to whom options have been or may be granted. These shares will be
freely tradeable when issued except to the extent issued to Ernest Rady. The
shares outstanding upon completion of the offering issued to the Bank will
be "restricted securities" within the meaning of Rule 144 under the Act.

Because we are an operating subsidiary of the Bank, the Bank is required by
the regulations of the OTS to maintain ownership of at least a majority of our
voting stock. In addition, so long as the Bank is able to elect a majority of
the board of directors, it will also be able to cause us at any time to register
under the Securities Act all or any portion of the shares of common stock it
owns, in which event the Bank would be able to sell such shares upon the
effectiveness of any such registration. Sales of the Bank's shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our "affiliates", would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding or the average weekly
trading volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities

49
<PAGE> 53

association during the four calendar weeks immediately preceding the SEC filing
with respect to such sale. Such sales are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. However, if a person (or persons whose shares are
aggregated) is not deemed to have been our affiliate at any time during the 90
days immediately preceding the sale, he or she may sell his or her restricted
shares under Rule 144(k) without regard to the limitations described above if at
least two years have elapsed since the later of the date the shares were
acquired from us or from our affiliate. The foregoing is a summary of Rule 144
and is not intended to be a complete description of it.

The Bank and our directors and officers have agreed not to directly or
indirectly offer to sell, sell, contract to sell or otherwise dispose of any
shares of common stock for a period of days after the date of this prospectus
without the prior written consent of the underwriters.

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and us, each of the underwriters named below, through
their representatives Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, has severally agreed to purchase from us the aggregate
number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
-------
Total.............................................
=======
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is such
that they are committed to purchase and pay for all of the above shares of
common stock if any are purchased.

The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus and at such price less a concession not in excess of $ per share
of common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and such dealers may
reallow, concessions not in excess of $ per share of common stock to certain
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. The common stock is offered
subject to receipt and acceptance by the underwriters and to certain other
conditions, including the right to reject orders in whole or in part.

We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common
stock exercisable at the "public offering price" less the "underwriting
discounts and commissions," each as set forth on the cover page of this
prospectus. If the underwriters exercise such option in whole or in part, then
each of the underwriters will be severally committed, subject to certain
conditions, including the approval of certain matters by counsel, to purchase
the additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table.

The following table summarizes the compensation to be paid to the
underwriters by us in connection with this offering:

<TABLE>
<CAPTION>
TOTAL
-----------------------------------------------
WITHOUT EXERCISE OF THE WITH EXERCISE OF THE
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ----------------------- ---------------------
<S> <C> <C> <C>
Underwriting discounts................ $
</TABLE>

The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority. At our request, the
underwriters will reserve at the public offering price up

50
<PAGE> 54

to shares of common stock for sale to Western Financial Bank, which
has expressed a non-binding interest in obtaining these shares in order to
maintain at least an 80% ownership interest and as of the date of this
prospectus held shares of our common stock or approximately 87% of the
total outstanding shares of our common stock.

The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act of 1933, as amended, or will contribute to payments that the underwriters
may be required to make in respect thereof.

Our directors, officers and affiliates who hold an aggregate of
shares of common stock have agreed that they will not offer, sell or agree to
sell, directly or indirectly, or otherwise dispose of any shares of common stock
in the public market without the prior written consent of Bear, Stearns & Co.
Inc. for a period of 120 days from the date of this prospectus.

In addition, we have agreed that for a period of 120 days after the date of
this prospectus we will not, without the prior written consent of Bear, Stearns
& Co. Inc., offer, sell or otherwise dispose of any shares of common stock
except for the shares of common stock offered hereby and the shares of common
stock issuable upon exercise of outstanding options and warrants.

In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
sold to them. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares of common
stock previously distributed in this offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

LEGAL MATTERS

Certain legal matters with respect to the authorization and issuance of the
common stock offered hereby will be passed upon for us by Mitchell, Silberberg &
Knupp LLP, Los Angeles, California. Certain legal matters with respect to our
common stock offered hereby will be passed upon for the underwriters by Gibson,
Dunn & Crutcher LLP, Los Angeles, California.

EXPERTS

The Consolidated Financial Statements of WFS Financial Inc and Subsidiaries
at December 31, 1998 and 1997 and for each of the three years in the period
ending December 31, 1998 appearing in this prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

51
<PAGE> 55

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-2 under the
Securities Act of 1933 with respect to the common stock offered hereby. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules relating to the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov.

INCORPORATION BY REFERENCE

The following documents, all of which were previously filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 are hereby incorporated by reference in this prospectus:

- our Annual Report on Form 10-K for the year ended December 31, 1998;

- our Current Report on Form 8-K dated April 9, 1999;

- our definitive Proxy Statement for our annual meeting held on April 27,
1999; and

- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999.

All other reports and documents filed by us after the date of this
prospectus pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange
Act of 1934 prior to the termination of the offering of the common stock covered
by this prospectus are also incorporated by reference in this prospectus and are
considered to be part of this prospectus from the date those documents are
filed.

If any statement contained in a document incorporated by reference herein
conflicts with or is modified by a statement contained in this prospectus or in
any other subsequently filed document that is incorporated by reference into
this prospectus, the statement made at the latest point in time should control.
Any previous statements that have been subsequently altered should therefore not
be considered to be a part of this prospectus. We will provide a copy of any or
all of the documents referred to above that have been or may be incorporated by
reference in this prospectus to any person to whom a copy of this prospectus has
been delivered free of charge upon request. Exhibits to such documents will not
be provided unless the exhibits are specifically incorporated by reference into
the information that the prospectus incorporates. Written requests for copies of
any documents incorporated by reference should be directed to Guy Du Bose, Esq.,
General Counsel, WFS Financial Inc, 23 Pasteur Road, Irvine, California 92618
(telephone 949-727-1002).

52
<PAGE> 56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

WFS FINANCIAL INC

CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT AUDITORS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS.............................. F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition at December
31, 1998 and 1997 and at September 30, 1999 (unaudited)... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and for the nine months
ended September 30, 1999 and 1998 (unaudited)............. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996 and for the
nine months ended September 30, 1999 and 1998
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and for the nine months
ended September 30, 1999 and 1998 (unaudited)............. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 57

REPORT OF INDEPENDENT AUDITORS

Board of Directors
WFS Financial Inc

We have audited the accompanying consolidated statements of financial
condition of WFS Financial Inc and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of WFS
Financial Inc's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WFS Financial Inc and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
January 25, 1999

F-2
<PAGE> 58

WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------------
1999 1998 1997
------------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Short term investments................................. $ 39,321 $ 15,020 $143,805
Contracts receivable................................... 67,929 70,814 52,596
Contracts held for sale................................ 1,194,820 825,257 183,529
Allowance for credit losses............................ (34,866) (11,246) (6,787)
---------- ---------- --------
Contracts receivable, net.............................. 1,227,883 884,825 229,338
Amounts due from trusts................................ 419,808 332,732 295,123
Retained interest in securitized assets................ 174,472 171,230 181,177
Premises and equipment, net............................ 35,755 26,482 21,406
Accrued interest receivable............................ 8,481 5,859 1,867
Other assets........................................... 8,506 8,192 5,444
---------- ---------- --------
$1,914,226 $1,444,340 $878,160
========== ========== ========
LIABILITIES
Notes payable -- parent................................ $ 184,008 $ 160,000 $175,000
Secured lines.......................................... 833,778 554,836
Amounts held on behalf of trustee...................... 659,406 528,092 488,654
Other liabilities...................................... 37,840 37,071 34,613
---------- ---------- --------
1,715,032 1,279,999 698,267
STOCKHOLDERS' EQUITY
Common stock, (no par value; authorized 50,000,000
shares; issued and outstanding 25,756,054 shares in
1999 and 25,708,611 in 1998 and 1997)................ 73,892 73,564 73,564
Paid-in capital........................................ 4,000 4,000 4,000
Retained earnings...................................... 121,763 85,315 101,882
Accumulated other comprehensive (loss) income, net of
tax.................................................. (461) 1,462 447
---------- ---------- --------
199,194 164,341 179,893
---------- ---------- --------
$1,914,226 $1,444,340 $878,160
========== ========== ========
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59

WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

EXPENSES:
Provision for credit losses... 31,304 9,389 15,146 8,248 10,275
Operating expenses
Salaries and employee
benefits................. 83,901 74,152 95,740 95,731 71,897
Credit and collections..... 16,239 15,007 21,248 14,522 9,065
Miscellaneous.............. 30,107 36,342 48,054 57,165 49,363
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES........ 130,247 125,501 165,042 167,418 130,325
Restructuring charge.......... 15,000 15,000
----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES.................. 161,551 149,890 195,188 175,666 140,600
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX
(BENEFIT)..................... 63,000 (29,377) (28,662) 54,143 66,420
Income tax (benefit).......... 26,552 (12,379) (12,095) 22,829 27,779
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)............... $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE
BASIC......................... $ 1.42 $ (0.66) $ (0.64) $ 1.22 $ 1.50
=========== =========== =========== =========== ===========
DILUTED....................... $ 1.41 $ (0.66) $ (0.64) $ 1.22 $ 1.50
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC......................... 25,721,295 25,708,611 25,708,611 25,691,892 25,684,175
=========== =========== =========== =========== ===========
DILUTED....................... 25,822,197 25,708,611 25,708,611 25,696,513 25,723,378
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60

WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON PAID-IN INCOME RETAINED
SHARES STOCK CAPITAL NET OF TAX EARNINGS TOTAL
---------- ------- ------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996......... 23,349,250 $73,124 $4,000 $ 31,927 $109,051
Net income....................... 38,641 38,641
Unrealized gains (losses) on
retained interest in
securitized assets, net of
tax.........................
--------
Comprehensive income........... 38,641
10% Stock dividend............. 2,334,918
---------- ------- ------ ------- -------- --------
Balance, December 31, 1996....... 25,684,168 73,124 4,000 70,568 147,692
Net income..................... 31,314 31,314
Unrealized gains (losses) on
retained interest in
securitized assets, net of
tax......................... $ 447 447
--------
Comprehensive income........... 31,761
Stock options exercised........ 24,443 440 440
---------- ------- ------ ------- -------- --------
Balance, December 31, 1997....... 25,708,611 73,564 4,000 447 101,882 179,893
Net income..................... (16,567) (16,567)
Unrealized gains (losses) on
retained interest in
securitized assets, net of
tax......................... 1,015 1,015
--------
Comprehensive income........... (15,552)
---------- ------- ------ ------- -------- --------
Balance, December 31, 1998....... 25,708,611 73,564 4,000 1,462 85,315 164,341
Net income (unaudited)......... 36,448 36,448
Unrealized gains (losses) on
retained interest in
securitized assets, net of
tax (unaudited)............. (1,923) (1,923)
--------
Comprehensive income
(unaudited)................. 34,525
Stock options exercised
(unaudited)................. 47,443 328 328
---------- ------- ------ ------- -------- --------
Balance, September 30, 1999...... 25,756,054 $73,892 $4,000 $ (461) $121,763 $199,194
========== ======= ====== ======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements
F-5
<PAGE> 61

WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income(loss)..................... $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by
Operating activities:
Provision for credit losses........ 31,304 9,389 15,146 8,248 10,275
Depreciation....................... 4,670 5,888 8,066 9,731 739
Amortization of retained interest
in securitized assets............ 86,983 81,421 103,610 53,421 60,519
(Gain) loss on disposal of
assets........................... (173) 6,847 7,092
(Increase) decrease in assets:
Automobile contracts:
Purchase of contracts......... (2,528,415) (2,022,798) (2,670,696) (2,285,279) (2,121,689)
Proceeds from sale of
contracts................... 2,000,000 1,185,000 1,885,000 2,190,000 2,090,000
Other change in contracts..... 154,111 59,619 115,180 89,826 105,757
Other assets..................... (2,995) (5,890) (6,855) (3,038) 5,122
Increase in liabilities:
Other liabilities............. 2,162 1,175 1,724 24,984 1,586
----------- ----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES............... (215,905) (696,347) (558,300) 119,207 190,950
INVESTING ACTIVITIES
Purchase of property, plant and
equipment.......................... (13,769) (13,530) (20,236) (14,233) (13,362)
Increase in trust receivable......... (87,076) (17,625) (37,609) (103,654) (81,238)
Increase in retained interest in
securitized asset.................. (93,541) (55,058) (91,914) (112,230) (104,071)
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES......................... (194,386) (86,213) (149,759) (230,117) (198,671)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock.............................. 328 440
(Payments) on/proceeds from notes
payable -- parent.................. 24,008 (15,000) 50,000
Proceeds (decrease) from secured
lines.............................. 278,942 611,512 554,836
Increase in trustee accounts......... 131,314 29,426 39,438 95,205 51,757
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES......................... 434,592 640,938 579,274 145,645 51,757
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 24,301 (141,622) (128,785) 34,735 44,036
Cash and equivalents at beginning of
period............................. 15,020 143,805 143,805 109,070 65,034
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 39,321 $ 2,183 $ 15,020 $ 143,805 $ 109,070
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest........................... $ 21,504 $ 13,276 $ 23,322 $ 10,746 $ 9,542
Income taxes....................... 30,616 5,397 17,294
</TABLE>

See accompanying notes to consolidated financial statements
F-6
<PAGE> 62

WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
WFS Financial Inc ("WFS") and its subsidiaries, WFS Financial Auto Loans, Inc.
("WFAL"), WFS Financial Auto Loans 2, Inc. ("WFAL2"), WFS Funding, Inc. ("WFSF")
and WFS Investments, Inc. ("WFSII"). All significant intercompany transactions
and accounts have been eliminated in consolidation. Certain amounts have been
reclassified to conform to the 1999 presentation. After the initial public
offering on August 8, 1995, WFS became a majority owned subsidiary of Western
Financial Bank ("the Bank"), which is a wholly owned subsidiary of Westcorp.

The financial information at September 30, 1999 and for the nine months
ended September 30, 1999 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Results for the nine month
period ended September 30, 1999 are not necessarily indicative of results that
may be expected for the year ended December 31, 1999.

WFS pays a monthly management fee to the Bank and Westcorp which covers
various expenses, including accounting, legal, tax, cash management, purchasing
and auditing services. Additionally, the Bank and Westcorp pay a fee to WFS for
information services. The management fee is based upon the actual costs incurred
and estimates of actual usage. WFS believes that the management fee approximates
the cost to perform these services on its own behalf or to acquire them from
third parties. WFS has the option, under the management agreements, to procure
these services on its own should it be more economically beneficial to WFS to do
so.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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

WFS is a consumer finance company that specializes in the purchase,
securitization and service of fixed rate consumer auto loans ("contracts"). WFS
purchases contracts from franchised new and independent used car dealers on a
nonrecourse basis and originates loans directly with consumers which are
collectively known as contracts. WFS purchased contracts in 43 states.

Cash and Cash Equivalents

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

Allowance for Credit Losses

The allowance for credit losses is maintained at a level believed adequate
by management to absorb potential losses in the on balance sheet contract
portfolio. Management's determination of the adequacy of the allowance is based
on an evaluation of the portfolio, past contract loss experience, current
economic conditions, volume, pending contract sales, growth and composition of
the contract portfolio, and other relevant factors. The allowance is increased
by provisions for credit losses charged against income.

F-7
<PAGE> 63
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Sales of Contracts

Contracts are originated and sold to investors with servicing rights
retained by WFS. WFS does not retain any recourse with respect to the contracts
securitized. As part of the sale, the trustee reimburses WFS for borrowing costs
incurred between the cut-off date of the loans and the closing date of the sale.

Gain on sale of contracts represents the present value of the estimated
future earnings to be received from the excess spread created in the
securitization transactions less prepaid dealer participations, issuance costs,
and the effect of hedging activities. These retained interest in securitized
assets ("RISA") is capitalized and amortized over the expected repayment life of
the underlying contracts.

WFS evaluates quarterly the carrying value of its RISA in light of the
actual repayment experience of the underlying contracts and makes adjustments to
reduce the carrying value, if appropriate. Servicing income and amortization of
RISA is included in servicing income in the Consolidated Statements of Income.
As servicer of these contracts, WFS holds and remits funds collected from the
borrowers on behalf of the trustee pursuant to a reinvestment contract that WFS
has entered into with the Bank. These amounts are reported as amounts held on
behalf of trustee. WFS retains servicing rights and is entitled to servicing
income. Amounts due from trusts represents servicing income earned by WFS for
which WFS has not yet received repayment from the trust.

Nonaccrual Contracts

WFS continues to accrue interest income on contracts until the contract is
charged off, which occurs automatically after the contract is past due 120 days.
At the time that the contract is charged off, all accrued interest is also
charged off.

Contracts Held for Sale

Contracts held for sale are stated at the lower of aggregate amortized cost
or market. The carrying amount of the specific contract pool sold is used to
compute gains or losses. Market value is based on discounted cash flow
calculations, which approximates the amounts realized upon securitization of the
contracts.

WFS' hedging strategy includes the use of two-year Treasury securities
forward agreements. These agreements are entered into by the Company in numbers
and amounts which generally correspond to the principal amount of the
securitization transactions. The market value of these forward agreements
responds inversely to the market value changes of the underlying contracts.
Because of this inverse relationship, WFS can effectively lock in its gross
interest rate spread at the time of the hedge transaction. Gains and losses
relative to these agreements are deferred and recognized in full at the time of
securitization as an adjustment to the gain or loss on the sale of the
contracts. WFS uses only highly rated counterparties and further reduces its
risk by avoiding any material concentration with a single counterparty. Credit
exposure is limited to those agreements with a positive fair value and only to
the extent of that fair value.

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. As part of Westcorp's efforts to more closely align
administrative services with those operations they support, Westcorp transferred
computers and software to WFS during 1996.

F-8
<PAGE> 64
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Interest Income and Fee Income

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

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

Stock Options

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), provides for companies to recognize
compensation expense associated with stock-based compensation plans over the
anticipated service period based on the fair value of the award on the date of
grant. However, SFAS 123 allows companies to continue to measure compensation
costs prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). Companies electing to continue accounting
for stock-based compensation plans under APB 25 must make pro forma disclosures
of net income and earnings per share as if SFAS 123 has been adopted if the fair
value of the options has a material impact on earnings. WFS has continued to
account for stock-based compensation plans under APB 25. The impact of applying
SFAS 123 in 1998, 1997 and 1996 is immaterial to the financial statements of
WFS.

Income Taxes

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

Fair Value of Financial Instruments

Fair value information about financial instruments whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value, are reported using quoted market prices. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and in many cases, could not be realized in
immediate settlement of the instrument. Fair values for certain financial
instruments and all non-financial instruments are not required to be disclosed.
Accordingly, the aggregate fair value of amounts presented do not represent the
underlying value of WFS.

WFS' financial instruments as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
including short term investments, retained interest in securitized assets and
amounts held on behalf of trustee are accounted for on a historical cost basis
which, due to the nature of these financial instruments, approximates fair
value. The fair value for contracts receivable is based on quoted market prices
of similar contracts sold in conjunction with securitization transactions,
adjusted for differences in contract characteristics. The fair value of forward
agreements is estimated by obtaining market quotes from brokers. The fair value
of notes payable --

F-9
<PAGE> 65
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

parent is estimated using discounted cash flow analysis, based on current
borrowing rates for similar instruments.

Accounting Pronouncements

In June 1997, the FASB issued "SFAS No. 130, Reporting Comprehensive
Income". This statement is effective with the year-end 1998 financial
statements; however, a total for comprehensive income is required in the
financial statements of interim period beginning with the first quarter of 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. This Statement establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. It requires that a company classify items of other
comprehensive income, as defined by accounting standards, by their nature (e.g.,
unrealized gains or losses or securities available for sale and retained
interests in securitized assets) in financial statement with the same prominence
as other financial statements, but does not require a specific format for that
statement. The accumulated balance of comprehensive income is to be displayed
separately from retained earnings and additional paid-in-capital in the equity
section of the consolidated statements of financial condition.

In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133 ("SFAS 137"). This Statement defers for one year the effective
date of FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). These statements provide guidance for the way
public enterprises report information about derivatives and hedging in annual
financial statements and in interim financial reports. The derivatives and
hedging disclosure is required for financial statements of all fiscal quarters
of all fiscal years beginning after June 15, 2000. These Statements will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company is in the process
of evaluating the effect that SFAS 137, if any, will have on the earnings and
financial position of the Company.

NOTE 2 -- NET CONTRACTS RECEIVABLE

WFS' contract portfolio consists of contracts purchased from automobile
dealers on a non-recourse 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.

F-10
<PAGE> 66
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net contracts receivable consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Consumer:
Contracts........................................ $1,287,262 $923,953 $253,455
Unearned discounts............................. (51,888) (48,015) (22,226)
---------- -------- --------
Net contracts.................................. 1,235,374 875,938 231,229
Allowance for credit losses...................... (34,866) (11,246) (6,787)
Dealer participation, net of deferred contract
fees........................................... 27,375 20,133 4,896
---------- -------- --------
Net contracts receivable............... $1,227,883 $884,825 $229,338
========== ======== ========
</TABLE>

The following table presents the changes in amounts deferred and carried as
adjustments to the contract balance including deferred contract fees and dealer
participation.

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $ 20,133 $ 4,896 $ 4,896 $ 5,642 $ 7,401
New deferrals....................... 55,112 55,137 71,964 62,662 62,585
Amortization........................ (1,521) (3,999) (6,128) (4,107) (4,618)
Sales............................... (46,349) (31,066) (50,599) (59,301) (59,726)
-------- -------- -------- -------- --------
Balance at end of period............ $ 27,375 $ 24,968 $ 20,133 $ 4,896 $ 5,642
======== ======== ======== ======== ========
</TABLE>

The contracts purchased by the Company are fixed-rate loans. The Company
bears the risk of interest-rate increases during the period between the setting
of the rate at which the contracts will be acquired and their sale in a
securitization transaction. In order to mitigate this risk, the Company uses
two-year Treasury securities forward agreements to minimize its exposure to
interest rate risk during the relevant period. Their fair value of these
instruments may vary with changes in interest rates. Generally, these agreements
are entered into by WFS in amounts which correspond to the principal amount of
the securitization transactions. The market value of these forward agreements is
designed to respond inversely to the market value changes of the underlying
contracts. Because of this inverse relationship, WFS can effectively lock in its
gross interest rate spread at the time of entering into a hedge transaction.
Gain and losses relative to these agreements are deferred and recognized in full
at the time of securitization as an adjustment to the gain or loss on the sale
of the contracts. WFS enters into these forward agreements either with the Bank,
or highly rated counterparties and further reduces its risk by avoiding any
material concentration with a single counterparty. Credit exposure is limited to
those agreements with a positive fair value and only to the extent of that fair
value. WFS hedges substantially all of its contracts pending securitization.

Contracts serviced by WFS for the benefit of others totaled approximately
$3.9 billion at September 30, 1999 and $3.5 billion and $3.4 billion at December
31, 1998 and 1997.

F-11
<PAGE> 67
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3 -- ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses were as follows:

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1999 1998 1998 1997 1996
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period..................... $ 11,246 $ 6,787 $ 6,787 $ 7,648 $ 7,795
Provision for credit
losses....................... 31,304 9,389 15,146 8,248 10,275
Charged off contracts........ (13,169) (9,790) (14,832) (13,412) (15,580)
Recoveries................... 5,485 2,834 4,145 4,303 5,158
-------- ------- -------- -------- --------
Balance at end of period..... $ 34,866 $ 9,220 $ 11,246 $ 6,787 $ 7,648
======== ======= ======== ======== ========
</TABLE>

NOTE 4 -- RETAINED INTEREST IN SECURITIZED ASSETS

SFAS 125 requires that following a transfer of financial assets, an entity
is to recognize the assets it controls and the liabilities it has incurred, and
de-recognize assets for which control has been surrendered and liabilities that
have been extinguished. For securitization transactions, SFAS 125 defines two
separate financial assets retained at the time of securitization, a retained
interest in securitized assets, which represents the excess spread created from
securitization, and a servicing rights asset which represents the benefit
derived from retaining the rights to service the contracts securitized. Previous
accounting guidance did not separately distinguish these rights.

Retained interests in securitized assets capitalized upon securitization of
contracts represent the present value of the estimated future earnings to be
received by WFS from the excess spread created in securitization transactions.
Excess spread is calculated by taking the difference between the coupon rate of
the contracts sold and the interest rate paid to the investors less
contractually specified servicing and guarantor fees.

Prepayment and credit loss assumptions are utilized to project future
earnings and are based upon historical experience. Credit losses are estimated
using a cumulative loss rate estimated by management to reduce the likelihood of
asset impairment. All assumptions used are evaluated each quarter and adjusted,
if appropriate, to reflect actual performance of the contracts.

Future earnings are discounted at a rate management believes to be
representative of the market at the time of securitization. The balance of the
RISA is amortized against actual excess spread income earned on a monthly basis
over the expected repayment life of the underlying contracts. RISA's are
classified in a manner similar to available for sale securities and as such are
marked to market each quarter. Market value changes are calculated by
discounting the excess spread using a current market discount rate. Any changes
in the market value of the RISA is reported as a separate component of
stockholders' equity as an unrealized gain or loss, net of applicable taxes.

Two methods have arisen in practice to determine the fair value of credit
enhancement assets: the cash-in method and the cash-out method. The Securities
and Exchange Commission ("SEC") has set forth specific guidance that the
cash-out method is the only appropriate method to be used in determining the
fair value of such assets as defined by the SFAS No. 125. The cash-out method
discounts expected cash flows from the period in which the transferor expects to
receive the cash, thereby taking into consideration the period of time that the
cash is received from obligors but restricted from distribution to

F-12
<PAGE> 68
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

the transferor. WFS has historically and will continue to use the cash-out
method in measuring such assets.

At the time of a securitization, the Company utilizes prepayment speed, net
credit loss and discount rate assumptions to initially compute the value of the
RISA. These assumptions may change periodically based on actual performance or
other factors. During 1999 and 1998, the Company utilized prepayment rate of
1.6% ABS in computing RISA. Cumulative net credit loss assumptions utilized for
1999 and 1998 securitizations ranged from 6% to 7%. The Company used a discount
rate of 425 basis points over the two-year Treasury rate at the time of
securitization in discounting future earnings.

The following table presents the estimated future undiscounted retained
interest earnings to be received from securitizations. Estimated future
undiscounted RISA earnings are calculated by taking the difference between the
coupon rate of the contracts sold and the certificate rate paid to the
investors, less the contractually specified servicing fee and guarantor fees,
after giving effect to estimated prepayments and assuming no losses. To arrive
at the RISA, this amount is reduced by the off balance sheet allowance
established for potential future losses and by discounting to present value.

The following table sets forth the components of the RISA:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------
1999 1998 1997
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Estimated net undiscounted RISA earnings...... $ 410,530 $ 361,209 $ 438,190
Off balance sheet allowance for losses........ (212,253) (170,664) (236,796)
Discount to present value..................... (23,805) (19,315) (20,217)
---------- ---------- ----------
Retained interest in securitized assets....... $ 174,472 $ 171,230 $ 181,177
========== ========== ==========
Outstanding balance of contracts sold through
securitizations............................. $3,917,964 $3,491,452 $3,449,590
Off balance sheet allowance for losses as a
percent of contracts sold through
securitizations............................. 5.42% 4.89% 6.86%
</TABLE>

WFS believes that the off balance sheet allowance for losses is currently
adequate to absorb potential losses in the sold portfolio.

F-13
<PAGE> 69
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 5 -- PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------
1999 1998 1997
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................... $ 2,017 $ 2,017 $ 2,017
Construction in progress........................... 3,085 2,749
Buildings.......................................... 13,074 8,230
Computers and software............................. 27,234 16,707 28,885
Furniture, fixtures and leasehold improvements..... 3,819 3,069 4,554
Equipment.......................................... 4,313 3,415 3,617
Automobiles........................................ 260 259 214
------- ------- -------
50,717 36,782 42,036
Less: Accumulated depreciation..................... 14,962 10,300 20,630
------- ------- -------
$35,755 $26,482 $21,406
======= ======= =======
</TABLE>

The increase in 1998 in premises and equipment, net of accumulated
depreciation, of $5.1 million or 24% was primarily due to the construction and
completion of the Company's regional servicing center located in Dallas, Texas.
The increase in 1999 was the result of the increase in computers and software
which was primarily due to computer systems upgrades.

NOTE 6 -- INTERCOMPANY AGREEMENTS

WFS borrowed $125 million from the Bank under the terms of the senior note.
The senior note provides for principal payments of $25 million per year,
commencing on April 30, 1999 and continuing through its final maturity, April
30, 2003. During 1999, the Company made a paydowns of $61.0 million without
prepayment penalties. Interest payments on senior note are due quarterly, in
arrears, calculated at the rate of 7.25% per annum. The senior note had interest
expense of $4.6 million and $6.8 million for the nine months ended September 30,
1999 and 1998. Interest expense totaled $9.0 million, $9.1 million and $9.1
million for the years ended December 31, 1998, 1997 and 1996.

Additionally, WFS has borrowed $135 million under the terms of the
promissory note from the Bank. The promissory note provides for principal
payments of $67.5 million per year, commending July 31, 2001 and continuing
through its final maturity, July 31, 2002. Interest payments on the senior note
are due quarterly, in arrears, calculated at the rate of 9.42% per annum.
Pursuant to the terms of the promissory note, WFS may not incur any other
indebtedness which is senior to the obligations evidenced by the promissory note
except for (i) indebtedness under the senior note (ii) indebtedness
collateralized or secured under the line of credit and (iii) indebtedness for
similar types of warehouse lines of credit. The promissory note had interest
expense of $6.1 million and $3.5 million for the nine months ended September 30,
1999 and 1998. Interest expense totaled $4.7 million and $2.0 million for the
years ended December 31, 1998 and 1997.

WFS also has a line of credit extended by the Bank permitting the Company
to draw up to $1.3 billion as needed to be used in its operations. We do not pay
a commitment fee for the line of credit. The line of credit terminates on
December 31, 2004 although the term may be extended by WFS for additional
periods up to 60 months. When secured, the line of credit carries an interest
rate equal to one-month London Interbank Offer Rate ("LIBOR") plus 62.5 basis
points. When unsecured, the line of credit carries an interest rate equal to
one-month LIBOR plus 112.5 basis points. Interest on the amount
F-14
<PAGE> 70
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

outstanding under the line of credit is paid monthly, in arrears, and is
calculated on the average amount outstanding that month. The Bank has the right
under the line of credit to refuse to permit additional amounts to be drawn on
the line of credit if, in the Bank's discretion, the amount sought to be drawn
will not be used to finance the Company's purchase of contracts or other working
capital requirements. There was $334 million and $555 million outstanding at
September 30, 1999 and December 31, 1998. The average amount outstanding during
the nine months ended September 30, 1999 was $638 million. The average amount
outstanding during 1998 and 1997 was $278 million and $107 million. Interest
expense totaled $14.6 million and $3.3 million for the nine months ended
September 30, 1999 and 1998. Interest expense was $16.8 million, $6.1 million
and $8.1 million for the years ended December 31, 1998, 1997 and 1996.

WFS also invests its excess cash at the Bank under an Investment Agreement.
The Bank pays us an interest rate equal to the Federal composite commercial
paper rate on this excess cash. The weighted average interest rate was 5.25%,
5.45% and 5.78% for 1999, 1998 and 1997. The average balance of the excess cash
was $3.8 million and the interest income earned was $0.1 million during 1999. At
September 30, 1999, the Company held no excess cash with the Bank under the
Investment Agreement. The average balance of the excess cash was $9.0 million,
$30.0 million, and $14.5 million, and the interest income earned was $0.5
million, $1.7 million and $0.8 million during 1998, 1997 and 1996.

WFS has entered into certain management agreements with the Bank and
Westcorp pursuant to which WFS pays its allocated portion of certain costs and
expenses incurred by the Bank and Westcorp with respect to services or
facilities of the Bank and Westcorp used by WFS or its subsidiaries, including
their principal office facilities, field offices of WFS and overhead and
employee benefits pertaining to Bank and Westcorp employees who also provide
services to WFS or its subsidiaries. Additionally, as part of these management
agreements, the Bank and Westcorp have agreed to reimburse WFS for similar costs
incurred. The management agreements may be terminated by any party upon 5 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.

Pursuant to a series of agreements to which WFS, the Bank and WFAL2, among
others, are parties, WFS is able to access the cash flows of each of the
outstanding securitization transactions and the cash held in each spread account
for each of those transactions. WFS is permitted to use that cash as it
determines, including in its ordinary business activities of originating
contracts.

In each securitization transaction, the Bank and WFAL2 have entered into a
reinvestment contract, which is deemed to be an eligible investment under the
relevant securitization agreements. The securitization agreements required,
provided certain conditions are met, that all cash flows of the relevant trust
and the associated spread accounts be invested in the applicable reinvestment
contract. A limited portion of the invested funds may be used by WFAL2 and the
balance may be used by the Bank. The Bank makes its portion available to WFS
pursuant to the term 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 for WFS pursuant to the terms of Sale and Servicing
Agreements.

FSA has determined that the trust reinvestment contracts may be eligible
investments provided the Bank and WFAL2 pledge adequate collateral to secure
their respective obligations. In accordance with this agreement, the Bank and
WFAL2 pledge property owned by each for the benefit of the trustee of each trust
and FSA. WFS pays the Bank a fee equal to 12.5 basis points of the amount of
collateral pledged by
F-15
<PAGE> 71
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

the Bank as consideration for the pledge of collateral by the Bank and for WFS'
access to cash under the WFS Reinvestment Contract. During 1999, WFS paid the
Bank $0.4 million 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 FSA. While WFS is under no obligation to
repurchase contracts from WFAL2 to the extent WFAL2 needs to sell any such
contracts to fund its repayment obligations under the trust reinvestment
contracts, it is anticipated that WFS would prefer to purchase those contracts
than for WFAL2 to sell those contracts to a third party. The WFS Reinvestment
Contract, by its terms, is to remain in effect so long as any of the trust
reinvestment contracts is an eligible investment for its related securitization
transaction. At September 30, 1999, December 31, 1998 and December 31, 1997, the
amount outstanding under the WFS Reinvestment Contract was $448 million, $364
million and $612 million.

WFS has entered into an agreement with Westran Services Corp. ("Westran"),
which is a subsidiary of Westcorp, to receive travel related services. WFS
believes that the services rendered by Westran are reasonable and representative
of what such costs would have been had WFS used an unaffiliated entity. Total
amounts paid to Westran in 1998, 1997, and 1996 was $0.2 million $0.1 million,
and $0.4 million. For the nine months ended September 30, 1999 and 1998, WFS had
total amounts paid to Westran of $0.1 million, for the respective periods.

NOTE 7 -- CONDUIT FACILITY (UNAUDITED)

In September 1999, we established a $500 million conduit facility in a
private placement. The Notes are rated AAA by Standard & Poor's and Aaa by
Moody's. Timely principal and interest payments on the Notes are guaranteed by
an insurance policy. Interest payments on the Notes are due quarterly, in
arrears, calculated at a commercial paper index rate plus 30 basis points.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

Future minimum payments under non-cancelable operating leases on premises
and equipment with terms of one year or more as of September 30, 1999 are as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
(UNAUDITED)
<S> <C>
1999.................................................... $ 936
2000.................................................... 3,519
2001.................................................... 2,377
2002.................................................... 1,118
2003.................................................... 865
Thereafter.............................................. 725
------
$9,540
======
</TABLE>

These agreements include, in certain cases, various renewal options and
contingent rental agreements. Rental expense for premises and equipment amounted
to $7.6 million, $9.0 million and $5.3 million for the years ended December 31,
1998, 1997 and 1996. Rental expense was $4.0 million and $5.4 million for the
nine months ended September 30, 1999 and 1998.

F-16
<PAGE> 72
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

WFS is involved as a party to certain legal proceedings incidental to its
business. Management of WFS believes that the outcome of such proceedings will
not have a material effect upon its business or financial condition.

NOTE 9 -- SERVICING INCOME

Servicing income consists of the following components:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1999 1998 1998 1997 1996
--------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Retained interest income.............. $ 37,888 $ 2,228 $ 1,961 $ 69,844 $ 55,219
Contractual servicing income.......... 34,443 27,482 37,180 30,803 24,404
Other fee income...................... 33,172 27,780 36,969 37,106 32,346
-------- ------- ------- -------- --------
Total servicing income................ $105,503 $57,490 $76,110 $137,753 $111,969
======== ======= ======= ======== ========
</TABLE>

NOTE 10 -- EMPLOYEE STOCK OWNERSHIP AND SALARY SAVINGS PLAN

WFS participates in the Westcorp Employee Stock Ownership and Salary
Savings Plan ("the Plan"), which covers essentially all full-time employees who
have completed one year of service. Contributions to the Plan are discretionary
and determined by the Board of Directors of Westcorp within limits set forth
under the Employee Retirement Income Security Act of 1974. Contributions to the
Plan are fully expensed in the year in which the contribution is made.

Westcorp has contributed $0.8 million, $2.4 million and $3.4 million in
1998, 1997 and 1996. Westcorp contributed $3.0 million for the nine months ended
September 30, 1999.

NOTE 11 -- STOCK OPTIONS

In 1996, WFS reserved 550,000 shares of common stock for future issuance to
certain employees under an incentive stock option plan ("the Plan"). In 1997,
WFS reserved an additional 550,000 shares of common stock for future issuance
under the Plan. An additional 130,343 shares of existing options expired during
1998. There were 787,401 shares available for future grants at September 30,
1999. The options may be exercised within five to seven years after the date of
grant. Additionally, the weighted average life of the options at September 30,
1999 was 5.81 years and the exercise price of the options outstanding at
September 30, 1999 ranged from $6.94 to $18.00 per share.

At December 31, 1998 there were no exercisable stock options under the
plan. In October 1998, the Company canceled 624,539 of existing options as part
of a voluntary stock option exchange program. All option holders taking part in
this program forfeited their existing options and were issued a proportionately

F-17
<PAGE> 73
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

smaller number of new options based upon a reduced exercise price. Stock option
activity is summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE
-------- ----------------
<S> <C> <C>
OUTSTANDING AT JANUARY 1, 1996
Issued..................................................... 519,569 $18.00
Exercised................................................
Cancelled................................................
-------- ------
OUTSTANDING AT DECEMBER 31, 1996........................... 519,569 $18.00
Issued................................................... 343,498 13.14
Exercised................................................ (24,443) 18.00
Cancelled................................................ (83,742) 17.58
-------- ------
OUTSTANDING AT DECEMBER 31, 1997........................... 754,882 $15.83
Issued................................................... 326,052 7.32
Exercised................................................
Cancelled................................................ (762,985) 15.53
-------- ------
OUTSTANDING AT DECEMBER 31, 1998........................... 317,949 $ 8.14
Issued (unaudited).......................................
Exercised (unaudited).................................... (47,443) 6.94
Cancelled (unaudited).................................... (29,793) 13.89
-------- ------
OUTSTANDING AT SEPTEMBER 30, 1999 (UNAUDITED).............. 240,713 $ 5.81
======== ======
</TABLE>

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

The fair value of options granted in 1999, 1998, 1997 and 1996 was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions:

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Risk-free interest rate..................... 5.99% 4.31% 4.70% 5.70% 6.20%
Volatility factor........................... 0.61 0.66 0.53 0.57 0.3
Expected option life........................ 7 years 7 years 7 years 7 years 5 years
</TABLE>

The weighted average fair value of options per share granted during the
nine months ended September 30, 1999 as 5.02%. The weighted average fair value
of options granted during 1998, 1997 and 1996 was $4.57, $8.62 and $6.82.

F-18
<PAGE> 74
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

WFS elected to follow APB 25 and related Interpretations in accounting for
its employee stock options. Under APB 25, the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant and, therefore, no compensation expense is recognized. Pro-forma
information regarding net income and earnings per share is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock option under the fair value method of that statement. Pro-forma net
income/(loss) and earnings/(loss) per diluted share for the respective periods
were as follows:

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pro-forma net income/(loss)............ $36,347 $(17,502) $(16,636) $30,983 $38,302
Per diluted share...................... $ 1.41 $ (0.66) $ (0.65) $ 1.21 $ 1.49
</TABLE>

The impact of applying SFAS 123 in 1999, 1998, 1997 and 1996 is immaterial
to the financial statements of WFS.

NOTE 12 -- RESTRUCTURING

In 1998, the Company completed a restructuring plan initially announced on
February 10, 1998. The goal of the plan was to consolidate offices and eliminate
redundant staff positions on a national level. The plan was achieved in two
phases. Phase I of the plan, completed in the first quarter of 1998, consisted
of the restructuring of operations in the Western United States. Phase II of the
plan, completed in the third quarter of 1998 and patterned after Phase I,
consisted of the restructuring of operations in the Central and Eastern United
States. As a result of these two restructuring, a total of 400 positions, or 20%
of the Company's workforce, were eliminated and 96 offices were closed. The
total pre-tax restructuring charge in 1998 for the completed plan was $15.0
million. Restructuring related costs included $1.8 million for employee
severance and $13.2 million of lease termination fees and the write off of
disposed assets. The restructuring charge was substantially utilized during
1998.

Through the restructuring, WFS merged prime and non-prime office locations
with close geographic proximity and closed poorly performing offices. The
remaining offices now offer its dealer base the full spectrum of prime and
non-prime products through a single sales and marketing force. However, WFS
employs separate credit analysts that specialize in either reviewing prime or
non-prime contracts. These analysts provide more consistent underwriting
practices through the use of a proprietary scorecard with its system-enforced
credit requirements which was also implemented during the year.

F-19
<PAGE> 75
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 13 -- INCOME TAXES

Income tax expense (benefit) consisted of the following:

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------
1999 1998 1998 1997 1996
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal....................... $ 29,801 $ (207) $ (1,773) $ 4,967 $ 6,612
State franchise............. 9,423 (15) (554) 1,841 1,643
-------- -------- -------- ------- -------
39,224 (222) (2,327) 6,808 8,255
Deferred:
Federal..................... (10,094) (8,947) (7,171) 11,913 14,880
State franchise............. (2,578) (3,210) (2,597) 4,108 4,644
-------- -------- -------- ------- -------
(12,672) (12,157) (9,768) 16,021 19,524
-------- -------- -------- ------- -------
$ 26,552 $(12,379) $(12,095) $22,829 $27,779
======== ======== ======== ======= =======
</TABLE>

The difference between total tax provisions and the amounts computed by
applying the statutory federal income tax rate of 35% to income before taxes is
due to:

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------
1999 1998 1998 1997 1996
------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax at statutory rate.................. $22,050 $(10,282) $(10,032) $18,950 $23,247
State tax (net of Federal tax
benefit)............................... 4,449 (2,097) (2,048) 3,867 4,087
Other.................................. 53 (15) 12 445
------- -------- -------- ------- -------
$26,552 $(12,379) $(12,095) $22,829 $27,779
======= ======== ======== ======= =======
</TABLE>

Deferred taxes reflect the net tax effects 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 restated. Such changes to the
components of the expense occur because all tax alternatives available to WFS
are not known for a number of months subsequent to year end.

F-20
<PAGE> 76
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Significant components of WFS' deferred tax liabilities and assets are as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Loan loss reserves............................... $ 15,398 $ 4,848 $ 2,990
State tax deferred benefit....................... 4,111 2,147 3,219
Other assets..................................... 2,699 2,658 1,127
-------- -------- --------
Total deferred tax assets........................ 22,208 9,653 7,336
Deferred tax liabilities:
Accelerated depreciation for tax purposes........ (1,738)
Asset securitization income recognized for book
purposes....................................... (27,960) (28,948) (28,662)
Other liabilities................................ (4,561) (4,272) (3,284)
-------- -------- --------
Total deferred tax liabilities................... (32,521) (33,220) (33,684)
-------- -------- --------
Net deferred tax liability....................... $(10,313) $(23,567) $(26,348)
======== ======== ========
</TABLE>

NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of WFS' financial instruments are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- -----------------------------------------
1999 1998 1997
----------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE AMOUNTS VALUE
---------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS:
Short term
investments -- parent........... $ 39,321 $ 39,321 $ 15,020 $ 15,020 $143,805 $143,805
Contracts receivable............ 1,262,749 1,358,939 896,071 943,393 236,125 251,131
Retained interest in securitized
assets........................ 174,472 174,472 171,230 171,230 181,177 181,177
FINANCIAL INSTRUMENT AGREEMENTS
HELD FOR PURPOSES OTHER THAN
TRADING:
Forward agreements:............. (840) 4,389 (55)
FINANCIAL LIABILITIES:
Note payable -- parent.......... 184,008 172,250 160,000 128,450 175,000 179,238
Secured lines................... 833,778 833,778 554,836 554,836
Amounts held on behalf of
trustee....................... 659,406 659,406 528,092 528,092 488,654 488,654
</TABLE>

NOTE 15 -- FINANCIAL INSTRUMENT AGREEMENTS

WFS Financial uses Forward Agreements to minimize its exposure to interest
rate risk. The fair value of these instruments may vary with changes in interest
rates. At September 30, 1999, December 31, 1998 and 1997, WFS' portfolio
consisted of Forward Agreements with a notional amount of $1.3 billion, $775
million and $70 million.

F-21
<PAGE> 77
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

NOTE 16 -- EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
and does not include the impact of any potentially dilutive common stock
equivalents. Diluted earnings per share is arrived at by dividing net income by
the weighted average number of shares outstanding, adjusted for the dilutive
effect of outstanding stock options.

The calculation of net income per common share follows:

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BASIC
Net income (loss)....... $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641
Average common shares
outstanding........... 25,721,295 25,708,611 25,708,611 25,691,892 25,684,175
Net income (loss) per
common
share -- basic........ $ 1.42 $ (0.66) $ (0.64) $ 1.22 $ 1.50
DILUTED
Net income (loss)....... $ 36,448 $ (16,998) $ (16,567) $ 31,314 $ 38,641
Average common share
outstanding........... 25,721,295 25,708,611 25,708,611 25,691,892 25,684,175
Stock option
adjustment............ 100,902 4,621 39,203
Average common shares
outstanding........... 25,822,197 25,708,611 25,708,611 25,696,513 25,723,378
Net income (loss) per
common share --
diluted............... $ 1.41 $ (0.66) $ (0.64) $ 1.22 $ 1.50
</TABLE>

Options to purchase 317,949 shares of common stock at a range of $6.94 to
$18.00 per share, were outstanding during 1998 but were not included in the
computation of diluted earnings per share because the Company experienced a loss
and the options' exercise price was greater than the average market price of the
common shares, and therefore, the effect would be antidilutive.

F-22
<PAGE> 78
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 17 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the periods ended September 30, 1999 and December 31, 1998, 1997 and 1996.
Certain quarterly amounts have been adjusted to conform with the year-end
presentation.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1999
Interest income................................. $ 23,744 $38,507 $34,324
Interest expense.............................. 6,087 11,073 8,873
Net interest income........................... 17,657 27,434 25,451
Provision for credit losses................... 11,198 4,758 15,347
Income before income tax...................... 20,001 21,009 21,990
Income tax.................................... 8,416 8,858 9,278
Net income.................................... 11,585 12,151 12,712
Net income per common share -- basic.......... 0.45 0.47 0.49
Net income per common share -- diluted........ 0.45 0.47 0.49
1998
Interest income............................... $ 15,290 $17,902 $25,809 $30,757
Interest expense.............................. 3,270 3,991 7,666 9,853
Net interest income........................... 12,020 13,911 18,143 20,904
Provision for credit losses................... 5,741 1,356 2,291 5,758
Income (loss) before income tax (benefit)..... (23,068) 526 (6,835) 715
Income tax (benefit).......................... (9,727) 234 (2,887) 285
Net income.................................... (13,341) 292 (3,948) 430
Net income (loss) per common share -- basic... (0.52) 0.01 (0.15) 0.02
Net income (loss) per common
share -- diluted........................... (0.52) 0.01 (0.15) 0.02
1997
Interest income............................... $ 14,292 $16,299 $17,044 $15,353
Interest expense.............................. 1,608 2,602 2,678 3,443
Net interest income........................... 12,684 13,697 14,366 11,910
Provision for credit losses................... 3,304 1,233 1,211 2,500
Income before income tax...................... 15,010 17,314 10,741 11,078
Income tax.................................... 6,378 7,364 4,370 4,717
Net income.................................... 8,632 9,950 6,371 6,361
Net income per common share -- basic.......... 0.34 0.39 0.25 0.25
Net income per common share -- diluted........ 0.34 0.39 0.25 0.25
</TABLE>

F-23
<PAGE> 79
WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

F-24
<PAGE> 80

- ------------------------------------------------------
- ------------------------------------------------------

YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WFS
FINANCIAL INC NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE
INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN
OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

------------------------
TABLE OF CONTENTS
------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Forward-looking Statements............ 32
Business.............................. 34
Management............................ 43
Supervision and Regulation............ 46
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Where You Can Find Additional
Information......................... 52
Incorporation by Reference............ 52
Index to Combined Financial
Statements.......................... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

WFS LOGO
SHARES

COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.

DONALDSON, LUFKIN & JENRETTE
, 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 81

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Registration Fee............................................ $ 12,788
Printing and Engraving...................................... 75,000
Accounting Fees............................................. 100,000
Legal Fees and Expenses..................................... 150,000
Blue Sky Fees and Expenses.................................. 5,000
Nasdaq National Market Listing Fees......................... 50,000
Fees of Registrar and Transfer Agent........................ 5,000
Miscellaneous Fees.......................................... 102,212
--------
Total............................................. $500,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 204 of the California General Corporation Law permits a corporation
to eliminate or limit a director's personal liability to the corporation for
breach of the director's duties to the corporation or its stockholders with
certain exceptions.

The exceptions include intentional misconduct or knowing misconduct, acts
or omissions not done in good faith, transactions from which a director derived
an improper personal benefit, reckless acts, acts or omissions showing an
unexcused pattern of inattention, transactions between the corporation and a
director or between corporations having interrelated directors and improper
distributions, loans and guarantees. Section 204 does not apply to officers in
their capacities as such, even if they are also directors.

Section 317 of the California General Corporation Law authorizes a
corporation, in its discretion, to indemnify its directors, officers, employees
and other agents in terms broad enough to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses)
imposed. The Articles of Incorporation and Bylaws of WFS provide for
indemnification of agents to the fullest extent permitted by law.

Section 317 further permits a corporation to purchase and maintain
insurance on behalf of its agents. Westcorp currently maintains officers' and
directors' liability insurance for its officers and directors and for the
officers and directors of its subsidiaries, including WFS with policy limits of
$20,000,000. The coverage is composed of a primary insurance policy with limits
of $10 million and an excess insurance policy with limits of $10 million. The
aggregate deductible is $500,000.

II-1
<PAGE> 82

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1 Underwriting Agreement(*)
4 Specimen WFS Financial Inc Common Stock Certificate(5)
5 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality
10.1 Westcorp Incentive Stock Option Plan(2)
10.2 Westcorp, Inc. Employee Stock Ownership and Salary Savings
Plan(3)
10.3 Westcorp 1991 Stock Option Plan(4)
10.4 1985 Executive Deferral Plan(1)
10.5 1988 Executive Deferral Plan II(1)
10.6 1992 Executive Deferral Plan III(1)
10.7 Transfer Agreement between WFS Financial Inc and Western
Financial Bank, F.S.B., dated May 1, 1995(1)
10.8 Promissory Note of WFS Financial Inc in favor of Western
Financial Bank, F.S.B., dated May 1, 1995(1)
10.9 Revolving Line of Credit Agreement between WFS Financial Inc
and Western Financial Bank, dated June 15, 1999
10.9.1 Amendment No. 1, dated as of August 1, 1999, to the
Revolving Line of Credit Agreement between WFS Financial Inc
and Western Financial Bank
10.10 Tax Sharing Agreement between WFS Financial Inc. and Western
Financial Banks, F.S.B., dated January 1, 1994(1)
10.11 Master Reinvestment Contract between WFS Financial Inc and
Western Financial Bank, F.S.B., dated May 1, 1995(1)
10.12 Amendment No. 1, dated as of June 1, 1995, to the Restated
Master Reinvestment Reimbursement Agreement(11)
10.13 Amended and Restated Master Collateral Assignment Agreement,
dated as of November 1, 1998(11)
10.14 Form of WFS Financial Inc Dealer Agreement(5)
10.15 Form of WFS Financial Inc Loan Application(5)
10.16 Westcorp Employee Stock Ownership and Salary Savings Plan(7)
10.16.1 Amendment No. 1, dated January 20, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan(*)
10.16.2 Amendment No. 2, dated August 17, 1999, to Westcorp Employee
Stock Ownership and Salary Savings Plan(*)
10.16.3 Amendment No. 3, dated August 17, 1999, to Westcorp Employee
Stock Ownership and Salary Savings Plan(*)
10.17 Amended and Restated WFS 1996 Incentive Stock Option Plan,
dated January 1, 1997(*)
10.18 Promissory Note of WFS Financial Inc in favor of Western
Financial Bank, F.S.B., dated August 1, 1997(11)
10.18.1 Amendment No. 1, dated February 23, 1999, to the Promissory
Note of WFS Financial Inc in favor of Western Financial
Bank(11)
10.18.2 Amendment No. 2, dated July 30, 1999, to the Promissory Note
of WFS Financial Inc in favor of Western Financial Bank
</TABLE>

II-2
<PAGE> 83

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
10.19 Investment Agreement between WFS Financial Inc and Western
Financial Bank, F.S.B., dated January 1, 1996(11)
10.20 Management Services Agreement between WFS Financial Inc and
Western Financial Bank, F.S.B., dated January 1, 1997(11)
10.21 Employment Agreement(8)(9)(10)
21.1 Subsidiaries of WFS Financial Inc
23.1 Consent of Ernst & Young LLP
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5)
24 Power of Attorney (on page II-5)
</TABLE>

- ---------------
(*) To be supplied by amendment.

(1) Exhibits previously filed with WFS Financial Inc Registration Statement on
Form S-1 (File No. 33-93068), filed August 8, 1995 incorporated herein by
reference under Exhibit Number indicated.

(2) Exhibits previously filed with Westcorp Registration Statement on Form S-1
(File No. 33-4295), filed May 2, 1986 incorporated herein by reference
under Exhibit Number indicated.

(3) Exhibits previously filed with Westcorp Registration Statement on Form S-4
(File No. 33-34286), filed April 11, 1990 incorporated herein by reference
under Exhibit Number indicated.

(4) Exhibits previously filed with Westcorp Registration Statement on Form S-8
(File No. 33-43898), filed December 11, 1991 incorporated herein by
reference under Exhibit Number indicated.

(5) Amendment No. 1, dated as of July 14, 1995 to the WFS Financial Inc
Registration Statement on Form S-1 (File No. 33-93068) incorporated herein
by reference under Exhibit Number indicated.

(6) Exhibit previously filed with WFS Registration Statement on Form S-8 (File
No. 33-7485), filed July 3, 1996 incorporated by reference under the
Exhibit Number indicated. Amendment No. 1 dated as of November 13, 1997
filed with the WFS Registration Statement on Form S-8 (File no. 333-40121)
incorporated herein by reference under Exhibit Number indicated.

(7) Exhibits previously filed with Westcorp Registration Statement on Form S-8
(File No. 333-11039), filed August 29, 1996 incorporated herein by
reference under Exhibit Number indicated.

(8) Employment Agreement dated February 27, 1998 between the registrant and Joy
Schaefer (will be provided to the SEC upon request).

(9) Employment Agreement dated February 27, 1998 between the registrant,
Westcorp and Lee A. Whatcott (will be provided to the SEC upon request).

(10) Employment Agreement, dated November, 1998 between the registrant and Mark
Olson (will be provided to the SEC upon request).

(11) Exhibits previously filed with Annual Report on Form 10-K of WFS Financial
Inc for the year ended December 31, 1998 (file # 33-93068) as filed on or
about March 31, 1999.

II-3
<PAGE> 84

ITEM 17. UNDERTAKINGS.

The undersigned hereby undertakes as follows:

(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(ii) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(iii) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(iv) For purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-4
<PAGE> 85

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on November 18, 1999.

WFS FINANCIAL INC

By: /s/ JOY SCHAEFER
------------------------------------
Joy Schaefer
Vice Chairman, Director,
Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned directors and officers of WFS Financial Inc., do hereby
constitute and appoint each of Joy Schaefer, Lee A. Whatcott and Guy Du Bose or
any of them acting alone, our true and lawful attorney-in-fact and agent, each
with full power to sign for us or any of us in our names and in any and all
capacities, any and all amendments (including post-effective amendments) to this
registration statement, or any related registration statements that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto and other documents
required in connection therewith, and any of them with full power to do any and
all acts and things in our names and in any and all capacities, which such
attorneys-in-fact and agents, or any of them, may deem necessary or advisable to
enable WFS Financial Inc to comply with the Securities Act of 1933, as amended,
and any rules, regulations, and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement; and we hereby do
ratify and confirm all that the such attorneys-in-fact and agents, or either of
them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- ---------------------------- -----------------
<C> <S> <C>

/s/ ERNEST S. RADY Chairman of the Board November 18, 1999
- ---------------------------------------------------
Ernest S. Rady

/s/ JOY SCHAEFER Vice Chairman, Director, and November 18, 1999
- --------------------------------------------------- Chief Executive Officer
Joy Schaefer

/s/ JAMES R. DOWLAN Director November 18, 1999
- ---------------------------------------------------
James R. Dowlan

/s/ HOWARD C. REESE Director November 18, 1999
- ---------------------------------------------------
Howard C. Reese

/s/ STANLEY E. FOSTER Director November 18, 1999
- ---------------------------------------------------
Stanley E. Foster

Director November 18, 1999
- ---------------------------------------------------
Bernard E. Fipp

/s/ DUANE A. NELLES Director November 18, 1999
- ---------------------------------------------------
Duane A. Nelles

/s/ LEE A. WHATCOTT Senior Executive Vice November 18, 1999
- --------------------------------------------------- President (Principal
Lee A. Whatcott Financial and Accounting
Officer) and Chief
Financial Officer
</TABLE>

II-5
<PAGE> 86

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
1 Underwriting Agreement(*)
4 Specimen WFS Financial Inc Common Stock Certificate(5)
5 Opinion of Mitchell, Silberberg & Knupp LLP with respect to
legality
10.1 Westcorp Incentive Stock Option Plan(2)
10.2 Westcorp, Inc. Employee Stock Ownership and Salary Savings
Plan(3)
10.3 Westcorp 1991 Stock Option Plan(4)
10.4 1985 Executive Deferral Plan(1)
10.5 1988 Executive Deferral Plan II(1)
10.6 1992 Executive Deferral Plan III(1)
10.7 Transfer Agreement between WFS Financial Inc and Western
Financial Bank, F.S.B., dated May 1, 1995(1)
10.8 Promissory Note of WFS Financial Inc in favor of Western
Financial Bank, F.S.B., dated May 1, 1995(1)
10.9 Line of Credit Agreement between WFS Financial Inc and
Western Financial Bank, dated June 15, 1999
10.9.1 Amendment No. 1, dated as of August 1, 1999, to the Line of
Credit Agreement between WFS Financial Inc and Western
Financial Bank
10.10 Tax Sharing Agreement between WFS Financial Inc. and Western
Financial Banks, F.S.B., dated January 1, 1994(1)
10.11 Master Reinvestment Contract between WFS Financial Inc and
Western Financial Bank, F.S.B., dated May 1, 1995(1)
10.12 Amendment No. 1, dated as of June 1, 1995, to the Restated
Master Reinvestment Reimbursement Agreement(11)
10.13 Amended and Restated Master Collateral Assignment Agreement,
dated as of November 1, 1998(11)
10.14 Form of WFS Financial Inc Dealer Agreement(5)
10.15 Form of WFS Financial Inc Loan Application(5)
10.16 Westcorp Employee Stock Ownership and Salary Savings Plan(7)
10.16.1 Amendment No. 1, dated January 20, 1999, to Westcorp
Employee Stock Ownership and Salary Savings Plan(*)
10.16.2 Amendment No. 2, dated August 17, 1999, to Westcorp Employee
Stock Ownership and Salary Savings Plan(*)
10.16.3 Amendment No. 3, dated August 17, 1999, to Westcorp Employee
Stock Ownership and Salary Savings Plan(*)
10.17 Amended and Restated WFS 1996 Incentive Stock Option Plan,
dated January 1, 1997(*)
10.18 Promissory Note of WFS Financial Inc in favor of Western
Financial Bank, F.S.B., dated August 1, 1997(11)
10.18.1 Amendment No. 1, dated February 23, 1999, to the Promissory
Note of WFS Financial Inc in favor of Western Financial
Bank(11)
10.18.2 Amendment No. 2, dated July 30, 1999, to the Promissory Note
of WFS Financial Inc in favor of Western Financial Bank
</TABLE>
<PAGE> 87

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------ ------------
<C> <S> <C>
10.19 Investment Agreement between WFS Financial Inc and Western
Financial Bank, F.S.B., dated January 1, 1996(11)
10.20 Management Services Agreement between WFS Financial Inc and
Western Financial Bank, F.S.B., dated January 1, 1997(11)
10.21 Employment Agreement(8)(9)(10)
21.1 Subsidiaries of WFS Financial Inc
23.1 Consent of Ernst & Young LLP
24 Power of Attorney (on page II-5)
</TABLE>