WFS Financial Q4 Profit Rises 53 Percent on Improved Credit Performance

IRVINE, CA – WFS Financial Inc. reported that net income for 2004 rose 12% to a record $182 million compared with $162 million last year. Earnings per share rose 12% to a record $4.44 for the 12 months ended Dec. 31, 2004, compared with $3.95 for 2003. Fourth quarter net income increased 53% to $43.7 million for the three months ended Dec. 31, 2004, compared with $28.6 million for the same period a year ago. Earnings per diluted share increased 51% to $1.06 for the three months ended Dec. 31, 2004, compared with $0.70 per diluted share for the same period a year earlier.

“Our strong net income was primarily the result of a significant improvement in credit performance,” said Tom Wolfe, CEO of WFS Financial. “Our emphasis on risk-focused underwriting, our effective auto lending servicing platform and an improving economy all contributed to the improvement in our credit performance even as we achieved 11% year-over-year origination growth.”

Annualized credit loss experience improved 63 basis points to 2.01% of average managed automobile contracts for the fourth quarter compared with 2.64% for the same period a year earlier. For the 12 months ended Dec. 31, 2004, credit loss experience improved 61 basis points to 1.99% compared with 2.60% for 2003. The percentage of outstanding automobile contracts 30 days or more delinquent improved 66 basis points to 2.24% at Dec. 31, 2004, compared, with 2.90% a year ago.

Provision for credit losses declined to $59.0 million for the three months ended Dec. 31, 2004, compared with $69.6 million for the same period a year earlier as a result of lower chargeoff experience and stronger portfolio characteristics. For the 12 months ended Dec. 31, 2004, the provision for credit losses declined to $192 million compared with $234 million last year. At Dec. 31, 2004, the allowance for credit losses totaled $252 million or 2.6% of loans receivable compared with $240 million or 2.8% at Dec. 31, 2003.

Automobile contract purchases totaled $1.6 billion for the fourth quarter of 2004, a 17% increase from the same period a year earlier. For the 12 months ended Dec. 31, 2004, automobile contract purchases totaled $6.6 billion, an 11% increase over 2003. The company’s portfolio of managed automobile contracts grew to $11.6 billion at Dec. 31, 2004, up from $10.6 billion a year earlier.

Net interest income grew 7% to $159 million for the fourth quarter compared with $148 million for the same period a year earlier as total average interest-earning assets increased $599 million to $9.9 billion and net interest margin widened 16 basis points to 5.98% on the total portfolio for the fourth quarter compared with the same period a year ago. For the 12 months ended Dec. 31, 2004, net interest income declined 3% to $584 million compared with $602 million for the same period a year earlier as total average interest-earning assets decreased $198 million to $9.4 billion as a result of whole loan sales and net interest margin decreased 9 basis points to 5.88% on the total portfolio for the year compared with the same period a year ago.

The company issued $1.4 billion of automobile receivable asset-backed securities during the quarter with a weighted average cost of funds of 3.1%. The company continues to be the largest non-captive issuer of automobile asset-backed securities in the United States, having issued a total of $41 billion of such securities in 65 transactions to date.

Noninterest income was $34.4 million for the three months ended Dec. 31, 2004, compared with $31.8 million for the same period a year earlier. For the 12 months ended Dec. 31, 2004, noninterest income was $155 million compared with $142 million for 2003.

Noninterest expense totaled $62.7 million or 2.18% of average managed contracts for the fourth quarter compared with $62.7 million or 2.38% of average managed contracts for the same period a year earlier. For the 12 months ended Dec. 31, 2004, noninterest expense totaled $245 million or 2.21% of average managed contracts compared with $241 million or 2.40% of average managed contracts a year ago.

As previously announced, Westcorp, WFS’ ultimate parent, is in the process of converting Western Financial Bank to a California state commercial bank and merging WFS Financial into Western Financial Bank as part of the acquisition of the minority interest in WFS Financial. The conversion is contingent upon approval by the Board of Governors of the Federal Reserve of Westcorp’s application to become a bank holding company. The merger also remains subject to approval by the majority of WFS Financial’s minority shareholders.

Westcorp is a financial services holding company whose principal subsidiaries are WFS Financial Inc and Western Financial Bank. Westcorp is a publicly owned company whose common stock is traded on the New York Stock Exchange under the symbol WES. Information about Westcorp can be found at its Web site at www.westcorpinc.com.

Westcorp, through its subsidiary, WFS Financial, is one of the nation’s largest independent automobile finance companies. WFS Financial specializes in originating, securitizing, and servicing new and pre-owned prime and non-prime credit quality automobile contracts through its nationwide relationships with automobile dealers. WFS Financial is a publicly owned company whose common stock is traded on the Nasdaq under the symbol WFSI. Information about WFS Financial can be found at its Web site at www.wfsfinancial.com.

Westcorp, through its subsidiary, Western Financial Bank, operates 20 retail bank branches and provides commercial banking services in Southern California. Information on the products and services offered by the bank can be found at its Web site at www.wfb.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are identified by the use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms and phrases, including references to assumptions. Forward-looking statements in this press release relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. In addition, these statements relate to the company’s future prospects, developments and business strategies and include information regarding the company’s improved credit quality trends and higher automobile origination growth. In particular, there can be no assurances that improved credit quality trends or origination growth identified in this press release will continue in future periods. These statements are subject to uncertainties and factors relating to the company’s operations and business environment, all of which are difficult to predict and many of which are beyond its control that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from the forward-looking statements: changes in general economic and business conditions; interest rate fluctuations, including the effect of hedging activities; the company’s financial condition and liquidity, as well as future cash flow and earnings and the level of operating expenses; competition; the effect, interpretation, or application of new or existing laws, regulations, court decisions and significant litigation; and the level of chargeoffs on the automobile contracts that the company originates. A further list of these risks, uncertainties and other matters can be found in the company’s filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the company’s actual results may vary materially from those expected, estimated or projected. The information contained in this press release is as of Jan. 25, 2005. The company assumes no obligation to update any forward-looking statements to reflect future events or circumstances.