##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _________ to _________ Commission file number 33-13646  Westcorp  CALIFORNIA
    
    51-0308535(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 23 Pasteur, Irvine, California 92618-3816 
 (949) 727-1002 
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x    No o As of April 30, 2004, the registrant had 51,825,904 outstanding shares of
common stock, $1.00 par value. The shares of common stock represent the only
class of common stock of the registrant. The total number of sequentially numbered pages is 33.




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WESTCORP AND SUBSIDIARIES FORM 10-Q March 31, 2004 TABLE OF CONTENTS   Page No.Forward-Looking Statements and Available Information
    1PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    2Consolidated Statements of Financial Condition at
March 31, 2004 and December 31, 2003
    
    2Consolidated Statements of Income for the
Three Months Ended March 31, 2004 and 2003
    
    3Consolidated Statements of Changes in Shareholders Equity for
the Periods Ended March 31, 2004 and December 31, 2003
    
    4Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2004 and 2003
    
    5Notes to Consolidated Financial Statements
    
    6Item 2.
    
  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    12Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
    
    28Item 4.
    
    Controls and Procedures
    
    30PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    31Item 2.
    
    Changes in Securities and Use of Proceeds
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    31Item 5.
    
    Other Information
    
    31Item 6.
    
    Exhibits and Reports on Form 8-K
    
    32SIGNATURES
    
    
    
    33CERTIFICATIONSEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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Forward-Looking Statements This Form 10-Q includes and incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act, as amended.
Forward-looking statements relate to analyses and other information that are
based on forecasts of future results and estimates of amounts not yet
determinable. These statements also relate to our future prospects,
developments and business strategies. These statements are subject to
uncertainties and factors relating to our operations and business environment,
all of which are difficult to predict and many of which are beyond our
control, that could cause actual results to differ materially from those
expressed in or implied by these forward-looking statements. These forward-looking statements are identified by use of terms and phrases
such as anticipate, believe, could, estimate, expect, intend,
may, plan, predict, project, will, and similar terms and phrases,
including references to assumptions. These statements are contained in the
section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations and other sections of this Form 10-Q. The following factors are among those that may cause actual results to differ
materially from the forward-looking statements:  changes in general economic and business conditions;  interest rate fluctuations, including hedging activities;  our financial condition and liquidity, as well as future cash flows and earnings;  competition;  our level of operating expenses;  the effect, interpretation, or application of new or existing laws, regulations and court decisions;  the availability of sources of funding;  the level of chargeoffs on the automobile contracts that we originate; and  significant litigation. If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, our actual results may vary materially from those
expected, estimated or projected. We do not undertake to update our forward-looking statements or risk factors
to reflect future events or circumstances. Available Information We provide access to all our filings with the Securities and Exchange
Commission on our Web site at http:\\www.westcorpinc.com free of charge on the
same day as these reports are electronically filed with the Commission. The
information contained in our Web site does not constitute part of this filing. 1




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)March 31, 2004
    
    December 31, 2003(Dollars in thousands)ASSETSCash
    
    $
    40,734
    
    
    $
    50,073Interest bearing deposits with other financial institutions
    
    
    14,718
    
    
    
    41,009Other short-term investments
    
    
    153,000
    
    
    
    291,000Cash and due from banks
    
    
    208,452
    
    
    
    382,082Restricted cash
    
    
    339,881
    
    
    
    245,399Investment securities available for sale
    
    
    141,638
    
    
    
    117,749Mortgage-backed securities available for sale
    
    
    2,686,505
    
    
    
    2,701,797Loans receivable
    
    
    11,369,266
    
    
    
    11,138,483Allowance for credit losses
    
    
    (303,062
    )
    
    
    (301,602
    )Loans receivable, net
    
    
    11,066,204
    
    
    
    10,836,881Premises and equipment, net
    
    
    81,146
    
    
    
    81,814Interest receivable
    
    
    76,623
    
    
    
    80,957Other assets
    
    
    144,935
    
    
    
    169,241TOTAL ASSETS
    
    $
    14,745,384
    
    
    $
    14,615,920LIABILITIESDeposits
    
    $
    2,025,539
    
    
    $
    1,972,856Notes payable on automobile secured financing
    
    
    10,248,497
    
    
    
    10,254,641Securities sold under agreements to repurchase
    
    
    
    
    
    
    222,489Federal Home Loan Bank advances
    
    
    572,613
    
    
    
    328,644Subordinated debentures
    
    
    393,217
    
    
    
    394,854Other
    
    
    205,475
    
    
    
    188,517TOTAL LIABILITIES
    
    
    13,445,341
    
    
    
    13,362,001Minority interest
    
    
    142,865
    
    
    
    131,434SHAREHOLDERS EQUITYCommon stock (par value $1.00 per share; authorized 65,000,000
shares; issued and outstanding 51,798,704 shares at March 31, 2004
and 51,698,398 shares at December 31, 2003)
    
    
    51,799
    
    
    
    51,698Paid-in capital
    
    
    711,933
    
    
    
    710,001Retained earnings
    
    
    464,169
    
    
    
    427,527Accumulated other comprehensive loss, net of tax
    
    
    (70,723
    )
    
    
    (66,741
    )TOTAL SHAREHOLDERS EQUITY
    
    
    1,157,178
    
    
    
    1,122,485TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    14,745,384
    
    
    $
    14,615,920
 See accompanying notes to consolidated financial statements. 2




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WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands, except per share mounts)Interest income:Loans, including fees
    
    $
    286,300
    
    
    $
    281,288Mortgage-backed securities
    
    
    24,688
    
    
    
    24,773Investment securities
    
    
    1,058
    
    
    
    729Other
    
    
    1,613
    
    
    
    1,073TOTAL INTEREST INCOME
    
    
    313,659
    
    
    
    307,863Interest expense:Deposits
    
    
    13,307
    
    
    
    17,556Notes payable on automobile secured financing
    
    
    94,218
    
    
    
    111,160Other
    
    
    11,894
    
    
    
    12,857TOTAL INTEREST EXPENSE
    
    
    119,419
    
    
    
    141,573NET INTEREST INCOME
    
    
    194,240
    
    
    
    166,290Provision for credit losses
    
    
    62,294
    
    
    
    79,884NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
    
    
    131,946
    
    
    
    86,406Noninterest income:Automobile lending
    
    
    25,748
    
    
    
    21,897Mortgage banking
    
    
    235
    
    
    
    210Insurance income
    
    
    1,824
    
    
    
    929Other
    
    
    883
    
    
    
    4,717TOTAL NONINTEREST INCOME
    
    
    28,690
    
    
    
    27,753Noninterest expenses:Salaries and associate benefits
    
    
    42,084
    
    
    
    39,455Credit and collections
    
    
    8,592
    
    
    
    9,546Data processing
    
    
    4,179
    
    
    
    4,568Occupancy
    
    
    3,877
    
    
    
    3,840Telephone
    
    
    1,161
    
    
    
    1,349Other
    
    
    11,324
    
    
    
    9,681TOTAL NONINTEREST EXPENSES
    
    
    71,217
    
    
    
    68,439INCOME BEFORE INCOME TAX
    
    
    89,419
    
    
    
    45,720Income tax
    
    
    35,313
    
    
    
    18,226INCOME BEFORE MINORITY INTEREST
    
    
    54,106
    
    
    
    27,494Minority interest in earnings of subsidiaries
    
    
    10,741
    
    
    
    3,945NET INCOME
    
    $
    43,365
    
    
    $
    23,549Earnings per common share:Basic
    
    $
    0.84
    
    
    $
    0.60Diluted
    
    $
    0.83
    
    
    $
    0.60Weighted average number of common shares outstanding:Basic
    
    
    51,737,663
    
    
    
    39,202,850Diluted
    
    
    52,493,432
    
    
    
    39,452,915Dividends declared
    
    $
    0.14
    
    
    $
    0.13
 See accompanying notes to consolidated financial statements. 3




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WESTCORP AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited) AccumulatedOtherComprehensiveCommon
    
    Paid-in
    
    Retained
    
    Income (Loss),Shares
    
    Stock
    
    Capital
    
    Earnings
    
    Net of Tax
    
    Total(Dollars in thousands, except share amounts)Balance at January 1, 2003
    
    
    39,200,474
    
    
    $
    39,200
    
    
    $
    350,018
    
    
    $
    325,529
    
    
    $
    (101,550
    )
    
    $
    613,197Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,605
    
    
    
    
    
    
    
    123,605Unrealized losses on securities
available for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,315
    )
    
    
    (7,315
    )Unrealized losses on cash flow
hedges, net of tax (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,285
    )
    
    
    (21,285
    )Reclassification adjustment for
gains on securities available for
sale included in net income, net
of tax (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,058
    )
    
    
    (5,058
    )Reclassification adjustment for
losses on cash flow hedges
included in income, net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,467
    
    
    
    68,467Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158,414Issuance of common stock
    
    
    12,371,500
    
    
    
    12,372
    
    
    
    356,863
    
    
    
    
    
    
    
    
    
    
    
    369,235Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    702Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    
    
    
    
    669Stock options exercised
    
    
    126,424
    
    
    
    126
    
    
    
    1,749
    
    
    
    
    
    
    
    
    
    
    
    1,875Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,607
    )
    
    
    
    
    
    
    (21,607
    )Balance at December 31, 2003
    
    
    51,698,398
    
    
    
    51,698
    
    
    
    710,001
    
    
    
    427,527
    
    
    
    (66,741
    )
    
    
    1,122,485Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,365
    
    
    
    
    
    
    
    43,365Unrealized gains on securities
available for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,113
    
    
    
    3,113Unrealized losses on cash flow
hedges, net of tax (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,193
    )
    
    
    (21,193
    )Reclassification adjustment for
losses on cash flow hedges
included in income, net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,098
    
    
    
    14,098Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,383Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    388Stock options exercised
    
    
    100,306
    
    
    
    101
    
    
    
    1,556
    
    
    
    
    
    
    
    
    
    
    
    1,657Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,723
    )
    
    
    
    
    
    
    (6,723
    )Balance at March 31, 2004
    
    
    51,798,704
    
    
    $
    51,799
    
    
    $
    711,933
    
    
    $
    464,169
    
    
    $
    (70,723
    )
    
    $
    1,157,178
   (1)
    
    The pre-tax amount of unrealized gains on securities available for sale
was $5.2 million for the three months ended March 31, 2004 compared with
unrealized losses of $12.2 million for the year ended December 31, 2003.(2)
    
    The pre-tax amount of unrealized losses on cash flow hedges was $35.3
million for the three months ended March 31, 2004 compared with $35.5
million for the year ended December 31, 2003.(3)
    
    The pre-tax amount of unrealized gains on securities available for sale
reclassified into earnings was $8.4 million for the year ended December
31, 2003.(4)
    
    The pre-tax amount of unrealized losses on cash flow hedges reclassified
into earnings was $23.5 million for the three months ended March 31, 2004
compared with $114 million for the year ended December 31, 2003.(5)
    
    Amount represents expense related to stock options granted. See accompanying notes to consolidated financial statements. 4




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WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands)OPERATING ACTIVITIESNet income
    
    $
    43,365
    
    
    $
    23,549Adjustments to reconcile net income to net cash provided by
operating activities:Provision for credit losses
    
    
    62,294
    
    
    
    79,884Depreciation
    
    
    3,159
    
    
    
    3,805Amortization of losses on cash flow hedges
    
    
    11,769
    
    
    
    12,461Amortization of premium on mortgage-backed securities
    
    
    11,722
    
    
    
    15,795Amortization of participation paid to dealers
    
    
    29,754
    
    
    
    25,545Amortization, other
    
    
    390
    
    
    
    377Gain on sales, net
    
    
    (95
    )
    
    
    (2,234
    )Other
    
    
    (103
    )
    
    
    (5,115
    )Decrease in other assets
    
    
    31,205
    
    
    
    33,604Increase in other liabilities
    
    
    17,074
    
    
    
    3,771Other, net
    
    
    10,748
    
    
    
    3,964NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    221,282
    
    
    
    195,406INVESTING ACTIVITIESLoans receivable:Origination of loans
    
    
    (1,655,697
    )
    
    
    (1,454,926
    )Participation paid to dealers
    
    
    (36,110
    )
    
    
    (31,955
    )Loan payments and payoffs
    
    
    1,370,075
    
    
    
    1,181,012Investment securities available for sale:Purchases
    
    
    (33,290
    )
    
    
    (15,658
    )Proceeds from sale
    
    
    10,172Proceeds from maturities
    
    
    33
    
    
    
    11,210Mortgage-backed securities:Purchases
    
    
    (288,620
    )
    
    
    (518,640
    )Payments received
    
    
    297,097
    
    
    
    414,753Purchase of premises and equipment
    
    
    (2,923
    )
    
    
    (1,889
    )Proceeds from sales of premises and equipment
    
    
    528
    
    
    
    2,912NET CASH USED IN INVESTING ACTIVITIES
    
    
    (338,735
    )
    
    
    (413,181
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    35,579
    
    
    
    109,405Decrease in securities sold under agreements to repurchase
    
    
    (218,741
    )
    
    
    (49,821
    )Proceeds from notes payable on automobile secured financing
    
    
    1,474,639
    
    
    
    1,340,548Payments on notes payable on automobile secured financing
    
    
    (1,479,271
    )
    
    
    (1,024,514
    )Decrease in borrowings
    
    
    (116
    )
    
    
    (150
    )Increase (decrease) in FHLB advances
    
    
    243,969
    
    
    
    (53,534
    )Payments on issuance of subordinated debentures
    
    
    (2,060
    )
    
    
    (3,517
    )Increase in restricted cash
    
    
    (94,482
    )
    
    
    (73,652
    )Proceeds from issuance of common stock
    
    
    1,657
    
    
    
    62Cash dividends
    
    
    (6,723
    )
    
    
    (4,704
    )Payments on cash flow hedges
    
    
    (10,628
    )
    
    
    (13,361
    )NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (56,177
    )
    
    
    226,762(DECREASE) INCREASE IN CASH AND DUE FROM BANKS
    
    
    (173,630
    )
    
    
    8,987Cash and due from banks at beginning of year
    
    
    382,082
    
    
    
    84,215CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    208,452
    
    
    $
    93,202
 See accompanying notes to consolidated financial statements. 5




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WESTCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Note 1  Basis of Presentation The accompanying unaudited consolidated financial statements include our
accounts and the accounts of our wholly owned subsidiary, Western Financial
Bank, also known as the Bank, and its majority owned subsidiary, WFS Financial
Inc, also known as WFS. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform with the current years presentation. The unaudited consolidated financial statements included herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles, also known as GAAP, for complete financial statements. In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2004. These unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes thereto for the year ended December 31, 2003 included in our Form
10-K. Note 2  Mortgage-Backed Securities Available for Sale Mortgage-backed securities available for sale consisted of the following: March 31, 2004Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gain
    
    Loss
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,586,885
    
    
    $
    31,836
    
    
    $
    2,819
    
    
    $
    2,615,902FNMA participation certificates
    
    
    34,863
    
    
    
    219
    
    
    
    89
    
    
    
    34,993FHLMC participation certificates
    
    
    33,770
    
    
    
    120
    
    
    
    
    
    
    
    33,890Other
    
    
    1,720
    
    
    
    
    
    
    
    
    
    
    
    1,720$
    2,657,238
    
    
    $
    32,175
    
    
    $
    2,908
    
    
    $
    2,686,505
 6




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December 31, 2003Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gain
    
    Loss
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,613,962
    
    
    $
    28,607
    
    
    $
    4,484
    
    
    $
    2,638,085FNMA participation certificates
    
    
    24,967
    
    
    
    306
    
    
    
    
    
    
    
    25,273FHLMC participation certificates
    
    
    36,734
    
    
    
    9
    
    
    
    78
    
    
    
    36,665Other
    
    
    1,774
    
    
    
    
    
    
    
    
    
    
    
    1,774$
    2,677,437
    
    
    $
    28,922
    
    
    $
    4,562
    
    
    $
    2,701,797
 Our mortgage-backed securities available for sale portfolio was comprised of
73% fixed rate certificates and 27% variable rate certificates at March 31,
2004 compared with 79% fixed rate certificates and 21% variable rate
certificates at December 31, 2003. Note 3  Net Loans Receivable Net loans receivable consisted of the following: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Consumer:Automobile contracts
    
    $
    10,905,042
    
    
    $
    10,657,864Dealer participation, net of deferred contract fees
    
    
    179,271
    
    
    
    175,263Other
    
    
    5,883
    
    
    
    6,002Unearned discounts
    
    
    (54,864
    )
    
    
    (61,300
    )11,035,332
    
    
    
    10,777,829Real estate:Mortgage
    
    
    228,686
    
    
    
    237,668Construction
    
    
    13,692
    
    
    
    16,503242,378
    
    
    
    254,171Undisbursed loan proceeds
    
    
    (17,418
    )
    
    
    (17,948
    )224,960
    
    
    
    236,223Commercial
    
    
    108,974
    
    
    
    124,43111,369,266
    
    
    
    11,138,483Allowance for credit losses
    
    
    (303,062
    )
    
    
    (301,602
    )$
    11,066,204
    
    
    $
    10,836,881
 Loans managed by us, excluding dealer participation and deferred contract fees,
totaled $11.2 billion and $11.0 billion as of March 31, 2004 and December 31,
2003, respectively. We owned all of the $11.2 billion and $11.0 billion loans
managed at March 31, 2004 and December 31, 2003, respectively. Nonperforming
loans, or loans on which we have discontinued the accrual of interest income,
included in net loans receivable were $52.7 million and $53.0 million at March
31, 2004 and December 31, 2003, respectively. Repossessed assets and net real
estate owned were $7.3 million and $10.6 million at March 31, 2004 and December
31, 2003, respectively, and are included in other assets on our Consolidated
Statements of Financial Condition. 7




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##### Table of Contents



Note 4  Allowance for Credit Losses The following table sets forth the activity in the allowance for credit losses: For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands)Balance at beginning of period
    
    $
    301,602
    
    
    $
    269,352Chargeoffs:Consumer loans
    
    
    (85,500
    )
    
    
    (90,779
    )Mortgage loans
    
    
    (67
    )
    
    
    (71
    )(85,567
    )
    
    
    (90,850
    )Recoveries:Consumer loans
    
    
    24,726
    
    
    
    22,599Commercial loans
    
    
    7
    
    
    
    36Mortgage loans
    
    
    
    
    
    
    924,733
    
    
    
    22,644Net chargeoffs
    
    
    (60,834
    )
    
    
    (68,206
    )Provision for credit losses
    
    
    62,294
    
    
    
    79,884Balance at end of period
    
    $
    303,062
    
    
    $
    281,030Ratio of net chargeoffs during the
period (annualized) to average loans
outstanding during the period
    
    
    2.2
    %
    
    
    2.8
    %Ratio of allowance for credit losses
to loans at the end of the period
    
    
    2.7
    %
    
    
    2.8
    %
 Note 5  Deposits Deposits consisted of the following: WeightedAverage RateWeighted
    
    For the ThreeAverage Rate at
    
    Months EndedMarch 31, 2004 (1)
    
    March 31, 2004 (2)
    
    March 31, 2004
    
    December 31, 2003(Dollars in thousands)Noninterest bearing deposits
    
    
    
    
    
    
    
    
    
    $
    228,084
    
    
    $
    210,405Demand deposit accounts
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    1,504
    
    
    
    1,145Passbook accounts
    
    
    0.1
    
    
    
    0.1
    
    
    
    6,881
    
    
    
    7,282Money market deposit accounts
    
    
    1.5
    
    
    
    1.1
    
    
    
    1,072,554
    
    
    
    963,004Brokered certificate accounts
    
    
    1.4
    
    
    
    1.7
    
    
    
    62,367
    
    
    
    62,451Certificate accounts
    
    
    1.9
    
    
    
    6.2
    
    
    
    654,149
    
    
    
    728,569$
    2,025,539
    
    
    $
    1,972,856
   (1)
    
    Contractual rate.(2)
    
    Includes effects of hedging activities. 8




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##### Table of Contents



Note 6  Notes Payable on Automobile Secured Financing In connection with our asset-backed securitization activities, we issued $1.5
billion and $1.3 billion of notes secured by automobile contracts for the three
months ended March 31, 2004 and 2003, respectively. The $1.5 billion and $1.3
billion issued during 2004 and 2003 were through public transactions. There
were $10.2 billion of notes payable on automobile secured financing outstanding
at March 31, 2004 compared with $10.3 billion at December 31, 2003. Interest payments are due either monthly or quarterly, in arrears. Interest
expense on all notes payable on automobile secured financing, including
interest payments under interest rate swap agreements, totaled $94.2 million
and $111 million for the three months ended March 31, 2004 and 2003,
respectively. Note 7  Accumulated Other Comprehensive Loss, Net of Tax The following table summarizes the components of accumulated other
comprehensive loss, net of tax: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Unrealized gain on marketable securities
    
    $
    17,884
    
    
    $
    14,771Unrealized loss on interest rate swaps: (1)Deposits
    
    
    (48,560
    )
    
    
    (38,297
    )Automobile secured financing
    
    
    (18,797
    )
    
    
    (19,539
    )Securities sold under agreements to repurchase
    
    
    
    
    
    
    (2,248
    )(67,357
    )
    
    
    (60,084
    )Realized loss on settled cash flow hedges: (1)Deposits
    
    
    (9,648
    )
    
    
    (9,539
    )Automobile secured financing
    
    
    (11,602
    )
    
    
    (11,889
    )(21,250
    )
    
    
    (21,428
    )Total other accumulated comprehensive loss
    
    $
    (70,723
    )
    
    $
    (66,741
    )
   (1)
    
    All cash flow hedges are structured to hedge future interest payments on
deposits or borrowings. Note 8  Comprehensive income The following table presents the components of comprehensive income, net of
related tax, for the periods indicated: For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands)Net income
    
    $
    43,365
    
    
    $
    23,549Unrealized gains on securities available for
sale, net of tax
    
    
    3,113
    
    
    
    799Unrealized losses on cash flow hedges, net of
tax
    
    
    (21,193
    )
    
    
    (12,341
    )Reclassification adjustment for losses on
cash flow hedges included in income, net of
tax
    
    
    14,098
    
    
    
    17,184Comprehensive income
    
    $
    39,383
    
    
    $
    29,191
 9




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##### Table of Contents



Note 9  Dividends On February 25, 2004, we declared a cash dividend of $0.14 per share for
shareholders of record as of May 4, 2004 with a payable date of May 18, 2004. Note 10  Stock Options In May 2001, we adopted the 2001 Westcorp Stock Option Plan, also known as the
2001 Plan, an incentive stock option plan for certain associates and directors.
The 2001 Plan replaced the 1991 Stock Option Plan, also known as the 1991 Plan
that expired on April 15, 2001. Those who received options prior to the
approval of the 2001 Plan are still subject to the 1991 Plan and may continue
to exercise the remaining shares that are outstanding and exercisable. However,
any and all shares reserved for the 1991 Plan are no longer available for
future grants. As such, no further grants will be made under the expired 1991
Plan. Options outstanding and exercisable at March 31, 2004 were as follows: Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    Average
    
    
    
    
    
    AverageNumber
    
    Remaining
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$12.00 - 13.00
    
    
    177,517
    
    
    
    1.75
    
    
    $
    12.63
    
    
    
    177,517
    
    
    $
    12.6313.00 - 14.00
    
    
    173,875
    
    
    
    2.89
    
    
    
    13.25
    
    
    
    173,875
    
    
    
    13.2515.00 - 16.00
    
    
    1,000
    
    
    
    3.61
    
    
    
    15.25
    
    
    
    750
    
    
    
    15.2517.00 - 18.00
    
    
    255,588
    
    
    
    3.90
    
    
    
    17.32
    
    
    
    179,025
    
    
    
    17.3218.00 - 19.00
    
    
    728,041
    
    
    
    4.31
    
    
    
    18.57
    
    
    
    262,214
    
    
    
    18.5319.00 - 20.00
    
    
    5,000
    
    
    
    5.35
    
    
    
    19.85
    
    
    
    1,250
    
    
    
    19.8520.00 - 21.00
    
    
    3,000
    
    
    
    5.60
    
    
    
    20.41
    
    
    
    750
    
    
    
    20.4142.00 - 43.00
    
    
    536,400
    
    
    
    4.88
    
    
    
    42.19$12.00 - 43.00
    
    
    1,880,421
    
    
    
    4.05
    
    
    $
    24.09
    
    
    
    795,381
    
    
    $
    15.79
 Stock option activity is summarized as follows: Weighted AverageShares
    
    Exercise PriceOutstanding at January 1, 2003
    
    
    1,167,438
    
    
    $
    15.91Granted
    
    
    444,000
    
    
    
    18.78Exercised
    
    
    (126,424
    )
    
    
    14.84Forfeited
    
    
    (24,478
    )
    
    
    17.19Outstanding at December 31, 2003
    
    
    1,460,536
    
    
    
    16.86Granted
    
    
    540,900
    
    
    
    42.19Exercised
    
    
    (100,306
    )
    
    
    16.52Forfeited
    
    
    (20,709
    )
    
    
    23.28Outstanding at March 31, 2004
    
    
    1,880,421
    
    
    $
    24.09
 Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Our stock options have
characteristics significantly different from traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate. We
utilize the Binomial option valuation model for all stock options expensed.
Although we do not believe that there is a reliable single measure of the fair
value of our employee stock options, we use the Binomial option valuation model
to determine such value. We believe that this model provides a more reliable
measure than the Black-Scholes model. The weighted average fair value of
options granted during the period ending March 31, 2004 was $13.26 compared to
$5.48 for the year ended December 31, 2003. 10




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##### Table of Contents



Pro forma information regarding net income and earnings per share is required
by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, as amended by Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement No. 123, and has been determined as
if we had accounted for our employee stock options under the fair value method
of that statement. Pro forma net income and diluted earnings per share for the respective periods
were as follows: For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands,except per share amounts)Net income, as reported
    
    $
    43,365
    
    
    $
    23,549Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    234
    
    
    
    41Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects
    
    
    406
    
    
    
    273Pro forma net income
    
    $
    43,193
    
    
    $
    23,317Earnings per share:Basic  as reported
    
    $
    0.84
    
    
    $
    0.60Basic  pro forma
    
    $
    0.83
    
    
    $
    0.59Earnings per share:Diluted  as reported
    
    $
    0.83
    
    
    $
    0.60Diluted  pro forma
    
    $
    0.82
    
    
    $
    0.59
 Note 11  Subsequent Event On April 26, 2004, we declared a cash dividend of $0.14 per share for
shareholders of record as of August 3, 2004 with a payable date of August 17,
2004. 11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Overview We are a diversified financial services holding company that provides
automobile lending services through our second tier subsidiary, WFS Financial
Inc, also known as WFS, and retail and commercial banking services through our
wholly owned subsidiary, Western Financial Bank, also known as the Bank. The
Bank currently owns 84% of the capital stock of WFS. Our primary sources of revenue are net interest income and noninterest income.
Net interest income is the difference between the income earned on interest
earning assets and the interest paid on interest bearing liabilities. We
generate interest income from our loan portfolio, which consists of consumer,
mortgage and commercial loans, and from investments in mortgage-backed
securities and other short-term investments. We fund our loan portfolio and
investments with deposits, advances from the Federal Home Loan Bank, also known
as the FHLB, securities sold under agreements to repurchase, securitizations,
other borrowings and equity. Noninterest income is primarily made up of revenues generated from the
servicing of automobile contracts and real estate loans. The primary components
of noninterest income include late charges and other miscellaneous servicing
fee income. Other components of noninterest income include gains and losses
from the sale of investment securities and mortgage-backed securities,
insurance income, fees related to the sales of investment products such as
mutual funds and annuities, and fee income from depository accounts. The
primary components of noninterest expense are salaries, credit and collection
expenses, and data processing costs. Selected Financial Data The following table presents summary unaudited financial data for the three
months ended March 31, 2004 and 2003. Since this table is only a summary and
does not provide all of the information contained in our financial statements,
including the related notes, you should read our Consolidated Financial
Statements contained elsewhere herein. Certain amounts from the prior years
Consolidated Financial Statements have been reclassified to conform to the
current year presentation. For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands,except per share amounts)Consolidated Statements of Operations Data:Interest income
    
    $
    313,659
    
    
    $
    307,863Interest expense
    
    
    119,419
    
    
    
    141,573Net interest income
    
    
    194,240
    
    
    
    166,290Provision for credit losses
    
    
    62,294
    
    
    
    79,884Net interest income after provision for credit losses
    
    
    131,946
    
    
    
    86,406Noninterest income
    
    
    28,690
    
    
    
    27,753Noninterest expense
    
    
    71,217
    
    
    
    68,439Income before income tax
    
    
    89,419
    
    
    
    45,720Income tax
    
    
    35,313
    
    
    
    18,226Income before minority interest
    
    
    54,106
    
    
    
    27,494Minority interest in earnings of subsidiaries
    
    
    10,741
    
    
    
    3,945Net income
    
    $
    43,365
    
    
    $
    23,549Weighted average number of shares and common share
equivalents  diluted
    
    
    52,493,432
    
    
    
    39,452,915Earnings per common share  diluted
    
    $
    0.83
    
    
    $
    0.60Dividends per share
    
    $
    0.14
    
    
    $
    0.13Dividend payout ratio
    
    
    16.9
    %
    
    
    21.7
    %
 12




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##### Table of Contents



March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Consolidated Statements of Financial Condition Data:Assets:Cash and due from banks
    
    $
    208,452
    
    
    $
    382,082Loans:Consumer (1)
    
    
    11,035,332
    
    
    
    10,777,829Mortgage (2)
    
    
    224,960
    
    
    
    236,223Commercial
    
    
    108,974
    
    
    
    124,431Mortgage-backed securities
    
    
    2,686,505
    
    
    
    2,701,797Investments and time deposits
    
    
    481,519
    
    
    
    363,148Other assets
    
    
    302,704
    
    
    
    332,012Less: Allowance for credit losses
    
    
    303,062
    
    
    
    301,602Total assets
    
    $
    14,745,384
    
    
    $
    14,615,920Liabilities:Deposits
    
    $
    2,025,539
    
    
    $
    1,972,856Notes payable on automobile secured financing
    
    
    10,248,497
    
    
    
    10,254,641FHLB advances and other borrowings
    
    
    581,543
    
    
    
    560,179Subordinated debentures
    
    
    393,217
    
    
    
    394,854Other liabilities
    
    
    196,545
    
    
    
    179,471Total liabilities
    
    
    13,445,341
    
    
    
    13,362,001Minority interest in equity of subsidiaries
    
    
    142,865
    
    
    
    131,434Shareholders equity
    
    
    1,157,178
    
    
    
    1,122,485Total liabilities and shareholders equity
    
    $
    14,745,384
    
    
    $
    14,615,920
 At or For theThree Months EndedMarch 31,2004
    
    2003(Dollars in thousands)Other Selected Financial Data:Average automobile contracts managed
    
    $
    10,726,048
    
    
    $
    9,533,314Return on average automobile contracts
managed (3)
    
    
    1.62
    %
    
    
    0.99
    %Average shareholders equity (4)
    
    $
    1,207,092
    
    
    $
    722,009Return on average shareholders equity (4)
    
    
    14.37
    %
    
    
    13.05
    %Total equity to assets (5)
    
    
    9.30
    
    
    
    6.30Book value per share (4)
    
    $
    23.71
    
    
    $
    18.71Originations:Consumer loans (1)
    
    $
    1,586,161
    
    
    $
    1,353,928Mortgage loans (2)
    
    
    2,658
    
    
    
    4,314Commercial loans
    
    
    66,879
    
    
    
    96,684Total loan originations
    
    $
    1,655,698
    
    
    $
    1,454,926Interest rate spread
    
    
    5.03
    %
    
    
    4.98
    %
   (1)
    
    Net of unearned discounts.(2)
    
    Net of undisbursed loan proceeds.(3)
    
    Net income (annualized) divided by average automobile contracts managed.(4)
    
    Excludes other comprehensive loss.(5)
    
    Excludes other comprehensive loss and includes minority interest. 13




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##### Table of Contents



Critical Accounting Policies Management believes critical accounting policies are important to the portrayal
of our financial condition and results of operations. Critical accounting
policies require difficult and complex judgments because they rely on estimates
about the effect of matters that are inherently uncertain due to the impact of
changing market conditions. The following is a summary of accounting policies
we consider critical. Securitization Transactions Contracts sold by us to our special purpose entity subsidiaries in connection
with securitization transactions are treated as having been sold for bankruptcy
purposes. The subsequent transfer of such contracts to the securitization
trust is treated as secured financing under Generally Accepted Accounting
Principles, also known as GAAP. For GAAP purposes, the contracts are retained
on the balance sheet with the securities issued to finance the contracts
recorded as notes payable on automobile secured financing. We record interest
income on the securitized contracts and interest expense on the notes issued
through the securitization transactions. As servicer of these contracts, we may hold and remit funds collected from the
borrowers on behalf of the trustee pursuant to reinvestment contracts that we
have entered into or we may send funds to a trustee to be held until the
distribution dates, depending on the terms of our securitizations. Allowance for Credit Losses Management determines the amount of the allowance for credit losses based on a
review of various quantitative and qualitative analyses. Quantitative analyses
include the review of chargeoff trends by loan program and loan type, analysis
of cumulative losses and evaluation of credit loss experience by credit tier
and geographic location. Other quantitative analyses include the evaluation of
the size of any particular asset group, the concentration of any credit tier,
the level of nonperformance and the percentage of delinquency. Qualitative analyses include trends in chargeoffs over various time periods and
at various statistical midpoints and high points, the severity of depreciated
values of repossessions or foreclosures, trends in the number of days
repossessions are held in inventory, trends in the number of loan
modifications, trends in delinquency roll rates, trends in deficiency balance
collections both internally and from collection agencies, trends in custom
scores and the effectiveness of our custom scores, and trends in the economy
generally or in specific geographic locations. Despite these analyses, we
recognize that establishing allowance for credit losses is not an exact science
and can be highly judgmental in nature. The analysis of the adequacy of the allowance for credit losses is not only
dependent upon effective quantitative and qualitative analyses, but also
effective loan review and asset classification. We classify our assets in
accordance with regulatory guidance. Our multifamily and commercial loan
portfolios are evaluated individually while our single family and consumer
portfolios are evaluated in pools. We classify our assets into five categories:
Pass, Special Mention, Substandard, Doubtful and Loss. Based upon our asset
classifications, we establish general and specific valuation allowances. General valuation allowances are determined by applying various factors to loan
balances that are classified as Pass, Special Mention, Substandard or Doubtful.
Specific valuation allowances represent loan amounts that are classified as
Loss. Some assets may be split into more than one asset classification due to
fair value or net realizable value calculations. 14




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##### Table of Contents



All contracts that are 60 to 90 days delinquent are automatically classified as
Special Mention. Real estate loans that are manifesting a weakness in
performance are also classified as Special Mention. Any contract that is 90 or
more days delinquent is automatically classified as Substandard. Real estate
loans that are manifesting a significant weakness in performance are also
classified as Substandard. Any multifamily loan that is impaired is classified
as Substandard. Any contract where the borrower has filed for bankruptcy or
where the vehicle has been repossessed by us and is subject to a redemption
period is classified as Substandard, with the difference between the wholesale
book value and loan balance classified as Loss. The allowance for credit losses is increased by charging the provision for
credit losses and decreased by actual losses on the loans or by reversing the
allowance for credit losses through the provision for credit losses based on
credit trends or economic conditions. Derivatives and Hedging Activities Deposits and Securities Sold Under Agreements to Repurchase We may enter into cash flow hedges that will protect against potential changes
in interest rates affecting interest payments on future deposits gathered by us
and future securities sold under agreements to repurchase. The fair value of
the interest rate swap agreements is included in deposits and securities sold
under agreements to repurchase, respectively, and any change in the fair value
is reported as accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. Related interest income or
expense is settled on a quarterly basis and is recorded in accumulated other
comprehensive income (loss) and reclassified into earnings in the period during
which cash flows on the hedged items affect income. Notes Payable on Automobile Secured Financing The contracts originated and held by us are fixed rate and, accordingly, we
have exposure to changes in interest rates. To protect against potential
changes in interest rates affecting interest payments on future securitization
transactions, we may enter into various hedge agreements prior to closing the
transaction. The market value of these hedge agreements is designed to respond
inversely to changes in interest rates. Because of this inverse relationship,
we can effectively lock in a gross interest rate spread at the time of
entering into the hedge transaction. Gains and losses on these agreements are
recorded in accumulated other comprehensive income (loss), net of tax, on our
Consolidated Statements of Financial Condition. Any ineffective portion is
recognized in interest expense during that period if the hedge is greater than
100% effective. Following the closing date of the securitization transaction,
the gains or losses are amortized on a level yield basis over the duration of
the notes issued. If we issue variable rate notes payable in connection with our securitization
activities, we may also enter into interest rate swap agreements in order to
hedge our variable interest rate exposure on future interest payments. See
Quantitative and Qualitative Disclosure About Market Risk. The fair value of
the interest rate swap agreements is included in notes payable on automobile
secured financing, and any change in the fair value is reported as accumulated
other comprehensive income (loss), net of tax, on our Consolidated Statements
of Financial Condition. Any ineffective portion is recorded in interest
expense during that period if the hedge is greater than 100% effective.
Related interest income or expense is settled on a monthly or quarterly basis
and recognized as an adjustment to interest expense in our Consolidated
Statements of Income. We may also enter into interest rate swap agreements or other derivatives that
we choose not to designate as hedges or that do not qualify for hedge
accounting under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, also
known as SFAS No. 133. These derivatives pertain to variable rate notes issued
in conjunction with the securitization of our contracts. Any change in the
market value of such derivatives and income or expense recognized on such
derivatives is recorded to noninterest income. 15




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##### Table of Contents



Results of Operations Net Interest Income Net interest income is affected by our interest rate spread, which is the
difference between the rate earned on our interest earning assets and the rate
paid on our interest bearing liabilities, and the relative amounts of our
interest earning assets and interest bearing liabilities. Net interest income
totaled $194 million and $166 million for the three months ended March 31,
2004 and 2003, respectively. The increase in net interest income was the
result of us holding a greater percentage of contracts on balance sheet as
well as wider net interest margins. The following table presents information relative to the average balances and
interest rates for the periods indicated: For the Three Months Ended March 31,2004
    
    2003Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,595,115
    
    
    $
    24,688
    
    
    
    3.81
    %
    
    $
    2,485,200
    
    
    $
    24,773
    
    
    
    3.99
    %Other short-term investments
    
    
    590,409
    
    
    
    1,604
    
    
    
    1.09
    
    
    
    287,978
    
    
    
    1,048
    
    
    
    1.48Investment securities
    
    
    125,177
    
    
    
    1,058
    
    
    
    3.38
    
    
    
    54,860
    
    
    
    729
    
    
    
    5.32Interest earning deposits with others
    
    
    6,020
    
    
    
    9
    
    
    
    0.62
    
    
    
    10,245
    
    
    
    25
    
    
    
    0.98Total investments
    
    
    3,316,721
    
    
    
    27,359
    
    
    
    3.30
    
    
    
    2,838,283
    
    
    
    26,575
    
    
    
    3.75Total loans: (1)Consumer loans
    
    
    10,908,723
    
    
    
    282,041
    
    
    
    10.40
    
    
    
    9,696,850
    
    
    
    276,131
    
    
    
    11.55Mortgage loans
    
    
    229,379
    
    
    
    2,904
    
    
    
    5.06
    
    
    
    271,943
    
    
    
    3,819
    
    
    
    5.62Commercial loans
    
    
    99,288
    
    
    
    1,303
    
    
    
    5.19
    
    
    
    110,230
    
    
    
    1,287
    
    
    
    4.67Construction loans
    
    
    4,239
    
    
    
    52
    
    
    
    4.85
    
    
    
    5,307
    
    
    
    51
    
    
    
    3.83Total loans
    
    
    11,241,629
    
    
    
    286,300
    
    
    
    10.24
    
    
    
    10,084,330
    
    
    
    281,288
    
    
    
    11.31Total interest earning assets
    
    $
    14,558,350
    
    
    
    313,659
    
    
    
    8.66
    
    
    $
    12,922,613
    
    
    
    307,863
    
    
    
    9.65Interest bearing liabilities:Deposits
    
    $
    1,906,775
    
    
    
    13,307
    
    
    
    2.81
    
    
    $
    1,963,276
    
    
    
    17,556
    
    
    
    3.63Securities sold under agreements to repurchase
    
    
    33,400
    
    
    
    94
    
    
    
    1.11
    
    
    
    248,374
    
    
    
    1,289
    
    
    
    2.08FHLB advances and other borrowings
    
    
    667,482
    
    
    
    2,014
    
    
    
    1.20
    
    
    
    426,590
    
    
    
    1,631
    
    
    
    1.53Notes payable on automobile secured financing
    
    
    10,170,858
    
    
    
    94,218
    
    
    
    3.71
    
    
    
    9,100,877
    
    
    
    111,160
    
    
    
    4.89Subordinated debentures
    
    
    393,670
    
    
    
    9,786
    
    
    
    9.94
    
    
    
    398,812
    
    
    
    9,937
    
    
    
    9.97Total interest bearing liabilities
    
    $
    13,172,185
    
    
    
    119,419
    
    
    
    3.63
    
    
    $
    12,137,929
    
    
    
    141,573
    
    
    
    4.67Net interest income and interest rate spread
    
    
    
    
    
    $
    194,240
    
    
    
    5.03
    %
    
    
    
    
    
    $
    166,290
    
    
    
    4.98
    %Net yield on average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.34
    %
    
    
    
    
    
    
    
    
    
    
    5.15
    %
   (1)
    
    For the purpose of these computations, nonaccruing loans are included in
the average loan amounts outstanding. The total interest rate spread increased 5 basis points for the three months
ended March 31, 2004 compared with the three months ended March 31, 2003 due to
a decrease of 99 basis points in the yield on interest earning assets combined
with a 104 basis point decrease in the cost of funds. The decrease in the yield
on interest earning assets in 2004 is primarily due to our shift to originating
a higher percentage of prime credit quality contracts, higher prepayments on
our mortgage-backed securities, also known as MBS, and a lower interest rate
environment. The decrease in the cost of funds in 2004 compared with 2003 is
due primarily to a lower interest rate environment. 16




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##### Table of Contents



The following table sets forth the changes in net interest income attributable
to changes in volume (change in average portfolio volume multiplied by prior
period average rate) and changes in rates (change in weighted average interest
rate multiplied by prior period average portfolio balance): For the Three Months Ended March 31, 2004Compared to the Three Months Ended March 31, 2003 (1)Volume
    
    Rate
    
    Total(Dollars in thousands)Increase (decrease) in interest income:Mortgage-backed securities
    
    $
    4,387
    
    
    $
    (4,472
    )
    
    $
    (85
    )Other short-term investments
    
    
    2,240
    
    
    
    (1,684
    )
    
    
    556Investment securities
    
    
    1,913
    
    
    
    (1,584
    )
    
    
    329Interest earning deposits with others
    
    
    (8
    )
    
    
    (8
    )
    
    
    (16
    )Total loans:Consumer loans
    
    
    127,422
    
    
    
    (121,512
    )
    
    
    5,910Mortgage loans
    
    
    (559
    )
    
    
    (356
    )
    
    
    (915
    )Commercial loans
    
    
    (533
    )
    
    
    549
    
    
    
    16Construction loans
    
    
    (46
    )
    
    
    47
    
    
    
    1Total interest income
    
    $
    134,816
    
    
    $
    (129,020
    )
    
    $
    5,796Increase (decrease) in interest expense:Deposits
    
    $
    (480
    )
    
    $
    (3,769
    )
    
    $
    (4,249
    )Securities sold under agreements to repurchase
    
    
    (777
    )
    
    
    (418
    )
    
    
    (1,195
    )FHLB advances and other borrowings
    
    
    2,315
    
    
    
    (1,932
    )
    
    
    383Notes payable on automobile secured financing
    
    
    64,812
    
    
    
    (81,754
    )
    
    
    (16,942
    )Subordinated debentures
    
    
    (122
    )
    
    
    (29
    )
    
    
    (151
    )Total interest expense
    
    $
    65,748
    
    
    $
    (87,902
    )
    
    $
    (22,154
    )Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    27,950
   (1)
    
    In the analysis of interest changes due to volume and rate, the
changes due to the volume/rate variance (the combined effect of change
in weighted average interest rate and change in average portfolio
balance) have been allocated proportionately based on the absolute
value of the volume and rate variances. Provision for Credit Losses We maintain an allowance for credit losses to cover probable losses that can be
reasonably estimated for the loans held on the balance sheet. The level of
allowance is based principally on the outstanding balance of loans held on
balance sheet and historical loss trends. We believe that the allowance for
credit losses is currently adequate to absorb probable losses in our loan
portfolio that can be reasonably estimated. The provision for credit losses
totaled $62.3 million and $79.9 million for the three months ended March 31,
2004 and 2003, respectively. The provision for credit losses declined as a
result of improvement in chargeoffs due to an increase in the amount of prime
credit contracts held by us and an improving economy. 17




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##### Table of Contents



Contract Securitizations The following table lists each of our public securitizations. All
securitizations prior to 2000-C were paid in full on or before their
contractual maturity dates and none of the remaining securitizations have yet
reached their contractual maturity dates. Securitizations Remaining
    
    
    
    
    
    
    
    
    
    GrossRemaining
    
    Balance as a
    
    Original
    
    Original
    
    InterestIssue
    
    
    
    Original
    
    Balance at
    
    Percent of
    
    Weighted
    
    Weighted Average
    
    RateNumber
    
    Close Date
    
    Balance
    
    March 31, 2004 (1)
    
    Original Balance
    
    Average APR
    
    Securitization Rate
    
    Spread (2)(Dollars in thousands)1985-A
    
    December, 1985
    
    

$      110,000
    
    
    Paid in full
    
    
    
    
    
    
    
    18.50
    %
    
    
    8.38
    %
    
    
    10.12
    %1986-A
    
    November, 1986
    
    
    191,930
    
    
    Paid in full
    
    
    
    
    
    
    
    14.20
    
    
    
    6.63
    
    
    
    7.571987-A
    
    March, 1987
    
    
    125,000
    
    
    Paid in full
    
    
    
    
    
    
    
    12.42
    
    
    
    6.75
    
    
    
    5.671987-B
    
    July, 1987
    
    
    110,000
    
    
    Paid in full
    
    
    
    
    
    
    
    12.68
    
    
    
    7.80
    
    
    
    4.881988-A
    
    February, 1988
    
    
    155,000
    
    
    Paid in full
    
    
    
    
    
    
    
    13.67
    
    
    
    7.75
    
    
    
    5.921988-B
    
    May, 1988
    
    
    100,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.01
    
    
    
    8.50
    
    
    
    5.511988-C
    
    July, 1988
    
    
    100,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.41
    
    
    
    8.50
    
    
    
    6.911988-D
    
    October, 1988
    
    
    105,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.95
    
    
    
    8.85
    
    
    
    6.101989-A
    
    March, 1989
    
    
    75,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.88
    
    
    
    10.45
    
    
    
    5.431989-B
    
    June, 1989
    
    
    100,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.96
    
    
    
    9.15
    
    
    
    6.811990-A
    
    August, 1990
    
    
    150,000
    
    
    Paid in full
    
    
    
    
    
    
    
    16.05
    
    
    
    8.35
    
    
    
    7.701990-1
    
    November, 1990
    
    
    150,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.56
    
    
    
    8.50
    
    
    
    7.061991-1
    
    April, 1991
    
    
    200,000
    
    
    Paid in full
    
    
    
    
    
    
    
    16.06
    
    
    
    7.70
    
    
    
    8.361991-2
    
    May, 1991
    
    
    200,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.75
    
    
    
    7.30
    
    
    
    8.451991-3
    
    August, 1991
    
    
    175,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.69
    
    
    
    6.75
    
    
    
    8.941991-4
    
    December, 1991
    
    
    150,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.53
    
    
    
    5.63
    
    
    
    9.901992-1
    
    March, 1992
    
    
    150,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.49
    
    
    
    5.85
    
    
    
    8.641992-2
    
    June, 1992
    
    
    165,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.94
    
    
    
    5.50
    
    
    
    9.441992-3
    
    September, 1992
    
    
    135,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.45
    
    
    
    4.70
    
    
    
    9.751993-1
    
    March, 1993
    
    
    250,000
    
    
    Paid in full
    
    
    
    
    
    
    
    13.90
    
    
    
    4.45
    
    
    
    9.451993-2
    
    June, 1993
    
    
    175,000
    
    
    Paid in full
    
    
    
    
    
    
    
    13.77
    
    
    
    4.70
    
    
    
    9.071993-3
    
    September, 1993
    
    
    187,500
    
    
    Paid in full
    
    
    
    
    
    
    
    13.97
    
    
    
    4.25
    
    
    
    9.721993-4
    
    December, 1993
    
    
    165,000
    
    
    Paid in full
    
    
    
    
    
    
    
    12.90
    
    
    
    4.60
    
    
    
    8.301994-1
    
    March, 1994
    
    
    200,000
    
    
    Paid in full
    
    
    
    
    
    
    
    13.67
    
    
    
    5.10
    
    
    
    8.571994-2
    
    May, 1994
    
    
    230,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.04
    
    
    
    6.38
    
    
    
    7.661994-3
    
    August, 1994
    
    
    200,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.59
    
    
    
    6.65
    
    
    
    7.941994-4
    
    October, 1994
    
    
    212,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.58
    
    
    
    7.10
    
    
    
    8.481995-1
    
    January, 1995
    
    
    190,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.71
    
    
    
    8.05
    
    
    
    7.661995-2
    
    March, 1995
    
    
    190,000
    
    
    Paid in full
    
    
    
    
    
    
    
    16.36
    
    
    
    7.10
    
    
    
    9.261995-3
    
    June, 1995
    
    
    300,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.05
    
    
    
    6.05
    
    
    
    9.001995-4
    
    September, 1995
    
    
    375,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.04
    
    
    
    6.20
    
    
    
    8.841995-5
    
    December, 1995
    
    
    425,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.35
    
    
    
    5.88
    
    
    
    9.471996-A
    
    March, 1996
    
    
    485,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.46
    
    
    
    6.13
    
    
    
    9.331996-B
    
    June, 1996
    
    
    525,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.74
    
    
    
    6.75
    
    
    
    8.991996-C
    
    September, 1996
    
    
    535,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.83
    
    
    
    6.60
    
    
    
    9.231996-D
    
    December, 1996
    
    
    545,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.43
    
    
    
    6.17
    
    
    
    9.261997-A
    
    March, 1997
    
    
    500,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.33
    
    
    
    6.60
    
    
    
    8.731997-B
    
    June, 1997
    
    
    590,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.36
    
    
    
    6.37
    
    
    
    8.991997-C
    
    September, 1997
    
    
    600,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.43
    
    
    
    6.17
    
    
    
    9.261997-D
    
    December, 1997
    
    
    500,000
    
    
    Paid in full
    
    
    
    
    
    
    
    15.19
    
    
    
    6.34
    
    
    
    8.851998-A
    
    March, 1998
    
    
    525,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.72
    
    
    
    6.01
    
    
    
    8.711998-B
    
    June, 1998
    
    
    660,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.68
    
    
    
    6.06
    
    
    
    8.621998-C
    
    November, 1998
    
    
    700,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.42
    
    
    
    5.81
    
    
    
    8.611999-A
    
    January, 1999
    
    
    1,000,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.42
    
    
    
    5.70
    
    
    
    8.721999-B
    
    July, 1999
    
    
    1,000,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.62
    
    
    
    6.36
    
    
    
    8.261999-C
    
    November, 1999
    
    
    500,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.77
    
    
    
    7.01
    
    
    
    7.762000-A
    
    March, 2000
    
    
    1,200,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.66
    
    
    
    7.28
    
    
    
    7.382000-B
    
    May, 2000
    
    
    1,000,000
    
    
    Paid in full
    
    
    
    
    
    
    
    14.84
    
    
    
    7.78
    
    
    
    7.062000-C
    
    August, 2000
    
    
    1,390,000
    
    
    
    $186,944
    
    
    
    13.45
    %
    
    
    15.04
    
    
    
    7.32
    
    
    
    7.722000-D
    
    November, 2000
    
    
    1,000,000
    
    
    
    180,530
    
    
    
    18.05
    
    
    
    15.20
    
    
    
    6.94
    
    
    
    8.262001-A
    
    January, 2001
    
    
    1,000,000
    
    
    
    205,802
    
    
    
    20.58
    
    
    
    14.87
    
    
    
    5.77
    
    
    
    9.102001-B
    
    May, 2001
    
    
    1,370,000
    
    
    
    300,781
    
    
    
    21.95
    
    
    
    14.41
    
    
    
    4.23
    
    
    
    10.182001-C
    
    August, 2001
    
    
    1,200,000
    
    
    
    341,125
    
    
    
    28.43
    
    
    
    13.90
    
    
    
    4.50
    
    
    
    9.402002-1
    
    March, 2002
    
    
    1,800,000
    
    
    
    710,129
    
    
    
    39.45
    
    
    
    13.50
    
    
    
    4.26
    
    
    
    9.242002-2
    
    May, 2002
    
    
    1,750,000
    
    
    
    812,318
    
    
    
    46.42
    
    
    
    12.51
    
    
    
    3.89
    
    
    
    8.622002-3
    
    August, 2002
    
    
    1,250,000
    
    
    
    651,383
    
    
    
    52.11
    
    
    
    12.30
    
    
    
    3.06
    
    
    
    9.242002-4
    
    November, 2002
    
    
    1,350,000
    
    
    
    827,038
    
    
    
    61.26
    
    
    
    12.18
    
    
    
    2.66
    
    
    
    9.522003-1
    
    February, 2003
    
    
    1,343,250
    
    
    
    859,652
    
    
    
    64.00
    
    
    
    11.79
    
    
    
    2.42
    
    
    
    9.372003-2
    
    May, 2003
    
    
    1,492,500
    
    
    
    1,064,888
    
    
    
    71.35
    
    
    
    11.57
    
    
    
    2.13
    
    
    
    9.442003-3
    
    August, 2003
    
    
    1,650,000
    
    
    
    1,423,635
    
    
    
    86.28
    
    
    
    10.59
    
    
    
    2.66
    
    
    
    7.932003-4
    
    November, 2003
    
    
    1,403,625
    
    
    
    1,268,912
    
    
    
    90.40
    
    
    
    10.89
    
    
    
    2.70
    
    
    
    8.192004-1
    
    February, 2004
    
    
    1,477,500
    
    
    
    1,477,500
    
    
    
    100.00
    
    
    
    10.89
    
    
    
    2.35
    
    
    
    8.54Total
    
    
    $36,088,305
    
    
    
    $10,310,637
   (1)
    
    Represents only the note payable amounts outstanding at the period
indicated.(2)
    
    Represents the difference between the original weighted average annual
percentage rate, also known as the APR, and the estimated weighted average
securitization rate on the closing date of the securitization. 18




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##### Table of Contents



Noninterest Expense Noninterest expense totaled $71.2 million and $68.4 million for the three
months ended March 31, 2004 and 2003, respectively. Noninterest expense as a
percent of total revenues improved to 32% and 35% for the three months ended
March 31, 2004 and 2003, respectively, as a result of lower credit costs and
operating efficiencies. Income Taxes We file federal and certain state tax returns as part of a consolidated group
that includes the Bank and WFS. 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 39% and 40%
for the three months ended March 31, 2004 and 2003, respectively. Financial Condition Overview Total assets increased $129 million or 0.9% to $14.7 billion at March 31, 2004
from $14.6 billion at December 31, 2003. The increase is due primarily to
retaining contracts originated on our balance sheet. Loan Portfolio The following table presents a summary of our automobile contracts purchased: For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands)New vehicles
    
    $
    551,570
    
    
    $
    385,119Pre-owned vehicles
    
    
    1,033,603
    
    
    
    966,934Total volume
    
    $
    1,585,173
    
    
    $
    1,352,053Prime
    
    $
    1,303,189
    
    
    $
    1,114,284Non-prime
    
    
    281,984
    
    
    
    237,769Total volume
    
    $
    1,585,173
    
    
    $
    1,352,053
 Commercial Loan Portfolio We had outstanding commercial loan commitments of $229 million at March 31,
2004 compared with $225 million at December 31, 2003. We originated $66.9
million and $96.7 million of commercial loans for the three months ended March
31, 2004 and 2003, respectively. Amounts outstanding at March 31, 2004 and
December 31, 2003 were $109 million and $124 million, respectively. 19




---



##### Table of Contents



Asset Quality Overview Nonperforming assets, repossessions, loan delinquency and credit losses are
considered by us as key measures of asset quality. Asset quality, in turn,
affects our determination of the allowance for credit losses. We also take into
consideration general economic conditions in the markets we serve, individual
loan reviews, and the level of assets relative to reserves in determining the
adequacy of the allowance for credit losses. Automobile Contract Quality We provide financing in a market where there is a risk of default by borrowers.
Chargeoffs directly impact our earnings and cash flows. To minimize the amount
of credit losses we incur, we monitor delinquent accounts, promptly repossess
and remarket vehicles, and seek to collect on deficiency balances. We calculate delinquency based on the contractual due date. The improvement in
delinquency is primarily the result of us shifting to a higher concentration of
prime credit quality contracts and normal seasonal trends. The following table sets forth information with respect to the delinquency of
our portfolio of contracts: March 31, 2004
    
    December 31, 2003Amount
    
    %
    
    Amount
    
    %(Dollars in thousands)Contracts managed at end of period
    
    $
    10,850,314
    
    
    
    
    
    
    $
    10,596,665Period of delinquency30-59 days
    
    $
    148,396
    
    
    
    1.37
    %
    
    $
    219,937
    
    
    
    2.08
    %60 days or more (1)
    
    
    58,901
    
    
    
    0.54
    
    
    
    87,129
    
    
    
    0.82Total contracts delinquent and
delinquencies as a percentage of
contracts managed (1)
    
    $
    207,297
    
    
    
    1.91
    %
    
    $
    307,066
    
    
    
    2.90
    %
   (1)
    
    Excludes Chapter 13 bankruptcy accounts greater than 120 days past
due of $45.3 million and $45.6 million at March 31, 2004 and December
31, 2003, respectively. The following table sets forth information with respect to repossessions in
our portfolio of managed contracts: March 31, 2004
    
    December 31, 2003Number of Contracts
    
    Amount
    
    Number of Contracts
    
    Amount(Dollars in thousands)Contracts managed
    
    
    840,566
    
    
    $
    10,850,314
    
    
    
    826,122
    
    
    $
    10,596,665Repossessed vehicles
    
    
    998
    
    
    $
    6,744
    
    
    
    1,522
    
    
    $
    10,331Repossessed
vehicles as a
percentage of
number and amount
of contracts
outstanding
    
    
    0.12
    %
    
    
    0.06
    %
    
    
    0.18
    %
    
    
    0.10
    %
 20




---



##### Table of Contents



The following table sets forth information with respect to actual credit loss
experience on our portfolio of managed contracts. Net chargeoffs declined as
a result of an increase in the amount of prime credit contracts managed by us
and an improving economy. For the Three Months EndedMarch 31,2004
    
    2003(Dollars in thousands)Average contracts managed during period
    
    $
    10,726,048
    
    
    $
    9,533,314Gross chargeoffs
    
    $
    85,494
    
    
    $
    90,779Recoveries
    
    
    24,701
    
    
    
    22,598Net chargeoffs
    
    $
    60,793
    
    
    $
    68,181Net chargeoffs as a percentage of
average contracts managed during
period
    
    
    2.27
    %
    
    
    2.86
    %
 21




---



##### Table of Contents



The following table sets forth the cumulative static pool losses by month
for all outstanding public securitized pools: Cumulative Static Pool Loss Curves
At March 31, 2004 Period (1)
    
    2000-C
    
    2000-D
    
    2001-A
    
    2001-B
    
    2001-C
    
    2002-1
    
    2002-2
    
    2002-3
    
    2002-4
    
    2003-1
    
    2003-2
    
    2003-3
    
    2003-4
    
    2004-11
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %2
    
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.04
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %3
    
    
    0.13
    %
    
    
    0.11
    %
    
    
    0.09
    %
    
    
    0.10
    %
    
    
    0.09
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %4
    
    
    0.27
    %
    
    
    0.24
    %
    
    
    0.20
    %
    
    
    0.21
    %
    
    
    0.20
    %
    
    
    0.15
    %
    
    
    0.10
    %
    
    
    0.14
    %
    
    
    0.16
    %
    
    
    0.11
    %
    
    
    0.06
    %
    
    
    0.06
    %
    
    
    0.08
    %5
    
    
    0.46
    %
    
    
    0.39
    %
    
    
    0.33
    %
    
    
    0.33
    %
    
    
    0.35
    %
    
    
    0.29
    %
    
    
    0.18
    %
    
    
    0.27
    %
    
    
    0.26
    %
    
    
    0.18
    %
    
    
    0.14
    %
    
    
    0.13
    %
    
    
    0.14
    %6
    
    
    0.65
    %
    
    
    0.54
    %
    
    
    0.50
    %
    
    
    0.50
    %
    
    
    0.49
    %
    
    
    0.43
    %
    
    
    0.32
    %
    
    
    0.44
    %
    
    
    0.38
    %
    
    
    0.29
    %
    
    
    0.25
    %
    
    
    0.23
    %7
    
    
    0.81
    %
    
    
    0.74
    %
    
    
    0.70
    %
    
    
    0.69
    %
    
    
    0.65
    %
    
    
    0.60
    %
    
    
    0.49
    %
    
    
    0.57
    %
    
    
    0.50
    %
    
    
    0.41
    %
    
    
    0.36
    %
    
    
    0.32
    %8
    
    
    0.93
    %
    
    
    0.93
    %
    
    
    0.84
    %
    
    
    0.87
    %
    
    
    0.81
    %
    
    
    0.84
    %
    
    
    0.66
    %
    
    
    0.70
    %
    
    
    0.61
    %
    
    
    0.53
    %
    
    
    0.48
    %
    
    
    0.40
    %9
    
    
    1.07
    %
    
    
    1.13
    %
    
    
    1.04
    %
    
    
    1.05
    %
    
    
    0.95
    %
    
    
    1.06
    %
    
    
    0.82
    %
    
    
    0.82
    %
    
    
    0.78
    %
    
    
    0.66
    %
    
    
    0.59
    %10
    
    
    1.24
    %
    
    
    1.34
    %
    
    
    1.24
    %
    
    
    1.22
    %
    
    
    1.07
    %
    
    
    1.28
    %
    
    
    0.96
    %
    
    
    0.96
    %
    
    
    0.94
    %
    
    
    0.80
    %
    
    
    0.70
    %11
    
    
    1.41
    %
    
    
    1.50
    %
    
    
    1.45
    %
    
    
    1.36
    %
    
    
    1.20
    %
    
    
    1.48
    %
    
    
    1.10
    %
    
    
    1.10
    %
    
    
    1.08
    %
    
    
    0.93
    %
    
    
    0.80
    %12
    
    
    1.62
    %
    
    
    1.74
    %
    
    
    1.67
    %
    
    
    1.53
    %
    
    
    1.37
    %
    
    
    1.67
    %
    
    
    1.26
    %
    
    
    1.24
    %
    
    
    1.28
    %
    
    
    1.06
    %13
    
    
    1.86
    %
    
    
    1.95
    %
    
    
    1.90
    %
    
    
    1.67
    %
    
    
    1.55
    %
    
    
    1.82
    %
    
    
    1.39
    %
    
    
    1.38
    %
    
    
    1.43
    %
    
    
    1.21
    %14
    
    
    2.04
    %
    
    
    2.21
    %
    
    
    2.09
    %
    
    
    1.81
    %
    
    
    1.74
    %
    
    
    1.99
    %
    
    
    1.51
    %
    
    
    1.53
    %
    
    
    1.59
    %
    
    
    1.31
    %15
    
    
    2.25
    %
    
    
    2.48
    %
    
    
    2.25
    %
    
    
    2.00
    %
    
    
    1.97
    %
    
    
    2.14
    %
    
    
    1.68
    %
    
    
    1.70
    %
    
    
    1.77
    %16
    
    
    2.45
    %
    
    
    2.71
    %
    
    
    2.41
    %
    
    
    2.19
    %
    
    
    2.16
    %
    
    
    2.27
    %
    
    
    1.83
    %
    
    
    1.88
    %
    
    
    1.92
    %17
    
    
    2.68
    %
    
    
    2.89
    %
    
    
    2.54
    %
    
    
    2.37
    %
    
    
    2.36
    %
    
    
    2.45
    %
    
    
    1.99
    %
    
    
    2.03
    %
    
    
    2.05
    %18
    
    
    2.88
    %
    
    
    3.08
    %
    
    
    2.73
    %
    
    
    2.60
    %
    
    
    2.59
    %
    
    
    2.62
    %
    
    
    2.16
    %
    
    
    2.15
    %19
    
    
    3.08
    %
    
    
    3.22
    %
    
    
    2.93
    %
    
    
    2.80
    %
    
    
    2.78
    %
    
    
    2.80
    %
    
    
    2.31
    %
    
    
    2.28
    %20
    
    
    3.23
    %
    
    
    3.40
    %
    
    
    3.11
    %
    
    
    3.01
    %
    
    
    2.95
    %
    
    
    2.99
    %
    
    
    2.46
    %
    
    
    2.41
    %21
    
    
    3.38
    %
    
    
    3.59
    %
    
    
    3.34
    %
    
    
    3.19
    %
    
    
    3.14
    %
    
    
    3.15
    %
    
    
    2.60
    %22
    
    
    3.54
    %
    
    
    3.78
    %
    
    
    3.54
    %
    
    
    3.34
    %
    
    
    3.29
    %
    
    
    3.31
    %
    
    
    2.72
    %23
    
    
    3.67
    %
    
    
    3.96
    %
    
    
    3.72
    %
    
    
    3.49
    %
    
    
    3.41
    %
    
    
    3.45
    %
    
    
    2.86
    %24
    
    
    3.83
    %
    
    
    4.18
    %
    
    
    3.92
    %
    
    
    3.62
    %
    
    
    3.57
    %
    
    
    3.58
    %25
    
    
    4.00
    %
    
    
    4.41
    %
    
    
    4.10
    %
    
    
    3.75
    %
    
    
    3.73
    %
    
    
    3.69
    %26
    
    
    4.16
    %
    
    
    4.58
    %
    
    
    4.23
    %
    
    
    3.87
    %
    
    
    3.88
    %27
    
    
    4.35
    %
    
    
    4.79
    %
    
    
    4.36
    %
    
    
    4.00
    %
    
    
    4.04
    %28
    
    
    4.50
    %
    
    
    4.96
    %
    
    
    4.47
    %
    
    
    4.15
    %
    
    
    4.20
    %29
    
    
    4.64
    %
    
    
    5.08
    %
    
    
    4.56
    %
    
    
    4.28
    %
    
    
    4.35
    %30
    
    
    4.79
    %
    
    
    5.22
    %
    
    
    4.67
    %
    
    
    4.40
    %
    
    
    4.46
    %31
    
    
    4.92
    %
    
    
    5.34
    %
    
    
    4.81
    %
    
    
    4.52
    %
    
    
    4.57
    %32
    
    
    5.02
    %
    
    
    5.44
    %
    
    
    4.92
    %
    
    
    4.64
    %
    
    
    4.69
    %33
    
    
    5.12
    %
    
    
    5.54
    %
    
    
    5.04
    %
    
    
    4.73
    %34
    
    
    5.22
    %
    
    
    5.66
    %
    
    
    5.13
    %
    
    
    4.83
    %35
    
    
    5.29
    %
    
    
    5.76
    %
    
    
    5.24
    %
    
    
    4.93
    %36
    
    
    5.38
    %
    
    
    5.86
    %
    
    
    5.31
    %37
    
    
    5.47
    %
    
    
    5.97
    %
    
    
    5.39
    %38
    
    
    5.53
    %
    
    
    6.04
    %
    
    
    5.45
    %39
    
    
    5.62
    %
    
    
    6.12
    %40
    
    
    5.68
    %
    
    
    6.19
    %41
    
    
    5.75
    %
    
    
    6.25
    %42
    
    
    5.80
    %43
    
    
    5.84
    %44
    
    
    5.88
    %Prime Mix (2)
    
    
    68
    %
    
    
    68
    %
    
    
    71
    %
    
    
    71
    %
    
    
    76
    %
    
    
    70
    %
    
    
    87
    %
    
    
    85
    %
    
    
    80
    %
    
    
    80
    %
    
    
    82
    %
    
    
    84
    %
    
    
    82
    %
    
    
    82
    %
   (1)
    
    Represents the number of months since the inception of the
securitization.(2)
    
    Represents the original percentage of prime automobile contracts
securitized within each pool. 22




---



##### Table of Contents



Real Estate Loan Quality We had 1.12% of total mortgage loans past due over 60 days at March 31, 2004
compared with 1.25% of total mortgage loans at December 31, 2003. Nonperforming Assets Nonperforming loans, also known as NPLs, are defined as all nonaccrual loans.
This includes mortgage loans 90 days or more past due, impaired loans where
full collection of principal and interest is not reasonably assured and Chapter
13 bankruptcy accounts that are contractually past due over 120 days. For those
accounts that are in Chapter 13 bankruptcy and are contractually past due over
120 days, all accrued interest is reversed and income is recognized on a cash
basis. When a loan is designated as nonaccrual, all previously accrued but
unpaid interest is reversed. Interest on NPLs excluded from interest income was
$0.6 million and $1.1 million for the three months ended March 31, 2004 and
2003, respectively. Nonperforming assets, also known as NPAs, consist of repossessed automobiles
and real estate owned, also known as REO. Repossessed automobiles and REO are
carried at lower of cost or fair value. NPAs decreased $3.6 million to $60.0
million at March 31, 2004 compared with $63.6 million at December 31, 2003.
The decrease in the NPAs was primarily due to a $3.6 million decrease in
repossessed automobiles. NPAs represented 0.4% of total assets at both March
31, 2004 and December 31, 2003. There were no impaired loans at March 31, 2004
and December 31, 2003. Allowance for Credit Losses Our allowance for credit losses was $303 million at March 31, 2004 compared to
$302 million at December 31, 2003. Net chargeoffs totaled $60.8 million and
$68.2 million for the three months ended March 31, 2004 and 2003, respectively.
The increase in the allowance for credit losses was the result of a higher
level of automobile contracts held on balance sheet. The allowance for credit
losses as a percentage of owned loans outstanding was 2.7% at both March 31,
2004 and December 31, 2003. Based on the analysis we performed related to the
allowance for credit losses as described under Critical Accounting Policies, we
believe that our allowance for credit losses is currently adequate to cover
probable losses in our loan portfolio that can be reasonably estimated. 23




---



##### Table of Contents



The following table presents summarized data relative to the allowance for
credit and real estate losses at the dates indicated: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Total loans (1)
    
    $
    11,369,266
    
    
    $
    11,138,483Allowance for credit losses
    
    
    303,062
    
    
    
    301,602Allowance for real estate owned losses
    
    
    100
    
    
    
    100Loans past due 60 days or more (2)
    
    
    61,493
    
    
    
    91,381Nonperforming loans (3)
    
    
    52,734
    
    
    
    53,026Nonperforming assets (4)
    
    
    60,006
    
    
    
    63,600Allowance for credit losses as a percent of:Total loans (1)
    
    
    2.7
    %
    
    
    2.7
    %Loans past due 60 days or more
    
    
    492.8
    %
    
    
    330.0
    %Nonperforming loans
    
    
    574.7
    %
    
    
    568.8
    %Total allowance for credit losses and REO losses as a percent
of nonperforming assets
    
    
    505.2
    %
    
    
    474.4
    %Nonperforming loans as a percent of total loans
    
    
    0.5
    %
    
    
    0.5
    %Nonperforming assets as a percent of total assets
    
    
    0.4
    %
    
    
    0.4
    %
   (1)
    
    Loans net of unearned interest and undisbursed loan proceeds.(2)
    
    Excludes Chapter 13 bankruptcy accounts greater than 120 days past
due.(3)
    
    All nonperforming loans are on nonaccrual.(4)
    
    Repossessed automobiles and real estate owned, net of allowance. Deposits We attract both short-term and long-term deposits from the general public,
commercial enterprises and institutions by offering a variety of accounts and
rates. We offer regular passbook accounts, demand deposit accounts, money
market accounts, certificate of deposit accounts and individual retirement
accounts. Our retail banking division gathers deposits from 20 retail branch
locations throughout Southern California. Our commercial banking division
gathers deposits by establishing commercial relationships with businesses
located throughout Southern California. The following table sets forth the amount of our deposits by type at the dates
indicated: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)No minimum term:Demand deposit accounts
    
    $
    1,504
    
    
    $
    1,145Passbook accounts
    
    
    6,881
    
    
    
    7,282Money market accounts
    
    
    1,072,554
    
    
    
    963,004Noninterest bearing deposits
    
    
    228,084
    
    
    
    210,405Certificate accounts:Certificates (30 days to five years)
    
    
    579,135
    
    
    
    646,868Individual retirement accounts
    
    
    75,014
    
    
    
    81,701Brokered deposits
    
    
    62,367
    
    
    
    62,451$
    2,025,539
    
    
    $
    1,972,856
 The variety of deposits we offer has allowed us to remain competitive in
obtaining funds and provided us the flexibility to respond to changes in
customer demand and competitive pressures. Generally, as other financial
institutions, we have become more subject to short-term fluctuations in deposit
flows as customers have become more interest rate conscious. Our ability to
attract and maintain deposits and control our cost of funds has been, and will
continue to be, significantly affected by market conditions. 24




---



##### Table of Contents



Capital Resources and Liquidity Overview We require substantial capital resources and cash to support our business.
Our ability to maintain positive cash flows from operations is the result of
our consistent managed growth, favorable loss experience and our efficient
operations. Principal Sources of Cash  
    
    
    Automobile Contract Securitizations Securitizations totaled $1.5 billion and $1.3 billion for the three
months ended March 31, 2004 and 2003, respectively.
    
    
    Collections of Principal and Interest from Loans and MBS  Principal and interest collections on loans and MBS
totaled $1.7 billion and $1.6 billion for the three months ended March 31, 2004 and 2003, respectively.
    
    
    Deposits- Deposits were $2.0 billion at both March 31, 2004 and December 31, 2003.
    
    
    Other Borrowings Other borrowings, which include securities sold under agreements to repurchase and FHLB
advances, increased to $573 million at March 31, 2004 from $551 million at December 31, 2003.
    
    
    Subordinated Debentures- In 1997 and 2002, we issued $150 million of 8.875% and $300 million of 9.625%
subordinated capital debentures due in 2007 and 2012, respectively. At March 31, 2004 there was $98.8 million
and $300 million outstanding on the subordinated debentures due in 2007 and 2012, respectively, excluding
discounts and issue costs. Principal Uses of Cash  
    
    
    Acquisition of Loans and Investment Securities Loan originations totaled $1.7 billion and $1.5 billion for
the three months ended March 31, 2004 and 2003, respectively. We purchased $322 million and $534 million of
mortgage-backed securities and other investment securities during the three months ended March 31, 2004 and
2003, respectively.
    
    
    Payments of Principal and Interest on Securitizations Payments of principal and interest to noteholders and
certificateholders totaled $1.5 billion and $1.0 billion for the three months ended March 31, 2004 and 2003
respectively.
    
    
    Amounts Paid to Dealers Participation paid by us to dealers was $36.1 million and $32.0 million for the three
months ended March 31, 2004 and 2003, respectively.
    
    
    Operating Our Business Operating expenses totaled $71.2 million and $68.4 million for the three months ended
March 31, 2004 and 2003, respectively. 25




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##### Table of Contents



Capital Requirements The Bank is a federally chartered savings bank. As such, it is subject to
certain minimum capital requirements imposed by the Financial Institutions
Reform, Recovery and Enforcement Act, also known as FIRREA and the Federal
Deposit Insurance Corporation Improvement Act, also known as FDICIA. FDICIA
separates all financial institutions into one of five capital categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. In order to be considered
well capitalized, an institution must have a total risk-based capital ratio
of 10.0% or greater, a tier 1 or core risk-based capital ratio of 6.0% or
greater, a leverage ratio of 5.0% or greater and not be subject to any Office
of Thrift Supervision order. The Bank currently meets all of the requirements
of a well capitalized institution. The following table summarizes the Banks actual capital and required capital
as of March 31, 2004 and December 31, 2003: Tier 1Tangible
    
    Core
    
    Risk-Based
    
    Risk-BasedCapital
    
    Capital
    
    Capital
    
    Capital(Dollars in thousands)March 31, 2004Actual Capital:Amount
    
    $
    956,103
    
    
    $
    956,103
    
    
    $
    953,079
    
    
    $
    1,413,989Capital ratio
    
    
    8.39
    %
    
    
    8.39
    %
    
    
    11.28
    %
    
    
    16.74
    %FIRREA minimum required capital:Amount
    
    $
    171,021
    
    
    $
    342,043
    
    
    
    N/A
    
    
    $
    675,704Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    785,082
    
    
    $
    614,060
    
    
    
    N/A
    
    
    $
    738,285FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    570,071
    
    
    $
    506,778
    
    
    $
    844,631Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    386,032
    
    
    $
    446,301
    
    
    $
    569,358December 31, 2003Actual Capital:Amount
    
    $
    884,536
    
    
    $
    884,536
    
    
    $
    881,517
    
    
    $
    1,357,744Capital ratio
    
    
    7.06
    %
    
    
    7.06
    %
    
    
    9.20
    %
    
    
    14.17
    %FIRREA minimum required capital:Amount
    
    $
    187,923
    
    
    $
    375,845
    
    
    
    N/A
    
    
    $
    766,665Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    696,613
    
    
    $
    508,691
    
    
    
    N/A
    
    
    $
    591,079FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    626,409
    
    
    $
    574,999
    
    
    $
    958,332Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    258,127
    
    
    $
    306,518
    
    
    $
    399,412
 26




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##### Table of Contents



The following table reconciles the Banks capital in accordance with GAAP to
the Banks tangible, core and risk-based capital: March 31,
    
    December 31,2004
    
    2003(Dollars in thousands)Bank shareholders equity  GAAP basis
    
    $
    744,358
    
    
    $
    685,045Plus: Net unrealized losses
    
    
    69,027
    
    
    
    68,203Plus: Minority interest in equity of subsidiaries
    
    
    142,865
    
    
    
    131,434Less: Non-permissible activities
    
    
    (147
    )
    
    
    (146
    )Total tangible and core capital
    
    
    956,103
    
    
    
    884,536Adjustments for risk-based capital:Subordinated debentures (1)
    
    
    354,410
    
    
    
    355,370General loan valuation allowance (2)
    
    
    106,500
    
    
    
    120,857Low-level recourse deduction
    
    
    (3,024
    )
    
    
    (3,019
    )Risk-based capital
    
    $
    1,413,989
    
    
    $
    1,357,744
   (1)
    
    Excludes capitalized discounts and issue costs.(2)
    
    Limited to 1.25% of risk-weighted assets. 27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure About Market Risk Fluctuations in interest rates and early prepayment of contracts are the
primary market risks facing us. Our Credit and Pricing Committee is responsible
for setting credit and pricing policies and for monitoring credit quality. Our
Asset/Liability Committee is responsible for the management of interest rate
and prepayment risks. Asset/liability management is the process of measuring
and controlling interest rate risk through matching the maturity and repricing
characteristics of interest earning assets with those of interest bearing
liabilities. The Asset/Liability Committee closely monitors interest rate and prepayment
risks and recommends policies for managing such risks. The primary measurement
tool for evaluating this risk is the use of interest rate shock analysis. This
analysis simulates the effects of an instantaneous and sustained change in
interest rates (in increments of 100 basis points) on our assets and
liabilities and measures the resulting increase or decrease to our net
portfolio value, also known as NPV. NPV is the discounted value of the future
cash flows (or paths of cash flows in the presence of options based on
volatility assumptions and an arbitrage free Monte Carlo simulation method to
achieve the current market price) of all assets minus all liabilities whose
value is affected by interest rate changes plus the book value of non-interest
rate sensitive assets minus the book value of non-interest rate sensitive
liabilities. It should be noted that shock analysis is objective but not
entirely realistic in that it assumes an instantaneous and isolated set of
events. The NPV ratio is the ratio of the NPV to the market value of our assets
as calculated above. In general, an increase in interest rates would more
adversely affect our NPV than would a decrease in interest rates. Another important measurement of our interest rate risk is gap analysis. Gap
is defined as the difference between the amount of interest sensitive assets
that reprice versus the amount of interest sensitive liabilities that also
reprice within a defined period of time. We have more interest sensitive
liabilities rather than assets repricing in shorter term maturity buckets and
more interest sensitive assets rather than liabilities repricing in longer term
maturity buckets. The Asset/Liability Committee monitors our hedging activities to ensure that
the value of hedges, their correlation to the contracts being hedged and the
amounts being hedged continue to provide effective protection against interest
rate risk. The amount and timing of hedging transactions are determined by our
senior management based upon the monitoring activities of the Asset/Liability
Committee. As a result of our approach to interest rate risk management and our
hedging strategies, we do not anticipate that changes in interest rates will
materially affect our results of operations or liquidity, although we can
provide no assurance in this regard. There were no material changes in market
risks in the current quarter. 28




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##### Table of Contents



The following table summarizes our maturity GAP position: Interest Rate Sensitivity Analysis at March 31, 20043 YearsWithin
    
    3 Months
    
    1 Year to
    
    to
    
    After 53 Months
    
    to 1 Year
    
    3 Years
    
    5 Years
    
    Years
    
    Total(Dollars in thousands)Interest earning assets:Investment securities
    
    $
    91,564
    
    
    
    
    
    
    $
    50,074
    
    
    
    
    
    
    
    
    
    
    $
    141,638Other investments
    
    
    507,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    507,599Mortgage-backed securities
    
    
    699,598
    
    
    $
    968,269
    
    
    
    704,580
    
    
    $
    196,776
    
    
    $
    117,282
    
    
    
    2,686,505Total investments
    
    
    1,298,761
    
    
    
    968,269
    
    
    
    754,654
    
    
    
    196,776
    
    
    
    117,282
    
    
    
    3,335,742Consumer loans (1)
    
    
    767,847
    
    
    
    3,019,583
    
    
    
    5,261,463
    
    
    
    1,951,087
    
    
    
    35,351
    
    
    
    11,035,331Mortgage loans:Adjustable rate (2)
    
    
    196,013
    
    
    
    5,647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201,660Fixed rate (2)
    
    
    3,524
    
    
    
    8,748
    
    
    
    4,923
    
    
    
    1,723
    
    
    
    1,486
    
    
    
    20,404Construction loans (2)
    
    
    2,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,896Commercial loans (2)
    
    
    107,874
    
    
    
    1,080
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    108,974Total interest earning assets
    
    
    2,376,915
    
    
    
    4,003,327
    
    
    
    6,021,060
    
    
    
    2,149,586
    
    
    
    154,119
    
    
    
    14,705,007Interest bearing liabilities:Deposits:Passbook accounts (3)
    
    
    732
    
    
    
    2,636
    
    
    
    3,513
    
    
    
    
    
    
    
    
    
    
    
    6,881Demand deposit and money market
accounts (3)
    
    
    304,902
    
    
    
    308,412
    
    
    
    452,326
    
    
    
    8,417
    
    
    
    
    
    
    
    1,074,057Certificate accounts (4)
    
    
    135,667
    
    
    
    557,579
    
    
    
    20,124
    
    
    
    3,146
    
    
    
    
    
    
    
    716,516Notes payable on automobile secured
financing (4)
    
    
    2,499,430
    
    
    
    2,792,747
    
    
    
    4,041,173
    
    
    
    915,147
    
    
    
    
    
    
    
    10,248,497FHLB advances (4)
    
    
    570,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,613
    
    
    
    572,613Subordinated debentures (4)
    
    
    1
    
    
    
    5
    
    
    
    12
    
    
    
    97,492
    
    
    
    295,707
    
    
    
    393,217Other borrowings (4)
    
    
    8,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,930Total interest bearing
liabilities
    
    
    3,519,662
    
    
    
    3,661,379
    
    
    
    4,517,148
    
    
    
    1,024,202
    
    
    
    298,320
    
    
    
    13,020,711Excess interest earning/bearing assets
(liabilities)
    
    
    (1,142,747
    )
    
    
    341,948
    
    
    
    1,503,912
    
    
    
    1,125,384
    
    
    
    (144,201
    )
    
    
    1,684,296Effect of hedging activities (5)
    
    
    3,267,882
    
    
    
    (1,021,559
    )
    
    
    (1,551,918
    )
    
    
    (454,905
    )
    
    
    (239,500
    )Hedged excess (deficit)
    
    $
    2,125,135
    
    
    $
    (679,611
    )
    
    $
    (48,006
    )
    
    $
    670,479
    
    
    $
    (383,701
    )
    
    $
    1,684,296Cumulative excess
    
    $
    2,125,135
    
    
    $
    1,445,524
    
    
    $
    1,397,518
    
    
    $
    2,067,997
    
    
    $
    1,684,296
    
    
    $
    1,684,296Cumulative excess as a percentage
of total interest earning assets
    
    
    14.45
    %
    
    
    9.83
    %
    
    
    9.50
    %
    
    
    14.06
    %
    
    
    11.45
    %
    
    
    11.45
    %
   (1)
    
    Based on contractual maturities adjusted by our historical prepayment
rate.(2)
    
    Based on interest rate repricing adjusted for projected prepayments.(3)
    
    Based on assumptions established by the OTS.(4)
    
    Based on contractual maturity.(5)
    
    Includes effect of interest rate swaps designated against deposits. 29




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##### Table of Contents



Item 4. Controls and Procedures Disclosure controls and procedures are designed to ensure that the information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us
in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operations of our disclosure controls and
procedures within 90 days of the filing date of this quarterly report. Based
on their evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that these controls and procedures are effective. There has
been no significant change in our internal controls or in other factors that
could significantly affect the controls and procedures subsequent to the date
of their evaluation. 30




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings We or our subsidiaries are involved as parties to certain
legal proceedings incidental to our business, including Lee,
et al. v. WFS Financial Inc,United States District Court,
Middle District of Tennessee at Nashville, No. 3-02-0570
filed June 17, 2002 (a putative class action raising claims
under the Equal Credit Opportunity Act) and other similar
cases. We are vigorously defending these actions and do not
believe that the outcome of these proceedings will have a
material effect upon our financial condition, results of
operations and cash flows. 
 Item 2. Changes in Securities and Use of Proceeds None 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information None 31




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits Exhibit No.
    
    Description of Exhibit3.1
    
    Articles of Incorporation (1)3.1.1
    
    Certificate of Amendment of the Articles of Incorporation of Westcorp (2)3.2
    
    Bylaws (1)4.1
    
    Indenture dated as of July 1, 1997 issued by Western Financial Bank,
formerly Western Financial Savings Bank, F.S.B., with respect to
$150,000,000 in aggregate principal amount of 8.875% Subordinated
Capital Debentures due 2007 (3)4.2
    
    Indenture dated as of May 1, 2002 issued by Western Financial Bank,
formerly Western Financial Savings Bank, F.S.B., with respect to
$300,000,000 in aggregate principal amount of 9.625% Subordinated
Capital Debentures due 2012 (4)31.1
    
    Section 302 Certification of CEO31.2
    
    Section 302 Certification of CFO32.1
    
    Section 906 Certification of CEO32.2
    
    Section 906 Certification of CFO
   (1)
    
    Exhibits previously filed with Westcorp Registration Statement on
Form S-4 (File No. 33-34286), filed April 11, 1990 incorporated herein
by reference under the Exhibit Number indicated.(2)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 2003 as filed on or about March 12, 2004
incorporated herein by reference.(3)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 1997 as filed on or about March 29, 1998
incorporated herein by reference.(4)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 2002 as filed on or about March 29, 2003
incorporated herein by reference.  (b)
    
    Reports on Form 8-K Westcorp press release on January 21, 2004 32




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Westcorp 
  Date:
    
    May 4, 2004
    
    
    
    By:
    
    /S/ ERNEST S. RADYErnest S. RadyChairman of the Board andChief Executive OfficerDate:
    
    May 6, 2004
    
    
    
    By:
    
    /S/ LEE A. WHATCOTTLee A. WhatcottExecutive Vice President,Chief Financial Officer andChief Operating Officer(Principal Financial andAccounting Officer)
 33




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description of Exhibit3.1
    
    Articles of Incorporation (1)3.1.1
    
    Certificate of Amendment of the Articles of Incorporation of Westcorp (2)3.2
    
    Bylaws (1)4.1
    
    Indenture dated as of July 1, 1997 issued by Western Financial Bank,
formerly Western Financial Savings Bank, F.S.B., with respect to
$150,000,000 in aggregate principal amount of 8.875% Subordinated
Capital Debentures due 2007 (3)4.2
    
    Indenture dated as of May 1, 2002 issued by Western Financial Bank,
formerly Western Financial Savings Bank, F.S.B., with respect to
$300,000,000 in aggregate principal amount of 9.625% Subordinated
Capital Debentures due 2012 (4)31.1
    
    Section 302 Certification of CEO31.2
    
    Section 302 Certification of CFO32.1
    
    Section 906 Certification of CEO32.2
    
    Section 906 Certification of CFO
   (1)
    
    Exhibits previously filed with Westcorp Registration Statement on
Form S-4 (File No. 33-34286), filed April 11, 1990 incorporated herein
by reference under the Exhibit Number indicated.(2)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 2003 as filed on or about March 12, 2004
incorporated herein by reference.(3)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 1997 as filed on or about March 29, 1998
incorporated herein by reference.(4)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 2002 as filed on or about March 29, 2003
incorporated herein by reference. 34