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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 September 30, 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 23 Pasteur, Irvine, California 92618-3816
 
  (949) 727-1002(Registrants telephone number, including area code)
 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 þ 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 þ No o As of October 29, 2004, the registrant had 51,873,467 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 37.




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WESTCORP AND SUBSIDIARIES FORM 10-Q September 30, 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 September 30, 2004 and December 31, 2003
    
    
    2Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2004 and 2003
    
    
    3Consolidated Statements of Changes in Shareholders Equity for the Periods Ended September 30, 2004 and December 31, 2003
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities 35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits and Reports on Form 8-K
    
    
    36SIGNATURES
    
    
    37CERTIFICATIONSEXHIBIT 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, also
known as the Exchange Act. 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)September 30, 2004
    
    December 31, 2003(Dollars in thousands)ASSETSCash
    
    $
    95,150
    
    
    $
    50,073Interest bearing deposits with other financial institutions
    
    
    3,098
    
    
    
    41,009Other short-term investments
    
    
    150,000
    
    
    
    291,000Cash and due from banks
    
    
    248,248
    
    
    
    382,082Restricted cash
    
    
    392,531
    
    
    
    245,399Investment securities available for sale
    
    
    107,374
    
    
    
    117,749Mortgage-backed securities available for sale
    
    
    2,670,344
    
    
    
    2,701,797Loans receivable
    
    
    11,935,998
    
    
    
    11,138,483Allowance for credit losses
    
    
    (312,222
    )
    
    
    (301,602
    )Loans receivable, net
    
    
    11,623,776
    
    
    
    10,836,881Interest receivable
    
    
    76,428
    
    
    
    80,957Premises and equipment, net
    
    
    78,424
    
    
    
    81,814Other assets
    
    
    154,874
    
    
    
    169,241TOTAL ASSETS
    
    $
    15,351,999
    
    
    $
    14,615,920LIABILITIESDeposits
    
    $
    2,108,668
    
    
    $
    1,972,856Notes payable on automobile secured financing
    
    
    10,415,151
    
    
    
    10,254,641Securities sold under agreements to repurchase
    
    
    
    
    
    
    222,489Federal Home Loan Bank advances
    
    
    870,658
    
    
    
    328,644Subordinated debentures
    
    
    295,053
    
    
    
    394,854Other
    
    
    219,726
    
    
    
    188,517TOTAL LIABILITIES
    
    
    13,909,256
    
    
    
    13,362,001Minority interest
    
    
    158,045
    
    
    
    131,434SHAREHOLDERS EQUITYCommon stock (par value $1.00 per share; authorized 65,000,000
shares; issued and outstanding 51,873,467 shares at September 30, 2004
and 51,698,398 shares at December 31, 2003)
    
    
    51,873
    
    
    
    51,698Paid-in capital
    
    
    714,569
    
    
    
    710,001Retained earnings
    
    
    558,740
    
    
    
    427,527Accumulated other comprehensive loss, net of tax
    
    
    (40,484
    )
    
    
    (66,741
    )TOTAL SHAREHOLDERS EQUITY
    
    
    1,284,698
    
    
    
    1,122,485TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    15,351,999
    
    
    $
    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 Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands, except per share amounts)Interest income:Loans, including fees
    
    $
    291,796
    
    
    $
    293,019
    
    
    $
    863,989
    
    
    $
    861,169Mortgage-backed securities
    
    
    25,828
    
    
    
    15,936
    
    
    
    72,666
    
    
    
    61,950Investment securities
    
    
    1,173
    
    
    
    823
    
    
    
    3,354
    
    
    
    2,213Other
    
    
    2,441
    
    
    
    1,133
    
    
    
    5,871
    
    
    
    3,004TOTAL INTEREST INCOME
    
    
    321,238
    
    
    
    310,911
    
    
    
    945,880
    
    
    
    928,336Interest expense:Deposits
    
    
    15,101
    
    
    
    15,695
    
    
    
    42,291
    
    
    
    50,269Notes payable on automobile secured financing
    
    
    89,869
    
    
    
    101,803
    
    
    
    272,678
    
    
    
    319,136Other
    
    
    10,040
    
    
    
    12,550
    
    
    
    33,477
    
    
    
    37,852TOTAL INTEREST EXPENSE
    
    
    115,010
    
    
    
    130,048
    
    
    
    348,446
    
    
    
    407,257NET INTEREST INCOME
    
    
    206,228
    
    
    
    180,863
    
    
    
    597,434
    
    
    
    521,079Provision for credit losses
    
    
    60,337
    
    
    
    73,150
    
    
    
    174,171
    
    
    
    221,071NET INTEREST
INCOME AFTER PROVISION FOR CREDITLOSSES
    
    
    145,891
    
    
    
    107,713
    
    
    
    423,263
    
    
    
    300,008Noninterest income:Automobile lending
    
    
    26,830
    
    
    
    23,516
    
    
    
    77,646
    
    
    
    67,810Mortgage banking
    
    
    97
    
    
    
    279
    
    
    
    581
    
    
    
    1,132Insurance income
    
    
    2,264
    
    
    
    3,252
    
    
    
    5,778
    
    
    
    6,187Other
    
    
    836
    
    
    
    786
    
    
    
    2,267
    
    
    
    8,187TOTAL NONINTEREST INCOME
    
    
    30,027
    
    
    
    27,833
    
    
    
    86,272
    
    
    
    83,316Noninterest expenses:Salaries and associate benefits
    
    
    43,541
    
    
    
    40,016
    
    
    
    130,995
    
    
    
    120,950Credit and collections
    
    
    8,056
    
    
    
    8,655
    
    
    
    24,359
    
    
    
    27,004Data processing
    
    
    4,053
    
    
    
    4,258
    
    
    
    12,313
    
    
    
    13,690Occupancy
    
    
    3,983
    
    
    
    4,041
    
    
    
    11,710
    
    
    
    11,784Telephone
    
    
    1,219
    
    
    
    1,296
    
    
    
    3,519
    
    
    
    3,880Other
    
    
    14,084
    
    
    
    8,479
    
    
    
    36,710
    
    
    
    30,532TOTAL NONINTEREST EXPENSES
    
    
    74,936
    
    
    
    66,745
    
    
    
    219,606
    
    
    
    207,840INCOME BEFORE INCOME TAX
    
    
    100,982
    
    
    
    68,801
    
    
    
    289,929
    
    
    
    175,484Income tax
    
    
    40,188
    
    
    
    27,343
    
    
    
    115,227
    
    
    
    69,544INCOME BEFORE MINORITY INTEREST
    
    
    60,794
    
    
    
    41,458
    
    
    
    174,702
    
    
    
    105,940Minority interest in earnings of subsidiaries
    
    
    6,122
    
    
    
    12,123
    
    
    
    22,251
    
    
    
    21,453NET INCOME
    
    $
    54,672
    
    
    $
    29,335
    
    
    $
    152,451
    
    
    $
    84,487Earnings per common share:Basic
    
    $
    1.05
    
    
    $
    0.65
    
    
    $
    2.94
    
    
    $
    2.05Diluted
    
    $
    1.04
    
    
    $
    0.64
    
    
    $
    2.90
    
    
    $
    2.03Weighted average number of common shares outstanding:Basic
    
    
    51,859,531
    
    
    
    45,033,836
    
    
    
    51,806,929
    
    
    
    41,154,810Diluted
    
    
    52,510,834
    
    
    
    45,786,913
    
    
    
    52,528,983
    
    
    
    41,680,576Dividends declared
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.42
    
    
    $
    0.39
 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,451
    
    
    
    
    
    
    
    152,451Unrealized losses on securities
available for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,544
    )
    
    
    (4,544
    )Unrealized losses on cash flow
hedges, net of tax
(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,211
    )
    
    
    (4,211
    )Reclassification adjustment for
gains on securities
available for
sale included in income, net of
tax
(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,446
    )
    
    
    (1,446
    )Reclassification adjustment for
losses on cash
flow hedges
included in income, net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,458
    
    
    
    36,458Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,708Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    (40
    )Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    1,937
    
    
    
    
    
    
    
    
    
    
    
    1,937Stock options exercised
    
    
    175,069
    
    
    
    175
    
    
    
    2,671
    
    
    
    
    
    
    
    
    
    
    
    2,846Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,238
    )
    
    
    
    
    
    
    (21,238
    )Balance at September 30, 2004
    
    
    51,873,467
    
    
    $
    51,873
    
    
    $
    714,569
    
    
    $
    558,740
    
    
    $
    (40,484
    )
    
    $
    1,284,698
   (1)
    
    The pre-tax amount of unrealized losses on securities available for sale
was $7.6 million for the nine months ended September 30, 2004 compared
with $12.2 million for the year ended December 31, 2003.(2)
    
    The pre-tax amount of unrealized losses on cash flow hedges was $7.0
million for the nine months ended September 30, 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 $2.4 million for the nine months ended
September 30, 3004 compared with $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 $60.8 million for the nine months ended September 30,
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 Nine Months EndedSeptember 30,2004
    
    2003(Dollars in thousands)OPERATING ACTIVITIESNet income
    
    $
    152,451
    
    
    $
    84,487Adjustments to reconcile net income to net cash provided by
operating activities:Provision for credit losses
    
    
    174,171
    
    
    
    221,071Depreciation
    
    
    8,935
    
    
    
    10,620Amortization of losses on cash flow hedges
    
    
    32,186
    
    
    
    43,665Amortization of premium on mortgage-backed securities
    
    
    32,012
    
    
    
    55,134Amortization of participation paid to dealers
    
    
    94,185
    
    
    
    81,384Amortization, other
    
    
    4,586
    
    
    
    1,100Gain on sales, net
    
    
    (6,605
    )
    
    
    (10,060
    )Other
    
    
    502
    
    
    
    (5,688
    )Decrease in other assets
    
    
    2,332
    
    
    
    4,570Increase in other liabilities
    
    
    31,558
    
    
    
    22,301Other, net
    
    
    22,251
    
    
    
    21,454NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    548,564
    
    
    
    530,038INVESTING ACTIVITIESLoans receivable:Origination of loans
    
    
    (5,320,232
    )
    
    
    (4,952,333
    )Participation paid to dealers
    
    
    (117,226
    )
    
    
    (109,325
    )Loan payments and payoffs
    
    
    4,381,867
    
    
    
    3,745,284Investment securities available for sale:Purchases
    
    
    (69,908
    )
    
    
    (119,152
    )Proceeds from sale
    
    
    81,254
    
    
    
    1,030Proceeds from maturities
    
    
    398
    
    
    
    54,475Mortgage-backed securities available for sale:Purchases
    
    
    (970,806
    )
    
    
    (1,672,500
    )Proceeds from sale
    
    
    52,295
    
    
    
    105,066Payments received
    
    
    910,742
    
    
    
    1,476,522Purchase of premises and equipment
    
    
    (9,332
    )
    
    
    (13,911
    )Proceeds from sales of premises and equipment
    
    
    4,509
    
    
    
    2,938NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,056,439
    )
    
    
    (1,481,906
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    142,884
    
    
    
    5,486Decrease in securities sold under agreements to repurchase
    
    
    (218,741
    )
    
    
    (30,437
    )Proceeds from notes payable on automobile secured financing
    
    
    4,498,305
    
    
    
    4,476,713Payments on notes payable on automobile secured financing
    
    
    (4,308,510
    )
    
    
    (3,444,685
    )(Decrease) increase in borrowings
    
    
    (351
    )
    
    
    3,271Increase in FHLB advances
    
    
    542,014
    
    
    
    47,401Payments on issuance of subordinated debentures
    
    
    (104,683
    )
    
    
    (7,315
    )Increase in restricted cash
    
    
    (147,131
    )
    
    
    (114,556
    )Cash dividends
    
    
    (21,239
    )
    
    
    (15,701
    )Payments on cash flow hedges
    
    
    (11,390
    )
    
    
    (34,180
    )Proceeds from issuance of common stock
    
    
    2,846
    
    
    
    164,551Proceeds from issuance of subsidiary common stock
    
    
    37
    
    
    
    68NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    374,041
    
    
    
    1,050,616(DECREASE) INCREASE IN CASH AND DUE FROM BANKS
    
    
    (133,834
    )
    
    
    98,748Cash and due from banks at beginning of year
    
    
    382,082
    
    
    
    84,215CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    248,248
    
    
    $
    182,963
 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 nine months ended September 30, 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: September 30, 2004Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gain
    
    Loss
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,584,091
    
    
    $
    20,385
    
    
    $
    5,740
    
    
    $
    2,598,736FNMA participation certificates
    
    
    31,148
    
    
    
    191
    
    
    
    151
    
    
    
    31,188FHLMC participation certificates
    
    
    38,748
    
    
    
    184
    
    
    
    128
    
    
    
    38,804Other
    
    
    1,616
    
    
    
    
    
    
    
    
    
    
    
    1,616$
    2,655,603
    
    
    $
    20,760
    
    
    $
    6,019
    
    
    $
    2,670,344
 6




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##### Table of Contents



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
61% fixed rate certificates and 39% variable rate certificates at September 30,
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: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Consumer:Automobile contracts
    
    $
    11,483,904
    
    
    $
    10,657,864Dealer participation, net of deferred contract fees
    
    
    190,143
    
    
    
    175,263Other
    
    
    6,782
    
    
    
    6,002Unearned discounts
    
    
    (43,742
    )
    
    
    (61,300
    )11,637,087
    
    
    
    10,777,829Real estate:Mortgage
    
    
    183,648
    
    
    
    237,668Construction
    
    
    39,845
    
    
    
    16,503223,493
    
    
    
    254,171Undisbursed loan proceeds
    
    
    (31,405
    )
    
    
    (17,948
    )192,088
    
    
    
    236,223Commercial
    
    
    106,823
    
    
    
    124,43111,935,998
    
    
    
    11,138,483Allowance for credit losses
    
    
    (312,222
    )
    
    
    (301,602
    )$
    11,623,776
    
    
    $
    10,836,881
 Loans managed by us, excluding dealer participation and deferred contract fees,
totaled $11.7 billion and $11.0 billion as of September 30, 2004 and December
31, 2003, respectively. We owned all of the $11.7 billion and $11.0 billion
loans managed at September 30, 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 $51.4 million and $53.0
million at September 30, 2004 and December 31, 2003, respectively. Repossessed
assets and real estate owned were $7.0 million and $10.6 million at September
30, 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 Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)Balance at beginning of period
    
    $
    307,293
    
    
    $
    291,459
    
    
    $
    301,602
    
    
    $
    269,352Chargeoffs:Consumer loans
    
    
    (76,689
    )
    
    
    (88,345
    )
    
    
    (232,403
    )
    
    
    (258,495
    )Commercial loans
    
    
    (492
    )
    
    
    
    
    
    
    (492
    )Mortgage loans
    
    
    (37
    )
    
    
    (7
    )
    
    
    (167
    )
    
    
    (344
    )(77,218
    )
    
    
    (88,352
    )
    
    
    (233,062
    )
    
    
    (258,839
    )Recoveries:Consumer loans
    
    
    21,792
    
    
    
    22,003
    
    
    
    69,471
    
    
    
    66,593Commercial loans
    
    
    18
    
    
    
    12
    
    
    
    40
    
    
    
    61Mortgage loans
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    4021,810
    
    
    
    22,021
    
    
    
    69,511
    
    
    
    66,694Net chargeoffs
    
    
    (55,408
    )
    
    
    (66,331
    )
    
    
    (163,551
    )
    
    
    (192,145
    )Provision for credit losses
    
    
    60,337
    
    
    
    73,150
    
    
    
    174,171
    
    
    
    221,071Balance at end of period
    
    $
    312,222
    
    
    $
    298,278
    
    
    $
    312,222
    
    
    $
    298,278Ratio of net chargeoffs
during the period
(annualized) to average loans
outstanding during the period
    
    
    1.9
    %
    
    
    2.5
    %
    
    
    1.9
    %
    
    
    2.5
    %Ratio of allowance for credit
losses to loans at the end of
the period
    
    
    2.6
    %
    
    
    2.7
    %
    
    
    2.6
    %
    
    
    2.7
    %
 8




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##### Table of Contents



Note 5  Deposits Deposits consisted of the following: Weighted Average
    
    
    
    
    
    Weighted AverageRate for the
    
    
    
    
    
    Rate for theWeighted Average
    
    Nine Months Ended
    
    Effects of Hedging
    
    Nine Months EndedRate at
    
    September 30, 2004
    
    for the
    
    September 30, 2004September 30,
    
    Excluding the Effects
    
    Nine Months Ended
    
    Including the Effects2004 (1)
    
    of Hedging
    
    September 30, 2004
    
    of HedgingDemand deposit accounts
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %Passbook accounts
    
    
    0.1
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Money market deposit accounts
    
    
    1.8
    
    
    
    1.3
    
    
    
    0.1
    %
    
    
    1.4Brokered certificate accounts
    
    
    1.4
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7Certificate accounts
    
    
    2.1
    
    
    
    1.7
    
    
    
    4.6
    
    
    
    6.3
   (1)
    
    Contractual rate. September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Noninterest bearing deposits
    
    $
    238,505
    
    
    $
    210,405Demand deposit accounts
    
    
    862
    
    
    
    1,145Passbook accounts
    
    
    6,102
    
    
    
    7,282Money market deposit accounts
    
    
    1,219,918
    
    
    
    963,004Brokered certificate accounts
    
    
    52,533
    
    
    
    62,451Certificate accounts
    
    
    590,748
    
    
    
    728,569$
    2,108,668
    
    
    $
    1,972,856
 Note 6  Notes Payable on Automobile Secured Financing In connection with our public asset-backed securitization activities, we issued
$1.6 billion and $4.5 billion of notes secured by automobile contracts for the
three and nine months ended September 30, 2004, respectively, compared with
$1.7 billion and $4.5 billion for the same respective periods in 2003. There
were $10.4 billion of notes payable on automobile secured financing outstanding
at September 30, 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 $89.9 million
and $273 million for the three and nine months ended September 30, 2004,
respectively, compared with $102 million and $319 million for the same
respective periods in 2003. 9




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##### Table of Contents



Note 7  Accumulated Other Comprehensive Loss, Net of Tax The following table summarizes the components of accumulated other
comprehensive loss, net of tax: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Unrealized gain on marketable securities
    
    $
    8,782
    
    
    $
    14,771Unrealized loss on interest rate swaps: (1)Deposits
    
    
    (34,054
    )
    
    
    (38,297
    )Automobile secured financing
    
    
    (3,947
    )
    
    
    (19,539
    )Securities sold under agreements to repurchase
    
    
    
    
    
    
    (2,248
    )(38,001
    )
    
    
    (60,084
    )Realized loss on settled cash flow hedges: (1)Deposits
    
    
    (9,123
    )
    
    
    (9,539
    )Automobile secured financing
    
    
    (2,142
    )
    
    
    (11,889
    )(11,265
    )
    
    
    (21,428
    )Total other accumulated comprehensive loss
    
    $
    (40,484
    )
    
    $
    (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 Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)Net income
    
    $
    54,672
    
    
    $
    29,335
    
    
    $
    152,451
    
    
    $
    84,487Unrealized gains
(losses) on
securities
available for sale,
net of tax
    
    
    15,723
    
    
    
    (2,184
    )
    
    
    (4,544
    )
    
    
    (7,926
    )Unrealized (losses)
gains on cash flow
hedges,
net of tax
    
    
    (15,278
    )
    
    
    7,276
    
    
    
    (4,211
    )
    
    
    (30,667
    )Reclassification
adjustment for
gains on
securities
available for sale
included in income,
net of tax
    
    
    
    
    
    
    (2,983
    )
    
    
    (1,446
    )
    
    
    (2,987
    )Reclassification
adjustment for
losses on cash
flow
hedges included in
income, net of tax
    
    
    9,832
    
    
    
    20,022
    
    
    
    36,458
    
    
    
    53,990Comprehensive income
    
    $
    64,949
    
    
    $
    51,466
    
    
    $
    178,708
    
    
    $
    96,897
 Note 9  Dividends On August 16, 2004, we declared a cash dividend of $0.14 per share for
shareholders of record as of November 9, 2004 with a payable date of November
23, 2004. 10




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##### Table of Contents



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 September 30, 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
    
    
    168,103
    
    
    
    1.25
    
    
    $
    12.63
    
    
    
    168,103
    
    
    $
    12.6313.00  14.00
    
    
    153,250
    
    
    
    2.39
    
    
    
    13.25
    
    
    
    153,250
    
    
    
    13.2515.00  16.00
    
    
    1,000
    
    
    
    3.11
    
    
    
    15.25
    
    
    
    750
    
    
    
    15.2517.00  18.00
    
    
    227,071
    
    
    
    3.39
    
    
    
    17.32
    
    
    
    152,508
    
    
    
    17.3218.00  19.00
    
    
    701,666
    
    
    
    3.81
    
    
    
    18.57
    
    
    
    243,840
    
    
    
    18.5319.00  20.00
    
    
    5,000
    
    
    
    4.85
    
    
    
    19.85
    
    
    
    2,500
    
    
    
    19.8520.00  21.00
    
    
    3,000
    
    
    
    5.10
    
    
    
    20.41
    
    
    
    750
    
    
    
    20.4142.00  43.00
    
    
    528,500
    
    
    
    4.38
    
    
    
    42.19$12.00  43.00
    
    
    1,787,590
    
    
    
    3.57
    
    
    $
    24.39
    
    
    
    721,701
    
    
    $
    15.78
 Stock option activity is summarized as follows: WeightedAverageShares
    
    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
    
    
    (175,069
    )
    
    
    16.26Forfeited
    
    
    (38,777
    )
    
    
    25.83Outstanding at September 30, 2004
    
    
    1,787,590
    
    
    $
    24.39
 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.
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 nine month period ending September 30, 2004 was
$13.26 compared to $5.48 for the year ended December 31, 2003. 11




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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 Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands, except per share amounts)Net income, as reported
    
    $
    54,672
    
    
    $
    29,335
    
    
    $
    152,451
    
    
    $
    84,487Add: Stock-based employee
compensation expense
included in reported net
income, net of related
tax effects
    
    
    458
    
    
    
    122
    
    
    
    1,167
    
    
    
    285Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects
    
    
    581
    
    
    
    315
    
    
    
    1,597
    
    
    
    919Pro forma net income
    
    $
    54,549
    
    
    $
    29,142
    
    
    $
    152,021
    
    
    $
    83,853Earnings per share:Basic  as reported
    
    $
    1.05
    
    
    $
    0.65
    
    
    $
    2.94
    
    
    $
    2.05Basic  pro forma
    
    $
    1.05
    
    
    $
    0.65
    
    
    $
    2.93
    
    
    $
    2.04Earnings per share:Diluted  as reported
    
    $
    1.04
    
    
    $
    0.64
    
    
    $
    2.90
    
    
    $
    2.03Diluted  pro forma
    
    $
    1.04
    
    
    $
    0.64
    
    
    $
    2.89
    
    
    $
    2.01
 Note 11  Commitments and Contingencies We or our subsidiaries are involved as a party to certain legal proceedings
incidental to our business, including Lee, et al. v. WFS Financial Inc,United
States District Court, Middle District of Tennessee at Nashville, No. 3-02-0570
filed June 17, 2002 (a putative class action raising claims under the Equal
Credit Opportunity Act) and Thompson, et al. v. WFS Financial Inc,California
Superior Court, County of Alameda Civil Action No, RG03088926, appeal pending
in the Court of Appeal of the State of California, First Appellate District,
Division One, No. A104967 (a putative class action raising claims under
Californias Unfair Competition Law and related claims). WFS has reached a
settlement in Lee, et al. v. WFS Financial Incand Thompson, et al. v. WFS
Financial Inccases. The settlements will be final after court approval of the
settlement in Lee, et al. v. WFS Financial Inc. We do not believe that the
outcome of these proceedings will have a material effect upon our financial
condition, results of operations and cash flows. Beginning on May 24, 2004 and continuing thereafter, a total of four separate
purported class action lawsuits relating to the announcement by Westcorp and
WFS that Westcorp was commencing an exchange offer for the outstanding public
shares of WFS were filed in the Orange County, California Superior Court
against Westcorp, WFS, and individual board members of Westcorp and WFS. On
June 24, 2004, the actions were consolidated under the caption In re WFS
Financial Shareholder Litigation, Case No. 04CC00559. On July 16, 2004, the
court granted a motion by plaintiff Alaska Hotel & Restaurant Employees Pension
Trust Fund, in Case No.04CC00573, to amend the consolidation order to designate
it the lead plaintiff in the litigation. Lead plaintiff filed a consolidated
amended complaint on August 9, 2004, and then filed the present corrected
consolidated amended complaint on September 15, 2004. All of the defendants
have filed demurrers challenging the legal sufficiency of the pending
complaint, which are scheduled for hearing. All of the shareholder-related 12




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##### Table of Contents



actions allege, among other things, that the defendants breached their
respective fiduciary duties and seek to enjoin or rescind the transaction and
obtain an unspecified sum in damages and costs, including attorneys fees and
expenses. We are vigorously defending this action and do not believe that the
outcome of this proceeding will have a material effect upon our financial
condition, results of operations and cash flows. Note 12  Proposed Acquisition and Merger On May 23, 2004, we entered into a definitive agreement pursuant to which we
will acquire the outstanding 16% common stock minority interest of WFS not
already owned by our wholly owned subsidiary, the Bank. The acquisition is
structured as a merger of WFS with and into the Bank. The public holders of
WFS shares will receive 1.11 shares of our common stock for each share of WFS
common stock held by them in a tax-free exchange. Based on the $42.60 closing
price of our common stock on May 21, 2004, the last business day prior to the
execution of the agreement, the transaction has an indicated value of $47.29
per share of WFS common stock. The transaction is subject to, among other
closing conditions, the receipt of regulatory approvals and the approval of a
majority of WFS Financials shareholders, other than shares controlled by
Westcorp. The California Department of Financial Institutions and the Office of Thrift
Supervision have approved the Banks application to convert from a federal
savings bank to a California state commercial bank subject to receipt of all
other required regulatory approvals. The Federal Deposit Insurance Corporation
approved the application to merge WFS into the Bank as part of the acquisition
of the minority interest in WFS. The conversion is still contingent upon the
approval of our application to become a bank holding company by the Board of
Governors of the Federal Reserve. After the conversion, we will be subject to
the laws, regulation and oversight of the California Department of Financial
Institutions, the Federal Deposit Insurance Corporation and the Federal
Reserve. The merger is also subject to approval by the majority of WFS
minority shareholders. We anticipate the merger of WFS with and into the Bank and the conversion of
the Bank to a California state commercial bank will be completed sometime in
the first quarter of 2005. We believe the combined company will provide greater
flexibility in responding to market factors and will enable us to utilize, to a
greater extent, the Banks low cost customer deposits to finance our
activities. 13




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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 and
nine months ended September 30, 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
Ended
September 30,
    
    For the Nine Months
Ended
September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands, except per share amounts)Consolidated Statements of Income Data:Interest income
    
    $
    321,238
    
    
    $
    310,911
    
    
    $
    945,880
    
    
    $
    928,336Interest expense
    
    
    115,010
    
    
    
    130,048
    
    
    
    348,446
    
    
    
    407,257Net interest income
    
    
    206,228
    
    
    
    180,863
    
    
    
    597,434
    
    
    
    521,079Provision for credit losses
    
    
    60,337
    
    
    
    73,150
    
    
    
    174,171
    
    
    
    221,071Net interest income after provision for credit losses
    
    
    145,891
    
    
    
    107,713
    
    
    
    423,263
    
    
    
    300,008Noninterest income
    
    
    30,027
    
    
    
    27,833
    
    
    
    86,272
    
    
    
    83,316Noninterest expense
    
    
    74,936
    
    
    
    66,745
    
    
    
    219,606
    
    
    
    207,840Income before income tax
    
    
    100,982
    
    
    
    68,801
    
    
    
    289,929
    
    
    
    175,484Income tax
    
    
    40,188
    
    
    
    27,343
    
    
    
    115,227
    
    
    
    69,544Income before minority interest
    
    
    60,794
    
    
    
    41,458
    
    
    
    174,702
    
    
    
    105,940Minority interest in earnings of subsidiaries
    
    
    6,122
    
    
    
    12,123
    
    
    
    22,251
    
    
    
    21,453Net income
    
    $
    54,672
    
    
    $
    29,335
    
    
    $
    152,451
    
    
    $
    84,487Weighted average number of shares and common share
equivalents   diluted
    
    
    52,510,834
    
    
    
    45,786,913
    
    
    
    52,528,983
    
    
    
    41,680,576Earnings per common share  diluted
    
    $
    1.04
    
    
    $
    0.64
    
    
    $
    2.90
    
    
    $
    2.03Dividends per share
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.42
    
    
    $
    0.39Dividend payout ratio
    
    
    13.4
    %
    
    
    20.3
    %
    
    
    14.5
    %
    
    
    19.2
    %
 14




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##### Table of Contents



September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Consolidated Statements of Financial Condition Data:Assets:Cash and due from banks
    
    $
    248,248
    
    
    $
    382,082Loans:Consumer (1)
    
    
    11,637,087
    
    
    
    10,777,829Mortgage (2)
    
    
    192,088
    
    
    
    236,223Commercial
    
    
    106,823
    
    
    
    124,431Mortgage-backed securities
    
    
    2,670,344
    
    
    
    2,701,797Investments and time deposits
    
    
    499,905
    
    
    
    363,148Other assets
    
    
    309,726
    
    
    
    332,012Less: Allowance for credit losses
    
    
    312,222
    
    
    
    301,602Total assets
    
    $
    15,351,999
    
    
    $
    14,615,920Liabilities:Deposits
    
    $
    2,108,668
    
    
    $
    1,972,856Notes payable on automobile secured financing
    
    
    10,415,151
    
    
    
    10,254,641FHLB advances and other borrowings
    
    
    879,354
    
    
    
    560,179Subordinated debentures
    
    
    295,053
    
    
    
    394,854Other liabilities
    
    
    211,030
    
    
    
    179,471Total liabilities
    
    
    13,909,256
    
    
    
    13,362,001Minority interest in equity of subsidiaries
    
    
    158,045
    
    
    
    131,434Shareholders equity
    
    
    1,284,698
    
    
    
    1,122,485Total liabilities and shareholders equity
    
    $
    15,351,999
    
    
    $
    14,615,920
 At or For the
    
    At or For theThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)Other Selected Financial Data:Average automobile contracts managed
    
    $
    11,268,695
    
    
    $
    10,284,067
    
    
    $
    10,980,339
    
    
    $
    9,885,681Average shareholders equity (3)
    
    $
    1,300,509
    
    
    $
    908,530
    
    
    $
    1,253,692
    
    
    $
    791,998Return on average shareholders equity (3)
    
    
    16.82
    %
    
    
    12.92
    %
    
    
    16.21
    %
    
    
    14.22
    %Book value per share (3)
    
    $
    25.55
    
    
    $
    20.89
    
    
    $
    25.55
    
    
    $
    20.89Total equity to assets (4)
    
    
    9.66
    %
    
    
    7.54
    %
    
    
    9.66
    %
    
    
    7.54
    %Originations:Consumer loans (1)
    
    $
    1,801,355
    
    
    $
    1,684,198
    
    
    $
    5,055,659
    
    
    $
    4,626,928Mortgage loans (2)
    
    
    15,548
    
    
    
    2,016
    
    
    
    27,003
    
    
    
    21,326Commercial loans
    
    
    111,853
    
    
    
    108,422
    
    
    
    237,570
    
    
    
    304,078Total loan originations
    
    $
    1,928,756
    
    
    $
    1,794,636
    
    
    $
    5,320,232
    
    
    $
    4,952,332Interest rate spread
    
    
    5.06
    %
    
    
    4.86
    %
    
    
    5.04
    %
    
    
    4.94
    %
   (1)
    
    Net of unearned discounts.(2)
    
    Net of undisbursed loan proceeds.(3)
    
    Excludes other comprehensive loss.(4)
    
    Excludes other comprehensive loss and includes minority interest. 15




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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 Automobile 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 automobile 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 automobile 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 deliver funds to the relevant 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 analyses. These analyses include trends in chargeoffs by
credit tier over various time periods and at various statistical midpoints and
high points, the severity of depreciated values of repossessions, trends in the
number of days repossessions are held in inventory, trends in the number of
contract modifications, trends in delinquency roll rates, trends in deficiency
balance collections both internally and from collection agencies, trends in
custom credit scores and the effectiveness of our custom credit 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. All contracts that are 60 to 89 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. 16




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##### Table of Contents



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. Proposed Acquisition and Merger On May 23, 2004, we entered into a definitive agreement pursuant to which we
will acquire the outstanding 16% common stock minority interest of WFS not
already owned by our wholly owned subsidiary, the Bank. The acquisition is
structured as a merger of WFS with and into the Bank. The public holders of
WFS shares will receive 1.11 shares of our common stock for each share of WFS
common stock held by them in a tax-free exchange. Based on the $42.60 closing
price of our common stock on May 21, 2004, the last business day prior to the
execution of the agreement, the transaction has an indicated value of $47.29
per share of WFS common stock. In connection with the merger, the Bank has
filed an 17




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##### Table of Contents



application with the California Department of Financial Institutions to
convert its federal thrift charter to a California state bank charter. The
merger agreement is conditioned upon the conversion of the charter. The
transaction is subject to, among other closing conditions, the receipt of
regulatory approvals and the approval of a majority of WFS Financials
shareholders, other than shares controlled by Westcorp. The California Department of Financial Institutions and the Office of Thrift
Supervision have approved the Banks application to convert from a federal
savings bank to a California state commercial bank subject to receipt of all
other required regulatory approvals. The Federal Deposit Insurance Corporation
approved the application to merge WFS into the Bank as part of the acquisition
of the minority interest in WFS. The conversion is still contingent upon the
approval of our application to become a bank holding company by the Board of
Governors of the Federal Reserve. After the conversion, we will be subject to
the laws, regulation and oversight of the California Department of Financial
Institutions, the Federal Deposit Insurance Corporation and the Federal
Reserve. The merger is also subject to approval by the majority of WFS
minority shareholders. We anticipate the merger of WFS with and into the Bank and the conversion of
the Bank to a California state commercial bank will be completed sometime in
the first quarter of 2005. We believe the combined company will provide
greater flexibility in responding to market factors and will enable us to
utilize, to a greater extent, the Banks low cost customer deposits to finance
our activities. 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 $206 million and $597 million for the three and nine months ended
September 30, 2004, respectively, compared with $181 million and $521 million
for the same respective periods in 2003. The increase in net interest income
was the result of us holding more contracts on balance sheet as well as wider
net interest margins. 18




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##### Table of Contents



The following table presents information relative to the average balances and
interest rates for the periods indicated: For the Three Months Ended September 30,2004
    
    2003Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,610,918
    
    
    $
    25,828
    
    
    
    3.96
    %
    
    $
    2,516,193
    
    
    $
    15,936
    
    
    
    2.53
    %Other short-term investments
    
    
    660,922
    
    
    
    2,427
    
    
    
    1.46
    
    
    
    414,078
    
    
    
    1,122
    
    
    
    1.08Investment securities
    
    
    115,445
    
    
    
    1,173
    
    
    
    4.07
    
    
    
    92,888
    
    
    
    823
    
    
    
    3.54Interest
earning deposits with
others
    
    
    5,668
    
    
    
    14
    
    
    
    0.98
    
    
    
    6,803
    
    
    
    11
    
    
    
    0.70Total investments
    
    
    3,392,953
    
    
    
    29,442
    
    
    
    3.47
    
    
    
    3,029,962
    
    
    
    17,892
    
    
    
    2.36Total loans: (1)Consumer loans
    
    
    11,461,360
    
    
    
    287,806
    
    
    
    9.99
    
    
    
    10,463,303
    
    
    
    288,138
    
    
    
    10.93Mortgage loans
    
    
    174,927
    
    
    
    2,181
    
    
    
    4.99
    
    
    
    239,544
    
    
    
    3,204
    
    
    
    5.35Commercial loans
    
    
    116,178
    
    
    
    1,628
    
    
    
    5.48
    
    
    
    116,514
    
    
    
    1,491
    
    
    
    5.01Construction loans
    
    
    13,944
    
    
    
    181
    
    
    
    5.08
    
    
    
    15,061
    
    
    
    186
    
    
    
    4.84Total loans
    
    
    11,766,409
    
    
    
    291,796
    
    
    
    9.87
    
    
    
    10,834,422
    
    
    
    293,019
    
    
    
    10.73Total interest earning assets
    
    $
    15,159,362
    
    
    
    321,238
    
    
    
    8.43
    
    
    $
    13,864,384
    
    
    
    310,911
    
    
    
    8.90Interest bearing liabilities:Deposits
    
    $
    2,083,963
    
    
    
    15,101
    
    
    
    2.88
    
    
    $
    1,968,859
    
    
    
    15,695
    
    
    
    3.16Securities
sold under agreements to
repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203,641
    
    
    
    1,032
    
    
    
    1.98FHLB
advances and other
borrowings
    
    
    509,385
    
    
    
    1,947
    
    
    
    1.50
    
    
    
    515,980
    
    
    
    1,689
    
    
    
    1.29Notes
payable on automobile
secured financing
    
    
    10,722,274
    
    
    
    89,869
    
    
    
    3.35
    
    
    
    9,763,149
    
    
    
    101,803
    
    
    
    4.17Subordinated debentures
    
    
    321,990
    
    
    
    8,093
    
    
    
    10.05
    
    
    
    394,804
    
    
    
    9,829
    
    
    
    9.96Total interest bearing liabilities
    
    $
    13,637,612
    
    
    
    115,010
    
    
    
    3.37
    
    
    $
    12,846,433
    
    
    
    130,048
    
    
    
    4.04Net interest
income and interest rate
spread
    
    
    
    
    
    $
    206,228
    
    
    
    5.06
    %
    
    
    
    
    
    $
    180,863
    
    
    
    4.86
    %Net yield on
average interest earning
assets
    
    
    
    
    
    
    
    
    
    
    5.40
    %
    
    
    
    
    
    
    
    
    
    
    5.18
    %
   (1)
    
    For the purpose of these computations, nonaccruing loans are included in
the average loan amounts outstanding. 19




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##### Table of Contents



For the Nine Months Ended September 30,2004
    
    2003Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,593,595
    
    
    $
    72,666
    
    
    
    3.74
    %
    
    $
    2,514,424
    
    
    $
    61,950
    
    
    
    3.29
    %Other short-term investments
    
    
    638,409
    
    
    
    5,840
    
    
    
    1.22
    
    
    
    321,429
    
    
    
    2,949
    
    
    
    1.23Investment securities
    
    
    123,329
    
    
    
    3,354
    
    
    
    3.63
    
    
    
    69,116
    
    
    
    2,213
    
    
    
    4.27Interest
earning deposits with
others
    
    
    5,740
    
    
    
    31
    
    
    
    0.74
    
    
    
    8,383
    
    
    
    55
    
    
    
    0.87Total investments
    
    
    3,361,073
    
    
    
    81,891
    
    
    
    3.25
    
    
    
    2,913,352
    
    
    
    67,167
    
    
    
    3.07Total loans: (1)Consumer loans
    
    
    11,167,879
    
    
    
    851,622
    
    
    
    10.19
    
    
    
    10,056,540
    
    
    
    846,270
    
    
    
    11.25Mortgage loans
    
    
    204,821
    
    
    
    7,708
    
    
    
    5.02
    
    
    
    255,896
    
    
    
    10,543
    
    
    
    5.49Commercial loans
    
    
    106,169
    
    
    
    4,371
    
    
    
    5.41
    
    
    
    111,044
    
    
    
    4,020
    
    
    
    4.77Construction loans
    
    
    7,817
    
    
    
    288
    
    
    
    4.83
    
    
    
    9,595
    
    
    
    336
    
    
    
    4.63Total loans
    
    
    11,486,686
    
    
    
    863,989
    
    
    
    10.05
    
    
    
    10,433,075
    
    
    
    861,169
    
    
    
    11.03Total interest earning assets
    
    $
    14,847,759
    
    
    
    945,880
    
    
    
    8.51
    
    
    $
    13,346,427
    
    
    
    928,336
    
    
    
    9.30Interest bearing liabilities:Deposits
    
    $
    2,026,245
    
    
    
    42,291
    
    
    
    2.79
    
    
    $
    1,981,146
    
    
    
    50,269
    
    
    
    3.39Securities
sold under agreements to
repurchase
    
    
    10,894
    
    
    
    94
    
    
    
    1.13
    
    
    
    218,569
    
    
    
    3,433
    
    
    
    2.07FHLB
advances and other
borrowings
    
    
    614,882
    
    
    
    6,015
    
    
    
    1.29
    
    
    
    444,529
    
    
    
    4,775
    
    
    
    1.45Notes
payable on automobile
secured financing
    
    
    10,377,881
    
    
    
    272,678
    
    
    
    3.50
    
    
    
    9,426,038
    
    
    
    319,136
    
    
    
    4.51Subordinated debentures
    
    
    365,619
    
    
    
    27,368
    
    
    
    9.98
    
    
    
    396,742
    
    
    
    29,644
    
    
    
    9.96Total interest bearing liabilities
    
    $
    13,395,521
    
    
    
    348,446
    
    
    
    3.47
    
    
    $
    12,467,024
    
    
    
    407,257
    
    
    
    4.36Net interest
income and interest rate
spread
    
    
    
    
    
    $
    597,434
    
    
    
    5.04
    %
    
    
    
    
    
    $
    521,079
    
    
    
    4.94
    %Net yield on
average interest earning
assets
    
    
    
    
    
    
    
    
    
    
    5.37
    %
    
    
    
    
    
    
    
    
    
    
    5.25
    %
   (1)
    
    For the purpose of these computations, nonaccruing loans are included in
the average loan amounts outstanding. The total interest rate spread increased 20 basis points for the three months
ended September 30, 2004 compared with the three months ended September 30,
2003 due to a decrease of 47 basis points in the yield on interest earning
assets combined with a 67 basis point decrease in the cost of funds. The total
interest rate spread increased 10 basis points for the nine months ended
September 30, 2004 compared with the nine months ended September 30, 2003 due
to a decrease of 79 basis points in the yield on interest earning assets
combined with an 89 basis point decrease in the cost of funds. The decrease in
the yield on interest earning assets and cost of funds in 2004 is primarily due
to a lower interest rate environment. 20




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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 Nine Months Ended September 30, 2004Compared to the Nine Months Ended September 30, 2003 (1)Volume
    
    Rate
    
    Total(Dollars in thousands)Increase (decrease) in interest income:Mortgage-backed securities
    
    $
    3,563
    
    
    $
    7,153
    
    
    $
    10,716Other short-term investments
    
    
    2,931
    
    
    
    (40
    )
    
    
    2,891Investment securities
    
    
    1,700
    
    
    
    (559
    )
    
    
    1,141Interest earning deposits with others
    
    
    (16
    )
    
    
    (8
    )
    
    
    (24
    )Total loans:Consumer loans
    
    
    117,968
    
    
    
    (112,616
    )
    
    
    5,352Mortgage loans
    
    
    (1,984
    )
    
    
    (851
    )
    
    
    (2,835
    )Commercial loans
    
    
    (264
    )
    
    
    615
    
    
    
    351Construction loans
    
    
    (70
    )
    
    
    22
    
    
    
    (48
    )Total interest income
    
    $
    123,828
    
    
    $
    (106,284
    )
    
    $
    17,544Increase (decrease) in interest expense:Deposits
    
    $
    1,800
    
    
    $
    (9,778
    )
    
    $
    (7,978
    )Securities sold under agreements to repurchase
    
    
    (2,259
    )
    
    
    (1,080
    )
    
    
    (3,339
    )FHLB advances and other borrowings
    
    
    2,067
    
    
    
    (827
    )
    
    
    1,240Notes payable on automobile secured financing
    
    
    44,736
    
    
    
    (91,194
    )
    
    
    (46,458
    )Subordinated debentures
    
    
    (2,336
    )
    
    
    60
    
    
    
    (2,276
    )Total interest expense
    
    $
    44,008
    
    
    $
    (102,819
    )
    
    $
    (58,811
    )Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    76,355
   (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 $60.3 million and $174 million for the three and nine months ended
September 30, 2004, respectively, compared with $73.2 million and $221 million
for the same respective periods in 2003. 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. 21




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##### Table of Contents



Contract Securitizations The following table lists each of our public securitizations. All
securitizations prior to 2000-D 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
    
    September 30, 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
    
    
    Paid in full
    
    
    
    
    
    
    
    15.04
    
    
    
    7.32
    
    
    
    7.722000-D
    
    November, 2000
    
    
    1,000,000
    
    
    $
    117,922
    
    
    
    11.79
    %
    
    
    15.20
    
    
    
    6.94
    
    
    
    8.262001-A
    
    January, 2001
    
    
    1,000,000
    
    
    
    137,593
    
    
    
    13.76
    
    
    
    14.87
    
    
    
    5.77
    
    
    
    9.102001-B
    
    May, 2001
    
    
    1,370,000
    
    
    
    200,716
    
    
    
    14.65
    
    
    
    14.41
    
    
    
    4.23
    
    
    
    10.182001-C
    
    August, 2001
    
    
    1,200,000
    
    
    
    235,507
    
    
    
    19.63
    
    
    
    13.90
    
    
    
    4.50
    
    
    
    9.402002-1
    
    March, 2002
    
    
    1,800,000
    
    
    
    505,316
    
    
    
    28.07
    
    
    
    13.50
    
    
    
    4.26
    
    
    
    9.242002-2
    
    May, 2002
    
    
    1,750,000
    
    
    
    591,484
    
    
    
    33.80
    
    
    
    12.51
    
    
    
    3.89
    
    
    
    8.622002-3
    
    August, 2002
    
    
    1,250,000
    
    
    
    481,961
    
    
    
    38.56
    
    
    
    12.30
    
    
    
    3.06
    
    
    
    9.242002-4
    
    November, 2002
    
    
    1,350,000
    
    
    
    627,358
    
    
    
    46.47
    
    
    
    12.18
    
    
    
    2.66
    
    
    
    9.522003-1
    
    February, 2003
    
    
    1,343,250
    
    
    
    651,202
    
    
    
    48.48
    
    
    
    11.79
    
    
    
    2.42
    
    
    
    9.372003-2
    
    May, 2003
    
    
    1,492,500
    
    
    
    820,627
    
    
    
    54.98
    
    
    
    11.57
    
    
    
    2.13
    
    
    
    9.442003-3
    
    August, 2003
    
    
    1,650,000
    
    
    
    1,131,789
    
    
    
    68.59
    
    
    
    10.59
    
    
    
    2.66
    
    
    
    7.932003-4
    
    November, 2003
    
    
    1,403,625
    
    
    
    973,640
    
    
    
    69.37
    
    
    
    10.89
    
    
    
    2.70
    
    
    
    8.192004-1
    
    February, 2004
    
    
    1,477,500
    
    
    
    1,136,091
    
    
    
    76.89
    
    
    
    10.89
    
    
    
    2.35
    
    
    
    8.542004-2
    
    May, 2004
    
    
    1,477,500
    
    
    
    1,303,972
    
    
    
    88.26
    
    
    
    10.98
    
    
    
    3.02
    
    
    
    7.962004-3
    
    August, 2004
    
    
    1,552,000
    
    
    
    1,509,888
    
    
    
    97.29
    
    
    
    10.64
    
    
    
    3.49
    
    
    
    7.152004-4
    
    October, 2004
    
    
    1,358,000
    
    
    
    
    
    
    
    
    
    
    
    11.19
    
    
    
    3.10
    
    
    
    8.09Total
    
    $
    40,475,805
    
    
    $
    10,425,066
   (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. 22




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##### Table of Contents



Noninterest Expense Noninterest expense totaled $74.9 million and $220 million for the three and
nine months ended September 30, 2004, respectively, compared with $66.7 million
and $208 million for the same respective periods in 2003. Noninterest expense
as a percent of total revenues improved to 32% for both the three and nine
months ended September 30, 2004, respectively, compared with 32% and 34% for
the same respective periods in 2003 as a result of lower collection 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 40% for both
the three and nine months ended September 30, 2004 and for the same respective
periods in 2003. Financial Condition Overview Total assets increased $736 million or 5.0% to $15.4 billion at September 30,
2004 from $14.6 billion at December 31, 2003. The increase is due primarily to
an increase in automobile contracts originated. Loan Portfolio The following table presents a summary of our automobile contracts purchased: For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)New vehicles
    
    $
    626,272
    
    
    $
    586,648
    
    
    $
    1,795,921
    
    
    $
    1,462,024Pre-owned vehicles
    
    
    1,172,834
    
    
    
    1,096,754
    
    
    
    3,255,200
    
    
    
    3,160,047Total volume
    
    $
    1,799,106
    
    
    $
    1,683,402
    
    
    $
    5,051,121
    
    
    $
    4,622,071Prime
    
    $
    1,434,280
    
    
    $
    1,406,674
    
    
    $
    4,096,399
    
    
    $
    3,829,825Non-prime
    
    
    364,826
    
    
    
    276,728
    
    
    
    954,722
    
    
    
    792,246Total volume
    
    $
    1,799,106
    
    
    $
    1,683,402
    
    
    $
    5,051,121
    
    
    $
    4,622,071
 Commercial Loan Portfolio We had outstanding commercial loan commitments of $283 million at September 30,
2004 compared with $225 million at December 31, 2003. We originated $112
million and $238 million of commercial loans for the three and nine months
ended September 30, 2004, respectively, compared with $108 million and $304
million for the same respective periods in 2003. Amounts outstanding at
September 30, 2004 and December 31, 2003 were $107 million and $124 million,
respectively. 23




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##### 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 improvements in the economy and normal
seasonal trends. The following table sets forth information with respect to the delinquency of
our portfolio of contracts: September 30, 2004
    
    December 31, 2003Amount
    
    %
    
    Amount
    
    %(Dollars in thousands)Contracts managed at end of period
    
    $
    11,440,352
    
    
    
    
    
    
    $
    10,596,665Period of delinquency30-59 days
    
    $
    183,463
    
    
    
    1.60
    %
    
    $
    219,937
    
    
    
    2.08
    %60 days or more (1)
    
    
    73,126
    
    
    
    0.64
    
    
    
    87,129
    
    
    
    0.82Total contracts delinquent and
delinquencies as a percentage of
contracts managed (1)
    
    $
    256,589
    
    
    
    2.24
    %
    
    $
    307,066
    
    
    
    2.90
    %
   (1)
    
    Excludes Chapter 13 bankruptcy accounts greater than 120 days past
due of $45.4 million at September 30, 2004 and $45.6 million at
December 31, 2003. The following table sets forth information with respect to repossessions in
our portfolio of managed contracts: September 30, 2004
    
    December 31, 2003Number of
    
    
    
    
    
    Number ofContracts
    
    Amount
    
    Contracts
    
    Amount(Dollars in thousands)Contracts managed
    
    
    869,036
    
    
    $
    11,440,352
    
    
    
    826,122
    
    
    $
    10,596,665Repossessed vehicles
    
    
    885
    
    
    $
    6,601
    
    
    
    1,522
    
    
    $
    10,331Repossessed
vehicles as a
percentage of
number and amount
of contracts
outstanding
    
    
    0.10
    %
    
    
    0.06
    %
    
    
    0.18
    %
    
    
    0.10
    %
 24




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##### 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 improving economy. For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003(Dollars in thousands)Average contracts managed during period
    
    $
    11,268,696
    
    
    $
    10,284,067
    
    
    $
    10,980,339
    
    
    $
    9,885,681Gross chargeoffs
    
    $
    76,688
    
    
    $
    88,343
    
    
    $
    232,395
    
    
    $
    258,491Recoveries
    
    
    21,791
    
    
    
    21,916
    
    
    
    69,408
    
    
    
    66,451Net chargeoffs
    
    $
    54,897
    
    
    $
    66,427
    
    
    $
    162,987
    
    
    $
    192,040Net chargeoffs as a percentage of
average contracts managed during
period
    
    
    1.95
    %
    
    
    2.58
    %
    
    
    1.98
    %
    
    
    2.59
    %
 25




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##### 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 September 30, 2004 Period (1)
    
    2000-D
    
    2001-A
    
    2001-B
    
    2001-C
    
    2002-1
    
    2002-2
    
    2002-3
    
    2002-4
    
    2003-1
    
    2003-2
    
    2003-3
    
    2003-4
    
    2004-1
    
    2004-2
    
    2004-31
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %2
    
    
    0.04
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.04
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.02
    %3
    
    
    0.11
    %
    
    
    0.09
    %
    
    
    0.10
    %
    
    
    0.09
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.03
    %4
    
    
    0.24
    %
    
    
    0.20
    %
    
    
    0.21
    %
    
    
    0.20
    %
    
    
    0.15
    %
    
    
    0.10
    %
    
    
    0.14
    %
    
    
    0.16
    %
    
    
    0.11
    %
    
    
    0.06
    %
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.06
    %
    
    
    0.07
    %5
    
    
    0.39
    %
    
    
    0.33
    %
    
    
    0.33
    %
    
    
    0.35
    %
    
    
    0.29
    %
    
    
    0.18
    %
    
    
    0.27
    %
    
    
    0.26
    %
    
    
    0.18
    %
    
    
    0.14
    %
    
    
    0.13
    %
    
    
    0.14
    %
    
    
    0.11
    %
    
    
    0.15
    %6
    
    
    0.54
    %
    
    
    0.50
    %
    
    
    0.50
    %
    
    
    0.49
    %
    
    
    0.43
    %
    
    
    0.32
    %
    
    
    0.44
    %
    
    
    0.38
    %
    
    
    0.29
    %
    
    
    0.25
    %
    
    
    0.23
    %
    
    
    0.21
    %
    
    
    0.19
    %7
    
    
    0.74
    %
    
    
    0.70
    %
    
    
    0.69
    %
    
    
    0.65
    %
    
    
    0.60
    %
    
    
    0.49
    %
    
    
    0.57
    %
    
    
    0.50
    %
    
    
    0.41
    %
    
    
    0.36
    %
    
    
    0.32
    %
    
    
    0.28
    %
    
    
    0.27
    %8
    
    
    0.93
    %
    
    
    0.84
    %
    
    
    0.87
    %
    
    
    0.81
    %
    
    
    0.84
    %
    
    
    0.66
    %
    
    
    0.70
    %
    
    
    0.61
    %
    
    
    0.53
    %
    
    
    0.48
    %
    
    
    0.40
    %
    
    
    0.35
    %
    
    
    0.34
    %9
    
    
    1.13
    %
    
    
    1.04
    %
    
    
    1.05
    %
    
    
    0.95
    %
    
    
    1.06
    %
    
    
    0.82
    %
    
    
    0.82
    %
    
    
    0.78
    %
    
    
    0.66
    %
    
    
    0.59
    %
    
    
    0.47
    %
    
    
    0.44
    %10
    
    
    1.34
    %
    
    
    1.24
    %
    
    
    1.22
    %
    
    
    1.07
    %
    
    
    1.28
    %
    
    
    0.96
    %
    
    
    0.96
    %
    
    
    0.94
    %
    
    
    0.80
    %
    
    
    0.70
    %
    
    
    0.55
    %
    
    
    0.54
    %11
    
    
    1.50
    %
    
    
    1.45
    %
    
    
    1.36
    %
    
    
    1.20
    %
    
    
    1.48
    %
    
    
    1.10
    %
    
    
    1.10
    %
    
    
    1.08
    %
    
    
    0.93
    %
    
    
    0.80
    %
    
    
    0.62
    %
    
    
    0.61
    %12
    
    
    1.74
    %
    
    
    1.67
    %
    
    
    1.53
    %
    
    
    1.37
    %
    
    
    1.67
    %
    
    
    1.26
    %
    
    
    1.24
    %
    
    
    1.28
    %
    
    
    1.06
    %
    
    
    0.89
    %
    
    
    0.71
    %13
    
    
    1.95
    %
    
    
    1.90
    %
    
    
    1.67
    %
    
    
    1.55
    %
    
    
    1.82
    %
    
    
    1.39
    %
    
    
    1.38
    %
    
    
    1.43
    %
    
    
    1.21
    %
    
    
    0.98
    %
    
    
    0.80
    %14
    
    
    2.21
    %
    
    
    2.09
    %
    
    
    1.81
    %
    
    
    1.74
    %
    
    
    1.99
    %
    
    
    1.51
    %
    
    
    1.53
    %
    
    
    1.59
    %
    
    
    1.31
    %
    
    
    1.08
    %
    
    
    0.88
    %15
    
    
    2.48
    %
    
    
    2.25
    %
    
    
    2.00
    %
    
    
    1.97
    %
    
    
    2.14
    %
    
    
    1.68
    %
    
    
    1.70
    %
    
    
    1.77
    %
    
    
    1.40
    %
    
    
    1.20
    %16
    
    
    2.71
    %
    
    
    2.41
    %
    
    
    2.19
    %
    
    
    2.16
    %
    
    
    2.27
    %
    
    
    1.83
    %
    
    
    1.88
    %
    
    
    1.92
    %
    
    
    1.50
    %
    
    
    1.31
    %17
    
    
    2.89
    %
    
    
    2.54
    %
    
    
    2.37
    %
    
    
    2.36
    %
    
    
    2.45
    %
    
    
    1.99
    %
    
    
    2.03
    %
    
    
    2.05
    %
    
    
    1.60
    %
    
    
    1.41
    %18
    
    
    3.08
    %
    
    
    2.73
    %
    
    
    2.60
    %
    
    
    2.59
    %
    
    
    2.62
    %
    
    
    2.16
    %
    
    
    2.15
    %
    
    
    2.16
    %
    
    
    1.70
    %19
    
    
    3.22
    %
    
    
    2.93
    %
    
    
    2.80
    %
    
    
    2.78
    %
    
    
    2.80
    %
    
    
    2.31
    %
    
    
    2.28
    %
    
    
    2.25
    %
    
    
    1.85
    %20
    
    
    3.40
    %
    
    
    3.11
    %
    
    
    3.01
    %
    
    
    2.95
    %
    
    
    2.99
    %
    
    
    2.46
    %
    
    
    2.41
    %
    
    
    2.37
    %
    
    
    1.99
    %21
    
    
    3.59
    %
    
    
    3.34
    %
    
    
    3.19
    %
    
    
    3.14
    %
    
    
    3.15
    %
    
    
    2.60
    %
    
    
    2.52
    %
    
    
    2.49
    %22
    
    
    3.78
    %
    
    
    3.54
    %
    
    
    3.34
    %
    
    
    3.29
    %
    
    
    3.31
    %
    
    
    2.72
    %
    
    
    2.62
    %
    
    
    2.62
    %23
    
    
    3.96
    %
    
    
    3.72
    %
    
    
    3.49
    %
    
    
    3.41
    %
    
    
    3.45
    %
    
    
    2.86
    %
    
    
    2.74
    %
    
    
    2.73
    %24
    
    
    4.18
    %
    
    
    3.92
    %
    
    
    3.62
    %
    
    
    3.57
    %
    
    
    3.58
    %
    
    
    2.95
    %
    
    
    2.83
    %25
    
    
    4.41
    %
    
    
    4.10
    %
    
    
    3.75
    %
    
    
    3.73
    %
    
    
    3.69
    %
    
    
    3.03
    %
    
    
    2.96
    %26
    
    
    4.58
    %
    
    
    4.23
    %
    
    
    3.87
    %
    
    
    3.88
    %
    
    
    3.80
    %
    
    
    3.13
    %
    
    
    3.08
    %27
    
    
    4.79
    %
    
    
    4.36
    %
    
    
    4.00
    %
    
    
    4.04
    %
    
    
    3.92
    %
    
    
    3.22
    %28
    
    
    4.96
    %
    
    
    4.47
    %
    
    
    4.15
    %
    
    
    4.20
    %
    
    
    4.02
    %
    
    
    3.33
    %29
    
    
    5.08
    %
    
    
    4.56
    %
    
    
    4.28
    %
    
    
    4.35
    %
    
    
    4.12
    %
    
    
    3.41
    %30
    
    
    5.22
    %
    
    
    4.67
    %
    
    
    4.40
    %
    
    
    4.46
    %
    
    
    4.22
    %31
    
    
    5.34
    %
    
    
    4.81
    %
    
    
    4.52
    %
    
    
    4.57
    %
    
    
    4.30
    %32
    
    
    5.44
    %
    
    
    4.92
    %
    
    
    4.64
    %
    
    
    4.69
    %33
    
    
    5.54
    %
    
    
    5.04
    %
    
    
    4.73
    %
    
    
    4.77
    %34
    
    
    5.66
    %
    
    
    5.13
    %
    
    
    4.83
    %
    
    
    4.85
    %35
    
    
    5.76
    %
    
    
    5.24
    %
    
    
    4.93
    %
    
    
    4.92
    %36
    
    
    5.86
    %
    
    
    5.31
    %
    
    
    4.99
    %
    
    
    5.01
    %37
    
    
    5.97
    %
    
    
    5.39
    %
    
    
    5.05
    %
    
    
    5.09
    %38
    
    
    6.04
    %
    
    
    5.45
    %
    
    
    5.11
    %
    
    
    5.16
    %39
    
    
    6.12
    %
    
    
    5.50
    %
    
    
    5.17
    %40
    
    
    6.19
    %
    
    
    5.56
    %
    
    
    5.24
    %41
    
    
    6.25
    %
    
    
    5.61
    %
    
    
    5.29
    %42
    
    
    6.28
    %
    
    
    5.66
    %43
    
    
    6.32
    %
    
    
    5.70
    %44
    
    
    6.36
    %
    
    
    5.75
    %45
    
    
    6.40
    %46
    
    
    6.43
    %47
    
    
    6.46
    %Prime
Mix (2)
    
    
    68
    %
    
    
    71
    %
    
    
    71
    %
    
    
    76
    %
    
    
    70
    %
    
    
    87
    %
    
    
    85
    %
    
    
    80
    %
    
    
    80
    %
    
    
    82
    %
    
    
    84
    %
    
    
    82
    %
    
    
    82
    %
    
    
    82
    %
    
    
    81
    %
   (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. 26




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##### Table of Contents



Real Estate Loan Quality We had 0.72% of total mortgage loans past due over 60 days at September 30,
2004 compared with 1.25% of total mortgage loans at December 31, 2003. The
decrease in total mortgage loans past due over 60 days at September 30, 2004
is due to an improving economy. 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
$0.3 million and $1.0 million for the three and nine months ended September 30,
2004, respectively, compared with $0.9 million and $2.5 million for the same
respective periods in 2003. Nonperforming assets, also known as NPAs, consist of NPLs, 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 $5.2 million
to $58.4 million at September 30, 2004 compared with $63.6 million at December
31, 2003. The decrease in the NPAs was primarily due to a $3.7 million
decrease in repossessed automobiles. NPAs represented 0.4% of total assets at
both September 30, 2004 and December 31, 2003. There were no impaired loans at
September 30, 2004 and December 31, 2003. Allowance for Credit Losses Our allowance for credit losses was $312 million at September 30, 2004 compared
to $302 million at December 31, 2003. Net chargeoffs totaled $55.4 million and
$164 million for the three and nine months ended September 30, 2004,
respectively, compared with $66.3 million and $192 million for the same
respective periods in 2003. The increase in the allowance for credit losses
was the result of a higher level of automobile contracts held on balance sheet.
The allowance for credit losses as a percentage of owned loans outstanding was
2.6% at September 30, 2004 compared with 2.7% at 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. 27




---



##### Table of Contents



The following table presents summarized data relative to the allowance for
credit and real estate owned losses at the dates indicated: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Total loans (1)
    
    $
    11,935,998
    
    
    $
    11,138,483Allowance for credit losses
    
    
    312,222
    
    
    
    301,602Allowance for real estate owned losses
    
    
    100
    
    
    
    100Loans past due 60 days or more (2)
    
    
    74,678
    
    
    
    91,381Nonperforming loans (3)
    
    
    51,355
    
    
    
    53,026Nonperforming assets (4)
    
    
    58,363
    
    
    
    63,600Allowance for credit losses as a percent of:Total loans (1)
    
    
    2.6
    %
    
    
    2.7
    %Loans past due 60 days or more
    
    
    418.1
    %
    
    
    330.0
    %Nonperforming loans
    
    
    608.0
    %
    
    
    568.8
    %Total allowance for credit losses and REO losses as a percent
of nonperforming assets
    
    
    535.1
    %
    
    
    474.4
    %Nonperforming loans as a percent of total loans
    
    
    0.4
    %
    
    
    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 nonaccrual Chapter 13 bankruptcy accounts.(3)
    
    All nonperforming loans are on nonaccrual.(4)
    
    Nonperforming loans, 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: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)No minimum term:Demand deposit accounts
    
    $
    862
    
    
    $
    1,145Passbook accounts
    
    
    6,102
    
    
    
    7,282Money market accounts
    
    
    1,219,918
    
    
    
    963,004Noninterest bearing deposits
    
    
    238,505
    
    
    
    210,405Core deposits
    
    
    1,465,387
    
    
    
    1,181,836Certificate accounts:Certificates (30 days to five years)
    
    
    523,905
    
    
    
    646,868Individual retirement accounts
    
    
    66,843
    
    
    
    81,701Brokered deposits
    
    
    52,533
    
    
    
    62,451$
    2,108,668
    
    
    $
    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. 28




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##### 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 $1.6 billion and $4.5 billion for the three and nine
months ended September 30, 2004, respectively, compared with $1.7 billion and $4.5 billion for the same respective
periods in 2003.
    
    Collections of Principal and Interest from Loans and MBS
and Release of Cash from Spread Accounts The collection of
principal and interest from contracts originated and securitized and the release of cash from spread accounts is
another significant source of funds for us. Principal and interest collections on loans and MBS totaled $1.2 billion
and $4.0 billion for the three and nine months ended September 30, 2004, respectively, compared with $1.8 billion and
$5.2 billion for the same respective periods in 2003. The decrease in the principal and interest collections is due
to principal and interest on our senior/subordinated securitizations being held at the trustee in collection and
spread accounts until certain predetermined levels are reached.
    
    Deposits Deposits were $2.1 billion at September 30, 2004 and $2.0 billion at December 31, 2003.
    
    Other Borrowings Other borrowings, which include securities sold under agreements to repurchase and FHLB advances,
increased to $871 million at September 30, 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 September 30, 2004 there was $300 million outstanding on
the subordinated debenture due in 2012, excluding discounts and issue costs. On August 1, 2004, we redeemed the
outstanding balance of our $150 million, 8.875% subordinated debentures due 2007 at par plus accrued but unpaid
interest to the redemption date. Principal Uses of Cash  
    
    Acquisition of Loans and Investment Securities Loan originations totaled $1.9 billion and $5.3 billion for the
three and nine months ended September 30, 2004, respectively, compared with $1.8 billion and $5.0 billion for the
same respective periods in 2003. We purchased $252 million and $1.0 billion of mortgage-backed securities and other
investment securities during the three and nine months ended September 30, 2004, respectively, compared with $743
million and $1.8 billion for the same respective periods in 2003.
    
    Payments of Principal and Interest on Securitizations Payments of principal and interest to noteholders and
certificateholders totaled $1.7 billion and $4.6 billion for the three and nine months ended September 30, 2004,
respectively, compared with $1.3 billion and $3.7 billion for the same respective periods in 2003.
    
    Amounts Paid to Dealers Participation paid by us to dealers was $42.3 million and $117 million for the three and
nine months ended September 30, 2004, respectively, compared with $39.6 million and $109 million for the same
respective periods in 2003.
    
    Operating Our Business Noninterest expenses totaled $74.9 million and $220 million for the three and nine months
ended September 30, 2004, respectively, compared with $66.7 million and $208 million for the same respective periods
in 2003. 29




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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 September 30, 2004 and December 31, 2003: Tier 1Tangible
    
    Core
    
    Risk-Based
    
    Risk-BasedCapital
    
    Capital
    
    Capital
    
    Capital(Dollars in thousands)September 30, 2004Actual Capital:Amount
    
    $
    1,033,691
    
    
    $
    1,033,691
    
    
    $
    1,030,680
    
    
    $
    1,449,391Capital ratio
    
    
    8.10
    %
    
    
    8.10
    %
    
    
    10.56
    %
    
    
    14.85
    %FIRREA minimum required capital:Amount
    
    $
    191,365
    
    
    $
    382,729
    
    
    
    N/A
    
    
    $
    780,695Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    842,326
    
    
    $
    650,962
    
    
    
    N/A
    
    
    $
    668,696FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    637,882
    
    
    $
    585,521
    
    
    $
    975,869Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    395,809
    
    
    $
    445,159
    
    
    $
    473,523December 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
 30




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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: September 30,
    
    December 31,2004
    
    2003(Dollars in thousands)Bank shareholders equity  GAAP basis
    
    $
    835,191
    
    
    $
    685,045Plus: Net unrealized losses
    
    
    40,602
    
    
    
    68,203Plus: Minority interest in equity of subsidiaries
    
    
    158,045
    
    
    
    131,434Less: Non-permissible activities
    
    
    (147
    )
    
    
    (146
    )Total tangible and core capital
    
    
    1,033,691
    
    
    
    884,536Adjustments for risk-based capital:Subordinated debentures (1)
    
    
    295,599
    
    
    
    355,370General loan valuation allowance (2)
    
    
    123,112
    
    
    
    120,857Low-level recourse deduction
    
    
    (3,011
    )
    
    
    (3,019
    )Risk-based capital
    
    $
    1,449,391
    
    
    $
    1,357,744
   (1)
    
    Excludes capitalized discounts and issue costs.(2)
    
    Limited to 1.25% of risk-weighted assets. 31




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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. 32




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##### Table of Contents



The following table summarizes our maturity GAP position: Interest Rate Sensitivity Analysis at September 30, 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
    
    $
    57,305
    
    
    
    
    
    
    $
    50,069
    
    
    
    
    
    
    
    
    
    
    $
    107,374Other investments
    
    
    545,629
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,629Mortgage-backed securities
    
    
    683,153
    
    
    $
    1,145,691
    
    
    
    554,724
    
    
    $
    166,526
    
    
    $
    120,250
    
    
    
    2,670,344Total investments
    
    
    1,286,087
    
    
    
    1,145,691
    
    
    
    604,793
    
    
    
    166,526
    
    
    
    120,250
    
    
    
    3,323,347Consumer loans (1)
    
    
    817,615
    
    
    
    3,208,741
    
    
    
    5,487,367
    
    
    
    2,043,162
    
    
    
    80,202
    
    
    
    11,637,087Mortgage loans:Adjustable rate (2)
    
    
    162,382
    
    
    
    4,798
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167,180Fixed rate (2)
    
    
    1,068
    
    
    
    2,559
    
    
    
    3,811
    
    
    
    1,684
    
    
    
    1,246
    
    
    
    10,368Construction loans (2)
    
    
    14,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,540Commercial loans (2)
    
    
    106,781
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,823Total interest earning assets
    
    
    2,388,473
    
    
    
    4,361,831
    
    
    
    6,095,971
    
    
    
    2,211,372
    
    
    
    201,698
    
    
    
    15,259,345Interest bearing liabilities:Deposits:Passbook accounts
    
    
    6,102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,102Demand
deposit and money market
accounts
    
    
    1,220,780
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,220,780Certificate accounts (3)
    
    
    237,286
    
    
    
    391,014
    
    
    
    14,320
    
    
    
    661
    
    
    
    
    
    
    
    643,281Notes
payable on automobile secured
financing (3)
    
    
    2,508,615
    
    
    
    2,854,311
    
    
    
    4,258,083
    
    
    
    794,142
    
    
    
    
    
    
    
    10,415,151FHLB advances (3)
    
    
    868,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,551
    
    
    
    870,658Subordinated debentures (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295,053
    
    
    
    295,053Other borrowings (3)
    
    
    8,695
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,695Total interest bearing
liabilities
    
    
    4,849,585
    
    
    
    3,245,325
    
    
    
    4,272,403
    
    
    
    794,803
    
    
    
    297,604
    
    
    
    13,459,720Excess
interest earning/bearing assets
(liabilities)
    
    
    (2,461,112
    )
    
    
    1,116,506
    
    
    
    1,823,568
    
    
    
    1,416,569
    
    
    
    (95,906
    )
    
    
    1,799,625Effect of hedging activities (4)
    
    
    1,431,520
    
    
    
    (157,587
    )
    
    
    (640,208
    )
    
    
    (433,725
    )
    
    
    (200,000
    )Hedged (deficit) excess
    
    $
    (1,029,592
    )
    
    $
    958,919
    
    
    $
    1,183,360
    
    
    $
    982,844
    
    
    $
    (295,906
    )
    
    $
    1,799,625Cumulative (deficit) excess
    
    $
    (1,029,592
    )
    
    $
    (70,673
    )
    
    $
    1,112,687
    
    
    $
    2,095,531
    
    
    $
    1,799,625
    
    
    $
    1,799,625Cumulative
(deficit) excess as a percentage
of total interest earning assets
    
    
    (6.75
    )%
    
    
    (0.46
    )%
    
    
    7.29
    %
    
    
    13.73
    %
    
    
    11.79
    %
    
    
    11.79
    %
   (1)
    
    Based on contractual maturities adjusted by our historical prepayment
rate.(2)
    
    Based on interest rate repricing adjusted for projected prepayments.(3)
    
    Based on contractual maturity.(4)
    
    Includes effect of interest rate swaps designated against deposits. 33




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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. 34




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1.
    Legal ProceedingsWe or our subsidiaries are involved as a party to certain
legal proceedings incidental to our business, including Lee,
et al. v. WFS Financial Inc,United States District Court,
Middle District of Tennessee at Nashville, No. 3-02-0570
filed June 17, 2002 (a putative class action raising claims
under the Equal Credit Opportunity Act) and Thompson, et al.
v. WFS Financial Inc,California Superior Court, County of
Alameda Civil Action No, RG03088926, appeal pending in the
Court of Appeal of the State of California, First Appellate
District, Division One, No. A104967 (a putative class action
raising claims under Californias Unfair Competition Law and
related claims). WFS has reached a settlement in Lee, et al.
v. WFS Financial Incand Thompson, et al. v. WFS Financial
Inccases. The settlements will be final after court
approval of the settlement in Lee, et al. v. WFS Financial
Inc. We do not believe that the outcome of these proceedings
will have a material effect upon our financial condition,
results of operations and cash flows.Beginning on May 24, 2004 and continuing thereafter, a total
of four separate purported class action lawsuits relating to
the announcement by Westcorp and WFS that Westcorp was
commencing an exchange offer for the outstanding public
shares of WFS were filed in the Orange County, California
Superior Court against Westcorp, WFS, and individual board
members of Westcorp and WFS. On June 24, 2004, the actions
were consolidated under the caption In re WFS Financial
Shareholder Litigation, Case No. 04CC00559. On July 16,
2004, the court granted a motion by plaintiff Alaska Hotel &
Restaurant Employees Pension Trust Fund, in Case
No.04CC00573, to amend the consolidation order to designate
it the lead plaintiff in the litigation. Lead plaintiff
filed a consolidated amended complaint on August 9, 2004,
and then filed the present corrected consolidated amended
complaint on September 15, 2004. All of the defendants have
filed demurrers challenging the legal sufficiency of the
pending complaint, which are scheduled for hearing. All of
the shareholder-related actions allege, among other things,
that the defendants breached their respective fiduciary
duties and seek to enjoin or rescind the transaction and
obtain an unspecified sum in damages and costs, including
attorneys fees and expenses. We are vigorously defending
this action and do not believe that the outcome of this
proceeding will have a material effect upon our financial
condition, results of operations and cash flows.
 
 Item 2.
    Unregistered Sales of Equity Securities and Use of ProceedsNone
 
 Item 3.
    Defaults Upon Senior SecuritiesNone
 
 Item 4.
    Submission of Matters to a Vote of Security HoldersNone
 
 Item 5.
    Other InformationNone
 35




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##### Table of Contents



Item 6.
    Exhibits and Reports on Form 8-K(a)
    Exhibits
 Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger and Reorganization, dated as of May
23, 2004, among Westcorp, Western Financial Bank and WFS
Financial Inc (1)3.1
    
    Articles of Incorporation (2)3.1.1
    
    Certificate of Amendment of the Articles of Incorporation of
Westcorp as filed May 14, 2001 (3)3.1.2
    
    Certificate of Amendment of the Articles of Incorporation of
Westcorp as filed May 19, 2004 (1)3.2
    
    Bylaws (2)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 (4)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 (5)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)
    
    Exhibit previously filed with Westcorp Registration Statement on Form
S-4 (File No. 333-117424), filed July 16, 2004, incorporated herein by
reference under Exhibit Number indicated.(2)
    
    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.(3)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 2003 as filed on or about March 12, 2004
incorporated herein by reference.(4)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp
for the year ended December 31, 1997 as filed on or about March 29, 1998
incorporated herein by reference.(5)
    
    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-KWestcorp
press release on July 21, 2004


36



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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:
    
    November 8, 2004
    
    By:
    
    /s/ ERNEST S. RADYErnest S. RadyChairman of the Board and Chief ExecutiveOfficerDate:
    
    November 8, 2004
    
    By:
    
    /s/ LEE A. WHATCOTTLee A. WhatcottExecutive Vice President, Chief Financial Officerand Chief Operating Officer
(Principal Financialand Accounting Officer)
 37




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##### Table of Contents



Exhibit Index Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger and Reorganization, dated as of May
23, 2004, among Westcorp, Western Financial Bank and WFS
Financial Inc (1)3.1
    
    Articles of Incorporation (2)3.1.1
    
    Certificate of Amendment of the Articles of Incorporation of
Westcorp as filed May 14, 2001 (3)3.1.2
    
    Certificate of Amendment of the Articles of Incorporation of
Westcorp as filed May 19, 2004 (1)3.2
    
    Bylaws (2)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 (4)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 (5)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)
    
    Exhibit previously filed with Westcorp Registration Statement on Form S-4
(File No. 333-117424), filed July 16, 2004, incorporated herein by reference
under Exhibit Number indicated.(2)
    
    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.
(3) Exhibit previously filed with Annual Report on Form 10-K of Westcorp for
the year ended December 31, 2003 as filed on or about March 12, 2004
incorporated herein by reference.(4)
    
    Exhibit previously filed with Annual Report on Form 10-K of Westcorp for
the year ended December 31, 1997 as filed on or about March 29, 1998
incorporated herein by reference.(5)
    
    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.