##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2005ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _________
 Commission file number 33-13646
 Westcorp
 
 CALIFORNIA
    
    51-0308535(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 23
Pasteur, Irvine, California 92618-3816
 (949) 727-1002  (Registrants
telephone number, including area code)
 þ o
 þ o
 o þ




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WESTCORP AND SUBSIDIARIES
 FORM 10-Q
 September 30, 2005
 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, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2005 and 2004
    
    
    3Consolidated Statements of Changes in Shareholders Equity for
the Periods Ended September 30, 2005 and December 31, 2004
    
    
    4Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 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
    
    
    35SIGNATURES
    
    
    36CERTIFICATIONSEXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



Forward-Looking Statements
    
    
    changes in general economic and business conditions;
    
    interest rate fluctuations, including hedging activities;
    
    our financial condition and liquidity, as well as future cash flows and earnings;
    
    competition;
    
    our level of operating expenses;
    
    the effect, interpretation or application of new or existing laws, regulations and court decisions;
    
    the exercise of discretionary authority by regulatory agencies;
    
    a decision to change our corporate structure;
    
    the availability of sources of funding;
    
    the level of chargeoffs on the automobile contracts that we originate; and
    
    significant litigation.
   INDUSTRY DATA
  Available Information
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WESTCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Unaudited)September 30, 2005
    
    
    December 31, 2004(Dollars in thousands)ASSETSCash
    
    $
    93,222
    
    
    $
    89,333Interest bearing deposits with other financial institutions
    
    
    32,158
    
    
    
    4,177Other short-term investments
    
    
    285,000
    
    
    
    125,000Cash and due from banks
    
    
    410,380
    
    
    
    218,510Restricted cash
    
    
    550,183
    
    
    
    417,833Investment securities available for sale
    
    
    164,984
    
    
    
    119,811Mortgage-backed securities available for sale
    
    
    2,635,947
    
    
    
    2,649,758Loans receivable
    
    
    13,222,321
    
    
    
    12,135,748Allowance for credit losses
    
    
    (320,001
    )
    
    
    (315,402
    )Loans receivable, net
    
    
    12,902,320
    
    
    
    11,820,346Interest receivable
    
    
    85,436
    
    
    
    79,825Premises and equipment, net
    
    
    73,391
    
    
    
    76,526Other assets
    
    
    176,487
    
    
    
    162,731TOTAL ASSETS
    
    $
    16,999,128
    
    
    $
    15,545,340LIABILITIESDeposits
    
    $
    2,317,405
    
    
    $
    2,183,499Notes payable on automobile secured financing
    
    
    11,327,812
    
    
    
    10,242,900Federal Home Loan Bank advances
    
    
    1,122,434
    
    
    
    1,139,521Subordinated debentures
    
    
    296,074
    
    
    
    295,321Other liabilities
    
    
    207,662
    
    
    
    178,939TOTAL LIABILITIES
    
    
    15,271,387
    
    
    
    14,040,180Minority interest
    
    
    196,824
    
    
    
    165,484SHAREHOLDERS EQUITYCommon stock (par value $1.00 per share; authorized 65,000,000
shares; issued and outstanding 52,251,061 shares at September 30, 2005
and 51,895,258 shares at December 31, 2004)
    
    
    52,251
    
    
    
    51,895Paid-in capital
    
    
    725,590
    
    
    
    717,098Retained earnings
    
    
    776,602
    
    
    
    606,987Accumulated other comprehensive loss, net of tax
    
    
    (23,526
    )
    
    
    (36,304
    )TOTAL SHAREHOLDERS EQUITY
    
    
    1,530,917
    
    
    
    1,339,676TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    16,999,128
    
    
    $
    15,545,340
  2




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##### Table of Contents



WESTCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Interest income:Loans, including fees
    
    $
    327,638
    
    
    $
    291,796
    
    
    $
    937,182
    
    
    $
    863,989Mortgage-backed securities
    
    
    27,368
    
    
    
    25,828
    
    
    
    82,020
    
    
    
    72,666Investment securities
    
    
    1,798
    
    
    
    1,173
    
    
    
    4,146
    
    
    
    3,354Other
    
    
    8,418
    
    
    
    2,441
    
    
    
    18,628
    
    
    
    5,871TOTAL INTEREST INCOME
    
    
    365,222
    
    
    
    321,238
    
    
    
    1,041,976
    
    
    
    945,880Interest expense:Deposits
    
    
    21,110
    
    
    
    15,101
    
    
    
    59,099
    
    
    
    42,291Notes payable on automobile secured financing
    
    
    101,587
    
    
    
    89,869
    
    
    
    282,114
    
    
    
    272,678Other
    
    
    16,262
    
    
    
    10,030
    
    
    
    43,323
    
    
    
    33,102TOTAL INTEREST EXPENSE
    
    
    138,959
    
    
    
    115,000
    
    
    
    384,536
    
    
    
    348,071NET INTEREST INCOME
    
    
    226,263
    
    
    
    206,238
    
    
    
    657,440
    
    
    
    597,809Provision for credit losses
    
    
    40,188
    
    
    
    60,337
    
    
    
    126,865
    
    
    
    174,171NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
    
    
    186,075
    
    
    
    145,901
    
    
    
    530,575
    
    
    
    423,638Noninterest income:Automobile lending
    
    
    15,498
    
    
    
    26,830
    
    
    
    45,538
    
    
    
    77,646Insurance income
    
    
    3,020
    
    
    
    2,264
    
    
    
    7,215
    
    
    
    548Mortgage banking
    
    
    82
    
    
    
    64
    
    
    
    259
    
    
    
    5,778Other
    
    
    1,246
    
    
    
    869
    
    
    
    5,701
    
    
    
    2,300TOTAL NONINTEREST INCOME
    
    
    19,846
    
    
    
    30,027
    
    
    
    58,713
    
    
    
    86,272Noninterest expenses:Salaries and associate benefits
    
    
    41,522
    
    
    
    43,541
    
    
    
    128,459
    
    
    
    130,995Credit and collections
    
    
    8,773
    
    
    
    8,056
    
    
    
    25,361
    
    
    
    24,359Data processing
    
    
    5,172
    
    
    
    4,053
    
    
    
    14,660
    
    
    
    12,313Occupancy
    
    
    4,182
    
    
    
    3,983
    
    
    
    12,019
    
    
    
    11,710Other
    
    
    18,361
    
    
    
    15,313
    
    
    
    44,193
    
    
    
    40,604TOTAL NONINTEREST EXPENSES
    
    
    78,010
    
    
    
    74,946
    
    
    
    224,692
    
    
    
    219,981INCOME BEFORE INCOME TAX
    
    
    127,911
    
    
    
    100,982
    
    
    
    364,596
    
    
    
    289,929Income tax
    
    
    51,138
    
    
    
    40,188
    
    
    
    143,876
    
    
    
    115,227INCOME BEFORE MINORITY INTEREST
    
    
    76,773
    
    
    
    60,794
    
    
    
    220,720
    
    
    
    174,702Minority interest in earnings of subsidiaries
    
    
    10,252
    
    
    
    6,122
    
    
    
    28,199
    
    
    
    22,251NET INCOME
    
    $
    66,521
    
    
    $
    54,672
    
    
    $
    192,521
    
    
    $
    152,451Earnings per common share:Basic
    
    $
    1.27
    
    
    $
    1.05
    
    
    $
    3.70
    
    
    $
    2.94Diluted
    
    $
    1.26
    
    
    $
    1.04
    
    
    $
    3.65
    
    
    $
    2.90Weighted average number of common shares outstanding:Basic
    
    
    52,207,935
    
    
    
    51,859,531
    
    
    
    52,083,134
    
    
    
    51,806,929Diluted
    
    
    52,886,618
    
    
    
    52,510,834
    
    
    
    52,746,532
    
    
    
    52,528,983Dividends declared
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.45
    
    
    $
    0.42
  3




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##### Table of Contents



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, 2004
    
    
    51,698,398
    
    
    $
    51,698
    
    
    $
    710,001
    
    
    $
    427,527
    
    
    $
    (66,741
    )
    
    $
    1,122,485Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207,962
    
    
    
    
    
    
    
    207,962Unrealized losses on securities available
for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,677
    )
    
    
    (9,677
    )Unrealized losses on cash flow hedges,
net of tax (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,570
    )
    
    
    (1,570
    )Reclassification adjustment for gains on
securities available for sale included
in net income, net of tax (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,446
    )
    
    
    (1,446
    )Reclassification adjustment for losses
on cash flow hedges included in income,
net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,130
    
    
    
    43,130Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238,399Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    (47
    )Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    2,665
    
    
    
    
    
    
    
    
    
    
    
    2,665Stock options exercised
    
    
    196,860
    
    
    
    197
    
    
    
    4,479
    
    
    
    
    
    
    
    
    
    
    
    4,676Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,502
    )
    
    
    
    
    
    
    (28,502
    )Balance at December 31, 2004
    
    
    51,895,258
    
    
    
    51,895
    
    
    
    717,098
    
    
    
    606,987
    
    
    
    (36,304
    )
    
    
    1,339,676Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,521
    
    
    
    
    
    
    
    192,521Unrealized losses on securities available
for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,837
    )
    
    
    (15,837
    )Unrealized gains on cash flow hedges,
net of tax (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,490
    
    
    
    12,490Reclassification adjustment for losses
on cash flow hedges included in income,
net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,125
    
    
    
    16,125Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,299Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    (771
    )
    
    
    
    
    
    
    
    
    
    
    (771
    )Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    3,340
    
    
    
    
    
    
    
    
    
    
    
    3,340Stock options exercised
    
    
    355,803
    
    
    
    356
    
    
    
    5,923
    
    
    
    
    
    
    
    
    
    
    
    6,279Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,906
    )
    
    
    
    
    
    
    (22,906
    )Balance at September 30, 2005
    
    
    52,251,061
    
    
    $
    52,251
    
    
    $
    725,590
    
    
    $
    776,602
    
    
    $
    (23,526
    )
    
    $
    1,530,917
 
 (1)
    
    The pre-tax amount of unrealized losses on securities available for sale was $26.4 million
for the nine months ended September 30, 2005 compared with $16.1 million for the year ended
December 31, 2004.(2)
    
    The pre-tax amount of unrealized gains on cash flow hedges was $20.8 million for the nine
months ended September 30, 2005 compared with unrealized losses of $2.6 million for the year
ended December 31, 2004.(3)
    
    There was no pre-tax amount of unrealized gains or losses on securities available for sale
reclassified into earnings for the nine months ended September 30, 2005 compared with
unrealized gains of $2.4 million for the year ended December 31, 2004.(4)
    
    The pre-tax amount of losses on cash flow hedges reclassified into earnings was $26.9 million
for the nine months ended September 30, 2005 compared with $71.9 million for the year ended
December 31, 2004.(5)
    
    Amount represents pre-tax expense related to stock options granted.  4




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##### Table of Contents



WESTCORP AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 For the Nine Months EndedSeptember 30,2005
    
    
    2004(Dollars in thousands)OPERATING ACTIVITIES:Net income
    
    $
    192,521
    
    
    $
    152,451Adjustments to reconcile net income to net cash provided by
operating activities:Provision for credit losses
    
    
    126,865
    
    
    
    174,171Amortization of loan premiums, fees and costs
    
    
    91,822
    
    
    
    94,185Amortization of losses on cash flow hedges
    
    
    24,776
    
    
    
    32,186Amortization of premium on mortgage-backed securities
    
    
    17,216
    
    
    
    32,012Depreciation
    
    
    9,490
    
    
    
    8,935Amortization, other
    
    
    848
    
    
    
    4,586Gain on sales, net
    
    
    (1,930
    )
    
    
    (6,605
    )Other
    
    
    1,362
    
    
    
    502(Increase) decrease in other assets
    
    
    (28,752
    )
    
    
    2,332Increase in other liabilities
    
    
    29,084
    
    
    
    31,558Other, net
    
    
    28,199
    
    
    
    22,251NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    491,501
    
    
    
    548,564INVESTING ACTIVITIES:Increase in restricted cash
    
    
    (132,350
    )
    
    
    (147,131
    )Loans receivable:Origination of loans
    
    
    (6,494,021
    )
    
    
    (5,437,458
    )Loan payments and payoffs
    
    
    5,192,955
    
    
    
    4,381,867Investment and mortgage-backed securities available for sale:Purchases
    
    
    (864,621
    )
    
    
    (1,040,714
    )Proceeds from sale
    
    
    76,757
    
    
    
    133,549Payments received
    
    
    714,774
    
    
    
    911,140Purchase of premises and equipment
    
    
    (4,539
    )
    
    
    (9,332
    )Proceeds from sales of premises and equipment
    
    
    38
    
    
    
    4,509NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,511,007
    )
    
    
    (1,203,570
    )FINANCING ACTIVITIES:Increase in deposits
    
    
    154,872
    
    
    
    142,884Notes payable on automobile secured financing:Proceeds from issuance
    
    
    5,722,966
    
    
    
    4,498,305Payments on notes
    
    
    (4,631,413
    )
    
    
    (4,308,510
    )Decrease in securities sold under agreements to repurchase
    
    
    
    
    
    
    (218,741
    )(Decrease) increase in FHLB advances
    
    
    (17,087
    )
    
    
    542,014Payments on subordinated debentures
    
    
    
    
    
    
    (104,683
    )Decrease in borrowings
    
    
    (360
    )
    
    
    (351
    )Proceeds from issuance of common stock
    
    
    6,279
    
    
    
    2,846Proceeds from issuance of subsidiary common stock
    
    
    350
    
    
    
    37Cash dividends
    
    
    (22,906
    )
    
    
    (21,239
    )Payments on cash flow hedges, net
    
    
    (1,325
    )
    
    
    (11,390
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    1,211,376
    
    
    
    521,172INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
    
    
    191,870
    
    
    
    (133,834
    )Cash and due from banks at beginning of year
    
    
    218,510
    
    
    
    382,082CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    410,380
    
    
    $
    248,248
  5




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##### Table of Contents



WESTCORP AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1  Basis of Presentation
    Note 2  Mortgage-Backed Securities Available for Sale
  September 30, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,598,797
    
    
    $
    5,563
    
    
    $
    24,904
    
    
    $
    2,579,456FNMA participation certificates
    
    
    25,637
    
    
    
    65
    
    
    
    271
    
    
    
    25,431FHLMC participation certificates
    
    
    30,229
    
    
    
    1
    
    
    
    594
    
    
    
    29,636Other
    
    
    1,424
    
    
    
    
    
    
    
    
    
    
    
    1,424$
    2,656,087
    
    
    $
    5,629
    
    
    $
    25,769
    
    
    $
    2,635,947
 6




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##### Table of Contents



December 31, 2004Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,575,081
    
    
    $
    15,232
    
    
    $
    8,753
    
    
    $
    2,581,560FNMA participation certificates
    
    
    30,195
    
    
    
    123
    
    
    
    143
    
    
    
    30,175FHLMC participation certificates
    
    
    36,497
    
    
    
    154
    
    
    
    193
    
    
    
    36,458Other
    
    
    1,565
    
    
    
    
    
    
    
    
    
    
    
    1,565$
    2,643,338
    
    
    $
    15,509
    
    
    $
    9,089
    
    
    $
    2,649,758
  Note 3  Net Loans Receivable
   September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Consumer:Automobile contracts
    
    $
    12,748,745
    
    
    $
    11,599,528Other consumer
    
    
    6,201
    
    
    
    4,386Unearned discounts
    
    
    (30,292
    )
    
    
    (38,871
    )12,724,654
    
    
    
    11,565,043Real estate:Mortgage
    
    
    154,266
    
    
    
    202,095Construction
    
    
    60,740
    
    
    
    48,730215,006
    
    
    
    250,825Undisbursed loan proceeds
    
    
    (35,843
    )
    
    
    (37,061
    )179,163
    
    
    
    213,764Commercial
    
    
    126,758
    
    
    
    165,80613,030,575
    
    
    
    11,944,613Dealer participation
    
    
    215,713
    
    
    
    191,336Deferred contract fees, net of deferred costs
    
    
    (23,967
    )
    
    
    (201
    )Loans receivable
    
    
    13,222,321
    
    
    
    12,135,748Allowance for credit losses
    
    
    (320,001
    )
    
    
    (315,402
    )Loans receivable, net
    
    $
    12,902,320
    
    
    $
    11,820,346
 7




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##### Table of Contents



Note 4   Allowance for Credit Losses
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of period
    
    $
    318,776
    
    
    $
    307,293
    
    
    $
    315,402
    
    
    $
    301,602Chargeoffs:Consumer loans
    
    
    (69,228
    )
    
    
    (76,689
    )
    
    
    (199,246
    )
    
    
    (232,403
    )Commercial loans
    
    
    
    
    
    
    (492
    )
    
    
    (118
    )
    
    
    (492
    )Mortgage loans
    
    
    
    
    
    
    (37
    )
    
    
    (138
    )
    
    
    (167
    )(69,228
    )
    
    
    (77,218
    )
    
    
    (199,502
    )
    
    
    (233,062
    )Recoveries:Consumer loans
    
    
    29,874
    
    
    
    21,792
    
    
    
    76,740
    
    
    
    69,471Commercial loans
    
    
    391
    
    
    
    18
    
    
    
    482
    
    
    
    40Mortgage loans
    
    
    
    
    
    
    
    
    
    
    1430,265
    
    
    
    21,810
    
    
    
    77,236
    
    
    
    69,511Net chargeoffs
    
    
    (38,963
    )
    
    
    (55,408
    )
    
    
    (122,266
    )
    
    
    (163,551
    )Provision for credit losses
    
    
    40,188
    
    
    
    60,337
    
    
    
    126,865
    
    
    
    174,171Balance at end of period
    
    $
    320,001
    
    
    $
    312,222
    
    
    $
    320,001
    
    
    $
    312,222Ratio of net chargeoffs
during the period
(annualized) to average loans
outstanding during the period
    
    
    1.2
    %
    
    
    1.9
    %
    
    
    1.3
    %
    
    
    1.9
    %Ratio of allowance for credit
losses to loans at the end of
the period
    
    
    2.4
    %
    
    
    2.6
    %
    
    
    2.4
    %
    
    
    2.6
    %
 8




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##### Table of Contents



Note 5  Deposits
  September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Noninterest bearing deposits
    
    $
    294,209
    
    
    $
    268,556Demand deposit accounts
    
    
    301
    
    
    
    705Passbook accounts
    
    
    4,239
    
    
    
    5,880Money market deposit accounts
    
    
    1,268,821
    
    
    
    1,257,074Certificate accounts
    
    
    749,835
    
    
    
    651,284$
    2,317,405
    
    
    $
    2,183,499
 Weighted Average
    
    
    
    
    
    Weighted AverageRate for the
    
    
    
    
    
    Rate for theWeighted Average
    
    Nine Months Ended
    
    Effects of Hedging
    
    Nine Months EndedRate at
    
    September 30, 2005
    
    for the
    
    September 30, 2005September 30,
    
    Excluding the Effects
    
    Nine Months Ended
    
    Including the Effects2005 (1)
    
    of Hedging
    
    September 30, 2005
    
    of HedgingDemand deposit accounts
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %Passbook accounts
    
    
    0.5
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3Money market deposit
accounts
    
    
    3.0
    
    
    
    2.4
    
    
    
    1.3
    %
    
    
    3.7Certificate accounts
    
    
    3.4
    
    
    
    2.9
    
    
    
    2.2
    
    
    
    5.1
 
 (1)
    
    Contractual rate. Note 6  Notes Payable on Automobile Secured Financing
   9




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##### Table of Contents



Note 7  Accumulated Other Comprehensive Loss, Net of Tax
  September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Unrealized (loss) gain on marketable securities
    
    $
    (12,188
    )
    
    $
    3,648Unrealized (loss) gain on interest rate swaps: (1)Deposits
    
    
    (16,624
    )
    
    
    (29,203
    )Automobile secured financing
    
    
    3,011
    
    
    
    (353
    )(13,613
    )
    
    
    (29,556
    )Realized (loss) gain on settled cash flow hedges:  (1)Deposits
    
    
    (2,917
    )
    
    
    (8,369
    )Automobile secured financing
    
    
    5,192
    
    
    
    (2,027
    )2,275
    
    
    
    (10,396
    )Total accumulated other comprehensive loss
    
    $
    (23,526
    )
    
    $
    (36,304
    )
 
 (1)
    
    All cash flow hedges are structured to hedge future interest payments on deposits or
borrowings. Note 8  Comprehensive income
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Net income
    
    $
    66,521
    
    
    $
    54,672
    
    
    $
    192,521
    
    
    $
    152,451Unrealized (losses)
gains on securities
available for sale,
net of tax
    
    
    (9,040
    )
    
    
    15,723
    
    
    
    (15,837
    )
    
    
    (4,544
    )Unrealized gains
(losses) on cash
flow hedges, net of
tax
    
    
    11,911
    
    
    
    (15,278
    )
    
    
    12,490
    
    
    
    (4,211
    )Reclassification
adjustment for
gains on securities
available for sale
included in income,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,446
    )Reclassification
adjustment for
losses on cash flow
hedges included in
income, net of tax
    
    
    4,294
    
    
    
    9,832
    
    
    
    16,125
    
    
    
    36,458Comprehensive income
    
    $
    73,686
    
    
    $
    64,949
    
    
    $
    205,299
    
    
    $
    178,708
 Note 9  Dividends
  10




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##### Table of Contents



Note 10  Stock Options
   Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Remaining
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$12.00  13.00
    
    
    63,000
    
    
    
    0.82
    
    
    $
    12.67
    
    
    
    63,000
    
    
    $
    12.6713.00  14.00
    
    
    118,125
    
    
    
    1.64
    
    
    
    13.25
    
    
    
    118,125
    
    
    
    13.2515.00  16.00
    
    
    1,000
    
    
    
    2.36
    
    
    
    15.25
    
    
    
    1,000
    
    
    
    15.2517.00  18.00
    
    
    150,108
    
    
    
    2.65
    
    
    
    17.32
    
    
    
    150,108
    
    
    
    17.3218.00  19.00
    
    
    530,324
    
    
    
    3.04
    
    
    
    18.58
    
    
    
    329,290
    
    
    
    18.5719.00  20.00
    
    
    5,000
    
    
    
    4.10
    
    
    
    19.85
    
    
    
    3,750
    
    
    
    19.8520.00  21.00
    
    
    3,000
    
    
    
    4.35
    
    
    
    20.41
    
    
    
    1,500
    
    
    
    20.4142.00  43.00
    
    
    464,444
    
    
    
    3.64
    
    
    
    42.19
    
    
    
    148,338
    
    
    
    42.1944.00  45.00
    
    
    20,000
    
    
    
    4.82
    
    
    
    44.4846.00  47.00
    
    
    491,500
    
    
    
    4.67
    
    
    
    46.6649.00  50.00
    
    
    5,000
    
    
    
    4.94
    
    
    
    49.97$12.00  50.00
    
    
    1,851,501
    
    
    
    3.46
    
    
    $
    31.68
    
    
    
    815,111
    
    
    $
    21.42
  Weighted AverageShares
    
    
    Exercise PriceOutstanding at January 1, 2004
    
    
    1,460,536
    
    
    $
    16.86Granted
    
    
    540,900
    
    
    
    42.19Exercised
    
    
    (196,860
    )
    
    
    16.40Forfeited
    
    
    (57,694
    )
    
    
    27.10Outstanding at December 31, 2004
    
    
    1,746,882
    
    
    
    24.41Granted
    
    
    564,000
    
    
    
    46.61Exercised
    
    
    (355,803
    )
    
    
    17.65Forfeited
    
    
    (103,578
    )
    
    
    38.58Outstanding at September 30, 2005
    
    
    1,851,501
    
    
    $
    31.68
  11




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##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Net income, as reported
    
    $
    66,521
    
    
    $
    54,672
    
    
    $
    192,521
    
    
    $
    152,451Add: Stock-based employee
compensation expense
included in reported net
income, net of related tax
effects
    
    
    795
    
    
    
    458
    
    
    
    2,022
    
    
    
    1,167Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects
    
    
    845
    
    
    
    581
    
    
    
    2,233
    
    
    
    1,597Pro forma net income
    
    $
    66,471
    
    
    $
    54,549
    
    
    $
    192,310
    
    
    $
    152,021Basic earnings per share:As reported
    
    $
    1.27
    
    
    $
    1.05
    
    
    $
    3.70
    
    
    $
    2.94Pro forma
    
    $
    1.27
    
    
    $
    1.05
    
    
    $
    3.69
    
    
    $
    2.93Diluted earnings per share:As reported
    
    $
    1.26
    
    
    $
    1.04
    
    
    $
    3.65
    
    
    $
    2.90Pro forma
    
    $
    1.26
    
    
    $
    1.04
    
    
    $
    3.65
    
    
    $
    2.89
 Note 11  Proposed Acquisition and Merger
    12




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##### Table of Contents



Note 12  Commitments and Contingencies
  In
re WFS Financial Shareholder Litigation
 13




---



##### Table of Contents



Note 13  Subsequent Events
  14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    Selected Financial Data
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Consolidated Statements of Income Data:Interest income
    
    $
    365,222
    
    
    $
    321,238
    
    
    $
    1,041,976
    
    
    $
    945,880Interest expense
    
    
    138,959
    
    
    
    115,000
    
    
    
    384,536
    
    
    
    348,071Net interest income
    
    
    226,263
    
    
    
    206,238
    
    
    
    657,440
    
    
    
    597,809Provision for credit losses
    
    
    40,188
    
    
    
    60,337
    
    
    
    126,865
    
    
    
    174,171Net interest income after provision for credit losses
    
    
    186,075
    
    
    
    145,901
    
    
    
    530,575
    
    
    
    423,638Noninterest income
    
    
    19,846
    
    
    
    30,027
    
    
    
    58,713
    
    
    
    86,272Noninterest expense
    
    
    78,010
    
    
    
    74,946
    
    
    
    224,692
    
    
    
    219,981Income before income tax
    
    
    127,911
    
    
    
    100,982
    
    
    
    364,596
    
    
    
    289,929Income tax
    
    
    51,138
    
    
    
    40,188
    
    
    
    143,876
    
    
    
    115,227Income before minority interest
    
    
    76,773
    
    
    
    60,794
    
    
    
    220,720
    
    
    
    174,702Minority interest in earnings of subsidiaries
    
    
    10,252
    
    
    
    6,122
    
    
    
    28,199
    
    
    
    22,251Net income
    
    $
    66,521
    
    
    $
    54,672
    
    
    $
    192,521
    
    
    $
    152,451Weighted average number of shares and common share
equivalents  diluted
    
    
    52,886,618
    
    
    
    52,510,834
    
    
    
    52,746,532
    
    
    
    52,528,983Earnings per common share  diluted
    
    $
    1.26
    
    
    $
    1.04
    
    
    $
    3.65
    
    
    $
    2.90Dividends declared per share
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.45
    
    
    $
    0.42Dividend payout ratio
    
    
    11.9
    %
    
    
    13.5
    %
    
    
    12.3
    %
    
    
    14.5
    %
 15




---



##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Consolidated Statements of Financial Condition Data:Assets:Cash and due from banks
    
    $
    410,380
    
    
    $
    218,510Loans:Consumer (1)
    
    
    12,916,400
    
    
    
    11,756,178Mortgage (2)
    
    
    179,163
    
    
    
    213,764Commercial
    
    
    126,758
    
    
    
    165,806Mortgage-backed securities
    
    
    2,635,947
    
    
    
    2,649,758Investments and time deposits
    
    
    715,167
    
    
    
    537,644Other assets
    
    
    335,314
    
    
    
    319,082Less: Allowance for credit losses
    
    
    320,001
    
    
    
    315,402Total assets
    
    $
    16,999,128
    
    
    $
    15,545,340Liabilities and Shareholders Equity:Deposits
    
    $
    2,317,405
    
    
    $
    2,183,499Notes payable on automobile secured financing
    
    
    11,327,812
    
    
    
    10,242,900FHLB advances and other borrowings
    
    
    1,130,651
    
    
    
    1,148,098Subordinated debentures
    
    
    296,074
    
    
    
    295,321Other liabilities
    
    
    199,445
    
    
    
    170,362Total liabilities
    
    
    15,271,387
    
    
    
    14,040,180Minority interest in equity of subsidiaries
    
    
    196,824
    
    
    
    165,484Shareholders equity
    
    
    1,530,917
    
    
    
    1,339,676Total liabilities and shareholders equity
    
    $
    16,999,128
    
    
    $
    15,545,340
 At or For the Three
    
    
    At or For the NineMonths Ended September 30,
    
    
    Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Other Selected Financial Data:Average automobile contracts managed
    
    $
    12,550,228
    
    
    $
    11,268,695
    
    
    $
    12,090,699
    
    
    $
    10,980,339Average shareholders equity (3)
    
    $
    1,522,940
    
    
    $
    1,300,509
    
    
    $
    1,462,262
    
    
    $
    1,253,692Return on average shareholders equity (3)
    
    
    17.47
    %
    
    
    16.82
    %
    
    
    17.55
    %
    
    
    16.21
    %Book value per share (3)
    
    $
    29.75
    
    
    $
    25.55
    
    
    $
    29.75
    
    
    $
    25.55Total equity to assets (4)
    
    
    10.30
    %
    
    
    9.66
    %
    
    
    10.30
    %
    
    
    9.66
    %Originations:Consumer loans (1)
    
    $
    2,075,369
    
    
    $
    1,801,355
    
    
    $
    5,874,060
    
    
    $
    5,055,659Mortgage loans (2)
    
    
    11,979
    
    
    
    15,548
    
    
    
    27,324
    
    
    
    27,003Commercial loans
    
    
    180,968
    
    
    
    111,853
    
    
    
    491,392
    
    
    
    237,570Total loan originations
    
    $
    2,268,316
    
    
    $
    1,928,756
    
    
    $
    6,392,776
    
    
    $
    5,320,232Interest rate spread
    
    
    4.91
    %
    
    
    5.02
    %
    
    
    5.05
    %
    
    
    5.02
    %
 
 (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. 16




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##### Table of Contents



Critical Accounting Estimates
  Allowance for Credit Losses
  Derivative Financial Instruments
    Accrued Taxes
  17




---



##### Table of Contents



Proposed Acquisition and Merger
     Results of Operations
 Net Interest Income
  18




---



##### Table of Contents



For the Three Months Ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,596,121
    
    
    $
    27,368
    
    
    
    4.22
    %
    
    $
    2,610,918
    
    
    $
    25,828
    
    
    
    3.96
    %Other short-term investments
    
    
    934,014
    
    
    
    8,378
    
    
    
    3.56
    
    
    
    660,922
    
    
    
    2,427
    
    
    
    1.46Investment securities
    
    
    192,156
    
    
    
    1,798
    
    
    
    3.74
    
    
    
    115,445
    
    
    
    1,173
    
    
    
    4.07Interest earning deposits with others
    
    
    52,911
    
    
    
    40
    
    
    
    0.30
    
    
    
    5,668
    
    
    
    14
    
    
    
    0.98Total investments
    
    
    3,775,202
    
    
    
    37,584
    
    
    
    3.98
    
    
    
    3,392,953
    
    
    
    29,442
    
    
    
    3.47Total loans: (1)Consumer loans
    
    
    12,748,833
    
    
    
    322,144
    
    
    
    10.02
    
    
    
    11,461,360
    
    
    
    287,806
    
    
    
    9.99Mortgage loans
    
    
    151,574
    
    
    
    2,186
    
    
    
    5.77
    
    
    
    174,927
    
    
    
    2,181
    
    
    
    4.99Commercial loans
    
    
    168,048
    
    
    
    2,799
    
    
    
    6.52
    
    
    
    116,178
    
    
    
    1,628
    
    
    
    5.48Construction loans
    
    
    29,789
    
    
    
    509
    
    
    
    6.68
    
    
    
    13,944
    
    
    
    181
    
    
    
    5.08Total loans
    
    
    13,098,244
    
    
    
    327,638
    
    
    
    9.92
    
    
    
    11,766,409
    
    
    
    291,796
    
    
    
    9.87Total interest earning assets
    
    $
    16,873,446
    
    
    
    365,222
    
    
    
    8.59
    
    
    $
    15,159,362
    
    
    
    321,238
    
    
    
    8.43Interest bearing liabilities:Deposits
    
    $
    2,255,371
    
    
    
    21,110
    
    
    
    3.71
    
    
    $
    2,083,963
    
    
    
    15,101
    
    
    
    2.88FHLB advances and other borrowings
    
    
    990,907
    
    
    
    8,772
    
    
    
    3.47
    
    
    
    638,999
    
    
    
    1,937
    
    
    
    1.19Notes payable on automobile secured
financing
    
    
    11,511,409
    
    
    
    101,587
    
    
    
    3.53
    
    
    
    10,722,274
    
    
    
    89,869
    
    
    
    3.35Subordinated debentures
    
    
    295,897
    
    
    
    7,490
    
    
    
    10.12
    
    
    
    321,990
    
    
    
    8,093
    
    
    
    10.05Total interest bearing liabilities
    
    $
    15,053,584
    
    
    
    138,959
    
    
    
    3.68
    
    
    $
    13,767,226
    
    
    
    115,000
    
    
    
    3.41Net interest income and interest rate spread
    
    
    
    
    
    $
    226,263
    
    
    
    4.91
    %
    
    
    
    
    
    $
    206,238
    
    
    
    5.02
    %Net yield on average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.31
    %
    
    
    
    
    
    
    
    
    
    
    5.41
    %
 
 (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 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    

    Average
    
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,594,732
    
    
    $
    82,020
    
    
    
    4.21
    %
    
    $
    2,593,595
    
    
    $
    72,666
    
    
    
    3.74
    %Other short-term investments
    
    
    794,687
    
    
    
    18,500
    
    
    
    3.11
    
    
    
    638,409
    
    
    
    5,840
    
    
    
    1.22Investment securities
    
    
    151,902
    
    
    
    4,146
    
    
    
    3.64
    
    
    
    123,329
    
    
    
    3,354
    
    
    
    3.63Interest earning deposits with others
    
    
    44,541
    
    
    
    128
    
    
    
    0.39
    
    
    
    5,740
    
    
    
    31
    
    
    
    0.74Total investments
    
    
    3,585,862
    
    
    
    104,794
    
    
    
    3.90
    
    
    
    3,361,073
    
    
    
    81,891
    
    
    
    3.25Total loans: (1)Consumer loans
    
    
    12,286,641
    
    
    
    921,646
    
    
    
    10.03
    
    
    
    11,167,879
    
    
    
    851,622
    
    
    
    10.19Mortgage loans
    
    
    161,158
    
    
    
    6,665
    
    
    
    5.51
    
    
    
    204,821
    
    
    
    7,708
    
    
    
    5.02Commercial loans
    
    
    159,785
    
    
    
    7,610
    
    
    
    6.28
    
    
    
    106,169
    
    
    
    4,371
    
    
    
    5.41Construction loans
    
    
    25,592
    
    
    
    1,261
    
    
    
    6.49
    
    
    
    7,817
    
    
    
    288
    
    
    
    4.83Total loans
    
    
    12,633,176
    
    
    
    937,182
    
    
    
    9.92
    
    
    
    11,486,686
    
    
    
    863,989
    
    
    
    10.05Total interest earning assets
    
    $
    16,219,038
    
    
    
    1,041,976
    
    
    
    8.59
    
    
    $
    14,847,759
    
    
    
    945,880
    
    
    
    8.51Interest bearing liabilities:Deposits
    
    $
    2,203,380
    
    
    
    59,099
    
    
    
    3.59
    
    
    $
    2,026,245
    
    
    
    42,291
    
    
    
    2.79Securities sold under agreements to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,894
    
    
    
    94
    
    
    
    1.13FHLB advances and other borrowings
    
    
    900,494
    
    
    
    20,861
    
    
    
    3.06
    
    
    
    608,456
    
    
    
    5,640
    
    
    
    1.22Notes payable on automobile secured financing
    
    
    11,073,297
    
    
    
    282,114
    
    
    
    3.40
    
    
    
    10,377,881
    
    
    
    272,678
    
    
    
    3.50Subordinated debentures
    
    
    295,663
    
    
    
    22,462
    
    
    
    10.13
    
    
    
    365,619
    
    
    
    27,368
    
    
    
    9.98Total interest bearing liabilities
    
    $
    14,472,834
    
    
    
    384,536
    
    
    
    3.54
    
    
    $
    13,389,095
    
    
    
    348,071
    
    
    
    3.49Net interest income and interest rate spread
    
    
    
    
    
    $
    657,440
    
    
    
    5.05
    %
    
    
    
    
    
    $
    597,809
    
    
    
    5.02
    %Net yield on average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.43
    %
    
    
    
    
    
    
    
    
    
    
    5.39
    %
 
 (1)
    
    For the purpose of these computations, nonaccruing loans are included in the average
loan amounts outstanding. 20




---



##### Table of Contents



For the Nine Months Ended September 30, 2005Compared to the Nine Months Ended September 30, 2004 (1)Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Increase (decrease) in interest income:Mortgage-backed securities
    
    $
    33
    
    
    $
    9,321
    
    
    $
    9,354Other short-term investments
    
    
    1,728
    
    
    
    10,932
    
    
    
    12,660Investment securities
    
    
    783
    
    
    
    9
    
    
    
    792Interest earning deposits with others
    
    
    128
    
    
    
    (31
    )
    
    
    97Total loans:Consumer loans
    
    
    91,431
    
    
    
    (21,407
    )
    
    
    70,024Mortgage loans
    
    
    (2,093
    )
    
    
    1,050
    
    
    
    (1,043
    )Commercial loans
    
    
    2,457
    
    
    
    782
    
    
    
    3,239Construction loans
    
    
    845
    
    
    
    128
    
    
    
    973Total interest income
    
    $
    95,312
    
    
    $
    784
    
    
    $
    96,096Increase (decrease) in interest expense:Deposits
    
    $
    3,927
    
    
    $
    12,881
    
    
    $
    16,808Securities sold under agreements to repurchase
    
    
    (47
    )
    
    
    (47
    )
    
    
    (94
    )FHLB advances and other borrowings
    
    
    3,674
    
    
    
    11,546
    
    
    
    15,220Notes payable on automobile secured financing
    
    
    21,167
    
    
    
    (11,731
    )
    
    
    9,436Subordinated debentures
    
    
    (5,565
    )
    
    
    660
    
    
    
    (4,905
    )Total interest expense
    
    $
    23,156
    
    
    $
    13,309
    
    
    $
    36,465Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    59,631
 
 (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
 
 21




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##### Table of Contents



Contract Securitizations
  Securitizations
 Remaining
    
    
    
    
    
    
    
    
    
    
    GrossRemaining
    
    
    Balance as a
    
    
    Original
    
    
    Original
    
    
    InterestIssue
    
    
    
    Original
    
    
    Balance at
    
    
    Percent of
    
    
    Weighted
    
    
    Weighted Average
    
    
    RateNumber
    
    Close Date
    
    Balance
    
    
    September 30, 2005 (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
    
    
    Paid in full
    

    
    
    
    
    
    
    15.20
    
    
    
    6.94
    
    
    
    8.262001-A
    
    January, 2001
    
    
    1,000,000
    
    
    Paid in full
    

    
    
    
    
    
    
    14.87
    
    
    
    5.77
    
    
    
    9.102001-B
    
    May, 2001
    
    
    1,370,000
    
    
    Paid in full
    

    
    
    
    
    
    
    14.41
    
    
    
    4.23
    
    
    
    10.182001-C
    
    August, 2001
    
    
    1,200,000
    
    
    Paid in full
    

    
    
    
    
    
    
    13.90
    
    
    
    4.50
    
    
    
    9.402002-1
    
    March, 2002
    
    
    1,800,000
    
    
    $
    225,650
    
    
    
    12.54
    %
    
    
    13.50
    
    
    
    4.26
    
    
    
    9.242002-2
    
    May, 2002
    
    
    1,750,000
    
    
    
    279,329
    
    
    
    15.96
    
    
    
    12.51
    
    
    
    3.89
    
    
    
    8.622002-3
    
    August, 2002
    
    
    1,250,000
    
    
    
    238,683
    
    
    
    19.09
    
    
    
    12.30
    
    
    
    3.06
    
    
    
    9.242002-4
    
    November, 2002
    
    
    1,350,000
    
    
    
    325,244
    
    
    
    24.09
    
    
    
    12.18
    
    
    
    2.66
    
    
    
    9.522003-1
    
    February, 2003
    
    
    1,343,250
    
    
    
    340,892
    
    
    
    25.38
    
    
    
    11.79
    
    
    
    2.42
    
    
    
    9.372003-2
    
    May, 2003
    
    
    1,492,500
    
    
    
    453,531
    
    
    
    30.39
    
    
    
    11.57
    
    
    
    2.13
    
    
    
    9.442003-3
    
    August, 2003
    
    
    1,650,000
    
    
    
    656,912
    
    
    
    39.81
    
    
    
    10.59
    
    
    
    2.66
    
    
    
    7.932003-4
    
    November, 2003
    
    
    1,403,625
    
    
    
    565,991
    
    
    
    40.32
    
    
    
    10.89
    
    
    
    2.70
    
    
    
    8.192004-1
    
    February, 2004
    
    
    1,477,500
    
    
    
    651,189
    
    
    
    44.07
    
    
    
    10.89
    
    
    
    2.35
    
    
    
    8.542004-2
    
    May, 2004
    
    
    1,477,500
    
    
    
    761,933
    
    
    
    51.57
    
    
    
    10.98
    
    
    
    3.02
    
    
    
    7.962004-3
    
    August, 2004
    
    
    1,552,000
    
    
    
    942,305
    
    
    
    60.72
    
    
    
    10.64
    
    
    
    3.49
    
    
    
    7.152004-4
    
    October, 2004
    
    
    1,358,000
    
    
    
    904,542
    
    
    
    66.61
    
    
    
    11.19
    
    
    
    3.10
    
    
    
    8.092005-1
    
    January, 2005
    
    
    1,552,000
    
    
    
    1,156,863
    
    
    
    74.54
    
    
    
    11.25
    
    
    
    3.66
    
    
    
    7.592005-2
    
    March, 2005
    
    
    1,458,750
    
    
    
    1,214,145
    
    
    
    83.23
    
    
    
    11.51
    
    
    
    4.27
    
    
    
    7.242005-3
    
    July, 2005
    
    
    2,723,000
    
    
    
    2,634,924
    
    
    
    96.77
    
    
    
    11.66
    
    
    
    4.35
    
    
    
    7.31Total
    
    $
    46,209,555
    
    
    $
    11,352,133
 
 (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




---



##### Table of Contents



Noninterest Income and Noninterest Expense
  Income Taxes
  Financial Condition
 Overview
  23




---



##### Table of Contents



Loan Portfolio
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)New vehicles
    
    $
    736,363
    
    
    $
    626,272
    
    
    $
    1,917,969
    
    
    $
    1,795,921Pre-owned vehicles
    
    
    1,334,331
    
    
    
    1,172,834
    
    
    
    3,948,761
    
    
    
    3,255,200Total volume
    
    $
    2,070,694
    
    
    $
    1,799,106
    
    
    $
    5,866,730
    
    
    $
    5,051,121Prime
    
    $
    1,573,843
    
    
    $
    1,434,280
    
    
    $
    4,472,088
    
    
    $
    4,096,399Non-prime
    
    
    496,851
    
    
    
    364,826
    
    
    
    1,394,642
    
    
    
    954,722Total volume
    
    $
    2,070,694
    
    
    $
    1,799,106
    
    
    $
    5,866,730
    
    
    $
    5,051,121
 Commercial Loan Portfolio
  Asset Quality
 Overview
  Automobile Contract Quality
   24




---



##### Table of Contents



September 30, 2005
    
    
    December 31, 2004Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Contracts managed at end of period
    
    $
    12,718,750
    
    
    
    
    
    
    $
    11,560,890Period of delinquency30-59 days
    
    $
    199,295
    
    
    
    1.57
    %
    
    $
    191,001
    
    
    
    1.65
    %60 days or more (1)
    
    
    74,295
    
    
    
    0.58
    
    
    
    67,660
    
    
    
    0.59Total contracts delinquent and
delinquencies as a percentage of
contracts managed (1)
    
    $
    273,590
    
    
    
    2.15
    %
    
    $
    258,661
    
    
    
    2.24
    %
 
 (1)
    
    Excludes Chapter 13 bankruptcy accounts on nonaccrual status of $47.2 million at
September 30, 2005 and $49.2 million at December 31, 2004.  September 30, 2005
    
    
    December 31, 2004Number of
    
    
    
    
    
    
    Number ofContracts
    
    
    Amount
    
    
    Contracts
    
    
    Amount(Dollars in thousands)Contracts managed
    
    
    941,616
    
    
    $
    12,718,750
    
    
    
    876,695
    
    
    $
    11,560,890Repossessed vehicles
    
    
    860
    
    
    $
    6,756
    
    
    
    1,049
    
    
    $
    7,982Repossessed
vehicles as a
percentage of
number and amount
of contracts
outstanding
    
    
    0.09
    %
    
    
    0.05
    %
    
    
    0.12
    %
    
    
    0.07
    %
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Average contracts managed during period
    
    $
    12,550,228
    
    
    $
    11,268,696
    
    
    $
    12,090,699
    
    
    $
    10,980,339Gross chargeoffs
    
    $
    69,225
    
    
    $
    76,688
    
    
    $
    199,237
    
    
    $
    232,395Recoveries
    
    
    29,873
    
    
    
    21,791
    
    
    
    76,715
    
    
    
    69,408Net chargeoffs
    
    $
    39,352
    
    
    $
    54,897
    
    
    $
    122,522
    
    
    $
    162,987Net chargeoffs (annualized) as a
percentage of average contracts
managed during period
    
    
    1.25
    %
    
    
    1.95
    %
    
    
    1.35
    %
    
    
    1.98
    %
 25




---



##### Table of Contents



Cumulative Static Pool Loss Curves
At September 30, 2005
 Period (1)
    
    2002-1
    
    2002-2
    
    2002-3
    
    2002-4
    
    2003-1
    
    2003-2
    
    2003-3
    
    2003-4
    
    2004-1
    
    2004-2
    
    2004-3
    
    2004-4
    
    2005-1
    
    2005-2
    
    2005-31
    
    
    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
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %3
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.06
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %4
    
    
    0.15
    %
    
    
    0.10
    %
    
    
    0.14
    %
    
    
    0.16
    %
    
    
    0.11
    %
    
    
    0.06
    %
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.13
    %
    
    
    0.09
    %
    
    
    0.06
    %
    
    
    0.07
    %5
    
    
    0.29
    %
    
    
    0.18
    %
    
    
    0.27
    %
    
    
    0.26
    %
    
    
    0.18
    %
    
    
    0.14
    %
    
    
    0.13
    %
    
    
    0.14
    %
    
    
    0.11
    %
    
    
    0.15
    %
    
    
    0.21
    %
    
    
    0.15
    %
    
    
    0.13
    %
    
    
    0.13
    %6
    
    
    0.43
    %
    
    
    0.32
    %
    
    
    0.44
    %
    
    
    0.38
    %
    
    
    0.29
    %
    
    
    0.25
    %
    
    
    0.23
    %
    
    
    0.21
    %
    
    
    0.19
    %
    
    
    0.24
    %
    
    
    0.30
    %
    
    
    0.23
    %
    
    
    0.20
    %
    
    
    0.22
    %7
    
    
    0.60
    %
    
    
    0.49
    %
    
    
    0.57
    %
    
    
    0.50
    %
    
    
    0.41
    %
    
    
    0.36
    %
    
    
    0.32
    %
    
    
    0.28
    %
    
    
    0.27
    %
    
    
    0.33
    %
    
    
    0.40
    %
    
    
    0.30
    %
    
    
    0.28
    %
    
    
    0.30
    %8
    
    
    0.84
    %
    
    
    0.66
    %
    
    
    0.70
    %
    
    
    0.61
    %
    
    
    0.53
    %
    
    
    0.48
    %
    
    
    0.40
    %
    
    
    0.35
    %
    
    
    0.34
    %
    
    
    0.41
    %
    
    
    0.50
    %
    
    
    0.37
    %
    
    
    0.38
    %9
    
    
    1.06
    %
    
    
    0.82
    %
    
    
    0.82
    %
    
    
    0.78
    %
    
    
    0.66
    %
    
    
    0.59
    %
    
    
    0.47
    %
    
    
    0.44
    %
    
    
    0.42
    %
    
    
    0.51
    %
    
    
    0.56
    %
    
    
    0.45
    %
    
    
    0.48
    %10
    
    
    1.28
    %
    
    
    0.96
    %
    
    
    0.96
    %
    
    
    0.94
    %
    
    
    0.80
    %
    
    
    0.70
    %
    
    
    0.55
    %
    
    
    0.54
    %
    
    
    0.52
    %
    
    
    0.59
    %
    
    
    0.64
    %
    
    
    0.54
    %11
    
    
    1.48
    %
    
    
    1.10
    %
    
    
    1.10
    %
    
    
    1.08
    %
    
    
    0.93
    %
    
    
    0.80
    %
    
    
    0.62
    %
    
    
    0.61
    %
    
    
    0.59
    %
    
    
    0.65
    %
    
    
    0.69
    %
    
    
    0.65
    %12
    
    
    1.67
    %
    
    
    1.26
    %
    
    
    1.24
    %
    
    
    1.28
    %
    
    
    1.06
    %
    
    
    0.89
    %
    
    
    0.71
    %
    
    
    0.73
    %
    
    
    0.67
    %
    
    
    0.70
    %
    
    
    0.77
    %
    
    
    0.75
    %13
    
    
    1.82
    %
    
    
    1.39
    %
    
    
    1.38
    %
    
    
    1.43
    %
    
    
    1.21
    %
    
    
    0.98
    %
    
    
    0.80
    %
    
    
    0.83
    %
    
    
    0.75
    %
    
    
    0.76
    %
    
    
    0.87
    %14
    
    
    1.99
    %
    
    
    1.51
    %
    
    
    1.53
    %
    
    
    1.59
    %
    
    
    1.31
    %
    
    
    1.08
    %
    
    
    0.88
    %
    
    
    0.93
    %
    
    
    0.81
    %
    
    
    0.83
    %
    
    
    0.94
    %15
    
    
    2.14
    %
    
    
    1.68
    %
    
    
    1.70
    %
    
    
    1.77
    %
    
    
    1.40
    %
    
    
    1.20
    %
    
    
    0.97
    %
    
    
    1.03
    %
    
    
    0.88
    %
    
    
    0.91
    %16
    
    
    2.27
    %
    
    
    1.83
    %
    
    
    1.88
    %
    
    
    1.92
    %
    
    
    1.50
    %
    
    
    1.31
    %
    
    
    1.07
    %
    
    
    1.09
    %
    
    
    0.93
    %
    
    
    0.98
    %17
    
    
    2.45
    %
    
    
    1.99
    %
    
    
    2.03
    %
    
    
    2.05
    %
    
    
    1.60
    %
    
    
    1.41
    %
    
    
    1.16
    %
    
    
    1.19
    %
    
    
    1.00
    %
    
    
    1.03
    %18
    
    
    2.62
    %
    
    
    2.16
    %
    
    
    2.15
    %
    
    
    2.16
    %
    
    
    1.70
    %
    
    
    1.53
    %
    
    
    1.25
    %
    
    
    1.24
    %
    
    
    1.06
    %19
    
    
    2.80
    %
    
    
    2.31
    %
    
    
    2.28
    %
    
    
    2.25
    %
    
    
    1.85
    %
    
    
    1.66
    %
    
    
    1.33
    %
    
    
    1.30
    %
    
    
    1.12
    %20
    
    
    2.99
    %
    
    
    2.46
    %
    
    
    2.41
    %
    
    
    2.37
    %
    
    
    1.99
    %
    
    
    1.76
    %
    
    
    1.40
    %
    
    
    1.36
    %
    
    
    1.18
    %21
    
    
    3.15
    %
    
    
    2.60
    %
    
    
    2.52
    %
    
    
    2.49
    %
    
    
    2.14
    %
    
    
    1.87
    %
    
    
    1.45
    %
    
    
    1.42
    %22
    
    
    3.31
    %
    
    
    2.72
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.27
    %
    
    
    1.95
    %
    
    
    1.50
    %
    
    
    1.47
    %23
    
    
    3.45
    %
    
    
    2.86
    %
    
    
    2.74
    %
    
    
    2.73
    %
    
    
    2.37
    %
    
    
    2.02
    %
    
    
    1.57
    %
    
    
    1.54
    %24
    
    
    3.58
    %
    
    
    2.95
    %
    
    
    2.83
    %
    
    
    2.84
    %
    
    
    2.47
    %
    
    
    2.09
    %
    
    
    1.62
    %25
    
    
    3.69
    %
    
    
    3.03
    %
    
    
    2.96
    %
    
    
    2.95
    %
    
    
    2.57
    %
    
    
    2.16
    %
    
    
    1.69
    %26
    
    
    3.80
    %
    
    
    3.13
    %
    
    
    3.08
    %
    
    
    3.06
    %
    
    
    2.63
    %
    
    
    2.21
    %
    
    
    1.74
    %27
    
    
    3.92
    %
    
    
    3.22
    %
    
    
    3.21
    %
    
    
    3.17
    %
    
    
    2.68
    %
    
    
    2.27
    %28
    
    
    4.02
    %
    
    
    3.33
    %
    
    
    3.31
    %
    
    
    3.25
    %
    
    
    2.73
    %
    
    
    2.34
    %29
    
    
    4.12
    %
    
    
    3.41
    %
    
    
    3.41
    %
    
    
    3.32
    %
    
    
    2.78
    %
    
    
    2.40
    %30
    
    
    4.22
    %
    
    
    3.50
    %
    
    
    3.48
    %
    
    
    3.38
    %
    
    
    2.85
    %31
    
    
    4.30
    %
    
    
    3.58
    %
    
    
    3.56
    %
    
    
    3.43
    %
    
    
    2.91
    %32
    
    
    4.39
    %
    
    
    3.66
    %
    
    
    3.62
    %
    
    
    3.48
    %
    
    
    2.93
    %33
    
    
    4.49
    %
    
    
    3.73
    %
    
    
    3.67
    %
    
    
    3.55
    %34
    
    
    4.56
    %
    
    
    3.78
    %
    
    
    3.71
    %
    
    
    3.61
    %35
    
    
    4.63
    %
    
    
    3.84
    %
    
    
    3.74
    %
    
    
    3.63
    %36
    
    
    4.69
    %
    
    
    3.86
    %
    
    
    3.80
    %37
    
    
    4.74
    %
    
    
    3.90
    %
    
    
    3.84
    %38
    
    
    4.77
    %
    
    
    3.93
    %
    
    
    3.86
    %39
    
    
    4.80
    %
    
    
    3.97
    %40
    
    
    4.84
    %
    
    
    4.01
    %41
    
    
    4.87
    %
    
    
    4.02
    %42
    
    
    4.91
    %43
    
    
    4.90
    %Prime Mix (2)
    
    
    70
    %
    
    
    87
    %
    
    
    85
    %
    
    
    80
    %
    
    
    80
    %
    
    
    82
    %
    
    
    84
    %
    
    
    82
    %
    
    
    82
    %
    
    
    82
    %
    
    
    81
    %
    
    
    78
    %
    
    
    78
    %
    
    
    77
    %
    
    
    76
    %
 
 (1)
    
    Represents the number of months since the inception of the securitization.(2)
    
    Represents the original percentage of prime contracts securitized within each pool. 26




---



##### Table of Contents



Real Estate Loan Quality
  Nonperforming Assets
   Allowance for Credit Losses
  27




---



##### Table of Contents



September 30,
    
    December 31,2005
    
    2004(Dollars in thousands)Total loans (1)
    
    $
    13,222,321
    
    
    $
    12,135,748Allowance for credit losses
    
    
    320,001
    
    
    
    315,402Allowance for real estate owned losses
    
    
    
    
    
    
    100Loans past due 60 days or more (2)
    
    
    76,593
    
    
    
    69,645Nonperforming loans (3)
    
    
    49,536
    
    
    
    51,883Nonperforming assets (4)
    
    
    56,701
    
    
    
    60,229Allowance for credit losses as a percent of:Total loans (1)
    
    
    2.4
    %
    
    
    2.6
    %Loans past due 60 days or more
    
    
    417.8
    %
    
    
    452.9
    %Nonperforming loans
    
    
    646.0
    %
    
    
    607.9
    %Total allowance for credit losses and REO losses as a percent
of nonperforming assets
    
    
    564.4
    %
    
    
    523.8
    %Nonperforming loans as a percent of total loans
    
    
    0.4
    %
    
    
    0.4
    %Nonperforming assets as a percent of total assets
    
    
    0.3
    %
    
    
    0.4
    %
 
 (1)
    
    Loans net of unearned interest and undisbursed loan proceeds.(2)
    
    Excludes Chapter 13 bankruptcy accounts on nonaccrual status.(3)
    
    All nonperforming loans are on nonaccrual.(4)
    
    Includes nonperforming loans, repossessed automobiles and real estate owned, net of
allowance.


Deposits






September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)No minimum term:Demand deposit accounts
    
    $
    301
    
    
    $
    705Passbook accounts
    
    
    4,239
    
    
    
    5,880Money market accounts
    
    
    1,268,821
    
    
    
    1,257,074Noninterest bearing deposits
    
    
    294,209
    
    
    
    268,556Core deposits
    
    
    1,567,570
    
    
    
    1,532,215Certificate accounts:Certificates (30 days to five years)
    
    
    689,057
    
    
    
    586,678Individual retirement accounts
    
    
    60,778
    
    
    
    64,606$
    2,317,405
    
    
    $
    2,183,499




28



---



##### Table of Contents



Capital Resources and Liquidity
 Overview
  Principal Sources of Cash
 
    
    Automobile Contract Securitizations Contract securitizations totaled $2.7 billion and $5.7 billion for the three
and nine months ended September 30, 2005, compared with $1.6 billion and $4.5 billion for the same respective
periods in 2004. All securitizations in 2005 and 2004 were public securitization transactions.
 
    
    Collections of Principal and Interest from Loans and MBS and Release of Cash from Spread Accounts Total principal
and interest collections on MBS, loans owned by us, loans securitized under a financial guarantee insurance policy
issued by Financial Security Assurance, and release of cash from spread accounts on securitizations that are credit
enhanced through the issuance of subordinated notes totaled $1.1 billion and $3.3 billion for the three and nine
months ended September 30, 2005, respectively, compared with $1.2 billion and $4.0 billion for the same respective
periods in 2004. The decrease is due to our shift to senior/subordinated securitizations where principal and
interest collections are held in restricted cash accounts until distributed in accordance with the terms of the
transactions.
 
    
    Deposits- Deposits were $2.3 billion at September 30, 2005 compared with $2.2 billion at December 31, 2004.
 
    
    FHLB Advances FHLB advances were $1.1 billion at both September 30, 2005 and December 31, 2004.
 
    
    Subordinated Debentures- At September 30, 2005 and December 31, 2004, there was $300 million outstanding on our
9.625% subordinated debentures due in 2012, excluding discounts and issue costs.
 Principal Uses of Cash
 
    
    Acquisition of Loans and Investment Securities Loan originations totaled $2.3 billion and $6.4 billion for the
three and nine months ended September 30, 2005, respectively, compared with $1.9 billion and $5.3 billion for the
same respective periods in 2004. We purchased $296 million and $864 million of mortgage-backed securities and other
investment securities during the three and nine months ended September 30, 2005, respectively, compared with $252
million and $1.0 billion for the same respective periods in 2004.
 
    
    Payments of Principal and Interest on Securitizations Payments of principal and interest to noteholders totaled
$1.7 billion and $4.9 billion for the three and nine months ended September 30, 2005, respectively, compared with
$1.7 billion and $4.6 billion for the same respective periods in 2004.
 
    
    Amounts Paid to Dealers Participation paid by us to dealers was $45.2 million and $130 million for the three and
nine months ended September 30, 2005, respectively, compared with $42.3 million and $117 million for the same
respective periods in 2004.
 29




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##### Table of Contents




    
    Operating Our Business Noninterest expenses totaled $78.0 million and $225 million for the three and nine months
ended September 30, 2005, respectively, compared with $74.9 million and $220 million for the same respective
periods in 2004.
 Capital Requirements
   Tier 1Tangible
    
    Core
    
    Risk-Based
    
    Risk-BasedCapital
    
    Capital
    
    Capital
    
    Capital(Dollars in thousands)September 30, 2005Actual Capital:Amount
    
    $
    1,377,520
    
    
    $
    1,377,520
    
    
    $
    1,374,472
    
    
    $
    1,828,496Capital ratio
    
    
    8.80
    %
    
    
    8.80
    %
    
    
    11.00
    %
    
    
    14.63
    %FIRREA minimum required capital:Amount
    
    $
    234,858
    
    
    $
    469,716
    
    
    
    N/A
    
    
    $
    999,959Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    1,142,662
    
    
    $
    907,804
    
    
    
    N/A
    
    
    $
    828,537FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    782,860
    
    
    $
    749,969
    
    
    $
    1,249,949Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    594,660
    
    
    $
    624,503
    
    
    $
    578,547December 31, 2004Actual Capital:Amount
    
    $
    1,196,579
    
    
    $
    1,196,579
    
    
    $
    1,193,529
    
    
    $
    1,619,317Capital ratio
    
    
    8.99
    %
    
    
    8.99
    %
    
    
    11.59
    %
    
    
    15.72
    %FIRREA minimum required capital:Amount
    
    $
    199,654
    
    
    $
    399,308
    
    
    
    N/A
    
    
    $
    824,105Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    996,925
    
    
    $
    797,271
    
    
    
    N/A
    
    
    $
    795,212FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    665,513
    
    
    $
    618,079
    
    
    $
    1,030,131Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    531,066
    
    
    $
    575,450
    
    
    $
    589,186
 30




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##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Bank shareholders equity  GAAP basis
    
    $
    1,158,277
    
    
    $
    993,959Plus: Net unrealized losses
    
    
    22,811
    
    
    
    37,529Plus: Minority interest in equity of subsidiaries
    
    
    196,824
    
    
    
    165,484Less: Non-permissible activities
    
    
    (392
    )
    
    
    (393
    )Total tangible and core capital
    
    
    1,377,520
    
    
    
    1,196,579Adjustments for risk-based capital:Subordinated debentures (1)
    
    
    296,552
    
    
    
    295,838General loan valuation allowance (2)
    
    
    157,472
    
    
    
    129,950Low-level recourse deduction
    
    
    (3,048
    )
    
    
    (3,050
    )Risk-based capital
    
    $
    1,828,496
    
    
    $
    1,619,317
 
 (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
    Changes in Interest Rates
    
    NPV Ratio+100 basis points
    
    
    11.87
    %Base case
    
    
    12.03
    %- 100 basis points
    
    
    12.03
    %
    32




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##### Table of Contents



Item 4. Controls and Procedures
   33




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 We or our subsidiaries are involved as a party to certain legal proceedings
incidental to our business. We are vigorously defending these actions and
do not believe that the outcome of these proceedings will have a material
effect upon our financial condition, results of operations and cash flows.Beginning on May 24, 2004 and continuing thereafter, a total of four
separate purported class action lawsuits relating to the announcement by WFS
and us that we had entered into the May 23, 2004 merger agreement, pursuant
to which we would acquire the outstanding 16% common stock interest of WFS
not already owned by the Bank, and WFS would be merged with and into the
Bank were filed in the Orange County, California Superior Court against WFS,
us, WFS individual board members, and our individual board members. On
June 24, 2004, the actions were consolidated under the caption In re WFS
Financial Shareholder Litigation, Case No. 04CC00559, also known as the
Action. On July 16, 2004, the court granted a motion by plaintiff Alaska
Hotel & Restaurant Employees Pension Trust Fund, in Case No. 04CC00573, to
amend the consolidation order to designate it the lead plaintiff in the
Action. The lead plaintiff filed a consolidated amended complaint on August
9, 2004, and then filed the present corrected consolidated amended
complaint on September 15, 2004. All of the shareholder-related actions
allege, among other things, that the defendants breached their respective
fiduciary duties and seek to enjoin or rescind the transaction and obtain an
unspecified sum in damages and costs, including attorneys fees and
expenses. The parties tentatively agreed to a full and final resolution of
the Action and, on January 19, 2005, the parties entered into a Memorandum
of Understanding, also known as the MOU, concerning the terms of the
tentative settlement. Pursuant to the terms of the MOU, the parties agreed,
among other things, that additional disclosures would be made in our
Registration Statement on Form S-4 related to the May 23, 2004 merger
agreement (as filed with the SEC on July 16, 2004), the claims asserted in
the Action would be fully released, and the Action would be dismissed with
prejudice. Further, pursuant to the MOU, the defendants agreed to pay
plaintiffs attorneys fees and expenses in the amount of $675,000, or in
such lesser amount as the Court may order. The effectiveness of the
settlement agreement was contingent on the transaction actually occurring.
The parties prepared a formal settlement agreement based on the terms of the
MOU and obtained preliminary approval for the settlement from the Court on
June 17, 2005. The parties further agreed, with the Courts consent, that
the parties would not proceed with providing notice of the proposed
settlement to shareholders nor schedule a final hearing on approval of the
settlement unless and until the necessary regulatory approvals for the
transaction have been obtained. Subsequently, on September 12, 2005, we
entered into an Agreement and Plan of Merger by and among Wachovia
Corporation, also known as Wachovia, WFS, Western Financial Bank and us,
also known as the Wachovia Merger Agreement. Accordingly, on September 12,
2005, we terminated the merger agreement dated as of May 23, 2004, which is
the subject of the Action. Thereafter, counsel for plaintiffs indicated
that they are evaluating the Wachovia Merger Agreement to determine whether
and to what extent they might proceed with the Action. A further status
conference in the Action is scheduled for January 18, 2006. 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.
 34




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 3. Defaults Upon Senior Securities
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders
 None
 
 Item 5. Other Information
 None
 
 Item 6. Exhibits
 Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger, dated as of September 12, 2005, as amended and restated (1)10.1
    
    Severance Pay Policy10.2
    
    Westcorp 2001 Stock Incentive Plan31.1
    
    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 Form 8-K (File No. 001-09910), filed October 26,
2005, incorporated herein by reference under Exhibit Number indicated. 35




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##### Table of Contents



SIGNATURES
  Westcorp
 
  Date: November 7, 2005
    By:
    /s/ Ernest S. RadyErnest S. RadyChairman of the Board and
Chief Executive Officer Date: November 7, 2005
    By:
    /s/  robert j.  costantinoRobert J. CostantinoExecutive Vice President,
Chief Financial Officer and
Chief Operating Officer 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger, dated as of September 12, 2005, as amended and restated (1)10.1
    
    Severance Pay Policy10.2
    
    Westcorp 2001 Stock Incentive Plan31.1
    
    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 Form 8-K (File No. 001-09910), filed October 26,
2005, incorporated herein by reference under Exhibit Number indicated. 37