##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
  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 
  þ o
 þ o




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WESTCORP AND SUBSIDIARIES
 FORM 10-Q
 June 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 June 30, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004
    
    
    3Consolidated Statements of Changes in Shareholders Equity for the Periods Ended June 30, 2005 and December 31, 2004
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004
    
    
    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
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    32PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    33Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3.
    
    Defaults Upon Senior Securities
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5.
    
    Other Information
    
    
    34Item 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)June 30, 2005
    
    
    December 31, 2004(Dollars in thousands)ASSETSCash
    
    $
    120,780
    
    
    $
    89,333Interest bearing deposits with other financial institutions
    
    
    2,629
    
    
    
    4,177Other short-term investments
    
    
    275,000
    
    
    
    125,000Cash and due from banks
    
    
    398,409
    
    
    
    218,510Restricted cash
    
    
    494,374
    
    
    
    417,833Investment securities available for sale
    
    
    180,410
    
    
    
    119,811Mortgage-backed securities available for sale
    
    
    2,643,222
    
    
    
    2,649,758Loans receivable
    
    
    12,819,403
    
    
    
    12,135,748Allowance for credit losses
    
    
    (318,776
    )
    
    
    (315,402
    )Loans receivable, net
    
    
    12,500,627
    
    
    
    11,820,346Interest receivable
    
    
    82,925
    
    
    
    79,825Premises and equipment, net
    
    
    74,536
    
    
    
    76,526Other assets
    
    
    169,731
    
    
    
    162,731TOTAL ASSETS
    
    $
    16,544,234
    
    
    $
    15,545,340LIABILITIESDeposits
    
    $
    2,262,888
    
    
    $
    2,183,499Notes payable on automobile secured financing
    
    
    10,212,648
    
    
    
    10,242,900Federal Home Loan Bank advances
    
    
    1,910,463
    
    
    
    1,139,521Subordinated debentures
    
    
    295,856
    
    
    
    295,321Other liabilities
    
    
    215,322
    
    
    
    178,939TOTAL LIABILITIES
    
    
    14,897,177
    
    
    
    14,040,180Minority interest
    
    
    185,197
    
    
    
    165,484SHAREHOLDERS EQUITYCommon stock (par value $1.00 per share; authorized 65,000,000
shares; issued and outstanding 52,154,159 shares at June 30, 2005
and 51,895,258 shares at December 31, 2004)
    
    
    52,154
    
    
    
    51,895Paid-in capital
    
    
    722,487
    
    
    
    717,098Retained earnings
    
    
    717,910
    
    
    
    606,987Accumulated other comprehensive loss, net of tax
    
    
    (30,691
    )
    
    
    (36,304
    )TOTAL SHAREHOLDERS EQUITY
    
    
    1,461,860
    
    
    
    1,339,676TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    16,544,234
    
    
    $
    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 Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Interest income:Loans, including fees
    
    $
    307,929
    
    
    $
    285,893
    
    
    $
    609,544
    
    
    $
    572,193Mortgage-backed securities
    
    
    27,516
    
    
    
    22,150
    
    
    
    54,652
    
    
    
    46,838Investment securities
    
    
    1,210
    
    
    
    1,122
    
    
    
    2,348
    
    
    
    2,180Other
    
    
    6,063
    
    
    
    1,818
    
    
    
    10,210
    
    
    
    3,431TOTAL INTEREST INCOME
    
    
    342,718
    
    
    
    310,983
    
    
    
    676,754
    
    
    
    624,642Interest expense:Deposits
    
    
    21,479
    
    
    
    13,884
    
    
    
    37,989
    
    
    
    27,191Notes payable on automobile secured financing
    
    
    93,043
    
    
    
    88,591
    
    
    
    180,527
    
    
    
    182,809Other
    
    
    13,946
    
    
    
    11,360
    
    
    
    27,061
    
    
    
    23,071TOTAL INTEREST EXPENSE
    
    
    128,468
    
    
    
    113,835
    
    
    
    245,577
    
    
    
    233,071NET INTEREST INCOME
    
    
    214,250
    
    
    
    197,148
    
    
    
    431,177
    
    
    
    391,571Provision for credit losses
    
    
    37,699
    
    
    
    51,539
    
    
    
    86,677
    
    
    
    113,834NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES
    
    
    176,551
    
    
    
    145,609
    
    
    
    344,500
    
    
    
    277,737Noninterest income:Automobile lending
    
    
    14,709
    
    
    
    25,067
    
    
    
    30,040
    
    
    
    50,815Insurance income
    
    
    2,150
    
    
    
    1,690
    
    
    
    4,195
    
    
    
    3,514Mortgage banking
    
    
    60
    
    
    
    249
    
    
    
    177
    
    
    
    484Other
    
    
    2,656
    
    
    
    548
    
    
    
    4,456
    
    
    
    1,431TOTAL NONINTEREST INCOME
    
    
    19,575
    
    
    
    27,554
    
    
    
    38,868
    
    
    
    56,244Noninterest expenses:Salaries and associate benefits
    
    
    43,151
    
    
    
    45,369
    
    
    
    86,937
    
    
    
    87,453Credit and collections
    
    
    8,021
    
    
    
    7,710
    
    
    
    16,588
    
    
    
    16,302Data processing
    
    
    4,866
    
    
    
    4,082
    
    
    
    9,488
    
    
    
    8,261Occupancy
    
    
    3,902
    
    
    
    3,851
    
    
    
    7,837
    
    
    
    7,727Other
    
    
    14,153
    
    
    
    12,623
    
    
    
    25,833
    
    
    
    25,291TOTAL NONINTEREST EXPENSES
    
    
    74,093
    
    
    
    73,635
    
    
    
    146,683
    
    
    
    145,034INCOME BEFORE INCOME TAX
    
    
    122,033
    
    
    
    99,528
    
    
    
    236,685
    
    
    
    188,947Income tax
    
    
    47,099
    
    
    
    39,725
    
    
    
    92,738
    
    
    
    75,039INCOME BEFORE MINORITY INTEREST
    
    
    74,934
    
    
    
    59,803
    
    
    
    143,947
    
    
    
    113,908Minority interest in earnings of subsidiaries
    
    
    9,616
    
    
    
    5,388
    
    
    
    17,947
    
    
    
    16,129NET INCOME
    
    $
    65,318
    
    
    $
    54,415
    
    
    $
    126,000
    
    
    $
    97,779Earnings per common share:Basic
    
    $
    1.25
    
    
    $
    1.05
    
    
    $
    2.42
    
    
    $
    1.89Diluted
    
    $
    1.24
    
    
    $
    1.04
    
    
    $
    2.39
    
    
    $
    1.86Weighted average number of common shares outstanding:Basic
    
    
    52,080,837
    
    
    
    51,823,013
    
    
    
    52,019,699
    
    
    
    51,780,338Diluted
    
    
    52,680,870
    
    
    
    52,483,220
    
    
    
    52,641,796
    
    
    
    52,531,365Dividends declared
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.30
    
    
    $
    0.28
  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, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    126,000
    
    
    
    
    
    
    
    126,000Unrealized losses on securities available
for sale, net of tax (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,797
    )
    
    
    (6,797
    )Unrealized gains on cash flow hedges,
net of tax (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    579
    
    
    
    579Reclassification adjustment for losses
on cash flow hedges included in income,
net of tax (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,831
    
    
    
    11,831Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131,613Issuance of subsidiary common stock
    
    
    
    
    
    
    
    
    
    
    (748
    )
    
    
    
    
    
    
    
    
    
    
    (748
    )Stock options expensed (5)
    
    
    
    
    
    
    
    
    
    
    2,014
    
    
    
    
    
    
    
    
    
    
    
    2,014Stock options exercised
    
    
    258,901
    
    
    
    259
    
    
    
    4,123
    
    
    
    
    
    
    
    
    
    
    
    4,382Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,077
    )
    
    
    
    
    
    
    (15,077
    )Balance at June 30, 2005
    
    
    52,154,159
    
    
    $
    52,154
    
    
    $
    722,487
    
    
    $
    717,910
    
    
    $
    (30,691
    )
    
    $
    1,461,860
 
 (1)
    
    The pre-tax amount of unrealized losses on securities available for sale was $11.3 million
for the six months ended June 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 $1.0 million for the six
months ended June 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 six months ended June 30, 2005 compared with unrealized
gains of $2.4 million for the year ended December 31, 2004.(4)
    
    The pre-tax amount of unrealized losses on cash flow hedges reclassified into earnings was
$19.7 million for the six months ended June 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 Six Months EndedJune 30,2005
    
    
    2004(Dollars in thousands)OPERATING ACTIVITIES:Net income
    
    $
    126,000
    
    
    $
    97,779Adjustments to reconcile net income to net cash provided by
operating activities:Provision for credit losses
    
    
    86,677
    
    
    
    113,834Amortization of loan fees and costs
    
    
    58,532
    
    
    
    61,388Amortization of losses on cash flow hedges
    
    
    17,757
    
    
    
    22,737Amortization of premium on mortgage-backed securities
    
    
    10,791
    
    
    
    23,748Depreciation
    
    
    6,312
    
    
    
    6,104Amortization, other
    
    
    597
    
    
    
    766Gain on sales, net
    
    
    (1,875
    )
    
    
    (6,619
    )Other
    
    
    682
    
    
    
    556Increase in other assets
    
    
    (14,025
    )
    
    
    (2,923
    )Increase in other liabilities
    
    
    36,624
    
    
    
    23,709Other, net
    
    
    17,948
    
    
    
    16,128NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    346,020
    
    
    
    357,207INVESTING ACTIVITIES:Increase in restricted cash
    
    
    (76,541
    )
    
    
    (127,188
    )Loans receivable:Origination of loans, net of fees and costs
    
    
    (4,191,539
    )
    
    
    (3,466,449
    )Loan payments and payoffs
    
    
    3,365,800
    
    
    
    2,862,392Investment and mortgage-backed securities available for sale:Purchases
    
    
    (568,221
    )
    
    
    (789,197
    )Proceeds from sale
    
    
    46,757
    
    
    
    100,365Payments received
    
    
    446,550
    
    
    
    639,035Purchase of premises and equipment
    
    
    (2,506
    )
    
    
    (5,226
    )Proceeds from sales of premises and equipment
    
    
    38
    
    
    
    4,499NET CASH USED IN INVESTING ACTIVITIES
    
    
    (979,662
    )
    
    
    (781,769
    )FINANCING ACTIVITIES:Increase in deposits
    
    
    87,689
    
    
    
    55,995Notes payable on automobile secured financing:Proceeds from issuance
    
    
    3,005,045
    
    
    
    2,949,305Payments on notes
    
    
    (3,032,322
    )
    
    
    (2,743,180
    )Decrease in securities sold under agreements to repurchase
    
    
    
    
    
    
    (218,741
    )Increase in FHLB advances
    
    
    770,941
    
    
    
    262,938Payments on subordinated debentures
    
    
    
    
    
    
    (22,365
    )Decrease in borrowings
    
    
    (239
    )
    
    
    (233
    )Proceeds from issuance of common stock
    
    
    4,382
    
    
    
    2,225Proceeds from issuance of subsidiary common stock
    
    
    340
    
    
    
    18Cash dividends
    
    
    (15,077
    )
    
    
    (13,979
    )Payments on cash flow hedges
    
    
    (7,218
    )
    
    
    (1,762
    )NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    813,541
    
    
    
    270,221INCREASE (DECREASE) IN CASH AND DUE FROM BANKS
    
    
    179,899
    
    
    
    (154,341
    )Cash and due from banks at beginning of year
    
    
    218,510
    
    
    
    382,082CASH AND DUE FROM BANKS AT END OF PERIOD
    
    $
    398,409
    
    
    $
    227,741
  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
  June 30, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value(Dollars in thousands)GNMA certificates
    
    $
    2,587,419
    
    
    $
    9,884
    
    
    $
    14,636
    
    
    $
    2,582,667FNMA participation certificates
    
    
    26,512
    
    
    
    146
    
    
    
    189
    
    
    
    26,469FHLMC participation certificates
    
    
    32,859
    
    
    
    7
    
    
    
    250
    
    
    
    32,616Other
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470$
    2,648,260
    
    
    $
    10,037
    
    
    $
    15,075
    
    
    $
    2,643,222
 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
   June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Consumer:Automobile contracts
    
    $
    12,339,936
    
    
    $
    11,599,528Other consumer
    
    
    2,713
    
    
    
    4,386Unearned discounts
    
    
    (32,754
    )
    
    
    (38,871
    )12,309,895
    
    
    
    11,565,043Real estate:Mortgage
    
    
    160,976
    
    
    
    202,095Construction
    
    
    56,867
    
    
    
    48,730217,843
    
    
    
    250,825Undisbursed loan proceeds
    
    
    (37,287
    )
    
    
    (37,061
    )180,556
    
    
    
    213,764Commercial
    
    
    134,706
    
    
    
    165,80612,625,157
    
    
    
    11,944,613Dealer participation
    
    
    210,181
    
    
    
    191,336Deferred contract fees
    
    
    (15,935
    )
    
    
    (201
    )Loans receivable
    
    
    12,819,403
    
    
    
    12,135,748Allowance for credit losses
    
    
    (318,776
    )
    
    
    (315,402
    )Loans receivable, net
    
    $
    12,500,627
    
    
    $
    11,820,346
  7




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##### Table of Contents



Note 4  Allowance for Credit Losses
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of period
    
    $
    315,882
    
    
    $
    303,062
    
    
    $
    315,402
    
    
    $
    301,602Chargeoffs:Consumer loans
    
    
    (58,060
    )
    
    
    (70,213
    )
    
    
    (130,017
    )
    
    
    (155,714
    )Commercial loans
    
    
    (118
    )
    
    
    
    
    
    
    (118
    )Mortgage loans
    
    
    (92
    )
    
    
    (63
    )
    
    
    (138
    )
    
    
    (130
    )(58,270
    )
    
    
    (70,276
    )
    
    
    (130,273
    )
    
    
    (155,844
    )Recoveries:Consumer loans
    
    
    23,368
    
    
    
    22,954
    
    
    
    46,865
    
    
    
    47,679Commercial loans
    
    
    83
    
    
    
    14
    
    
    
    91
    
    
    
    22Mortgage loans
    
    
    14
    
    
    
    
    
    
    
    1423,465
    
    
    
    22,968
    
    
    
    46,970
    
    
    
    47,701Net chargeoffs
    
    
    (34,805
    )
    
    
    (47,308
    )
    
    
    (83,303
    )
    
    
    (108,143
    )Provision for credit losses
    
    
    37,699
    
    
    
    51,539
    
    
    
    86,677
    
    
    
    113,834Balance at end of period
    
    $
    318,776
    
    
    $
    307,293
    
    
    $
    318,776
    
    
    $
    307,293Ratio of net chargeoffs
during the period
(annualized) to average loans
outstanding during the period
    
    
    1.1
    %
    
    
    1.7
    %
    
    
    1.4
    %
    
    
    1.9
    %Ratio of allowance for credit
losses to loans at the end of
the period
    
    
    2.5
    %
    
    
    2.7
    %
    
    
    2.5
    %
    
    
    2.7
    %
 8




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##### Table of Contents



Note 5  Deposits
  June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Noninterest bearing deposits
    
    $
    323,746
    
    
    $
    268,556Demand deposit accounts
    
    
    1,717
    
    
    
    705Passbook accounts
    
    
    4,751
    
    
    
    5,880Money market deposit accounts
    
    
    1,209,755
    
    
    
    1,257,074Certificate accounts
    
    
    722,919
    
    
    
    651,284$
    2,262,888
    
    
    $
    2,183,499
 Weighted Average
    
    
    
    
    
    
    Weighted AverageRate for the
    
    
    
    
    
    
    Rate for theWeighted Average
    
    
    Six Months Ended
    
    
    Effects of Hedging
    
    
    Six Months EndedRate at
    
    
    June 30, 2005
    
    
    for the
    
    
    June 30, 2005June 30,
    
    
    Excluding the Effects
    
    
    Six Months Ended
    
    
    Including the Effects2005(1)
    
    
    of Hedging
    
    
    June 30, 2005
    
    
    of HedgingDemand deposit accounts
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    
    
    
    
    0.1
    %Passbook accounts
    
    
    0.4
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3Money market deposit
accounts
    
    
    2.7
    
    
    
    2.2
    
    
    
    1.2
    %
    
    
    3.4Certificate accounts
    
    
    3.0
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    5.3
 
 (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
  June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Unrealized (loss) gain on marketable securities
    
    $
    (3,149
    )
    
    $
    3,648Unrealized
(loss) gain on interest rate swaps (1)Deposits
    
    
    (24,223
    )
    
    
    (29,203
    )Automobile secured financing
    
    
    1,216
    
    
    
    (353
    )(23,007
    )
    
    
    (29,556
    )Realized (loss) gain on settled cash flow hedges: (1)Deposits
    
    
    (4,929
    )
    
    
    (8,369
    )Automobile secured financing
    
    
    394
    
    
    
    (2,027
    )(4,535
    )
    
    
    (10,396
    )Total accumulated other comprehensive loss
    
    $
    (30,691
    )
    
    $
    (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 Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Net income
    
    $
    65,318
    
    
    $
    54,414
    
    
    $
    126,000
    
    
    $
    97,779Unrealized gains
(losses) on
securities
available for sale,
net of tax
    
    
    6,239
    
    
    
    (23,380
    )
    
    
    (6,797
    )
    
    
    (20,267
    )Unrealized (losses)
gains on cash flow
hedges, net of tax
    
    
    (9,836
    )
    
    
    32,260
    
    
    
    579
    
    
    
    11,067Reclassification
adjustment for
gains on securities
available for sale
included in income,
net of tax
    
    
    
    
    
    
    (1,446
    )
    
    
    
    
    
    
    (1,446
    )Reclassification
adjustment for
losses on cash flow
hedges included in
income, net of tax
    
    
    5,702
    
    
    
    12,528
    
    
    
    11,831
    
    
    
    26,626Comprehensive income
    
    $
    67,423
    
    
    $
    74,376
    
    
    $
    131,613
    
    
    $
    113,759
 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
    
    
    78,178
    
    
    
    0.70
    
    
    $
    12.66
    
    
    
    78,178
    
    
    $
    12.6613.00  14.00
    
    
    125,625
    
    
    
    1.64
    
    
    
    13.25
    
    
    
    125,625
    
    
    
    13.2515.00  16.00
    
    
    1,000
    
    
    
    2.36
    
    
    
    15.25
    
    
    
    1,000
    
    
    
    15.2517.00  18.00
    
    
    170,571
    
    
    
    2.65
    
    
    
    17.32
    
    
    
    170,571
    
    
    
    17.3218.00  19.00
    
    
    573,572
    
    
    
    3.05
    
    
    
    18.58
    
    
    
    372,246
    
    
    
    18.5619.00  20.00
    
    
    5,000
    
    
    
    4.10
    
    
    
    19.85
    
    
    
    2,500
    
    
    
    19.8520.00  21.00
    
    
    3,000
    
    
    
    4.35
    
    
    
    20.41
    
    
    
    1,500
    
    
    
    20.4142.00  43.00
    
    
    476,915
    
    
    
    3.64
    
    
    
    42.19
    
    
    
    159,476
    
    
    
    42.1944.00  45.00
    
    
    20,000
    
    
    
    4.82
    
    
    
    44.4846.00  47.00
    
    
    498,000
    
    
    
    4.67
    
    
    
    46.6649.00  50.00
    
    
    5,000
    
    
    
    4.94
    
    
    
    49.97$
    12.00  50.00
    
    
    1,956,861
    
    
    
    3.42
    
    
    $
    31.14
    
    
    
    911,096
    
    
    $
    21.23
  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
    
    
    (258,901
    )
    
    
    16.93Forfeited
    
    
    (95,120
    )
    
    
    38.02Outstanding at June 30, 2005
    
    
    1,956,861
    
    
    $
    31.14
  11




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Net income, as reported
    
    $
    65,318
    
    
    $
    54,415
    
    
    $
    126,000
    
    
    $
    97,779Add: Stock-based employee
compensation expense
included in reported net
income, net of related tax
effects
    
    
    847
    
    
    
    474
    
    
    
    1,225
    
    
    
    709Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects
    
    
    900
    
    
    
    609
    
    
    
    1,387
    
    
    
    1,015Pro forma net income
    
    $
    65,265
    
    
    $
    54,280
    
    
    $
    125,838
    
    
    $
    97,473Basic earnings per share:As reported
    
    $
    1.25
    
    
    $
    1.05
    
    
    $
    2.42
    
    
    $
    1.89Pro forma
    
    $
    1.25
    
    
    $
    1.05
    
    
    $
    2.42
    
    
    $
    1.88Diluted earnings per share:As reported
    
    $
    1.24
    
    
    $
    1.04
    
    
    $
    2.39
    
    
    $
    1.86Pro forma
    
    $
    1.24
    
    
    $
    1.03
    
    
    $
    2.39
    
    
    $
    1.86
 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
 Note 13  Subsequent Events
   13




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##### 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 Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands, except per share amounts)Consolidated Statements of Income Data:Interest income
    
    $
    342,718
    
    
    $
    310,983
    
    
    $
    676,754
    
    
    $
    624,642Interest expense
    
    
    128,468
    
    
    
    113,835
    
    
    
    245,577
    
    
    
    233,071Net interest income
    
    
    214,250
    
    
    
    197,148
    
    
    
    431,177
    
    
    
    391,571Provision for credit losses
    
    
    37,699
    
    
    
    51,539
    
    
    
    86,677
    
    
    
    113,834Net interest income after provision for credit losses
    
    
    176,551
    
    
    
    145,609
    
    
    
    344,500
    
    
    
    277,737Noninterest income
    
    
    19,575
    
    
    
    27,554
    
    
    
    38,868
    
    
    
    56,244Noninterest expense
    
    
    74,093
    
    
    
    73,635
    
    
    
    146,683
    
    
    
    145,034Income before income tax
    
    
    122,033
    
    
    
    99,528
    
    
    
    236,685
    
    
    
    188,947Income tax
    
    
    47,099
    
    
    
    39,725
    
    
    
    92,738
    
    
    
    75,039Income before minority interest
    
    
    74,934
    
    
    
    59,803
    
    
    
    143,947
    
    
    
    113,908Minority interest in earnings of subsidiaries
    
    
    9,616
    
    
    
    5,388
    
    
    
    17,947
    
    
    
    16,129Net income
    
    $
    65,318
    
    
    $
    54,415
    
    
    $
    126,000
    
    
    $
    97,779Weighted average number of shares and common share
equivalents  diluted
    
    
    52,680,870
    
    
    
    52,483,220
    
    
    
    52,641,796
    
    
    
    52,531,365Earnings per common share  diluted
    
    $
    1.24
    
    
    $
    1.04
    
    
    $
    2.39
    
    
    $
    1.86Dividends declared per share
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.30
    
    
    $
    0.28Dividend payout ratio
    
    
    12.1
    %
    
    
    13.5
    %
    
    
    12.5
    %
    
    
    15.0
    %
 14




---



##### Table of Contents



June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Consolidated Statements of Financial Condition Data:Assets:Cash and due from banks
    
    $
    398,409
    
    
    $
    218,510Loans:Consumer (1)
    
    
    12,504,141
    
    
    
    11,756,178Mortgage (2)
    
    
    180,556
    
    
    
    213,764Commercial
    
    
    134,706
    
    
    
    165,806Mortgage-backed securities
    
    
    2,643,222
    
    
    
    2,649,758Investments and time deposits
    
    
    674,784
    
    
    
    537,644Other assets
    
    
    327,192
    
    
    
    319,082Less: Allowance for credit losses
    
    
    318,776
    
    
    
    315,402Total assets
    
    $
    16,544,234
    
    
    $
    15,545,340Liabilities and Shareholders Equity:Deposits
    
    $
    2,262,888
    
    
    $
    2,183,499Notes payable on automobile secured financing
    
    
    10,212,648
    
    
    
    10,242,900FHLB advances and other borrowings
    
    
    1,918,801
    
    
    
    1,148,098Subordinated debentures
    
    
    295,856
    
    
    
    295,321Other liabilities
    
    
    206,984
    
    
    
    170,362Total liabilities
    
    
    14,897,177
    
    
    
    14,040,180Minority interest in equity of subsidiaries
    
    
    185,197
    
    
    
    165,484Shareholders equity
    
    
    1,461,860
    
    
    
    1,339,676Total liabilities and shareholders equity
    
    $
    16,544,234
    
    
    $
    15,545,340
 At or For the Three
    
    
    At or For the SixMonths Ended June 30,
    
    
    Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Other Selected Financial Data:Average automobile contracts managed
    
    $
    12,019,325
    
    
    $
    10,946,273
    
    
    $
    11,860,935
    
    
    $
    10,836,160Average shareholders equity (3)
    
    $
    1,461,426
    
    
    $
    1,253,476
    
    
    $
    1,431,924
    
    
    $
    1,230,284Return on average shareholders equity (3)
    
    
    17.88
    %
    
    
    17.36
    %
    
    
    17.60
    %
    
    
    15.90
    %Book value per share (3)
    
    $
    28.62
    
    
    $
    24.63
    
    
    $
    28.62
    
    
    $
    24.63Total equity to assets (4)
    
    
    10.14
    %
    
    
    9.52
    %
    
    
    10.14
    %
    
    
    9.52
    %Originations:Consumer loans (1)
    
    $
    2,014,970
    
    
    $
    1,668,143
    
    
    $
    3,798,691
    
    
    $
    3,254,304Mortgage loans (2)
    
    
    7,336
    
    
    
    8,798
    
    
    
    15,345
    
    
    
    11,455Commercial loans
    
    
    144,142
    
    
    
    58,839
    
    
    
    310,424
    
    
    
    125,718Total loan originations
    
    $
    2,166,448
    
    
    $
    1,735,780
    
    
    $
    4,124,460
    
    
    $
    3,391,477Interest rate spread
    
    
    4.95
    %
    
    
    5.02
    %
    
    
    5.11
    %
    
    
    5.03
    %
 
 (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 Estimates
  Allowance for Credit Losses
   Derivative Financial Instruments
    Accrued Taxes
  16




---



##### Table of Contents



Proposed Acquisition and Merger
      Results of Operations
 Net Interest Income
  17




---



##### Table of Contents



For the Three Months Ended June 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,591,591
    
    
    $
    27,516
    
    
    
    4.25
    %
    
    $
    2,574,744
    
    
    $
    22,150
    
    
    
    3.44
    %Other short-term investments
    
    
    799,736
    
    
    
    6,001
    
    
    
    3.01
    
    
    
    663,896
    
    
    
    1,809
    
    
    
    1.10Investment securities
    
    
    131,525
    
    
    
    1,210
    
    
    
    3.68
    
    
    
    129,367
    
    
    
    1,122
    
    
    
    3.47Interest earning deposits with others
    
    
    44,571
    
    
    
    62
    
    
    
    0.55
    
    
    
    5,530
    
    
    
    9
    
    
    
    0.64Total investments
    
    
    3,567,423
    
    
    
    34,789
    
    
    
    3.90
    
    
    
    3,373,537
    
    
    
    25,090
    
    
    
    2.97Total loans:(1)Consumer loans
    
    
    12,213,059
    
    
    
    303,013
    
    
    
    9.95
    
    
    
    11,133,553
    
    
    
    281,775
    
    
    
    10.18Mortgage loans
    
    
    158,586
    
    
    
    2,210
    
    
    
    5.57
    
    
    
    210,156
    
    
    
    2,623
    
    
    
    4.99Commercial loans
    
    
    141,989
    
    
    
    2,283
    
    
    
    6.36
    
    
    
    103,042
    
    
    
    1,440
    
    
    
    5.53Construction loans
    
    
    25,512
    
    
    
    423
    
    
    
    6.57
    
    
    
    5,268
    
    
    
    55
    
    
    
    4.09Total loans
    
    
    12,539,146
    
    
    
    307,929
    
    
    
    9.85
    
    
    
    11,452,019
    
    
    
    285,893
    
    
    
    10.04Total interest earning assets
    
    $
    16,106,569
    
    
    
    342,718
    
    
    
    8.53
    
    
    $
    14,825,556
    
    
    
    310,983
    
    
    
    8.43Interest bearing liabilities:Deposits
    
    $
    2,222,714
    
    
    
    21,479
    
    
    
    3.88
    
    
    $
    2,089,287
    
    
    
    13,884
    
    
    
    2.67FHLB advances and other borrowings
    
    
    833,261
    
    
    
    6,459
    
    
    
    3.07
    
    
    
    656,979
    
    
    
    1,871
    
    
    
    1.13Notes payable on automobile secured
financing
    
    
    11,015,549
    
    
    
    93,043
    
    
    
    3.38
    
    
    
    10,247,231
    
    
    
    88,591
    
    
    
    3.46Subordinated debentures
    
    
    295,680
    
    
    
    7,487
    
    
    
    10.13
    
    
    
    381,199
    
    
    
    9,489
    
    
    
    9.96Total interest bearing liabilities
    
    $
    14,367,204
    
    
    
    128,468
    
    
    
    3.58
    
    
    $
    13,374,696
    
    
    
    113,835
    
    
    
    3.41Net interest income and interest rate spread
    
    
    
    
    
    $
    214,250
    
    
    
    4.95
    %
    
    
    
    
    
    $
    197,148
    
    
    
    5.02
    %Net yield on average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.34
    %
    
    
    
    
    
    
    
    
    
    
    5.34
    %
 
 (1)
    
    For the purpose of these computations, nonaccruing loans are included in the average
loan amounts outstanding. 18




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##### Table of Contents



For the Six Months Ended June 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)Interest earning assets:Total investments:Mortgage-backed securities
    
    $
    2,594,038
    
    
    $
    54,652
    
    
    
    4.21
    %
    
    $
    2,584,929
    
    
    $
    46,838
    
    
    
    3.62
    %Other short-term investments
    
    
    725,022
    
    
    
    10,121
    
    
    
    2.82
    
    
    
    627,153
    
    
    
    3,413
    
    
    
    1.09Investment securities
    
    
    131,720
    
    
    
    2,348
    
    
    
    3.57
    
    
    
    127,272
    
    
    
    2,180
    
    
    
    3.43Interest earning deposits with others
    
    
    40,356
    
    
    
    89
    
    
    
    0.44
    
    
    
    5,775
    
    
    
    18
    
    
    
    0.63Total investments
    
    
    3,491,136
    
    
    
    67,210
    
    
    
    3.85
    
    
    
    3,345,129
    
    
    
    52,449
    
    
    
    3.14Total loans: (1)Consumer loans
    
    
    12,055,546
    
    
    
    599,502
    
    
    
    10.03
    
    
    
    11,021,138
    
    
    
    563,816
    
    
    
    10.29Mortgage loans
    
    
    165,950
    
    
    
    4,479
    
    
    
    5.40
    
    
    
    219,768
    
    
    
    5,527
    
    
    
    5.03Commercial loans
    
    
    155,653
    
    
    
    4,811
    
    
    
    6.15
    
    
    
    101,165
    
    
    
    2,743
    
    
    
    5.36Construction loans
    
    
    23,493
    
    
    
    752
    
    
    
    6.36
    
    
    
    4,753
    
    
    
    107
    
    
    
    4.43Total loans
    
    
    12,400,642
    
    
    
    609,544
    
    
    
    9.91
    
    
    
    11,346,824
    
    
    
    572,193
    
    
    
    10.14Total interest earning assets
    
    $
    15,891,778
    
    
    
    676,754
    
    
    
    8.58
    
    
    $
    14,691,953
    
    
    
    624,642
    
    
    
    8.55Interest bearing liabilities:Deposits
    
    $
    2,177,384
    
    
    
    37,989
    
    
    
    3.52
    
    
    $
    1,998,031
    
    
    
    27,191
    
    
    
    2.74Securities sold under agreements to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,885
    
    
    
    94
    
    
    
    1.10FHLB advances and other borrowings
    
    
    855,288
    
    
    
    12,088
    
    
    
    2.81
    
    
    
    657,877
    
    
    
    3,703
    
    
    
    1.11Notes payable on automobile secured financing
    
    
    10,854,240
    
    
    
    180,527
    
    
    
    3.33
    
    
    
    10,205,685
    
    
    
    182,809
    
    
    
    3.58Subordinated debentures
    
    
    295,547
    
    
    
    14,973
    
    
    
    10.13
    
    
    
    387,434
    
    
    
    19,274
    
    
    
    9.95Total interest bearing liabilities
    
    $
    14,182,459
    
    
    
    245,577
    
    
    
    3.47
    
    
    $
    13,265,912
    
    
    
    233,071
    
    
    
    3.52Net interest income and interest rate spread
    
    
    
    
    
    $
    431,177
    
    
    
    5.11
    %
    
    
    
    
    
    $
    391,571
    
    
    
    5.03
    %Net yield on average interest earning assets
    
    
    
    
    
    
    
    
    
    
    5.49
    %
    
    
    
    
    
    
    
    
    
    
    5.36
    %
 
 (1)
    
    For the purpose of these computations, nonaccruing loans are included in the average
loan amounts outstanding. 19




---



##### Table of Contents



For the Six Months Ended June 30, 2005Compared to the Six Months Ended June 30, 2004 (1)Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Increase (decrease) in interest income:Mortgage-backed securities
    
    $
    165
    
    
    $
    7,649
    
    
    $
    7,814Other short-term investments
    
    
    601
    
    
    
    6,107
    
    
    
    6,708Investment securities
    
    
    78
    
    
    
    90
    
    
    
    168Interest earning deposits with others
    
    
    89
    
    
    
    (18
    )
    
    
    71Total loans:Consumer loans
    
    
    73,271
    
    
    
    (37,585
    )
    
    
    35,686Mortgage loans
    
    
    (2,056
    )
    
    
    1,008
    
    
    
    (1,048
    )Commercial loans
    
    
    1,624
    
    
    
    444
    
    
    
    2,068Construction loans
    
    
    581
    
    
    
    64
    
    
    
    645Total interest income
    
    $
    74,353
    
    
    $
    (22,241
    )
    
    $
    52,112Increase (decrease) in interest expense:Deposits
    
    $
    2,588
    
    
    $
    8,210
    
    
    $
    10,798Securities sold under agreements to repurchase
    
    
    (47
    )
    
    
    (47
    )
    
    
    (94
    )FHLB advances and other borrowings
    
    
    1,374
    
    
    
    7,011
    
    
    
    8,385Notes payable on automobile secured financing
    
    
    23,225
    
    
    
    (25,507
    )
    
    
    (2,282
    )Subordinated debentures
    
    
    (5,292
    )
    
    
    991
    
    
    
    (4,301
    )Total interest expense
    
    $
    21,848
    
    
    $
    (9,342
    )
    
    $
    12,506Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    39,606
 
 (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
  20




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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
    
    
    June 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
    
    
    $
    124,407
    
    
    
    10.37
    %
    
    
    13.90
    
    
    
    4.50
    
    
    
    9.402002-1
    
    March, 2002
    
    
    1,800,000
    
    
    
    284,374
    
    
    
    15.80
    
    
    
    13.50
    
    
    
    4.26
    
    
    
    9.242002-2
    
    May, 2002
    
    
    1,750,000
    
    
    
    343,435
    
    
    
    19.62
    
    
    
    12.51
    
    
    
    3.89
    
    
    
    8.622002-3
    
    August, 2002
    
    
    1,250,000
    
    
    
    291,668
    
    
    
    23.33
    
    
    
    12.30
    
    
    
    3.06
    
    
    
    9.242002-4
    
    November, 2002
    
    
    1,350,000
    
    
    
    388,745
    
    
    
    28.80
    
    
    
    12.18
    
    
    
    2.66
    
    
    
    9.522003-1
    
    February, 2003
    
    
    1,343,250
    
    
    
    410,824
    
    
    
    30.58
    
    
    
    11.79
    
    
    
    2.42
    
    
    
    9.372003-2
    
    May, 2003
    
    
    1,492,500
    
    
    
    536,099
    
    
    
    35.92
    
    
    
    11.57
    
    
    
    2.13
    
    
    
    9.442003-3
    
    August, 2003
    
    
    1,650,000
    
    
    
    763,306
    
    
    
    46.26
    
    
    
    10.59
    
    
    
    2.66
    
    
    
    7.932003-4
    
    November, 2003
    
    
    1,403,625
    
    
    
    657,981
    
    
    
    46.88
    
    
    
    10.89
    
    
    
    2.70
    
    
    
    8.192004-1
    
    February, 2004
    
    
    1,477,500
    
    
    
    754,970
    
    
    
    51.10
    
    
    
    10.89
    
    
    
    2.35
    
    
    
    8.542004-2
    
    May, 2004
    
    
    1,477,500
    
    
    
    878,789
    
    
    
    59.48
    
    
    
    10.98
    
    
    
    3.02
    
    
    
    7.962004-3
    
    August, 2004
    
    
    1,552,000
    
    
    
    1,071,651
    
    
    
    69.05
    
    
    
    10.64
    
    
    
    3.49
    
    
    
    7.152004-4
    
    October, 2004
    
    
    1,358,000
    
    
    
    1,030,283
    
    
    
    75.87
    
    
    
    11.19
    
    
    
    3.10
    
    
    
    8.092005-1
    
    January, 2005
    
    
    1,552,000
    
    
    
    1,326,464
    
    
    
    85.47
    
    
    
    11.25
    
    
    
    3.66
    
    
    
    7.592005-2
    
    March, 2005
    
    
    1,458,750
    
    
    
    1,368,455
    
    
    
    93.81
    
    
    
    11.51
    
    
    
    4.27
    
    
    
    7.242005-3
    
    July, 2005
    
    
    2,723,000
    
    
    
    
    
    
    
    
    
    
    
    11.66
    
    
    
    4.35
    
    
    
    7.31Total
    
    $
    46,209,555
    
    
    $
    10,231,451
 
 (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. 21




---



##### Table of Contents



Noninterest Income and Noninterest Expense
  Income Taxes
  Financial Condition
 Overview
  Loan Portfolio
  For the Three Months EndedJune 30,
    
    
    For the Six Months EndedJune 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)New vehicles
    
    $
    675,416
    
    
    $
    618,079
    
    
    $
    1,181,607
    
    
    $
    1,169,649Pre-owned vehicles
    
    
    1,338,206
    
    
    
    1,048,763
    
    
    
    2,614,429
    
    
    
    2,082,367Total volume
    
    $
    2,013,622
    
    
    $
    1,666,842
    
    
    $
    3,796,036
    
    
    $
    3,252,016Prime
    
    $
    1,535,162
    
    
    $
    1,358,930
    
    
    $
    2,898,245
    
    
    $
    2,662,120Non-prime
    
    
    478,460
    
    
    
    307,912
    
    
    
    897,791
    
    
    
    589,896Total volume
    
    $
    2,013,622
    
    
    $
    1,666,842
    
    
    $
    3,796,036
    
    
    $
    3,252,016
 Commercial Loan Portfolio
  22




---



##### Table of Contents



Asset Quality
 Overview
  Automobile Contract Quality
    June 30, 2005
    
    
    December 31, 2004Amount
    
    
    %
    
    
    Amount
    
    
    %(Dollars in thousands)Contracts managed at end of period
    
    $
    12,307,454
    
    
    
    
    
    
    $
    11,560,890Period of delinquency30-59 days
    
    $
    162,474
    
    
    
    1.32
    %
    
    $
    191,001
    
    
    
    1.65
    %60 days or more (1)
    
    
    58,923
    
    
    
    0.48
    
    
    
    67,660
    
    
    
    0.59Total contracts delinquent and
delinquencies as a percentage of
contracts managed (1)
    
    $
    221,397
    
    
    
    1.80
    %
    
    $
    258,661
    
    
    
    2.24
    %
 
 (1)
    
    Excludes Chapter 13 bankruptcy accounts on nonaccrual status of $47.5 million at June
30, 2005 and $49.2 million at December 31, 2004.  June 30, 2005
    
    
    December 31, 2004Number of
    
    
    
    
    
    
    Number ofContracts
    
    
    Amount
    
    
    Contracts
    
    
    Amount(Dollars in thousands)Contracts managed
    
    
    919,722
    
    
    $
    12,307,454
    
    
    
    876,695
    
    
    $
    11,560,890Repossessed vehicles
    
    
    772
    
    
    $
    5,723
    
    
    
    1,049
    
    
    $
    7,982Repossessed
vehicles as a
percentage of
number and amount
of contracts
outstanding
    
    
    0.08
    %
    
    
    0.05
    %
    
    
    0.12
    %
    
    
    0.07
    %
 23




---



##### Table of Contents



For the Three Months EndedJune 30,
    
    
    For the Six Months EndedJune 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Average contracts managed during period
    
    $
    12,019,325
    
    
    $
    10,946,273
    
    
    $
    11,860,935
    
    
    $
    10,836,160Gross chargeoffs
    
    $
    58,059
    
    
    $
    70,213
    
    
    $
    130,011
    
    
    $
    155,707Recoveries
    
    
    23,368
    
    
    
    22,917
    
    
    
    46,841
    
    
    
    47,617Net chargeoffs
    
    $
    34,691
    
    
    $
    47,296
    
    
    $
    83,170
    
    
    $
    108,090Net chargeoffs as a percentage of
average contracts managed during
period
    
    
    1.15
    %
    
    
    1.73
    %
    
    
    1.40
    %
    
    
    1.99
    %
 24




---



##### Table of Contents



Cumulative Static Pool Loss Curves
At June 30, 2005
 Period (1)
    
    2001-C
    
    
    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
    
    
    2005-21
    
    
    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
    %
    
    
    0.01
    %
    
    
    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
    %3
    
    
    0.09
    %
    
    
    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
    %4
    
    
    0.20
    %
    
    
    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
    
    
    0.35
    %
    
    
    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
    %6
    
    
    0.49
    %
    
    
    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
    %7
    
    
    0.65
    %
    
    
    0.60
    %
    
    
    0.49
    %
    
    
    0.57
    %
    
    
    0.50
    %
    
    
    0.41
    %
    
    
    0.36
    %
    
    
    0.32
    %
    
    
    0.28
    %
    
    
    0.27
    %
    
    
    0.33
    %
    
    
    0.40
    %
    
    
    0.30
    %8
    
    
    0.81
    %
    
    
    0.84
    %
    
    
    0.66
    %
    
    
    0.70
    %
    
    
    0.61
    %
    
    
    0.53
    %
    
    
    0.48
    %
    
    
    0.40
    %
    
    
    0.35
    %
    
    
    0.34
    %
    
    
    0.41
    %
    
    
    0.50
    %
    
    
    0.37
    %9
    
    
    0.95
    %
    
    
    1.06
    %
    
    
    0.82
    %
    
    
    0.82
    %
    
    
    0.78
    %
    
    
    0.66
    %
    
    
    0.59
    %
    
    
    0.47
    %
    
    
    0.44
    %
    
    
    0.42
    %
    
    
    0.51
    %
    
    
    0.56
    %
    
    
    0.45
    %10
    
    
    1.07
    %
    
    
    1.28
    %
    
    
    0.96
    %
    
    
    0.96
    %
    
    
    0.94
    %
    
    
    0.80
    %
    
    
    0.70
    %
    
    
    0.55
    %
    
    
    0.54
    %
    
    
    0.52
    %
    
    
    0.59
    %
    
    
    0.64
    %11
    
    
    1.20
    %
    
    
    1.48
    %
    
    
    1.10
    %
    
    
    1.10
    %
    
    
    1.08
    %
    
    
    0.93
    %
    
    
    0.80
    %
    
    
    0.62
    %
    
    
    0.61
    %
    
    
    0.59
    %
    
    
    0.65
    %
    
    
    0.69
    %12
    
    
    1.37
    %
    
    
    1.67
    %
    
    
    1.26
    %
    
    
    1.24
    %
    
    
    1.28
    %
    
    
    1.06
    %
    
    
    0.89
    %
    
    
    0.71
    %
    
    
    0.73
    %
    
    
    0.67
    %
    
    
    0.70
    %13
    
    
    1.55
    %
    
    
    1.82
    %
    
    
    1.39
    %
    
    
    1.38
    %
    
    
    1.43
    %
    
    
    1.21
    %
    
    
    0.98
    %
    
    
    0.80
    %
    
    
    0.83
    %
    
    
    0.75
    %
    
    
    0.76
    %14
    
    
    1.74
    %
    
    
    1.99
    %
    
    
    1.51
    %
    
    
    1.53
    %
    
    
    1.59
    %
    
    
    1.31
    %
    
    
    1.08
    %
    
    
    0.88
    %
    
    
    0.93
    %
    
    
    0.81
    %
    
    
    0.83
    %15
    
    
    1.97
    %
    
    
    2.14
    %
    
    
    1.68
    %
    
    
    1.70
    %
    
    
    1.77
    %
    
    
    1.40
    %
    
    
    1.20
    %
    
    
    0.97
    %
    
    
    1.03
    %
    
    
    0.88
    %16
    
    
    2.16
    %
    
    
    2.27
    %
    
    
    1.83
    %
    
    
    1.88
    %
    
    
    1.92
    %
    
    
    1.50
    %
    
    
    1.31
    %
    
    
    1.07
    %
    
    
    1.09
    %
    
    
    0.93
    %17
    
    
    2.36
    %
    
    
    2.45
    %
    
    
    1.99
    %
    
    
    2.03
    %
    
    
    2.05
    %
    
    
    1.60
    %
    
    
    1.41
    %
    
    
    1.16
    %
    
    
    1.19
    %
    
    
    1.00
    %18
    
    
    2.59
    %
    
    
    2.62
    %
    
    
    2.16
    %
    
    
    2.15
    %
    
    
    2.16
    %
    
    
    1.70
    %
    
    
    1.53
    %
    
    
    1.25
    %
    
    
    1.24
    %19
    
    
    2.78
    %
    
    
    2.80
    %
    
    
    2.31
    %
    
    
    2.28
    %
    
    
    2.25
    %
    
    
    1.85
    %
    
    
    1.66
    %
    
    
    1.33
    %
    
    
    1.30
    %20
    
    
    2.95
    %
    
    
    2.99
    %
    
    
    2.46
    %
    
    
    2.41
    %
    
    
    2.37
    %
    
    
    1.99
    %
    
    
    1.76
    %
    
    
    1.40
    %
    
    
    1.36
    %21
    
    
    3.14
    %
    
    
    3.15
    %
    
    
    2.60
    %
    
    
    2.52
    %
    
    
    2.49
    %
    
    
    2.14
    %
    
    
    1.87
    %
    
    
    1.45
    %22
    
    
    3.29
    %
    
    
    3.31
    %
    
    
    2.72
    %
    
    
    2.62
    %
    
    
    2.62
    %
    
    
    2.27
    %
    
    
    1.95
    %
    
    
    1.50
    %23
    
    
    3.41
    %
    
    
    3.45
    %
    
    
    2.86
    %
    
    
    2.74
    %
    
    
    2.73
    %
    
    
    2.37
    %
    
    
    2.02
    %
    
    
    1.57
    %24
    
    
    3.57
    %
    
    
    3.58
    %
    
    
    2.95
    %
    
    
    2.83
    %
    
    
    2.84
    %
    
    
    2.47
    %
    
    
    2.09
    %25
    
    
    3.73
    %
    
    
    3.69
    %
    
    
    3.03
    %
    
    
    2.96
    %
    
    
    2.95
    %
    
    
    2.57
    %
    
    
    2.16
    %26
    
    
    3.88
    %
    
    
    3.80
    %
    
    
    3.13
    %
    
    
    3.08
    %
    
    
    3.06
    %
    
    
    2.63
    %
    
    
    2.21
    %27
    
    
    4.04
    %
    
    
    3.92
    %
    
    
    3.22
    %
    
    
    3.21
    %
    
    
    3.17
    %
    
    
    2.68
    %28
    
    
    4.20
    %
    
    
    4.02
    %
    
    
    3.33
    %
    
    
    3.31
    %
    
    
    3.25
    %
    
    
    2.73
    %29
    
    
    4.35
    %
    
    
    4.12
    %
    
    
    3.41
    %
    
    
    3.41
    %
    
    
    3.32
    %
    
    
    2.78
    %30
    
    
    4.46
    %
    
    
    4.22
    %
    
    
    3.50
    %
    
    
    3.48
    %
    
    
    3.38
    %31
    
    
    4.57
    %
    
    
    4.30
    %
    
    
    3.58
    %
    
    
    3.56
    %
    
    
    3.43
    %32
    
    
    4.69
    %
    
    
    4.39
    %
    
    
    3.66
    %
    
    
    3.62
    %
    
    
    3.48
    %33
    
    
    4.77
    %
    
    
    4.49
    %
    
    
    3.73
    %
    
    
    3.67
    %34
    
    
    4.85
    %
    
    
    4.56
    %
    
    
    3.78
    %
    
    
    3.71
    %35
    
    
    4.92
    %
    
    
    4.63
    %
    
    
    3.84
    %
    
    
    3.74
    %36
    
    
    5.01
    %
    
    
    4.69
    %
    
    
    3.86
    %37
    
    
    5.09
    %
    
    
    4.74
    %
    
    
    3.90
    %38
    
    
    5.16
    %
    
    
    4.77
    %
    
    
    3.93
    %39
    
    
    5.22
    %
    
    
    4.80
    %40
    
    
    5.27
    %
    
    
    4.84
    %41
    
    
    5.32
    %42
    
    
    5.38
    %43
    
    
    5.42
    %44
    
    
    5.46
    %45
    
    
    5.48
    %46
    
    
    5.49
    %47
    
    
    5.51
    %Prime Mix (2)
    
    
    76
    %
    
    
    70
    %
    
    
    87
    %
    
    
    85
    %
    
    
    80
    %
    
    
    80
    %
    
    
    82
    %
    
    
    84
    %
    
    
    82
    %
    
    
    82
    %
    
    
    82
    %
    
    
    81
    %
    
    
    78
    %
    
    
    78
    %
    
    
    77
    %
 
 (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. 25




---



##### Table of Contents



Real Estate Loan Quality
  Nonperforming Assets
   Allowance for Credit Losses
  26




---



##### Table of Contents



June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Total loans (1)
    
    $
    12,819,403
    
    
    $
    12,135,748Allowance for credit losses
    
    
    318,776
    
    
    
    315,402Allowance for real estate owned losses
    
    
    100
    
    
    
    100Loans past due 60 days or more (2)
    
    
    59,943
    
    
    
    69,645Nonperforming loans (3)
    
    
    49,687
    
    
    
    51,883Nonperforming assets (4)
    
    
    55,812
    
    
    
    60,229Allowance for credit losses as a percent of:Total loans (1)
    
    
    2.5
    %
    
    
    2.6
    %Loans past due 60 days or more
    
    
    531.8
    %
    
    
    452.9
    %Nonperforming loans
    
    
    641.6
    %
    
    
    607.9
    %Total allowance for credit losses and REO losses as a percent
of nonperforming assets
    
    
    571.3
    %
    
    
    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
   June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)No minimum term:Demand deposit accounts
    
    $
    1,717
    
    
    $
    705Passbook accounts
    
    
    4,751
    
    
    
    5,880Money market accounts
    
    
    1,209,755
    
    
    
    1,257,074Noninterest bearing deposits
    
    
    323,746
    
    
    
    268,556Core deposits
    
    
    1,539,969
    
    
    
    1,532,215Certificate accounts:Certificates (30 days to five years)
    
    
    662,882
    
    
    
    586,678Individual retirement accounts
    
    
    60,037
    
    
    
    64,606$
    2,262,888
    
    
    $
    2,183,499
  27




---



##### Table of Contents



Capital Resources and Liquidity
 Overview
  Principal Sources of Cash
 
    
    Automobile Contract Securitizations Securitizations totaled $1.5 billion for the three months ended June 30,
2004. We did not securitize automobile contracts during the three months ended June 30, 2005. Securitizations
totaled $3.0 billion for both the six months ended June 30, 2005 and 2004. The $3.0 billion issued in 2005 and
2004 were through 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 $1.0 billion and $2.2 billion for the three and six
months ended June 30, 2005, respectively, compared with $1.4 billion and $2.8 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 June 30, 2005 compared with $2.2 billion at December 31, 2004.
    
    FHLB Advances FHLB advances increased to $1.9 billion at June 30, 2005 from $1.1 billion at December 31, 2004.
    
    Subordinated Debentures At June 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 $2.2 billion and $4.1 billion for the
three and six months ended June 30, 2005, respectively, compared with $1.7 billion and $3.4 billion for the same
respective periods in 2004. We purchased $324 million and $568 million of mortgage-backed securities and other
investment securities during the three and six months ended June 30, 2005, respectively, compared with $467 million
and $789 million for the same respective periods in 2004.
    
    Payments of Principal and Interest on Securitizations Payments of principal and interest to noteholders totaled
$1.5 billion and $3.2 billion for the three and six months ended June 30, 2005, respectively, compared with $1.4
billion and $2.9 billion for the same respective periods in 2004.
    
    Amounts Paid to Dealers Participation paid by us to dealers was $45.6 million and $85.0 million for the three and
six months ended June 30, 2005, respectively, compared with $38.9 million and $75.0 million for the same respective
periods in 2004.
    
    Operating Our Business Noninterest expenses totaled $74.1 million and $147 million for the three and six months
ended June 30, 2005, respectively, compared with $73.6 million and $145 million for the same respective periods in
2004.
 28




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##### Table of Contents



Capital Requirements
   Tier 1Tangible
    
    
    Core
    
    
    Risk-Based
    
    
    Risk-BasedCapital
    
    
    Capital
    
    
    Capital
    
    
    Capital(Dollars in thousands)June 30, 2005Actual Capital:Amount
    
    $
    1,311,425
    
    
    $
    1,311,425
    
    
    $
    1,308,350
    
    
    $
    1,753,430Capital ratio
    
    
    8.78
    %
    
    
    8.78
    %
    
    
    11.09
    %
    
    
    14.86
    %FIRREA minimum required capital:Amount
    
    $
    224,042
    
    
    $
    448,083
    
    
    
    N/A
    
    
    $
    944,103Capital ratio
    
    
    1.50
    %
    
    
    3.00
    %
    
    
    N/A
    
    
    
    8.00
    %Excess
    
    $
    1,087,383
    
    
    $
    863,342
    
    
    
    N/A
    
    
    $
    809,327FDICIA well capitalized required capital:Amount
    
    
    N/A
    
    
    $
    746,806
    
    
    $
    708,077
    
    
    $
    1,180,129Capital ratio
    
    
    N/A
    
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    10.00
    %Excess
    
    
    N/A
    
    
    $
    564,619
    
    
    $
    600,273
    
    
    $
    573,301December 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
 29




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##### Table of Contents



June 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)Bank shareholders equity  GAAP basis
    
    $
    1,094,934
    
    
    $
    993,959Plus: Net unrealized losses
    
    
    31,686
    
    
    
    37,529Plus: Minority interest in equity of subsidiaries
    
    
    185,197
    
    
    
    165,484Less: Non-permissible activities
    
    
    (392
    )
    
    
    (393
    )Total tangible and core capital
    
    
    1,311,425
    
    
    
    1,196,579Adjustments for risk-based capital:Subordinated debentures (1)
    
    
    296,314
    
    
    
    295,838General loan valuation allowance (2)
    
    
    148,766
    
    
    
    129,950Low-level recourse deduction
    
    
    (3,075
    )
    
    
    (3,050
    )Risk-based capital
    
    $
    1,753,430
    
    
    $
    1,619,317
 
 (1)
    
    Excludes capitalized discounts and issue costs.(2)
    
    Limited to 1.25% of risk-weighted assets. 30




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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
    
    
    11.74
    %Base case
    
    
    11.86
    %100 basis points
    
    
    11.81
    %
    31




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##### Table of Contents



Item 4. Controls and Procedures
   32




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  In re WFS Financial
Shareholder Litigation
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  33




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##### Table of Contents



1.
    
    Election of Directors:
 NAME
    
    FOR
    
    WITHHELDJudith M. Bardwick
    
    49,761,780
    
    
    452,101Robert R. Barnum
    
    50,045,245
    
    
    168,636James R. Dowlan
    
    48,109,188
    
    
    2,104,693Duane A. Nelles
    
    50,045,266
    
    
    168,615Ernest S. Rady
    
    49,672,864
    
    
    541,017Harry M. Rady
    
    49,562,931
    
    
    650,950Charles E. Scribner
    
    50,045,696
    
    
    168,185Thomas A. Wolfe
    
    49,574,005
    
    
    639,876
 2.
    
    Amend Westcorps Articles of
Incorporation to change Westcorps name to Western Financial
Bancorp, subject to the completion of the merger of WFS into the
Bank:
 FOR
    
    AGAINST
    
    ABSTAIN50,201,244
    
    4,065
    
    8,572
 3.
    
    Approve the Westcorp 2001 Stock Incentive Plan:
 BROKERFOR
    
    AGAINST
    
    ABSTAIN
    
    NON VOTE37,080,820
    
    11,080,253
    
    11,778
    
    2,041,030
 4.
    
    Ratification of the Appointment of
Ernst & Young as Westcorps Independent Accountants:
 FOR
    
    AGAINST
    
    ABSTAIN50,167,378
    
    28,724
    
    17,779
 
 Item 5. Other Information
 (a)
    
    On April 26, 2005, at our Annual
Meeting of Stockholders, our stockholders approved the proposal
made by the Board of Directors to amend and restate the Westcorp
2001 Stock Option Plan to (i) change the name of the plan to the
Westcorp 2001 Stock Incentive Plan, (ii) add provisions permitting
the Board of Directors to grant restricted stock awards of
Westcorps common stock to eligible associates and directors, and
(iii) increase the number of shares of Westcorp common stock
available for issuance under the plan by 1,840,622 shares, so that
the total amount of Westcorp common stock available for awards
under the plan will equal 4,840,622 shares. The Westcorp 2001
Stock Incentive Plan is administered by the Westcorp Board of
Directors or by the Compensation Committee of the Board of
Directors, if so designated by the Board. Associates and directors
of Westcorp and its subsidiaries who are selected by the plan
administrator are eligible to receive awards under the Westcorp
2001 Stock Incentive Plan.(b)
    
    On August 5, 2005, our previously
disclosed policy compensating the holders of non-qualified stock
options to the extent of the tax benefit obtained by us upon the
exercise of such non-qualified stock options was terminated by the
Board of Directors.
 34




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##### Table of Contents



Item 6. 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)10.1
    
    Summary of Executive Salary and Bonus Arrangements10.2
    
    Summary of Director Compensation Arrangements31.1
    
    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. 35




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##### Table of Contents



SIGNATURES
  Westcorp 
  Date:
    
    August 8, 2005
    
    By:
    
    /s/ Ernest S. RadyErnest S. Rady
Chairman of the Board and
Chief Executive OfficerDate:
    
    August 8, 2005
    
    By:
    
    /s/ robert j. costantinoRobert J. Costantino
Executive Vice President,
Chief Financial Officer and
Chief Operating Officer
 36




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##### Table of Contents



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)10.1
    
    Summary of Executive Salary and Bonus Arrangements10.2
    
    Summary of Director Compensation Arrangements31.1
    
    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. 37