WESTCORP /CA/ - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)




		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 33-13646

Westcorp

(Exact name of registrant as specified in its charter)


CALIFORNIA		51-0308535

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

23 Pasteur, Irvine, California 92618-3816

(Address of principal executive offices)

(949) 727-1002

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xbox No box

As of July 31, 2002, the registrant had 39,191,539 outstanding shares of common stock, $1.00 par value. The shares of common stock represent the only class of common stock of the registrant.

The total number of sequentially numbered pages is 34.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		‘ CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 99.1

WESTCORP AND SUBSIDIARIES

FORM 10-Q

June 30, 2002

TABLE OF CONTENTS
______________


		Page No.

PART I	FINANCIAL INFORMATION









Item 1.	Financial Statements









	Consolidated Statements of Financial Condition at June 30, 2002 and December 31, 2001	3









	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001	4









	Consolidated Statements of Changes in Shareholders’ Equity for the Periods Ended June 30, 2002 and December 31, 2001	5









	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	6









	Notes to Consolidated Financial Statements	7









Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12









Item 3.	Quantitative and Qualitative Disclosure about Market Risk	30









PART II	OTHER INFORMATION









Item 1.	Legal Proceedings	33









Item 2.	Changes in Securities	33









Item 3.	Defaults Upon Senior Securities	33









Item 4.	Submission of Matters to a Vote of Security Holders	33









Item 5.	Other Information	33









Item 6.	Exhibits and Reports on Form 8-K	33









SIGNATURES		34

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


			June 30,			December 31,
			2002			2001

			(Dollars in thousands)
ASSETS




Cash and cash equivalents			$	333,133		$	104,327




Investment securities available for sale				11,900			10,511




Mortgage-backed securities available for sale				2,072,794			2,092,225




Loans receivable				8,634,516			7,533,150




Allowance for credit losses				(210,273	)		(171,432	)

	Loans receivable, net			8,424,243			7,361,718




Amounts due from trusts				121,077			136,131




Retained interest in securitized assets				11,183			37,392




Premises and equipment, net				80,385			79,258




Other assets				244,096			250,835

		TOTAL ASSETS	$	11,298,811		$	10,072,397

LIABILITIES




Deposits			$	2,187,880		$	2,329,326




Notes payable on automobile secured financing				7,513,136			5,886,227




Securities sold under agreements to repurchase				123,708			155,190




Federal Home Loan Bank advances				2,847			543,417




Amounts held on behalf of trustee				232,482			280,496




Subordinated debentures				441,070			147,714




Other borrowings				8,470			25,068




Other liabilities				90,654			85,994

		TOTAL LIABILITIES		10,600,247			9,453,432




Minority interest				96,778			78,261




SHAREHOLDERS’ EQUITY




Common stock, (par value $1.00 per share; authorized 65,000,000 shares; issued and outstanding 39,171,833 shares in June 2002 and 35,802,491 in December 2001)				39,172			35,802




Paid-in capital				348,688			301,955




Retained earnings				293,780			263,853




Accumulated other comprehensive loss, net of tax				(79,854	)		(60,906	)

		TOTAL SHAREHOLDERS’ EQUITY		601,786			540,704

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	11,298,811		$	10,072,397

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			Three Months Ended				Six Months Ended
			June 30,				June 30,

			2002		2001		2002		2001

			(Dollars in thousands, except share and per share amounts)
Interest income:




	Loans, including fees		$	249,863	$	198,731	$	482,776	$	371,374




	Mortgage-backed securities			27,713		34,774		55,726		72,126




	Other			2,432		2,095		3,702		4,767

		TOTAL INTEREST INCOME		280,008		235,600		542,204		448,267




Interest expense:




	Deposits			20,186		32,247		41,196		65,752




	Notes payable on automobile secured financing			103,155		81,008		195,172		154,017




	Other			9,770		13,395		16,812		26,308

		TOTAL INTEREST EXPENSE		133,111		126,650		253,180		246,077

NET INTEREST INCOME				146,897		108,950		289,024		202,190




Provision for credit losses				62,350		39,640		128,048		66,623

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES				84,547		69,310		160,976		135,567




Noninterest income:




	Automobile lending			16,080		23,428		27,755		50,363




	Other			4,652		3,044		10,137		6,579

		TOTAL NONINTEREST INCOME		20,732		26,472		37,892		56,942




Noninterest expenses:




	Salaries and associate benefits			36,184		37,931		71,055		73,608




	Credit and collections			10,175		6,443		18,253		12,861




	Data processing			4,560		4,947		9,139		9,436




	Other			13,855		13,636		27,187		28,377

		TOTAL NONINTEREST EXPENSES		64,774		62,957		125,634		124,282

INCOME BEFORE INCOME TAX				40,505		32,825		73,234		68,227




Income tax				15,185		12,515		28,149		26,848

INCOME BEFORE MINORITY INTEREST				25,320		20,310		45,085		41,379




Minority interest in earnings of subsidiaries				3,612		3,421		6,523		6,782

INCOME BEFORE EXTRAORDINARY ITEM				21,708		16,889		38,562		34,597




Extraordinary gain from early extinguishment of debt (net of income taxes of $6 and $11, respectively)						8				16

NET INCOME			$	21,708	$	16,897	$	38,562	$	34,613

Net income per common share – basic:




	Income before extraordinary item		$	0.55	$	0.50	$	1.02	$	1.06




	Extraordinary item			0.00		0.00		0.00		0.00

	Net income		$	0.55	$	0.50	$	1.02	$	1.06

Net income per common share – diluted:




	Income before extraordinary item		$	0.55	$	0.50	$	1.00	$	1.05




	Extraordinary item			0.00		0.00		0.00		0.00

	Net income		$	0.55	$	0.50	$	1.00	$	1.05

Weighted average number of common shares outstanding:




	Basic			39,140,543		33,509,549		37,972,632		32,731,454




	Diluted			39,691,778		33,753,794		38,381,102		32,920,043

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)


													Accumulated
													Other
													Comprehensive
					Common		Paid-in			Retained			Income (Loss),
			Shares		Stock		Capital			Earnings			Net of Tax			Total

					(Dollars in thousands, except share amounts)
Balance at January 1, 2001				31,931,826	$	31,932	$	246,889		$	223,163		$	(14,816	)	$	487,168




	Net income										55,690						55,690




	Unrealized gains on securities available for sale and retained interest in securitized assets, net of tax (1)													12,309			12,309




	Reclassification adjustment for losses on securities available for sale included in net income (2)													1,050			1,050




	Unrealized hedge losses on cash flow hedges, net of tax (3)													(75,048	)		(75,048	)




	Reclassification adjustment for losses on cash flow hedges included in income (4)													15,599			15,599

	Comprehensive income																9,600




	Issuance of subsidiary common stock							(3,205	)								(3,205	)




	Issuance of common stock			3,870,665		3,870		58,271									62,141




	Cash dividends										(15,000	)					(15,000	)

Balance at December 31, 2001				35,802,491		35,802		301,955			263,853			(60,906	)		540,704




		Net income									38,562						38,562




	Unrealized gain on securities available for sale and retained interest in securitized assets, net of tax (1)													12,290			12,290




	Unrealized hedge losses on cash flow hedges, net of tax (3)													(62,235	)		(62,235	)




	Reclassification adjustment for losses on cash flow hedges included in income (4)													30,997			30,997

	Comprehensive income																19,614




	Issuance of subsidiary common stock							(2,381	)								(2,381	)




	Issuance of common stock			3,369,342		3,370		49,114									52,484




	Cash dividends										(8,635	)					(8,635	)

Balance at June 30, 2002				39,171,833	$	39,172	$	348,688		$	293,780		$	(79,854	)	$	601,786

(1)		The pre-tax amount in unrealized gains on securities available for sale and retained interest in securitized assets was $20.8 million for the six months ended June 30, 2002 compared with $20.9 million for the period ended December 31, 2001.




(2)		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, 2002 compared with an unrealized loss of $1.8 million for the year ended December 31, 2001.




(3)		The pre-tax amount of unrealized losses on cash flow hedges was $105 million for the six months ended June 30, 2002 compared with $127 million for the year ended December 31, 2001.




(4)		The pre-tax amount of unrealized losses on cash flow hedges reclassified into earnings was $52.5 million for the six months ended June 30, 2002 compared with $26.4 million for the year ended December 31, 2001.

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


		Six Months Ended
		June 30,

		2002			2001

		(Dollars in thousands)
OPERATING ACTIVITIES




Net income		$	38,562		$	34,613




Adjustments to reconcile net income to net cash provided by operating activities:




	Provision for credit losses		128,048			66,623




	Depreciation and amortization		92,831			47,022




	Amortization of retained interest in securitized assets		24,912			36,236




Loans held for sale:




	Proceeds from sale of mortgage loans		554			1,875




Decrease (increase) in other assets			21,959			(40,334	)




Increase in other liabilities			4,659			15,210




Other, net			5,724			10,775





NET CASH PROVIDED BY OPERATING ACTIVITIES			317,249			172,020




INVESTING ACTIVITIES




Loans receivable:




	Origination of loans		(2,913,434	)		(2,623,238	)




	Participation paid to dealers		(65,253	)		(61,897	)




	Loan payments and payoffs		1,743,684			1,074,601




Investment securities available for sale:




	Purchases		(2,404	)		(1,101	)




	Proceeds from sale		485




	Proceeds from maturities		426			896




Mortgage-backed securities:




	Purchases		(445,172	)		(641,956	)




	Proceeds from sale					137,568




	Payments received		469,006			392,579




Decrease in amounts due from trusts			15,054			125,625




Purchase of premises and equipment			(12,410	)		(6,378	)




Proceeds from sale of premises and equipment			5,807




Other, net						625





NET CASH USED IN INVESTING ACTIVITIES			(1,204,211	)		(1,602,676	)




FINANCING ACTIVITIES




Decrease in deposits			(163,346	)		(248,848	)




Decrease in securities sold under agreements to repurchase			(32,548	)		(20,846	)




Proceeds from notes payable on automobile secured financing			4,317,352			2,365,412




Payments on notes payable on automobile secured financing			(2,700,726	)		(644,530	)




Decrease in other borrowings			(16,598	)		(22,517	)




Decrease in amounts held on behalf of trustee			(48,014	)		(108,300	)




Decrease in FHLB advances			(540,570	)		(18,078	)




Increase (decrease) in subordinated debentures			292,843			(1,505	)




Proceeds from issuance of common stock			52,484			61,827




Proceeds from issuance of subsidiary common stock			10,292			8,724




Cash dividends			(8,635	)		(7,124	)




Payments on cash flow hedges			(46,766	)		(21,636	)





NET CASH PROVIDED BY FINANCING ACTIVITIES			1,115,768			1,342,579

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			228,806			(88,077	)




Cash and cash equivalents at beginning of period			104,327			128,763





CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	333,133		$	40,686

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements include our accounts and the accounts of our wholly owned subsidiary, Western Financial Bank, also known as the Bank, and its majority owned subsidiary, WFS Financial Inc, also known as WFS. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the current year’s presentation.

The unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended December 31, 2001 included in the Westcorp Form 10-K.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, also known as SFAS No. 143, in which retirement obligations would be recorded as a liability using the present value of the estimated cash flows and a corresponding amount would be capitalized as part of the asset’s carrying amount. The capitalized asset retirement cost would be amortized to expense over the asset’s useful life using a systematic and rational allocation method. The estimate of the asset retirement obligation will change and have to be revised over time. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. If applicable, an accounting change to adopt the standard would be made as of the beginning of the company’s fiscal year. We do not expect SFAS No. 143 to have a material effect on our earnings or financial position.

Note 2 – Mortgage-Backed Securities Available for Sale

Mortgage-backed securities available for sale consisted of the following:


	June 30, 2002

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

	(Dollars in thousands)
GNMA certificates	$	2,006,641	$	22,664	$	4,562	$	2,024,743




FNMA participation certificates		44,030		430				44,460




FHLMC participation certificates		1,431		23				1,454




Other		2,137						2,137





	$	2,054,239	$	23,117	$	4,562	$	2,072,794


	December 31, 2001

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

			(Dollars in thousands)
GNMA certificates	$	2,040,110	$	12,527	$	16,268	$	2,036,369




FNMA participation certificates		51,353		541				51,894




FHLMC participation certificates		1,679		13				1,692




Other		2,270						2,270





	$	2,095,412	$	13,081	$	16,268	$	2,092,225

Note 3 – Net Loans Receivable

Net loans receivable consisted of the following:


		June 30,			December 31,
		2002			2001

		(Dollars in thousands)
Consumer:




	Automobile contracts	$	8,190,755		$	7,045,578




	Dealer participation, net of deferred contract fees		144,995			128,148




	Other		6,530			8,826




	Unearned discounts		(105,455	)		(108,169	)

			8,236,825			7,074,383




Real Estate:




	Mortgage		321,521			361,115




	Construction		8,938			15,638

			330,459			376,753




Undisbursed loan proceeds			(1,765	)		(3,298	)

			328,694			373,455




Commercial			68,997			85,312

			8,634,516			7,533,150




Allowance for credit losses			(210,273	)		(171,432	)

		$	8,424,243		$	7,361,718

Loans managed by us, excluding dealer participation, totaled $9.3 billion as of June 30, 2002 compared with $8.6 billion at December 31, 2001. Of the $9.3 billion at June 30, 2002, $8.5 billion were owned by us and $0.8 billion were owned by securitization trusts. Of the $8.6 billion at December 31, 2001, $7.4 billion were owned by us and $1.2 billion were owned by securitization trusts.

There were no impaired loans at June 30, 2002 and December 31, 2001.

Note 4 – Retained Interest in Securitized Assets

The following table presents the activity of the retained interest in securitized assets, otherwise known as RISA:


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2001			2002			2001

	(Dollars in thousands)
Beginning balance	$	22,536		$	98,167		$	37,392		$	111,558




Amortization		(10,534	)		(18,065	)		(24,912	)		(32,431	)




Change in unrealized gain/loss on RISA (1)		(819	)		500			(1,297	)		1,475

Balance at end of period (2)	$	11,183		$	80,602		$	11,183		$	80,602

(1)		The change in unrealized gain/loss on RISA represents temporary changes in valuation including changes in the discount rate based on the current interest rate environment. Such amounts will not be realized unless the RISA is sold. Changes in prepayment and credit loss assumptions for the RISA are other than temporary in nature and impact the value of the RISA. Such other than temporary differences are immediately recognized in income as a component of retained interest income.




(2)		There are no restrictions on the RISA.

The following table presents the estimated future undiscounted retained interest earnings to be received from securitizations:


	June 30,			December 31,
	2002			2001

	(Dollars in thousands)
Estimated net undiscounted RISA earnings	$	52,072		$	87,358




Off balance sheet allowance for credit losses		(39,267	)		(47,235	)




Discount to present value		(1,622	)		(2,731	)

Retained interest in securitized assets	$	11,183		$	37,392

Outstanding balance of automobile contracts sold through securitizations	$	826,519		$	1,215,058




Off balance sheet allowance for losses as a percent of automobile contracts sold through securitizations		4.75	%		3.89	%

The decline in the off balance sheet allowance for credit losses on a dollar basis is the result of our securitization transactions no longer being treated as sales since the first quarter of 2000. We expect the RISA to be fully amortized or otherwise eliminated by the end of 2002. Older transactions treated as sales have lower losses each month after securitization as estimated future credit losses are realized. We believe that the off balance sheet allowance for credit losses is adequate to absorb probable losses in the sold portfolio that can be reasonably estimated.

Note 5 – Deposits

Deposits consisted the following:


	Weighted
	Average Rate			June 30,		December 31,
	2002			2002		2001

				(Dollars in thousands)
Noninterest bearing deposits		—		$	125,550	$	100,170




Demand deposit accounts		1.8	%		2,463		1,124




Passbook accounts		0.4			9,913		11,192




Money market deposit accounts		2.1			785,572		858,371




Brokered certificate accounts		4.9					56,302




Certificate accounts		5.0			1,264,382		1,302,167





				$	2,187,880	$	2,329,326

Note 6 – Notes Payable on Automobile Secured Financing

For the three and six months ended June 30, 2002, we issued $1.8 billion and $4.3 billion of notes secured by automobile contracts, respectively. The $1.8 billion was through a public transaction. Of the $4.3 billion, $3.5 billion was through public transactions and $775 million was through a private placement. The private placement was through a conduit facility established in January 2002. There were $7.5 billion of notes payable on automobile secured financing outstanding at June 30, 2002 compared with $5.9 billion at December 31, 2001. Of these amounts, we had no amounts outstanding on a conduit facility at June 30, 2002, compared to $650 million at December 31, 2001. In May 2002, we redeemed our $775 million conduit facility.

Interest payments on the public transactions are due quarterly, in arrears, based on the respective note’s interest rate. Interest payments on the conduit facilities were due monthly, in arrears, based on the respective note’s interest rate. For the three and six months ended June 30, 2002, interest expense on all notes payable on automobile secured financing, including interest payments under interest rate swap agreements, totaled $103 million and $195 million, respectively, compared with $81.0 million and $154 million for the same respective periods in 2001.

Note 7 – Subordinated Debentures

On May 3, 2002, the Bank raised $300 million through a subordinated capital debenture offering that closed on May 3, 2002. The debentures have a coupon of 9.625% and a yield to maturity of 9.70%. The all-in cost of these debentures, including issue costs, is 10.0%. The debentures mature on May 15, 2012.

In order to utilize the proceeds from the debentures to fund our growth, WFS entered into an unsecured promissory note with the Bank for the sum of $300 million on May 3, 2002. Interest payments are due semi-annually in arrears at a fixed rate per annum of 10.25%. The promissory note is due on or before May 15, 2012.

Note 8 – Dividends

On May 2, 2002, we declared a cash dividend of $0.12 per share for shareholders of record as of August 6, 2002 with a payable date of August 20, 2002.

Note 9 – Subsequent Events

On July 17, 2002, we announced a proposal to acquire the outstanding 16% minority interest in WFS, representing approximately 6.6 million common shares, through a reorganization of WFS into WFB, our wholly owned subsidiary. Under the terms of our proposal, the public holders of WFS common shares would receive .9204 shares of our common shares for each WFS common share outstanding in a tax-free transaction. The proposal is subject to the approval of our Board of Directors and the Board of Directors of WFS and WFB, the negotiation and execution of a definitive agreement and any required regulatory approvals. The reorganization is also subject to the approval of a majority of WFS’ minority shareholders.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a diversified financial services holding company that provides automobile lending services through our second tier subsidiary, WFS Financial Inc, also known as WFS, and retail and commercial banking services through our wholly owned subsidiary, Western Financial Bank, also known as the Bank. The Bank currently owns 84% of the capital stock of WFS.

Our primary sources of revenue are net interest income and noninterest income. Net interest income is the difference between the income earned on interest earning assets and the interest paid on interest bearing liabilities. We generate interest income from our loan portfolio, which consists of consumer, mortgage and commercial loans, and from investments in mortgage-backed securities and other short-term investments. We fund our loan portfolio and investments with deposits, advances from the Federal Home Loan Bank, securities sold under agreements to repurchase, securitizations, other borrowings, and equity.

Noninterest income is primarily made up of revenues generated from the sale and servicing of automobile contracts and mortgage loans. The primary components of noninterest income include retained interest income on automobile contracts sold, contractually specified servicing fees for the servicing of loans, late charges, and other miscellaneous servicing fee income. Since March 2000, we have structured our securitizations as secured financings and no longer record non-cash gain on sale or subsequent contractual servicing and retained interest income. Instead, the earnings of the automobile contracts in the trust and the related financing costs are reflected over the life of the underlying pool of automobile contracts as net interest income. Other components of noninterest income include gains and losses from the sale of investment securities and mortgage-backed securities, insurance income, fees related to the sales of investment products such as mutual funds and annuities, and fee income from depository accounts. The primary components of noninterest expense are salaries, credit and collection expenses, and data processing costs.

Critical Accounting Policies

Management believes critical accounting policies are very important to the portrayal of our financial condition and results of operations. Critical accounting policies require difficult and complex judgments because they rely on estimates about the effect of matters that are inherently uncertain due to the impact of changing market conditions. The following is a summary of accounting policies we consider critical.

Retained Interest in Securitized Assets

Retained interest in securitized assets, also known as RISA, is capitalized upon the sale of automobile contracts to securitization trusts for transactions treated as sales for accounting purposes. RISA represents the present value of the estimated future cash flows to be received by us from the excess spread created in securitization transactions. Future cash flows are calculated by taking the coupon rate of the automobile contracts securitized less the interest rate paid to the investors less contractually specified servicing fees and guarantor fees, after giving effect to estimated credit losses and prepayments.

RISA is classified in a manner similar to available for sale securities and as such is marked to market each quarter. Market value changes are calculated by discounting the estimated cash flows using a current market discount rate. Any changes in the market value of the RISA are reported as a separate component of shareholders’ equity on our Consolidated Statements of Financial Condition as accumulated other comprehensive income (loss), net of applicable taxes. On a quarterly basis, we evaluate the carrying value of the RISA in light of the actual performance of the underlying automobile contracts and make adjustments to reduce the carrying value, if appropriate.

Allowance for Credit Losses

Management determines the amount of the allowance for credit losses based on a review of various quantitative and qualitative analyses. Quantitative analyses include the review of chargeoff trends by loan program and loan type on an owned and managed basis; evaluation of cumulative loss curves on both a managed and sold basis; evaluation of credit loss experience by credit tier and geographic location. Other quantitative analyses include the evaluation of the size of any particular asset group; the concentration of any credit tier; the level of non-performance and the percentage of delinquency.

Qualitative analyses include trends in chargeoffs over various time periods and at various statistical midpoints and high points; the severity of depreciated values of repossessions or foreclosures; trends in the number of days repossessions are held in inventory; trends in the number of loan modifications; trends in delinquency roll rates; trends in deficiency balance collections both internally and from collection agencies; trends in custom scores and the effectiveness of our custom scores; and trends in the economy generally or in specific geographic locations. Despite these analyses, we recognize that establishing allowance for credit losses is not an exact science and can be highly judgmental in nature.

The analysis of the adequacy of the allowance for credit losses is not only dependent upon effective quantitative and qualitative analyses, but also effective loan review and asset classification. We classify our assets in accordance with regulatory guidance. Our multifamily and commercial loan portfolios are evaluated individually while our single family and consumer portfolios are evaluated in pools. We classify our loan portfolios into five categories: Pass, Special Mention, Substandard, Doubtful and Loss. Based upon our asset classifications, we establish general and specific valuation allowances.

General valuation allowances are established based on analysis of individual assets or asset pools and other qualitative factors. Specific valuation allowances are established based on analysis of individual assets or asset pools that are classified as Loss. General valuation allowances are determined by applying various factors to loan balances that are classified as Pass, Special Mention, Substandard or Doubtful. Specific valuation allowances represent loan amounts that are classified as Loss. Some assets may be split into more than one asset classification due to fair value or net realizable value calculations. This approach allows for enhanced analysis as it highlights the need for more allowance than would be generally allocated if held in one classification.

All loans that are 60 to 90 days delinquent are automatically classified as Special Mention. Real estate loans that are manifesting a weakness in performance are classified as Special Mention. Any loan that is 90 or more days delinquent is automatically classified as Substandard. Real estate loans that are manifesting a significant weakness in performance are also classified as Substandard. Any multifamily loan that is impaired is classified as Substandard. Any consumer loan where the borrower has filed for bankruptcy or any consumer loan where the vehicle has been repossessed by us and is subject to a redemption period is classified as Substandard, with the difference between the wholesale book value and loan balance classified as Loss.

The allowance for credit losses is reduced by net chargeoffs as well as decreases in required allowances due to sales of loans and by lowering the level of required reserves based upon improved loan performance. The allowance for credit losses is increased by recording amounts to the provision for credit losses.

Hedging Activities

Deposits and Securities Sold Under Agreements to Repurchase

We may enter into cash flow hedges that will protect against potential changes in interest rates affecting interest payments on future deposits gathered by us and future securities sold under agreements to repurchase. The fair value of the interest rate swap agreements is included in deposits and securities sold under agreements to repurchase, respectively, and any change in the fair value is reported as accumulated other comprehensive income (loss), net of tax, on our Consolidated Statements of Financial Condition. Related interest income or expense is settled on a quarterly basis and is recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the period during which cash flows on the hedged items affect income.

Notes Payable on Automobile Secured Financing

The contracts originated and held by us are fixed rate and, accordingly, we have exposure to changes in interest rates. To protect against potential changes in interest rates affecting interest payments on future securitization transactions, we may enter into various hedge agreements. The market value of these hedge agreements is designed to respond inversely to changes in interest rates. Because of this inverse relationship, we can effectively lock in a gross interest rate spread at the time of entering into the hedge transaction. Gains and losses on these agreements are recorded in accumulated other comprehensive income (loss). Any ineffective portion is recognized in interest expense during that period if the hedge is greater than 100% effective. Upon completion of the securitization transaction, the gains or losses are recognized in full as an adjustment to the gain or loss on the sale of the contracts if the securitization transaction is treated as a sale or amortized on a level yield basis over the duration of the notes issued if the transaction is treated as a secured financing.

As we issued certain variable rate notes payable, we may also enter into interest rate swap agreements in order to hedge our variable interest rate exposure on future interest payments. The fair value of the interest rate swap agreements is included in notes payable on automobile secured financing, and any change in the fair value is reported as accumulated other comprehensive income (loss), net of tax, on our Consolidated Statements of Financial Condition. Any ineffective portion is recorded in interest expense during that period if the hedge is greater than 100% effective. Related interest income or expense is settled on a quarterly basis and recognized as an adjustment to interest expense in our Consolidated Statements of Income.

Results of Operations

Net Interest Income

Net interest income is affected by the difference between the rate earned on our interest earning assets and the rate paid on our interest bearing liabilities (interest rate spread) and the relative amounts of our interest earning assets and interest bearing liabilities. For the three and six months ended June 30, 2002, net interest income totaled $147 million and $289 million, respectively, compared with $109 million and $202 million for the same respective periods in 2001. The increase in net interest income is the result of us holding more automobile contracts on the balance sheet as we utilize our own liquidity sources and completed $3.5 billion in public securitizations and a $775 million conduit financing accounted for as secured financings.

Interest rates for interest earning assets and interest bearing liabilities for the three and six months ended June 30, 2002 and 2001 were as follows:


					Three Months Ended						Six Months Ended
					June 30,						June 30,

					2002			2001			2002			2001

					Yield/			Yield/			Yield/			Yield/
					Rate			Rate			Rate			Rate

Interest earning assets:




		Total investments:




			Mortgage-backed securities			5.42	%		6.00	%		5.36	%		6.30	%




			Other investments			2.28			5.45			2.57			5.66

				Total investments		4.88			5.97			5.02			6.26




		Total loans:




			Consumer loans			12.62			13.76			12.69			13.80




			Mortgage loans (1)			6.14			8.06			6.34			8.24




			Commercial loans			5.45			7.71			6.20			8.16

				Total loans		12.27			13.22			12.33			13.22

				Total interest earning assets		10.55			11.12			10.64			11.11




Interest bearing liabilities:




	Deposits					3.70			5.60			3.67			5.65




	Notes payable on automobile secured financing					5.66			6.84			5.78			6.97




	Securities sold under agreements to repurchase					2.89			4.71			2.87			5.19




	FHLB advances and other borrowings					3.57			4.80			2.27			5.30




	Subordinated debentures					9.88			8.92			9.75			8.92





				Total interest bearing liabilities		5.39			6.33			5.25			6.46

Interest rate spread						5.16	%		4.79	%		5.39	%		4.65	%





Net yield on average interest earning assets						5.55	%		5.21	%		5.70	%		5.06	%

(1)

For the purposes of these computations, non-accruing loans are included in the average loan amounts outstanding.

Provision for Credit Losses

We maintain an allowance for credit losses to cover probable losses that can be reasonably estimated for the loans held on the balance sheet. The allowance for credit losses is increased by charging the provision for credit losses and decreased by actual losses on the loans or reversing the allowance for credit losses through the provision for credit losses when the amount of loans held on balance sheet is reduced through loan sales. The level of allowance is based principally on the outstanding balance of loans held on balance sheet and historical loss trends. We believe that the allowance for credit losses is currently adequate to absorb probable losses in our owned loan portfolio that can be reasonably estimated.

For the three and six months ended June 30, 2002, the provision for credit losses totaled $62.4 million and $128 million, respectively, compared with $39.6 million and $66.6 million for the same respective periods a year earlier. For the three and six months ended June 30, 2002 and 2001, net chargeoffs were $40.4 million and $87.9 million, compared with $24.4 million and $44.2 million for the same respective periods a year earlier. The increase in the provision for credit losses was a result of our loans held on balance sheet increasing by approximately $1.1 billion or 14.6% from December 31, 2001 as well as an increase in chargeoffs due to the slowdown in the economy. For the three and six months ended June 30, 2002, we recorded $21.9 million and $40.1 million in provisions for credit losses in excess of chargeoffs this quarter as a result of the transitional effects related to the elimination of off balance sheet accounting for securitizations. The allowance for credit losses as a percentage of owned loans outstanding was 2.4% at June 30, 2002 compared with 2.3% at December 31, 2001.

Noninterest Income

Automobile Lending

We regularly securitize automobile contracts in the public asset-backed securities market and retain the servicing rights. For accounting purposes, these transactions are treated as either secured financings or sales to a securitization trust. Since the first quarter of 2000, we have not completed a securitization that has been accounted for as a sale. For transactions treated as sales prior to April 2000, we recorded non-cash gain equal to the present value of the estimated future cash flows from the portfolio of automobile contracts sold less the write-off of dealer participation balances and the effect of hedging activities. For these securitizations, net interest earned on the automobile contracts sold and fees earned for servicing the contract portfolios are recognized over the life of the transactions as contractual servicing income, retained interest income and other fee income.

The components of automobile lending income were as follows:


		Three Months Ended					Six Months Ended
		June 30,					June 30,

		2002			2001		2002			2001

					(Dollars in thousands)
Retained interest (expense) income, net of amortization		$	(7,015	)	$	241	$	(18,664	)	$	3,077




Contractual servicing income			2,914			6,135		6,452			13,500




Other fee income			20,181			17,052		39,967			33,786





	Total automobile lending income	$	16,080		$	23,428	$	27,775		$	50,363

For the three and six months ended June 30, 2002, contract securitizations totaled $1.8 billion and $4.3 billion, respectively, compared with $1.4 billion and $2.4 billion for the same respective periods in 2001. All transactions have been treated as secured financings.

For the three and six months ended June 30, 2002, retained interest expense totaled $7.0 million and $18.7 million, respectively, compared with retained interest income of $0.2 million and $3.1 million for the same respective periods in 2001. For accounting purposes, this income is only recognized on contracts sold through securitizations treated as sales. Retained interest income is dependent upon the average excess spread on the contracts sold, credit losses and the size of the sold portfolio. The retained interest expense recognized in 2002 is the result of higher chargeoffs on our sold portfolio as well as revised estimates of future charge-offs due to the slowdown in the economy.

According to the terms of each securitization transaction, contractual servicing income is generally earned at rates ranging from 1.0% to 1.25% per annum on the outstanding balance of contracts securitized. For accounting purposes, this income is only recognized on contracts sold through securitizations treated as sales. For the three and six months ended June 30, 2002, contractual servicing income totaled $2.9 million and $6.5 million, respectively, compared with $6.1 million and $13.5 million for the same respective periods in 2001. The decline was the result of the decrease in the average balance of the sold portfolio over those periods.

Other fee income consists primarily of documentation fees, late charges and deferment fees on our managed portfolio, including loans securitized in transactions accounted for as sales and secured financings, as well as automobile contracts not securitized. The increase in other fee income is due to the growth in our average managed automobile contract portfolio to $8.6 billion and $8.5 billion for the three and six months ended June 30, 2002, respectively, compared with $7.4 billion and $7.2 billion for the same respective periods in 2001.

Noninterest Expense

For the three months and six months ended June 30, 2002, noninterest expense totaled $64.8 million and $126 million, respectively, compared with $63.0 million and $124 million for the same respective periods in 2001. Noninterest expense as a percent of total revenues improved to 39% and 38% for the three and six months ended June 30, 2002 compared to 46% and 48% for the same respective periods a year ago as a result of improved operating efficiencies.

Income Taxes

We file federal and certain state tax returns on a consolidated basis. Other state tax returns are filed for each subsidiary separately. Our effective tax rate was 38% for the three and six months ended June 30, 2002, compared with 38% and 39% for the same respective periods in 2001.

Portfolio Basis Statements of Income

During the first quarter of 2000, we changed the structure of our securitizations so that they would no longer be accounted for as sales but rather be recorded as secured financings. This decision is consistent with our business strategy to record high quality earnings and to maintain a conservative, well-capitalized balance sheet. If treated as secured financings, no gain on sale or subsequent contractual servicing and retained interest income is recognized. Instead, the earnings of the automobile contracts in the trust and the related financing costs are reflected over the life of the underlying pool of automobile contracts as net interest income. Additionally, no RISA is recorded on the balance sheet, which must be written off over the life of a securitization. This asset is subject to impairment if assumptions made about the performance of a securitization are not realized.

Over time, our securitizations that were recorded as sales will mature and an increasing percentage of securitized automobile contracts will be represented by securitizations that are accounted for as secured financings. In the interim, we will present portfolio basis statements of income that present our results under the assumption that all our outstanding securitizations are treated as secured financings rather than as sales. These statements provide a method by which to gauge our year to year performance while we make this transition.

We believe that such a presentation is an important performance measure of our operations during this transitory period. Differences between portfolio basis earnings and reported earnings represent the transitional effect of treating securitizations as secured financings rather than sales. Ultimately, our reported earnings will approach our portfolio basis earnings as we continue to treat future securitizations as secured financings. We refer to these results as “portfolio basis” statements of income since all automobile contracts would have remained in our on balance sheet contract portfolio if we accounted for the transactions as secured financings.

The growth in our portfolio basis earnings reflects the growth in our managed automobile contract portfolio to $8.9 billion at June 30, 2002 compared with $7.6 billion at June 30, 2001. We monitor the periodic portfolio basis earnings of our managed contract portfolio and believe these portfolio basis statements assist in better understanding our business.

The following tables present the portfolio basis statements of income and reconciliation to net income as reflected in our Consolidated Statements of Income presented in accordance with Generally Accepted Accounting Principles, also known as GAAP:

PORTFOLIO BASIS STATEMENTS OF INCOME
(Unaudited)


		Three Months Ended				Six Months Ended
		June 30,				June 30,

		2002		2001		2002		2001

		(Dollars in thousands, except per share amounts)
Interest income		$	308,359	$	295,845	$	604,435	$	580,625




Interest expense			150,925		162,663		292,232		324,966

	Net interest income		157,434		133,182		312,203		255,659




Net chargeoffs (1)			47,237		36,580		104,467		69,247




Provision for growth (2)			8,865		7,192		9,888		12,799

	Provision for credit losses		56,102		43,772		114,355		82,046

	Net interest income after provision for credit losses		101,332		89,410		197,848		173,613




Noninterest income			24,833		20,097		50,102		40,365




Noninterest expense			64,793		62,988		125,690		124,333

	Income before income tax		61,372		46,519		122,260		89,645




Income tax (3)			23,008		17,735		47,127		35,195

	Income before minority interest		38,364		28,784		75,133		54,450




Minority interest in earnings			5,336		4,942		10,120		9,109

	Income before extraordinary item		33,028		23,842		65,013		45,341




Extraordinary gain from early extinguishment of debt					8				16

Portfolio basis net income		$	33,028	$	23,850	$	65,013	$	45,357

Portfolio basis net income per common share – diluted		$	0.83	$	0.71	$	1.69	$	1.38

GAAP basis net income per common share – diluted		$	0.55	$	0.50	$	1.00	$	1.05

(1)		Represents actual chargeoffs incurred during the period, net of recoveries.




(2)		Represents additional allowance for credit losses we would set aside due to an increase in the managed contract portfolio.




(3)		Such tax effect is based upon our tax rate for the respective period.

RECONCILIATION OF GAAP BASIS NET INCOME
TO PORTFOLIO BASIS NET INCOME
(Unaudited)


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2002			2001			2002			2001

			(Dollars in thousands)
GAAP net income			$	21,708		$	16,897		$	38,562		$	34,613




Portfolio basis adjustments:




	Retained interest expense (income)			7,015			(241	)		18,664			(3,077	)




	Contractual servicing income			(2,914	)		(6,135	)		(6,452	)		(13,500	)




	Net interest income			10,537			24,232			23,179			53,469




	Provision for credit losses			13,062			8,097			30,231			9,577




	Net chargeoffs			(6,814	)		(12,228	)		(16,538	)		(25,000	)




	Operating expenses			(19	)		(31	)		(58	)		(51	)




	Minority interest			(1,724	)		(1,521	)		(3,597	)		(2,327	)

		Total portfolio basis adjustments		19,143			12,173			45,429			19,091




Net tax effect (1)				7,823			5,220			18,978			8,347

Portfolio basis net income			$	33,028		$	23,850		$	65,013		$	45,357

(1)

Such tax is based on our tax rate for the respective period.

Financial Condition

Overview

Total assets increased $1.2 billion or 12.2% to $11.3 billion at June 30, 2002 from $10.1 billion at December 31, 2001. The increase was primarily a result of $2.8 billion of automobile contracts originated for the six months ended June 30, 2002.

Loan Portfolio

The following table sets forth the composition of our loan portfolio by type of loan, including loans held for sale, as of the dates indicated:


			June 30, 2002					December 31, 2001

			Amount		%			Amount		%

			(Dollars in thousands)
Consumer loans:




	Automobile contract		$	8,335,750		96.5	%	$	7,173,726		95.2	%




	Other			6,530		0.1			8,826		0.1

				8,342,280		96.6			7,182,552		95.3




Less: unearned interest				105,455		1.2			108,169		1.4

		Total consumer loans		8,236,825		95.4			7,074,383		93.9




Mortgage loans:




	Existing properties			321,521		3.7			361,115		4.8




	Construction			8,938		0.1			15,638		0.2

				330,459		3.8			376,753		5.0




Less: undisbursed loan proceeds				1,765					3,298

		Total mortgage loans		328,694		3.8			373,455		5.0




Commercial loans				68,997		0.8			85,312		1.1

		Total loans	$	8,634,516		100.0	%	$	7,533,150		100.0	%

Mortgage Loan Portfolio

Our total mortgage loan portfolio consisted of the following:


			June 30, 2002					December 31, 2001

			Amount		%			Amount		%

			(Dollars in thousands)
Single family residential loans:




	First trust deeds		$	119,724		36.4	%	$	146,895		39.3	%




	Second trust deeds			3,814		1.2			4,645		1.3

				123,538		37.6			151,540		40.6




Multifamily residential loans				156,108		47.5			180,850		48.4




Construction loans				8,938		2.7			15,638		4.2




Other				41,875		12.7			28,725		7.7

				330,459		100.5			376,753		100.9




Less: undisbursed loan proceeds				1,765		0.5			3,298		0.9

		Total mortgage loans	$	328,694		100.0	%	$	373,455		100.0	%

Commercial Loan Portfolio

We had outstanding loan commitments of $168 million at June 30, 2002 compared with $141 million at December 31, 2001. For the three and six months ended June 30, 2002 and 2001, we originated $68.9 million and $130 million of commercial loans, respectively, compared with $80.7 million and $132 million for the same respective periods in 2001. Amounts outstanding at June 30, 2002 and December 31, 2001 were $69.0 million and $85.3 million, respectively. Though we continue to focus on expanding our commercial banking operation, it has not been a significant source of revenue.

Asset Quality

Overview

Nonperforming assets, repossessions, loan delinquency and credit losses are considered by us as key measures of asset quality. Asset quality, in turn, affects our determination of the allowance for credit losses. We also take into consideration general economic conditions in the markets we serve, individual loan reviews, and the level of assets relative to reserves in determining the adequacy of the allowance for credit losses.

Automobile Contract Quality

We provide financing in a market where there is a risk of default by borrowers. Chargeoffs directly impact our earnings and cash flows. To minimize the amount of credit losses we incur, we monitor delinquent accounts, promptly repossess and remarket vehicles, and seek to collect on deficiency balances.

At June 30, 2002, the percentage of managed accounts delinquent 30 days or greater was 2.83% compared with 3.72% at December 31, 2001. We calculate delinquency based on the contractual due date. For the three and six months ended June 30, 2002 and 2001, net chargeoffs on average automobile contracts managed were 2.19% and 2.47%, respectively, compared with 1.95% and 1.90% for the same respective periods in 2001. The increase in credit loss experience is primarily a result of the current recession.

The following table sets forth information with respect to the delinquency of our portfolio of automobile contracts managed, which includes automobile contracts that are owned by us and automobile contracts that have been sold but are managed by us:


		June 30, 2002					December 31, 2001

		Amount		%			Amount		%

		(Dollars in thousands)
Automobile contracts managed		$	8,911,809				$	8,152,882

Period of delinquency 30-59 days		$	180,574		2.03	%	$	217,873		2.67	%




	60 days or more		71,744		0.80			85,290		1.05

Total automobile contracts delinquent and delinquencies as a percentage of automobile contracts managed		$	252,318		2.83	%	$	303,163		3.72	%

The following table sets forth information with respect to repossessions in our portfolio of managed automobile contracts:


	June 30, 2002						December 31, 2001

	Number of Contracts			Amount			Number of Contracts			Amount

	(Dollars in thousands)
Automobile contracts managed		731,392		$	8,911,809			690,401		$	8,152,882

Repossessed vehicles		647		$	6,809			1,168		$	7,553

Repossessed vehicles as a percentage of number and amount of automobile contracts managed		0.09	%		0.08	%		0.17	%		0.09	%

The following table sets forth information with respect to actual credit loss experience on our portfolio of automobile contracts managed:


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2001			2002			2001

	(Dollars in thousands)
Automobile contracts managed	$	8,911,809		$	7,617,921		$	8,911,809		$	7,617,921

Average automobile contracts managed during period	$	8,640,187		$	7,408,488		$	8,456,742		$	7,203,585

Gross chargeoffs	$	68,508		$	50,711		$	148,300		$	98,937




Recoveries		21,227			14,585			43,860			30,330

Net chargeoffs	$	47,281		$	36,126		$	104,440		$	68,607

Net chargeoffs as a percentage of average automobile contracts managed during period		2.19	%		1.95	%		2.47	%		1.90	%

The following table sets forth the cumulative static pool losses by month for all outstanding public securitized pools:

CUMULATIVE STATIC POOL LOSS CURVES
AT JUNE 30, 2002
(Unaudited)


Period (1)		1998-A			1998-B			1998-C			1999-A			1999-B			1999-C			2000-A			2000-B			2000-C			2000-D			2001-A			2001-B			2001-C			2002-1			2002-2

	1		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	%		0.02	%		0.04	%		0.04	%		0.04	%		0.02	%		0.03	%		0.02	%		0.04	%		0.04	%		0.03	%		0.03	%		0.04	%		0.01	%		0.00	%




	3		0.11	%		0.08	%		0.11	%		0.11	%		0.11	%		0.10	%		0.10	%		0.09	%		0.13	%		0.11	%		0.09	%		0.10	%		0.09	%		0.06	%




	4		0.25	%		0.18	%		0.23	%		0.20	%		0.26	%		0.25	%		0.20	%		0.24	%		0.27	%		0.24	%		0.20	%		0.21	%		0.20	%		0.15	%




	5		0.44	%		0.38	%		0.39	%		0.33	%		0.47	%		0.40	%		0.36	%		0.39	%		0.46	%		0.39	%		0.33	%		0.33	%		0.35	%




	6		0.66	%		0.59	%		0.50	%		0.46	%		0.66	%		0.56	%		0.55	%		0.59	%		0.65	%		0.54	%		0.50	%		0.50	%		0.49	%




	7		0.95	%		0.83	%		0.61	%		0.62	%		0.87	%		0.71	%		0.71	%		0.78	%		0.81	%		0.74	%		0.70	%		0.69	%		0.65	%




	8		1.23	%		1.03	%		0.75	%		0.76	%		1.00	%		0.86	%		0.91	%		0.99	%		0.93	%		0.93	%		0.84	%		0.87	%		0.81	%




	9		1.50	%		1.21	%		0.86	%		0.92	%		1.13	%		1.01	%		1.10	%		1.17	%		1.07	%		1.13	%		1.04	%		1.05	%		0.95	%




	10		1.79	%		1.40	%		1.00	%		1.11	%		1.24	%		1.14	%		1.27	%		1.33	%		1.24	%		1.34	%		1.24	%		1.22	%		1.07	%




	11		2.03	%		1.53	%		1.17	%		1.30	%		1.35	%		1.34	%		1.45	%		1.44	%		1.41	%		1.50	%		1.45	%		1.36	%		1.20	%




	12		2.21	%		1.62	%		1.32	%		1.47	%		1.44	%		1.52	%		1.58	%		1.57	%		1.62	%		1.74	%		1.67	%		1.53	%




	13		2.39	%		1.74	%		1.48	%		1.61	%		1.58	%		1.74	%		1.73	%		1.72	%		1.86	%		1.95	%		1.90	%		1.67	%




	14		2.49	%		1.84	%		1.66	%		1.73	%		1.74	%		1.94	%		1.85	%		1.86	%		2.04	%		2.21	%		2.09	%		1.81	%




	15		2.60	%		1.96	%		1.79	%		1.81	%		1.85	%		2.09	%		2.00	%		2.04	%		2.25	%		2.48	%		2.25	%




	16		2.72	%		2.10	%		1.91	%		1.89	%		2.03	%		2.27	%		2.15	%		2.24	%		2.45	%		2.71	%		2.41	%




	17		2.85	%		2.22	%		2.01	%		2.00	%		2.16	%		2.39	%		2.37	%		2.39	%		2.68	%		2.89	%		2.54	%




	18		2.98	%		2.40	%		2.07	%		2.10	%		2.30	%		2.53	%		2.52	%		2.55	%		2.88	%		3.08	%




	19		3.11	%		2.55	%		2.11	%		2.24	%		2.42	%		2.67	%		2.67	%		2.73	%		3.08	%		3.22	%




	20		3.25	%		2.69	%		2.17	%		2.35	%		2.50	%		2.81	%		2.83	%		2.93	%		3.23	%		3.40	%




	21		3.35	%		2.79	%		2.24	%		2.46	%		2.58	%		2.92	%		2.99	%		3.12	%		3.38	%




	22		3.48	%		2.85	%		2.34	%		2.55	%		2.67	%		3.10	%		3.16	%		3.27	%		3.54	%




	23		3.62	%		2.89	%		2.43	%		2.63	%		2.77	%		3.28	%		3.34	%		3.38	%		3.67	%




	24		3.70	%		2.92	%		2.52	%		2.71	%		2.87	%		3.38	%		3.49	%		3.52	%




	25		3.75	%		2.97	%		2.62	%		2.77	%		3.01	%		3.55	%		3.63	%		3.63	%




	26		3.80	%		3.04	%		2.71	%		2.82	%		3.14	%		3.68	%		3.75	%		3.73	%




	27		3.87	%		3.13	%		2.80	%		2.89	%		3.16	%		3.84	%		3.86	%




	28		3.92	%		3.18	%		2.87	%		2.96	%		3.29	%		3.98	%		3.97	%




	29		3.98	%		3.24	%		2.90	%		3.02	%		3.40	%		4.14	%




	30		4.06	%		3.32	%		2.95	%		3.09	%		3.50	%		4.19	%




	31		4.11	%		3.38	%		3.00	%		3.17	%		3.61	%		4.30	%




	32		4.17	%		3.43	%		3.02	%		3.20	%		3.68	%		4.38	%




	33		4.22	%		3.47	%		3.08	%		3.27	%		3.74	%		4.46	%




	34		4.27	%		3.48	%		3.14	%		3.35	%		3.81	%




	35		4.32	%		3.52	%		3.15	%		3.41	%		3.87	%




	36		4.34	%		3.54	%		3.21	%		3.47	%		3.91	%




	37		4.35	%		3.58	%		3.25	%		3.52	%




	38		4.38	%		3.63	%		3.30	%		3.55	%




	39		4.39	%		3.66	%		3.35	%		3.58	%




	40		4.43	%		3.65	%		3.39	%		3.61	%




	41		4.45	%		3.69	%		3.39	%		3.63	%




	42		4.50	%		3.73	%		3.42	%




	43		4.47	%		3.75	%		3.45	%




	44		4.50	%		3.79	%		3.47	%




	45		4.52	%		3.81	%




	46		4.55	%		3.81	%




	47		4.56	%		3.83	%




	48		4.56	%		3.84	%




	49		4.56	%		3.85	%




	50		4.56	%




	51		4.57	%




	52		4.57	%




Prime Mix (2)			57	%		67	%		70	%		70	%		70	%		67	%		68	%		69	%		68	%		68	%		71	%		71	%		76	%		70	%		87	%

(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.

Real Estate Loan Quality

We had $5.8 million mortgage loans, or 1.74% of total mortgage loans, past due over 60 days at June 30, 2002. Of the $5.8 million, $5.7 million were single family mortgages and $0.1 million were multifamily mortgages. At December 31, 2001, we had $7.0 million of single family mortgages, or 1.85% of total mortgage loans, past due over 60 days.

Nonperforming Assets

Nonperforming assets, also known as NPAs, consist of nonperforming loans, also known as NPLs, Chapter 13 bankruptcy accounts greater than 120 days delinquent, repossessed automobiles, and real estate owned, also known as REO. For those accounts that are in Chapter 13 bankruptcy and are contractually past due greater than 120 days, all accrued interest is reversed and income is recognized on a cash basis. REO is carried at lower of cost or fair value. NPLs are defined as all nonaccrual loans. This includes mortgage loans 90 days or more past due and impaired loans where full collection of principal and interest is not reasonably assured. NPAs increased $1.8 million to $30.1 million at June 30, 2002 compared with $28.3 million at December 31, 2001. NPAs represented 0.3% of total assets at both June 30, 2002 and December 31, 2001. There were no impaired loans at June 30, 2002 and December 31, 2001.

When a loan is designated as nonaccrual, all previously accrued but unpaid interest is reversed. For the six months ended June 30, 2002 and 2001, interest on nonperforming loans excluded from interest income was $0.6 million.

Allowance for Credit Losses

Our allowance for credit losses was $210 million at June 30, 2002 compared to $171 million at December 31, 2001. For the three and six months ended June 30, 2002 and 2001, the provision for credit losses was $62.4 million and $128 million, respectively, compared with $39.6 million and $66.6 million for the same respective periods in 2001. For the three and six months ended June 30, 2002 and 2001, net chargeoffs totaled $40.4 million and $87.9 million, respectively, compared with $24.4 million and $44.2 million for the same respective periods in 2001. The increase in the allowance for credit losses was the result of a higher level of automobile contracts held on balance sheet as well as higher chargeoffs related to a slowing economy. The allowance for credit losses as a percentage of owned loans outstanding was 2.4% at June 30, 2002 compared to 2.3% at December 31, 2001.

We believe that the allowance for credit losses is currently adequate to cover probable losses in our owned portfolio that can be reasonably estimated. No single loan, borrower or series of such loans comprises a significant portion of the total portfolio. The provision and allowance for credit losses are indicative of loan volumes, loss trends and management’s analysis of market conditions.

The following table sets forth the activity in the allowance for credit losses:


		Three Months Ended June 30,						Six Months Ended June 30,

		2002			2001			2002			2001

		(Dollars in thousands)
Balance at beginning of period		$	188,263		$	110,060		$	171,432		$	104,006




Chargeoffs:




	Mortgage loans		(3	)		(496	)		(71	)		(657	)




	Consumer loans		(57,494	)		(33,094	)		(122,095	)		(61,397	)

			(57,497	)		(33,590	)		(122,166	)		(62,054	)




Recoveries:




	Mortgage loans					12						13




	Consumer loans		17,075			9,227			34,236			17,794

			17,075			9,239			34,236			17,807

Net chargeoffs			(40,422	)		(24,351	)		(87,930	)		(44,247	)




Provision for credit losses			62,350			39,640			128,048			66,623




Write-down of non-performing assets			82			(2,773	)		(1,277	)		(3,806	)

Balance at end of period		$	210,273		$	122,576		$	210,273		$	122,576

Ratio of net chargeoffs during the period (annualized) to average loans outstanding during the period			1.98	%		1.62	%		2.23	%		1.57	%

The following table presents summarized data relative to the allowance for credit and real estate losses at the dates indicated:


		June 30,			December 31,
		2002			2001

		(Dollars in thousands)
Total loans (1)		$	8,634,516		$	7,533,150




Allowance for credit losses			210,273			171,432




Allowance for real estate owned losses			250			250




Loans past due 60 days or more			66,818			74,851




Nonperforming loans (2)			5,201			6,772




Nonperforming assets (3)			30,107			28,341




Allowance for credit losses as a percent of:




	Total loans (1)		2.4	%		2.3	%




	Loans past due 60 days or more		314.7	%		229.0	%




	Nonperforming loans		4,042.9	%		2,531.5	%




Total allowance for credit losses and REO losses as a percent of nonperforming assets			699.2	%		605.8	%




Nonperforming loans as a percent of total loans			0.1	%		0.1	%




Nonperforming assets as a percent of total assets			0.3	%		0.3	%

(1)		Loans net of unearned interest and undisbursed loan proceeds.




(2)		All nonperforming loans are on nonaccrual.




(3)		Nonperforming loans, Chapter 13 bankruptcy accounts greater than 120 days delinquent, repossessed automobiles and real estate owned, net of allowance.

Deposits

We attract both short-term and long-term deposits from the general public, commercial enterprises and institutions by offering a variety of accounts and rates. We offer regular passbook accounts, demand deposit accounts, money market accounts, certificate of deposit accounts and individual retirement accounts. Our retail banking division gathers deposits from 24 retail branch locations throughout California. Our commercial banking division gathers deposits by establishing commercial relationships with businesses located throughout Southern California.

On June 3, 2002, we announced that we are selling, subject to required regulatory approvals, seven Northern California retail bank branches. We believe that we can reduce costs, raise more deposits and reduce our cost of funds by focusing our training, advertising, brand positioning and sales efforts in a more concentrated area. The decision also reflects our commitment on brand development and expansion in Southern California. The sale of our Northern California branches will reduce our total deposit base by approximately $500 million.

The following table sets forth the amount of our deposits by type at the dates indicated:


		June 30,		December 31,
		2002		2001

		(Dollars in thousands)
No minimum term:




	Demand deposit accounts	$	2,463	$	1,124




	Passbook accounts		9,913		11,192




	Money market accounts		785,572		858,371




	Noninterest bearing deposits		125,550		100,170




Certificate accounts:




	Certificates (30 days to five years)		1,130,219		1,154,917




	IRAs		134,163		147,250

Brokered deposits					56,302




		$	2,187,880	$	2,329,326

The variety of deposits we offer has allowed us to remain competitive in obtaining funds and provided us the flexibility to respond to changes in customer demand and competitive pressures. Generally, as other financial institutions, we have become more subject to short-term fluctuations in deposit flows as customers have become more interest rate conscious. Our ability to attract and maintain deposits and control our cost of funds has been, and will continue to be, significantly affected by market conditions.

Capital Resources and Liquidity

Overview

We require substantial capital resources and cash to support our business. Our ability to maintain positive cash flows from operations is the result of consistent managed growth, favorable loss experience and efficient operations.

In addition to our indirect statement of cash flows as presented in accordance with GAAP, we also analyze the key cash flows from our automobile lending operations on a direct basis excluding certain items such as the purchase or sale of loans. The following table shows our operating cash flows from our automobile lending operations:


	Six Months Ended
	June 30,

	2002		2001

	(Dollars in thousands)
Cash flows from owned loans	$	225,512	$	159,862




Cash flows from trusts		6,248		35,015




Contractual servicing income		6,452		13,500




Other fee income		43,741		36,440




Less:




Dealer participation		65,253		61,896




Operating costs		106,625		104,066

Operating cash flows	$	110,075	$	78,855

Operating cash flows improved for the six months ended June 30, 2002 compared with the six months ended June 30, 2001 as a result of an increase in the managed portfolio and improved operating efficiencies over the prior year.

Principal Sources of Cash

• Collections of Principal and Interest from Automobile Contracts – For the three and six months ended June 30, 2002, principal and interest collections totaled $1.8 billion and $3.6 billion, respectively, compared with $1.6 billion and $3.1 billion for the same respective periods in 2001.

• Deposits – Deposits were $2.2 billion at June 30, 2002 compared with $2.3 billion at December 31, 2001.

• Automobile Contract Securitizations – For the three and six months ended June 30, 2002, securitizations totaled $1.8 billion and $4.3 billion, respectively. Of the $4.3 billion, $3.5 billion was through public transactions and $775 million was a private placement through a conduit facility. Securitizations totaled $1.4 billion and $2.4 billion for the same respective periods in 2001.

• Subordinated Debentures – Proceeds raised from the Bank’s subordinated capital debenture offering in May 2002 totaled $292 million, net of discount and issue costs.

• Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, decreased to $127 million at June 30, 2002 from $699 million at December 31, 2001.

Principal Uses of Cash

• Acquisition of Loans and Investment Securities – For the three and six months ended June 30, 2002, loan originations totaled $1.6 billion and $2.9 billion, respectively, compared with $1.4 billion and $2.6 billion for the same periods in 2001. We purchased $448 million of MBS and other investment securities during the six months ended June 30, 2002 compared with $643 million during the same respective period in 2001.

• Payments of Principal and Interest on Securitizations– For the three and six months ended June 30, 2002, payments of principal and interest to noteholders and certificateholders totaled $1.8 billion and $3.3 billion, respectively, compared with $0.9 billion and $1.6 billion for the same respective periods in 2001. Payments for the six months ended June 30, 2002 include redemptions of $1.4 billion on our conduit facilities.

• Amounts Paid to Dealers– For the three and six months ended June 30, 2002, participation paid by us to dealers was $35.7 million and $65.3 million, respectively, compared with $32.6 million and $61.9 million for the same respective periods in 2001.

• Advances to Spread Accounts – The amounts due from trusts, including initial advances not yet returned, was $121 million at June 30, 2002 compared with $136 million at December 31, 2001.

• Operating Our Business – For the three and six months ended June 30, 2002, operating expenses totaled $64.8 million and $126 million, respectively, compared with $63.0 million and $124 million for the same respective periods in 2001.

Capital Requirements

The Bank is a federally chartered savings bank. As such, it is subject to certain minimum capital requirements imposed by the Financial Institutions Reform, Recovery and Enforcement Act, also known as FIRREA and the Federal Deposit Insurance Corporation Improvement Act, also known as FDICIA. FDICIA separates all financial institutions into one of five capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” In order to be considered “well capitalized,” an institution must have a total risk-based capital ratio of 10.0% or greater, a Tier 1 or core risk-based capital ratio of 6.0% or greater, a leverage ratio of 5.0% or greater and not be subject to any OTS order. The Bank currently meets all of the requirements of a “well capitalized” institution.

The following table summarizes the Bank’s actual capital and required capital as of June 30, 2002 and December 31, 2001:


								Tier 1
		Tangible			Core			Risk-Based			Risk-Based
		Capital			Capital			Capital			Capital

		(Dollars in thousands)
June 30, 2002




Actual Capital:




	Amount	$	686,410		$	686,410		$	686,410		$	1,134,586




	Capital ratio		6.97	%		6.97	%		8.39	%		13.87	%




FIRREA minimum required capital:




	Amount	$	147,675		$	295,349			N/A		$	654,516




	Capital ratio		1.50	%		3.00	%		N/A			8.00	%




	Excess	$	538,735		$	391,061			N/A		$	480,070




FDICIA well capitalized required capital:




	Amount		N/A		$	492,249		$	490,887		$	818,145




	Capital ratio		N/A			5.00	%		6.00	%		10.00	%




	Excess		N/A		$	194,161		$	195,523		$	316,441


December 31, 2001




Actual Capital:




	Amount	$	602,491		$	602,491		$	602,491		$	841,144




	Capital ratio		7.29	%		7.29	%		8.49	%		11.86	%




FIRREA minimum required capital:




	Amount	$	123,957		$	247,915			N/A		$	567,523




	Capital ratio		1.50	%		3.00	%		N/A			8.00	%




	Excess	$	478,534		$	354,576			N/A		$	273,621




FDICIA well capitalized required capital:




	Amount		N/A		$	413,192		$	425,642		$	709,404




	Capital ratio		N/A			5.00	%		6.00	%		10.00	%




	Excess		N/A		$	189,299		$	176,849		$	131,740

The following table reconciles the Bank’s capital in accordance with GAAP to the Bank’s tangible, core and risk-based capital:


		June 30,			December 31,
		2002(3)			2001

		(Dollars in thousands)
Bank’s shareholder’s equity — GAAP basis		$	517,396		$	472,132




Adjustments for tangible and core capital:




	Unrealized losses under SFAS 115 and SFAS 133		72,378			52,214




	Non-permissible activities		(142	)		(116	)




	Minority interest in equity of subsidiaries		96,778			78,261

Total tangible and core capital			686,410			602,491




Adjustments for risk-based capital:




	Subordinated debentures (1)		345,245			149,554




	General loan valuation allowance (2)		102,931			89,099

Risk-based capital		$	1,134,586		$	841,144

(1)		Excludes capitalized discounts and issue costs.




(2)		Limited to 1.25% of risk-weighted assets.




(3)		Subordinated debentures included $200 million of the $300 million that was issued in May 2002. The additional $100 million is still pending regulatory approval to be included as part of capital.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Credit and Pricing Committee is responsible for setting credit and pricing policies and for monitoring credit quality. Our Asset/Liability Committee is responsible for the management of interest rate and prepayment risks. Asset/liability management is the process of measuring and controlling interest rate risk through matching the maturity and repricing characteristics of interest earning assets with those of interest bearing liabilities.

The Asset/Liability Committee closely monitors interest rate and prepayment risks and recommends policies for managing such risks. The primary measurement tool for evaluating this risk is the use of interest rate shock analysis. This analysis simulates the effects of an instantaneous and sustained change in interest rates (in increments of 100 basis points) on our assets and liabilities and measures the resulting increase or decrease to our net portfolio value, also known as NPV. NPV is the discounted value of the future cash flows (or ‘paths’ of cash flows in the presence of options based on volatility assumptions and an arbitrage free Monte Carlo simulation method to achieve the current market price) of all assets minus all liabilities whose value is affected by interest rate changes plus the book value of non-interest rate sensitive assets minus the book value of non-interest rate sensitive liabilities. The NPV ratio is the ratio of the NPV to the market value of our assets as calculated above. In general, an increase in interest rates would more adversely affect our NPV than would a decrease in interest rates.

Another important measurement of our interest rate risk is ‘GAP’ analysis. GAP is defined as the difference between the amount of interest sensitive assets that reprice versus the amount of interest sensitive liabilities that also reprice within a defined period of time. We have more interest sensitive liabilities rather than assets repricing in shorter term maturity buckets and more interest sensitive assets rather than liabilities repricing in longer term maturity buckets.

The following table summarizes our maturity GAP position:


				Interest Rate Sensitivity Analysis at June 30, 2002

													3 Years
				Within			3 Months			1 Year to			to			After 5
				3 Months			to 1 Year			3 Years			5 Years			Years			Total

				(Dollars in thousands)
Interest earning assets:




	Investment securities			$	10,877											$	1,023		$	11,900




	Other investments				271,785		$	200												271,985




	Mortgage-backed securities				450,553			622,005		$	643,652		$	229,321			127,263			2,072,794

			Total investments		733,215			622,205			643,652			229,321			128,286			2,356,679




	Consumer loans (1)				547,539			2,147,877			3,958,041			1,539,293			44,075			8,236,825




	Mortgage loans:




		Adjustable rate (2)			262,169			42,489												304,658




		Fixed rate (2)			1,805			4,297			6,193			2,500			2,068			16,863




	Construction loans (2)				7,173															7,173




	Commercial loans (2)				65,647			631			1,342			262			1,115			68,997

			Total interest earning assets		1,617,548			2,817,499			4,609,228			1,771,376			175,544			10,991,195




Interest bearing liabilities:




	Deposits:




		Passbook accounts (3)			1,887			5,085			2,941									9,913




		Demand deposit and money market accounts (3)			125,774			222,768			439,493									788,035




		Certificate accounts (4)			343,803			656,305			257,083			7,191						1,264,382




	FHLB advances (4)																2,847			2,847




	Securities sold under agreements to repurchase (4)				123,708															123,708




	Subordinated debentures (4)																441,070			441,070




	Notes payable on automobile secured financing (4)				3,369,862			1,869,277			2,096,432			177,565						7,513,136




	Other borrowings (4)				8,470															8,470

			Total interest bearing liabilities		3,973,504			2,753,435			2,795,949			184,756			443,917			10,151,561

Excess interest earning/bearing assets (liabilities)					(2,355,956	)		64,064			1,813,279			1,586,620			(268,373	)		839,634




Effect of hedging activities (5)					2,897,584			(556,832	)		(1,474,547	)		(391,705	)		(474,500	)

Hedged excess (deficit)				$	541,628		$	(492,768	)	$	338,732		$	1,194,915		$	(742,873	)	$	839,634

Cumulative excess				$	541,628		$	48,860		$	387,592		$	1,582,507		$	839,634		$	839,634

Cumulative excess as a percentage of total interest earning assets					4.93	%		0.44	%		3.53	%		14.40	%		7.64	%		7.64	%

(1)		Based on contractual maturities adjusted by our historical prepayment rate.




(2)		Based on interest rate repricing adjusted for projected prepayments.




(3)		Based on assumptions established by the OTS.




(4)		Based on contractual maturity.




(5)		Includes effect of interest rate swaps designated against deposits and securities sold under agreements to repurchase.

Forward-Looking Statements

This Form 10-Q includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These statements are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements.

These forward-looking statements are identified by use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and similar terms and phrases, including references to assumptions.

The following factors are among those that may cause actual results to differ materially from the forward-looking statements:

• changes in general economic and business conditions;

• interest rate fluctuations, including hedging activities;

• our financial condition and liquidity, as well as future cash flows and earnings;

• competition;

• our level of operating expenses;

• the effect of new laws, regulations and court decisions;

• the availability of sources of funding;

• the level of chargeoffs on the automobile contracts that we originate; and

• significant litigation.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.

We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.

Available Information

The company provides access to all filings with the Securities and Exchange Commission on its Web site at http:\\www.westcorpinc.com free of charge on the same day as these reports are electronically filed with the Commission. The information contained in our Web site does not constitute part of this filing.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We or our subsidiaries are involved as parties to certain legal proceedings incidental to our businesses, including consumer class action lawsuits. We are vigorously defending these actions and do not believe that the outcome of these proceedings will have a material effect upon our financial condition, results of operations and cash flows.

ITEM 2. CHANGES IN SECURITIES

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 AND REPORTS ON FORM 8-K

(a) Exhibits

99.1 Certification of CEO and CFO

(b) Reports on Form 8-K

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Westcorp

(Registrant)








Date:	August 9, 2002	By:	/s/ THOMAS A. WOLFE Thomas A. Wolfe President and Director



Date:	August 9, 2002	By:	/s/ LEE A. WHATCOTT Lee A. Whatcott Executive Vice President (Principal Financial and Accounting Officer), Chief Financial Officer and Chief Operating Officer

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•		Collections of Principal and Interest from Automobile Contracts – For the three and six months ended June 30, 2002, principal and interest collections totaled $1.8 billion and $3.6 billion, respectively, compared with $1.6 billion and $3.1 billion for the same respective periods in 2001.

•		Deposits – Deposits were $2.2 billion at June 30, 2002 compared with $2.3 billion at December 31, 2001.

•		Automobile Contract Securitizations – For the three and six months ended June 30, 2002, securitizations totaled $1.8 billion and $4.3 billion, respectively. Of the $4.3 billion, $3.5 billion was through public transactions and $775 million was a private placement through a conduit facility. Securitizations totaled $1.4 billion and $2.4 billion for the same respective periods in 2001.

•		Subordinated Debentures – Proceeds raised from the Bank’s subordinated capital debenture offering in May 2002 totaled $292 million, net of discount and issue costs.

•		Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, decreased to $127 million at June 30, 2002 from $699 million at December 31, 2001.

•		Payments of Principal and Interest on Securitizations– For the three and six months ended June 30, 2002, payments of principal and interest to noteholders and certificateholders totaled $1.8 billion and $3.3 billion, respectively, compared with $0.9 billion and $1.6 billion for the same respective periods in 2001. Payments for the six months ended June 30, 2002 include redemptions of $1.4 billion on our conduit facilities.

•		Amounts Paid to Dealers– For the three and six months ended June 30, 2002, participation paid by us to dealers was $35.7 million and $65.3 million, respectively, compared with $32.6 million and $61.9 million for the same respective periods in 2001.

•		Advances to Spread Accounts – The amounts due from trusts, including initial advances not yet returned, was $121 million at June 30, 2002 compared with $136 million at December 31, 2001.

•		Operating Our Business – For the three and six months ended June 30, 2002, operating expenses totaled $64.8 million and $126 million, respectively, compared with $63.0 million and $124 million for the same respective periods in 2001.

	•		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 of new laws, regulations and court decisions;

	•		the availability of sources of funding;

	•		the level of chargeoffs on the automobile contracts that we originate; and

	•		significant litigation.