WESTCORP /CA/ - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 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 x No

As of October 31, 2002, the registrant had 39,199,724 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 38.

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
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	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
CERTIFICATIONS
EXHIBIT 99.1

WESTCORP AND SUBSIDIARIES

FORM 10-Q

September 30, 2002

TABLE OF CONTENTS
______________


		Page No.

PART I.	FINANCIAL INFORMATION




Item 1.	Financial Statements




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




	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and 2001		4




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




	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001		6




	Notes to Consolidated Financial Statements		7




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




	Condition and Results of Operations




Item 3.	Quantitative and Qualitative Disclosure about Market Risk		31




Item 4.	Controls and Procedures		33




PART II.	OTHER INFORMATION




Item 1.	Legal Proceedings		35




Item 2.	Changes in Securities and Use of Proceeds		35




Item 3.	Defaults Upon Senior Securities		35




Item 4.	Submission of Matters to a Vote of Security Holders		35




Item 5.	Other Information		35




Item 6.	Exhibits and Reports on Form 8-K		35




SIGNATURES			36




CERTIFICATIONS			37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)


			September 30,			December 31,
			2002			2001

			(Dollars in thousands)
ASSETS




Cash and cash equivalents			$	289,793		$	104,327




Investment securities available for sale				11,299			10,511




Mortgage-backed securities available for sale				2,489,300			2,092,225




Loans receivable				9,145,593			7,533,150




Allowance for credit losses				(235,709	)		(171,432	)

	Loans receivable, net			8,909,884			7,361,718




Amounts due from trusts				116,149			136,131




Retained interest in securitized assets				4,027			37,392




Premises and equipment, net				78,612			79,258




Other assets				281,650			250,835

		TOTAL ASSETS	$	12,180,714		$	10,072,397

LIABILITIES




Deposits			$	1,871,791		$	2,329,326




Notes payable on automobile secured financing				8,015,546			5,886,227




Securities sold under agreements to repurchase				323,755			155,190




Federal Home Loan Bank advances				445,810			543,417




Amounts held on behalf of trustee				213,283			280,496




Subordinated debentures				428,899			147,714




Other borrowings				8,296			25,068




Other liabilities				188,411			85,994

		TOTAL LIABILITIES		11,495,791			9,453,432




Minority interest				98,214			78,261




SHAREHOLDERS’ EQUITY




Common stock (par value $1.00 per share; authorized 65,000,000 shares; issued and outstanding 39,192,789 shares in September 2002 and 35,802,491 in December 2001)				39,193			35,802




Paid-in capital				349,356			301,955




Retained earnings				310,749			263,853




Accumulated other comprehensive loss, net of tax				(112,589	)		(60,906	)

		TOTAL SHAREHOLDERS’ EQUITY		586,709			540,704

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	12,180,714		$	10,072,397

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2002		2001		2002		2001

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




		Loans, including fees	$	265,814	$	218,910	$	748,589	$	590,284




		Mortgage-backed securities		30,808		32,116		86,534		104,242




		Other		2,384		2,015		6,087		6,782

	TOTAL INTEREST INCOME			299,006		253,041		841,210		701,308




Interest expense:




		Deposits		20,447		26,370		61,642		92,123




		Notes payable on automobile secured financing		105,911		90,464		301,083		244,482




		Other		13,618		8,564		30,431		34,871

	TOTAL INTEREST EXPENSE			139,976		125,398		393,156		371,476

NET INTEREST INCOME				159,030		127,643		448,054		329,832




Provision for credit losses				80,996		60,501		209,043		127,124





NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES				78,034		67,142		239,011		202,708




Noninterest income:




		Automobile lending		15,985		3,948		43,740		54,311




		Other		10,402		4,378		20,537		10,972

	TOTAL NONINTEREST INCOME			26,387		8,326		64,277		65,283




Noninterest expenses:




		Salaries and associate benefits		34,684		33,804		105,738		107,412




		Credit and collections		8,442		7,468		26,695		20,329




		Data processing		4,485		4,176		13,625		13,612




		Other		14,596		14,432		41,783		42,809

	TOTAL NONINTEREST EXPENSES			62,207		59,880		187,841		184,162

INCOME BEFORE INCOME TAX				42,214		15,588		115,447		83,829




Income tax				16,801		6,119		44,950		32,967

INCOME BEFORE MINORITY INTEREST				25,413		9,469		70,497		50,862




Minority interest in earnings of subsidiaries				3,740		1,255		10,263		8,036

NET INCOME			$	21,673	$	8,214	$	60,234	$	42,826

Net income per common share




		Basic	$	0.55	$	0.23	$	1.57	$	1.27

		Diluted	$	0.55	$	0.23	$	1.55	$	1.26

Weighted average number of common shares outstanding:




		Basic		39,189,744		35,792,418		38,382,794		33,765,085




		Diluted		39,506,307		36,091,155		38,751,631		33,987,939

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										60,234						60,234




		Unrealized gain on securities available for sale and retained interest in securitized assets, net of tax (1)												26,588			26,588




		Unrealized hedge losses on cash flow hedges, net of tax (3)												(127,864	)		(127,864	)




		Reclassification adjustment for losses on cash flow hedges included in income (4)												49,593			49,593

		Comprehensive income															8,551




		Issuance of subsidiary common stock						(1,969	)								(1,969	)




		Issuance of common stock		3,390,298		3,391		49,370									52,761




		Cash dividends									(13,338	)					(13,338	)

Balance at September 30, 2002				39,192,789	$	39,193	$	349,356		$	310,749		$	(112,589	)	$	586,709

(1)		The pre-tax amount in unrealized gains on securities available for sale and retained interest in securitized assets was $45.1 million for the nine months ended September 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 nine months ended September 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 $217 million for the nine months ended September 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 $84.1 million for the nine months ended September 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)


		Nine Months Ended
		September 30,

		2002			2001

		(Dollars in thousands)
OPERATING ACTIVITIES




Net income		$	60,234		$	42,826




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




	Provision for credit losses		209,043			127,124




	Depreciation and amortization		145,205			83,865




	Amortization of retained interest in securitized assets		32,612			59,312




	Loss due to hedge redesignation		6,033




Loans held for sale:




	Proceeds from sale of mortgage loans		554			2,902




Decrease (increase) in other assets			11,686			(95,138	)




Increase in other liabilities			102,417			14,149




Other, net			11,254			5,354

NET CASH PROVIDED BY OPERATING ACTIVITIES			579,038			240,394




INVESTING ACTIVITIES




Loans receivable:




	Origination of loans		(4,427,803	)		(3,977,505	)




	Participation paid to dealers		(99,706	)		(93,260	)




	Loan payments and payoffs		2,701,770			1,743,332




Investment securities available for sale:




	Purchases		(4,842	)		(2,568	)




	Proceeds from sale		485




	Proceeds from maturities		821			1,096




Mortgage-backed securities:




	Purchases		(1,081,335	)		(1,004,454	)




	Proceeds from sale					468,600




	Payments received		704,194			628,104




Decrease in amounts due from trusts			19,983			188,063




Purchase of premises and equipment			(14,424	)		(8,174	)




Proceeds from sale of premises and equipment			4,132			12

NET CASH USED IN INVESTING ACTIVITIES			(2,196,725	)		(2,056,754	)




FINANCING ACTIVITIES




Decrease in deposits			(532,505	)		(248,301	)




Increase (decrease) in securities sold under agreements to repurchase			165,148			(39,737	)




Proceeds from notes payable on automobile secured financing			5,564,768			3,563,030




Payments on notes payable on automobile secured financing			(3,472,399	)		(1,215,875	)




Decrease in other borrowings			(16,772	)		(22,626	)




Decrease in amounts held on behalf of trustee			(67,213	)		(174,858	)




Decrease in FHLB advances			(97,607	)		(19,114	)




Proceeds from issuance of subordinated debentures			292,472




Payments on subordinated debentures			(12,986	)		(42,663	)




Proceeds from issuance of common stock			52,761			62,069




Proceeds from issuance of subsidiary common stock			10,980			15,834




Cash dividends			(13,338	)		(11,062	)




Payments on cash flow hedges			(70,156	)		(47,022	)

NET CASH PROVIDED BY FINANCING ACTIVITIES			1,803,153			1,819,675

INCREASE IN CASH AND CASH EQUIVALENTS			185,466			3,315




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

CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	289,793		$	132,078

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 nine months ended September 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 our Form 10-K.

In July 2001, the Financial Accounting Standards Board 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 September 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:


	September 30, 2002

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

	(Dollars in thousands)
GNMA certificates	$	2,402,754	$	42,862	$	1,407	$	2,444,209




FNMA participation certificates		41,176		506				41,682




FHLMC participation certificates		1,309		28				1,337




Other		2,072						2,072

	$	2,447,311	$	43,396	$	1,407	$	2,489,300


	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:


		September 30,			December 31,
		2002			2001

		(Dollars in thousands)
Consumer:




	Automobile contracts	$	8,701,700		$	7,045,578




	Dealer participation, net of deferred contract fees		152,736			128,148




	Other		7,302			8,826




	Unearned discounts		(100,599	)		(108,169	)

			8,761,139			7,074,383




Real Estate:




	Mortgage		300,072			361,115




	Construction		7,423			15,638

			307,495			376,753




Undisbursed loan proceeds			(1,561	)		(3,298	)

			305,934			373,455




Commercial			78,520			85,312

			9,145,593			7,533,150




Allowance for credit losses			(235,709	)		(171,432	)

		$	8,909,884		$	7,361,718

Loans managed by us, excluding dealer participation, totaled $9.7 billion as of September 30, 2002 compared with $8.6 billion at December 31, 2001. Of the $9.7 billion managed at September 30, 2002, $9.0 billion were owned by us and $0.7 billion were owned by securitization trusts. Of the $8.6 billion managed 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 September 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						Nine Months Ended
	September 30,						September 30,

	2002			2001			2002			2001

				(Dollars in thousands)
Beginning balance	$	11,183		$	80,602		$	37,392		$	111,558




Amortization		(7,700	)		(26,881	)		(32,612	)		(59,312	)




Change in unrealized gain/loss on RISA (1)		544			396			(753	)		1,871

Balance at end of period (2)	$	4,027		$	54,117		$	4,027		$	54,117

(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:


	September 30,			December 31,
	2002			2001

	(Dollars in thousands)
Estimated net undiscounted RISA earnings	$	33,261		$	87,358




Off balance sheet allowance for credit losses		(28,991	)		(47,235	)




Discount to present value		(243	)		(2,731	)

Retained interest in securitized assets	$	4,027		$	37,392

Outstanding balance of automobile contracts sold through securitizations	$	668,166		$	1,215,058




Off balance sheet allowance for losses as a percent of automobile contracts sold through securitizations		4.34	%		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 of the following:


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

				(Dollars in thousands)
Noninterest bearing deposits		—		$	150,155	$	100,170




Demand deposit accounts		0.2	%		1,780		1,124




Passbook accounts		0.4			6,790		11,192




Money market deposit accounts		2.1			674,016		858,371




Brokered certificate accounts		4.9					56,302




Certificate accounts		5.1			1,039,050		1,302,167

				$	1,871,791	$	2,329,326

The decline in deposits was the result of us selling our seven Northern California retail banking branches for a gain of $6.0 million ($3.6 million, net of tax).

Note 6 – Notes Payable on Automobile Secured Financing

For the three and nine months ended September 30, 2002, we issued $1.3 billion and $5.6 billion of notes secured by automobile contracts, respectively. The $1.3 billion was through a public transaction. Of the $5.6 billion, $4.8 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 $8.0 billion of notes payable on automobile secured financing outstanding at September 30, 2002 compared with $5.9 billion at December 31, 2001. Of these amounts, we had no amounts outstanding on a conduit facility at September 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 or monthly, 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 nine months ended September 30, 2002, interest expense on all notes payable on automobile secured financing, including interest payments under interest rate swap agreements, totaled $106 million and $301 million, respectively, compared with $90.5 million and $245 million for the same respective periods in 2001.

Note 7 – Accumulated Other Comprehensive Loss, Net of Tax

The following table summarizes the components of accumulated other comprehensive loss, net of tax:


		September 30,			December 31,
		2002			2001

		(Dollars in thousands)
Unrealized gain/(loss) on marketable securities		$	25,131		$	(1,457	)




Unrealized loss on interest rate swaps: (1)




	Deposits		(52,894	)		(12,222	)




	Automobile secured financing		(45,863	)		(29,954	)




	Securities sold under agreements to repurchase		(3,066	)		(845	)

			(101,823	)		(43,021	)




Realized loss on settled cash flow hedges: (1)




	Deposits		(16,091	)		(7,910	)




	Automobile secured financing		(19,806	)		(8,518	)

			(35,897	)		(16,428	)

Total other accumulated comprehensive income		$	(112,589	)	$	(60,906	)

(1)

All cash flow hedges are structured to hedge future interest payments on deposits or borrowings.

Note 8 — Dividends

On August 20, 2002, we paid a $0.12 per share cash dividend to shareholders of record as of August 6, 2002.

Note 9 – Withdrawal of Merger Proposal

On July 17, 2002, we had announced a merger proposal, authorized by a special committee of our independent directors, whereby the public holders of WFS common shares would receive 0.9204 of Westcorp common share for each outstanding WFS common share. On September 26, 2002, we announced that our proposal to acquire the outstanding 16% minority interest in WFS had been withdrawn. In our notice, we indicated that we had withdrawn our proposal because the two special committees were unable to reach an agreement on a mutually acceptable exchange ratio for the proposed transaction.

Note 10 – Subsequent Event

On November 7, 2002, we declared a cash dividend of $0.12 per share for shareholders of record as of February 4, 2003 with a payable date of February 18, 2003.

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

Overview

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

Our primary sources of revenue are net interest income and noninterest income. Net interest income is the difference between the income earned on interest earning assets and the interest paid on interest bearing liabilities. We generate interest income from our loan portfolio, which consists of consumer, mortgage and commercial loans, and from investments in mortgage-backed securities and other short-term investments. We fund our loan portfolio and investments with deposits, advances from the Federal Home Loan Bank, also known as FHLB, 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; and evaluation of credit loss experience by credit tier and geographic location. Other quantitative analyses include the evaluation of the size of any particular asset group; the concentration of any credit tier; the level of 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), net of tax, on our Consolidated Statements of Financial Condition. Any ineffective portion is recognized in interest expense during that period if the hedge is greater than 100% effective. 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 issue 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 nine months ended September 30, 2002, net interest income totaled $159 million and $448 million, respectively, compared with $128 million and $330 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 utilized our own liquidity sources and completed $4.8 billion in public securitizations and $775 million in conduit financing, both of which were accounted for as secured financings.

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


					Three Months Ended						Nine Months Ended
					September 30,						September 30,

					2002			2001			2002			2001

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

Interest earning assets:




		Total investments:




			Mortgage-backed securities			5.40	%		5.67	%		5.37	%		6.09	%




			Other investments			2.18			4.03			2.41			5.02

				Total investments		4.89			5.54			4.97			6.01




		Total loans:




			Consumer loans			12.32			13.48			12.56			13.71




			Mortgage loans (1)			6.19			7.62			6.29			8.06




			Commercial loans			5.79			6.88			6.11			7.79

				Total loans		12.03			13.01			12.33			13.17

				Total interest earning assets		10.34			11.00			10.54			11.08




Interest bearing liabilities:




	Deposits					3.64			4.62			3.66			5.31




	Notes payable on automobile secured financing					5.40			6.40			5.64			6.81




	Securities sold under agreements to repurchase					2.37			4.07			2.62			4.86




	FHLB advances and other borrowings					2.59			3.92			2.33			5.91




	Subordinated debentures					10.34			9.47			10.03			9.29

				Total interest bearing liabilities		5.13			5.85			5.20			6.34

Interest rate spread						5.21	%		5.15	%		5.34	%		4.74	%

Net yield on average interest earning assets						5.47	%		5.51	%		5.62	%		5.20	%

(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 nine months ended September 30, 2002, the provision for credit losses totaled $81.0 million and $209 million, respectively, compared with $60.5 million and $127 million for the same respective periods a year earlier. For the three and nine months ended September 30, 2002 and 2001, net chargeoffs were $55.1 million and $143 million, compared with $33.0 million and $77.3 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 $1.6 billion or 21.4% from December 31, 2001 as well as an increase in chargeoffs due to the slowdown in the economy. For the three and nine months ended September 30, 2002, we recorded $25.9 million and $66.0 million, respectively, in provisions for credit losses in excess of chargeoffs 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 2.6% at September 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						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

		(Dollars in thousands)
Retained interest expense, net of amortization		$	(6,588	)	$	(17,867	)	$	(25,252	)	$	(14,790	)




Contractual servicing income			2,380			5,212			8,833			18,712




Other fee income			20,193			16,603			60,159			50,389

	Total automobile lending income	$	15,985		$	3,948		$	43,740		$	54,311

For the three and nine months ended September 30, 2002, contract securitizations totaled $1.3 billion and $5.6 billion, respectively, compared with $1.2 billion and $3.6 billion for the same respective periods in 2001. All transactions have been treated as secured financings.

For the three and nine months ended September 30, 2002, retained interest expense totaled $6.6 million and $25.3 million, respectively, compared with $17.9 million and $14.8 million for the same respective periods in 2001. 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 nine months ended September 30, 2002, contractual servicing income totaled $2.4 million and $8.8 million, respectively, compared with $5.2 million and $18.7 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 $9.1 billion and $8.7 billion for the three and nine months ended September 30, 2002, respectively, compared with $7.8 billion and $7.4 billion for the same respective periods in 2001.

Noninterest Expense

For the three months and nine months ended September 30, 2002, noninterest expense totaled $62.2 million and $188 million, respectively, compared with $59.9 million and $184 million for the same respective periods in 2001. Noninterest expense as a percent of total revenues improved to 34% and 37% for the three and nine months ended September 30, 2002 compared to 44% and 47% 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 40% and 39% for the three and nine months ended September 30, 2002, compared with 39% for both 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. During the fourth quarter of 2002, we will have substantially completed our transition to portfolio basis earnings and will no longer report portfolio basis earnings after the end of the year.

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. 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 $9.3 billion at September 30, 2002 compared with $8.0 billion at September 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				Nine Months Ended
		September 30,				September 30,

		2002		2001		2002		2001

		(Dollars in thousands, except per share amounts)
Interest income		$	322,366	$	304,087	$	926,801	$	884,712




Interest expense			154,789		156,828		447,021		481,794

	Net interest income		167,577		147,259		479,780		402,918




Net chargeoffs (1)			62,330		44,995		166,797		114,242




Provision for growth (2)			5,337		5,725		15,225		18,524

	Provision for credit losses		67,667		50,720		182,022		132,766

	Net interest income after provision for credit losses		99,910		96,539		297,758		270,152




Noninterest income			30,594		20,981		80,696		61,361




Noninterest expense			62,213		59,902		187,903		184,235

	Income before income tax		68,291		57,618		190,551		147,278




Income tax (3)			27,180		22,619		74,307		57,813

	Income before minority interest		41,111		34,999		116,244		89,465




Minority interest in earnings			5,309		5,432		15,429		14,541

Portfolio basis net income		$	35,802	$	29,567	$	100,815	$	74,924

Portfolio basis net income per common share – diluted		$	0.91	$	0.82	$	2.60	$	2.20

GAAP basis net income per common share – diluted		$	0.55	$	0.23	$	1.55	$	1.26

(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						Nine Months Ended
			September 30,						September 30,

			2002			2001			2002			2001

			(Dollars in thousands)
GAAP net income			$	21,673		$	8,214		$	60,234		$	42,826




Portfolio basis adjustments:




	Retained interest expense			6,588			17,867			25,252			14,790




	Contractual servicing income			(2,380	)		(5,212	)		(8,833	)		(18,712	)




	Net interest income			8,547			19,616			31,726			73,086




	Provision for credit losses			20,555			21,752			50,785			31,329




	Net chargeoffs			(7,226	)		(11,971	)		(23,764	)		(36,971	)




	Operating expenses			(7	)		(23	)		(62	)		(73	)




	Minority interest			(1,569	)		(4,177	)		(5,166	)		(6,505	)

		Total portfolio basis adjustments		24,508			37,852			69,938			56,944




Net tax effect				10,379			16,499			29,357			24,846

Portfolio basis net income			$	35,802		$	29,567		$	100,815		$	74,924

Financial Condition

Overview

Total assets increased $2.0 billion or 20.9% to $12.1 billion at September 30, 2002 from $10.1 billion at December 31, 2001. The increase was primarily a result of $4.2 billion of automobile contracts originated for the nine months ended September 30, 2002.

Loan Portfolio

The following table sets forth the composition of our loan portfolio by type of loan as of the dates indicated:


			September 30, 2002					December 31, 2001

			Amount		%			Amount		%

			(Dollars in thousands)
Consumer loans:




	Automobile contract		$	8,854,436		96.8	%	$	7,173,726		95.2	%




	Other			7,302		0.1			8,826		0.1

				8,861,738		96.9			7,182,552		95.3




Less: unearned interest				100,599		1.1			108,169		1.4

		Total consumer loans		8,761,139		95.8			7,074,383		93.9




Mortgage loans:




	Existing properties			300,072		3.3			361,115		4.8




	Construction			7,423		0.1			15,638		0.2

				307,495		3.4			376,753		5.0




Less: undisbursed loan proceeds				1,561					3,298

		Total mortgage loans		305,934		3.4			373,455		5.0




Commercial loans				78,520		0.8			85,312		1.1

		Total loans	$	9,145,593		100.0	%	$	7,533,150		100.0	%

Mortgage Loan Portfolio

Our total mortgage loan portfolio consisted of the following:


			September 30, 2002					December 31, 2001

			Amount		%			Amount		%

			(Dollars in thousands)
Single family residential loans:




	First trust deeds		$	108,126		35.3	%	$	146,895		39.3	%




	Second trust deeds			3,445		1.2			4,645		1.3

				111,571		36.5			151,540		40.6




Multifamily residential loans				145,359		47.5			180,850		48.4




Construction loans				7,423		2.4			15,638		4.2




Other				43,142		14.1			28,725		7.7

				307,495		100.5			376,753		100.9




Less: undisbursed loan proceeds				1,561		0.5			3,298		0.9

		Total mortgage loans	$	305,934		100.0	%	$	373,455		100.0	%

Commercial Loan Portfolio

We had outstanding loan commitments of $143 million at September 30, 2002 compared with $141 million at December 31, 2001. For the three and nine months ended September 30, 2002, we originated $66.4 million and $197 million of commercial loans, respectively, compared with $85.6 million and $218 million for the same respective periods in 2001. Amounts outstanding at September 30, 2002 and December 31, 2001 were $78.5 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.

Amounts Due From Trusts

The amounts due from trusts represent initial advances made to spread accounts and excess cash flows that are still under obligation to be held in the spread account on securitization transactions treated as sales. As these spread accounts reach the balances required by the trust, excess amounts are released to us and are used to pay down these amounts. The amounts due from trusts at September 30, 2002 was $116 million compared with $136 million at December 31, 2001. The decrease is the result of a reduction in the required amount held in spread accounts for securitizations treated as sales for accounting purposes.

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 September 30, 2002, the percentage of managed accounts delinquent 30 days or greater was 3.43% compared with 3.72% at December 31, 2001. We calculate delinquency based on the contractual due date. For the three and nine months ended September 30, 2002, net chargeoffs on average automobile contracts managed were 2.73% and 2.56%, respectively, compared with 2.30% and 2.04% 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:


		September 30, 2002					December 31, 2001

		Amount		%			Amount		%

				(Dollars in thousands)
Automobile contracts managed		$	9,269,265				$	8,152,882

Period of delinquency




	30-59 days	$	225,912		2.44	%	$	217,873		2.67	%




	60 days or more		92,381		0.99			85,290		1.05

Total automobile contracts delinquent and delinquencies as a percentage of automobile contracts managed		$	318,293		3.43	%	$	303,163		3.72	%

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


	September 30, 2002						December 31, 2001

	Number of Contracts			Amount			Number of Contracts			Amount

				(Dollars in thousands)
Automobile contracts managed		751,654		$	9,269,265			690,401		$	8,152,882

Repossessed vehicles		1,562		$	10,557			1,168		$	7,553

Repossessed vehicles as a percentage of number and amount of automobile contracts managed		0.21	%		0.11	%		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						Nine Months Ended
	September 30,						September 30,

	2002			2001			2002			2001

				(Dollars in thousands)
Average automobile contracts managed during period	$	9,102,663		$	7,801,032		$	8,672,049		$	7,403,432

Gross chargeoffs	$	80,916		$	63,810		$	229,216		$	162,747




Recoveries		18,688			19,045			62,548			49,375

Net chargeoffs	$	62,228		$	44,765		$	166,668		$	113,372

Net chargeoffs as a percentage of average automobile contracts managed during period		2.73	%		2.30	%		2.56	%		2.04	%

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

CUMULATIVE STATIC POOL LOSS CURVES
AT SEPTEMBER 30, 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		2002-3

	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	%	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	%	0.02	%




	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	%	0.03	%




	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	%	0.10	%




	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	%	0.29	%	0.18	%




	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	%	0.43	%




	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	%	0.60	%




	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	%	1.37	%




	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	%	1.55	%




	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	%	1.74	%




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




	16		2.72	%		2.10	%		1.91	%		1.89	%		2.03	%		2.27	%		2.15	%		2.24	%		2.45	%	2.71	%	2.41	%	2.19	%




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




	18		2.98	%		2.40	%		2.07	%		2.10	%		2.30	%		2.53	%		2.52	%		2.55	%		2.88	%	3.08	%	2.73	%




	19		3.11	%		2.55	%		2.11	%		2.24	%		2.42	%		2.67	%		2.67	%		2.73	%		3.08	%	3.22	%	2.93	%




	20		3.25	%		2.69	%		2.17	%		2.35	%		2.50	%		2.81	%		2.83	%		2.93	%		3.23	%	3.40	%	3.11	%




	21		3.35	%		2.79	%		2.24	%		2.46	%		2.58	%		2.92	%		2.99	%		3.12	%		3.38	%	3.59	%




	22		3.48	%		2.85	%		2.34	%		2.55	%		2.67	%		3.10	%		3.16	%		3.27	%		3.54	%	3.78	%




	23		3.62	%		2.89	%		2.43	%		2.63	%		2.77	%		3.28	%		3.34	%		3.38	%		3.67	%	3.96	%




	24		3.70	%		2.92	%		2.52	%		2.71	%		2.87	%		3.38	%		3.49	%		3.52	%		3.83	%




	25		3.75	%		2.97	%		2.62	%		2.77	%		3.01	%		3.55	%		3.63	%		3.63	%		4.00	%




	26		3.80	%		3.04	%		2.71	%		2.82	%		3.14	%		3.68	%		3.75	%		3.73	%		4.16	%




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




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




	29		3.98	%		3.24	%		2.90	%		3.02	%		3.40	%		4.14	%		4.09	%		4.11	%




	30		4.06	%		3.32	%		2.95	%		3.09	%		3.50	%		4.19	%		4.21	%




	31		4.11	%		3.38	%		3.00	%		3.17	%		3.61	%		4.30	%		4.33	%




	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	%		4.57	%




	35		4.32	%		3.52	%		3.15	%		3.41	%		3.87	%		4.66	%




	36		4.34	%		3.54	%		3.21	%		3.47	%		3.91	%		4.76	%




	37		4.35	%		3.58	%		3.25	%		3.52	%		3.97	%




	38		4.38	%		3.63	%		3.30	%		3.55	%		4.03	%




	39		4.39	%		3.66	%		3.35	%		3.58	%		4.09	%




	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	%		3.66	%




	43		4.47	%		3.75	%		3.45	%		3.68	%




	44		4.50	%		3.79	%		3.47	%		3.72	%




	45		4.52	%		3.81	%		3.48	%




	46		4.55	%		3.81	%		3.50	%




	47		4.56	%		3.83	%		3.52	%




	48		4.56	%		3.84	%




	49		4.56	%		3.85	%




	50		4.56	%		3.86	%




	51		4.57	%		3.87	%




	52		4.57	%		3.88	%




	53		4.57	%




	54		4.57	%




	55		4.57	%




Prime Mix (2)			57	%		67	%		70	%		70	%		70	%		67	%		68	%		69	%		68	%	68	%	71	%	71	%	76	%	70	%	87	%	85	%

(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

Our only category of mortgage delinquencies over 60 days was single family mortgages. We had $4.4 million mortgage loans, or 2.79% of total mortgage loans, past due over 60 days at September 30, 2002 compared with $7.0 million, or 3.79% of total mortgage loans, at December 31, 2001.

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 $7.4 million to $35.7 million at September 30, 2002 compared with $28.3 million at December 31, 2001. NPAs represented 0.3% of total assets at both September 30, 2002 and December 31, 2001. There were no impaired loans at September 30, 2002 and December 31, 2001.

When a loan is designated as nonaccrual, all previously accrued but unpaid interest is reversed. For the nine months ended September 30, 2002 and 2001, interest on nonperforming loans excluded from interest income was $0.5 million.

Allowance for Credit Losses

Our allowance for credit losses was $236 million at September 30, 2002 compared to $171 million at December 31, 2001. For the three and nine months ended September 30, 2002 and 2001, the provision for credit losses was $81.0 million and $209 million, respectively, compared with $60.5 million and $127 million for the same respective periods in 2001. For the three and nine months ended September 30, 2002, net chargeoffs totaled $55.1 million and $143 million, respectively, compared with $33.0 million and $77.3 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 2.6% at September 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						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

					(Dollars in thousands)
Balance at beginning of period		$	210,273		$	122,576		$	171,432		$	104,006




Chargeoffs:




	Mortgage loans		(105	)		(224	)		(176	)		(881	)




	Consumer loans		(70,143	)		(44,987	)		(192,238	)		(106,384	)

			(70,248	)		(45,211	)		(192,414	)		(107,265	)




Recoveries:




	Mortgage loans					3						16




	Consumer loans		15,144			12,184			49,381			29,977

			15,144			12,187			49,381			29,993

Net chargeoffs			(55,104	)		(33,024	)		(143,033	)		(77,272	)




Provision for credit losses			80,996			60,501			209,043			127,124




Write-down of non-performing assets (1)			(456	)		(1,552	)		(1,733	)		(5,357	)

Balance at end of period		$	235,709		$	148,501		$	235,709		$	148,501

Ratio of net chargeoffs during the period (annualized) to average loans outstanding during the period			2.51	%		1.98	%		2.33	%		1.72	%

(1)

The write-down of nonperforming assets represents specific reserves established on accounts that file for Chapter 13 Bankruptcy and are greater than 120 days delinquent. To the extent that these accounts do not perform under the court ordered plan, these specific reserves are reversed and the account is charged off.

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


		September 30,			December 31,
		2002			2001

		(Dollars in thousands)
Total loans (1)		$	9,154,593		$	7,533,150




Allowance for credit losses			235,709			171,432




Allowance for real estate owned losses			250			250




Loans past due 60 days or more			85,549			74,851




Nonperforming loans (2)			3,622			6,772




Nonperforming assets (3)			35,667			28,341




Allowance for credit losses as a percent of:




	Total loans (1)		2.6	%		2.3	%




	Loans past due 60 days or more		275.5	%		229.0	%




	Nonperforming loans		6,507.7	%		2,531.5	%




Total allowance for credit losses and REO losses as a percent of nonperforming assets			661.6	%		605.8	%




Nonperforming loans as a percent of total loans			0.0	%		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 17 retail branch locations throughout California. Our commercial banking division gathers deposits by establishing commercial relationships with businesses located throughout Southern California.

On September 13, 2002, we sold 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 geographic area. This decision reflects our commitment to brand development and expansion in Southern California. The sale of our Northern California branches reduced our total deposit base by approximately $481 million. As a result of the sale, we recorded a gain of $6.0 million ($3.6 million, net of tax).

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


		September 30,		December 31,
		2002		2001

		(Dollars in thousands)
No minimum term:




	Demand deposit accounts	$	1,780	$	1,124




	Passbook accounts		6,790		11,192




	Money market accounts		674,016		858,371




	Noninterest bearing deposits		150,155		100,170




Certificate accounts:




	Certificates (30 days to five years)		940,020		1,154,917




	IRAs		99,030		147,250




Brokered deposits					56,302

		$	1,871,791	$	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:


	Nine Months Ended
	September 30,

	2002		2001

	(Dollars in thousands)
Cash flows from owned loans	$	342,355	$	261,944




Cash flows from trusts		7,360		44,172




Contractual servicing income		8,833		18,712




Other fee income		66,488		54,728





Less:




Dealer participation		99,706		93,260




Operating costs		158,596		154,841

Operating cash flows	$	166,734	$	131,455

Operating cash flows improved for the nine months ended September 30, 2002 compared with the nine months ended September 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 nine months ended September 30, 2002, principal and interest collections totaled $1.9 billion and $5.4 billion, respectively, compared with $1.7 billion and $4.7 billion for the same respective periods in 2001.

• Deposits – Deposits were $1.9 billion at September 30, 2002 compared with $2.3 billion at December 31, 2001.

• Automobile Contract Securitizations – For the three and nine months ended September 30, 2002, securitizations totaled $1.3 billion and $5.6 billion, respectively. Of the $5.6 billion, $4.8 billion was through public transactions and $775 million was from a private placement through a conduit facility. Securitizations totaled $1.2 billion and $3.6 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, increased to $770 million at September 30, 2002 from $699 million at December 31, 2001.

Principal Uses of Cash

• Acquisition of Loans and Investment Securities – For the three and nine months ended September 30, 2002, loan originations totaled $1.5 billion and $4.4 billion, respectively, compared with $1.4 billion and $4.0 billion for the same periods in 2001. We purchased $1.1 billion of mortgage-backed securities and other investment securities during the nine months ended September 30, 2002 compared with $1.0 billion during the same respective period in 2001.

• Payments of Principal and Interest on Securitizations– For the three and nine months ended September 30, 2002, payments of principal and interest to noteholders and certificateholders totaled $1.0 billion and $4.4 billion, respectively, compared with $1.0 billion and $2.6 billion for the same respective periods in 2001. Payments for the nine months ended September 30, 2002 include redemptions of $1.4 billion on our conduit facilities.

• Amounts Paid to Dealers– For the three and nine months ended September 30, 2002, participation paid by us to dealers was $34.5 million and $99.7 million, respectively, compared with $31.4 million and $93.3 million for the same respective periods in 2001.

• Advances to Spread Accounts – The amounts due from trusts, including initial advances not yet returned, was $116 million at September 30, 2002 compared with $136 million at December 31, 2001.

• Operating Our Business – For the three and nine months ended September 30, 2002, operating expenses totaled $62.2 million and $188 million, respectively, compared with $59.9 million and $184 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 Office of Thrift Supervision, also known as 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 September 30, 2002 and December 31, 2001:


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

					(Dollars in thousands)
September 30, 2002




Actual Capital:




	Amount	$	710,524		$	710,524		$	627,624		$	1,036,642




	Capital ratio		6.54	%		6.54	%		7.63	%		12.60	%




FIRREA minimum required capital:




	Amount	$	162,903		$	325,807			N/A		$	658,334




	Capital ratio		1.50	%		3.00	%		N/A			8.00	%




	Excess	$	547,621		$	384,717			N/A		$	378,308




FDICIA well capitalized required capital:




	Amount		N/A		$	543,011		$	493,751		$	822,918




	Capital ratio		N/A			5.00	%		6.00	%		10.00	%




	Excess		N/A		$	167,513		$	133,873		$	213,724




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:


		September 30,			December 31,
		2002			2001

		(Dollars in thousands)
Bank’s shareholder’s equity — GAAP basis		$	508,738		$	472,132




Adjustments for tangible and core capital:




	Unrealized losses under SFAS 115 and SFAS 133		103,729			52,214




	Non-permissible activities		(157	)		(116	)




	Minority interest in equity of subsidiaries		98,214			78,261

Total tangible and core capital			710,524			602,491




Adjustments for risk-based capital:




	Subordinated debentures (1) (3)		305,284			149,554




	General loan valuation allowance (2)		103,734			89,099




	Low-level recourse deduction		(82,900	)

Risk-based capital		$	1,036,642		$	841,144

(1)		Excludes capitalized discounts and issue costs.




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




(3)		Subordinated debentures at September 30, 2002 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 September 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			$	10,276								$	517		$	506		$	11,299




	Other investments				192,319		$	310												192,629




	Mortgage-backed securities				455,763			893,739		$	797,868			232,526			109,404			2,489,300

			Total investments		658,358			894,049			797,868			233,043			109,910			2,693,228




	Consumer loans (1)				743,718			2,742,936			4,129,906			1,117,523			27,056			8,761,139




	Mortgage loans:




		Adjustable rate (2)			244,147			39,986												284,133




		Fixed rate (2)			1,707			4,020			5,816			2,378			2,018			15,939




	Construction loans (2)				5,862															5,862




	Commercial loans (2)				72,692			3,631			849			256			1,092			78,520

			Total interest earning assets		1,726,484			3,684,622			4,934,439			1,353,200			140,076			11,838,821




Interest bearing liabilities:




	Deposits:




		Passbook accounts (3)			1,293			3,483			2,014									6,790




		Demand deposit and money market accounts (3)			124,127			189,616			362,053									675,796




		Certificate accounts (4)			326,517			570,077			137,324			5,132						1,039,050




	FHLB advances (4)				443,000												2,810			445,810




	Securities sold under agreements to repurchase (4)				323,755															323,755




	Subordinated debentures (4)													134,400			294,499			428,899




	Notes payable on automobile secured financing (4)				3,184,832			2,226,527			2,368,131			236,056						8,015,546




	Other borrowings (4)				8,296															8,296

			Total interest bearing liabilities		4,411,820			2,989,703			2,869,522			375,588			297,309			10,943,942

Excess interest earning/bearing assets (liabilities)					(2,685,336	)		694,919			2,064,917			977,612			(157,233	)		894,879




Effect of hedging activities (5)					2,607,119			(723,524	)		(1,174,488	)		(364,107	)		(345,000	)

Hedged excess (deficit)				$	(78,217	)	$	(28,605	)	$	890,429		$	613,505		$	(502,233	)	$	894,879

Cumulative excess				$	(78,217	)	$	(106,822	)	$	783,607		$	1,397,112		$	894,879		$	894,879

Cumulative excess as a percentage of total interest earning assets					(0.66	)%		(0.90	)%		6.62	%		11.80	%		7.56	%		7.56	%

(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.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operations of our disclosure controls and procedures within 90 days of the filing date of this quarterly report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. There has been no significant change in our internal controls or in other factors that could significantly affect the controls and procedures subsequent to the date of their evaluation.

Disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

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 and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits 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:	November 13, 2002	By:	/s/ Ernest S. Rady

			Ernest S. Rady Chairman of the Board and Chief Executive Officer









Date:	November 13, 2002	By:	/s/ Lee A. Whatcott

			Lee A. Whatcott Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

CERTIFICATIONS

I, Ernest S. Rady, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Westcorp;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date		November 13, 2002







By		/s/ Ernest S. Rady

		Chairman of the Board and Chief Executive Officer

I, Lee A. Whatcott, certify that:


Date		November 13, 2002


By		/s/ Lee A. Whatcott

		Lee A. Whatcott Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Description

99.1		Certification of CEO and CFO

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•		Collections of Principal and Interest from Automobile Contracts – For the three and nine months ended September 30, 2002, principal and interest collections totaled $1.9 billion and $5.4 billion, respectively, compared with $1.7 billion and $4.7 billion for the same respective periods in 2001.

•		Deposits – Deposits were $1.9 billion at September 30, 2002 compared with $2.3 billion at December 31, 2001.

•		Automobile Contract Securitizations – For the three and nine months ended September 30, 2002, securitizations totaled $1.3 billion and $5.6 billion, respectively. Of the $5.6 billion, $4.8 billion was through public transactions and $775 million was from a private placement through a conduit facility. Securitizations totaled $1.2 billion and $3.6 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, increased to $770 million at September 30, 2002 from $699 million at December 31, 2001.

•		Acquisition of Loans and Investment Securities – For the three and nine months ended September 30, 2002, loan originations totaled $1.5 billion and $4.4 billion, respectively, compared with $1.4 billion and $4.0 billion for the same periods in 2001. We purchased $1.1 billion of mortgage-backed securities and other investment securities during the nine months ended September 30, 2002 compared with $1.0 billion during the same respective period in 2001.

•		Payments of Principal and Interest on Securitizations– For the three and nine months ended September 30, 2002, payments of principal and interest to noteholders and certificateholders totaled $1.0 billion and $4.4 billion, respectively, compared with $1.0 billion and $2.6 billion for the same respective periods in 2001. Payments for the nine months ended September 30, 2002 include redemptions of $1.4 billion on our conduit facilities.

•		Amounts Paid to Dealers– For the three and nine months ended September 30, 2002, participation paid by us to dealers was $34.5 million and $99.7 million, respectively, compared with $31.4 million and $93.3 million for the same respective periods in 2001.

•		Advances to Spread Accounts – The amounts due from trusts, including initial advances not yet returned, was $116 million at September 30, 2002 compared with $136 million at December 31, 2001.

•		Operating Our Business – For the three and nine months ended September 30, 2002, operating expenses totaled $62.2 million and $188 million, respectively, compared with $59.9 million and $184 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.


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 and Use of Proceeds

		None

Item 3.		Defaults Upon Senior Securities

		None

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

		None

Item 5.		Other Information

		None

Item 6.		Exhibits and Reports on Form 8-K

(a)		Exhibits

		99.1 Certification of CEO and CFO

(b)		Reports on Form 8-K

1.		I have reviewed this quarterly report on Form 10-Q of Westcorp;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

	a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;