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 March 31, 2003


[ ]		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 [ ]

Indicated by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ x ] No [ ]

As of April 30, 2003, the registrant had 39,205,459 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 36.

TABLE OF CONTENTS


Forward-Looking Statements
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
EXHIBIT 99.2

WESTCORP AND SUBSIDIARIES

FORM 10-Q

March 31, 2003

TABLE OF CONTENTS


		Page No.

Forward-Looking Statements and Available Information		1
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition at March 31, 2003 and December 31, 2002	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002	3
	Consolidated Statements of Changes in Shareholders’ Equity for the Periods Ended March 31, 2003 and December 31, 2002	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	29
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 2.	Changes in Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 5.	Other Information	33
Item 6.	Exhibits and Reports on Form 8-K	33
SIGNATURES		34
CERTIFICATIONS		35

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, interpretation, or application of new or existing laws, regulations and court decisions;

• the availability of sources of funding;

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

• significant litigation.

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

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

Available Information

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 I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


			(Unaudited)
			March 31, 2003			December 31, 2002

			(Dollars in thousands)
ASSETS
Cash and due from banks			$	93,202		$	84,215
Investment securities available for sale				7,037			10,425
Mortgage-backed securities available for sale				2,790,310			2,649,657
Loans receivable				10,180,166			9,443,901
Allowance for credit losses				(281,030	)		(269,352	)

	Loans receivable, net			9,899,136			9,174,549
Amounts due from trusts							101,473
Premises and equipment, net				76,069			78,664
Other				303,707			311,893

		TOTAL ASSETS	$	13,169,461		$	12,410,876

LIABILITIES
Deposits			$	2,084,725		$	1,974,984
Notes payable on automobile secured financing				9,265,725			8,422,915
Securities sold under agreements to repurchase				226,783			276,600
Federal Home Loan Bank advances				282,742			336,275
Amounts held on behalf of trustee							177,642
Subordinated debentures				397,406			400,561
Other				168,489			107,036

		TOTAL LIABILITIES		12,425,870			11,696,013
Minority interest				105,798			101,666
SHAREHOLDERS’ EQUITY
Common stock (par value $1.00 per share; authorized 65,000,000 shares; issued and outstanding 39,204,709 shares at March 31, 2003 and 39,200,474 shares at December 31, 2002)				39,205			39,200
Paid-in capital				350,122			350,018
Retained earnings				344,374			325,529
Accumulated other comprehensive loss, net of tax				(95,908	)		(101,550	)

		TOTAL SHAREHOLDERS’ EQUITY		637,793			613,197

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	13,169,461		$	12,410,876

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			For the Three Months Ended
			March 31,

			2003		2002

			(Dollars in thousands,
			except per share amounts)
Interest income:
		Loans, including fees	$	281,288	$	232,912
		Mortgage-backed securities		24,773		27,982
		Investment securities		93		118
		Other		1,348		1,184

	TOTAL INTEREST INCOME			307,502		262,196
Interest expense:
		Deposits		17,556		21,010
		Notes payable on automobile secured financing		110,799		92,018
		Other		12,857		7,042

	TOTAL INTEREST EXPENSE			141,212		120,070

NET INTEREST INCOME				166,290		142,126
Provision for credit losses				79,884		65,698

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES				86,406		76,428
Noninterest income:
		Automobile lending		20,949		11,674
		Other		6,804		5,485

	TOTAL NONINTEREST INCOME			27,753		17,159
Noninterest expenses:
		Salaries and associate benefits		39,455		34,871
		Credit and collections		9,546		8,077
		Data processing		4,568		4,580
		Occupancy		3,840		3,761
		Other		11,030		9,570

	TOTAL NONINTEREST EXPENSES			68,439		60,859

INCOME BEFORE INCOME TAX				45,720		32,728
Income tax				18,226		12,964

INCOME BEFORE MINORITY INTEREST				27,494		19,764
Minority interest in earnings of subsidiaries				3,945		2,911

NET INCOME			$	23,549	$	16,853

Earnings per common share:
		Basic	$	0.60	$	0.46

		Diluted	$	0.60	$	0.46

Weighted average number of common shares outstanding:
		Basic		39,202,850		36,791,744

		Diluted		39,452,915		36,980,861

Dividends declared			$	0.13	$	0.12

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, 2002			35,802,491	$	35,802	$	301,955		$	263,853		$	(60,906	)	$	540,704
	Net income									79,718						79,718
	Unrealized gains on securities available for sale and retained interest in securitized assets, net of tax (1)												28,605			28,605
	Unrealized hedge losses on cash flow hedges, net of tax (2)												(135,422	)		(135,422	)
	Reclassification adjustment for gains on securities available for sale included in net income, net of tax (3)												(3	)		(3	)
	Reclassification adjustment for losses on cash flow hedges included in income, net of tax (4)												66,176			66,176

	Comprehensive income															39,074
	Issuance of subsidiary common stock						(1,405	)								(1,405	)
	Issuance of common stock		3,397,983		3,398		49,468									52,866
	Cash dividends									(18,042	)					(18,042	)

Balance at December 31, 2002			39,200,474		39,200		350,018			325,529			(101,550	)		613,197
	Net income									23,549						23,549
	Unrealized gain on securities available for sale, net of tax (1)												799			799
	Unrealized hedge losses on cash flow hedges, net of tax (2)												(12,341	)		(12,341	)
	Reclassification adjustment for losses on cash flow hedges included in income, net of tax (4)												17,184			17,184

	Comprehensive income															29,191
	Issuance of subsidiary common stock						(21	)								(21	)
	Issuance of stock options (5)						68									68
	Issuance of common stock		4,235		5		57									62
	Cash dividends									(4,704	)					(4,704	)

Balance at March 31, 2003			39,204,709	$	39,205	$	350,122		$	344,374		$	(95,908	)	$	637,793

(1)		The pre-tax amount in unrealized gains on securities available for sale and retained interest in securitized assets was $1.4 million for the three months ended March 31, 2003 compared with $48.5 million for the period ended December 31, 2002.

(2)		The pre-tax amount of unrealized losses on cash flow hedges was $20.9 million for the three months ended March 31, 2003 compared with $230 million for the year ended December 31, 2002.

(3)		There was no pre-tax amount of unrealized gains or losses on securities available for sale reclassified into earnings for the three months ended March 31, 2003 compared with an unrealized loss of $5.0 thousand for the year ended December 31, 2002.

(4)		The pre-tax amount of unrealized losses on cash flow hedges reclassified into earnings was $29.1 million for the three months ended March 31, 2003 compared with $112 million for the year ended December 31, 2002.

(5)		Amount represents expense related to stock options granted during the quarter.

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


		For the Three Months Ended March 31,

		2003			2002

		(Dollars in thousands)
OPERATING ACTIVITIES
Net income		$	23,549		$	16,853
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for credit losses		79,884			65,698
	Depreciation and amortization		4,182			3,863
	Amortization of losses on cash flow hedges		12,461			6,669
	Amortization of premium on mortgage-backed securities		15,795			9,449
	Amortization of participation paid to dealers		25,545			21,134
	Amortization of retained interest in securitized assets					14,378
	Gain on sales of premises and equipment		(2,234	)
Loans held for sale:
	Proceeds from sale of mortgage loans					455
Increase in other assets			23,958			8,564
Increase (decrease) in other liabilities			3,771			(2,920	)
Other, net			4,011			3,790

NET CASH PROVIDED BY OPERATING ACTIVITIES			190,922			147,933
INVESTING ACTIVITIES
Loans receivable:
	Origination of loans		(1,454,926	)		(1,336,596	)
	Participation paid to dealers		(33,280	)		(30,251	)
	Loan payments and payoffs		1,182,337			849,794
Investment securities available for sale:
	Purchases		4			(802	)
	Proceeds from sale					485
	Proceeds from maturities		32			13
Mortgage-backed securities:
	Purchases		(518,640	)		(354,620	)
	Payments received		414,753			251,818
Increase in amounts due from trust						8,280
Proceeds from sales of premises and equipment			2,912			3,870
Purchase of premises and equipment			(1,889	)		(10,871	)

NET CASH USED IN INVESTING ACTIVITIES			(408,697	)		(618,880	)
FINANCING ACTIVITIES
Increase (decrease) in deposits			109,405			(63,426	)
Decrease in securities sold under agreements to repurchase			(49,821	)		(18,321	)
Proceeds from notes payable on automobile secured financing			1,343,896			2,570,822
Payments on notes payable on automobile secured financing			(1,101,514	)		(1,236,111	)
Decrease in borrowings			(150	)		(16,368	)
Decrease in amounts held on behalf of trustee						(18,282	)
Decrease in FHLB advances			(53,534	)		(540,535	)
Payments on subordinated debentures			(3,517	)		(32	)
Proceeds from issuance of common stock			62			51,688
Proceeds from issuance of subsidiary common stock						10,300
Cash dividends			(4,704	)		(3,938	)
Payments on cash flow hedges			(13,361	)		(14,571	)

NET CASH PROVIDED BY FINANCING ACTIVITIES			226,762			721,226

INCREASE IN CASH AND DUE FROM BANKS			8,987			250,279
Cash and due from banks at beginning of year			84,215			104,327

CASH AND DUE FROM BANKS AT END OF PERIOD		$	93,202		$	354,606

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, also known as GAAP, for complete financial statements.

In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002 included in our Form 10-K.

During the first quarter of 2003, Chapter 13 Bankruptcy accounts greater than 120 days were reclassified to contracts receivable and the related reserves were reclassified to the allowance for credit losses on the Statement of Financial Condition. Previously, such amounts were reported as nonperforming assets and were included in other assets on the Statement of Financial Condition. The 2002 amounts have been reclassified accordingly. These loans were considered in the overall evaluation of the adequacy of our allowance for credit losses. See “Asset Quality — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Effective January 1, 2003, we regained control over assets of the trusts for all of our outstanding securitization transactions treated as sales for accounting purposes. We regained control of these assets when each trust was given the ability to invest in financial assets not related to the securitization of contracts. In accordance with paragraph 55 of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, also known as SFAS No. 140, and Emerging Issues Task Force 02-9, Accounting for Changes that Result in a Transferor Regaining Control of Financial Assets Sold, we recorded $525 million of automobile contracts and the related notes payable on automobile secured financings on our Consolidated Statements of Financial Condition and have eliminated all remaining amounts due from trusts and amounts held on behalf of trustee. We will no longer recognize retained interest income or expense or contractual servicing income on our Consolidated Statements of Income. Rather, we will recognize interest income on automobile contracts held in these trusts and record interest expense on notes payable on automobile secured financings. These loans were considered in the overall evaluation of the adequacy of our allowance for credit losses. See “Asset Quality — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123, also known as SFAS No. 148. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the method used on reported results. SFAS No. 148 provides two additional transition methods for entities that adopt Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, also known as SFAS No. 123. Both of these methods avoid the ramp-up effects arising from prospective application of the fair value based method. SFAS No. 148

does not permit the use of the original SFAS No. 123 method of transition for changes to the fair value based method made in fiscal years beginning after December 15, 2003. This statement also requires disclosure of comparable information for all companies regardless of which method of accounting for stock-based employee compensation. SFAS No. 148 improves the timeliness of disclosures by requiring their inclusion in financial reports for interim periods. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. We adopted the disclosure provisions of SFAS No. 148 on December 31, 2002 and the prospective application method of transition to the fair value based method of accounting for stock options in the first quarter of 2003. Neither the adoption of the disclosure provisions nor the adoption of the fair value based method had 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:


	March 31, 2003

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

			(Dollars in thousands)
GNMA certificates	$	2,706,123	$	45,400	$	375	$	2,751,148
FNMA participation certificates		35,759		648				36,407
FHLMC participation certificates		789		18				807
Other		1,948						1,948

	$	2,744,619	$	46,066	$	375	$	2,790,310


	December 31, 2002

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

			(Dollars in thousands)
GNMA certificates	$	2,562,459	$	46,008	$	1,010	$	2,607,457
FNMA participation certificates		38,647		477				39,124
FHLMC participation certificates		1,046		22				1,068
Other		2,008						2,008

	$	2,604,160	$	46,507	$	1,010	$	2,649,657

Note 3 – Net Loans Receivable

Net loans receivable consisted of the following:


		March 31,			December 31,
		2003			2002

		(Dollars in thousands)
Consumer:
	Automobile contracts	$	9,735,344		$	8,993,266
	Dealer participation, net of deferred contract fees		158,832			154,671
	Other		8,400			7,531
	Unearned discounts		(85,117	)		(91,713	)

			9,817,459			9,063,755
Real Estate:
	Mortgage		263,559			277,233
	Construction		13,188			14,150

			276,747			291,383
Undisbursed loan proceeds			(7,379	)		(8,453	)

			269,368			282,930
Commercial			93,339			97,216

			10,180,166			9,443,901
Allowance for credit losses			(281,030	)		(269,352	)

		$	9,899,136		$	9,174,549

There were no impaired loans at March 31, 2003 and December 31, 2002.

Note 4 – Allowance for Credit Losses

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


		For the Three Months Ended
		March 31,

		2003			2002

		(Dollars in thousands)
Balance at beginning of period		$	269,352		$	178,218
Chargeoffs:
	Consumer loans		(90,779	)		(64,599	)
	Mortgage loans		(71	)		(68	)

			(90,850	)		(64,667	)
Recoveries:
	Consumer loans		22,599			17,161
	Mortgage loans		45

			22,644			17,161

Net chargeoffs			(68,206	)		(47,506	)
Provision for credit losses			79,884			65,698

Balance at end of period		$	281,030		$	196,410

Ratio of net chargeoffs during the period (annualized) to average loans outstanding during the period			2.8	%		2.5	%
Ratio of allowance for credit losses to loans at the end of the period			2.8	%		2.5	%

Note 5 – Deposits

Deposits consisted of the following:


				Weighted
				Average Rate
	Weighted			For the Three
	Average Rate at			Months Ended			March 31,		December 31,
	March 31, 2003 (1)			March 31, 2003 (2)			2003		2002

							(Dollars in thousands)
Noninterest bearing deposits							$	170,744	$	165,844
Demand deposit accounts		0.2	%		0.3	%		1,769		1,037
Passbook accounts		0.3			0.4			6,409		6,688
Money market deposit accounts		1.9			1.6			848,613		730,245
Brokered certificate accounts		2.1			2.3			99,055		98,992
Certificate accounts		2.9			5.8			958,135		972,178

							$	2,084,725	$	1,974,984

(1)		Contractual rate.

(2)		Weighted average interest rate includes effects of hedging activities.

The increase in deposits was due to the increase in money market deposit accounts as well as the opening of a new Southern California branch.

Note 6 – Notes Payable on Automobile Secured Financing

For the three months ended March 31, 2003 and 2002, we issued $1.3 billion and $2.6 billion of notes secured by automobile contracts, respectively. The $1.3 billion issued during the first quarter of 2003 was through a public transaction. Of the $2.6 billion issued in 2002, $1.8 billion was through a public transaction and $775 million was through a conduit facility. We redeemed our $775 million conduit facility in May 2002. There were $9.3 billion of notes payable on automobile secured financing outstanding at March 31, 2003, compared with $8.4 billion at December 31, 2002.

Interest payments on the public transactions based on the respective note’s interest rate are due either monthly or quarterly, in arrears. Interest payments on the conduit facility were due monthly, in arrears, based on the respective note’s interest rate. Interest expense on all notes payable on automobile secured financing, including interest payments under interest rate swap agreements, totaled $111 million and $92.0 million for the three months ended March 31, 2003 and 2002, respectively.

Note 7 – Accumulated Other Comprehensive Loss, Net of Tax

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


		March 31,			December 31,
		2003			2002

		(Dollars in thousands)
Unrealized gain on marketable securities		$	27,944		$	27,145
Unrealized loss on interest rate swaps: (1)
	Deposits		(53,279	)		(53,081	)
	Automobile secured financing		(40,060	)		(43,624	)
	Securities sold under agreements to repurchase		(3,094	)		(3,092	)

			(96,433	)		(99,797	)
Realized loss on settled cash flow hedges: (1)
	Deposits		(9,426	)		(11,367	)
	Automobile secured financing		(17,993	)		(17,531	)

			(27,419	)		(28,898	)

Total other accumulated comprehensive loss		$	(95,908	)	$	(101,550	)

(1)

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

Note 8 — Stock Options

In May 2001, we adopted the 2001 Westcorp Stock Option Plan, also known as the 2001 Plan, an incentive stock option plan for certain associates and directors. The 2001 Plan replaced the 1991 Stock Option Plan, also known as the 1991 Plan, that expired on April 15, 2001. Those who received options prior to the approval of the 2001 Plan are still subject to the 1991 Plan and may continue to exercise the remaining shares that are outstanding and exercisable, however, any and all shares reserved for the 1991 Plan are no longer available for future grants. As such, no further grants will be made under the expired 1991 Plan.

Under the 2001 Plan, we reserved a total of 3,000,000 shares of common stock for future issuance. As of March 31, 2003, a total of 2,173,875 shares were available for future grants. The options may be exercised within seven years after the date of the grant. Additionally, the weighted average life of the options outstanding at March 31, 2003 was 4.68 years and the exercise prices ranged from $9.94 to $20.41 per share.

Options outstanding and exercisable at March 31, 2003 were as follows:


		Options Outstanding						Options Exercisable

				Weighted		Weighted				Weighted
				Average		Average				Average
		Number		Remaining		Exercise		Number		Exercise
Exercise Prices		Outstanding		Life		Price		Exercisable		Price

$	9.00 — 10.00		750		2.37	$	9.94		750	$	9.94
	12.00 — 13.00		230,328		2.78		12.63		195,203		12.62
	13.00 — 14.00		227,625		3.90		13.25		163,592		13.25
	15.00 — 16.00		1,000		4.61		15.25		500		15.25
	17.00 — 18.00		315,875		4.90		17.32		153,500		17.32
	18.00 — 19.00		817,375		2.68		8.36		92,875		18.30
	19.00 — 20.00		5,000		6.36		19.85
	20.00 — 21.00		3,000		6.61		20.41

	9.00 — 21.00		1,600,953		4.68	$	16.71		606,420	$	14.85

Stock option activity is summarized as follows:


					Weighted
					Average
		Shares			Exercise Price

Outstanding at January 1, 2002			1,076,814		$	14.67
	Granted		414,500			18.33
	Exercised		(143,251	)		13.29
	Canceled		(180,625	)		16.06

Outstanding at December 31, 2002			1,167,438			15.91
	Granted		444,000			18.78
	Exercised		(4,235	)		14.65
	Canceled		(6,250	)		16.66

Outstanding at March 31, 2003			1,600,953		$	16.71

Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Our stock options have characteristics significantly different from traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. In 2002, we utilized the Black-Scholes option valuation model to determine the fair value of the options granted. During 2003, we decided to utilize the Binomial option valuation model for all stock options expensed as part of our implementation of SFAS No. 148. In addition in 2003, we utilized the Binomial option valuation model to value all outstanding options, including those granted prior to 2003, as we feel it provides a better measure of their value. In our opinion, neither of these models necessarily provides a reliable single measure of the fair value of our employee stock options. The weighted average fair value of options granted during the period ending March 31, 2003 was $5.48, compared to $6.11 for the year ended December 31, 2002.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148 and has been determined as if we had accounted for our employee stock options under the fair value method of that statement. We adopted the disclosure provisions of SFAS No. 148 on December 31, 2002 and the prospective application method of transition to the fair value based method of accounting for stock options in the first quarter of 2003.

Pro forma net income and diluted earnings per share for the respective periods were as follows:


		For the Three Months Ended
		March 31,

		2003		2002

		(Dollars in thousands,
		except per share amounts)
Net income, as reported		$	23,549	$	16,853
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			41
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			273		215

Pro forma net income		$	23,317	$	16,638

Earnings per share
	Basic — as reported	$	0.60	$	0.46

	Basic — pro forma	$	0.59	$	0.45

Earnings per share
	Diluted — as reported	$	0.60	$	0.46

	Diluted — pro forma	$	0.59	$	0.45

The difference between our pro forma net income and diluted earnings per share and our reported net income and earnings per share is immaterial.

Note 9 — Dividends

On February 19, 2003, we declared a cash dividend of $0.13 per share for shareholders of record as of May 6, 2003 with a payable date of May 20, 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, notes payable on automobile secured financing, advances from the Federal Home Loan Bank, also known as the FHLB, securities sold under agreements to repurchase, other borrowings and equity.

Noninterest income is primarily made up of revenues generated from the servicing of automobile contracts and mortgage loans. The primary components of noninterest income include late charges and other miscellaneous servicing fee income. Other components of noninterest income include gains and losses from the sale of investment securities and mortgage-backed securities, insurance income, fees related to the sales of investment products such as mutual funds and annuities, and fee income from depository accounts. The primary components of noninterest expense are salaries, credit and collection expenses, and data processing costs.

Selected Financial Data

The following table presents summary unaudited financial data for the three months ended March 31, 2003 and 2002. Since this table is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read our Consolidated Financial Statements contained elsewhere herein. Certain amounts from the prior years’ Consolidated Financial Statements have been reclassified to conform to the current year presentation.


		For the Three Months Ended March 31,

		2003			2002

		(Dollars in thousands,
		except per share amounts)
Consolidated Statements of Operations Data:
Interest income		$	307,502		$	262,196
Interest expense			141,212			120,070

	Net interest income		166,290			142,126
Provision for credit losses			79,884			65,698

	Net interest income after provision for credit losses		86,406			76,428
Noninterest income			27,753			17,159
Noninterest expense			68,439			60,859

Income before income tax			45,720			32,728
Income tax			18,226			12,964

Income before minority interest			27,494			19,764
Minority interest in earnings of subsidiaries			3,945			2,911

Net income		$	23,549		$	16,853

Weighted average number of shares and common share equivalents — Diluted			39,452,915			36,980,861
Earnings per common share — diluted		$	0.60		$	0.46
Dividends per share		$	0.12		$	0.11
Dividend payout ratio			20.1	%		24.1	%


				March 31,		December 31,
				2003		2002

				(Dollars in thousands)
Consolidated Statements of Financial Condition Data:
Assets:
	Cash and other assets			$	88,483	$	201,547
	Loans:
		Consumer (1)			9,817,459		9,063,755
		Mortgage (2)			269,368		282,930
		Commercial			93,339		97,216
	Mortgage-backed securities				2,790,310		2,649,657
	Investments and time deposits				110,502		115,771

			Total assets	$	13,169,461	$	12,410,876

Liabilities:
	Deposits			$	2,084,725	$	1,974,984
	Notes payable on automobile secured financing				9,265,725		8,422,915
	FHLB advances and other borrowings				515,265		618,766
	Amounts held on behalf of trustee						177,642
	Subordinated debentures				397,406		400,561
	Other liabilities				162,749		101,145

			Total liabilities		12,425,870		11,696,013
	Minority interest in equity of subsidiaries				105,798		101,666
	Shareholders’ equity				637,793		613,197

			Total liabilities and shareholders’ equity	$	13,169,461	$	12,410,876


			For the Three Months Ended March 31,

			2003			2002

			(Dollars in thousands)
Other Selected Financial Data:
Average assets			$	12,932,117		$	10,433,517
Return on average assets				0.73	%		0.65	%
Average shareholders’ equity (3)			$	722,610		$	614,157
Return on average shareholders’ equity (3)				13.04	%		10.98	%
Equity to assets ratio (3)				5.57	%		5.32	%
Book value per share (3)			$	18.71		$	16.98
Originations:
	Consumer loans (1)		$	1,353,928		$	1,266,189
	Mortgage loans (2)			4,314			9,139
	Commercial			96,684			61,268

		Total loan originations	$	1,454,926		$	1,336,596

Interest rate spread				5.02	%		5.57	%

(1)		Net of unearned discounts.

(2)		Net of undisbursed loan proceeds.

(3)		Accumulated other comprehensive loss excluded from shareholders’ equity.

Critical Accounting Policies

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

Securitization Transactions

Contracts sold by us to our special purpose entity subsidiaries in connection with a securitization transaction are treated as having been sold for bankruptcy purposes and as secured financings under Generally Accepted Accounting Principles, also known as GAAP. For GAAP purposes, the contracts are retained on the balance sheet with the securities issued to finance the contracts recorded as notes payable on automobile secured financing. We record interest income on the securitized contracts and interest expense on the notes issued through the securitization transactions.

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, analysis of cumulative losses 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 nonperformance 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 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 contracts 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 contract that is 90 or more days delinquent is automatically classified as Substandard. Real estate loans that are manifesting a significant weakness in performance are also classified as Substandard. Any multifamily loan that is impaired is classified as Substandard. Any contract where the borrower has filed for bankruptcy or where the vehicle has been repossessed by us and is subject to a redemption period is classified as Substandard, with the difference between the wholesale book value and loan balance classified as Loss. Any vehicles repossessed by us that have not been sold are recorded at fair value and classified as substandard.

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.

Derivatives and Hedging Activities

Deposits and Securities Sold Under Agreements to Repurchase

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

Notes Payable on Automobile Secured Financing

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

If we issue certain variable rate notes payable in connection with our securitization activities, we may also enter into interest rate swap agreements in order to hedge our variable interest rate exposure on future interest payments. 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.

We also enter into interest rate swap agreements or other derivatives that do not qualify for hedge accounting under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, also known as SFAS No. 133, or that we choose not to designate as hedges. These derivatives pertain to variable rate notes issued in conjunction with the securitization of our contracts. Any change in the market value of such derivatives and related income or expense is recorded to other noninterest income each month.

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 months ended March 31, 2003 and 2002, net interest income totaled $166 million and $142 million, respectively. The increase in net interest income was the result of us holding more automobile contracts on the balance sheet even as overall net interest margins declined.

The following table presents information relative to the average balances and interest rates on an owned basis for the periods indicated:


				For the Three Months Ended March 31,

				2003							2002

				Average				Yield/			Average				Yield/
				Balance		Interest		Rate			Balance		Interest		Rate

						(Dollars in thousands)
Interest earning assets:
	Total investments:
		Mortgage-backed securities		$	2,485,200	$	24,773		3.99	%	$	2,110,468	$	27,982		5.30	%
		Other short-term investments			238,695		1,323		2.25			140,380		1,159		3.35
		Investment securities			9,957		93		3.75			10,619		118		4.45
		Interest earning deposits with others			10,245		25		0.98			5,806		25		1.69

			Total investments		2,744,097		26,214		3.82	%		2,267,273		29,284		5.17	%
	Total loans:
		Consumer loans			9,696,850		276,131		11.55	%		7,171,640		225,450		12.75	%
		Mortgage loans(1)			271,943		3,819		5.62			351,960		5,803		6.59
		Commercial loans			115,537		1,338		4.63			100,716		1659		6.59

			Total loans		10,084,330		281,288		11.31	%		7,624,316		232,912		12.38	%

			Total interest earning assets	$	12,828,427		307,502		9.71	%	$	9,891,589		262,196		10.73	%

Interest bearing liabilities:
	Deposits			$	1,963,276	$	17,556		3.63	%	$	2,343,538	$	21,010		3.64	%
	Securities sold under agreements to repurchase				248,374		1,289		2.08			146,908		1,045		2.84
	FHLB advances and other borrowings				426,590		1,631		1.55			470,646		2,500		2.15
	Notes payable on automobile secured financing				9,017,784		110,799		4.91			6,221,646		92,018		5.92
	Subordinated debentures				398,812		9,937		9.97			147,760		3,497		9.47

			Total interest bearing liabilities	$	12,054,836		141,212		4.69	%	$	9,330,498		120,070		5.16	%

Net interest income and interest rate spread						$	166,290		5.02	%			$	142,126		5.57	%

Net yield on average interest earning assets									5.19	%						5.75	%

(1)

For the purpose of these computations, nonaccruing loans are included in the average loan amounts outstanding.

The total interest rate spread decreased 55 basis points for the three months ended March 31, 2003 compared with the three months ended March 31, 2002 due to a decrease of 102 basis points in the yield on interest earning assets combined with a 47 basis point decrease in the cost of funds. The decrease in the yield on interest earning assets in 2003 is primarily due to our shift to originating a higher percentage of prime credit quality contracts and a lower interest rate environment. The decrease in the cost of funds in 2003 compared with 2002 is due primarily to a lower interest rate environment. Net interest income increased as more automobile contracts were held on the balance sheet.

The following table sets forth the changes in net interest income attributable to changes in volume (change in average portfolio volume multiplied by prior period average rate) and changes in rates (change in weighted average interest rate multiplied by prior period average portfolio balance):


			For the Three Months Ended March 31, 2003
			Compared to Three Months Ended March 31, 2002 (1)

			Volume			Rate			Total

			(Dollars in thousands)
Interest income:
	Mortgage-backed securities		$	21,774		$	(24,983	)	$	(3,209	)
	Other short-term investments			2,214			(2,050	)		164
	Investment securities			(79	)		54			(25	)
	Interest earning deposits with others			53			(53	)
Total loans:
	Consumer loans			175,808			(125,127	)		50,681
	Mortgage loans			13,740			(15,724	)		(1,984	)
	Commercial loans			1,201			(1,522	)		(321	)

		Total interest earning assets	$	214,711		$	(169,405	)	$	45,306

Interest expense:
	Deposits		$	(3,397	)	$	(57	)	$	(3,454	)
	Securities sold under agreements to repurchase			398			(154	)		244
	FHLB advances and other borrowings			(218	)		(651	)		(869	)
	Notes payable on automobile secured financings			30,273			(11,492	)		18,781
	Subordinated debentures			6,246			194			6,440

		Total interest bearing liabilities	$	33,302		$	(12,160	)	$	21,142

Net change in net interest income									$	24,164

(1)

In the analysis of interest changes due to volume and rate, the changes due to the volume/rate variance (the combined effect of change in weighted average interest rate and change in average portfolio balance) have been allocated proportionately based on the absolute value of the volume and rate variances

Provision for Credit Losses

We maintain an allowance for credit losses to cover probable losses that can be reasonably estimated for the loans held on the balance sheet. The 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 months ended March 31, 2003, the provision for credit losses totaled $79.9 million, compared with $65.7 million for the same period a year earlier. For the three months ended March 31, 2003 and 2002, net chargeoffs were $68.2 million and $47.5 million, respectively. The increase in the provision for credit losses was a result of our loans held on balance sheet increasing by approximately $736 million or 7.8% from December 31, 2002 as well as an increase in chargeoffs due to the slowdown in the economy. The increase in our loans was due primarily to gaining control over the loans of the trusts for all of our outstanding securitization transactions previously treated as sales for accounting purposes as well as retaining loans originated during the quarter. For the three months ended March 31, 2003, we recorded $11.7 million 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 2.8% at March 31, 2003, compared with 2.9% at December 31, 2002.

Contract Securitizations

Contract securitizations totaled $1.3 billion and $2.6 billion for the three months ended March 31, 2003 and 2002, respectively. The following table lists each of our public securitizations. All securitizations prior to 1998-C were paid in full on or before their contractual maturity dates:


Securitizations

						Remaining									Gross
					Remaining	Balance as a			Original			Original			Interest
Issue		Original			Balance at	Percent of			Weighted			Weighted Average			Rate
Number	Close Date	Balance			March 31 , 2003 (2)	Original Balance			Average APR			Securitization Rate			Spread (1)

					(Dollars in thousands)
1985-A	December, 1985	$	110,000		Paid in full					18.50	%		8.38	%		10.12	%
1986-A	November, 1986		191,930		Paid in full					14.20			6.63			7.57
1987-A	March, 1987		125,000		Paid in full					12.42			6.75			5.67
1987-B	July, 1987		110,000		Paid in full					12.68			7.80			4.88
1988-A	February, 1988		155,000		Paid in full					13.67			7.75			5.92
1988-B	May, 1988		100,000		Paid in full					14.01			8.50			5.51
1988-C	July, 1988		100,000		Paid in full					15.41			8.50			6.91
1988-D	October, 1988		105,000		Paid in full					14.95			8.85			6.10
1989-A	March, 1989		75,000		Paid in full					15.88			10.45			5.43
1989-B	June, 1989		100,000		Paid in full					15.96			9.15			6.81
1990-A	August, 1990		150,000		Paid in full					16.05			8.35			7.70
1990-1	November, 1990		150,000		Paid in full					15.56			8.50			7.06
1991-1	April, 1991		200,000		Paid in full					16.06			7.70			8.36
1991-2	May, 1991		200,000		Paid in full					15.75			7.30			8.45
1991-3	August, 1991		175,000		Paid in full					15.69			6.75			8.94
1991-4	December, 1991		150,000		Paid in full					15.53			5.63			9.90
1992-1	March, 1992		150,000		Paid in full					14.49			5.85			8.64
1992-2	June, 1992		165,000		Paid in full					14.94			5.50			9.44
1992-3	September, 1992		135,000		Paid in full					14.45			4.70			9.75
1993-1	March, 1993		250,000		Paid in full					13.90			4.45			9.45
1993-2	June, 1993		175,000		Paid in full					13.77			4.70			9.07
1993-3	September, 1993		187,500		Paid in full					13.97			4.25			9.72
1993-4	December, 1993		165,000		Paid in full					12.90			4.60			8.30
1994-1	March, 1994		200,000		Paid in full					13.67			5.10			8.57
1994-2	May, 1994		230,000		Paid in full					14.04			6.38			7.66
1994-3	August, 1994		200,000		Paid in full					14.59			6.65			7.94
1994-4	October, 1994		212,000		Paid in full					15.58			7.10			8.48
1995-1	January, 1995		190,000		Paid in full					15.71			8.05			7.66
1995-2	March, 1995		190,000		Paid in full					16.36			7.10			9.26
1995-3	June, 1995		300,000		Paid in full					15.05			6.05			9.00
1995-4	September, 1995		375,000		Paid in full					15.04			6.20			8.84
1995-5	December, 1995		425,000		Paid in full					15.35			5.88			9.47
1996-A	March, 1996		485,000		Paid in full					15.46			6.13			9.33
1996-B	June, 1996		525,000		Paid in full					15.74			6.75			8.99
1996-C	September, 1996		535,000		Paid in full					15.83			6.60			9.23
1996-D	December, 1996		545,000		Paid in full					15.43			6.17			9.26
1997-A	March, 1997		500,000		Paid in full					15.33			6.60			8.73
1997-B	June, 1997		590,000		Paid in full					15.36			6.37			8.99
1997-C	September, 1997		600,000		Paid in full					15.43			6.17			9.26
1997-D	December, 1997		500,000		Paid in full					15.19			6.34			8.85
1998-A	March, 1998		525,000		Paid in full					14.72			6.01			8.71
1998-B	June, 1998		660,000		Paid in full					14.68			6.06			8.62
1998-C	November, 1998		700,000		$37,041		5.29	%		14.42			5.81			8.61
1999 -A	January, 1999		1,000,000		73,701		7.37			14.42			5.70			8.72
1999-B	July, 1999		1,000,000		130,953		13.10			14.62			6.36			8.26
1999-C	November, 1999		500,000		90,498		18.10			14.77			7.01			7.76
2000-A	March, 2000		1,200,000		246,618		20.55			14.66			7.28			7.38
2000-B	May, 2000		1,000,000		230,130		23.01			14.84			7.78			7.06
2000-C	August, 2000		1,390,000		405,542		29.18			15.04			7.32			7.72
2000-D	November, 2000		1,000,000		359,505		35.95			15.20			6.94			8.26
2001-A	January, 2001		1,000,000		396,633		39.66			14.87			5.77			9.10
2001-B	May, 2001		1,370,000		571,107		41.69			14.41			4.23			10.18
2001-C	August, 2001		1,200,000		616,369		51.36			13.90			4.50			9.40
2002-1	March, 2002		1,800,000		1,225,331		68.07			13.50			4.26			9.24
2002-2	May, 2002		1,750,000		1,359,307		77.67			12.51			3.89			8.62
2002-3	August, 2002		1,250,000		1,045,281		83.62			12.30			3.06			9.24
2002-4	November, 2002		1,350,000		1,268,763		93.98			12.18			2.66			9.52
2003-1	February, 2003		1,343,250		1,343,250		100.00			11.79			2.42			9.37

	Total	$	30,064,680	$	9,400,029

(1)		Represents the difference between the original weighted average annual percentage rate, also known as APR, and the estimated weighted average securitization rate on the closing date of the securitization.

(2)		Represents only the note payable amounts outstanding at the period indicated.

Noninterest Expense

For the three months ended March 31, 2003, noninterest expense totaled $68.4 million, compared with $60.9 million for the same period in 2002. Noninterest expense as a percent of total revenues improved to 35% for the three months ended March 31, 2003 compared to 38% for the same period a year ago as a result of fully amortizing our retained interest in securitized assets during 2002.

Income Taxes

We file federal and certain state tax returns as part of a consolidated group that includes the Bank and WFS. We file other state tax returns as a separate entity. Tax liabilities from the consolidated returns are allocated in accordance with a tax sharing agreement based on the relative income or loss of each entity on a stand-alone basis. Our effective tax rate was 40% for both the three months ended March 31, 2003 and 2002.

Financial Condition

Overview

Total assets increased $759 million or 6.1% to $13.2 billion at March 31, 2003 from $12.4 billion at December 31, 2002. The increase is due to retaining contracts originated on our balance sheet and regaining control over all assets of the trusts for all our outstanding securitizations previously treated as sales for accounting purposes.

Loan Portfolio

The following table presents a summary of our automobile contracts purchased:


		For the Three Months Ended
		March 31,

		2003		2002

		(Dollars in thousands)
New vehicles		$	385,119	$	323,267
Pre-owned vehicles			966,934		942,259

	Total volume	$	1,352,053	$	1,265,526

Prime		$	1,114,284	$	1,005,287
Non-prime			237,769		260,239

	Total volume	$	1,352,053	$	1,265,526

Commercial Loan Portfolio

We had outstanding loan commitments of $192 million at March 31, 2003 compared with $199 million at December 31, 2002. For the three months ended March 31, 2003, we originated $96.7 million of commercial loans, compared with $61.3 million for the same period in 2002. Amounts outstanding at March 31, 2003 and December 31, 2002 were $93.3 million and $97.2 million, respectively. Though we continue to focus on expanding our commercial banking operation, it has not been a significant source of revenue.

Asset Quality

Overview

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

Automobile Contract Quality

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

At March 31, 2003, the percentage of managed accounts delinquent 30 days or greater was 2.41% compared with 3.50% at December 31, 2002. We calculate delinquency based on the contractual due date. The improvement in delinquency is primarily the result of seasonal trends. For the three months ended March 31, 2003, net chargeoffs on average automobile contracts managed were 2.86%, compared with 2.76% for the same period in 2002. The increase in credit loss experience is primarily a result of continued weakness in the economy.

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


		March 31, 2003					December 31, 2002

		Amount		%			Amount		%

		(Dollars in thousands)
Contracts managed at end of period		$	9,650,229				$	9,389,974

Period of delinquency
	30-59 days	$	165,052		1.71	%	$	238,204		2.54	%
	60 days or more (1)		67,065		0.70			90,291		0.96

Total contracts delinquent and delinquencies as a percentage of contracts managed (1)		$	232,117		2.41	%	$	328,495		3.50	%

(1)

Excludes Chapter 13 bankruptcy accounts greater than 120 days past due of $44.1 million and $41.5 million at March 31, 2003 and December 31, 2002, respectively.

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


	March 31, 2003						December 31, 2002

	Number of						Number of
	Contracts			Amount			Contracts			Amount

	(Dollars in thousands)
Contracts managed		775,090		$	9,650,229			757,269		$	9,389,974

Repossessed vehicles		1,575		$	10,966			2,375		$	16,433

Repossessed vehicles as a percentage of number and amount of contracts outstanding		0.20	%		0.11	%		0.31	%		0.18	%

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


	For the Three Months Ended
	March 31,

	2003			2002

	(Dollars in thousands)
Average contracts managed during period	$	9,533,314		$	8,273,297

Gross chargeoffs	$	90,779		$	79,792
Recoveries		22,598			22,633

Net chargeoffs	$	68,181		$	57,159

Net chargeoffs as a percentage of average contracts managed during period		2.86	%		2.76	%

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

Cumulative Static Pool Loss Curves
At March 31, 2003


Period (1)	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			2003-4			2003-1

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	%		0.04	%		0.04	%		0.02	%		0.03	%		0.02	%		0.04	%		0.04	%		0.03	%		0.03	%		0.04	%		0.01	%		0.00	%		0.02	%		0.02	%		0.01	%
3		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	%		0.06	%		0.07	%
4		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	%		0.14	%		0.16	%
5		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	%		0.27	%		0.26	%
6		0.50	%		0.46	%		0.66	%		0.56	%		0.55	%		0.59	%		0.65	%		0.54	%		0.50	%		0.50	%		0.49	%		0.43	%		0.32	%		0.44	%
7		0.61	%		0.62	%		0.87	%		0.71	%		0.71	%		0.78	%		0.81	%		0.74	%		0.70	%		0.69	%		0.65	%		0.60	%		0.49	%		0.57	%
8		0.75	%		0.76	%		1.00	%		0.86	%		0.91	%		0.99	%		0.93	%		0.93	%		0.84	%		0.87	%		0.81	%		0.84	%		0.66	%		0.70	%
9		0.86	%		0.92	%		1.13	%		1.01	%		1.10	%		1.17	%		1.07	%		1.13	%		1.04	%		1.05	%		0.95	%		1.06	%		0.82	%
10		1.00	%		1.11	%		1.24	%		1.14	%		1.27	%		1.33	%		1.24	%		1.34	%		1.24	%		1.22	%		1.07	%		1.28	%		0.96	%
11		1.17	%		1.30	%		1.35	%		1.34	%		1.45	%		1.44	%		1.41	%		1.50	%		1.45	%		1.36	%		1.20	%		1.48	%		1.10	%
12		1.32	%		1.47	%		1.44	%		1.52	%		1.58	%		1.57	%		1.62	%		1.74	%		1.67	%		1.53	%		1.37	%		1.67	%
13		1.48	%		1.61	%		1.58	%		1.74	%		1.73	%		1.72	%		1.86	%		1.95	%		1.90	%		1.67	%		1.55	%		1.82	%
14		1.66	%		1.73	%		1.74	%		1.94	%		1.85	%		1.86	%		2.04	%		2.21	%		2.09	%		1.81	%		1.74	%
15		1.79	%		1.81	%		1.85	%		2.09	%		2.00	%		2.04	%		2.25	%		2.48	%		2.25	%		2.00	%		1.97	%
16		1.91	%		1.89	%		2.03	%		2.27	%		2.15	%		2.24	%		2.45	%		2.71	%		2.41	%		2.19	%		2.16	%
17		2.01	%		2.00	%		2.16	%		2.39	%		2.37	%		2.39	%		2.68	%		2.89	%		2.54	%		2.37	%		2.36	%
18		2.07	%		2.10	%		2.30	%		2.53	%		2.52	%		2.55	%		2.88	%		3.08	%		2.73	%		2.60	%		2.59	%
19		2.11	%		2.24	%		2.42	%		2.67	%		2.67	%		2.73	%		3.08	%		3.22	%		2.93	%		2.80	%		2.78	%
20		2.17	%		2.35	%		2.50	%		2.81	%		2.83	%		2.93	%		3.23	%		3.40	%		3.11	%		3.01	%		2.95	%
21		2.24	%		2.46	%		2.58	%		2.92	%		2.99	%		3.12	%		3.38	%		3.59	%		3.34	%		3.19	%
22		2.34	%		2.55	%		2.67	%		3.10	%		3.16	%		3.27	%		3.54	%		3.78	%		3.54	%		3.34	%
23		2.43	%		2.63	%		2.77	%		3.28	%		3.34	%		3.38	%		3.67	%		3.96	%		3.72	%		3.49	%
24		2.52	%		2.71	%		2.87	%		3.38	%		3.49	%		3.52	%		3.83	%		4.18	%		3.92	%
25		2.62	%		2.77	%		3.01	%		3.55	%		3.63	%		3.63	%		4.00	%		4.41	%		4.10	%
26		2.71	%		2.82	%		3.14	%		3.68	%		3.75	%		3.73	%		4.16	%		4.58	%		4.23	%
27		2.80	%		2.89	%		3.16	%		3.84	%		3.86	%		3.84	%		4.35	%		4.79	%
28		2.87	%		2.96	%		3.29	%		3.98	%		3.97	%		3.97	%		4.50	%		4.96	%
29		2.90	%		3.02	%		3.40	%		4.14	%		4.09	%		4.11	%		4.64	%		5.08	%
30		2.95	%		3.09	%		3.50	%		4.19	%		4.21	%		4.26	%		4.79	%
31		3.00	%		3.17	%		3.61	%		4.30	%		4.33	%		4.40	%		4.92	%
32		3.02	%		3.20	%		3.68	%		4.38	%		4.47	%		4.50	%		5.02	%
33		3.08	%		3.27	%		3.74	%		4.46	%		4.59	%		4.61	%
34		3.14	%		3.35	%		3.81	%		4.57	%		4.68	%		4.70	%
35		3.15	%		3.41	%		3.87	%		4.66	%		4.79	%		4.78	%
36		3.21	%		3.47	%		3.91	%		4.76	%		4.86	%
37		3.25	%		3.52	%		3.97	%		4.84	%		4.93	%
38		3.30	%		3.55	%		4.03	%		4.96	%
39		3.35	%		3.58	%		4.09	%		5.03	%
40		3.39	%		3.61	%		4.13	%		5.13	%
41		3.39	%		3.63	%		4.18	%		5.20	%
42		3.42	%		3.66	%		4.23	%		5.24	%
43		3.45	%		3.68	%		4.28	%
44		3.47	%		3.72	%		4.33	%
45		3.48	%		3.75	%		4.35	%
46		3.50	%		3.79	%
47		3.52	%		3.80	%
48		3.56	%		3.83	%
49		3.58	%		3.85	%
50		3.60	%		3.85	%
51		3.62	%
52		3.63	%
53		3.64	%
		70	%		70	%		70	%		67	%		68	%		69	%		68	%		68	%		71	%		71	%		76	%		70	%		87	%		85	%		80	%		80	%

(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 mortgage delinquencies over 60 days included both single family and multifamily mortgages. We had $4.3 million mortgage loans, or 1.58% of total mortgage loans, past due over 60 days at March 31, 2003 compared with $3.8 million, or 1.32% of total mortgage loans, at December 31, 2002.

Nonperforming Assets

Nonperforming assets, also known as NPAs, consist of repossessed automobiles and real estate owned, also known as REO. REO is carried at lower of cost or fair value. NPAs decreased $3.4 million to $15.4 million at March 31, 2003 compared with $18.8 million at December 31, 2002. NPAs represented 0.1% of total assets at March 31, 2003 and 0.2% of total assets at December 31, 2002. There were no impaired loans at March 31, 2003 and December 31, 2002.

Nonperforming loans, also known as 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. For those accounts that are in Chapter 13 bankruptcy and are contractually past due and Chapter 13 bankruptcy accounts greater than 120 days delinquent, all accrued interest is reversed and income is recognized on a cash basis. When a loan is designated as nonaccrual, all previously accrued but unpaid interest is reversed. For the three months ended March 31, 2003 and 2002, interest on NPLs excluded from interest income was $0.3 million and $0.5 million, respectively.

Allowance for Credit Losses

Our allowance for credit losses was $281 million at March 31, 2003 compared to $269 million at December 31, 2002. For the three months ended March 31, 2003, net chargeoffs totaled $68.2 million, compared with $47.5 million for the same respective period in 2002. 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 2.8% at March 31, 2003 compared with 2.9% at December 31, 2002. Based on the analysis we performed related to the allowance for credit losses as described under Critical Accounting Policies, we believe that our allowance for credit losses is currently adequate to cover probable losses in our loan portfolio that can be reasonably estimated.

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


		For the Three Months Ended
		March 31,

		2003			2002

		(Dollars in thousands)
Balance at beginning of period		$	269,352		$	178,218
Chargeoffs:
	Consumer loans		(90,779	)		(64,599	)
	Mortgage loans		(71	)		(68	)

			(90,850	)		(64,667	)
Recoveries:
	Consumer loans		22,599			17,161
	Mortgage loans		45

			22,644			17,161

Net chargeoffs			(68,206	)		(47,506	)
Provision for credit losses			79,884			65,698

Balance at end of period		$	281,030		$	196,410

Ratio of net chargeoffs during the period (annualized) to average loans outstanding during the period			2.8	%		2.5	%
Ratio of allowance for credit losses to loans at the end of the period			2.8	%		2.5	%

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


		March 31,			December 31,
		2003			2002

		(Dollars in thousands)
Total loans (1)		$	10,180,166		$	9,443,901
Allowance for credit losses			281,030			269,352
Allowance for real estate owned losses			100			250
Loans past due 60 days or more (2)			71,396			86,199
Nonperforming loans (3)			52,741			39,231
Nonperforming assets (4)			15,402			18,807
Allowance for credit losses as a percent of:
	Total loans (1)		2.8	%		2.9	%
	Loans past due 60 days or more		393.6	%		312.5	%
	Nonperforming loans		532.8	%		686.6	%
Total allowance for credit losses and REO losses as a percent of nonperforming assets			1825.3	%		1433.5	%
Nonperforming loans as a percent of total loans			0.5	%		0.4	%
Nonperforming assets as a percent of total assets			0.1	%		0.2	%

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

(2)		Excludes Chapter 13 bankruptcy accounts greater than 120 days past due.

(3)		All nonperforming loans are on nonaccrual.

(4)		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 18 retail branch locations throughout Southern California. Our commercial banking division gathers deposits by establishing commercial relationships with businesses located throughout Southern California.

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


		March 31,		December 31,
		2003		2002

		(Dollars in thousands)
No minimum term:
	Demand deposit accounts	$	1,769	$	1,037
	Passbook accounts		6,409		6,688
	Money market accounts		848,613		730,245
	Noninterest bearing deposits		170,144		165,844
Certificate accounts:
	Certificates (30 days to five years)		863,984		878,096
	IRAs		94,151		94,082
Brokered deposits			99,055		98,992

		$	2,084,725	$	1,974,984

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 our consistent managed growth, our ability to manage risk-adjusted returns and our efficient operations. During the fourth quarter of 2002, we fully amortized our retained interest in securitized assets. As a result, our net income is an effective measurement of our operating cash flows. Therefore, we will no longer report operating cash flows on a direct basis.

Principal Sources of Cash

• Collections of Principal and Interest from Loans and MBS – Principal and interest collections totaled $2.1 billion and $1.8 billion for the three months ended March 31, 2003 and 2002, respectively.

• Deposits – Deposits were $2.1 billion and $2.0 billion at March 31, 2003 and December 31, 2002, respectively.

• Automobile Contract Securitizations – Securitizations totaled $1.3 billion and $1.8 billion for the three months ended March 31, 2003 and 2002, respectively.

• Subordinated Debentures – In 1997 and 2002, we issued $150 million of 8.875% and $300 million of 9.625% subordinated capital debentures due in 2007 and 2012, respectively. At March 31, 2003, $404 million was outstanding on the subordinated debentures due in 2007 and 2012, gross of discounts and issue costs.

• Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, decreased to $510 million at March 31, 2003 from $613 million at December 31, 2002.

Principal Uses of Cash

• Acquisition of Loans and Investment Securities – Loan originations totaled $1.5 billion and $1.3 billion for the three months ended March 31, 2003 and 2002, respectively. We purchased $519 million of mortgage-backed securities and other investment securities during the three months ended March 31, 2003 compared with $355 million during the same respective period in 2002.

• Payments of Principal and Interest on Securitizations – Payments of principal and interest to noteholders and certificateholders totaled $1.1 billion and $1.6 billion for the three months ended March 31, 2003 and 2002, respectively.

• Amounts Paid to Dealers – Participation paid by us to dealers was $32.0 million and $29.6 million for the three months ended March 31, 2003 and 2002, respectively.

• Operating Our Business – Operating expenses totaled $68.4 million and $60.9 million for the three months ended March 31, 2003 and 2002, respectively.

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 March 31, 2003 and December 31, 2002:


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

		(Dollars in thousands)
March 31, 2003
Actual Capital:
	Amount	$	745,429		$	745,429		$	742,421		$	1,238,280
	Capital ratio		6.12	%		6.12	%		7.90	%		13.17	%
FIRREA minimum required capital:
	Amount	$	182,795		$	365,590			N/A		$	751,992
	Capital ratio		1.50	%		3.00	%		N/A			8.00	%
	Excess	$	562,634		$	379,839			N/A		$	486,288
FDICIA well capitalized required capital:
	Amount		N/A		$	609,317		$	563,994		$	939,991
	Capital ratio		N/A			5.00	%		6.00	%		10.00	%
	Excess		N/A		$	136,112		$	178,427		$	298,289
December 31, 2002
Actual Capital:
	Amount	$	728,631		$	728,631		$	655,142		$	1,143,345
	Capital ratio		6.43	%		6.43	%		7.67	%		13.38	%
FIRREA minimum required capital:
	Amount	$	169,991		$	339,981			N/A		$	683,481
	Capital ratio		1.50	%		3.00	%		N/A			8.00	%
	Excess	$	558,640		$	388,650			N/A		$	459,864
FDICIA well capitalized required capital:
	Amount		N/A		$	566,635		$	512,611		$	854,351
	Capital ratio		N/A			5.00	%		6.00	%		10.00	%
	Excess		N/A		$	161,996		$	142,531		$	288,994

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


		March 31,			December 31,
		2003			2002

		(Dollars in thousands)
Bank shareholder’s equity — GAAP basis		$	549,044		$	532,902
	Plus: net unrealized losses		90,744			94,220
	Plus: minority interest in equity of subsidiaries		105,798			101,666
	Less: non-permissible activities		(157	)		(157	)

Total tangible and core capital			745,429			728,631
Adjustments for risk-based capital:
	Subordinated debentures (1)		380,314			380,314
	General loan valuation allowance (2)		119,170			107,889
	Low-level recourse deduction		(7,013	)		(73,489	)

Risk-based capital		$	1,237,900		$	1,143,345

(1)		Excludes capitalized discounts and issue costs.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Fluctuations in interest rates and early prepayment of contracts are the primary market risks facing us. 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. It should be noted that shock analysis is objective but not entirely realistic in that it assumes an instantaneous and isolated set of events. The NPV ratio is the ratio of the NPV to the market value of our assets as calculated above. In general, an increase in interest rates would more adversely affect our NPV than would a decrease in interest rates.

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

The Asset/Liability Committee monitors our hedging activities to ensure that the value of hedges, their correlation to the loans being hedged and the amounts being hedged continue to provide effective protection against interest rate risk. The amount and timing of hedging transactions are determined by our senior management based upon the monitoring activities of the Asset/Liability Committee. As a result of our approach to interest rate risk management and our hedging strategies, we do not anticipate that changes in interest rates will materially affect our results of operations or liquidity, although we can provide no assurance in this regard. There were no material changes in market risks in the current quarter.

The following table summarizes our maturity GAP position:


				Interest Rate Sensitivity Analysis at March 31, 2003

													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			$	6,017											$	1,020		$	7,037
	Other investments				45,694		$	509												46,203
	Mortgage-backed securities				477,780			818,416		$	1,056,951		$	284,438			152,725			2,790,310

			Total investments		529,491			818,925			1,056,951			284,438			153,745			2,843,550
	Consumer loans (1)				684,854			2,696,179			4,644,513			1,742,267			49,646			9,817,459
	Mortgage loans:
		Adjustable rate (2)			208,830			34,284												243,114
		Fixed rate (2)			1,825			3,930			11,609			1,552			1,529			20,445
	Construction loans (2)				5,809															5,809
	Commercial loans (2)				87,947			3,399			706			242			1,045			93,339

			Total interest earning assets		1,518,756			3,556,717			5,713,779			2,028,499			205,965			13,023,716
Interest bearing liabilities:
	Deposits:
		Passbook accounts (3)			678			2,444			3,287									6,409
		Demand deposit and money market accounts (3)			163,661			253,080			433,641									850,382
		Certificate accounts (4)			187,796			816,547			48,110			4,737						1,057,190
	FHLB advances (4)				280,000												2,742			282,742
	Securities sold under agreements to repurchase (4)				226,783															226,783
	Subordinated debentures (4)													102,476			294,930			397,406
	Notes payable on automobile secured financing (4)				3,209,852			2,215,154			3,183,127			657,592						9,265,725
	Other borrowings (4)				5,741															5,741

			Total interest bearing liabilities		4,074,511			3,287,225			3,668,165			764,805			297,672			12,092,378

Excess interest earning/bearing assets (liabilities)					(2,555,755	)		296,492			2,045,614			1,263,694			(91,707	)		931,338
Effect of hedging activities (5)					2,669,736			(884,925	)		(1,040,962	)		(398,849	)		(345,000	)

Hedged excess (deficit)				$	113,981		$	(615,433	)	$	1,004,652		$	864,845		$	(436,707	)	$	931,338

Cumulative excess				$	113,981		$	(501,452	)	$	503,200		$	1,368,045		$	931,338		$	931,338

Cumulative excess as a percentage of total interest earning assets					0.88	%		(3.85	)%		3.86	%		10.50	%		7.15	%		7.15	%

(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

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

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

PART II. OTHER INFORMATION


Item 1.		Legal Proceedings

		We or our subsidiaries are involved as parties to certain legal proceedings incidental to our business, including Lee, et al. v. WFS Financial Inc, United States District Court, Middle District of Tennessee at Nashville, No. 3-02-0570 filed June 17, 2002 (a putative class action raising claims under the Equal Credit Opportunity Act) and Thompson v. WFS Financial Inc, Superior Court of the State of California, County of Alameda, Case No. RG03088926 filed March 27, 2003 (a putative class action raising claims under California Business and Professions Code and the California Unruh Civil Rights Act). 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

		On April 29, 2003, we held our annual shareholders’ meeting. There were 39,203,791 shares of common stock outstanding entitled to vote, and a total of 34,652,231, or 88.39%, were represented at the meeting in person or by proxy. The following summarizes vote results of proposals submitted to our shareholders:


1.	Proposal to elect four Class I Directors for term expiring 2005 and one Class II Director for terms expiring in 2004


NAME	FOR		WITHHELD

Robert T. Barnum, Class I		34,318,738		333,493
Harry M. Rady, Class I		32,512,734		2,139,497
Charles E. Scribner, Class I		34,523,299		128,932
Thomas A. Wolfe, Class I		32,361,538		2,290,693
Duane A. Nelles, Class II		34,523,299		128,932


2.	Proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2003


FOR	AGAINST		ABSTAIN

34,460,694		98,103		93,434


Item 5.		Other Information

		None

Item 6.		Exhibits and Reports on Form 8-K


(a)		Exhibits


99.1		Certification of CEO

99.2		Certification of CFO


(b)		Reports on Form 8-K

		Westcorp Press Release of February 21, 2003

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:	May 13, 2003	By:	/s/ Ernest S. Rady
			Ernest S. Rady
			Chairman of the Board and
			Chief Executive Officer

Date:	May 13, 2003	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: May 13, 2003


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

I, Lee A. Whatcott, certify that:

Date: May 13, 2003


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

99.2		Certification of CFO

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	•		changes in general economic and business conditions;

	•		interest rate fluctuations, including hedging activities;

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

	•		competition;

	•		our level of operating expenses;

	•		the effect, interpretation, or application of new or existing laws, regulations and court decisions;

	•		the availability of sources of funding;

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

	•		significant litigation.

•		Collections of Principal and Interest from Loans and MBS – Principal and interest collections totaled $2.1 billion and $1.8 billion for the three months ended March 31, 2003 and 2002, respectively.

•		Deposits – Deposits were $2.1 billion and $2.0 billion at March 31, 2003 and December 31, 2002, respectively.

•		Automobile Contract Securitizations – Securitizations totaled $1.3 billion and $1.8 billion for the three months ended March 31, 2003 and 2002, respectively.

•		Subordinated Debentures – In 1997 and 2002, we issued $150 million of 8.875% and $300 million of 9.625% subordinated capital debentures due in 2007 and 2012, respectively. At March 31, 2003, $404 million was outstanding on the subordinated debentures due in 2007 and 2012, gross of discounts and issue costs.

•		Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, decreased to $510 million at March 31, 2003 from $613 million at December 31, 2002.

•		Acquisition of Loans and Investment Securities – Loan originations totaled $1.5 billion and $1.3 billion for the three months ended March 31, 2003 and 2002, respectively. We purchased $519 million of mortgage-backed securities and other investment securities during the three months ended March 31, 2003 compared with $355 million during the same respective period in 2002.

•		Payments of Principal and Interest on Securitizations – Payments of principal and interest to noteholders and certificateholders totaled $1.1 billion and $1.6 billion for the three months ended March 31, 2003 and 2002, respectively.

•		Amounts Paid to Dealers – Participation paid by us to dealers was $32.0 million and $29.6 million for the three months ended March 31, 2003 and 2002, respectively.

•		Operating Our Business – Operating expenses totaled $68.4 million and $60.9 million for the three months ended March 31, 2003 and 2002, respectively.

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;

	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