WESTCORP /CA/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2003


o		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 o

Indicate 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 o

As of October 31, 2003, the registrant had 45,428,523 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 35.

TABLE OF CONTENTS


	Forward-Looking Statements
	Available Information
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
EXHIBIT INDEX
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

WESTCORP AND SUBSIDIARIES

FORM 10-Q

September 30, 2003

TABLE OF CONTENTS
______________


		Page No.

Forward-Looking Statements and Available Information			1
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements		2
	Consolidated Statements of Financial Condition at September 30, 2003 and December 31, 2002		2
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002		3
	Consolidated Statements of Changes in Shareholders’ Equity for the Periods Ended September 30, 2003 and December 31, 2002		4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosure about Market Risk		31
Item 4.	Controls and Procedures		33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		34
Item 2.	Changes in Securities and Use of Proceeds		34
Item 3.	Defaults Upon Senior Securities		34
Item 4.	Submission of Matters to a Vote of Security Holders		34
Item 5.	Other Information		34
Item 6.	Exhibits and Reports on Form 8-K		34
SIGNATURES			35
CERTIFICATIONS

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)
			September 30, 2003			December 31, 2002

			(Dollars in thousands)
ASSETS
Cash and due from banks			$	182,963		$	84,215
Restricted cash				186,319			71,763
Investment securities available for sale				57,634			10,425
Mortgage-backed securities available for sale				2,664,156			2,649,657
Loans receivable				11,010,857			9,443,901
Allowance for credit losses				(298,278	)		(269,352	)

	Loans receivable, net			10,712,579			9,174,549
Amounts due from trusts							101,473
Premises and equipment, net				81,427			78,664
Other				353,510			311,893

		TOTAL ASSETS	$	14,238,588		$	12,482,639

LIABILITIES
Deposits			$	1,969,134		$	1,974,984
Notes payable on automobile secured financing				10,108,203			8,494,678
Securities sold under agreements to repurchase				245,844			276,600
Federal Home Loan Bank advances				383,676			336,275
Subordinated debentures				394,494			400,561
Amounts held on behalf of trustee							177,642
Other				153,359			107,036

		TOTAL LIABILITIES		13,254,710			11,767,776
Minority interest				124,525			101,666
SHAREHOLDERS’ EQUITY
Common stock (par value $1.00 per share; authorized 65,000,000 shares; issued and outstanding 45,402,592 shares at September 30, 2003 and 39,200,474 shares at December 31, 2002)				45,403			39,200
Paid-in capital				508,775			350,018
Retained earnings				394,315			325,529
Accumulated other comprehensive loss, net of tax				(89,140	)		(101,550	)

		TOTAL SHAREHOLDERS’ EQUITY		859,353			613,197

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	14,238,588		$	12,482,639

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


			For the Three Months Ended				For the Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

			(Dollars in thousands, except per share amounts)
Interest income:
	Loans, including fees		$	293,019	$	265,814	$	861,169	$	748,589
	Mortgage-backed securities			15,936		30,778		61,950		86,440
	Investment securities			232		108		412		341
	Other			1,724		2,306		4,805		5,840

		TOTAL INTEREST INCOME		310,911		299,006		928,336		841,210
Interest expense:
	Deposits			15,695		20,447		50,269		61,642
	Notes payable on automobile secured financing			101,803		105,911		319,136		301,083
	Other			12,550		13,618		37,852		30,431

		TOTAL INTEREST EXPENSE		130,048		139,976		407,257		393,156

NET INTEREST INCOME				180,863		159,030		521,079		448,054
Provision for credit losses				73,150		80,996		221,071		209,043

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES				107,713		78,034		300,008		239,011
Noninterest income:
	Automobile lending			23,471		16,775		67,764		45,190
	Other			4,362		9,635		15,552		19,111

		TOTAL NONINTEREST INCOME		27,833		26,410		83,316		64,301
Noninterest expenses:
	Salaries and associate benefits			40,016		34,684		120,950		105,738
	Credit and collections			8,655		8,442		27,004		26,695
	Data processing			4,258		4,485		13,690		13,625
	Occupancy			4,041		3,729		11,784		11,158
	Other			9,775		10,867		34,412		30,625

		TOTAL NONINTEREST EXPENSES		66,745		62,207		207,840		187,841

INCOME BEFORE INCOME TAX				68,801		42,237		175,484		115,471
Income tax				27,343		16,824		69,544		44,974

INCOME BEFORE MINORITY INTEREST				41,458		25,413		105,940		70,497
Minority interest in earnings of subsidiaries				12,123		3,740		21,453		10,263

NET INCOME			$	29,335	$	21,673	$	84,487	$	60,234

Earnings per common share:
	Basic		$	0.65	$	0.55	$	2.05	$	1.57

	Diluted		$	0.64	$	0.55	$	2.03	$	1.55

Weighted average number of common shares outstanding:
	Basic			45,033,836		39,189,744		41,154,810		38,382,794

	Diluted			45,786,913		39,506,307		41,680,576		38,751,631

Dividends declared			$	0.13	$	0.12	$	0.39	$	0.36

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 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	)
		Stock options exercised		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										84,487						84,487
		Unrealized losses on securities available for sale, net of tax (1)												(7,926	)		(7,926	)
		Unrealized losses on cash flow hedges, net of tax (2)												(30,667	)		(30,667	)
		Reclassification adjustment for gains on securities available for sale included in net income, net of tax (3)												(2,987	)		(2,987	)
		Reclassification adjustment for losses on cash flow hedges included in income, net of tax (4)												53,990			53,990

		Comprehensive income															96,897
		Issuance of subsidiary common stock						(64	)								(64	)
		Stock options expensed (5)						472									472
		Issuance of common stock		6,104,000		6,104		157,000									163,104
		Stock options exercised		98,118		99		1,349									1,448
		Cash dividends									(15,701	)					(15,701	)

Balance at September 30, 2003				45,402,592	$	45,403	$	508,775		$	394,315		$	(89,140	)	$	859,353

(1)		The pre-tax amount of unrealized gains and losses on securities available for sale and retained interest in securitized assets was $13.2 million for the nine months ended September 30, 2003 compared with $48.5 million for the year ended December 31, 2002.

(2)		The pre-tax amount of unrealized losses on cash flow hedges was $51.1 million for the nine months ended September 30, 2003 compared with $230 million for the year ended December 31, 2002.

(3)		The pre-tax amount of unrealized gains on securities available for sale reclassified into earnings was $5.0 million for the nine months ended September 30, 2003 compared with $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 $90.0 million for the nine months ended September 30, 2003 compared with $112 million for the year ended December 31, 2002.

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

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


		For the Nine Months Ended
		September 30,

		2003			2002

		(Dollars in thousands)
OPERATING ACTIVITIES
Net income		$	84,487		$	60,234
Adjustments to reconcile net income to net cash provided by Operating activities:
	Provision for credit losses		221,071			209,043
	Depreciation and amortization		11,720			29,134
	Amortization of losses on cash flow hedges		43,665			23,735
	Amortization of premium on mortgage-backed securities		55,134			25,241
	Amortization of participation paid to dealers		81,384			67,095
	Amortization of retained interest in securitized assets					32,612
	(Gain) loss on sales, net		(10,060	)		6,033
Loans held for sale:
	Proceeds from sale of mortgage loans					554
(Increase) decrease in other assets			(15,324	)		22,347
Increase in other liabilities			22,301			102,417
Other, net			22,070			9,409

NET CASH PROVIDED BY OPERATING ACTIVITIES			516,448			587,854
INVESTING ACTIVITIES
Loans receivable:
	Origination of loans		(4,952,333	)		(4,427,803	)
	Participation paid to dealers		(109,325	)		(99,706	)
	Loan payments and payoffs		3,745,284			2,691,814
Investment securities available for sale:
	Purchases		(51,406	)		(4,842	)
	Proceeds from sale		1,030			485
	Proceeds from maturities		319			116
Mortgage-backed securities:
	Purchases		(1,672,500	)		(1,081,335	)
	Proceeds from sale		105,066
	Payments received		1,476,522			704,194
Increase in amounts due from trust						19,983
Purchase of premises and equipment			(13,911	)		(14,424	)
Proceeds from sales of premises and equipment			2,938			5,977

NET CASH USED IN INVESTING ACTIVITIES			(1,468,316	)		(2,205,541	)
FINANCING ACTIVITIES
Increase (decrease) in deposits			5,486			(532,505	)
(Decrease) increase in securities sold under agreements to repurchase			(30,437	)		165,148
Proceeds from notes payable on automobile secured financing			4,476,713			5,564,768
Payments on notes payable on automobile secured financing			(3,444,685	)		(3,472,399	)
Increase (decrease) in borrowings			3,271			(16,772	)
Decrease in amounts held on behalf of trustee						(67,213	)
Increase (decrease) in FHLB advances			47,401			(97,607	)
Payments on issuance of subordinated debentures			(7,315	)		279,486
Increase in restricted cash			(114,556	)		(53,740	)
Proceeds from issuance of common stock			164,551			52,761
Proceeds from issuance of subsidiary common stock			68			10,980
Cash dividends			(15,701	)		(13,338	)
Payments on cash flow hedges			(34,180	)		(70,156	)

NET CASH PROVIDED BY FINANCING ACTIVITIES			1,050,616			1,749,413

INCREASE IN CASH AND DUE FROM BANKS			98,748			131,726
Cash and due from banks at beginning of year			84,215			104,327

CASH AND DUE FROM BANKS AT END OF PERIOD		$	182,963		$	236,053

See accompanying notes to consolidated financial statements.

WESTCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 nine months ended September 30, 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 second quarter of 2003, various amounts related to certain securitization transactions were reclassified to restricted cash on the Statement of Financial Condition. Previously, such amounts were reported as a reduction of notes payable on automobile secured financing on the Statement of Financial Condition. The 2002 amounts have been reclassified accordingly. Restricted cash represents amounts that are held by the trustee until such cash is released by the trustee.

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 for the periods reported. 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 securitization 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 no longer recognize retained interest income or expense or contractual servicing income on our Consolidated Statements of Income. Rather, we 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 April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, also known as SFAS No. 149. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The adoption of SFAS No. 149 did not have a material effect on our earnings or financial position.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, also known as SFAS No. 150. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The adoption of SFAS No. 150 did not have a material effect on our earnings or financial position.

Note 2 – Mortgage-Backed Securities Available for Sale

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


	September 30, 2003

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gain		Loss		Value

	(Dollars in thousands)
GNMA certificates	$	2,606,940	$	30,061	$	4,018	$	2,632,983
FNMA participation certificates		28,327		466				28,793
FHLMC participation certificates		538		11				549
Other		1,831						1,831

	$	2,637,636	$	30,538	$	4,018	$	2,664,156


	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:


		September 30,			December 31,
		2003			2002

		(Dollars in thousands)
Consumer:
	Automobile contracts	$	10,545,852		$	8,993,266
	Dealer participation, net of deferred contract fees		174,789			154,671
	Other		7,924			7,531
	Unearned discounts		(69,905	)		(91,713	)

			10,658,660			9,063,755
Real estate:
	Mortgage		231,538			277,233
	Construction		28,509			14,150

			260,047			291,383
Undisbursed loan proceeds			(13,515	)		(8,453	)

			246,532			282,930
Commercial			105,665			97,216

			11,010,857			9,443,901
Allowance for credit losses			(298,278	)		(269,352	)

		$	10,712,579		$	9,174,549

Note 4 – Allowance for Credit Losses

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


		For the Three Months Ended						For the Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

		(Dollars in thousands)
Balance at beginning of period		$	291,459		$	218,337		$	269,352		$	178,218
Chargeoffs:
	Consumer loans		(88,345	)		(70,143	)		(258,495	)		(192,238	)
	Mortgage loans		(7	)		(105	)		(344	)		(176	)

			(88,352	)		(70,248	)		(258,839	)		(192,414	)
Recoveries:
	Consumer loans		22,003			15,144			66,593			49,382
	Mortgage loans		18						101

			22,021			15,144			66,694			49,382

Net chargeoffs			(66,331	)		(55,104	)		(192,145	)		(143,032	)
Provision for credit losses			73,150			80,996			221,071			209,043

Balance at end of period		$	298,278		$	244,229		$	298,278		$	244,229

Ratio of net chargeoffs during the period (annualized) to average loans outstanding during the period			2.5	%		2.5	%		2.5	%		2.3	%
Ratio of allowance for credit losses to loans at the end of the period			2.7	%		2.7	%		2.7	%		2.7	%

Note 5 – Deposits

Deposits consisted of the following:


				Weighted
	Weighted			Average Rate
	Average Rate at			For the Nine Months
	September 30,			Ended September 30,			September 30,		December 31,
	2003(1)			2003 (2)			2003		2002

							(Dollars in thousands)
Noninterest bearing deposits							$	177,211	$	165,844
Demand deposit accounts		0.1	%		0.2	%		999		1,037
Passbook accounts		0.1			0.3			6,826		6,688
Money market deposit accounts		1.4			1.4			866,349		730,245
Brokered certificate accounts		2.0			2.3			109,150		98,992
Certificate accounts		2.2			5.8			808,599		972,178

							$	1,969,134	$	1,974,984

(1)		Contractual rate.

(2)		Includes effects of hedging activities.

Note 6 – Notes Payable on Automobile Secured Financing

In connection with our asset-backed securitization activities, we issued $1.7 billion and $4.5 billion of notes secured by automobile contracts for the three and nine months ended September 30, 2003, respectively, compared with $1.3 billion and $5.6 billion for the same respective periods in 2002. The $4.5 billion issued during 2003 was through public transactions. Of the $5.6 billion issued during 2002, $4.8 billion was through public transactions and $775 million was through a private placement. The private placement was through a conduit facility established in January 2002. We had no amounts outstanding on a conduit facility at September 30, 2002. There were $10.1 billion of notes payable on automobile secured financing outstanding at September 30, 2003 compared with $8.5 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 $102 million and $319 million for the three and nine months ended September 30, 2003, respectively, compared with $106 million and $301 million for the same respective periods in 2002.

Note 7 – Accumulated Other Comprehensive Loss, Net of Tax

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


		September 30,			December 31,
		2003			2002

		(Dollars in thousands)
Unrealized gain on marketable securities		$	16,232		$	27,145
Unrealized loss on interest rate swaps: (1)
Deposits			(47,179	)		(53,081	)
	Automobile secured financing		(30,793	)		(43,624	)
	Securities sold under agreements to repurchase		(2,663	)		(3,092	)

			(80,635	)		(99,797	)
Realized loss on settled cash flow hedges: (1)
	Deposits		(9,694	)		(11,367	)
	Automobile secured financing		(15,043	)		(17,531	)

			(24,737	)		(28,898	)

Total other accumulated comprehensive loss		$	(89,140	)	$	(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 until they expire under the terms of their grant. 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.

Options outstanding and exercisable at September 30, 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		1.87	$	9.94		750	$	9.94
12.00 — 13.00		197,467		2.26		12.62		197,467		12.62
13.00 — 14.00		199,875		3.39		13.25		137,592		13.25
15.00 — 16.00		1,000		4.11		15.25		500		15.25
17.00 — 18.00		289,500		4.40		17.32		130,125		17.32
18.00 — 19.00		794,250		4.83		18.56		79,375		18.30
19.00 — 20.00		5,000		5.85		19.85		1,250		19.85
20.00 — 21.00		3,000		6.10		20.41

9.00 — 21.00		1,490,842		4.22	$	16.82		547,059	$	14.74

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		(98,118	)		14.75
	Canceled		(22,478	)		17.08

Outstanding at September 30, 2003			1,490,842		$	16.82

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 as we feel it provides a better measure of value for companies that pay dividends. In addition, in 2003 we utilized the Binomial option valuation model to value all outstanding options, including those granted prior to 2003. 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 September 30, 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				For the Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

		(Dollars in thousands, except per share amounts)
Net income, as reported		$	29,335	$	21,673	$	84,487	$	60,234
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			122				285
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			315		215		919		644

Pro forma net income		$	29,142	$	21,458	$	83,853	$	59,590

Earnings per share
	Basic — as reported	$	0.65	$	0.55	$	2.05	$	1.57

	Basic — pro forma	$	0.65	$	0.55	$	2.04	$	1.55

Earnings per share
	Diluted — as reported	$	0.64	$	0.55	$	2.03	$	1.55

	Diluted — pro forma	$	0.64	$	0.54	$	2.01	$	1.54

Note 9 – Comprehensive income

The following table presents the components of comprehensive income (loss), net of related tax, for the periods indicated:


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

	(Dollars in thousands)
Net income	$	29,335		$	21,673		$	84,487		$	60,234
Unrealized (losses) gains on securities available for sale, net of tax		(2,184	)		14,298			(7,926	)		26,588
Unrealized gains (losses) on cash flow hedges, net of tax		7,276			(65,630	)		(30,667	)		(127,864	)
Reclassification adjustment for gains on securities available for sale, net of tax		(2,983	)					(2,987	)
Reclassification adjustment for losses on cash flow hedges included in income, net of tax		20,022			18,596			53,990			49,593

Comprehensive income (loss)	$	51,466		$	(11,063	)	$	96,897		$	8,551

Note 10 – Dividends

On August 7, 2003, we declared a cash dividend of $0.13 per share for shareholders of record as of November 4, 2003 with a payable date of November 18, 2003.

Note 11 – Common stock offering

We completed a common stock offering in July 2003 in which we raised a total of $163 million through the issuance of 6.1 million additional common shares at a price of $28.00 per share. With the completion of this offering, our total number of common shares issued and outstanding increased 15.7% to 45.4 million shares at September 30, 2003.

Note 12 – Whole loan sale

We purchased $1.7 billion of contracts from WFS in a whole loans sale for the nine months ended September 30, 2003. In this transaction, WFS received cash for the amount of the principal outstanding on the contracts plus a premium of $49.7 million. This premium was recorded by WFS as a cash gain on sale, net of the write-off of outstanding dealer participation balances and the effect of hedging activities. These contracts were subsequently securitized by us and continue to be managed by WFS under the terms of the transaction. This whole loan sale transaction is eliminated upon consolidation for accounting purposes.

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 funds derived from 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 and nine months ended September 30, 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						For the Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

		(Dollars in thousands, except per share amounts)
Consolidated Statements of Operations Data:
Interest income		$	310,911		$	299,006		$	928,336		$	841,210
Interest expense			130,048			139,976			407,257			393,156

	Net interest income		180,863			159,030			521,079			448,054
Provision for credit losses			73,150			80,996			221,071			209,043

	Net interest income after provision for credit losses		107,713			78,034			300,008			239,011
Noninterest income			27,833			26,410			83,316			64,301
Noninterest expense			66,745			62,207			207,840			187,841

Income before income tax			68,801			42,237			175,484			115,471
Income tax			27,343			16,824			69,544			44,974

Income before minority interest			41,458			25,413			105,940			70,497
Minority interest in earnings of subsidiaries			12,123			3,740			21,453			10,263

Net income		$	29,335		$	21,673		$	84,487		$	60,234

Weighted average number of shares and common share equivalents — diluted			45,786,913			39,506,307			41,680,576			38,751,631
Earnings per common share — diluted		$	0.64		$	0.55		$	2.03		$	1.55
Dividends per share		$	0.13		$	0.12		$	0.39		$	0.36
Dividend payout ratio			20.3	%		21.8	%		19.2	%		23.2	%


				September 30,		December 31,
				2003		2002

				(Dollars in thousands)
Consolidated Statements of Financial Condition Data:
Assets:
	Cash and other assets			$	70,204	$	201,547
	Loans:
		Consumer (1)			10,658,660		9,063,755
		Mortgage (2)			246,532		282,930
		Commercial			105,665		97,216
	Mortgage-backed securities				2,664,156		2,649,657
	Investments and time deposits				493,371		187,534

			Total assets	$	14,238,588	$	12,482,639

Liabilities:
	Deposits			$	1,969,134	$	1,974,984
	Notes payable on automobile secured financing				10,108,203		8,494,678
	FHLB advances and other borrowings				638,682		618,766
	Subordinated debentures				394,494		400,561
	Amounts held on behalf of trustee						177,642
	Other liabilities				144,197		101,145

			Total liabilities		13,254,710		11,767,776
	Minority interest in equity of subsidiaries				124,525		101,666
	Shareholders’ equity				859,353		613,197

			Total liabilities and shareholders’ equity	$	14,238,588	$	12,482,639


			At or For the						At or For the
			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

			(Dollars in thousands)
Other Selected Financial Data:
Average automobile contracts managed			$	10,284,067		$	9,102,663		$	9,885,681		$	8,672,049
Return on average automobile contracts managed (3)				1.14	%		0.96	%		1.14	%		0.93	%
Average shareholders’ equity (4)			$	908,530		$	689,966		$	791,998		$	659,799
Return on average shareholders’ equity (4)				12.92	%		12.56	%		14.22	%		12.17	%
Total equity to assets (5)				7.54			6.55			7.54			6.55
Book value per share (4)			$	20.89		$	17.84		$	20.89		$	17.84
Originations:
	Consumer loans (1)		$	1,684,198		$	1,445,948		$	4,626,928		$	4,207,743
	Mortgage loans (2)			2,016			2,071			21,326			23,535
	Commercial loans			108,422			66,351			304,078			196,525

		Total loan originations	$	1,794,636		$	1,514,370		$	4,952,332		$	4,427,803

Interest rate spread				4.86	%		4.93	%		4.94	%		5.12	%

(1)		Net of unearned discounts.
(2)		Net of undisbursed loan proceeds.
(3)		Net income (annualized) divided by average automobile contracts managed.
(4)		Excludes other comprehensive loss.
(5)		Excludes other comprehensive loss and includes minority interest.

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 securitization transactions are treated as having been sold for bankruptcy remoteness purposes, thereby isolating those assets in our special purpose entity subsidiaries, and upon transfer to the securitization trust 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, analysis of cumulative losses 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 assets 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. All 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. If a hedge is greater than 100% effective, the effective portion of the gain or loss on such hedge is reported in other comprehensive income and the ineffective portion (the amount in excess of 100%) is immediately reported in interest expense. Upon closing 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 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. If a hedge is greater than 100% effective, the effective portion of the gain or loss on such hedge is reported in other comprehensive income and the ineffective portion (the amount in excess of 100%) is immediately reported in interest expense. 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 may 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. Net interest income totaled $181 million and $521 million for the three and nine months ended September 30, 2003, respectively, compared to $159 million and $448 million for the same respective periods in 2002. 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 for the nine months ended September 30, 2003.

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 September 30,

				2003							2002

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

				(Dollars in thousands)
Interest earning assets:
	Total investments:
		Mortgage-backed securities		$	2,516,193	$	15,936		2.53	%	$	2,272,590	$	30,778		5.42	%
		Other short-term investments			473,758		1,713		1.43			444,900		2,279		2.03
		Investment securities			33,208		231		2.79			8,137		108		5.33
		Interest earning deposits with others			6,803		12		0.70			8,016		27		1.37

			Total investments		3,029,962		17,892		2.36			2,733,643		33,192		4.86
	Total loans: (1)
		Consumer loans			10,463,303		288,138		10.93			8,543,283		259,706		12.06
		Mortgage loans			239,544		3,204		5.35			311,449		4,844		6.22
		Commercial loans			131,575		1,677		4.99			86,792		1,264		5.70

			Total loans		10,834,422		293,019		10.73			8,941,524		265,814		11.80

			Total interest earning assets	$	13,864,384		310,911		8.90		$	11,675,167		299,006		10.17

Interest bearing liabilities:
	Deposits			$	1,968,859		15,695		3.16		$	2,166,683		20,447		3.74
	Securities sold under agreements to repurchase				203,641		1,032		1.98			142,443		1,752		2.40
	FHLB advances and other borrowings				515,980		1,689		1.29			105,233		672		2.52
	Notes payable on automobile secured financing				9,763,149		101,803		4.17			7,827,404		105,911		5.41
	Subordinated debentures				394,804		9,829		9.96			433,026		11,194		10.34

			Total interest bearing liabilities	$	12,846,433		130,048		4.04		$	10,674,789		139,976		5.24

Net interest income and interest rate spread						$	180,863		4.86	%			$	159,030		4.93	%

Net yield on average interest earning assets									5.22	%						5.45	%

(1)

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


				For the Nine Months Ended September 30,

				2003							2002

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

				(Dollars in thousands)
Interest earning assets:
	Total investments:
		Mortgage-backed securities		$	2,514,424	$	61,950		3.29	%	$	2,140,819	$	86,440		5.38	%
		Other short-term investments			374,964		4,750		1.69			356,517		5,770		2.16
		Investment securities			15,581		412		3.53			6,908		341		6.58
		Interest earning deposits with others			8,383		55		0.87			6,245		70		1.50

			Total investments		2,913,352		67,167		3.07			2,510,489		92,621		4.92
	Total loans: (1)
		Consumer loans			10,056,540		846,270		11.25			7,921,167		728,566		12.30
		Mortgage loans			255,896		10,543		5.49			333,479		15,844		6.33
		Commercial loans			120,639		4,356		4.76			93,124		4,179		5.92

			Total loans		10,433,075		861,169		11.03			8,347,770		748,589		11.99

			Total interest earning assets	$	13,346,427		928,336		9.30		$	10,858,259		841,210		10.35

Interest bearing liabilities:
	Deposits			$	1,981,146		50,269		3.39		$	2,216,250		61,642		3.72
	Securities sold under agreements to repurchase				218,569		3,433		2.07			191,654		3,849		2.65
	FHLB advances and other borrowings				444,529		4,775		1.45			206,733		3,566		2.32
	Notes payable on automobile secured financing				9,426,038		319,136		4.51			7,112,337		301,083		5.64
	Subordinated debentures				396,742		29,644		9.96			305,939		23,016		10.03

			Total interest bearing liabilities	$	12,467,024		407,257		4.36		$	10,032,913		393,156		5.23

Net interest income and interest rate spread						$	521,079		4.94	%			$	448,054		5.12	%

Net yield on average interest earning assets									5.21	%						5.50	%

(1)

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

The total interest rate spread decreased 7 basis points for the three months ended September 30, 2003 compared with the three months ended September 30, 2002 due to a decrease of 127 basis points in the yield on interest earning assets combined with an 120 basis point decrease in the cost of funds. The total interest rate spread decreased 18 basis points for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 due to a decrease of 105 basis points in the yield on interest earning assets combined with an 87 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, higher prepayments on our MBS portfolio, 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 Nine Months Ended September 30, 2003
			Compared to the Nine Months Ended September 30, 2002 (1)
			Volume			Rate			Total

			(Dollars in thousands)
Interest income:
	Mortgage-backed securities		$	20,147		$	(44,637	)	$	(24,490	)
	Other short-term investments			448			(1,468	)		(1,020	)
	Investment securities			360			(289	)		71
	Interest earning deposits with others			28			(43	)		(15	)
Total loans:
	Consumer loans			215,733			(98,029	)		117,704
	Mortgage loans			701			(6,002	)		(5,301	)
	Commercial loans			1,405			(1,228	)		177

		Total interest earning assets	$	238,822		$	(151,696	)	$	87,126

Interest expense:
	Deposits		$	(6,194	)	$	(5,179	)	$	(11,373	)
	Securities sold under agreements to repurchase			743			(1,159	)		(416	)
	FHLB advances and other borrowings			1,794			(585	)		1,209
	Notes payable on automobile secured financings			46,999			(28,946	)		18,053
	Subordinated debentures			6,787			(159	)		6,628

		Total interest bearing liabilities	$	50,129		$	(36,028	)	$	14,101

Net change in net interest income									$	73,025

(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 loan portfolio that can be reasonably estimated.

The provision for credit losses totaled $73.2 million and $221 million for the three and nine months ended September 30, 2003, respectively, compared with $81.0 million and $209 million for the same respective periods a year earlier. Net chargeoffs totaled $66.3 million and $192 million for the three and nine months ended September 30, 2003, respectively, compared with $55.1 million and $143 million for the same respective periods in 2002. The allowance for credit losses as a percentage of owned loans outstanding was 2.7% at September 30, 2003, compared with 2.9% at December 31, 2002.

Contract Securitizations

The following table lists each of our public securitizations. All securitizations prior to 1999-B 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		September 30, 2003(1)		Original Balance			Average APR			Securitization Rate			Spread (2)

(Dollars in thousands)
1985-A	December, 1985	$	110,000	Paid in full						18.50	%		8.38	%		10.12	%
1986-A	November, 1986		191,930	Paid in full						14.20			6.63			7.57
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	Paid in full						14.42			5.81			8.61
1999-A	January, 1999		1,000,000	Paid in full						14.42			5.70			8.72
1999-B	July, 1999		1,000,000		78,460		7.85	%		14.62			6.36			8.26
1999-C	November, 1999		500,000		58,514		11.70			14.77			7.01			7.76
2000-A	March, 2000		1,200,000		162,305		13.53			14.66			7.28			7.38
2000-B	May, 2000		1,000,000		150,222		15.02			14.84			7.78			7.06
2000-C	August, 2000		1,390,000		282,194		20.30			15.04			7.32			7.72
2000-D	November, 2000		1,000,000		261,382		26.14			15.20			6.94			8.26
2001-A	January, 2001		1,000,000		291,189		29.12			14.87			5.77			9.10
2001-B	May, 2001		1,370,000		419,028		30.59			14.41			4.23			10.18
2001-C	August, 2001		1,200,000		462,147		38.51			13.90			4.50			9.40
2002-1	March, 2002		1,800,000		941,933		52.33			13.50			4.26			9.24
2002-2	May, 2002		1,750,000		1,061,076		60.63			12.51			3.89			8.62
2002-3	August, 2002		1,250,000		832,456		66.60			12.30			3.06			9.24
2002-4	November, 2002		1,350,000		1,045,074		77.41			12.18			2.66			9.52
2003-1	February, 2003		1,343,250		1,073,279		79.90			11.79			2.42			9.37
2003-2	May, 2003		1,492,500		1,346,912		90.25			11.57			2.13			9.44
2003-3	August, 2003		1,650,000		1,650,000		100.00			10.59			2.66			7.93

	Total	$	33,207,180	$	10,116,171

(1)		Represents only the note payable amounts outstanding at the period indicated.
(2)		Represents the difference between the original weighted average annual percentage rate, also known as APR, and the estimated weighted average securitization rate on the closing date of the securitization.

Noninterest Expense

Noninterest expense totaled $66.7 million and $208 million for the three and nine months ended September 30, 2003, compared with $62.2 million and $188 million for the same respective periods in 2002. Noninterest expense as a percent of total revenues improved to 32% and 34% for both the three and nine months ended September 30, 2003, compared to 34% and 37% for the same respective periods 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 and nine months ended September 30, 2003, respectively, compared to 40% and 39% for the same respective periods in 2002.

Financial Condition

Overview

Total assets increased $1.8 billion or 14.1% to $14.2 billion at September 30, 2003 from $12.5 billion at December 31, 2002. The increase is due primarily 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				For the Nine Months Ended
		September 30,				September 30,

		2003		2002		2003		2002

		(Dollars in thousands)
New vehicles		$	586,648	$	425,840	$	1,462,024	$	1,199,312
Pre-owned vehicles			1,096,754		1,018,345		3,160,047		3,005,406

	Total volume	$	1,683,402	$	1,444,185	$	4,622,071	$	4,204,718

Prime		$	1,406,674	$	1,152,043	$	3,829,825	$	3,335,984
Non-prime			276,728		292,142		792,246		868,734

	Total volume	$	1,683,402	$	1,444,185	$	4,622,071	$	4,204,718

Commercial Loan Portfolio

We had outstanding loan commitments of $214 million at September 30, 2003 compared with $199 million at December 31, 2002. We originated $108 million and $304 million of commercial loans for the three and nine months ended September 30, 2003, respectively, compared with $66.4 million and $197 million for the same respective periods in 2002. Amounts outstanding at September 30, 2003 and December 31, 2002 were $106 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 September 30, 2003, the percentage of accounts delinquent 30 days or greater was 2.70% 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 us shifting to a higher concentration of prime credit quality contracts and normal seasonal trends. Net chargeoffs on average automobile contracts were 2.58% and 2.59% for the three and nine months ended September 30, 2003, respectively, compared with 2.73% and 2.56% for the same respective periods in 2002. The decrease in credit loss experience for the three months ended September 30, 2003 is primarily a result of our continued shift to a higher percentage of prime automobile contracts and some stabilization of the used car market.

The following table sets forth information with respect to the delinquency of our portfolio of managed contracts:


		September 30, 2003					December 31, 2002

		Amount		%			Amount		%

		(Dollars in thousands)
Contracts managed at end of period		$	10,475,948				$	9,389,974

Period of delinquency
	30-59 days	$	201,990		1.93	%	$	238,204		2.54	%
	60 days or more (1)		80,398		0.77			90,291		0.96

Total contracts delinquent and delinquencies as a percentage of contracts managed (1)		$	282,388		2.70	%	$	328,495		3.50	%

(1)

Excludes Chapter 13 bankruptcy accounts greater than 120 days past due of $44.4 million and $41.5 million at September 30, 2003 and December 31, 2002, respectively.

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


	September 30, 2003						December 31, 2002

	Number of						Number of
	Contracts			Amount			Contracts			Amount

	(Dollars in thousands)
Contracts managed		818,125		$	10,475,948			757,269		$	9,389,974

Repossessed vehicles		1,629		$	11,025			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						For the Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

	(Dollars in thousands)
Average contracts managed during period	$	10,284,067		$	9,102,663		$	9,885,681		$	8,672,049

Gross chargeoffs	$	88,343		$	80,916		$	258,491		$	229,216
Recoveries		21,916			18,688			66,451			62,548

Net chargeoffs	$	66,427		$	62,228		$	192,040		$	166,668

Net chargeoffs as a percentage of average contracts managed during period		2.58	%		2.73	%		2.59	%		2.56	%

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

Cumulative Static Pool Loss Curves
At September 30, 2003


Period (1)			1999-B			1999-C			2000-A			2000-B			2000-C			2000-D			2001-A			2001-B			2001-C			2002-1			2002-2			2002-3			2002-4			2003-1			2003-2			2003-3

	1			0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
	2			0.04	%		0.02	%		0.03	%		0.02	%		0.04	%		0.04	%		0.03	%		0.03	%		0.04	%		0.01	%		0.00	%		0.02	%		0.02	%		0.01	%		0.00	%
	3			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	%		0.04	%		0.02	%
	4			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	%		0.11	%		0.06	%
	5			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	%		0.18	%		0.14	%
	6			0.66	%		0.56	%		0.55	%		0.59	%		0.65	%		0.54	%		0.50	%		0.50	%		0.49	%		0.43	%		0.32	%		0.44	%		0.38	%		0.29	%
	7			0.87	%		0.71	%		0.71	%		0.78	%		0.81	%		0.74	%		0.70	%		0.69	%		0.65	%		0.60	%		0.49	%		0.57	%		0.50	%		0.41	%
	8			1.00	%		0.86	%		0.91	%		0.99	%		0.93	%		0.93	%		0.84	%		0.87	%		0.81	%		0.84	%		0.66	%		0.70	%		0.61	%		0.53	%
	9			1.13	%		1.01	%		1.10	%		1.17	%		1.07	%		1.13	%		1.04	%		1.05	%		0.95	%		1.06	%		0.82	%		0.82	%		0.78	%
	10			1.24	%		1.14	%		1.27	%		1.33	%		1.24	%		1.34	%		1.24	%		1.22	%		1.07	%		1.28	%		0.96	%		0.96	%		0.94	%
	11			1.35	%		1.34	%		1.45	%		1.44	%		1.41	%		1.50	%		1.45	%		1.36	%		1.20	%		1.48	%		1.10	%		1.10	%		1.08	%
	12			1.44	%		1.52	%		1.58	%		1.57	%		1.62	%		1.74	%		1.67	%		1.53	%		1.37	%		1.67	%		1.26	%		1.24	%
	13			1.58	%		1.74	%		1.73	%		1.72	%		1.86	%		1.95	%		1.90	%		1.67	%		1.55	%		1.82	%		1.39	%		1.38	%
	14			1.74	%		1.94	%		1.85	%		1.86	%		2.04	%		2.21	%		2.09	%		1.81	%		1.74	%		1.99	%		1.51	%		1.53	%
	15			1.85	%		2.09	%		2.00	%		2.04	%		2.25	%		2.48	%		2.25	%		2.00	%		1.97	%		2.14	%		1.68	%
	16			2.03	%		2.27	%		2.15	%		2.24	%		2.45	%		2.71	%		2.41	%		2.19	%		2.16	%		2.27	%		1.83	%
	17			2.16	%		2.39	%		2.37	%		2.39	%		2.68	%		2.89	%		2.54	%		2.37	%		2.36	%		2.45	%		1.99	%
	18			2.30	%		2.53	%		2.52	%		2.55	%		2.88	%		3.08	%		2.73	%		2.60	%		2.59	%		2.62	%
	19			2.42	%		2.67	%		2.67	%		2.73	%		3.08	%		3.22	%		2.93	%		2.80	%		2.78	%		2.80	%
	20			2.50	%		2.81	%		2.83	%		2.93	%		3.23	%		3.40	%		3.11	%		3.01	%		2.95	%
	21			2.58	%		2.92	%		2.99	%		3.12	%		3.38	%		3.59	%		3.34	%		3.19	%		3.14	%
	22			2.67	%		3.10	%		3.16	%		3.27	%		3.54	%		3.78	%		3.54	%		3.34	%		3.29	%
	23			2.77	%		3.28	%		3.34	%		3.38	%		3.67	%		3.96	%		3.72	%		3.49	%		3.41	%
	24			2.87	%		3.38	%		3.49	%		3.52	%		3.83	%		4.18	%		3.92	%		3.62	%		3.57	%
	25			3.01	%		3.55	%		3.63	%		3.63	%		4.00	%		4.41	%		4.10	%		3.75	%		3.73	%
	26			3.14	%		3.68	%		3.75	%		3.73	%		4.16	%		4.58	%		4.23	%		3.87	%		3.88	%
	27			3.16	%		3.84	%		3.86	%		3.84	%		4.35	%		4.79	%		4.36	%		4.00	%
	28			3.29	%		3.98	%		3.97	%		3.97	%		4.50	%		4.96	%		4.47	%		4.15	%
	29			3.40	%		4.14	%		4.09	%		4.11	%		4.64	%		5.08	%		4.56	%		4.28	%
	30			3.50	%		4.19	%		4.21	%		4.26	%		4.79	%		5.22	%		4.67	%
	31			3.61	%		4.30	%		4.33	%		4.40	%		4.92	%		5.34	%		4.81	%
	32			3.68	%		4.38	%		4.47	%		4.50	%		5.02	%		5.44	%		4.92	%
	33			3.74	%		4.46	%		4.59	%		4.61	%		5.12	%		5.54	%
	34			3.81	%		4.57	%		4.68	%		4.70	%		5.22	%		5.66	%
	35			3.87	%		4.66	%		4.79	%		4.78	%		5.29	%		5.76	%
	36			3.91	%		4.76	%		4.86	%		4.85	%		5.38	%
	37			3.97	%		4.84	%		4.93	%		4.94	%		5.47	%
	38			4.03	%		4.96	%		5.01	%		4.99	%		5.53	%
	39			4.09	%		5.03	%		5.08	%		5.05	%
	40			4.13	%		5.13	%		5.13	%		5.12	%
	41			4.18	%		5.20	%		5.18	%		5.18	%
	42			4.23	%		5.24	%		5.24	%
	43			4.28	%		5.28	%		5.29	%
	44			4.33	%		5.34	%
	45			4.35	%		5.38	%
	46			4.38	%		5.42	%
	47			4.39	%		5.44	%
	48			4.41	%		5.46	%
	49			4.43	%
	50			4.44	%
	51			4.46	%
Prime Mix		(2)		70	%		67	%		68	%		69	%		68	%		68	%		71	%		71	%		76	%		70	%		87	%		85	%		80	%		80	%		82	%		84	%

(1)		Represents the number of months since the inception of the securitization.
(2)		Represents the original percentage of prime automobile contracts securitized within each pool.

Real Estate Loan Quality

We had $3.1 million of single family mortgage loans, or 1.25% of total mortgage loans, past due over 60 days at September 30, 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 $4.7 million to $14.1 million at September 30, 2003 compared with $18.8 million at December 31, 2002. The decrease in the NPAs was primarily due to a $3.9 million decrease in repossessed automobiles. NPAs represented 0.1% of total assets at September 30, 2003 and 0.2% of total assets at December 31, 2002. There were no impaired loans at September 30, 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 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. Interest on NPLs excluded from interest income was $0.4 million and $0.5 million for the nine months ended September 30, 2003 and 2002, respectively.

Allowance for Credit Losses

Our allowance for credit losses was $298 million at September 30, 2003 compared to $269 million at December 31, 2002. Net chargeoffs totaled $66.3 million and $192 million for the three and nine months ended September 30, 2003, respectively, compared with $55.1 million and $143 million for the same respective periods in 2002. The increase in the allowance for credit losses was the result of a higher level of automobile contracts held on balance sheet. The allowance for credit losses as a percentage of owned loans outstanding was 2.7% at September 30, 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 presents summarized data relative to the allowance for credit and real estate losses at the dates indicated:


		September 30,			December 31,
		2003			2002

		(Dollars in thousands)
Total loans (1)		$	11,010,857		$	9,443,901
Allowance for credit losses			298,278			269,352
Allowance for real estate owned losses			100			250
Loans past due 60 days or more (2)			83,652			86,199
Nonperforming loans (3)			51,399			39,231
Nonperforming assets (4)			14,139			18,807
Allowance for credit losses as a percent of:
	Total loans (1)		2.7	%		2.9	%
	Loans past due 60 days or more		356.6	%		312.5	%
	Nonperforming loans		580.3	%		686.6	%
Total allowance for credit losses and REO losses as a percent of nonperforming assets			2,110.3	%		1,433.5	%
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:


		September 30,		December 31,
		2003		2002

		(Dollars in thousands)
No minimum term:
	Demand deposit accounts	$	999	$	1,037
	Passbook accounts		6,826		6,688
	Money market accounts		866,349		730,245
	Noninterest bearing deposits		177,211		165,844
Certificate accounts:
	Certificates (30 days to five years)		719,093		878,096
	IRAs		89,506		94,082
Brokered deposits			109,150		98,992

		$	1,969,134	$	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 $2.2 billion and $6.1 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.6 billion and $4.8 billion for the same respective periods in 2002.

• Deposits – Deposits were $2.0 billion at both September 30, 2003 and December 31, 2002, respectively.

• Automobile Contract Securitizations – Securitizations totaled $1.7 billion and $4.5 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.3 billion and $5.6 billion for the same respective periods in 2002.

• 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 September 30, 2003 there was $101 million and $300 million outstanding on the subordinated debentures due in 2007 and 2012, respectively, excluding discounts and issue costs.

• Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, increased to $630 million at September 30, 2003 from $613 million at December 31, 2002.

Principal Uses of Cash

• Acquisition of Loans and Investment Securities – Loan originations totaled $1.8 billion and $5.0 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.5 billion and $4.4 billion for the same respective periods in 2002. We purchased $718 million and $1.7 billion of mortgage-backed securities and other investment securities during the three and nine months ended September 30, 2003 compared with $639 million and $1.1 billion during the same respective periods in 2002.

• Payments of Principal and Interest on Securitizations – Payments of principal and interest to noteholders and certificateholders totaled $1.3 billion and $3.7 billion for the three and nine months ended September 30, 2003 respectively, compared to $1.0 billion and $4.4 billion for the same respective periods in 2002.

• Amounts Paid to Dealers – Participation paid by us to dealers was $39.6 million and $109 million for the three and nine months ended September 30, 2003, respectively, compared to $34.5 million and $99.7 million for the same respective periods in 2002.

• Operating Our Business – Operating expenses totaled $66.7 million and $208 million for the three and nine months ended September 30, 2003, respectively, compared to $62.2 million and $188 million for the same respective periods in 2002.

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 order. The Bank currently meets all of the requirements of a “well capitalized” institution.

The following table summarizes the Bank’s actual capital and required capital as of September 30, 2003 and December 31, 2002:


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

		(Dollars in thousands)
September 30, 2003
Actual Capital:
	Amount	$	851,754		$	851,754		$	848,734		$	1,318,548
	Capital ratio		7.12	%		7.12	%		9.33	%		14.50	%
FIRREA minimum required capital:
	Amount	$	179,509		$	359,018			N/A		$	727,541
	Capital ratio		1.50	%		3.00	%		N/A			8.00	%
	Excess	$	672,245		$	492,736			N/A		$	591,007
FDICIA well capitalized required capital:
	Amount		N/A		$	598,363		$	545,656		$	909,427
	Capital ratio		N/A			5.00	%		6.00	%		10.00	%
	Excess		N/A		$	253,391		$	303,078		$	409,121
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:


		September 30,			December 31,
		2003			2002

		(Dollars in thousands)
Bank shareholder’s equity — GAAP basis		$	638,259		$	532,902
	Plus: net unrealized losses		89,127			94,220
	Plus: minority interest in equity of subsidiaries		124,525			101,666
	Less: non-permissible activities		(157	)		(157	)

Total tangible and core capital			851,754			728,631
Adjustments for risk-based capital:
	Subordinated debentures (1)		355,129			380,314
	General loan valuation allowance (2)		114,685			107,889
	Low-level recourse deduction		(3,020	)		(73,489	)

Risk-based capital		$	1,318,548		$	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 September 30, 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			$	7,634					$	50,000								$	57,634
	Other investments				209,187		$	310												209,497
	Mortgage-backed securities				449,732			764,174			992,832		$	294,472		$	162,946			2,664,156

			Total investments		666,553			764,484			1,042,832			294,472			162,946			2,931,287
	Consumer loans (1)				808,922			3,081,020			4,999,576			1,723,125			46,017			10,658,660
	Mortgage loans:
		Adjustable rate (2)			184,866			27,304												212,170
		Fixed rate (2)			1,396			3,509			11,061			1,324			1,356			18,646
	Construction loans (2)				15,716															15,716
	Commercial loans (2)				104,921			675			69									105,665

			Total interest earning assets		1,782,374			3,876,992			6,053,538			2,018,921			210,319			13,942,144
Interest bearing liabilities:
	Deposits:
		Passbook accounts (3)			705			2,482			3,639									6,826
		Demand deposit and money market accounts (3)			174,541			295,023			397,784									867,348
		Certificate accounts (4)			344,308			520,611			48,323			4,508						917,750
	Notes payable on automobile secured financing (4)				2,973,465			2,582,027			3,685,931			866,780						10,108,203
	Securities sold under agreements to repurchase (4)				245,844															245,844
	FHLB advances (4)				381,000												2,676			383,676
	Subordinated debentures (4)													99,863			294,631			394,494
	Other borrowings (4)				9,162															9,162

			Total interest bearing liabilities		4,129,025			3,400,143			4,135,677			971,151			297,307			12,933,303

Excess interest earning/bearing assets (liabilities)					(2,346,651	)		476,849			1,917,861			1,047,770			(86,988	)		1,008,841
Effect of hedging activities (5)					2,409,031			(530,300	)		(1,111,078	)		(323,153	)		(444,500	)

Hedged excess (deficit)				$	62,380		$	(53,451	)	$	806,783		$	724,617		$	(531,488	)	$	1,088,841

Cumulative excess				$	62,380		$	8,929		$	815,712		$	1,540,329		$	1,008,841		$	1,008,841

Cumulative excess as a percentage of total interest earning assets					0.45	%		0.06	%		5.85	%		11.05	%		7.24	%		7.24	%

(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 the California Business and Professions Code and the California Unruh Civil Rights Act) along with two similar California state court cases raising the same issues. We are vigorously defending these actions and do not believe that the outcome of these proceedings will have a material effect upon our financial condition, results of operations and cash flows.


Item 2.		Changes in Securities and Use of Proceeds

		None


Item 3.		Defaults Upon Senior Securities

		None


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

		None


Item 5.		Other Information

		None


Item 6.		Exhibits and Reports on Form 8-K

(a)		Exhibits

		31.1 Section 302 Certification of CEO
		31.2 Section 302 Certification of CFO
		32.1 Section 906 Certification of CEO
		32.2 Section 906 Certification of CFO

(b)		Reports on Form 8-K

		Westcorp press release on July 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)

EXHIBIT INDEX


Exhibits
Number		Description


31.1		Section 302 Certification of CEO

31.2		Section 302 Certification of CFO

32.1		Section 906 Certification of CEO

32.2		Section 906 Certification of CFO

November 4, 2003

/S/ ERNEST S. RADY

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

November 4, 2003

/S/ LEE A. WHATCOTT

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

	•		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 $2.2 billion and $6.1 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.6 billion and $4.8 billion for the same respective periods in 2002.

•		Deposits – Deposits were $2.0 billion at both September 30, 2003 and December 31, 2002, respectively.

•		Automobile Contract Securitizations – Securitizations totaled $1.7 billion and $4.5 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.3 billion and $5.6 billion for the same respective periods in 2002.

•		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 September 30, 2003 there was $101 million and $300 million outstanding on the subordinated debentures due in 2007 and 2012, respectively, excluding discounts and issue costs.

•		Other Borrowings – Other borrowings, which include securities sold under agreements to repurchase and FHLB advances, increased to $630 million at September 30, 2003 from $613 million at December 31, 2002.

•		Acquisition of Loans and Investment Securities – Loan originations totaled $1.8 billion and $5.0 billion for the three and nine months ended September 30, 2003, respectively, compared with $1.5 billion and $4.4 billion for the same respective periods in 2002. We purchased $718 million and $1.7 billion of mortgage-backed securities and other investment securities during the three and nine months ended September 30, 2003 compared with $639 million and $1.1 billion during the same respective periods in 2002.

•		Payments of Principal and Interest on Securitizations – Payments of principal and interest to noteholders and certificateholders totaled $1.3 billion and $3.7 billion for the three and nine months ended September 30, 2003 respectively, compared to $1.0 billion and $4.4 billion for the same respective periods in 2002.

•		Amounts Paid to Dealers – Participation paid by us to dealers was $39.6 million and $109 million for the three and nine months ended September 30, 2003, respectively, compared to $34.5 million and $99.7 million for the same respective periods in 2002.

•		Operating Our Business – Operating expenses totaled $66.7 million and $208 million for the three and nine months ended September 30, 2003, respectively, compared to $62.2 million and $188 million for the same respective periods in 2002.