e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
OR
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o |
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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)
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CALIFORNIA
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51-0308535 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
23 Pasteur, Irvine, California 92618-3816
(Address of principal executive offices)
(949) 727-1002
(Registrants 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 þ 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 þ No o
As of July 31, 2005, the registrant had 52,189,893 outstanding shares of common stock, $1.00 par
value. The shares of common stock represent the only class of common stock of the registrant.
The total number of sequentially numbered pages is 36.
WESTCORP AND SUBSIDIARIES
FORM 10-Q
June 30, 2005
TABLE OF CONTENTS
Forward-Looking Statements
This Form 10-Q includes and incorporates by reference forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act, as amended, also known as the Exchange Act. Forward-looking statements relate to
analyses and other information that 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, as well as the proposed merger of WFS Financial Inc, also known as WFS,
and Western Financial Bank, also known as the Bank, and the conversion of the Bank to a California
state bank. These statements are subject to uncertainties and, among other things, 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 their 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. These
statements are contained in the section entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this Form 10-Q and in the documents
incorporated by reference.
The following factors are among those that may cause actual results to differ materially from the
forward-looking statements:
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changes in general economic and business conditions; |
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interest rate fluctuations, including hedging activities; |
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our financial condition and liquidity, as well as future cash flows and earnings; |
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competition; |
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our level of operating expenses; |
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the effect, interpretation or application of new or existing laws, regulations and court decisions; |
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the exercise of discretionary authority by regulatory agencies; |
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a decision to change our corporate structure; |
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the availability of sources of funding; |
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the level of chargeoffs on the automobile contracts that we originate; and |
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significant litigation. |
If one or more of these risks or uncertainties materialize, or if underlying assumptions as to
these items prove incorrect, our actual results may vary materially from those expected, estimated
or projected.
Additional factors that could cause actual results to differ are discussed under the heading
Business Risks and in other sections of our Form 10-K for the fiscal year ended December 31, 2004
on file with the Securities and Exchange Commission, also known as the Commission, and in our other
current and periodic reports filed from time to time with the Commission. All forward-looking
statements in this document are made as of the date hereof, based on information available to us as
of the date hereof, and we assume no obligation to update any forward-looking statement.
INDUSTRY DATA
In this Form 10-Q, we rely on and refer to information regarding the automobile lending industry
from market research reports, analyst reports and other publicly available information. Although we
believe that this information is reliable, we cannot guarantee the accuracy and completeness of
this information, and we have not independently verified any of it.
Available Information
We provide access to all of our filings with the Securities and Exchange Commission on our web site
at http://www.westcorpinc.com free of charge on the same day that these reports are electronically
filed with the Commission. The information contained in our web site does not constitute part of
this filing.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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(Unaudited) |
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June 30, 2005 |
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December 31, 2004 |
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(Dollars in thousands) |
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ASSETS |
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Cash |
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$ |
120,780 |
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$ |
89,333 |
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Interest bearing deposits with other financial institutions |
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2,629 |
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4,177 |
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Other short-term investments |
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275,000 |
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125,000 |
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Cash and due from banks |
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398,409 |
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218,510 |
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Restricted cash |
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494,374 |
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417,833 |
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Investment securities available for sale |
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180,410 |
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119,811 |
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Mortgage-backed securities available for sale |
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2,643,222 |
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2,649,758 |
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Loans receivable |
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12,819,403 |
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12,135,748 |
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Allowance for credit losses |
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(318,776 |
) |
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(315,402 |
) |
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Loans receivable, net |
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12,500,627 |
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11,820,346 |
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Interest receivable |
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82,925 |
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79,825 |
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Premises and equipment, net |
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74,536 |
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76,526 |
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Other assets |
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169,731 |
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162,731 |
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TOTAL ASSETS |
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$ |
16,544,234 |
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$ |
15,545,340 |
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LIABILITIES |
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Deposits |
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$ |
2,262,888 |
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$ |
2,183,499 |
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Notes payable on automobile secured financing |
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10,212,648 |
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10,242,900 |
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Federal Home Loan Bank advances |
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1,910,463 |
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1,139,521 |
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Subordinated debentures |
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295,856 |
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295,321 |
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Other liabilities |
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215,322 |
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178,939 |
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TOTAL LIABILITIES |
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14,897,177 |
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14,040,180 |
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Minority interest |
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185,197 |
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165,484 |
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SHAREHOLDERS EQUITY |
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Common stock (par value $1.00 per share; authorized 65,000,000
shares; issued and outstanding 52,154,159 shares at June 30, 2005
and 51,895,258 shares at December 31, 2004) |
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52,154 |
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51,895 |
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Paid-in capital |
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722,487 |
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717,098 |
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Retained earnings |
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717,910 |
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606,987 |
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Accumulated other comprehensive loss, net of tax |
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(30,691 |
) |
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(36,304 |
) |
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TOTAL SHAREHOLDERS EQUITY |
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1,461,860 |
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1,339,676 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
16,544,234 |
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$ |
15,545,340 |
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See accompanying notes to consolidated financial statements.
2
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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(Dollars in thousands, except per share amounts) |
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Interest income: |
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Loans, including fees |
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$ |
307,929 |
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$ |
285,893 |
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$ |
609,544 |
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$ |
572,193 |
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Mortgage-backed securities |
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27,516 |
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22,150 |
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54,652 |
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46,838 |
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Investment securities |
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1,210 |
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1,122 |
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2,348 |
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2,180 |
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Other |
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6,063 |
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1,818 |
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10,210 |
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3,431 |
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TOTAL INTEREST INCOME |
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342,718 |
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310,983 |
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676,754 |
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624,642 |
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Interest expense: |
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Deposits |
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21,479 |
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13,884 |
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37,989 |
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27,191 |
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Notes payable on automobile secured financing |
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93,043 |
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88,591 |
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180,527 |
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182,809 |
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Other |
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13,946 |
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11,360 |
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27,061 |
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23,071 |
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TOTAL INTEREST EXPENSE |
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128,468 |
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113,835 |
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|
245,577 |
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233,071 |
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NET INTEREST INCOME |
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214,250 |
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|
|
197,148 |
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431,177 |
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|
391,571 |
|
Provision for credit losses |
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|
37,699 |
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|
|
51,539 |
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|
86,677 |
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113,834 |
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NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES |
|
|
176,551 |
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|
145,609 |
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|
344,500 |
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|
277,737 |
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Noninterest income: |
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Automobile lending |
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14,709 |
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25,067 |
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30,040 |
|
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50,815 |
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Insurance income |
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2,150 |
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1,690 |
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|
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4,195 |
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|
|
3,514 |
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Mortgage banking |
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60 |
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|
249 |
|
|
|
177 |
|
|
|
484 |
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Other |
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2,656 |
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|
|
548 |
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4,456 |
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1,431 |
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TOTAL NONINTEREST INCOME |
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19,575 |
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27,554 |
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38,868 |
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56,244 |
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Noninterest expenses: |
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Salaries and associate benefits |
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43,151 |
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45,369 |
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86,937 |
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87,453 |
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Credit and collections |
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8,021 |
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7,710 |
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16,588 |
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16,302 |
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Data processing |
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4,866 |
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4,082 |
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9,488 |
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8,261 |
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Occupancy |
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3,902 |
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3,851 |
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7,837 |
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7,727 |
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Other |
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|
14,153 |
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12,623 |
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25,833 |
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25,291 |
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TOTAL NONINTEREST EXPENSES |
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74,093 |
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73,635 |
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146,683 |
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145,034 |
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INCOME BEFORE INCOME TAX |
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122,033 |
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99,528 |
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236,685 |
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|
188,947 |
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Income tax |
|
|
47,099 |
|
|
|
39,725 |
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92,738 |
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75,039 |
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INCOME BEFORE MINORITY INTEREST |
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74,934 |
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59,803 |
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143,947 |
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|
113,908 |
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Minority interest in earnings of subsidiaries |
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|
9,616 |
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|
5,388 |
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17,947 |
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|
16,129 |
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NET INCOME |
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$ |
65,318 |
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$ |
54,415 |
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$ |
126,000 |
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$ |
97,779 |
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Earnings per common share: |
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Basic |
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$ |
1.25 |
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$ |
1.05 |
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$ |
2.42 |
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$ |
1.89 |
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Diluted |
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$ |
1.24 |
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$ |
1.04 |
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|
$ |
2.39 |
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$ |
1.86 |
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|
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Weighted average number of common shares outstanding: |
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|
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Basic |
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|
52,080,837 |
|
|
|
51,823,013 |
|
|
|
52,019,699 |
|
|
|
51,780,338 |
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Diluted |
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52,680,870 |
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52,483,220 |
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52,641,796 |
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|
52,531,365 |
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|
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Dividends declared |
|
$ |
0.15 |
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|
$ |
0.14 |
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|
$ |
0.30 |
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|
$ |
0.28 |
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|
|
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See accompanying notes to consolidated financial statements.
3
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
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|
|
|
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Accumulated |
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Other |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive |
|
|
|
|
|
|
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|
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Common |
|
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Paid-in |
|
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Retained |
|
|
Income (Loss), |
|
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|
|
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Shares |
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Stock |
|
|
Capital |
|
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Earnings |
|
|
Net of Tax |
|
|
Total |
|
|
|
(Dollars in thousands, except share amounts) |
|
Balance at January 1, 2004 |
|
|
51,698,398 |
|
|
$ |
51,698 |
|
|
$ |
710,001 |
|
|
$ |
427,527 |
|
|
$ |
(66,741 |
) |
|
$ |
1,122,485 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,962 |
|
|
|
|
|
|
|
207,962 |
|
Unrealized losses on securities available
for sale, net of tax (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,677 |
) |
|
|
(9,677 |
) |
Unrealized losses on cash flow hedges,
net of tax (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,570 |
) |
|
|
(1,570 |
) |
Reclassification adjustment for gains on
securities available for sale included
in net income, net of tax (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,446 |
) |
|
|
(1,446 |
) |
Reclassification adjustment for losses
on cash flow hedges included in income,
net of tax (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,130 |
|
|
|
43,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,399 |
|
Issuance of subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
(47 |
) |
Stock options expensed (5) |
|
|
|
|
|
|
|
|
|
|
2,665 |
|
|
|
|
|
|
|
|
|
|
|
2,665 |
|
Stock options exercised |
|
|
196,860 |
|
|
|
197 |
|
|
|
4,479 |
|
|
|
|
|
|
|
|
|
|
|
4,676 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,502 |
) |
|
|
|
|
|
|
(28,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
51,895,258 |
|
|
|
51,895 |
|
|
|
717,098 |
|
|
|
606,987 |
|
|
|
(36,304 |
) |
|
|
1,339,676 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,000 |
|
|
|
|
|
|
|
126,000 |
|
Unrealized losses on securities available
for sale, net of tax (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,797 |
) |
|
|
(6,797 |
) |
Unrealized gains on cash flow hedges,
net of tax (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579 |
|
|
|
579 |
|
Reclassification adjustment for losses
on cash flow hedges included in income,
net of tax (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,831 |
|
|
|
11,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,613 |
|
Issuance of subsidiary common stock |
|
|
|
|
|
|
|
|
|
|
(748 |
) |
|
|
|
|
|
|
|
|
|
|
(748 |
) |
Stock options expensed (5) |
|
|
|
|
|
|
|
|
|
|
2,014 |
|
|
|
|
|
|
|
|
|
|
|
2,014 |
|
Stock options exercised |
|
|
258,901 |
|
|
|
259 |
|
|
|
4,123 |
|
|
|
|
|
|
|
|
|
|
|
4,382 |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,077 |
) |
|
|
|
|
|
|
(15,077 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005 |
|
|
52,154,159 |
|
|
$ |
52,154 |
|
|
$ |
722,487 |
|
|
$ |
717,910 |
|
|
$ |
(30,691 |
) |
|
$ |
1,461,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The pre-tax amount of unrealized losses on securities available for sale was $11.3 million
for the six months ended June 30, 2005 compared with $16.1 million for the year ended December
31, 2004. |
|
(2) |
|
The pre-tax amount of unrealized gains on cash flow hedges was $1.0 million for the six
months ended June 30, 2005 compared with unrealized losses of $2.6 million for the year ended
December 31, 2004. |
|
(3) |
|
There was no pre-tax amount of unrealized gains or losses on securities available for sale
reclassified into earnings for the six months ended June 30, 2005 compared with unrealized
gains of $2.4 million for the year ended December 31, 2004. |
|
(4) |
|
The pre-tax amount of unrealized losses on cash flow hedges reclassified into earnings was
$19.7 million for the six months ended June 30, 2005 compared with $71.9 million for the year
ended December 31, 2004. |
|
(5) |
|
Amount represents pre-tax expense related to stock options granted. |
See accompanying notes to consolidated financial statements.
4
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
126,000 |
|
|
$ |
97,779 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
86,677 |
|
|
|
113,834 |
|
Amortization of loan fees and costs |
|
|
58,532 |
|
|
|
61,388 |
|
Amortization of losses on cash flow hedges |
|
|
17,757 |
|
|
|
22,737 |
|
Amortization of premium on mortgage-backed securities |
|
|
10,791 |
|
|
|
23,748 |
|
Depreciation |
|
|
6,312 |
|
|
|
6,104 |
|
Amortization, other |
|
|
597 |
|
|
|
766 |
|
Gain on sales, net |
|
|
(1,875 |
) |
|
|
(6,619 |
) |
Other |
|
|
682 |
|
|
|
556 |
|
Increase in other assets |
|
|
(14,025 |
) |
|
|
(2,923 |
) |
Increase in other liabilities |
|
|
36,624 |
|
|
|
23,709 |
|
Other, net |
|
|
17,948 |
|
|
|
16,128 |
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
346,020 |
|
|
|
357,207 |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Increase in restricted cash |
|
|
(76,541 |
) |
|
|
(127,188 |
) |
Loans receivable: |
|
|
|
|
|
|
|
|
Origination of loans, net of fees and costs |
|
|
(4,191,539 |
) |
|
|
(3,466,449 |
) |
Loan payments and payoffs |
|
|
3,365,800 |
|
|
|
2,862,392 |
|
Investment and mortgage-backed securities available for sale: |
|
|
|
|
|
|
|
|
Purchases |
|
|
(568,221 |
) |
|
|
(789,197 |
) |
Proceeds from sale |
|
|
46,757 |
|
|
|
100,365 |
|
Payments received |
|
|
446,550 |
|
|
|
639,035 |
|
Purchase of premises and equipment |
|
|
(2,506 |
) |
|
|
(5,226 |
) |
Proceeds from sales of premises and equipment |
|
|
38 |
|
|
|
4,499 |
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(979,662 |
) |
|
|
(781,769 |
) |
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Increase in deposits |
|
|
87,689 |
|
|
|
55,995 |
|
Notes payable on automobile secured financing: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
3,005,045 |
|
|
|
2,949,305 |
|
Payments on notes |
|
|
(3,032,322 |
) |
|
|
(2,743,180 |
) |
Decrease in securities sold under agreements to repurchase |
|
|
|
|
|
|
(218,741 |
) |
Increase in FHLB advances |
|
|
770,941 |
|
|
|
262,938 |
|
Payments on subordinated debentures |
|
|
|
|
|
|
(22,365 |
) |
Decrease in borrowings |
|
|
(239 |
) |
|
|
(233 |
) |
Proceeds from issuance of common stock |
|
|
4,382 |
|
|
|
2,225 |
|
Proceeds from issuance of subsidiary common stock |
|
|
340 |
|
|
|
18 |
|
Cash dividends |
|
|
(15,077 |
) |
|
|
(13,979 |
) |
Payments on cash flow hedges |
|
|
(7,218 |
) |
|
|
(1,762 |
) |
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
813,541 |
|
|
|
270,221 |
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS |
|
|
179,899 |
|
|
|
(154,341 |
) |
Cash and due from banks at beginning of year |
|
|
218,510 |
|
|
|
382,082 |
|
|
|
|
|
|
|
|
CASH AND DUE FROM BANKS AT END OF PERIOD |
|
$ |
398,409 |
|
|
$ |
227,741 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
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 years presentation.
The unaudited consolidated financial statements included herein have been prepared in accordance
with generally accepted accounting principles, also known as GAAP, 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 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 six months ended
June 30, 2005 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. 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, 2004 included in our Form 10-K.
Note 2 Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
GNMA certificates |
|
$ |
2,587,419 |
|
|
$ |
9,884 |
|
|
$ |
14,636 |
|
|
$ |
2,582,667 |
|
FNMA participation certificates |
|
|
26,512 |
|
|
|
146 |
|
|
|
189 |
|
|
|
26,469 |
|
FHLMC participation certificates |
|
|
32,859 |
|
|
|
7 |
|
|
|
250 |
|
|
|
32,616 |
|
Other |
|
|
1,470 |
|
|
|
|
|
|
|
|
|
|
|
1,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,648,260 |
|
|
$ |
10,037 |
|
|
$ |
15,075 |
|
|
$ |
2,643,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
GNMA certificates |
|
$ |
2,575,081 |
|
|
$ |
15,232 |
|
|
$ |
8,753 |
|
|
$ |
2,581,560 |
|
FNMA participation certificates |
|
|
30,195 |
|
|
|
123 |
|
|
|
143 |
|
|
|
30,175 |
|
FHLMC participation certificates |
|
|
36,497 |
|
|
|
154 |
|
|
|
193 |
|
|
|
36,458 |
|
Other |
|
|
1,565 |
|
|
|
|
|
|
|
|
|
|
|
1,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,643,338 |
|
|
$ |
15,509 |
|
|
$ |
9,089 |
|
|
$ |
2,649,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage-backed securities available for sale portfolio was comprised of 62% fixed rate
certificates and 38% variable rate certificates at both June 30, 2005 and December 31, 2004.
Note 3 Net Loans Receivable
Our automobile contract portfolio consists of automobile contracts purchased from automobile
dealers on a nonrecourse basis and automobile contracts financed directly with the consumer. If
pre-computed finance charges are added to an automobile contract, they are added to the automobile
contract balance and carried as an offset against the automobile contract balance as unearned
discounts. Amounts paid to dealers are capitalized as dealer participation and amortized over the
life of the contract.
Net loans receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Consumer: |
|
|
|
|
|
|
|
|
Automobile contracts |
|
$ |
12,339,936 |
|
|
$ |
11,599,528 |
|
Other consumer |
|
|
2,713 |
|
|
|
4,386 |
|
Unearned discounts |
|
|
(32,754 |
) |
|
|
(38,871 |
) |
|
|
|
|
|
|
|
|
|
|
12,309,895 |
|
|
|
11,565,043 |
|
Real estate: |
|
|
|
|
|
|
|
|
Mortgage |
|
|
160,976 |
|
|
|
202,095 |
|
Construction |
|
|
56,867 |
|
|
|
48,730 |
|
|
|
|
|
|
|
|
|
|
|
217,843 |
|
|
|
250,825 |
|
Undisbursed loan proceeds |
|
|
(37,287 |
) |
|
|
(37,061 |
) |
|
|
|
|
|
|
|
|
|
|
180,556 |
|
|
|
213,764 |
|
Commercial |
|
|
134,706 |
|
|
|
165,806 |
|
|
|
|
|
|
|
|
|
|
|
12,625,157 |
|
|
|
11,944,613 |
|
Dealer participation |
|
|
210,181 |
|
|
|
191,336 |
|
Deferred contract fees |
|
|
(15,935 |
) |
|
|
(201 |
) |
|
|
|
|
|
|
|
Loans receivable |
|
|
12,819,403 |
|
|
|
12,135,748 |
|
Allowance for credit losses |
|
|
(318,776 |
) |
|
|
(315,402 |
) |
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
12,500,627 |
|
|
$ |
11,820,346 |
|
|
|
|
|
|
|
|
Loans owned and managed by us, excluding dealer participation and deferred contract fees,
totaled $12.6 billion and $11.9 billion as of June 30, 2005 and December 31, 2004, respectively.
Nonperforming loans, or loans on which we have
7
discontinued the accrual of interest income, included in net loans receivable were $49.7 million
and $51.9 million at June 30, 2005 and December 31, 2004, respectively. Repossessed assets and real
estate owned were $6.1 million and $8.3 million at June 30, 2005 and December 31, 2004,
respectively, and are included in other assets on our Consolidated Statements of Financial
Condition.
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 Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Balance at beginning of period |
|
$ |
315,882 |
|
|
$ |
303,062 |
|
|
$ |
315,402 |
|
|
$ |
301,602 |
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
(58,060 |
) |
|
|
(70,213 |
) |
|
|
(130,017 |
) |
|
|
(155,714 |
) |
Commercial loans |
|
|
(118 |
) |
|
|
|
|
|
|
(118 |
) |
|
|
|
|
Mortgage loans |
|
|
(92 |
) |
|
|
(63 |
) |
|
|
(138 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,270 |
) |
|
|
(70,276 |
) |
|
|
(130,273 |
) |
|
|
(155,844 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
23,368 |
|
|
|
22,954 |
|
|
|
46,865 |
|
|
|
47,679 |
|
Commercial loans |
|
|
83 |
|
|
|
14 |
|
|
|
91 |
|
|
|
22 |
|
Mortgage loans |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,465 |
|
|
|
22,968 |
|
|
|
46,970 |
|
|
|
47,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs |
|
|
(34,805 |
) |
|
|
(47,308 |
) |
|
|
(83,303 |
) |
|
|
(108,143 |
) |
Provision for credit losses |
|
|
37,699 |
|
|
|
51,539 |
|
|
|
86,677 |
|
|
|
113,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
318,776 |
|
|
$ |
307,293 |
|
|
$ |
318,776 |
|
|
$ |
307,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net chargeoffs
during the period
(annualized) to average loans
outstanding during the period |
|
|
1.1 |
% |
|
|
1.7 |
% |
|
|
1.4 |
% |
|
|
1.9 |
% |
Ratio of allowance for credit
losses to loans at the end of
the period |
|
|
2.5 |
% |
|
|
2.7 |
% |
|
|
2.5 |
% |
|
|
2.7 |
% |
8
Note 5 Deposits
Deposits consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Noninterest bearing deposits |
|
$ |
323,746 |
|
|
$ |
268,556 |
|
Demand deposit accounts |
|
|
1,717 |
|
|
|
705 |
|
Passbook accounts |
|
|
4,751 |
|
|
|
5,880 |
|
Money market deposit accounts |
|
|
1,209,755 |
|
|
|
1,257,074 |
|
Certificate accounts |
|
|
722,919 |
|
|
|
651,284 |
|
|
|
|
|
|
|
|
|
|
$ |
2,262,888 |
|
|
$ |
2,183,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Rate for the |
|
|
|
|
|
|
Rate for the |
|
|
|
Weighted Average |
|
|
Six Months Ended |
|
|
Effects of Hedging |
|
|
Six Months Ended |
|
|
|
Rate at |
|
|
June 30, 2005 |
|
|
for the |
|
|
June 30, 2005 |
|
|
|
June 30, |
|
|
Excluding the Effects |
|
|
Six Months Ended |
|
|
Including the Effects |
|
|
|
2005(1) |
|
|
of Hedging |
|
|
June 30, 2005 |
|
|
of Hedging |
|
Demand deposit accounts |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
0.1 |
% |
Passbook accounts |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
Money market deposit
accounts |
|
|
2.7 |
|
|
|
2.2 |
|
|
|
1.2 |
% |
|
|
3.4 |
|
Certificate accounts |
|
|
3.0 |
|
|
|
2.7 |
|
|
|
2.6 |
|
|
|
5.3 |
|
Note 6 Notes Payable on Automobile Secured Financing
In connection with our public asset-backed securitization activities, we issued $1.5 billion of
notes secured by automobile contracts during the three months ended June 30, 2004. We did not
issue notes secured by automobile contacts during the three months ended June 30, 2005. We issued
$3.0 billion of notes secured by automobile contracts during both the six months ended June 30,
2005 and 2004. There were $10.2 billion of notes payable on automobile secured financing
outstanding at both June 30, 2005 and December 31, 2004.
Interest payments are due either monthly or quarterly, in arrears. Interest expense on all notes
payable on automobile secured financing, including interest payments under interest rate swap
agreements, totaled $93.0 million and $181 million for the three and six months ended June 30,
2005, respectively, compared with $88.6 million and $183 million for the same respective periods
in 2004.
9
Note 7 Accumulated Other Comprehensive Loss, Net of Tax
The following table summarizes the components of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Unrealized (loss) gain on marketable securities |
|
$ |
(3,149 |
) |
|
$ |
3,648 |
|
Unrealized
(loss) gain on interest rate swaps (1)
|
Deposits |
|
|
(24,223 |
) |
|
|
(29,203 |
) |
Automobile secured financing |
|
|
1,216 |
|
|
|
(353 |
) |
|
|
|
|
|
|
|
|
|
|
(23,007 |
) |
|
|
(29,556 |
) |
Realized (loss) gain on settled cash flow hedges: (1) |
|
|
|
|
|
|
|
|
Deposits |
|
|
(4,929 |
) |
|
|
(8,369 |
) |
Automobile secured financing |
|
|
394 |
|
|
|
(2,027 |
) |
|
|
|
|
|
|
|
|
|
|
(4,535 |
) |
|
|
(10,396 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(30,691 |
) |
|
$ |
(36,304 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
All cash flow hedges are structured to hedge future interest payments on deposits or
borrowings. |
Note 8 Comprehensive income
The following table presents the components of comprehensive income, net of related tax, for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Net income |
|
$ |
65,318 |
|
|
$ |
54,414 |
|
|
$ |
126,000 |
|
|
$ |
97,779 |
|
Unrealized gains
(losses) on
securities
available for sale,
net of tax |
|
|
6,239 |
|
|
|
(23,380 |
) |
|
|
(6,797 |
) |
|
|
(20,267 |
) |
Unrealized (losses)
gains on cash flow
hedges, net of tax |
|
|
(9,836 |
) |
|
|
32,260 |
|
|
|
579 |
|
|
|
11,067 |
|
Reclassification
adjustment for
gains on securities
available for sale
included in income,
net of tax |
|
|
|
|
|
|
(1,446 |
) |
|
|
|
|
|
|
(1,446 |
) |
Reclassification
adjustment for
losses on cash flow
hedges included in
income, net of tax |
|
|
5,702 |
|
|
|
12,528 |
|
|
|
11,831 |
|
|
|
26,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
67,423 |
|
|
$ |
74,376 |
|
|
$ |
131,613 |
|
|
$ |
113,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 Dividends
On April 26, 2005, we declared a cash dividend of $0.15 per share for shareholders of record as of
August 2, 2005 with a payable date of August 16, 2005.
10
Note 10 Stock Options
In May 2001, we adopted the 2001 Westcorp Stock Option Plan, also known as the 2001 Plan, a stock
option plan for certain employees, to whom we refer as associates, and directors. The 2001 Plan
replaced the 1991 Stock Option Plan, also known as the 1991 Plan, that expired on April 15, 2001.
Those who received options prior to the approval of the 2001 Plan are still subject to the 1991
Plan and may continue to exercise the remaining shares that are outstanding and exercisable.
However, any and all shares reserved for the 1991 Plan are no longer available for future grants.
As such, no further grants will be made under the expired 1991 Plan. The 2001 Plan was amended and
restated at the April 26, 2005 Annual Meeting of Shareholders. See Part II, Item 5 Other
Information.
Options outstanding and exercisable at June 30, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
Number |
|
|
Remaining |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Exercise Prices |
|
Outstanding |
|
|
Life (Years) |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$ |
12.00 13.00 |
|
|
78,178 |
|
|
|
0.70 |
|
|
$ |
12.66 |
|
|
|
78,178 |
|
|
$ |
12.66 |
|
|
13.00 14.00 |
|
|
125,625 |
|
|
|
1.64 |
|
|
|
13.25 |
|
|
|
125,625 |
|
|
|
13.25 |
|
|
15.00 16.00 |
|
|
1,000 |
|
|
|
2.36 |
|
|
|
15.25 |
|
|
|
1,000 |
|
|
|
15.25 |
|
|
17.00 18.00 |
|
|
170,571 |
|
|
|
2.65 |
|
|
|
17.32 |
|
|
|
170,571 |
|
|
|
17.32 |
|
|
18.00 19.00 |
|
|
573,572 |
|
|
|
3.05 |
|
|
|
18.58 |
|
|
|
372,246 |
|
|
|
18.56 |
|
|
19.00 20.00 |
|
|
5,000 |
|
|
|
4.10 |
|
|
|
19.85 |
|
|
|
2,500 |
|
|
|
19.85 |
|
|
20.00 21.00 |
|
|
3,000 |
|
|
|
4.35 |
|
|
|
20.41 |
|
|
|
1,500 |
|
|
|
20.41 |
|
|
42.00 43.00 |
|
|
476,915 |
|
|
|
3.64 |
|
|
|
42.19 |
|
|
|
159,476 |
|
|
|
42.19 |
|
|
44.00 45.00 |
|
|
20,000 |
|
|
|
4.82 |
|
|
|
44.48 |
|
|
|
|
|
|
|
|
|
|
46.00 47.00 |
|
|
498,000 |
|
|
|
4.67 |
|
|
|
46.66 |
|
|
|
|
|
|
|
|
|
|
49.00 50.00 |
|
|
5,000 |
|
|
|
4.94 |
|
|
|
49.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12.00 50.00 |
|
|
1,956,861 |
|
|
|
3.42 |
|
|
$ |
31.14 |
|
|
|
911,096 |
|
|
$ |
21.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at January 1, 2004 |
|
|
1,460,536 |
|
|
$ |
16.86 |
|
Granted |
|
|
540,900 |
|
|
|
42.19 |
|
Exercised |
|
|
(196,860 |
) |
|
|
16.40 |
|
Forfeited |
|
|
(57,694 |
) |
|
|
27.10 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004 |
|
|
1,746,882 |
|
|
|
24.41 |
|
Granted |
|
|
564,000 |
|
|
|
46.61 |
|
Exercised |
|
|
(258,901 |
) |
|
|
16.93 |
|
Forfeited |
|
|
(95,120 |
) |
|
|
38.02 |
|
|
|
|
|
|
|
|
Outstanding at June 30, 2005 |
|
|
1,956,861 |
|
|
$ |
31.14 |
|
|
|
|
|
|
|
|
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. We utilize the Binomial option valuation model for all stock options expensed as we
believe it provides a better measure of value for companies that pay dividends than other valuation
models. In our opinion, no option valuation model 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 six month period ended June 30, 2005 was $14.75 per share compared to $13.26 per share
for the year ended December 31, 2004.
11
Pro forma information regarding net income and earnings per share is required by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of FASB Statement No. 123, and has been determined as if
we had accounted for our employee stock options under the fair value method of that statement.
Pro forma net income and diluted earnings per share for the respective periods were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands, except per share amounts) |
|
Net income, as reported |
|
$ |
65,318 |
|
|
$ |
54,415 |
|
|
$ |
126,000 |
|
|
$ |
97,779 |
|
Add: Stock-based employee
compensation expense
included in reported net
income, net of related tax
effects |
|
|
847 |
|
|
|
474 |
|
|
|
1,225 |
|
|
|
709 |
|
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects |
|
|
900 |
|
|
|
609 |
|
|
|
1,387 |
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
65,265 |
|
|
$ |
54,280 |
|
|
$ |
125,838 |
|
|
$ |
97,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.25 |
|
|
$ |
1.05 |
|
|
$ |
2.42 |
|
|
$ |
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.25 |
|
|
$ |
1.05 |
|
|
$ |
2.42 |
|
|
$ |
1.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1.24 |
|
|
$ |
1.04 |
|
|
$ |
2.39 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
1.24 |
|
|
$ |
1.03 |
|
|
$ |
2.39 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Proposed Acquisition and Merger
On May 23, 2004, we entered into a definitive agreement pursuant to which we would acquire the
outstanding 16% common stock minority interest of WFS not already owned by our wholly owned
subsidiary, the Bank. The transaction is structured as a merger of WFS with and into the Bank. If
the merger is consummated, the public holders of WFS shares would receive 1.11 shares of our common
stock for each share of WFS common stock held by them in a tax-free exchange.
In connection with the merger, the Bank has filed an application with the California Department of
Financial Institutions, also known as the DFI, to convert its federal thrift charter to a
California state bank charter. Among other things, the merger is conditioned upon the conversion of
the charter and the transaction is subject to, among other closing conditions, the receipt of
regulatory approvals and the approval of a majority of WFSs minority shareholders, other than
shares controlled by us. The DFI and the Office of Thrift Supervision, also known as the OTS, have
approved the Banks application to convert from a federal savings bank to a California state
commercial bank subject to receipt of all other required regulatory approvals. The Federal Deposit
Insurance Corporation, also known as the FDIC, approved the application to merge WFS into the Bank
as part of the acquisition of the minority interest in WFS.
The conversion is contingent upon the approval by the Board of Governors of the Federal Reserve,
also known as the Federal Reserve, of our application to become a bank holding company, which
process is taking longer than originally expected. As a result, we believe that the proposed
conversion will not occur until the latter half of 2005, if at all. The Federal Reserve has raised
some questions and potential concerns with our proposal and has requested additional
12
information from us. These concerns and questions will need to be addressed to the Federal
Reserves satisfaction before it will deem our application complete.
Although we intend to continue to pursue Federal Reserve approval, there can be no assurance that
such approval will ultimately be granted or that any conditions to such approval imposed on the
Bank will not affect the feasibility of moving forward with the proposed conversion and the related
merger of WFS into the Bank. We are currently exploring other alternatives in the event that the
proposed conversion and related merger cannot go forward as planned. At June 30, 2005, we have
capitalized $2.9 million of costs related to the merger that are included in other assets on our
Consolidated Statements of Financial Condition. If the merger is completed, the capitalized costs
will be included in the calculation of the purchase price allocation. If the merger is not
completed, the capitalized costs will be expensed as other noninterest expense on our Consolidated
Statements of Income.
If the conversion is completed, we will be subject to the laws, regulation and oversight of the
DFI, the FDIC and the Federal Reserve.
Note 12 Commitments and Contingencies
We or our subsidiaries are involved as a party to certain legal proceedings incidental to our
business. 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.
Beginning on May 24, 2004 and continuing thereafter, a total of four separate purported class
action lawsuits relating to the announcement by us and WFS that we had entered into a merger
agreement, pursuant to which we would acquire the outstanding 16% common stock interest of WFS not
already owned by the Bank, and WFS would be merged with and into the Bank were filed in the Orange
County, California Superior Court against us, WFS, and our individual board members, and individual
board members of WFS. On June 24, 2004, the actions were consolidated under the caption In re WFS
Financial Shareholder Litigation, Case No. 04CC00559, also known as the Action. On July 16, 2004,
the court granted a motion by plaintiff Alaska Hotel & Restaurant Employees Pension Trust Fund, in
Case No.04CC00573, to amend the consolidation order to designate it the lead plaintiff in the
litigation. The lead plaintiff filed a consolidated amended complaint on August 9, 2004, and then
filed the present corrected consolidated amended complaint on September 15, 2004. All of the
shareholder-related actions allege, among other things, that the defendants breached their
respective fiduciary duties and seek to enjoin or rescind the transaction and obtain an unspecified
sum in damages and costs, including attorneys fees and expenses. The parties have tentatively
agreed to a full and final resolution of the Action and, on January 19, 2005, the parties entered
into a Memorandum of Understanding, also known as the MOU, concerning the terms of the tentative
settlement. Pursuant to the terms of the MOU, the parties have agreed, among other things, that
additional disclosures will be made in Westcorps Registration Statement on Form S-4 (as filed with
the SEC on July 16, 2004), the claims asserted in the Action will be fully released, and the Action
will be dismissed with prejudice. Further, pursuant to the MOU, the defendants have agreed to pay
plaintiffs attorneys fees and expenses in the amount of $675,000, or in such lesser amount as the
Court may order. The effectiveness of the settlement agreement is contingent on the transaction
actually occurring. The parties prepared a formal settlement agreement based on the terms of the
MOU and obtained preliminary approval for the settlement from the Court on June 17, 2005. The
parties have further agreed, with the Courts consent, that the parties will not proceed with
providing notice of the proposed settlement to shareholders nor schedule a final hearing on
approval of the settlement unless and until the necessary regulatory approvals for the transaction
have been obtained.
Note 13 Subsequent Events
On July 29, 2005, we declared a cash dividend of $0.15 per share for shareholders of record as of
November 1, 2005, with a payable date of November 15, 2005.
On July 27, 2005, we completed the issuance of $2.7 billion of notes secured by contracts with a
weighted average interest rate of 4.35% through a securitization transaction accounted for as a
secured financing. The senior notes issued are credit enhanced through the issuance of subordinated
notes.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a 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,
also known as MBS, and other short-term investments. We fund our loan portfolio and investments
with deposits, advances from the Federal Home Loan Bank, also known as the FHLB, securities sold
under agreements to repurchase, securitizations, other borrowings and equity.
Noninterest income is primarily made up of revenues generated from the servicing of automobile
contracts and real estate 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 six months ended
June 30, 2005 and 2004. 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 Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands, except per share amounts) |
|
Consolidated Statements of Income Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
342,718 |
|
|
$ |
310,983 |
|
|
$ |
676,754 |
|
|
$ |
624,642 |
|
Interest expense |
|
|
128,468 |
|
|
|
113,835 |
|
|
|
245,577 |
|
|
|
233,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
214,250 |
|
|
|
197,148 |
|
|
|
431,177 |
|
|
|
391,571 |
|
Provision for credit losses |
|
|
37,699 |
|
|
|
51,539 |
|
|
|
86,677 |
|
|
|
113,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
176,551 |
|
|
|
145,609 |
|
|
|
344,500 |
|
|
|
277,737 |
|
Noninterest income |
|
|
19,575 |
|
|
|
27,554 |
|
|
|
38,868 |
|
|
|
56,244 |
|
Noninterest expense |
|
|
74,093 |
|
|
|
73,635 |
|
|
|
146,683 |
|
|
|
145,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax |
|
|
122,033 |
|
|
|
99,528 |
|
|
|
236,685 |
|
|
|
188,947 |
|
Income tax |
|
|
47,099 |
|
|
|
39,725 |
|
|
|
92,738 |
|
|
|
75,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest |
|
|
74,934 |
|
|
|
59,803 |
|
|
|
143,947 |
|
|
|
113,908 |
|
Minority interest in earnings of subsidiaries |
|
|
9,616 |
|
|
|
5,388 |
|
|
|
17,947 |
|
|
|
16,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,318 |
|
|
$ |
54,415 |
|
|
$ |
126,000 |
|
|
$ |
97,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares and common share
equivalents diluted |
|
|
52,680,870 |
|
|
|
52,483,220 |
|
|
|
52,641,796 |
|
|
|
52,531,365 |
|
Earnings per common share diluted |
|
$ |
1.24 |
|
|
$ |
1.04 |
|
|
$ |
2.39 |
|
|
$ |
1.86 |
|
Dividends declared per share |
|
$ |
0.15 |
|
|
$ |
0.14 |
|
|
$ |
0.30 |
|
|
$ |
0.28 |
|
Dividend payout ratio |
|
|
12.1 |
% |
|
|
13.5 |
% |
|
|
12.5 |
% |
|
|
15.0 |
% |
14
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Consolidated Statements of Financial Condition Data: |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
398,409 |
|
|
$ |
218,510 |
|
Loans: |
|
|
|
|
|
|
|
|
Consumer (1) |
|
|
12,504,141 |
|
|
|
11,756,178 |
|
Mortgage (2) |
|
|
180,556 |
|
|
|
213,764 |
|
Commercial |
|
|
134,706 |
|
|
|
165,806 |
|
Mortgage-backed securities |
|
|
2,643,222 |
|
|
|
2,649,758 |
|
Investments and time deposits |
|
|
674,784 |
|
|
|
537,644 |
|
Other assets |
|
|
327,192 |
|
|
|
319,082 |
|
Less: Allowance for credit losses |
|
|
318,776 |
|
|
|
315,402 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
16,544,234 |
|
|
$ |
15,545,340 |
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,262,888 |
|
|
$ |
2,183,499 |
|
Notes payable on automobile secured financing |
|
|
10,212,648 |
|
|
|
10,242,900 |
|
FHLB advances and other borrowings |
|
|
1,918,801 |
|
|
|
1,148,098 |
|
Subordinated debentures |
|
|
295,856 |
|
|
|
295,321 |
|
Other liabilities |
|
|
206,984 |
|
|
|
170,362 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
14,897,177 |
|
|
|
14,040,180 |
|
Minority interest in equity of subsidiaries |
|
|
185,197 |
|
|
|
165,484 |
|
Shareholders equity |
|
|
1,461,860 |
|
|
|
1,339,676 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
16,544,234 |
|
|
$ |
15,545,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three |
|
|
At or For the Six |
|
|
|
Months Ended June 30, |
|
|
Months Ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Other Selected Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average automobile contracts managed |
|
$ |
12,019,325 |
|
|
$ |
10,946,273 |
|
|
$ |
11,860,935 |
|
|
$ |
10,836,160 |
|
Average shareholders equity (3) |
|
$ |
1,461,426 |
|
|
$ |
1,253,476 |
|
|
$ |
1,431,924 |
|
|
$ |
1,230,284 |
|
Return on average shareholders equity (3) |
|
|
17.88 |
% |
|
|
17.36 |
% |
|
|
17.60 |
% |
|
|
15.90 |
% |
Book value per share (3) |
|
$ |
28.62 |
|
|
$ |
24.63 |
|
|
$ |
28.62 |
|
|
$ |
24.63 |
|
Total equity to assets (4) |
|
|
10.14 |
% |
|
|
9.52 |
% |
|
|
10.14 |
% |
|
|
9.52 |
% |
Originations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans (1) |
|
$ |
2,014,970 |
|
|
$ |
1,668,143 |
|
|
$ |
3,798,691 |
|
|
$ |
3,254,304 |
|
Mortgage loans (2) |
|
|
7,336 |
|
|
|
8,798 |
|
|
|
15,345 |
|
|
|
11,455 |
|
Commercial loans |
|
|
144,142 |
|
|
|
58,839 |
|
|
|
310,424 |
|
|
|
125,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan originations |
|
$ |
2,166,448 |
|
|
$ |
1,735,780 |
|
|
$ |
4,124,460 |
|
|
$ |
3,391,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
4.95 |
% |
|
|
5.02 |
% |
|
|
5.11 |
% |
|
|
5.03 |
% |
|
|
|
(1) |
|
Net of unearned discounts. |
|
(2) |
|
Net of undisbursed loan proceeds. |
|
(3) |
|
Excludes other comprehensive loss. |
|
(4) |
|
Excludes other comprehensive loss and includes minority interest. |
15
Critical Accounting Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations, also known
as MD&A, is based on our consolidated financial statements and accompanying notes that have been
prepared in accordance with GAAP. Our significant accounting policies are described in Note 1
Summary of Significant Accounting Policies in our Consolidated Financial Statements in our 2004
Form 10-K and are essential in understanding our MD&A. The preparation of financial statements in
accordance with GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, shareholders equity, income, and expenses in our Consolidated
Financial Statements and accompanying notes. Actual results could differ from those estimates. We
have identified accounting for the allowance for credit losses as the most critical accounting
estimate to understanding and evaluating our reported financial results of operations. This
estimate is critical because it requires us to make difficult, subjective and complex judgments
about matters that are inherently uncertain and because it is possible that materially different
amounts would be reported under different conditions or using different assumptions. Additionally,
the accounting for derivative financial instruments and accrued taxes requires the use of
assumptions and accounting estimates that are also inherently subjective.
Allowance for Credit Losses
The allowance for credit losses is our estimate of probable losses in our loan portfolio as of the
balance sheet date. Our determination of the amount of the allowance for credit losses was based
on a review of various quantitative and qualitative analyses. Our process for determining the
allowance for credit losses is discussed in detail in Note 1 Summary of Significant Accounting
Policies in our Consolidated Financial Statements in our 2004 Form 10-K.
Key analyses considered in the process of establishing our allowance for credit losses include
migration analysis of delinquent and current accounts by risk category, econometric forecasts, the
evaluation of the size of any particular asset group, the concentration of any credit tier, the
percentage of delinquency, the values of repossessions, trends in the number of days repossessions
are held in inventory, trends in delinquency roll rates, and trends in the economy. The process of
determining the level of the allowance for credit losses based upon the foregoing analyses
requires a high degree of judgment. It is possible that others, given the same information, may
reach different conclusions and such differences could be material. To the extent that the
analyses considered in determining the allowance for credit losses are not indicative of future
performance or other assumptions used by us do not prove to be accurate, loss experience could
differ significantly from our estimate, resulting in either higher or lower future provision for
credit losses.
Derivative Financial Instruments
We use derivatives in connection with our interest rate risk management activities. We record all
derivative instruments at fair value. Fair value information for our derivative financial
instruments is reported using quoted market prices for which it is practicable to estimate that
value. In cases where quoted market prices are not readily available, fair values are based on
estimates using present value or other valuation techniques.
Some of our derivatives qualify for hedge accounting. To qualify for hedge accounting, we must
demonstrate, on an ongoing basis, that our derivatives are highly effective in protecting us
against interest rate risk. We employ regression analysis and discounted cash flow analysis to
determine the effectiveness of our hedging activity.
The techniques used in estimating fair values and hedge effectiveness are significantly affected
by the assumptions used, including the discount rates and estimates of future cash flows. It is
possible that others, given the same information, may reach different conclusions and such
differences could be material.
Accrued Taxes
We estimate tax expenses based on the amount we expect to owe various tax jurisdictions. We
currently file tax returns in approximately 39 states. Our estimate of tax expense is reported on
our Consolidated Statements of Income. Accrued
16
taxes represent the net estimated amount due or to be received from taxing jurisdictions either
currently or in the future and are reported as a component of other assets on our Consolidated
Statements of Financial Condition. In estimating accrued taxes, we assess the relative merits and
risks of the appropriate tax treatment of transactions taking into account statutory, judicial and
regulatory guidance in the context of our tax position.
Changes to our estimate of accrued taxes occur periodically due to changes in the tax rates,
implementation of new tax planning strategies, resolution with taxing authorities of issues with
previously taken tax positions, and newly enacted statutory, judicial and regulatory guidance.
These changes, when they occur, affect accrued taxes and could be material.
Proposed Acquisition and Merger
On May 23, 2004, we entered into a definitive agreement pursuant to which we would acquire the
outstanding 16% common stock minority interest of WFS not already owned by our wholly owned
subsidiary, the Bank. The transaction is structured as a merger of WFS with and into the Bank. If
the merger is consummated, the public holders of WFS shares would receive 1.11 shares of our common
stock for each share of WFS common stock held by them in a tax-free exchange.
In connection with the merger, the Bank has filed an application with the California Department of
Financial Institutions, also known as the DFI, to convert its federal thrift charter to a
California state bank charter. Among other things, the merger is conditioned upon the conversion of
the charter and the transaction is subject to, among other closing conditions, the receipt of
regulatory approvals and the approval of a majority of WFSs minority shareholders, other than
shares controlled by us. The DFI and the Office of Thrift Supervision, also known as the OTS, have
approved the Banks application to convert from a federal savings bank to a California state
commercial bank subject to receipt of all other required regulatory approvals. The Federal Deposit
Insurance Corporation, also known as the FDIC, approved the application to merge WFS into the Bank
as part of the acquisition of the minority interest in WFS.
The conversion is contingent upon the approval by the Board of Governors of the Federal Reserve,
also known as the Federal Reserve, of our application to become a bank holding company, which
process is taking longer than originally expected. As a result, we believe that the proposed
conversion will not occur until the latter half of 2005, if at all. The Federal Reserve has raised
some questions and potential concerns with our proposal and has requested additional information
from us. These concerns and questions will need to be addressed to the Federal Reserves
satisfaction before it will deem our application complete.
Although we intend to continue to pursue Federal Reserve approval, there can be no assurance that
such approval will ultimately be granted or that any conditions to such approval imposed on the
Bank will not affect the feasibility of moving forward with the proposed conversion and the related
merger of WFS into the Bank. We are currently exploring other alternatives in the event that the
proposed conversion and related merger cannot go forward as planned. At June 30, 2005, we have
capitalized $2.9 million of costs related to the merger that are included in other assets on our
Consolidated Statements of Financial Condition. If the merger is completed, the capitalized costs
will be included in the calculation of the purchase price allocation. If the merger is not
completed, the capitalized costs will be expensed as other noninterest expense on our Consolidated
Statements of Income.
If the conversion is completed, we will be subject to the laws, regulation and oversight of the
DFI, the FDIC and the Federal Reserve.
Results of Operations
Net Interest Income
Net interest income is affected by our interest rate spread, which is the difference between the
rate earned on our interest earning assets and the rate paid on our interest bearing liabilities,
and the relative amounts of our interest earning assets and interest bearing liabilities. Net
interest income totaled $214 million and $431 million for the three and six months
17
ended June 30, 2005, respectively, compared with $197 million and $392 million for the same
respective periods in 2004. The increase in net interest income was primarily the result of us
holding more automobile contracts on balance sheet.
The following table presents information relative to the average balances and interest rates for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
2,591,591 |
|
|
$ |
27,516 |
|
|
|
4.25 |
% |
|
$ |
2,574,744 |
|
|
$ |
22,150 |
|
|
|
3.44 |
% |
Other short-term investments |
|
|
799,736 |
|
|
|
6,001 |
|
|
|
3.01 |
|
|
|
663,896 |
|
|
|
1,809 |
|
|
|
1.10 |
|
Investment securities |
|
|
131,525 |
|
|
|
1,210 |
|
|
|
3.68 |
|
|
|
129,367 |
|
|
|
1,122 |
|
|
|
3.47 |
|
Interest earning deposits with others |
|
|
44,571 |
|
|
|
62 |
|
|
|
0.55 |
|
|
|
5,530 |
|
|
|
9 |
|
|
|
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
3,567,423 |
|
|
|
34,789 |
|
|
|
3.90 |
|
|
|
3,373,537 |
|
|
|
25,090 |
|
|
|
2.97 |
|
Total loans:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
12,213,059 |
|
|
|
303,013 |
|
|
|
9.95 |
|
|
|
11,133,553 |
|
|
|
281,775 |
|
|
|
10.18 |
|
Mortgage loans |
|
|
158,586 |
|
|
|
2,210 |
|
|
|
5.57 |
|
|
|
210,156 |
|
|
|
2,623 |
|
|
|
4.99 |
|
Commercial loans |
|
|
141,989 |
|
|
|
2,283 |
|
|
|
6.36 |
|
|
|
103,042 |
|
|
|
1,440 |
|
|
|
5.53 |
|
Construction loans |
|
|
25,512 |
|
|
|
423 |
|
|
|
6.57 |
|
|
|
5,268 |
|
|
|
55 |
|
|
|
4.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
12,539,146 |
|
|
|
307,929 |
|
|
|
9.85 |
|
|
|
11,452,019 |
|
|
|
285,893 |
|
|
|
10.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
16,106,569 |
|
|
|
342,718 |
|
|
|
8.53 |
|
|
$ |
14,825,556 |
|
|
|
310,983 |
|
|
|
8.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,222,714 |
|
|
|
21,479 |
|
|
|
3.88 |
|
|
$ |
2,089,287 |
|
|
|
13,884 |
|
|
|
2.67 |
|
FHLB advances and other borrowings |
|
|
833,261 |
|
|
|
6,459 |
|
|
|
3.07 |
|
|
|
656,979 |
|
|
|
1,871 |
|
|
|
1.13 |
|
Notes payable on automobile secured
financing |
|
|
11,015,549 |
|
|
|
93,043 |
|
|
|
3.38 |
|
|
|
10,247,231 |
|
|
|
88,591 |
|
|
|
3.46 |
|
Subordinated debentures |
|
|
295,680 |
|
|
|
7,487 |
|
|
|
10.13 |
|
|
|
381,199 |
|
|
|
9,489 |
|
|
|
9.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
14,367,204 |
|
|
|
128,468 |
|
|
|
3.58 |
|
|
$ |
13,374,696 |
|
|
|
113,835 |
|
|
|
3.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
|
$ |
214,250 |
|
|
|
4.95 |
% |
|
|
|
|
|
$ |
197,148 |
|
|
|
5.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on average interest earning assets |
|
|
|
|
|
|
|
|
|
|
5.34 |
% |
|
|
|
|
|
|
|
|
|
|
5.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of these computations, nonaccruing loans are included in the average
loan amounts outstanding. |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
2,594,038 |
|
|
$ |
54,652 |
|
|
|
4.21 |
% |
|
$ |
2,584,929 |
|
|
$ |
46,838 |
|
|
|
3.62 |
% |
Other short-term investments |
|
|
725,022 |
|
|
|
10,121 |
|
|
|
2.82 |
|
|
|
627,153 |
|
|
|
3,413 |
|
|
|
1.09 |
|
Investment securities |
|
|
131,720 |
|
|
|
2,348 |
|
|
|
3.57 |
|
|
|
127,272 |
|
|
|
2,180 |
|
|
|
3.43 |
|
Interest earning deposits with others |
|
|
40,356 |
|
|
|
89 |
|
|
|
0.44 |
|
|
|
5,775 |
|
|
|
18 |
|
|
|
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
3,491,136 |
|
|
|
67,210 |
|
|
|
3.85 |
|
|
|
3,345,129 |
|
|
|
52,449 |
|
|
|
3.14 |
|
Total loans: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
12,055,546 |
|
|
|
599,502 |
|
|
|
10.03 |
|
|
|
11,021,138 |
|
|
|
563,816 |
|
|
|
10.29 |
|
Mortgage loans |
|
|
165,950 |
|
|
|
4,479 |
|
|
|
5.40 |
|
|
|
219,768 |
|
|
|
5,527 |
|
|
|
5.03 |
|
Commercial loans |
|
|
155,653 |
|
|
|
4,811 |
|
|
|
6.15 |
|
|
|
101,165 |
|
|
|
2,743 |
|
|
|
5.36 |
|
Construction loans |
|
|
23,493 |
|
|
|
752 |
|
|
|
6.36 |
|
|
|
4,753 |
|
|
|
107 |
|
|
|
4.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
12,400,642 |
|
|
|
609,544 |
|
|
|
9.91 |
|
|
|
11,346,824 |
|
|
|
572,193 |
|
|
|
10.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
15,891,778 |
|
|
|
676,754 |
|
|
|
8.58 |
|
|
$ |
14,691,953 |
|
|
|
624,642 |
|
|
|
8.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,177,384 |
|
|
|
37,989 |
|
|
|
3.52 |
|
|
$ |
1,998,031 |
|
|
|
27,191 |
|
|
|
2.74 |
|
Securities sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,885 |
|
|
|
94 |
|
|
|
1.10 |
|
FHLB advances and other borrowings |
|
|
855,288 |
|
|
|
12,088 |
|
|
|
2.81 |
|
|
|
657,877 |
|
|
|
3,703 |
|
|
|
1.11 |
|
Notes payable on automobile secured financing |
|
|
10,854,240 |
|
|
|
180,527 |
|
|
|
3.33 |
|
|
|
10,205,685 |
|
|
|
182,809 |
|
|
|
3.58 |
|
Subordinated debentures |
|
|
295,547 |
|
|
|
14,973 |
|
|
|
10.13 |
|
|
|
387,434 |
|
|
|
19,274 |
|
|
|
9.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
14,182,459 |
|
|
|
245,577 |
|
|
|
3.47 |
|
|
$ |
13,265,912 |
|
|
|
233,071 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread |
|
|
|
|
|
$ |
431,177 |
|
|
|
5.11 |
% |
|
|
|
|
|
$ |
391,571 |
|
|
|
5.03 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on average interest earning assets |
|
|
|
|
|
|
|
|
|
|
5.49 |
% |
|
|
|
|
|
|
|
|
|
|
5.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of these computations, nonaccruing loans are included in the average
loan amounts outstanding. |
19
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 Six Months Ended June 30, 2005 |
|
|
|
Compared to the Six Months Ended June 30, 2004 (1) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Increase (decrease) in interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
165 |
|
|
$ |
7,649 |
|
|
$ |
7,814 |
|
Other short-term investments |
|
|
601 |
|
|
|
6,107 |
|
|
|
6,708 |
|
Investment securities |
|
|
78 |
|
|
|
90 |
|
|
|
168 |
|
Interest earning deposits with others |
|
|
89 |
|
|
|
(18 |
) |
|
|
71 |
|
Total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
73,271 |
|
|
|
(37,585 |
) |
|
|
35,686 |
|
Mortgage loans |
|
|
(2,056 |
) |
|
|
1,008 |
|
|
|
(1,048 |
) |
Commercial loans |
|
|
1,624 |
|
|
|
444 |
|
|
|
2,068 |
|
Construction loans |
|
|
581 |
|
|
|
64 |
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
74,353 |
|
|
$ |
(22,241 |
) |
|
$ |
52,112 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,588 |
|
|
$ |
8,210 |
|
|
$ |
10,798 |
|
Securities sold under agreements to repurchase |
|
|
(47 |
) |
|
|
(47 |
) |
|
|
(94 |
) |
FHLB advances and other borrowings |
|
|
1,374 |
|
|
|
7,011 |
|
|
|
8,385 |
|
Notes payable on automobile secured financing |
|
|
23,225 |
|
|
|
(25,507 |
) |
|
|
(2,282 |
) |
Subordinated debentures |
|
|
(5,292 |
) |
|
|
991 |
|
|
|
(4,301 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
21,848 |
|
|
$ |
(9,342 |
) |
|
$ |
12,506 |
|
|
|
|
|
|
|
|
|
|
|
Increase in net interest income |
|
|
|
|
|
|
|
|
|
$ |
39,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the analysis of interest changes due to volume and rate, the changes due to the
volume/rate variance (the combined effect of change in weighted average interest rate and
change in average portfolio balance) have been allocated proportionately based on the
absolute value of the volume and rate variances. |
Provision for Credit Losses
We maintain an allowance for credit losses to cover probable losses that can be reasonably
estimated. 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 $37.7 million and $86.7 million for the three
and six months ended June 30, 2005, respectively, compared with $51.5 million and $114 million for
the same respective periods in 2004. The provision for credit losses declined as a result of
improved credit performance due to an improving economy as well as our continued emphasis on
risk-focused underwriting.
20
Contract Securitizations
The following table lists each of our public securitizations. All securitizations prior to 2001-C
were paid in full on or before their contractual maturity dates and none of the remaining
securitizations, including 2001-C, have yet reached 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 |
|
|
June 30, 2005 (1) |
|
|
Original Balance |
|
|
Average APR |
|
|
Securitization Rate |
|
|
Spread (2) |
|
|
|
(Dollars in thousands) |
|
1985-A |
|
December, 1985 |
|
$ |
110,000 |
|
|
Paid in full |
|
|
|
|
|
|
18.50 |
% |
|
|
8.38 |
% |
|
|
10.12 |
% |
1986-A |
|
November, 1986 |
|
|
191,930 |
|
|
Paid in full |
|
|
|
|
|
|
14.20 |
|
|
|
6.63 |
|
|
|
7.57 |
|
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 |
|
|
Paid in full |
|
|
|
|
|
|
14.62 |
|
|
|
6.36 |
|
|
|
8.26 |
|
1999-C |
|
November, 1999 |
|
|
500,000 |
|
|
Paid in full |
|
|
|
|
|
|
14.77 |
|
|
|
7.01 |
|
|
|
7.76 |
|
2000-A |
|
March, 2000 |
|
|
1,200,000 |
|
|
Paid in full |
|
|
|
|
|
|
14.66 |
|
|
|
7.28 |
|
|
|
7.38 |
|
2000-B |
|
May, 2000 |
|
|
1,000,000 |
|
|
Paid in full |
|
|
|
|
|
|
14.84 |
|
|
|
7.78 |
|
|
|
7.06 |
|
2000-C |
|
August, 2000 |
|
|
1,390,000 |
|
|
Paid in full |
|
|
|
|
|
|
15.04 |
|
|
|
7.32 |
|
|
|
7.72 |
|
2000-D |
|
November, 2000 |
|
|
1,000,000 |
|
|
Paid in full |
|
|
|
|
|
|
15.20 |
|
|
|
6.94 |
|
|
|
8.26 |
|
2001-A |
|
January, 2001 |
|
|
1,000,000 |
|
|
Paid in full |
|
|
|
|
|
|
14.87 |
|
|
|
5.77 |
|
|
|
9.10 |
|
2001-B |
|
May, 2001 |
|
|
1,370,000 |
|
|
Paid in full |
|
|
|
|
|
|
14.41 |
|
|
|
4.23 |
|
|
|
10.18 |
|
2001-C |
|
August, 2001 |
|
|
1,200,000 |
|
|
$ |
124,407 |
|
|
|
10.37 |
% |
|
|
13.90 |
|
|
|
4.50 |
|
|
|
9.40 |
|
2002-1 |
|
March, 2002 |
|
|
1,800,000 |
|
|
|
284,374 |
|
|
|
15.80 |
|
|
|
13.50 |
|
|
|
4.26 |
|
|
|
9.24 |
|
2002-2 |
|
May, 2002 |
|
|
1,750,000 |
|
|
|
343,435 |
|
|
|
19.62 |
|
|
|
12.51 |
|
|
|
3.89 |
|
|
|
8.62 |
|
2002-3 |
|
August, 2002 |
|
|
1,250,000 |
|
|
|
291,668 |
|
|
|
23.33 |
|
|
|
12.30 |
|
|
|
3.06 |
|
|
|
9.24 |
|
2002-4 |
|
November, 2002 |
|
|
1,350,000 |
|
|
|
388,745 |
|
|
|
28.80 |
|
|
|
12.18 |
|
|
|
2.66 |
|
|
|
9.52 |
|
2003-1 |
|
February, 2003 |
|
|
1,343,250 |
|
|
|
410,824 |
|
|
|
30.58 |
|
|
|
11.79 |
|
|
|
2.42 |
|
|
|
9.37 |
|
2003-2 |
|
May, 2003 |
|
|
1,492,500 |
|
|
|
536,099 |
|
|
|
35.92 |
|
|
|
11.57 |
|
|
|
2.13 |
|
|
|
9.44 |
|
2003-3 |
|
August, 2003 |
|
|
1,650,000 |
|
|
|
763,306 |
|
|
|
46.26 |
|
|
|
10.59 |
|
|
|
2.66 |
|
|
|
7.93 |
|
2003-4 |
|
November, 2003 |
|
|
1,403,625 |
|
|
|
657,981 |
|
|
|
46.88 |
|
|
|
10.89 |
|
|
|
2.70 |
|
|
|
8.19 |
|
2004-1 |
|
February, 2004 |
|
|
1,477,500 |
|
|
|
754,970 |
|
|
|
51.10 |
|
|
|
10.89 |
|
|
|
2.35 |
|
|
|
8.54 |
|
2004-2 |
|
May, 2004 |
|
|
1,477,500 |
|
|
|
878,789 |
|
|
|
59.48 |
|
|
|
10.98 |
|
|
|
3.02 |
|
|
|
7.96 |
|
2004-3 |
|
August, 2004 |
|
|
1,552,000 |
|
|
|
1,071,651 |
|
|
|
69.05 |
|
|
|
10.64 |
|
|
|
3.49 |
|
|
|
7.15 |
|
2004-4 |
|
October, 2004 |
|
|
1,358,000 |
|
|
|
1,030,283 |
|
|
|
75.87 |
|
|
|
11.19 |
|
|
|
3.10 |
|
|
|
8.09 |
|
2005-1 |
|
January, 2005 |
|
|
1,552,000 |
|
|
|
1,326,464 |
|
|
|
85.47 |
|
|
|
11.25 |
|
|
|
3.66 |
|
|
|
7.59 |
|
2005-2 |
|
March, 2005 |
|
|
1,458,750 |
|
|
|
1,368,455 |
|
|
|
93.81 |
|
|
|
11.51 |
|
|
|
4.27 |
|
|
|
7.24 |
|
2005-3 |
|
July, 2005 |
|
|
2,723,000 |
|
|
|
|
|
|
|
|
|
|
|
11.66 |
|
|
|
4.35 |
|
|
|
7.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,209,555 |
|
|
$ |
10,231,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents only the note payable amounts outstanding at the period indicated. |
|
(2) |
|
Represents the difference between the original weighted average annual percentage rate, also
known as the APR, and the estimated weighted average securitization rate on the closing date
of the securitization. |
21
Noninterest Income and Noninterest Expense
Noninterest income decreased to $19.6 million and $38.9 million for the three and six months ended
June 30, 2005 compared with $27.6 million and $56.2 million for the same respective periods a year
earlier. Noninterest income was reduced by $16.5 million and $31.2 million of loan origination
fees that were deferred during the three and six months ended June 30, 2005, respectively.
Noninterest expense increased to $74.1 million and $147 million for the three and six months ended
June 30, 2005 compared with $73.6 million and $145 million for the same respective periods in
2004. Noninterest expense was reduced by $7.0 million and $13.4 million of direct origination
costs that were deferred during the three and six months ended June 30, 2005, respectively.
Historically, we performed analyses on the fees and direct costs related to our origination of
automobile loans and elected not to defer and amortize such amounts as the net effect was not
material to our financial statements in accordance with Statement of Financial Accounting Standard
No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases, and SEC Staff Accounting Bulletin: No. 99 Materiality. Due
to continuing improvements in operating efficiencies and the higher amount of documentation fees
earned, the difference between the amount of fees received and the direct costs incurred has
gradually increased. Therefore, we decided to defer and amortize these amounts prospectively
beginning January 2005. These deferred amounts are being amortized to interest income using the
interest method.
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 39% for
both the three and six months ended June 30, 2005 compared with 40% for the same respective
periods in 2004.
Financial Condition
Overview
Total assets increased $1.0 billion or 6.4% to $16.5 billion at June 30, 2005 from $15.5 billion
at December 31, 2004. The increase is due primarily to an increase in automobile contracts
originated.
Loan Portfolio
The following table presents a summary of our automobile contracts purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
New vehicles |
|
$ |
675,416 |
|
|
$ |
618,079 |
|
|
$ |
1,181,607 |
|
|
$ |
1,169,649 |
|
Pre-owned vehicles |
|
|
1,338,206 |
|
|
|
1,048,763 |
|
|
|
2,614,429 |
|
|
|
2,082,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume |
|
$ |
2,013,622 |
|
|
$ |
1,666,842 |
|
|
$ |
3,796,036 |
|
|
$ |
3,252,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
1,535,162 |
|
|
$ |
1,358,930 |
|
|
$ |
2,898,245 |
|
|
$ |
2,662,120 |
|
Non-prime |
|
|
478,460 |
|
|
|
307,912 |
|
|
|
897,791 |
|
|
|
589,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total volume |
|
$ |
2,013,622 |
|
|
$ |
1,666,842 |
|
|
$ |
3,796,036 |
|
|
$ |
3,252,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loan Portfolio
We had outstanding commercial loan commitments of $382 million at June 30, 2005 compared with $327
million at December 31, 2004. We originated $144 million and $310 million of commercial loans for
the three and six months ended
22
June 30, 2005, respectively, compared with $58.8 million and $126 million for the same respective
periods in 2004. Amounts outstanding at June 30, 2005 and December 31, 2004 were $135 million and
$166 million, respectively.
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.
We calculate delinquency based on the contractual due date. The improvement in delinquency is
primarily the result of an improving economy and our continued emphasis on risk-focused
underwriting.
The following table sets forth information with respect to the delinquency of our portfolio of
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 |
|
|
December 31, 2004 |
|
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
|
(Dollars in thousands) |
|
Contracts managed at end of period |
|
$ |
12,307,454 |
|
|
|
|
|
|
$ |
11,560,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period of delinquency
|
30-59 days |
|
$ |
162,474 |
|
|
|
1.32 |
% |
|
$ |
191,001 |
|
|
|
1.65 |
% |
60 days or more (1) |
|
|
58,923 |
|
|
|
0.48 |
|
|
|
67,660 |
|
|
|
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contracts delinquent and
delinquencies as a percentage of
contracts managed (1) |
|
$ |
221,397 |
|
|
|
1.80 |
% |
|
$ |
258,661 |
|
|
|
2.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes Chapter 13 bankruptcy accounts on nonaccrual status of $47.5 million at June
30, 2005 and $49.2 million at December 31, 2004. |
The following table sets forth information with respect to repossessions in our portfolio of
managed contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 |
|
|
December 31, 2004 |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Contracts |
|
|
Amount |
|
|
Contracts |
|
|
Amount |
|
|
|
(Dollars in thousands) |
|
Contracts managed |
|
|
919,722 |
|
|
$ |
12,307,454 |
|
|
|
876,695 |
|
|
$ |
11,560,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessed vehicles |
|
|
772 |
|
|
$ |
5,723 |
|
|
|
1,049 |
|
|
$ |
7,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessed
vehicles as a
percentage of
number and amount
of contracts
outstanding |
|
|
0.08 |
% |
|
|
0.05 |
% |
|
|
0.12 |
% |
|
|
0.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following table sets forth information with respect to actual credit loss experience on
our portfolio of managed contracts. Net chargeoffs declined as a result of an improving economy
and our continued emphasis on risk-focused underwriting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Average contracts managed during period |
|
$ |
12,019,325 |
|
|
$ |
10,946,273 |
|
|
$ |
11,860,935 |
|
|
$ |
10,836,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross chargeoffs |
|
$ |
58,059 |
|
|
$ |
70,213 |
|
|
$ |
130,011 |
|
|
$ |
155,707 |
|
Recoveries |
|
|
23,368 |
|
|
|
22,917 |
|
|
|
46,841 |
|
|
|
47,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs |
|
$ |
34,691 |
|
|
$ |
47,296 |
|
|
$ |
83,170 |
|
|
$ |
108,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net chargeoffs as a percentage of
average contracts managed during
period |
|
|
1.15 |
% |
|
|
1.73 |
% |
|
|
1.40 |
% |
|
|
1.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table sets forth the cumulative static pool losses by month for all outstanding
public securitized pools:
Cumulative Static Pool Loss Curves
At June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period (1) |
|
2001-C |
|
|
2002-1 |
|
|
2002-2 |
|
|
2002-3 |
|
|
2002-4 |
|
|
2003-1 |
|
|
2003-2 |
|
|
2003-3 |
|
|
2003-4 |
|
|
2004-1 |
|
|
2004-2 |
|
|
2004-3 |
|
|
2004-4 |
|
|
2005-1 |
|
|
2005-2 |
|
1 |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
2 |
|
|
0.04 |
% |
|
|
0.01 |
% |
|
|
0.00 |
% |
|
|
0.02 |
% |
|
|
0.02 |
% |
|
|
0.01 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.01 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
3 |
|
|
0.09 |
% |
|
|
0.06 |
% |
|
|
0.03 |
% |
|
|
0.06 |
% |
|
|
0.07 |
% |
|
|
0.04 |
% |
|
|
0.02 |
% |
|
|
0.02 |
% |
|
|
0.03 |
% |
|
|
0.02 |
% |
|
|
0.03 |
% |
|
|
0.06 |
% |
|
|
0.04 |
% |
|
|
0.02 |
% |
|
|
0.02 |
% |
4 |
|
|
0.20 |
% |
|
|
0.15 |
% |
|
|
0.10 |
% |
|
|
0.14 |
% |
|
|
0.16 |
% |
|
|
0.11 |
% |
|
|
0.06 |
% |
|
|
0.06 |
% |
|
|
0.08 |
% |
|
|
0.06 |
% |
|
|
0.07 |
% |
|
|
0.13 |
% |
|
|
0.09 |
% |
|
|
0.06 |
% |
|
|
0.07 |
% |
5 |
|
|
0.35 |
% |
|
|
0.29 |
% |
|
|
0.18 |
% |
|
|
0.27 |
% |
|
|
0.26 |
% |
|
|
0.18 |
% |
|
|
0.14 |
% |
|
|
0.13 |
% |
|
|
0.14 |
% |
|
|
0.11 |
% |
|
|
0.15 |
% |
|
|
0.21 |
% |
|
|
0.15 |
% |
|
|
0.13 |
% |
|
|
|
|
6 |
|
|
0.49 |
% |
|
|
0.43 |
% |
|
|
0.32 |
% |
|
|
0.44 |
% |
|
|
0.38 |
% |
|
|
0.29 |
% |
|
|
0.25 |
% |
|
|
0.23 |
% |
|
|
0.21 |
% |
|
|
0.19 |
% |
|
|
0.24 |
% |
|
|
0.30 |
% |
|
|
0.23 |
% |
|
|
0.20 |
% |
|
|
|
|
7 |
|
|
0.65 |
% |
|
|
0.60 |
% |
|
|
0.49 |
% |
|
|
0.57 |
% |
|
|
0.50 |
% |
|
|
0.41 |
% |
|
|
0.36 |
% |
|
|
0.32 |
% |
|
|
0.28 |
% |
|
|
0.27 |
% |
|
|
0.33 |
% |
|
|
0.40 |
% |
|
|
0.30 |
% |
|
|
|
|
|
|
|
|
8 |
|
|
0.81 |
% |
|
|
0.84 |
% |
|
|
0.66 |
% |
|
|
0.70 |
% |
|
|
0.61 |
% |
|
|
0.53 |
% |
|
|
0.48 |
% |
|
|
0.40 |
% |
|
|
0.35 |
% |
|
|
0.34 |
% |
|
|
0.41 |
% |
|
|
0.50 |
% |
|
|
0.37 |
% |
|
|
|
|
|
|
|
|
9 |
|
|
0.95 |
% |
|
|
1.06 |
% |
|
|
0.82 |
% |
|
|
0.82 |
% |
|
|
0.78 |
% |
|
|
0.66 |
% |
|
|
0.59 |
% |
|
|
0.47 |
% |
|
|
0.44 |
% |
|
|
0.42 |
% |
|
|
0.51 |
% |
|
|
0.56 |
% |
|
|
0.45 |
% |
|
|
|
|
|
|
|
|
10 |
|
|
1.07 |
% |
|
|
1.28 |
% |
|
|
0.96 |
% |
|
|
0.96 |
% |
|
|
0.94 |
% |
|
|
0.80 |
% |
|
|
0.70 |
% |
|
|
0.55 |
% |
|
|
0.54 |
% |
|
|
0.52 |
% |
|
|
0.59 |
% |
|
|
0.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
1.20 |
% |
|
|
1.48 |
% |
|
|
1.10 |
% |
|
|
1.10 |
% |
|
|
1.08 |
% |
|
|
0.93 |
% |
|
|
0.80 |
% |
|
|
0.62 |
% |
|
|
0.61 |
% |
|
|
0.59 |
% |
|
|
0.65 |
% |
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
1.37 |
% |
|
|
1.67 |
% |
|
|
1.26 |
% |
|
|
1.24 |
% |
|
|
1.28 |
% |
|
|
1.06 |
% |
|
|
0.89 |
% |
|
|
0.71 |
% |
|
|
0.73 |
% |
|
|
0.67 |
% |
|
|
0.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
1.55 |
% |
|
|
1.82 |
% |
|
|
1.39 |
% |
|
|
1.38 |
% |
|
|
1.43 |
% |
|
|
1.21 |
% |
|
|
0.98 |
% |
|
|
0.80 |
% |
|
|
0.83 |
% |
|
|
0.75 |
% |
|
|
0.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
1.74 |
% |
|
|
1.99 |
% |
|
|
1.51 |
% |
|
|
1.53 |
% |
|
|
1.59 |
% |
|
|
1.31 |
% |
|
|
1.08 |
% |
|
|
0.88 |
% |
|
|
0.93 |
% |
|
|
0.81 |
% |
|
|
0.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
1.97 |
% |
|
|
2.14 |
% |
|
|
1.68 |
% |
|
|
1.70 |
% |
|
|
1.77 |
% |
|
|
1.40 |
% |
|
|
1.20 |
% |
|
|
0.97 |
% |
|
|
1.03 |
% |
|
|
0.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
2.16 |
% |
|
|
2.27 |
% |
|
|
1.83 |
% |
|
|
1.88 |
% |
|
|
1.92 |
% |
|
|
1.50 |
% |
|
|
1.31 |
% |
|
|
1.07 |
% |
|
|
1.09 |
% |
|
|
0.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
2.36 |
% |
|
|
2.45 |
% |
|
|
1.99 |
% |
|
|
2.03 |
% |
|
|
2.05 |
% |
|
|
1.60 |
% |
|
|
1.41 |
% |
|
|
1.16 |
% |
|
|
1.19 |
% |
|
|
1.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
2.59 |
% |
|
|
2.62 |
% |
|
|
2.16 |
% |
|
|
2.15 |
% |
|
|
2.16 |
% |
|
|
1.70 |
% |
|
|
1.53 |
% |
|
|
1.25 |
% |
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
2.78 |
% |
|
|
2.80 |
% |
|
|
2.31 |
% |
|
|
2.28 |
% |
|
|
2.25 |
% |
|
|
1.85 |
% |
|
|
1.66 |
% |
|
|
1.33 |
% |
|
|
1.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
2.95 |
% |
|
|
2.99 |
% |
|
|
2.46 |
% |
|
|
2.41 |
% |
|
|
2.37 |
% |
|
|
1.99 |
% |
|
|
1.76 |
% |
|
|
1.40 |
% |
|
|
1.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
3.14 |
% |
|
|
3.15 |
% |
|
|
2.60 |
% |
|
|
2.52 |
% |
|
|
2.49 |
% |
|
|
2.14 |
% |
|
|
1.87 |
% |
|
|
1.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
3.29 |
% |
|
|
3.31 |
% |
|
|
2.72 |
% |
|
|
2.62 |
% |
|
|
2.62 |
% |
|
|
2.27 |
% |
|
|
1.95 |
% |
|
|
1.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
3.41 |
% |
|
|
3.45 |
% |
|
|
2.86 |
% |
|
|
2.74 |
% |
|
|
2.73 |
% |
|
|
2.37 |
% |
|
|
2.02 |
% |
|
|
1.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
3.57 |
% |
|
|
3.58 |
% |
|
|
2.95 |
% |
|
|
2.83 |
% |
|
|
2.84 |
% |
|
|
2.47 |
% |
|
|
2.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
3.73 |
% |
|
|
3.69 |
% |
|
|
3.03 |
% |
|
|
2.96 |
% |
|
|
2.95 |
% |
|
|
2.57 |
% |
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
3.88 |
% |
|
|
3.80 |
% |
|
|
3.13 |
% |
|
|
3.08 |
% |
|
|
3.06 |
% |
|
|
2.63 |
% |
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
4.04 |
% |
|
|
3.92 |
% |
|
|
3.22 |
% |
|
|
3.21 |
% |
|
|
3.17 |
% |
|
|
2.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
4.20 |
% |
|
|
4.02 |
% |
|
|
3.33 |
% |
|
|
3.31 |
% |
|
|
3.25 |
% |
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
4.35 |
% |
|
|
4.12 |
% |
|
|
3.41 |
% |
|
|
3.41 |
% |
|
|
3.32 |
% |
|
|
2.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
4.46 |
% |
|
|
4.22 |
% |
|
|
3.50 |
% |
|
|
3.48 |
% |
|
|
3.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
4.57 |
% |
|
|
4.30 |
% |
|
|
3.58 |
% |
|
|
3.56 |
% |
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
4.69 |
% |
|
|
4.39 |
% |
|
|
3.66 |
% |
|
|
3.62 |
% |
|
|
3.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 |
|
|
4.77 |
% |
|
|
4.49 |
% |
|
|
3.73 |
% |
|
|
3.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
4.85 |
% |
|
|
4.56 |
% |
|
|
3.78 |
% |
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
4.92 |
% |
|
|
4.63 |
% |
|
|
3.84 |
% |
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
|
5.01 |
% |
|
|
4.69 |
% |
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
5.09 |
% |
|
|
4.74 |
% |
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
5.16 |
% |
|
|
4.77 |
% |
|
|
3.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
5.22 |
% |
|
|
4.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
5.27 |
% |
|
|
4.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
5.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
|
5.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43 |
|
|
5.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
5.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
5.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
5.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
5.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Mix (2) |
|
|
76 |
% |
|
|
70 |
% |
|
|
87 |
% |
|
|
85 |
% |
|
|
80 |
% |
|
|
80 |
% |
|
|
82 |
% |
|
|
84 |
% |
|
|
82 |
% |
|
|
82 |
% |
|
|
82 |
% |
|
|
81 |
% |
|
|
78 |
% |
|
|
78 |
% |
|
|
77 |
% |
|
|
|
(1) |
|
Represents the number of months since the inception of the securitization. |
|
(2) |
|
Represents the original percentage of prime automobile contracts securitized within each pool. |
25
Real Estate Loan Quality
We had 0.55% of total mortgage loans past due over 60 days at June 30, 2005 compared with 0.85% at
December 31, 2004. The decrease is due to an improving economy.
Nonperforming Assets
Nonperforming loans, also known as NPLs, are defined as all nonaccrual loans. This includes
mortgage loans 90 days or more past due, impaired loans where full collection of principal and
interest is not reasonably assured and Chapter 13 bankruptcy accounts that became contractually
past due over 120 days. For those accounts that are in Chapter 13 bankruptcy and became
contractually past due over 120 days, all previously accrued interest is reversed and income is
recognized on a cash basis. Interest on NPLs excluded from interest income was $0.2 million and
$0.6 million for the three and six months ended June 30, 2005, respectively, compared with $0.2
million and $0.7 million for the same respective periods in 2004.
Nonperforming assets, also known as NPAs, consist of NPLs, repossessed automobiles and real estate
owned, also known as REO. Repossessed automobiles and REO are carried at lower of cost or fair
value. NPAs decreased $4.4 million to $55.8 million at June 30, 2005 compared with $60.2 million at
December 31, 2004. NPAs represented 0.3% of total assets at June 30, 2005 compared with 0.4% at
December 31, 2004. There were no impaired loans at June 30, 2005 and December 31, 2004.
Allowance for Credit Losses
Our allowance for credit losses was $319 million at June 30, 2005 compared to $315 million at
December 31, 2004. Net chargeoffs totaled $34.8 million and $83.3 million for the three and six
months ended June 30, 2005, respectively, compared with $47.3 million and $108 million for the same
respective periods in 2004. The increase in the allowance for credit losses was the result of us
holding more automobile contracts at June 30, 2005. The allowance for credit losses as a
percentage of owned loans outstanding was 2.5% at June 30, 2005 compared with 2.6% at December 31,
2004. Based on the analyses we performed related to the allowance for credit losses as described
under Note 1 Summary of Significant Accounting Policies in our Consolidated Financial
Statements in our 2004 Form 10-K, we believe that our allowance for credit losses is currently
adequate to cover probable losses in our loan portfolio that can be reasonably estimated.
26
The following table presents summarized data relative to the allowance for credit and real estate
owned losses at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Total loans (1) |
|
$ |
12,819,403 |
|
|
$ |
12,135,748 |
|
Allowance for credit losses |
|
|
318,776 |
|
|
|
315,402 |
|
Allowance for real estate owned losses |
|
|
100 |
|
|
|
100 |
|
Loans past due 60 days or more (2) |
|
|
59,943 |
|
|
|
69,645 |
|
Nonperforming loans (3) |
|
|
49,687 |
|
|
|
51,883 |
|
Nonperforming assets (4) |
|
|
55,812 |
|
|
|
60,229 |
|
Allowance for credit losses as a percent of: |
|
|
|
|
|
|
|
|
Total loans (1) |
|
|
2.5 |
% |
|
|
2.6 |
% |
Loans past due 60 days or more |
|
|
531.8 |
% |
|
|
452.9 |
% |
Nonperforming loans |
|
|
641.6 |
% |
|
|
607.9 |
% |
Total allowance for credit losses and REO losses as a percent
of nonperforming assets |
|
|
571.3 |
% |
|
|
523.8 |
% |
Nonperforming loans as a percent of total loans |
|
|
0.4 |
% |
|
|
0.4 |
% |
Nonperforming assets as a percent of total assets |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
|
(1) |
|
Loans net of unearned interest and undisbursed loan proceeds. |
|
(2) |
|
Excludes Chapter 13 bankruptcy accounts on nonaccrual status. |
|
(3) |
|
All nonperforming loans are on nonaccrual. |
|
(4) |
|
Includes nonperforming loans, repossessed automobiles and real estate owned, net of
allowance. |
Deposits
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 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:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
No minimum term: |
|
|
|
|
|
|
|
|
Demand deposit accounts |
|
$ |
1,717 |
|
|
$ |
705 |
|
Passbook accounts |
|
|
4,751 |
|
|
|
5,880 |
|
Money market accounts |
|
|
1,209,755 |
|
|
|
1,257,074 |
|
Noninterest bearing deposits |
|
|
323,746 |
|
|
|
268,556 |
|
|
|
|
|
|
|
|
Core deposits |
|
|
1,539,969 |
|
|
|
1,532,215 |
|
Certificate accounts: |
|
|
|
|
|
|
|
|
Certificates (30 days to five years) |
|
|
662,882 |
|
|
|
586,678 |
|
Individual retirement accounts |
|
|
60,037 |
|
|
|
64,606 |
|
|
|
|
|
|
|
|
|
|
$ |
2,262,888 |
|
|
$ |
2,183,499 |
|
|
|
|
|
|
|
|
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.
27
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.
Principal Sources of Cash
|
|
Automobile Contract Securitizations Securitizations totaled $1.5 billion for the three months ended June 30,
2004. We did not securitize automobile contracts during the three months ended June 30, 2005. Securitizations
totaled $3.0 billion for both the six months ended June 30, 2005 and 2004. The $3.0 billion issued in 2005 and
2004 were through public securitization transactions. |
|
|
|
Collections of Principal and Interest from Loans and MBS and Release of Cash from Spread Accounts Total principal
and interest collections on MBS, loans owned by us, loans securitized under a financial guarantee insurance policy
issued by Financial Security Assurance, and release of cash from spread accounts on securitizations that are credit
enhanced through the issuance of subordinated notes totaled $1.0 billion and $2.2 billion for the three and six
months ended June 30, 2005, respectively, compared with $1.4 billion and $2.8 billion for the same respective
periods in 2004. The decrease is due to our shift to senior/subordinated securitizations where principal and
interest collections are held in restricted cash accounts until distributed in accordance with the terms of the
transactions. |
|
|
|
Deposits Deposits were $2.3 billion at June 30, 2005 compared with $2.2 billion at December 31, 2004. |
|
|
|
FHLB Advances FHLB advances increased to $1.9 billion at June 30, 2005 from $1.1 billion at December 31, 2004. |
|
|
|
Subordinated Debentures At June 30, 2005 and December 31, 2004, there was $300 million outstanding on our 9.625%
subordinated debentures due in 2012, excluding discounts and issue costs. |
Principal Uses of Cash
|
|
Acquisition of Loans and Investment Securities Loan originations totaled $2.2 billion and $4.1 billion for the
three and six months ended June 30, 2005, respectively, compared with $1.7 billion and $3.4 billion for the same
respective periods in 2004. We purchased $324 million and $568 million of mortgage-backed securities and other
investment securities during the three and six months ended June 30, 2005, respectively, compared with $467 million
and $789 million for the same respective periods in 2004. |
|
|
|
Payments of Principal and Interest on Securitizations Payments of principal and interest to noteholders totaled
$1.5 billion and $3.2 billion for the three and six months ended June 30, 2005, respectively, compared with $1.4
billion and $2.9 billion for the same respective periods in 2004. |
|
|
|
Amounts Paid to Dealers Participation paid by us to dealers was $45.6 million and $85.0 million for the three and
six months ended June 30, 2005, respectively, compared with $38.9 million and $75.0 million for the same respective
periods in 2004. |
|
|
|
Operating Our Business Noninterest expenses totaled $74.1 million and $147 million for the three and six months
ended June 30, 2005, respectively, compared with $73.6 million and $145 million for the same respective periods in
2004. |
28
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 Banks actual capital and required capital as of June 30, 2005
and December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
|
|
|
|
|
Tangible |
|
|
Core |
|
|
Risk-Based |
|
|
Risk-Based |
|
|
|
Capital |
|
|
Capital |
|
|
Capital |
|
|
Capital |
|
|
|
(Dollars in thousands) |
|
June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
1,311,425 |
|
|
$ |
1,311,425 |
|
|
$ |
1,308,350 |
|
|
$ |
1,753,430 |
|
Capital ratio |
|
|
8.78 |
% |
|
|
8.78 |
% |
|
|
11.09 |
% |
|
|
14.86 |
% |
FIRREA minimum required capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
224,042 |
|
|
$ |
448,083 |
|
|
|
N/A |
|
|
$ |
944,103 |
|
Capital ratio |
|
|
1.50 |
% |
|
|
3.00 |
% |
|
|
N/A |
|
|
|
8.00 |
% |
Excess |
|
$ |
1,087,383 |
|
|
$ |
863,342 |
|
|
|
N/A |
|
|
$ |
809,327 |
|
FDICIA well capitalized required capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
N/A |
|
|
$ |
746,806 |
|
|
$ |
708,077 |
|
|
$ |
1,180,129 |
|
Capital ratio |
|
|
N/A |
|
|
|
5.00 |
% |
|
|
6.00 |
% |
|
|
10.00 |
% |
Excess |
|
|
N/A |
|
|
$ |
564,619 |
|
|
$ |
600,273 |
|
|
$ |
573,301 |
|
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
1,196,579 |
|
|
$ |
1,196,579 |
|
|
$ |
1,193,529 |
|
|
$ |
1,619,317 |
|
Capital ratio |
|
|
8.99 |
% |
|
|
8.99 |
% |
|
|
11.59 |
% |
|
|
15.72 |
% |
FIRREA minimum required capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
$ |
199,654 |
|
|
$ |
399,308 |
|
|
|
N/A |
|
|
$ |
824,105 |
|
Capital ratio |
|
|
1.50 |
% |
|
|
3.00 |
% |
|
|
N/A |
|
|
|
8.00 |
% |
Excess |
|
$ |
996,925 |
|
|
$ |
797,271 |
|
|
|
N/A |
|
|
$ |
795,212 |
|
FDICIA well capitalized required capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
N/A |
|
|
$ |
665,513 |
|
|
$ |
618,079 |
|
|
$ |
1,030,131 |
|
Capital ratio |
|
|
N/A |
|
|
|
5.00 |
% |
|
|
6.00 |
% |
|
|
10.00 |
% |
Excess |
|
|
N/A |
|
|
$ |
531,066 |
|
|
$ |
575,450 |
|
|
$ |
589,186 |
|
29
The following table reconciles the Banks capital in accordance with GAAP to the Banks
tangible, core and risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Dollars in thousands) |
|
Bank shareholders equity GAAP basis |
|
$ |
1,094,934 |
|
|
$ |
993,959 |
|
Plus: Net unrealized losses |
|
|
31,686 |
|
|
|
37,529 |
|
Plus: Minority interest in equity of subsidiaries |
|
|
185,197 |
|
|
|
165,484 |
|
Less: Non-permissible activities |
|
|
(392 |
) |
|
|
(393 |
) |
|
|
|
|
|
|
|
Total tangible and core capital |
|
|
1,311,425 |
|
|
|
1,196,579 |
|
Adjustments for risk-based capital: |
|
|
|
|
|
|
|
|
Subordinated debentures (1) |
|
|
296,314 |
|
|
|
295,838 |
|
General loan valuation allowance (2) |
|
|
148,766 |
|
|
|
129,950 |
|
Low-level recourse deduction |
|
|
(3,075 |
) |
|
|
(3,050 |
) |
|
|
|
|
|
|
|
Risk-based capital |
|
$ |
1,753,430 |
|
|
$ |
1,619,317 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes capitalized discounts and issue costs. |
|
(2) |
|
Limited to 1.25% of risk-weighted assets. |
30
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. Our 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 NPV as a percentage of the discounted value of the future cash flows
of all assets. At June 30, 2005, we maintained minimal interest rate risk exposure within a change
in interest rates of plus or minus 100 basis points.
The following table summarizes our NPV sensitivity analysis at June 30, 2005 based on guidance from
the OTS:
|
|
|
|
|
Changes in Interest Rates |
|
NPV Ratio |
|
+100 basis points |
|
|
11.74 |
% |
Base case |
|
|
11.86 |
% |
100 basis points |
|
|
11.81 |
% |
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 than assets repricing in shorter term maturity buckets and more
interest sensitive assets than liabilities repricing in longer term maturity buckets.
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. We enter into Euro-dollar future contracts and forward agreements
in order to hedge our future interest payments on our notes payable on automobile secured
financing. The market value of these hedge agreements is designed to respond inversely to changes
in interest rates. Because of this inverse relationship, we can effectively lock in a gross
interest rate spread at the time of entering into the hedge transaction. Gains and losses on these
agreements are recorded in accumulated other comprehensive income (loss), net of tax, on our
Consolidated Statements of Financial Condition. Any ineffective portion is recognized in
noninterest income during that period if the hedge is greater than 100% effective. Upon completion
of the securitization transaction, the gains or losses are amortized on a level yield basis over
the duration of the notes issued. These hedge instruments are settled daily, and therefore, there
are no related financial instruments recorded on the Consolidated Statements of Financial
Condition. Credit risk related to these hedge instruments is minimal. 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.
As we issued certain variable rate notes payable in connection with our securitization activities,
we also entered into interest rate swap agreements in order to hedge our variable interest rate
exposure on future interest payments. The fair value of the interest rate swap agreements is
included in notes payable on automobile secured financing, and any change in the fair value is
reported as accumulated other comprehensive income (loss), net of tax, on our Consolidated
Statements of Financial Condition. Any ineffective portion is recorded in noninterest income during
that period if the hedge is greater than 100% effective. Related interest income or expense is
settled on a monthly or quarterly basis and recognized as an adjustment to interest expense in our
Consolidated Statements of Income.
31
We have entered into interest rate swap agreements or other derivatives that we choose not to
designate as hedges or that do not qualify for hedge accounting. Any change in the market value of
such derivatives and any income or expense recognized on such derivatives is recorded to
noninterest income.
We have entered into or committed to interest rate swaps as hedges against deposits to manage
interest rate risk exposure. The fair value of the interest rate swap agreements is included in
deposits 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.
The Asset/Liability Committee monitors our hedging activities to ensure that such activities
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.
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 is recorded,
processed, summarized and reported within the time periods specified in the Securities and
Exchange Commissions 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. In evaluating our disclosure controls, our Chief Executive Officer and Chief
Financial Officer considered that our Controller and Director of Tax resigned during the second
quarter of 2005. We have been conducting an active and ongoing search to fill these open
positions. In the interim, other accounting personnel have assumed additional responsibility in
order to ensure that we maintain effective disclosure controls. Based on their evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that these controls and
procedures are effective. There have been no other significant changes in our internal controls
or in other factors that could significantly affect the controls and procedures subsequent to the
date of their evaluation.
32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We or our subsidiaries are involved as a party to certain legal proceedings
incidental to our business. 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.
Beginning on May 24, 2004 and continuing thereafter, a total of four
separate purported class action lawsuits relating to the announcement by us
and WFS that we had entered into a merger agreement, pursuant to which we
would acquire the outstanding 16% common stock interest of WFS not already
owned by the Bank, and WFS would be merged with and into the Bank were filed
in the Orange County, California Superior Court against us, WFS, and our
individual board members, and individual board members of WFS. On June 24,
2004, the actions were consolidated under the caption In re WFS Financial
Shareholder Litigation, Case No. 04CC00559, also known as the Action. On
July 16, 2004, the court granted a motion by plaintiff Alaska Hotel &
Restaurant Employees Pension Trust Fund, in Case No.04CC00573, to amend the
consolidation order to designate it the lead plaintiff in the litigation.
The lead plaintiff filed a consolidated amended complaint on August 9, 2004,
and then filed the present corrected consolidated amended complaint on
September 15, 2004. All of the shareholder-related actions allege, among
other things, that the defendants breached their respective fiduciary duties
and seek to enjoin or rescind the transaction and obtain an unspecified sum
in damages and costs, including attorneys fees and expenses. The parties
have tentatively agreed to a full and final resolution of the Action and, on
January 19, 2005, the parties entered into a Memorandum of Understanding,
also known as the MOU, concerning the terms of the tentative settlement.
Pursuant to the terms of the MOU, the parties have agreed, among other
things, that additional disclosures will be made in Westcorps Registration
Statement on Form S-4 (as filed with the SEC on July 16, 2004), the claims
asserted in the Action will be fully released, and the Action will be
dismissed with prejudice. Further, pursuant to the MOU, the defendants have
agreed to pay plaintiffs attorneys fees and expenses in the amount of
$675,000, or in such lesser amount as the Court may order. The
effectiveness of the settlement agreement is contingent on the transaction
actually occurring. The parties prepared a formal settlement agreement
based on the terms of the MOU and obtained preliminary approval for the
settlement from the Court on June 17, 2005. The parties have further
agreed, with the Courts consent, that the parties will not proceed with
providing notice of the proposed settlement to shareholders nor schedule a
final hearing on approval of the settlement unless and until the necessary
regulatory approvals for the transaction have been obtained.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On April 26, 2005, we held our annual shareholders meeting. There were
52,034,915 shares of common stock outstanding entitled to vote, and a total
of 50,213,881, or 96.5%, were represented at the meeting in person or by
proxy. The following summarizes vote results of proposals submitted to our
shareholders:
33
1. |
|
Election of Directors: |
|
|
|
|
|
|
|
NAME |
|
FOR |
|
WITHHELD |
Judith M. Bardwick |
|
49,761,780 |
|
|
452,101 |
|
Robert R. Barnum |
|
50,045,245 |
|
|
168,636 |
|
James R. Dowlan |
|
48,109,188 |
|
|
2,104,693 |
|
Duane A. Nelles |
|
50,045,266 |
|
|
168,615 |
|
Ernest S. Rady |
|
49,672,864 |
|
|
541,017 |
|
Harry M. Rady |
|
49,562,931 |
|
|
650,950 |
|
Charles E. Scribner |
|
50,045,696 |
|
|
168,185 |
|
Thomas A. Wolfe |
|
49,574,005 |
|
|
639,876 |
|
2. |
|
Amend Westcorps Articles of
Incorporation to change Westcorps name to Western Financial
Bancorp, subject to the completion of the merger of WFS into the
Bank: |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
50,201,244 |
|
4,065 |
|
8,572 |
|
3. |
|
Approve the Westcorp 2001 Stock Incentive Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
BROKER |
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
NON VOTE |
|
37,080,820 |
|
11,080,253 |
|
11,778 |
|
2,041,030 |
4. |
|
Ratification of the Appointment of
Ernst & Young as Westcorps Independent Accountants: |
|
|
|
|
|
FOR |
|
AGAINST |
|
ABSTAIN |
50,167,378 |
|
28,724 |
|
17,779 |
Item 5. Other Information
(a) |
|
On April 26, 2005, at our Annual
Meeting of Stockholders, our stockholders approved the proposal
made by the Board of Directors to amend and restate the Westcorp
2001 Stock Option Plan to (i) change the name of the plan to the
Westcorp 2001 Stock Incentive Plan, (ii) add provisions permitting
the Board of Directors to grant restricted stock awards of
Westcorps common stock to eligible associates and directors, and
(iii) increase the number of shares of Westcorp common stock
available for issuance under the plan by 1,840,622 shares, so that
the total amount of Westcorp common stock available for awards
under the plan will equal 4,840,622 shares. The Westcorp 2001
Stock Incentive Plan is administered by the Westcorp Board of
Directors or by the Compensation Committee of the Board of
Directors, if so designated by the Board. Associates and directors
of Westcorp and its subsidiaries who are selected by the plan
administrator are eligible to receive awards under the Westcorp
2001 Stock Incentive Plan. |
|
(b) |
|
On August 5, 2005, our previously
disclosed policy compensating the holders of non-qualified stock
options to the extent of the tax benefit obtained by us upon the
exercise of such non-qualified stock options was terminated by the
Board of Directors. |
34
Item 6. Exhibits
|
|
|
Exhibit No. |
|
Description of Exhibit |
2.1
|
|
Agreement and Plan of Merger and Reorganization, dated as of
May 23, 2004, among Westcorp, Western Financial Bank and WFS
Financial Inc (1) |
10.1
|
|
Summary of Executive Salary and Bonus Arrangements |
10.2
|
|
Summary of Director Compensation Arrangements |
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 |
|
|
|
(1) |
|
Exhibit previously filed with Westcorp Registration Statement on Form S-4 (File No.
333-117424), filed July 16, 2004, incorporated herein by reference under Exhibit Number
indicated. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Westcorp
(Registrant)
|
|
|
|
|
|
|
Date:
|
|
August 8, 2005
|
|
By:
|
|
/s/ Ernest S. Rady |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernest S. Rady
Chairman of the Board and
Chief Executive Officer |
|
|
|
|
|
|
|
Date:
|
|
August 8, 2005
|
|
By:
|
|
/s/ robert j. costantino |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Costantino
Executive Vice President,
Chief Financial Officer and
Chief Operating Officer |
36
|
|
|
Exhibit No. |
|
Description of Exhibit |
2.1
|
|
Agreement and Plan of Merger and Reorganization, dated as of
May 23, 2004, among Westcorp, Western Financial Bank and WFS
Financial Inc (1) |
|
|
|
10.1
|
|
Summary of Executive Salary and Bonus Arrangements |
|
|
|
10.2
|
|
Summary of Director Compensation Arrangements |
|
|
|
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 |
|
|
|
(1) |
|
Exhibit previously filed with Westcorp Registration Statement on Form S-4 (File No.
333-117424), filed July 16, 2004, incorporated herein by reference under Exhibit Number
indicated. |
37