<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
[ ] 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)
<TABLE>
<S> <C>
CALIFORNIA 51-0308535
-------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
23 PASTEUR, IRVINE, CALIFORNIA 92718-3804
-----------------------------------------
(Address of principal executive offices)
(714) 727-1000
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
------ -------
As of April 30, 1995, the registrant had 24,336,788 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 30.
<PAGE> 2
WESTCORP AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1995
TABLE OF CONTENTS
_____________________________
<TABLE>
<CAPTION>
Page No.
----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
Exhibit 11 Computation of Earnings Per Share 30
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash, interest-bearing deposits with other financial institutions and
other short term investments $ 154,614 $ 166,293
Investment securities available for sale 118,172 114,764
Mortgage-backed securities held to maturity (fair value 1995: $399,527;
1994: $305,466) 402,614 316,511
Mortgage-backed securities available for sale 159,366 154,158
Loans receivable, net of allowance for loan losses (1995: $40,670;
1994: $41,323) 1,436,514 1,411,052
Loans held for sale 398,826 304,506
Premises and equipment, net 65,291 66,465
Real estate owned, net 17,205 23,927
Accrued interest receivable 13,008 13,309
Excess of purchase cost over net assets acquired 1,078 1,099
Federal Home Loan Bank stock 24,074 24,474
Other assets 139,858 145,731
---------- ----------
$2,930,620 $2,742,289
========== ==========
LIABILITIES
Savings deposits $1,757,295 $1,632,782
Securities sold under agreements to repurchase 283,585 246,074
Short term borrowings 228,521 210,578
Federal Home Loan Bank advances 81,000 89,000
Amounts held on behalf of trustee 229,514 216,204
Unearned insurance premiums and insurance reserves 4,620 5,096
Other liabilities 23,342 26,392
---------- ----------
2,607,877 2,426,126
SUBORDINATED DEBENTURES 103,975 103,851
SHAREHOLDERS' EQUITY:
Common stock, par value $1.00 per share; authorized
45,000,000 shares; issued and outstanding 23,148,286
shares in 1995 and 23,145,640 shares in 1994 23,148 23,146
Paid-in capital 102,393 102,376
Retained earnings 97,317 92,788
Unrealized loss on securities available for sale, net of tax (4,090) (5,998)
---------- ----------
218,768 212,312
---------- ----------
$2,930,620 $2,742,289
========== ==========
</TABLE>
______________________________
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS, EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Loans, including fees $37,085 $30,481
Mortgage-backed securities 8,454 1,263
Investment securities 1,635 1,479
Other 1,882 867
------- -------
TOTAL INTEREST INCOME 49,056 34,090
Interest expense:
Savings deposits 22,886 14,608
Repurchase agreements 3,052
Federal Home Loan Bank advances and
other borrowings 4,894 6,071
------- -------
TOTAL INTEREST EXPENSE 30,832 20,679
------- -------
NET INTEREST INCOME 18,224 13,411
Provision for loan losses 638 4,241
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,586 9,170
Other income:
Automobile lending 17,134 20,292
Mortgage banking 1,454 1,018
Investment and mortgage-backed securities gains 507
Insurance income 575 2,118
Real estate operations 523 (1,967)
Rental operations (58) (165)
Miscellaneous 108 135
------- -------
TOTAL OTHER INCOME 20,243 21,431
Other expenses:
Salaries and employee benefits 14,708 13,239
Occupancy 2,307 1,957
Insurance 1,622 1,431
Miscellaneous 7,858 6,798
------- -------
TOTAL OTHER EXPENSES 26,495 23,425
------- -------
INCOME BEFORE INCOME TAXES 11,334 7,176
Income taxes 4,722 3,248
------- -------
NET INCOME $ 6,612 $ 3,928
======= =======
NET INCOME PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.27 $ 0.16
======= =======
CASH DIVIDENDS DECLARED PER SHARE OF
COMMON STOCK $ 0.090 $ 0.075
======= =======
</TABLE>
__________________________________
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,612 $ 3,928
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for losses, net 538 4,241
Depreciation and amortization 1,849 1,656
Amortization of deferred fees 1,072 (427)
Amortization of issuance costs 124 143
Decrease in interest receivable 301 1,249
Gain on nonoperating activities (2,747) (832)
Decrease in interest payable (3,509) (3,081)
Decrease in unearned insurance (476) (420)
Other, net 4,639 8,400
Net change in loans available for sale (93,284) (14,819)
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (84,881) 38
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities available for sale (59,498)
Purchase of mortgage-backed securities held to maturity (85,628)
Proceeds from sale of mortgage-backed securities available for sale 51,806
Payments on mortgage-backed securities 2,465 2,244
Net change in loans (28,771) 80,146
Additions to premises and equipment (651) (2,950)
Disposition of real estate owned 9,611 13,906
Purchase of FHLB stock (288) (161)
Proceeds from sales of FHLB stock 688
Net decrease (increase) in trust receivable 254 (11,398)
Net increase in trustee accounts 13,310 20,163
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (96,702) 101,950
</TABLE>
5
<PAGE> 6
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
1995 1994
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 124,513 $ 4,042
Increase in securities under agreement to repurchase 37,511
Decrease in FHLB advances, net (8,000) (5,000)
Increase (decrease) in short-term borrowings, net 17,943 (124,511)
Repayment of other borrowings (9,629)
Proceeds from sale of common stock 20 109
Cash dividends (2,083) (1,643)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 169,904 (136,632)
--------- ---------
Net decrease in cash and equivalents (11,679) (34,644)
Cash and equivalents at beginning of period 166,293 162,557
--------- ---------
Cash and equivalents at end of period $ 154,614 $ 127,913
========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 34,340 $ 23,759
Income taxes 17 2,950
Supplemental disclosures of noncash transactions:
Acquisition of real estate acquired through foreclosure $ 7,614 $ 7,945
</TABLE>
__________________________________
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NET BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in
Westcorp's annual report on Form 10-K for the year ended December 31, 1994.
Certain amounts from the 1994 consolidated financial statement amounts have
been reclassified to conform to the 1995 presentation.
Effective January 1, 1995, Westcorp adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a
Loan", ("SFAS No.114") as amended by Statement of Financial Accounting Standard
No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures", ("SFAS No. 118").
7
<PAGE> 8
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - NET LOANS RECEIVABLE
Net loans receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate:
Mortgage $1,329,720 $1,308,585
Construction 14,345 19,813
---------- ----------
1,344,065 1,328,398
Less: Undisbursed loan proceeds 4,551 7,614
---------- ----------
1,339,514 1,320,784
Consumer:
Sales contracts 637,981 513,470
Less: Unearned discounts 106,541 82,762
---------- ----------
531,440 430,708
---------- ----------
1,870,954 1,751,492
Allowance for loan losses (40,670) (41,323)
Deferred loan fees (7,719) (5,141)
Other 12,775 10,530
---------- ----------
1,835,340 1,715,558
Less: Loans held for sale:
Mortgage 10,315 2,954
Consumer 388,511 301,552
---------- ----------
398,826 304,506
---------- ----------
$1,436,514 $1,411,052
Total ========== ==========
</TABLE>
Loans serviced by Westcorp for the benefit of others totaled approximately $3.0
billion and $2.9 billion at March 31, 1995 and December 31, 1994, respectively.
These amounts are not reflected in the accompanying consolidated financial
statements.
8
<PAGE> 9
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - INVESTMENTS AVAILABLE FOR SALE
The aggregate amortized cost and approximate fair value of investment
securities available for sale were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995
AVAILABLE FOR SALE SECURITIES
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S.
Government agencies and
corporations $119,409 $87 $4,630 $114,866
Obligations of states and political
subdivisions 3,523 242 3,281
Other 25 25
-------- --- ------ --------
$122,957 $87 $4,872 $118,172
======== === ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
AVAILABLE FOR SALE SECURITIES
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S.
Government agencies and
corporations $119,013 $7,336 $111,677
Obligations of states and political
subdivisions 3,524 462 3,062
Other 25 25
-------- --- ------ --------
$122,562 $7,798 $114,764
======== === ====== ========
</TABLE>
9
<PAGE> 10
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1995
HELD TO MATURITY SECURITIES
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
S> <C> <C> <C> <C>
GNMA certificates $284,864 $121 $2,035 $282,950
FNMA participation certificates 107,293 1,123 106,170
FHLMC participation certificates 10,287 50 10,237
Other participation certificates 170 170
-------- ---- ------ --------
$402,614 $121 $3,208 $399,527
======== ==== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
HELD TO MATURITY SECURITIES
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $208,307 $246 $ 6,539 $202,014
FNMA participation certificates 108,033 4,752 103,281
Other participation certificates 171 171
-------- ---- ------- --------
$316,511 $246 $11,291 $305,466
======== ==== ======= ========
</TABLE>
NOTE E - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The aggregated amortized cost and approximate fair value of mortgage-backed
securities available for sale were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995
AVAILABLE FOR SALE SECURITIES
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 44,410 $1,884 $1,451 $ 44,843
FNMA participation certificates 91,977 47 2,577 89,447
FHLMC participation certificates 3,060 148 2,912
Collateralized mortgage obligations 22,310 146 22,164
-------- ------ ------ --------
$161,757 $1,931 $4,322 $159,366
======== ====== ====== ========
</TABLE>
10
<PAGE> 11
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
AVAILABLE FOR SALE SECURITIES
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSS VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 50,637 $1,572 $1,036 $ 51,173
FNMA certificates 80,622 2,788 77,834
FHLMC participation certificates 3,082 85 2,997
Other participation certificates 22,543 389 22,154
-------- ------ ------ --------
$156,884 $1,572 $4,298 $154,158
======== ====== ====== ========
</TABLE>
NOTE F - DIVIDENDS
On March 13, 1995, Westcorp paid a cash dividend of $0.09 per share. On
February 13, 1995, Westcorp announced a 5% stock dividend for shareholders of
record as of February 27, 1995, payable April 12, 1995. The per share amounts
for all periods presented have been restated to reflect the increased shares
outstanding.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets increased $188 million or 6.9% to $2.9 billion at March 31, 1995
from $2.7 billion at December 31, 1994. This increase is the result of
increased loans receivable and the purchase of mortgage-backed securities in
the held to maturity portfolio.
LOANS
Loans (including those held for sale), net of unearned discounts and
undisbursed loan proceeds, increased $119 million or 6.8% since December 31,
1994. The increase is the result of the differential between loans originated
and sold during the three month period. Westcorp has retained the servicing on
almost all loans sold and receives a servicing fee therefrom. Included in the
portfolio are loans held for sale of which $10.3 million are mortgage loans
secured primarily by single family residences and $389 million which are retail
installment sales contracts secured by motor vehicles. Westcorp's consumer
loan origination activity has continued to increase, generating the increase in
on balance sheet loans, despite continued loan sales in the secondary market.
Consumer loan originations were 18.1% higher for the three months ended March
31, 1995 compared to the same period in 1994. This increase was primarily the
result of Westcorp's continued expansion throughout 1994 and into 1995 of its
dealer center and branch network and favorable market conditions for automobile
sales in California, Oregon, Nevada, Arizona, Texas, New Mexico, Washington,
Idaho and Utah - the states in which Westcorp maintains offices.
Real estate originations were lower during the three month period of 1995
compared to the same period a year ago. The decrease in real estate
originations is reflective of the lower level of refinancings due to the
general increase in interest rates compared to the same period of 1994 and the
continued sluggish California economy. The following table sets forth the loan
origination, purchase and sale activity of Westcorp for the periods indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
---------------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
MORTGAGE CONSUMER MORTGAGE CONSUMER
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $1,320,784 $430,708 $1,326,797 $230,351
Originations (1) 52,468 337,366 199,149 285,684
Purchases 179
Sales (2) 5,208 190,000 257,223 200,000
Principal reductions (3) 28,709 46,634 56,759 41,726
---------- -------- ---------- --------
Ending balance $1,339,514 $531,440 $1,211,964 $274,309
========== ======== ========== ========
</TABLE>
(1) Includes automobile loans purchased from automobile dealers.
(2) Automobile loans sold to a grantor trust.
(3) Includes scheduled payments, prepayments and chargeoffs.
12
<PAGE> 13
The real estate loan portfolio (including those classified as held for sale)
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
------------------------------ ------------------------------
AMOUNT % AMOUNT %
---------- ------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Single family residential loans:
First trust deeds $ 738,869 55.1% $ 718,924 54.4%
Second trust deeds 121,234 9.1 126,365 9.6
---------- ----- ---------- -----
860,103 64.2 845,289 64.0
Multifamily residential loans 466,262 34.8 459,883 34.8
Construction loans 14,345 1.1 19,813 1.5
Commercial loans 3,355 0.3 3,413 0.3
---------- ----- ---------- -----
1,344,065 1,328,398
Less: Undisbursed loan proceeds 4,551 0.4 7,614 0.6
---------- ----- ---------- -----
$1,339,514 100.0% $1,320,784 100.0%
========== ===== ========== =====
</TABLE>
Westcorp's portfolio consisted primarily of adjustable rate mortgage loans as
shown below:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
------------------------------ ------------------------------
AMOUNT % AMOUNT %
---------- ------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate loans:
Single family $ 95,669 7.1% $ 103,189 7.8%
Multifamily 393 0.1 394 0.1
Adjustable rate loans:
Negative amortizing 930,160 69.4 916,916 69.3
No negative amortizing 313,292 23.4 300,285 22.8
---------- ----- ---------- -----
$1,339,514 100.0% $1,320,784 100.0%
========== ===== ========== =====
</TABLE>
The composition of the consumer loan portfolio, all of which is fixed rate, was
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
------------------------------ ------------------------------
AMOUNT % AMOUNT %
---------- ------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Automobile loans, net $527,911 99.3% $427,175 99.2%
Other 3,529 0.7 3,533 0.8
-------- ----- -------- -----
Total portfolio $531,440 100.0% $430,708 100.0%
======== ===== ======== =====
</TABLE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
During the first quarter of 1995, Westcorp purchased a portfolio of
mortgage-backed securities held to maturity totalling $85.6 million at quarter
end. This portfolio is part of Westcorp's overall strategy to fully employ
capital and enhance net interest income.
13
<PAGE> 14
ASSET QUALITY
GENERAL
Westcorp's real estate loan portfolio delinquency has improved over the past
year. From mid-1992 through early 1994, the California economy, where
substantially all of the collateral for Westcorp's real estate loans is
located, experienced severe downturns in the market values of real estate, high
levels of unemployment and a continued slump in residential construction and
new home sales. The problems created by this economic slump were especially
noticeable in the multifamily mortgage portfolio. While the economy has not
fully recovered, the downward spiral appears to have stabilized, providing
relief to California homeowners and borrowers.
DELINQUENCY
The percent of loans 60 days or more delinquent decreased to 0.9% at March 31,
1995 compared to 1.0% at December 31, 1994. Delinquent loans by type of loan
and as a percentage of loans by type are summarized as follows at March 31,
1995 and December 31, 1994:
<TABLE>
<CAPTION>
MARCH 31, 1995
NUMBER OF DAYS DELINQUENT
----------------------------------------------------------------
60-89 90 OR MORE TOTAL
----------------- ----------------- ------------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family residential homes $ 980 0.1% $13,304 1.5% $14,284 1.7%
Multifamily residential homes 181 0.1 1,425 0.3 1,606 0.3
Consumer 968 0.2 366 0.1 1,334 0.3
------ --- ------- --- ------- ---
Total $2,129 0.1% $15,095 0.8% $17,224 0.9%
====== === ======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
NUMBER OF DAYS DELINQUENT
----------------------------------------------------------------
60-89 90 OR MORE TOTAL
----------------- ----------------- ------------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------- --- ------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family residential homes $ 899 0.1% $13,253 1.6% $14,152 1.7%
Multifamily residential homes 317 0.1 1,393 0.3 1,710 0.4
Consumer 576 0.1 228 0.1 804 0.2
------ --- ------- --- ------- ---
Total $1,792 0.1% $14,874 0.8% $16,666 1.0%
====== === ======= === ======= ===
</TABLE>
14
<PAGE> 15
NONPERFORMING ASSETS
Nonperforming assets ("NPA") consist of nonperforming loans ("NPL"),
insubstance foreclosures ("ISF"), and real estate acquired through foreclosure
("REO"). REOs and ISFs are accounted for at fair value. NPLs are defined as
all loans on nonaccrual that are, mortgage loans 90 days or more past due or
performing loans where full collection of principal and interest is not
reasonably assured. When a loan is designated as nonaccrual, all previous
accrued interest is reversed. At March 31, 1995, interest on nonperforming
loans excluded from interest income was $0.9 million. At March 31, 1994, such
amount was $6.4 million.
As a result of the adoption of SFAS No. 114, Westcorp reclassified $3.0 million
of assets from ISFs back to NPL. A loan is impaired when, based on current
information and events, it is probable that Westcorp will be unable to collect
all amounts due according to the contractual terms of the loan agreement.
Westcorp measures impairment based on the fair value of the loans collateral.
Changes in the fair value are recorded through the allowance for loan losses.
At March 31, 1995, $5.2 million in loans were considered impaired.
Nonperforming loans consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans 90 days or more past due $14,768 $13,950
Performing, nonaccrual loans 5,637 3,717
------- -------
Total nonperforming loans $20,405 $17,667
======= =======
</TABLE>
Nonperforming loans by loan type consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Single family residential $13,779 $13,856
Multifamily 5-36 units 2,834 2,616
Multifamily over 36 units 2,390 59
Other 1,402 1,136
------- -------
Total nonperforming loans $20,405 $17,667
======= =======
</TABLE>
Total NPAs decreased 11.3% to $38.4 million at March 31, 1995 compared to $43.3
million at December 31, 1994. The overall decrease is primarily attributable
to an effective nonperforming asset disposition process and improving overall
asset quality. At March 31, 1995, NPAs represented 1.3% of total assets
compared to 1.6% at December 31, 1994.
15
<PAGE> 16
The migration of nonperforming loans and real estate owned from December 31,
1994 to March 31, 1995 is shown below.
NONPERFORMING LOANS
<TABLE>
<CAPTION>
SINGLE
FAMILY MULTIFAMILY MULTIFAMILY
TOTAL 1-4 UNITS 5-36 UNITS 37+ UNITS CONSTRUCTION
------- ----------- ---------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, 12/31/94 $17,667 $13,856 $2,616 $ 59 $1,136
New nonperforming loans 6,100 4,675 1,425
Adjustment for impaired loans 3,006 350 2,390 266
REO (3,291) (2,602) (630) (59)
Cures and payoffs (1,842) (1,465) (377)
Chargeoffs (1,235) (685) (550)
------- ------- ------ ------ ------
Balance, 3/31/95 $20,405 $13,779 $2,834 $2,390 $1,402
======= ======= ====== ====== ======
</TABLE>
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
<TABLE>
<CAPTION>
SINGLE
FAMILY MULTIFAMILY MULTIFAMILY
TOTAL 1-4 UNITS 5-36 UNITS 37+ UNITS CONSTRUCTION
------- ----------- ---------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, 12/31/94 $20,737 $ 5,271 $ 4,028 $10,499 $ 939
New REO 7,614 3,282 2,713 1,619
Sales (8,210) (2,265) (2,385) (3,560)
Writedowns (2,152) (621) (669) (445) (417)
------- ------- ------- ------- -----
Balance, 3/31/95 $17,989 $ 5,667 $ 3,687 $ 8,113 $ 522
======= ======= ======= ======= =====
</TABLE>
For nonperforming assets other than nonperforming loans, assets secured by
multifamily residential properties continued to be the dominant asset type
consisting of $11.8 million or 65.6% of these assets. Of the multifamily
residential properties, $8.1 million are properties of 37 units or greater.
16
<PAGE> 17
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
Consistent with loan volume, loan sales, losses, nonaccrual loans and other
relevant factors, Westcorp decreased its allowance for loan losses to $40.7
million at March 31, 1995 compared to $41.3 million at December 31, 1994.
While Westcorp's nonperforming assets are mainly multifamily and construction
loans, no single loan, borrower, or series of such loans predominate. The
provision and allowance for loan losses are indicative of loan volumes, loss
trends and management's analysis of market conditions. The allowance for loan
losses is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio.
The following table presents summarized data relative to the allowance for loan
losses.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total loans $1,870,954 $1,751,492
Allowance for loan losses 40,670 41,323
Allowance for real estate losses 784 1,684
Loans past due 60 days or more 17,224 16,666
Nonperforming loans 20,405 17,667
Nonperforming assets 38,395 43,278
Allowance for loan losses as a percent of:
Total loans 2.2% 2.4%
Loans past due 60 days or more 236.1 247.9
Nonperforming loans 199.3 233.9
Total allowance as a percent of nonperforming assets 108.0 99.4
Nonperforming loans as a percent of total loans 1.1 1.0
Nonperforming assets as a percent of total assets 1.3 1.6
</TABLE>
17
<PAGE> 18
The table below provides a historical analysis of the allowance for loan
losses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $41,323 $39,677
Chargeoffs:
Real estate (741) (1,861)
Consumer (2,311) (2,428)
------- -------
(3,052) (4,289)
Recoveries:
Real estate 68 169
Consumer 893 1,267
------- -------
961 1,436
------- -------
Net chargeoffs (2,091) (2,853)
Transfers from the allowance for real estate losses 800
Provision for loan losses 638 4,241
------- -------
Balance at end of period $40,670 $41,065
======= =======
Ratio of net chargeoffs during
period to average loans outstanding
during the period (annualized) .49% .74%
======= =======
</TABLE>
Changes in the allowance for real estate losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1995 1994
------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $1,684 $3,508
Provision for real estate losses (100)
Chargeoffs, net (38)
Transfers to the allowance for loan losses (800)
------ ------
Balance at end of period $ 784 $3,470
====== ======
</TABLE>
Westcorp transferred $0.8 million of allowance for real estate losses to
allowance for loan losses as part of implementing SFAS 114.
18
<PAGE> 19
RESULTS OF OPERATIONS
SUMMARY
Westcorp reported net income of $6.6 million for the three months ended March
31, 1995, compared to $3.9 million for the respective period of 1994. Return
on average assets was 1.00% for the three months ended March 31, 1995, compared
to 0.77% for the same period of 1994. Return on average equity was 12.23% for
the three months ended March 31, 1995, compared to 7.65% for the respective
period of 1994. As discussed in greater detail below, net income was most
affected by the following three factors.
o Net interest income increased as interest margins widened and interest
earning assets increased.
o Provision for loan losses decreased consistent with lower loan losses
and improved asset quality.
o Other expenses increased as a result of continued expansion into
other states and expanding servicing portfolios.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1995 was $18.2
million. For the same period of 1994, net interest income totaled $13.4
million.
Overall net interest margins increased 2 basis points for the three months
ended March 31, 1995, compared to the same period of 1994 due to an increase of
65 basis points in the yield on interest earning assets while the cost of funds
only increased 63 basis points for the same period.
The increase in yield on interest earning assets for the three months ended
March 31, 1995, compared to the same period of 1994 was affected by a 209 basis
point increase in the consumer loan portfolio, which is due to increased
originations in Westcorp's consumer finance subsidiary that purchased contracts
with higher yields. Additionally, the yield on mortgage backed securities
increased 147 basis points due to the reinvestment of funds into
mortgage-backed securities at higher rates than the rates on those assets sold
or repaid as well as an increase in the overall amount of securities held.
Similarly, the increase in the cost of funds was affected by a 104 basis point
increase in the cost of savings deposits and a $125 million increase in the
amount of savings deposits for which interest was paid for the three months
ended March 31, 1995 compared to the same period of 1994. This increase
reflects a continued replacement of lower costing deposits with higher costing
ones.
19
<PAGE> 20
Interest rates earned and paid for the three months ended March 31, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------
1995 1994
------ ------
YIELD/ YIELD/
RATE RATE
------ ------
<S> <C> <C>
Interest-earning assets:
Investment securities 5.56% 5.24%
Mortgage-backed securities (1) 6.91 5.44
Loans:
Consumer 15.05 12.96
Mortgage 6.92 6.75
Other 5.83 3.85
----- -----
Total interest-earning assets 8.05 7.40
Interest-bearing liabilities:
Savings deposits 5.48 4.44
Public debt offerings (2) 7.34 6.75
Repurchase agreements 5.11
FHLB advances and other
borrowings 7.45 7.72
----- -----
Total interest-bearing liabilities 5.68 5.05
Interest rate spread 2.37% 2.35%
===== =====
Net yield on average interest
earning assets 3.15% 2.78%
===== =====
</TABLE>
__________________________________
(1) Includes collateralized mortgage obligations.
(2) Includes subordinated debentures, commercial paper and collateralized
bonds.
20
<PAGE> 21
ASSET/LIABILITY MANAGEMENT
The continued profitability of Westcorp is dependent upon, among other factors,
the extent to which the effect of changes in interest rates on its earnings are
minimized. Thus, a major objective of Westcorp's asset/liability management
program has been to control interest rate risk through matching the maturity
and repricing characteristics of its interest-earning assets with those of its
interest-bearing liabilities.
Westcorp originates both adjustable-rate mortgages (ARMs) and fixed-rate
mortgages. To minimize the interest rate risk associated with its real estate
loan portfolio, Westcorp generally retains the ARMs in its own loan portfolio
and sells its fixed-rate loans in the secondary market with servicing rights
retained. Westcorp has also purchased mortgage servicing rights (PMSRs) which
act as a potential hedge against rising interest rates. During the first
quarter of 1995, Westcorp purchased rights to service $307 million of single
family residence mortgage loans for $3.3 million. At March 31, 1995, Westcorp
serviced $1.7 billion in mortgage real estate loans for others. ARMs and
adjustable-rate mortgage-backed securities (MBS) amounted to 77% of the total
mortgage loans and MBS held by Westcorp at March 31, 1995. Interest rates
generally adjust on a monthly, semiannual or annual basis with 98% of
Westcorp's adjustable products adjusting monthly.
Westcorp also originates fixed-rate consumer loans. To minimize interest rate
risk associated with its consumer loan portfolio, Westcorp has sold
approximately two-thirds of its consumer loan production and retained the
servicing rights and a portion of the interest payable. The interest rate
passed through to the purchasers of those consumer loans is fixed, which
provides off balance sheet match funding for the majority of Westcorp's
consumer loans. The consumer loans retained on balance sheet have an average
life of 1.8 years. At March 31, 1995, Westcorp serviced $1.3 billion in
consumer loans for others.
Approximately 25% of Westcorp's other borrowed funds at March 31, 1995 had
fixed rates and maturities greater than one year. Subordinated debentures,
which represent 64% of this total, are redeemable in five years and mature in
eight years.
Westcorp has entered into or committed to interest rate swaps and interest rate
caps as hedges against market value changes in designated portions of its MBS
portfolio. At March 31, 1995, swaps with a notional amount of $111 million and
caps totalling $220 million were outstanding.
The sensitivity of earnings to interest rate changes may be measured by the
difference, or gap, between the amount of assets and liabilities scheduled to
reprice, based on certain assumptions, within the same period expressed as a
percentage of interest-earning assets. Conceptually, the lower the amount of
this gap, the less sensitive earnings are to interest rate changes. A positive
gap means an excess of assets over liabilities repricing during the same
period. However, this method of measuring interest rate sensitivity does not
take into account the differing repricing characteristics of various types of
assets and liabilities. Thus, certain assets and liabilities that have similar
maturities or periods to repricing may react in different ways to changes in
market interest rates. For instance, Westcorp's ARMs are mainly tied to the
Eleventh District Cost of Funds (COFI) which typically lags the market, and
also generally have restrictions on the maximum amounts of periodic and/or
total changes in interest rates and payments. On the other hand, maturing
borrowings have no such restrictions and will reprice at current market rates.
Overall, Westcorp's interest-bearing liabilities react to changes in market
interest rates faster than do its interest-earning assets. This tends to
decrease Westcorp's net interest margin during a period of rising rates.
The following table illustrates the projected interest rate maturities, based
upon certain assumptions,
21
<PAGE> 22
regarding the major asset and liability categories of Westcorp at March 31,
1995. The interest rate sensitivity of Westcorp's assets and liabilities
illustrated in the following table could vary substantially if different
assumptions were used or actual experience differs from the assumptions set
forth.
22
<PAGE> 23
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
AT MARCH 31, 1995
WITHIN 3 MONTHS 1 YEAR TO 3 YEARS TO AFTER 5
3 MONTHS TO 1 YEAR 3 YEARS 5 YEARS YEARS TOTAL
---------- ---------- ---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Investment securities $ 26,430 $ 17,803 $ 70,980 $ 2,959 $ 118,172
Other investments $ 167,768 571 168,339
Mortgage-backed securities 144,999 73,398 45,627 43,787 254,169 561,980
Consumer loans (1) 63,617 158,236 229,235 76,824 3,528 531,440
Mortgage loans:
Adjustable rate (2) 972,958 248,299 11,633 768 1,233,658
Fixed rate (2) 4,808 12,241 25,971 17,101 35,941 96,062
Construction (2) 9,794 9,794
---------- ---------- ---------- -------- ------- ----------
Total interest earning assets 1,363,944 519,175 330,269 209,460 296,597 2,719,445
Interest bearing liabilities:
Savings deposits:
Passbook/statement
accounts(3) 4,507 12,113 23,976 15,386 27,596 83,578
Money market deposit
accounts (3) 36 96 189 121 214 656
Certificate accounts (4) 299,009 972,515 370,201 31,089 247 1,673,061
FHLB advances (4) 5,000 16,000 47,000 6,500 6,500 81,000
Other borrowings (4) 512,061 14 31 103,975 616,081
---------- ---------- ---------- -------- ------- ----------
Total interest bearing
liabilities 820,613 1,000,738 441,397 53,096 138,532 2,454,376
---------- ---------- ---------- -------- ------- ----------
Excess interest earning
assets (liabilities) 543,331 (481,563) (111,128) 156,364 158,065 265,069
Effect of hedging activities 218,000 (100,000) (50,000) (33,000) (35,000)
---------- ---------- ---------- -------- ------- ----------
Hedged excess $ 761,331 $ (581,563) $ (161,128) $123,364 $123,065 $ 265,069
========== ========== ========== ======== ======== ==========
Cumulative excess $ 761,331 $179,768 $18,640 $142,004 $265,069 $ 265,069
========== ========== ========== ======== ======== ==========
Cumulative excess as a
percentage of total assets 25.98% 6.13% 0.64% 4.85% 9.04% 9.04%
</TABLE>
(1) Based on contractual maturities adjusted by Westcorp's historical
prepayment rate.
(2) Based on interest rate repricing adjusted for projected prepayments.
(3) Based on assumptions established by the Office of Thrift Supervision.
(4) Based on contractual maturity.
23
<PAGE> 24
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1995 was
$0.6 million compared to $4.2 million during the comparable period of 1994.
Westcorp recorded lower provisions for loan losses for the first three months
of 1995 compared to 1994 as a result of lower chargeoffs and improved asset
quality.
OTHER INCOME
Total other income decreased for the three months ended March 31, 1995 compared
to the same period in 1994. Other income is generated from automobile lending
activities, mortgage banking activities, and other ancillary sources.
AUTOMOBILE LENDING
Westcorp originates and sells automobile sales contracts with servicing rights
retained in the secondary market through a grantor trust structure. Income
from automobile loan banking includes gain or loss from the sale of loans, loan
servicing income net of amortization of capitalized servicing, and other
related income such as document fees and late charges. For the three months
ended March 31, 1995, automobile lending generated income of $17.1 million
compared to $20.3 million for the same period of 1994.
During the three months ended March 31, 1995, net gain on automobile loan sales
totaled $1.1 million. This compares to gain from loan sales of $2.2 million
for the three months ended March 31, 1994. The lower gain on sales during 1995
are a result of narrower interest margins driven by a rising interest rate
environment, which affects the pricing of loan sales. Automobile loans sold
during the first three months of 1995 totaled $190 million compared to $200
million during the first three months of 1994. On April 4, 1995, Westcorp sold
an additional $190 million of automobile loans.
Net loan servicing income totaled $11.2 million for the three months ended
March 31, 1995, compared to $15.2 million for the comparable period of 1994.
Westcorp serviced $1.3 billion of automobile loans for others at March 31, 1995
compared to $1.1 billion at March 31, 1994.
Automobile loan banking income for the three month period ended March 31, 1995
and 1994 is summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
---------------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net gain from sale of
automobile loans $1,126 $2,204
Loan servicing income, net 11,197 15,176
Other 4,811 2,912
------- -------
$17,134 $20,292
======= =======
</TABLE>
MORTGAGE BANKING
Westcorp originates mortgage loans for sale in the secondary market. Mortgage
banking operations include gain and loss on the sale of loans, loan servicing
income net of amortization of capitalized servicing, and other
24
<PAGE> 25
income which is primarily late charges. During the three months ended March
31, 1995, mortgage banking generated income of $1.5 million compared to income
of $1.0 million for the comparable period of 1994.
Loss on sales of mortgage loans for the three months ended March 31, 1995
totaled $90 thousand compared to gain on sales of mortgage loans of $142
thousand during the comparable period of 1994. Gain and loss on mortgage loan
sales are directly related to the overall interest rate environment. During
1995, interest rates have increased for mortgage loans in contrast to the
declining interest rate environment during 1993 and early 1994. This change in
the interest rate environment has adversely affected loan volumes and the
pricing of mortgage loans. Loans sold during the first three months of 1995
totaled $5.2 million compared to $257 million for the first three months of
1994. Mortgage loans held for sale increased from $3.0 million at December 31,
1994 to $10.3 million at March 31, 1995.
Net loan servicing income increased to $1.3 million for the three months ended
March 31, 1995 compared to $0.6 million for the comparable period of 1994 as a
result of a larger servicing portfolio. At March 31, 1995, Westcorp serviced
$1.7 billion of mortgage loans for others compared to $1.4 billion at March 31,
1994.
Mortgage banking income for the three months ended March 31, 1995 and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
--------------------------
1995 1994
------ ------
<S> <C> <C>
Net (loss) gain from sale of
mortgage loans $ (90) $ 142
Loan servicing income, net 1,280 570
Other 264 306
------ ------
$1,454 $1,018
====== ======
</TABLE>
MISCELLANEOUS
Other sources of income include insurance income and real estate operations.
Insurance income is generated primarily from commissions earned on the sale of
loan-related insurance products as well as insurance-related investment
products. Insurance income for the three months ended March 31, 1995, totaled
$0.6 million compared to $2.1 million for the same period in 1994.
Real estate operations include the ongoing costs of operations and disposition
associated with Westcorp's investments in joint ventures and REO. Real estate
operations earned $0.5 million in the three months ended March 31, 1995
compared to a loss of $2.0 million for the same period in 1994. The changes
between quarters is primarily a result of reduced expenses on nonperforming
assets and increased gain on sales of REO.
OTHER EXPENSES
Other expenses consists of compensation and benefits, occupancy expense,
insurance, and other operating expenses. Other expenses increased to $26.5
million for the three months ended March 31, 1995 compared to $23.4 million
for the same period in 1994. The increase is primarily in compensation and
benefits and
25
<PAGE> 26
is a function of increased loan servicing portfolios, and expansion of
operations into additional states. The ratio of annualized operating expense
to average serviced loans was 2.4% for the three months ended March 31, 1995
compared to 2.5% at March 31, 1994.
INCOME TAXES
The effective tax rates for the three months ended March 31, 1995 and 1994 were
41.7% and 45.3%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
Westcorp has diversified sources of funds generated through its operations.
Primary sources include deposits, loan principal and interest payments
received, sale of mortgage loans and consumer loans, sale of mortgage-backed
securities ("MBS") and the maturity or sale of investment securities. Other
sources include commercial paper, Federal Home Loan Bank advances and reverse
repurchase agreements. Prepayments on loans and mortgage-backed securities and
deposit inflows and outflows are affected significantly by interest rates, real
estate sales activity and general economic conditions.
Westcorp uses these sources to meet its business needs which include funding
maturing certificates of deposits and savings withdrawals, repayment of
borrowings, funding loan and investment commitments and real estate operations,
meeting operating expenses, and maintaining minimum regulatory liquidity and
capital levels.
During the first quarter of 1995, Westcorp purchased $145 million of MBS to
more profitably employ its excess capital and enhance interest spreads. These
securities have been segregated, on an individual security basis, into the
available for sale portfolio and the held to maturity portfolio in the
financial statements in accordance with management's intent and ability to hold
to maturity. These purchases included both fixed and adjustable rate MBS.
Westcorp's wholly-owned subsidiary, Western Financial Savings Bank, F.S.B.,
(the "Bank") is a federally chartered savings bank. As such, it is subject to
certain minimum capital requirements. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("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%
or greater, a Tier 1 (i.e., core) risk-based capital ratio of 6% or greater, a
leverage ratio (i.e., core) of 5% or greater and not be subject to any OTS
order or directive to meet and maintain a specific capital level for any
capital measure. At March 31, 1995 the Bank had a Tier 1 risk-based capital
ratio of 8.19% and a leverage ratio of 6.29%. The Bank currently meets all the
requirements of a "well capitalized" institution. Its regulatory capital
position at March 31, 1995 was as follows:
26
<PAGE> 27
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
------------------- -------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Regulatory capital $187,389 6.28%(1) $187,389 6.28%(1) $266,192 11.64%(2)
Minimum OTS capital
requirement 44,725 1.50% 89,450 3.00% 182,938 8.00%
-------- ---- -------- ---- -------- -----
Excess capital $142,664 4.78% $ 97,939 3.28% $ 83,254 3.64%
======== ==== ======== ==== ======== =====
</TABLE>
(1) As a percentage of total adjusted assets.
(2) As a percentage of risk-weighted assets.
As a member of the FHLB System, the Bank is required to maintain a specified
ratio of cash, short-term United States government and other qualifying
securities to net withdrawable accounts and borrowings payable in a year or
less. The required liquidity ratio is currently 5%. The Bank has maintained
liquidity in excess of the required amount in 1995.
27
<PAGE> 28
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
In 1994, Westcorp Financial Services, Inc. ("WFS"), the consumer
lending subsidiary of the Bank, was served with a lawsuit on behalf of
the general public that seeks injunctive relief, restitution and
damages for alleged violations of certain consumer protection and
Business and Profession Codes involving the placement of collateral
protection insurance by the lender under the contractual provisions on
its automobile loans. The class has been certified and WFS is
vigorously defending. It is not yet possible to estimate potential
liability or the likelihood thereof.
Westcorp or its subsidiaries are also involved as parties to certain
legal proceedings incidental to their businesses. Westcorp believes
that the outcome of such proceedings will not have a material effect
upon Westcorp's business or financial condition.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
None
</TABLE>
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTCORP
- -------------------------------------------------------------------------------
(Registrant)
Date: May 12, 1995 By: /s/Joy Schaefer
-----------------------------
Joy Schaefer
Vice President and
Chief Operating Officer
Date: May 12, 1995 By: /s/Lee A. Whatcott
-----------------------------
Assistant Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
29
<PAGE> 1
Exhibit 11 - Computation of Earnings Per Share (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average and common equivalent shares 24,387,654 24,198,145
Net income $ 6,611,558 $ 3,927,733
=========== ===========
Net income per share $ 0.27 $ 0.16
=========== ===========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average and common equivalent shares 24,486,713 24,198,145
Net income $ 6,611,558 $ 3,927,733
=========== ===========
Net income per share $ 0.27 $ 0.16
=========== ===========
</TABLE>
(1) All amounts have been restated to reflect the effect of the 5% stock
dividend paid on April 12, 1995.
30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-31-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 154,043
<INT-BEARING-DEPOSITS> 571
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 277,538
<INVESTMENTS-CARRYING> 402,614
<INVESTMENTS-MARKET> 399,527
<LOANS> 1,870,954
<ALLOWANCE> 40,670
<TOTAL-ASSETS> 2,930,620
<DEPOSITS> 1,757,295
<SHORT-TERM> 512,056
<LIABILITIES-OTHER> 257,526
<LONG-TERM> 184,975
<COMMON> 23,148
0
0
<OTHER-SE> 195,620
<TOTAL-LIABILITIES-AND-EQUITY> 2,930,620
<INTEREST-LOAN> 37,085
<INTEREST-INVEST> 10,089
<INTEREST-OTHER> 1,882
<INTEREST-TOTAL> 49,056
<INTEREST-DEPOSIT> 22,886
<INTEREST-EXPENSE> 30,832
<INTEREST-INCOME-NET> 18,224
<LOAN-LOSSES> 638
<SECURITIES-GAINS> 507
<EXPENSE-OTHER> 26,495
<INCOME-PRETAX> 11,334
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</TABLE>
