<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 SEPTEMBER 30, 1997
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 1-9910
-----------------------------
WESTCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 51-0308535
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 PASTEUR, IRVINE, CALIFORNIA 92618-3816
-----------------------------------------
(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 September 30, 1997, the registrant had 26,255,925 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 37.
<PAGE> 2
WESTCORP AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1997
TABLE OF CONTENTS
--------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 5
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
Exhibit Index 35
Exhibit 11 Computation of Earnings Per Share 36
Exhibit 27 Financial Data Schedule 37
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash, interest-bearing deposits with other financial institutions and
other short-term investments $ 75,875 $ 138,378
Investment securities held to maturity (fair value 1997: $4,697; 1996: $3,160) 4,706 3,171
Investment securities available for sale 126,626 142,344
Mortgage-backed securities held to maturity (fair value 1997: $397,722;
1996: $442,229) 390,705 438,662
Mortgage-backed securities available for sale 593,551 410,886
Loans receivable, net of allowance for loan losses (1997: $34,517;
1996: $40,211) 1,182,042 1,232,235
Loans held for sale 722,302 458,973
Amounts due from trusts 259,099 191,469
Retained interests in securitized assets 172,335 121,597
Capitalized servicing rights 36,530 28,640
Premises and equipment, net 91,997 82,137
Real estate owned, net 6,697 11,279
Interest receivable 18,595 15,794
Excess of purchase cost over net assets acquired 867 930
Federal Home Loan Bank stock 41,084 31,967
Other assets 34,351 26,583
------------ ------------
$ 3,757,362 $ 3,335,045
============ ============
LIABILITIES
Deposits $ 1,937,816 $ 1,873,942
Securities sold under agreements to repurchase 303,088 287,412
Short-term borrowings 119,770 55,945
Federal Home Loan Bank advances 204,573 226,000
Amounts held on behalf of trustee 513,868 393,449
Other liabilities 54,345 47,058
------------ ------------
3,133,460 2,883,806
SUBORDINATED DEBENTURES 251,800 104,917
MINORITY INTERESTS 30,650 28,392
SHAREHOLDERS' EQUITY:
Common stock, par value $1.00 per share; authorized 45,000,000 shares; issued
and outstanding 26,255,925 shares as of September 30, 1997 and
25,996,618 shares as of December 31, 1996 26,256 25,997
Paid-in capital 186,854 185,742
Retained earnings 123,976 105,108
Unrealized gains on securities available for sale and retained interests
in securitized assets, net of tax 4,366 1,083
------------ ------------
341,452 317,930
------------ ------------
$ 3,757,362 $ 3,335,045
============ ============
</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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income: (Dollars in thousands, except share amounts)
Loans, including fees $ 49,452 $ 42,861 $ 140,478 $ 127,437
Mortgage-backed securities 17,976 15,055 51,059 41,662
Investment securities 1,768 2,056 5,623 5,680
Other 2,104 1,259 5,228 4,380
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 71,300 61,231 202,388 179,159
Interest expense:
Deposits 27,585 24,447 80,000 74,143
Federal Home Loan Bank advances and other borrowings 9,672 6,048 25,414 17,236
Securities sold under agreements to repurchase 4,919 3,587 13,276 11,561
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 42,176 34,082 118,690 102,940
------------ ------------ ------------ ------------
NET INTEREST INCOME 29,124 27,149 83,698 76,219
Provision for loan losses 2,223 3,097 9,196 10,150
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 26,901 24,052 74,502 66,069
Noninterest income:
Automobile lending 40,753 38,677 135,100 111,198
Mortgage banking 6,194 4,629 18,350 14,370
Investment and mortgage-backed
securities gains (losses) 1,266 (146) 2,103 (2,029)
Insurance income 1,856 4,935 4,436 10,621
Real estate operations 587 (905) (39) (2,256)
Rental operations (336) (128) (949) (212)
Miscellaneous 1,100 267 1,805 1,410
------------ ------------ ------------ ------------
TOTAL NONINTEREST INCOME 51,420 47,329 160,806 133,102
Noninterest expense:
Salaries and employee benefits 36,010 27,564 106,327 78,895
Occupancy 3,941 2,766 11,611 7,719
Insurance* 485 13,197 1,234 15,596
Miscellaneous 20,568 18,151 62,394 45,954
------------ ------------ ------------ ------------
TOTAL NONINTEREST EXPENSE 61,004 61,678 181,566 148,164
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 17,317 9,703 53,742 51,007
Income taxes 7,268 4,237 22,655 21,401
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 10,049 5,466 31,087 29,606
Minority interest in earnings of subsidiaries 1,121 1,987 4,378 5,603
------------ ------------ ------------ ------------
NET INCOME $ 8,928 $ 3,479 $ 26,709 $ 24,003
============ ============ ============ ============
NET INCOME PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $ 0.34 $ 0.13 $ 1.01 $ 0.92
============ ============ ============ ============
CASH DIVIDENDS DECLARED PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS $ 0.10 $ 0.10 $ 0.30 $ 0.30
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS 26,488,219 26,265,693 26,331,254 26,186,500
============ ============ ============ ============
</TABLE>
*Includes the $12.0 million one-time assessment to recapitalize the Savings
Association Insurance Fund in the third quarter of 1996.
- ----------
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 26,709 $ 24,003
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Provision for loan losses 9,196 10,150
Depreciation and amortization 11,672 7,392
Amortization of retained interests in securitized assets 33,165 50,783
Amortization of capitalized servicing rights 6,398 3,956
(Increase) decrease in interest receivable (2,801) 2,010
(Gain) loss on sale of investment securities and mortgage-backed securities (1,744) 2,116
Gain on sale of loans (38,755) (40,263)
Gain on sale of capitalized servicing (1,451)
Gain on sale of real estate owned (2,259) (1,458)
Increase (decrease) in interest payable 610 (1,208)
Net change in loans held for sale (224,574) 62,019
Other, net 145 (13,714)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (183,689) 105,786
INVESTING ACTIVITIES:
Investment securities held to maturity:
Purchases (1,640) (1,175)
Proceeds from maturities 103
Investment securities available for sale:
Purchases (29,937) (42,774)
Proceeds from sale 1,915
Proceeds from maturities 48,000 33,000
Mortgage-backed securities held to maturity:
Purchases (934) (336)
Payments 47,502 61,399
Mortgage-backed securities available for sale:
Purchases (298,289) (299,311)
Proceeds from sale 94,776 197,137
Payments 25,624 25,903
Net change in loans receivable 26,757 44,729
Increase in retained interests in securitized assets (83,359) (75,191)
Increase in capitalized servicing rights (17,488) (12,149)
Proceeds from sale of capitalized servicing rights 4,651
Additions to premises and equipment (20,749) (13,479)
Disposition of real estate owned 21,288 14,806
Purchase of FHLB stock (18,171) (3,621)
Proceeds from sale of FHLB stock 9,054 1,771
Increase in amounts due from trusts (67,630) (60,230)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (260,442) (127,606)
</TABLE>
- ----------
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in deposits $ 63,874 $ (32,025)
Increase (decrease) in securities sold under agreements to repurchase 15,676 (165,394)
Increase in short-term borrowings 63,825 42,589
(Decrease) increase in FHLB advances, net (21,427) 33,000
Increase in amounts held on behalf of trustee 120,419 52,577
Increase in subordinated debentures 146,366
Increase in minority interest 2,354 4,441
Proceeds from issuance of common stock 845 962
Repurchase of subsidiary stock (2,462)
Cash dividends (7,842) (7,523)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 381,628 (71,373)
--------- ---------
Decrease in cash and cash equivalents (62,503) (93,193)
Cash and cash equivalents at beginning of period 138,378 162,880
--------- ---------
Cash and cash equivalents at end of period $ 75,875 $ 69,687
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 118,080 $ 104,146
Income taxes 5,051 17,884
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Acquisition of real estate acquired through foreclosure $ 14,447 $ 19,088
Unrealized gains (losses) on securities available for sale and retained
interests in securitized assets, net of tax 3,283 (594)
Change in subsidiary's equity due to unrealized gains on retained interests
in securitized assets 75
</TABLE>
- ----------
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - 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 (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
Certain amounts from the 1996 Consolidated Financial Statements have been
reclassified to conform to the 1997 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, Westcorp (the "Company") adopted Statement of
Financial Accounting Standards No. 125 ("SFAS No. 125"), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
See "Note G - Securitized Assets" in the Company's Unaudited Consolidated
Financial Statements.
In February 1997, the Financial Accounting Standards Board ("FASB") issued "SFAS
No. 128, Earnings per Share", which is required to be adopted on December 31,
1997. Earlier application of SFAS 128 is not permitted. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The impact of SFAS 128 on the calculation of primary earnings
per share and fully diluted earnings per share is not expected to be material.
In June 1997, the FASB issued "SFAS No. 130, Reporting Comprehensive Income".
This statement is effective with the year-end 1998 financial statements;
however, a total for comprehensive income is required in the financial
statements of interim periods beginning with the first quarter of 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. This Statement establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. It requires that a company classify items of other
comprehensive income, as defined by accounting standards, by their nature (e.g.,
unrealized gains or losses on securities available for sale and retained
interests in securitized assets) in a financial statement with the same
prominence as other financial statements, but does not require a specific format
for that statement. The Company is in the process of determining its preferred
format. The accumulated balance of other comprehensive income is to be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the consolidated statements of financial condition.
7
<PAGE> 8
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1997, the FASB issued "SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information." This Statement provides guidance for the
way public enterprises report information about operating segments in annual
financial statements and requires selected information about operating segments
in annual financial statements and in interim financial reports. It also
requires certain related disclosures about products and services, geographic
areas and major customers. The segment and other information disclosure are
required for the year ended December 31, 1998. In the initial year of
application, comparative information for earlier years is to be restated.
DERIVATIVES
The Company has entered into or committed to interest rate caps, swaps and
two-year Treasury securities forward agreements as hedges against market value
changes in designated portions of its mortgage backed securities and loans held
for sale portfolios. Recognition of unrealized gains and losses on these
contracts are deferred until the sale of mortgage-backed securities or loans.
When the related mortgage-backed securities or loans are sold, the deferred
gains or losses from these contracts are recognized in the Statements of Income
as a component of mortgage banking and investment and mortgage-backed securities
gains and losses.
8
<PAGE> 9
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S. Government
agencies and corporations $ 1,502 $ 9 $ 1,493
Other 3,204 3,204
------------ ------------ ------------ ------------
$ 4,706 $ 9 $ 4,697
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S. Government
agencies and corporations $ 1,504 $ 11 $ 1,493
Other 1,667 1,667
------------- ------------- ------------- -------------
$ 3,171 $ 11 $ 3,160
============= ============= ============= =============
</TABLE>
NOTE C - INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S. Government
agencies and corporations $ 125,173 $ 360 $ 546 $ 124,987
Obligations of states and political
subdivisions 1,511 11 6 1,516
Other 176 53 123
------------- ------------- ------------- -------------
$ 126,860 $ 371 $ 605 $ 126,626
============= ============= ============= =============
</TABLE>
9
<PAGE> 10
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of other U.S. Government
agencies and corporations $ 141,981 $ 1,175 $ 140,806
Obligations of states and political
subdivisions 1,512 $ 1 1,513
Other 79 54 25
------------- ------------- ------------- -------------
$ 143,572 $ 1 $ 1,229 $ 142,344
============= ============= ============= =============
</TABLE>
NOTE D - MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 304,045 $ 7,700 $ 1,422 $ 310,323
FNMA participation certificates 78,332 454 78,786
FHLMC participation certificates 6,359 285 6,644
Other participation certificates 1,969 1,969
------------- ------------- ------------- -------------
$ 390,705 $ 8,439 $ 1,422 $ 397,722
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 346,098 $ 5,447 $ 2,497 $ 349,048
FNMA participation certificates 84,005 394 84,399
FHLMC participation certificates 7,358 223 7,581
Other participation certificates 1,201 1,201
------------- ------------- ------------- -------------
$ 438,662 $ 6,064 $ 2,497 $ 442,229
============= ============= ============= =============
</TABLE>
10
<PAGE> 11
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------- ------------ ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 510,380 $ 10,731 $ 3,185 $ 517,926
FNMA participation certificates 68,323 9 269 68,063
FHLMC participation certificates 7,562 30 30 7,562
-------------- ------------ ------------ --------------
$ 586,265 $ 10,770 $ 3,484 $ 593,551
============== ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $ 318,505 $ 5,206 $ 1,935 $ 321,776
FNMA participation certificates 72,214 61 292 71,983
FHLMC participation certificates 17,092 118 83 17,127
-------------- ------------ ------------ -------------
$ 407,811 $ 5,385 $ 2,310 $ 410,886
============== ============ ============ =============
</TABLE>
11
<PAGE> 12
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - NET LOANS RECEIVABLE
Net loans receivable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate:
Mortgage $ 1,600,811 $ 1,435,789
Construction 11,264 5,501
------------- -------------
Total real estate loans 1,612,075 1,441,290
Less: Undisbursed loan proceeds 4,202 2,398
------------- -------------
Net real estate loans 1,607,873 1,438,892
Consumer:
Sales contracts 256,832 267,715
Other 78,442 50,911
Less: Unearned discounts (27,636) (33,768)
------------- -------------
Total consumer loans 307,638 284,858
Commercial 22,257 7,867
------------- -------------
Total loans 1,937,768 1,731,617
Allowance for loan losses (34,517) (40,211)
Net deferred loan costs (fees) 1,093 (198)
------------- -------------
Total 1,904,344 1,691,208
Less: Loans held for sale
Mortgage 538,857 272,670
Consumer 183,445 186,303
------------- -------------
Total loans held for sale 722,302 458,973
------------- -------------
Net loans receivable $ 1,182,042 $ 1,232,235
============= =============
</TABLE>
Loans serviced by the Company for the benefit of others totalled approximately
$8.0 billion and $7.2 billion at September 30, 1997 and December 31, 1996,
respectively. These amounts are not reflected in the accompanying Unaudited
Consolidated Statements of Financial Condition.
NOTE G - SECURITIZED ASSETS
SFAS 125 requires that, following a transfer of financial assets, an entity must
recognize the assets it controls and the liabilities it has incurred, and
derecognize assets for which control has been surrendered and liabilities that
have been extinguished. SFAS 125 defines two separate financial assets retained
at the time of securitization or sale, retained interests in securitized assets
("RISA"), which represents the excess spread created from securitization or
sale, and capitalized servicing rights ("CSR") which represents the benefit
derived from retaining the rights to service loans securitized or sold. Previous
accounting guidance did not separately distinguish these rights.
12
<PAGE> 13
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RETAINED INTERESTS IN SECURITIZED ASSETS
RISA capitalized upon securitization of automobile loans represents the present
value of the estimated future earnings to be received by the Company from the
excess spread created in securitization transactions. Excess spread is
calculated by taking the difference between the coupon rate of the automobile
loans sold and the certificate rate paid to the investors less contractually
specified servicing and guarantor fees.
Prepayment and credit loss assumptions are utilized to project future earnings
and are based upon historical experience. Credit losses are estimated using a
cumulative loss rate estimated by management to reduce the likelihood of asset
impairment. All assumptions used are evaluated each quarter and adjusted, if
appropriate, to reflect actual performance of the automobile loans.
Future earnings are discounted at a rate management believes to be
representative of market at the time of securitization. The balance of the RISA
is amortized against actual excess spread income earned on a monthly basis over
the expected repayment life of the underlying automobile loans. RISAs are
classified in a manner similar to available for sale securities and as such are
marked to market each quarter. Market value changes are calculated by
discounting the excess spread using a current market discount rate. Any changes
in the market value of the RISA is reported as a separate component of
shareholders' equity as an unrealized gain or loss, net of applicable taxes.
The following table presents the activity of the RISA:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1997
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance $ 159,487 $ 121,597
Additions 31,977 83,359
Amortization (19,734) (33,165)
Change in unrealized gains on RISA 605 544
--------------- ---------------
Ending balance $ 172,335 $ 172,335
=============== ===============
</TABLE>
When initially valuing the RISA, the Company established an off balance sheet
allowance for expected future credit losses. The allowance is based upon
historical experience and management's estimate of future performance regarding
credit losses and includes an unallocated amount to reduce the likelihood of
impairment of the RISA. The amount is reviewed periodically and adjustments are
made if actual experience or other factors indicate that future performance may
differ from management's prior expectations.
13
<PAGE> 14
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the estimated future undiscounted retained interest
earnings to be received from securitizations. Estimated future undiscounted RISA
earnings are calculated by taking the difference between the coupon rate of the
automobile loans sold and the certificate rate paid to the investors, less the
contractually specified servicing fee of 1.0% and guarantor fees, after giving
effect to estimated prepayments and assuming no losses. To arrive at the RISA,
this amount is reduced by the off balance sheet allowance established for
potential future losses and by discounting to present value. Prior to the
adoption of SFAS 125, the Company reduced excess spread by the actual cost to
service automobile loans instead of the contractually specified servicing fee.
The actual cost to service automobile loans is now included in the computation
of the CSR.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Estimated net undiscounted RISA earnings $ 429,432
Off balance sheet allowance for losses (240,280)
Discount to present value (16,817)
--------------
Retained interests in securitized assets $ 172,335
==============
Outstanding balance of automobile loans sold through securitizations $ 3,359,467
Off balance sheet allowance for losses as a percent of automobile
loans sold through securitizations 7.15%
</TABLE>
The Company believes that the off balance sheet allowance for losses is
currently adequate to absorb potential losses in the sold portfolio. Had SFAS
125 been in effect at December 31, 1996, the off balance sheet allowance for
losses as a percent of automobile loans sold through securitizations would have
been 8.03%.
CAPITALIZED SERVICING RIGHTS
Capitalized servicing rights consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Purchased mortgage servicing rights $ 16,828 $ 20,994
Originated mortgage servicing rights 22,389 9,051
Impairment allowance for mortgage servicing rights (2,687) (1,405)
------------- -------------
$ 36,530 $ 28,640
============= =============
</TABLE>
The Company retains the rights to service most loans securitized or sold. CSR
assets represent the present value of the estimated future earnings to be
received from servicing securitized or sold loans. These earnings are calculated
by estimating future servicing revenues, including servicing fees, late charges,
other ancillary income, and float benefit, less the actual cost to service
loans.
14
<PAGE> 15
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the three and nine months ended September 30, 1997, the Company
capitalized servicing rights totalling $7.0 million and $17.5 million,
respectively, compared to $2.7 million and $17.1 million for the comparable
periods of 1996. The mortgage servicing rights are included in capitalized
servicing rights and the amortization is a component of mortgage banking in
noninterest income.
The fair value of the CSRs was $47.0 million and $38.3 million at September 30,
1997 and December 31, 1996, respectively. Fair value was determined based on the
present value of estimated future earnings. Significant assumptions were based
upon prepayment, default, servicing cost and discount rate. For the purpose of
estimated fair value, CSRs are stratified on the basis of loan type, loan coupon
and loan term.
SFAS 125 also requires that all CSRs be evaluated for impairment based on the
excess of the carrying amount of the CSRs over their fair value.
Amortization of capitalized servicing rights are reflected as a component of
mortgage banking in noninterest income. Amortization expense for the three and
nine months ended September 30, 1997 was $2.8 million and $6.4 million,
respectively, compared to $1.4 million and $4.0 million for the comparable
periods of 1996.
NOTE H - DIVIDENDS
The Company paid a cash dividend of $0.10 per share on March 4, May 28 and
August 27, 1997. On October 29, 1997, the Company announced a cash dividend of
$0.10 per share for shareholders of record as of November 13, payable November
24, 1997.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Western Financial Bank, a wholly-owned subsidiary of the Company issued $150
million of 8.875% subordinated capital debentures due 2007 on July 25, 1997.
Proceeds were used to (1) fund the operations of WFS Financial Inc, a consumer
lending subsidiary, (2) pay a dividend to the Company and (3) use the balance
for general corporate purposes.
Total assets increased $422 million or 12.7% to $3.8 billion at September 30,
1997 from $3.3 billion at December 31, 1996. This increase is primarily the
result of an increase in mortgage-backed securities available for sale and loans
held for sale.
LOANS
Loans (including loans held for sale), net of unearned discounts and undisbursed
loan proceeds, increased $213 million or 12.6% from $1.7 billion at December 31,
1996 to $1.9 billion at September 30, 1997. The increase is due to an increase
in the volume of origination. The Company has retained the servicing on
substantially all loans sold and receives a servicing fee therefrom. Included in
the portfolio are loans held for sale of which $539 million are mortgage loans
secured primarily by single family residences and $183 million which are
consumer loans secured by automobiles.
Consumer loan originations increased by $53.0 million and $207 million to $614
million and $1.8 billion for the three and nine months ended September 30, 1997
from $560 million and $1.6 billion for the same periods in 1996, which represent
9.5% and 13.0% increases in production. The Company securitized $600 million and
$1.7 billion of automobile loans for the three and nine months ended September
30, 1997 compared with $535 million and $1.5 billion for the same periods in
1996. At September 30, 1997 the Company conducts its automobile lending
operations through 143 offices in 36 states compared to 125 offices in 27 states
at September 30, 1996.
Real estate originations increased $406 million and $816 million to $700 million
and $1.7 billion for the three and nine months ended September 30, 1997 from
$294 million and $854 million for the same periods in 1996, which represent 138%
and 95% increases in production. The increase in real estate originations is the
result of a more favorable market environment in California and a better
utilization of the Company's expanding origination capacity. The following table
sets forth the loan origination, purchase and sale activity of the Company for
the periods indicated, excluding net deferred loan fees:
16
<PAGE> 17
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------
1997 1996
------------------------------ ---------------------------------
MORTGAGE CONSUMER MORTGAGE CONSUMER
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $ 1,533,273 $ 320,894 $ 1,329,369 $ 306,719
Originations (1) 700,496 613,769 294,086 560,732
Sales (2) (520,245) (600,000) (225,296) (535,000)
Principal reductions (3) (105,651) (27,025) (56,733) (16,235)
----------- ----------- ----------- -----------
Ending balance $ 1,607,873 $ 307,638 $ 1,341,426 $ 316,216
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
MORTGAGE CONSUMER MORTGAGE CONSUMER
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance $ 1,438,892 $ 284,858 $ 1,409,964 $ 335,625
Originations (1) 1,670,380 1,799,184 854,462 1,592,064
Sales (2) (1,296,308) (1,690,000) (747,206) (1,545,000)
Principal reductions (3) (205,091) (86,404) (175,794) (66,473)
----------- ----------- ----------- -----------
Ending balance $ 1,607,873 $ 307,638 $ 1,341,426 $ 316,216
=========== =========== =========== ===========
</TABLE>
- -------------
(1) Includes sales contracts purchased from automobile dealers.
(2) Loans sold or securitized for which the Company generally retains
servicing.
(3) Includes scheduled payments, prepayments and chargeoffs.
The real estate loan portfolio (including those classified as held for sale and
excluding net deferred loan costs) consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------ ------------------------
AMOUNT % AMOUNT %
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Single family residential loans:
First trust deeds $1,076,680 67.0% $ 925,353 64.3%
Second trust deeds 82,497 5.1 55,778 3.9
---------- ------- ---------- -------
1,159,177 72.1 981,131 68.2
Multifamily residential loans 434,026 27.0 453,425 31.5
Construction loans 11,264 0.7 5,501 0.4
Nonresidential loans 7,608 0.5 1,233 0.1
---------- ------- ---------- -------
1,612,075 100.3 1,441,290 100.2
Less: Undisbursed loan proceeds 4,202 0.3 2,398 0.2
---------- ------- ---------- -------
$1,607,873 100.0% $1,438,892 100.0%
========== ======= ========== =======
</TABLE>
17
<PAGE> 18
The Company's real estate portfolio consisted primarily of adjustable rate
mortgage loans (excluding net deferred loan costs) as shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------ ------------------------
AMOUNT % AMOUNT %
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate loans $ 355,667 22.1% $ 290,814 20.2%
Adjustable rate loans:
Negative amortization 762,744 47.5 831,701 57.8
Without negative amortization 489,462 30.4 316,377 22.0
---------- ------- ---------- -------
$1,607,873 100.0% $1,438,892 100.0%
========== ======= ========== =======
</TABLE>
The composition of the consumer loan portfolio, all of which is fixed rate, was
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------ ------------------------
AMOUNT % AMOUNT %
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Automobile loans, net $ 229,196 74.5% $ 233,947 82.1%
Other 78,442 25.5 50,911 17.9
---------- ------- ---------- -------
$ 307,638 100.0% $ 284,858 100.0%
========== ======= ========== =======
</TABLE>
MORTGAGE-BACKED SECURITIES
During the first nine months of 1997, the Company purchased $299 million and
sold $94.8 million of mortgage-backed securities ("MBS"). This is part of the
Company's continuing strategy to increase net interest income.
ASSET QUALITY
DELINQUENCY
The percent of loans 60 days or more delinquent remained constant at 1.1% at
September 30, 1997 and December 31, 1996. Delinquent loans by type of loan and
as a percentage of loans by type are summarized as follows at September 30, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
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 loans $ 3,174 0.3% $10,494 0.9% $13,668 1.2%
Multifamily residential loans 623 0.1 3,129 0.7 3,752 0.8
Consumer 1,948 0.7 830 0.3 2,778 1.0
Construction 395 5.6 395 5.6
------- ----- ------- ----- ------- -----
$ 5,745 0.3% $14,848 0.8% $20,593 1.1%
======= ===== ======= ===== ======= =====
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
December 31, 1996
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 loans $ 1,738 0.2% $13,528 1.4% $15,266 1.6%
Multifamily residential loans 358 0.1 1,398 0.3 1,756 0.4
Consumer 1,560 0.5 964 0.3 2,524 0.8
------- ----- ------- ----- ------- -----
$ 3,656 0.2% $15,890 0.9% $19,546 1.1%
======= ===== ======= ===== ======= =====
</TABLE>
NONPERFORMING ASSETS
Total nonperforming assets ("NPA") decreased $4.6 million or 13.9% to $28.4
million at September 30, 1997 compared to $33.0 million at December 31, 1996. At
September 30, 1997, NPAs as a percentage of total assets decreased to 0.8%
compared to 1.0% at December 31, 1996.
NPAs consist of nonperforming loans ("NPL") and real estate acquired through
foreclosure ("REO"). REOs are carried at lower of cost or fair value less
estimated disposition costs. NPLs are defined as all loans (other than consumer
loans which are charged off at 120 days) on nonaccrual, which include all
mortgage and commercial loans 90 days or more past due or impaired loans. When a
loan is designated as nonaccrual, all previously accrued interest is reversed.
Interest on nonperforming loans excluded from interest income decreased to $0.7
million at September 30, 1997 from $1.1 million at September 30, 1996.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The Company measures impairment
based on, among other factors, the fair value of the loan's collateral. At
September 30, 1997, impaired loans increased to $7.7 million from $6.9 million
at December 31, 1996.
NONPERFORMING LOANS
Nonperforming loans consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unimpaired loans placed on nonaccrual $ 13,998 $ 14,052
Impaired loans 7,688 6,887
------------ ------------
$ 21,686 $ 20,939
============ ============
</TABLE>
19
<PAGE> 20
Nonperforming loans by loan type consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Single family residential loans $ 12,897 $ 13,639
Multifamily 5-36 units 4,628 3,327
Multifamily 37+ units 3,891 3,973
Other 270
------------ ------------
$ 21,686 $ 20,939
============ ============
</TABLE>
The migration of nonperforming loans and real estate owned from December 31,
1996 to September 30, 1997 is shown below:
<TABLE>
<CAPTION>
SINGLE
FAMILY MULTIFAMILY MULTIFAMILY
TOTAL 1-4 UNITS 5 - 36 UNITS 37+ UNITS OTHER
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 20,939 $ 13,639 $ 3,327 $ 3,973
New nonperforming loans 19,685 15,372 2,863 1,180 $ 270
REO (11,859) (9,153) (1,525) (1,181)
Cures and payoffs (6,038) (5,027) (930) (81)
Chargeoffs (989) (989)
Transfers (52) (945) 893
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 $ 21,686 $ 12,897 $ 4,628 $ 3,891 $ 270
============ ============ ============ ============ ============
</TABLE>
REAL ESTATE OWNED
<TABLE>
<CAPTION>
SINGLE
FAMILY MULTIFAMILY MULTIFAMILY
TOTAL 1-4 UNITS 5 - 36 UNITS 37+ UNITS OTHER
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 12,063 $ 9,178 $ 2,515 $ 370
New REO 19,016 11,583 6,252 $ 1,181
Sales (20,210) (13,502) (5,527) (1,181)
Writedowns (3,388) (1,332) (1,946) (110)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 $ 7,481 $ 5,927 $ 1,294 $ - $ 260
============ ============ ============ ============ ============
</TABLE>
Assets secured by single family residential properties comprised the largest
portion of nonperforming assets. As of September 30, 1997, $12.9 million or
59.5% of NPLs and $5.9 million or 79.2% of REOs were secured by single family
residential properties.
20
<PAGE> 21
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
Consistent with loan volume, loan sales, losses, nonaccrual loans and other
relevant factors, the Company decreased its allowance for loan losses to $34.5
million for September 30, 1997 compared to $40.2 million for December 31, 1996.
While the Company's portfolio consists primarily of single family loans, no
single loan, borrower or series of loans comprise a significant portion of the
total portfolio. 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 by management to be
adequate to absorb potential losses in the loan portfolio.
The following table presents summarized data relative to the allowance for loan
losses:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total loans (2) $ 1,937,768 $ 1,731,617
Allowance for loan losses 34,517 40,211
Allowance for real estate losses 784 784
Loans past due 60 days or more 20,593 19,546
Nonperforming loans 21,686 20,939
Nonperforming assets (1) 28,383 33,002
Allowance for loan losses as a percent of:
Total loans (2) 1.8% 2.4%
Loans past due 60 days or more 167.6% 205.7%
Nonperforming loans 159.2% 192.0%
Total allowance for loan losses and real estate losses as a
percent of nonperforming assets 124.4% 124.2%
Nonperforming loans as a percent of total loans 1.1% 1.2%
Nonperforming assets as a percent of total assets 0.8% 1.0%
</TABLE>
- ----------
(1) Nonperforming loans and real estate owned.
(2) Loans, net of unearned discounts and undisbursed loan proceeds.
21
<PAGE> 22
The table below provides the activity of the allowance for loan losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 36,616 $ 42,066 $ 40,211 $ 39,260
Chargeoffs:
Mortgage loans (1,250) (1,888) (5,762) (4,324)
Consumer loans (4,075) (3,293) (11,611) (11,322)
-------- -------- -------- --------
(5,325) (5,181) (17,373) (15,646)
Recoveries:
Mortgage loans 1 55 16 2,008
Consumer loans 1,018 1,187 3,154 3,982
-------- -------- -------- --------
1,019 1,242 3,170 5,990
-------- -------- -------- --------
Net chargeoffs (4,306) (3,939) (14,203) (9,656)
Adjustments (1) (16) (687) 1,470
Provision for loan losses 2,223 3,097 9,196 10,150
-------- -------- -------- --------
Balance at end of period $ 34,517 $ 41,224 $ 34,517 $ 41,224
======== ======== ======== ========
Ratio of net chargeoffs during period to average
loans outstanding during the period (annualized) 0.84% 0.90% 0.96% 0.73%
======== ======== ======== ========
</TABLE>
- ----------
(1) Reclassification adjustments related to the acquisition of The Hammond
Company and its subsidiaries.
The allowance for real estate losses of $784 thousand remained constant at
September 30, 1997 and December 31, 1996.
22
<PAGE> 23
RESULTS OF OPERATIONS
SUMMARY
The Company reported net income of $8.9 million and $26.7 million for the three
and nine months ended September 30, 1997, compared to $3.5 million and $24.0
million for the comparable periods of 1996. The September 30, 1996 quarter's
results included a one-time pre-tax charge of $12.0 million for the special
assessment to recapitalize the Savings Association Insurance Fund ("SAIF").
Return on average assets was 0.94% and 0.98% for the three and nine months ended
September 30, 1997, compared to 0.44% and 0.99% for the same periods of 1996.
Return on average equity was 10.62% and 10.93% for the three and nine months
ended September 30, 1997, compared to 4.45% and 10.44% for the comparable
periods of 1996. Net income was primarily affected by the following factors:
- Net interest income increased resulting from an increase in
mortgage-backed securities and real estate loans.
- Automobile lending income increased at a slower rate than the automobile
portfolio due to increasing credit losses.
- Salaries and employee benefits increased primarily due to the increase
in the number of employees as a result of expansion of operations in the
automobile lending, mortgage and commercial banking businesses.
- As mentioned above, insurance expense decreased as a result of a
one-time $12.0 million assessment to recapitalize SAIF in the third
quarter of 1996.
- Miscellaneous expense increased primarily as a result of expansion of
operations.
NET INTEREST INCOME
Net interest income for the three and nine months ended September 30, 1997 was
$29.1 million and $83.7 million. For the same periods of 1996, net interest
income totalled $27.1 million and $76.2 million.
The total interest rate spread decreased 34 basis points for the three months
ended September 30, 1997, compared to the same period of 1996 due to a decrease
of 17 basis points in the yield on interest earning assets while the cost of
funds increased by 17 basis points.
The decrease in yield on interest earning assets for the three months ended
September 30, 1997, compared to the same period of 1996 was affected by a 74
basis point decrease in the yield on the consumer loan portfolio, which is due
to a decrease in the weighted average coupon rate.
The increase in cost of funds for the three months ended September 30, 1997,
compared to the same period of 1996 was affected by a 12 basis point increase in
subordinated debentures, a 36 basis point increase in securities sold under
agreements to repurchase and an 18 basis point decrease in Federal Home Loan
Bank advances.
23
<PAGE> 24
Interest rates for interest earning assets and liabilities for the three and
nine months ended September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED,
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
YIELD/ YIELD/ YIELD/ YIELD/
RATE RATE RATE RATE
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest earning assets:
Investment securities (1) 5.41% 5.68% 5.47% 5.51%
Mortgage-backed securities(1) 7.26 7.42 7.31 7.26
Other investments 6.36 5.28 5.83 5.50
Loans:
Consumer 15.90 16.64 15.97 15.83
Mortgage (2) 7.82 7.75 7.76 7.72
Commercial 8.79 8.65
------ ------ ------ ------
Total interest earning assets 8.61 8.78 8.55 8.56
Interest bearing liabilities:
Deposits 5.50 5.53 5.53 5.64
Subordinated debentures 8.93 8.81 8.87 8.81
Securities sold under agreements
to repurchase 5.53 5.17 5.49 5.03
FHLB advances and other borrowings 6.36 6.52 6.34 6.16
------ ------ ------ ------
Total interest bearing liabilities 5.84 5.67 5.79 5.75
------ ------ ------ ------
Interest rate spread 2.77% 3.11% 2.76% 2.81%
====== ====== ====== ======
Net yield on average interest earning assets 3.56% 3.91% 3.53% 3.65%
====== ====== ====== ======
</TABLE>
- ----------
(1) Includes both securities available for sale and held to maturity.
(2) For the purposes of these computations, nonaccruing loans are included in
the average loan amounts.
ASSET/LIABILITY MANAGEMENT
One of the key components to the Company's ongoing profitability is, among other
factors, the extent to which the effect of changes in interest rates on its
earnings are minimized. Thus, a major objective of the Company'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.
The Company's approach to asset/liability management includes originating
adjustable rate loans, securitizing loans with liabilities that have similar
repricing and maturity characteristics, matching
24
<PAGE> 25
fixed rate loans held in the portfolio with advances from the FHLB, selling
fixed rate loans and using other financial instrument agreements.
The Company also originates fixed-rate consumer loans. To minimize interest rate
risk associated with its consumer loan portfolio, the Company has sold
substantially all of its consumer loan production in securitization transactions
in which it has retained the servicing rights. The interest rate passed through
to the purchasers of those consumer loans is fixed, which provides off balance
sheet matched funding for the majority of the Company's consumer loans. At
September 30, 1997, the Company serviced $3.4 billion in consumer loans for
others.
Approximately 38% of the Company's other borrowed funds at September 30, 1997
had fixed rates and maturities greater than one year. Of that amount, 75% were
subordinated debentures redeemable in three and seven years and maturing in six
and ten years.
The Company has entered into or committed to interest rate caps, swaps and
two-year Treasury securities forward agreements as hedges against market value
changes in designated portions of its MBS and mortgage and consumer loan
portfolios. At September 30, 1997, caps with notional amounts totalling $315
million, a swap of $50 million and forward agreements totalling $70 million were
outstanding. The cap agreements have strike rates that range from 6.0% to 8.0%
and expire between September, 1999 and September, 2003. The swap has a pay rate
of 5.9% and expires in December, 2002. The Company uses only counterparties with
high credit ratings and further reduces its risk by avoiding any material
concentration with a single counterparty. Credit exposure is limited to those
agreements with a positive fair value and only to the extent of that fair value.
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 reprice may react differently to changes in market interest rates.
For instance, the Company's adjustable rate mortgages are mainly tied to the
Eleventh District Cost of Funds 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 may reprice at current market rates.
The following table illustrates the projected interest rate maturities, based
upon certain assumptions, regarding the major asset and liability categories of
the Company at September 30, 1997. The interest rate sensitivity of the
Company'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.
25
<PAGE> 26
INTEREST RATE SENSITIVITY ANALYSIS
AT SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
3 YEARS
WITHIN 3 MONTHS 1 YEAR TO TO AFTER 5
3 MONTHS TO 1 YEAR 3 YEARS 5 YEARS YEARS TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Investment securities $ 4,984 $ 81,239 $ 3,292 $ 40,318 $ 1,499 $ 131,332
Other investments 41,549 410 41,959
Mortgage-backed securities 189,320 157,025 223,214 145,297 269,400 984,256
Consumer loans (1) 85,364 61,191 105,873 48,731 6,479 307,638
Mortgage loans:
Adjustable rate (2) 981,593 263,551 1,245,144
Fixed rate (2) 11,942 45,884 94,178 64,290 139,373 355,667
Construction (2) 7,062 7,062
Commercial 22,257 22,257
----------- ----------- ----------- ----------- ----------- -----------
Total interest earning assets 1,344,071 609,300 426,557 298,636 416,751 3,095,315
Interest bearing liabilities:
Deposits:
Savings accounts (3) 2,887 11,216 11,891 25,994
Money market deposit
accounts (3) 62,621 1,454 17,710 2,051 83,836
Certificate of deposit accounts(4) 300,781 1,014,113 397,296 36,260 2,295 1,750,745
Securities sold under agreements
to repurchase 303,088 303,088
FHLB advances (4) 120,584 19 76,556 6,565 849 204,573
Subordinated debentures 251,800 251,800
Other borrowings (4) 114,802 4,968 119,770
----------- ----------- ----------- ----------- ----------- -----------
Total interest bearing
liabilities 904,763 1,026,802 508,421 44,876 254,944 2,739,806
----------- ----------- ----------- ----------- ----------- -----------
Excess interest earning assets
(liabilities) 439,308 (417,502) (81,864) 253,760 161,807 355,509
Effect of hedging activities 365,000 (100,000) (165,000) (100,000)
----------- ----------- ----------- ----------- ----------- -----------
Hedged excess (deficit) $ 804,308 $ (417,502) $ (181,864) $ 88,760 $ 61,807 $ 355,509
=========== =========== =========== =========== =========== ===========
Cumulative excess $ 804,308 $ 386,806 $ 204,942 $ 293,702 $ 355,509 $ 355,509
=========== =========== =========== =========== =========== ===========
Cumulative excess as a
percentage of total interest
earning assets 25.98% 12.50% 6.62% 9.49% 11.49% 11.49%
</TABLE>
- -----------
(1) Based on contractual maturities adjusted by the Company'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
("OTS").
(4) Based on contractual maturity.
26
<PAGE> 27
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three and nine months ended September 30,
1997 was $2.2 million and $9.2 million compared to $3.1 million and $10.2
million during the comparable periods of 1996. The Company recorded a lower
provision for loan losses for the third quarter of 1997 compared to 1996 as a
result of a decline in automobile loan loss experience. The allowance for loan
losses as percent of total on balance sheet automobile loans decreased to 2.9%
from 3.1% a year earlier.
NONINTEREST INCOME
Total noninterest income for the three and nine months ended September 30, 1997
was $51.4 million and $161 million compared to $47.3 million and $133 million
during the comparable periods of 1996. Noninterest income is generated from
automobile lending activities, mortgage banking activities, and other ancillary
sources.
AUTOMOBILE LENDING
The Company originates and subsequently sells automobile loans in the secondary
market with servicing rights retained. Income from automobile lending includes
gain from the sale of loans, as well as loan servicing income and other related
income such as document fees and late charges. Servicing income represents
excess spread earned on securitized automobile loans less any losses not
absorbed by the off balance sheet allowance for losses. For the three and nine
months ended September 30, 1997, automobile lending generated income of $40.8
million and $135 million compared to $38.7 million and $111 million for the same
periods of 1996.
During the three and nine months ended September 30, 1997, net gain from sale of
automobile loans totalled $11.6 million and $25.4 million compared to $9.4
million and $31.7 million for the same periods of 1996. The decrease in the gain
on sale reported for the nine months ended September 30, 1997 is primarily the
result of a narrowing interest rate spread for automobile loans sold which was
slightly offset by the increase in the amount of automobile loans sold.
Automobile loans sold totalled $600 million and $1.7 billion for the three and
nine months ended September 30, 1997 compared to $535 million and $1.5 billion
during the same periods of 1996. The gross interest rate spread is affected by
general market conditions and overall market interest rates. The risks inherent
in interest rate fluctuations are substantially reduced through hedging
activities.
Net loan servicing income totalled $19.5 million and $82.4 million for the three
and nine months ended September 30, 1997, compared to $21.0 million and $56.7
million for the comparable periods of 1996. Servicing income declined in the
third quarter of 1997 compared with the same quarter a year earlier due to
increased losses which impacted the amount of servicing income realized. The
Company serviced $3.4 billion of consumer loans for others at September 30, 1997
compared to $2.6 billion at September 30, 1996.
27
<PAGE> 28
Automobile lending income for the three and nine months ended September 30, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of automobile loans $ 11,594 $ 9,421 $ 25,429 $ 31,728
Loan servicing income 19,547 20,960 82,392 56,692
Other fee income 9,612 8,296 27,279 22,778
-------- -------- -------- --------
$ 40,753 $ 38,677 $135,100 $111,198
======== ======== ======== ========
</TABLE>
MORTGAGE BANKING
The Company originates mortgage loans for sale in the secondary market. Mortgage
banking operations include gains and losses on the sale of loans, loan servicing
income net of amortization of capitalized servicing rights and other income
(primarily late charges). During the three and nine months ended September 30,
1997, mortgage banking generated income of $6.2 million and $18.4 million
compared to $4.6 million and $14.4 million for the comparable periods of 1996.
Gains on sale of mortgage loans for the three and nine months ended September
30, 1997 totalled $5.4 million and $13.3 million compared to $2.1 million and
$8.5 million during the comparable periods of 1996. The increase in gain on sale
of mortgage loans is primarily the result of an increase in the volume of loan
sales which rose to $520 million and $1.3 billion for the three and nine months
ended September 30, 1997 compared to $225 million and $747 million for the same
periods of 1996. Mortgage loans held for sale increased from $273 million at
December 31, 1996 to $539 million at September 30, 1997.
Net loan servicing income was $0.2 million and $3.3 million for the three and
nine months ended September 30, 1997 compared to $2.1 million and $4.4 million
for the comparable periods of 1996. The decrease in loan servicing income is due
to increased capitalized servicing rights amortization. At September 30, 1997,
the Company serviced $4.6 billion of mortgage loans for others compared to $4.4
billion at September 30, 1996.
Mortgage banking income for the three and nine months ended September 30, 1997
and 1996 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain on sale of mortgage loans $ 5,369 $ 2,057 $13,326 $ 8,535
Loan servicing income 212 2,094 3,335 4,350
Other 613 478 1,689 1,485
------- ------- ------- -------
$ 6,194 $ 4,629 $18,350 $14,370
======= ======= ======= =======
</TABLE>
28
<PAGE> 29
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 and nine months ended September 30,
1997 totalled $1.9 million and $4.4 million compared to $4.9 million and $10.6
million for the same periods in 1996.
Real estate operations include the ongoing costs of operation and disposition
associated with the Company's REOs. Real estate operations had income of $0.6
million and losses of $0.04 million for the three and nine months ended
September 30, 1997 compared to losses of $0.9 million and $2.3 million for the
same periods in 1996.
NONINTEREST EXPENSE
Noninterest expense consists of salaries and employee benefits, occupancy
expense, insurance and other operating expenses. Noninterest expense decreased
to $61.0 million and increased to $182 million for the three and nine months
ended September 30, 1997 compared to $61.7 million and $148 million for the same
periods in 1996. Salaries and employee benefits increased primarily due to
expansion of operations in both the automobile lending (which were substantially
completed in 1996) and mortgage and commercial banking businesses. The increase
in miscellaneous expenses is primarily attributable to an increase in the number
of loans serviced, automation and centralization programs and expansion into
additional states. In addition, insurance expense for the nine months ended
September 30, 1996 includes a $12.0 million charge related to the accrual for
the SAIF insurance fund recapitalization as discussed in the summary section
previously. The ratio of annualized operating expense to average serviced loans
was 2.1% and 2.5% for the three and nine months ended September 30, 1997
compared to 2.9% and 2.6% for the comparable periods in 1996.
INCOME TAXES
The effective tax rates for the nine months ended September 30, 1997 and 1996
were 42.2% and 42.0%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
The Company has diversified sources of funds generated through its operations.
The primary sources include deposits, loan principal and interest payments
received, sale of mortgage loans and consumer loans, and the maturity or sale of
investment securities and MBS. The Company's wholly-owned subsidiary, Western
Financial Bank ("the Bank"), a federally chartered savings bank, issued $150
million of 8.875% subordinated capital debentures due 2007 on July 25, 1997.
Other sources include commercial paper, Federal Home Loan Bank advances and
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.
The Company 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 nine months of 1997, the Company purchased $299 million of MBS
to increase interest spreads. These securities have been segregated, on an
individual security basis, into the available for
29
<PAGE> 30
sale portfolio and the held to maturity portfolio in the Consolidated Financial
Statements in accordance with management's intent and ability to hold the
securities to maturity. These purchases included both fixed and adjustable rate
MBS.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the regulations promulgated thereunder established certain
minimum levels of regulatory capital for savings institutions supervised by the
Office of Thrift Supervision ("OTS"). The Bank must follow specific capital
guidelines stipulated by the OTS which involve quantitative measures of the
Bank's assets, liabilities and certain off balance sheet items as calculated
under regulatory accounting practices. An institution that fails to comply with
its regulatory capital requirements must obtain OTS approval of a capital plan
and can be subject to a capital directive and certain restrictions on its
operations which could have a direct material effect on the Company's financial
statements.
At September 30, 1997 and December 31, 1996, according to the OTS, the Bank is
categorized as "well capitalized" under the prompt corrective action regulations
adopted by the OTS pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). To be categorized as "well capitalized", the
Bank must maintain minimum capital ratios as set forth in the table below. The
Bank's capital is subject to review by federal regulators for the components,
amounts, risk weighting classifications and other factors. There are no
conditions or events since September 30, 1997 that management believes have
changed the Bank's category.
30
<PAGE> 31
The following table summarizes the Bank's actual capital and required capital as
of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SEPTEMBER 30, 1997
Actual Capital:
Amount $354,265 $354,265 $639,024
Capital ratio 9.39% 9.39% 12.47%
FIRREA minimum required capital:
Amount $ 56,586 $113,171 $410,079
Capital ratio 1.50% 3.00% 8.00%
Excess $297,679 $241,094 $228,945
FDICIA well capitalized required capital:
Amount N/A $189,662 $512,598
Capital ratio N/A 5.00% 10.00%
Excess N/A $164,603 $126,426
DECEMBER 31, 1996
Actual Capital:
Amount $348,938 $348,938 $467,563
Capital ratio 10.53% 10.53% 10.91%
FIRREA minimum required capital:
Amount $ 49,707 $ 99,414 $342,915
Capital ratio 1.50% 3.00% 8.00%
Excess $299,231 $249,524 $124,648
FDICIA well capitalized required capital:
Amount N/A $166,838 $428,644
Capital ratio N/A 5.00% 10.00%
Excess N/A $182,100 $ 38,919
</TABLE>
31
<PAGE> 32
The following table reconciles the Bank's capital in accordance with generally
accepted accounting principles ("GAAP") to the Bank's tangible, core and
risk-based capital as of September 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank shareholder's equity-GAAP basis $ 341,150 $ 337,958
Adjustment: Unrealized gains under SFAS 115, net of tax (4,366) (1,083)
Less: Non-permissible activities at required phase-in (9,516) (13,135)
Add: Minority interest in equity of subsidiaries 30,650 28,061
Less: Disallowed capitalized servicing rights (3,653) (2,863)
------------ ------------
Total tangible and core capital 354,265 348,938
Adjustments for risk-based capital:
Subordinated debentures (1) 256,301 106,559
General loan valuation allowance (2) 31,435 36,298
Less: Fully capitalized assets (2,977) (24,232)
------------ ------------
Risk-based capital $ 639,024 $ 467,563
============ ============
</TABLE>
- ----------
(1) Excludes capitalized issue costs.
(2) Limited to 1.25% of risk-weighted assets.
FORWARD-LOOKING STATEMENTS
The preceding Management Discussion and Analysis of Financial Condition and
Results of Operations section contains certain "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
provides a new "safe harbor" for certain forward-looking statements. The 10Q
contains forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified below, which could cause actual results to differ materially from
historical results or those anticipated. The forward-looking terminology such as
"believe", "expect", "anticipate", "intend", "may", "will", "should",
"estimate", "continue" and/or the negative or other comparable expressions
thereof which indicate future events and trends identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially from
historical results or those anticipated: (1) the level of demand for consumer,
mortgage and commercial loans, which is affected by such external factors as the
level of interest rates, the strength of the various segments of the economy,
debt burden held by the consumer and demographics of the Company's lending
markets; (2) the direction of interest rates; (3) fluctuations between interest
rates and the cost of funds; (4) the effect of federal and state regulation on
the Company's operations; (5) competition within the financial services
industry; (6) the availability and cost of securitization transactions and (7)
continued dealer and broker relationships.
32
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company or its subsidiaries are involved as parties to certain
legal proceedings incidental to their businesses. The Company believes
that the outcome of such proceedings will not have a material effect
upon the Company's financial condition, results of operations and cash
flows.
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
The Board of Directors of WFS Financial Inc ("WFS"), an 82.5% owned
subsidiary of the Company has elected Joy Schaefer to Chief Executive
Officer; this is in addition to her title of Vice Chairman, President
and Chief Operating Officer.
The Board of Directors of WFS adopted a resolution amending and
restating the WFS 1996 Incentive Stock Option Plan ("WFS 1996 Plan") to
provide for an additional 550,000 shares of WFS common stock to be made
available for issuance upon exercise of options granted under the WFS
1996 Plan. The Amended and Restated WFS 1996 Plan will be submitted for
the vote of the shareholders at the next WFS annual meeting.
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
A report on form 8-K was filed July 15, 1997 announcing the results for
the Company's second quarter and six months ended June 30, 1997, and
reported that Western Financial Bank had filed a registration statement
with the Office of Thrift Supervision with the intent of issuing $150
million of subordinated debentures.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTCORP
- --------------------------------------------------------------------------------
(Registrant)
Date: November 14, 1997 By:/s/ JOY SCHAEFER
---------------------- ---------------------------------------------
Joy Schaefer
Senior Executive Vice President and
Chief Operating Officer
Date: November 14, 1997 By:/s/ LEE A. WHATCOTT
---------------------- ---------------------------------------------
Lee A. Whatcott
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
34
<PAGE> 35
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
11 Computation of Earnings Per share 36
27 Financial Data Schedule 37
<PAGE> 1
Exhibit 11 Computation of Earnings Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average and common equivalent shares 26,488,219 26,265,693 26,331,254 26,186,500
----------- ----------- ----------- -----------
Net income $ 8,928,174 $ 3,479,007 $26,708,818 $24,003,163
=========== =========== =========== ===========
Net income per share $ 0.34 $ 0.13 $ 1.01 $ 0.92
=========== =========== =========== ===========
FULLY DILUTED:
Weighted average and common equivalent shares 26,488,219 26,265,693 26,331,254 26,186,500
----------- ----------- ----------- -----------
Net income $ 8,928,174 $ 3,479,007 $26,708,818 $24,003,163
=========== =========== =========== ===========
Net income per share $ 0.34 $ 0.13 $ 1.01 $ 0.92
=========== =========== =========== ===========
</TABLE>
36
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 75,365
<INT-BEARING-DEPOSITS> 510
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 720,177
<INVESTMENTS-CARRYING> 395,411
<INVESTMENTS-MARKET> 402,423
<LOANS> 1,904,344
<ALLOWANCE> 34,517
<TOTAL-ASSETS> 3,757,362
<DEPOSITS> 1,937,816
<SHORT-TERM> 422,858
<LIABILITIES-OTHER> 568,213
<LONG-TERM> 456,373
0
0
<COMMON> 26,256
<OTHER-SE> 315,196
<TOTAL-LIABILITIES-AND-EQUITY> 3,757,362
<INTEREST-LOAN> 140,478
<INTEREST-INVEST> 56,682
<INTEREST-OTHER> 5,228
<INTEREST-TOTAL> 202,388
<INTEREST-DEPOSIT> 80,000
<INTEREST-EXPENSE> 118,690
<INTEREST-INCOME-NET> 83,698
<LOAN-LOSSES> 9,196
<SECURITIES-GAINS> 2,103
<EXPENSE-OTHER> 181,566
<INCOME-PRETAX> 53,742
<INCOME-PRE-EXTRAORDINARY> 26,709
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,709
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 3.53
<LOANS-NON> 21,686
<LOANS-PAST> 830
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 40,211
<CHARGE-OFFS> 17,373
<RECOVERIES> 3,170
<ALLOWANCE-CLOSE> 34,517
<ALLOWANCE-DOMESTIC> 34,517
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
