<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, 1999
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)
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)
(949) 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, 1999, the registrant had 26,475,090 outstanding shares of common
stock, $1.00 par value. The shares of common stock represent the only class of
common stock of the registrant.
The total number of sequentially numbered pages is 35.
<PAGE> 2
WESTCORP AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1999
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, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Changes in Shareholders' Equity
March 31, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure about Market Risk 31
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 34
SIGNATURES 35
</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,
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash $ 34,770 $ 114,375
Interest bearing deposits with other financial institutions 718 515
Other short-term investments 216,170 22,864
---------- ----------
Cash and due from banks 251,658 137,754
Investment securities available for sale 77,623 77,796
Mortgage-backed securities available for sale 1,515,158 980,044
Loans receivable, net of allowance for loan losses of
$45,097 and $37,660, respectively 708,009 798,094
Loans held for sale 629,043 1,157,079
Amounts due from trusts 379,129 332,732
Retained interest in securitized assets 189,929 171,230
Premises and equipment, net 92,284 86,417
Other assets 62,898 62,368
---------- ----------
$3,905,731 $3,803,514
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $2,134,855 $2,178,735
Securities sold under agreements to repurchase 482,911 265,644
Federal Home Loan Bank advances 9,323 160,853
Amounts held on behalf of trustee 626,060 528,092
Short term borrowings 18,074 14,427
Other liabilities 47,293 65,005
---------- ----------
3,318,516 3,212,756
SUBORDINATED DEBENTURES 228,989 239,856
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES 22,724 21,857
SHAREHOLDERS' EQUITY
Common stock, par value $1.00 per share; authorized
45,000,000 shares issued and outstanding 26,475,090
shares in 1999 and 26,474,814 shares in 1998 26,475 26,475
Paid-in capital 188,860 188,739
Retained earnings 118,154 110,138
Accumulated other comprehensive income, net of tax 2,013 3,693
---------- ----------
335,502 329,045
---------- ----------
$3,905,731 $3,803,514
========== ==========
</TABLE>
- -------------------------
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Loans, including fees $ 39,512 $ 44,977
Mortgage-backed securities 16,437 16,095
Investment securities 1,129 1,710
Other 3,992 2,264
------------ ------------
TOTAL INTEREST INCOME 61,070 65,046
Interest expense:
Deposits 25,893 27,132
Federal Home Loan Bank advances and other borrowings 4,472 8,697
Securities sold under agreements to repurchase 3,249 4,326
------------ ------------
TOTAL INTEREST EXPENSE 33,614 40,155
------------ ------------
NET INTEREST INCOME 27,456 24,891
Provision for loan losses 12,157 6,388
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,299 18,503
Noninterest income:
Automobile lending 52,590 25,292
Mortgage banking 3,704 (587)
Investment and mortgage-backed securities gains 302 2,544
Insurance income 1,688 1,495
Miscellaneous 920 1,584
------------ ------------
TOTAL NONINTEREST INCOME 59,204 30,328
Noninterest expense:
Salaries and employee benefits 33,934 38,109
Credit and collections 6,210 4,919
Occupancy 2,807 3,858
Data processing 3,398 3,721
Telephone 1,706 2,645
Restructuring charge 10,500
Miscellaneous 9,348 9,835
------------ ------------
TOTAL NONINTEREST EXPENSE 57,403 73,587
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 17,100 (24,756)
Income taxes (benefit) 7,234 (10,392)
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 9,866 (14,364)
Minority interest in earnings (losses) of subsidiaries 1,506 (2,162)
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 8,360 (12,202)
Extraordinary gain from early extinguishment of debt
(Net of income taxes of $710 thousand) 980
------------ ------------
NET INCOME (LOSS) $ 9,340 $ (12,202)
============ ============
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED
Income before extraordinary item $ 0.32 $ (0.46)
Extraordinary item 0.03
------------ ------------
Net income $ 0.35 $ (0.46)
============ ============
WEIGHTED AVERAGE NUMER OF COMMON SHARES OUTSTANDING:
BASIC AND DILUTED 26,474,995 26,288,431
============ ============
</TABLE>
- ---------------------
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
PAR PAID-IN RETAINED INCOME
SHARES VALUE CAPITAL EARNINGS NET OF TAX TOTAL
---------- ------- -------- -------- ------ --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 26,278,593 $ 26,279 $185,187 $131,427 $5,858 $348,751
Net loss (14,697) (14,697)
Accumulated other comprehensive
income, net of tax (1)
Gross unrealized gain 2,021 2,021
Less: Reclassification adjustment for
losses (gains) included in net income (4,186) (4,186)
--------
Comprehensive loss (16,862)
Stock options exercised 118,905 119 891 1,010
Stock issued 77,316 77 1,135 1,212
Cash dividends (6,592) (6,592)
Purchase of subsidiary stock 1,526 1,526
---------- ------- -------- -------- ------ --------
Balance December 31, 1998 26,474,814 $26,475 $188,739 $110,138 $3,693 $329,045
Net income 9,340 9,340
Accumulated other comprehensive
income, net of tax (1)
Gross unrealized loss (1,520) (1,520)
Less: Reclassification adjustment for
losses (gains) included in net income (160) (160)
--------
Comprehensive income 7,660
Stock options exercised 276
Cash dividends (1,324) (1,324)
Purchase of subsidiary stock 121 121
---------- ------- -------- -------- ------ --------
Balance March 31, 1999 26,475,090 $26,475 $188,860 $118,154 $2,013 $335,502
========== ======= ======== ======== ====== ========
</TABLE>
- ---------------------
(1) The pre-tax decrease and increase in unrealized gains (losses) on retained
interest in securitized assets were $2.6 million and $3.9 million for the
three month period ended March 31, 1999 and for the year ended December 31,
1998, respectively.
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
WESTCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 9,340 $ (12,202)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Provision for loan losses 12,157 6,388
Depreciation and amortization 4,624 9,388
Amortization of retained interest in securitized assets 29,306 27,195
Loss on the disposal of assets 1,058
Gain on sale of loans and other assets (27,622) (13,070)
Minority interest in (loss) income of consolidated subsidiaries 1,506 (2,162)
Extraordinary gain from extinguishment of debt (1,690)
(Increase) decrease in assets:
Origination of loans (931,206) (1,574,681)
Proceeds from sale of loans 1,376,943 1,344,731
Other changes in loans 184,735 183,074
Other changes in capitalized servicing rights (1,500) (8,759)
Disposition of real estate owned 3,660 3,256
Other assets 437 (2,000)
Increase (decrease) in other liabilities (18,351) 5,477
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 643,397 (33,365)
INVESTING ACTIVITIES
Investment securities available for sale:
Purchases (71)
Proceeds from sale 169
Proceeds from maturities 33
Mortgage-backed securities available for sale:
Purchases (641,063) (226,075)
Proceeds from sale 31,966 30,537
Payments received on mortgage-backed securities 71,755 121,304
Additions to premises and equipment (8,871) (1,157)
Purchases of FHLB stock (449) (4,165)
Increase in amounts due from trusts (46,397) (36,222)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (592,890) (115,816)
FINANCING ACTIVITIES
(Decrease) Increase in deposits (43,880) 158,880
Increase in retained interest in securitized assets (49,961) (23,388)
Increase in securities sold under agreements to repurchase 217,267 43,021
(Decrease) increase in FHLB advances, net (151,531) (27)
Increase (decrease) in short-term borrowings 3,647 (135,081)
Increase in amounts held on behalf of trustee 97,968 29,572
(Decrease) Increase in subordinated debentures (8,910) (524)
Proceeds from issuance of common stock 181
Purchase of subsidiary common stock 121
Cash dividends (1,324) (2,628)
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,397 70,006
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 113,904 (79,175)
Cash and equivalents at beginning of period 137,754 171,130
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 251,658 $ 91,955
========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for:
Interest $ 39,814 $ 44,715
Income taxes 13,395 1,451
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
Acquisition of real estate acquired through foreclosure $ 1,801 $ 2,859
Unrealized gains (losses) on securities available for sale and retained interests
in securitized assets, net of tax (1,679) 1,336
</TABLE>
- -----------------------
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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 months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in, the
Westcorp (the "Company") Form 10-K for the year ended December 31, 1998.
Certain amounts from the 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This Statement provides guidance for the
way public enterprises report information about derivatives and hedging in
annual financial statements and in interim financial reports. The derivatives
and hedging disclosure is required for financial statements for fiscal years
beginning after June 15, 1999. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company is in the process of evaluating
the effect that Statement 133, if any, will have on the earnings and financial
position of the Company.
7
<PAGE> 8
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENT SECURITIES AVAILABLE FOR SALE
- --------------------------------------------------
Investment securities available for sale were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------
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 $74,591 $ 1,238 $ 238 $75,591
Obligations of states and political
subdivisions 1,510 62 1,572
Other 460 460
------- ------- ------- -------
$76,561 $ 1,300 $ 238 $77,623
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
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 $74,307 $ 1,285 $75,592
Obligations of states and political
subdivisions 1,510 62 1,572
Other 632 632
------- ------- ------- -------
$76,449 $ 1,347 $77,796
======= ======= ======= =======
</TABLE>
NOTE 3 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------
Mortgage-backed securities available for sale were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $1,403,328 $7,479 $7,108 $1,403,699
FNMA participation certificates 104,360 1,424 16 105,768
FHLMC participation certificates 2,760 43 2,803
Other 2,888 2,888
---------- ------ ------ ----------
$1,513,336 $8,946 $7,124 $1,515,158
========== ====== ====== ==========
</TABLE>
8
<PAGE> 9
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
GNMA certificates $858,682 $6,261 $5,316 $859,627
FNMA participation certificates 112,351 1,511 20 113,842
FHLMC participation certificates 3,600 58 3,658
Other 2,917 2,917
-------- ------ ------ --------
$977,550 $7,830 $5,336 $980,044
======== ====== ====== ========
</TABLE>
NOTE 4 - NET LOANS RECEIVABLE
- ------------------------------
Net loans receivable consisted of the following:
MARCH 31, DECEMBER 31,
1999 1998
----------- -------------
(DOLLARS IN THOUSANDS)
Real Estate:
Mortgage $ 697,972 $ 993,044
Construction 11,131 18,950
----------- -----------
709,103 1,011,994
Undisbursed loan proceeds (878) (5,057)
----------- -----------
708,225 1,006,937
Consumer:
Automobile loans 616,410 923,662
Other 36,107 45,529
Unearned discounts (32,944) (48,015)
----------- -----------
619,573 921,176
Commercial 54,351 64,720
----------- -----------
1,382,149 1,992,833
Allowance for loan losses (45,097) (37,660)
----------- -----------
1,337,052 1,955,173
Less: Loans held for sale
Mortgage 57,398 309,013
Consumer 571,645 848,066
----------- -----------
629,043 1,157,079
----------- -----------
$ 708,009 $ 798,094
=========== ===========
Loans serviced by the Company for the benefit of others totalled approximately
$5.5 billion and $5.1 billion at March 31, 1999 and December 31, 1998,
respectively. These amounts are not included in the unaudited consolidated
statements of financial condition.
9
<PAGE> 10
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - SECURITIZED ASSETS AND CAPITALIZED SERVICING RIGHTS
- ------------------------------------------------------------
SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" 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. The Company did not recognize any CSR as of March 31, 1999
or December 31, 1998 with respect to securitized automobile loans. Previous
accounting guidance did not separately distinguish these rights.
RETAINED INTEREST 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 excess
spread 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. Similar to
available for sale securities, RISAs 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 income taxes.
Two methods have arisen in practice to determine the fair value of credit
enhancements assets; the cash-in method and the cash-out method. The Securities
and Exchange Commission ("SEC") has set forth specific guidance that the
cash-out method is the only appropriate method to be used in determining the
fair value of such assets as defined by the SFAS No. 125. The cash-out method
discounts expected cash flows from the period in which the transferor expects to
receive the cash, thereby taking into consideration the period of time that the
cash is received from obligators but restricted from distribution to the
transferor. WFS has historically used the cash-out method in measuring such
assets.
10
<PAGE> 11
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the activity of the RISA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance $ 171,230 $ 181,177
Additions 49,961 23,388
Amortization (29,306) (27,195)
Change in unrealized gains on RISA (1,956) (63)
--------- ---------
Ending balance $ 189,929 $ 177,307
========== =========
</TABLE>
At the time of securitization, the Company utilizes prepayment speed, net credit
loss and discount rate assumption to initially compute the value of the RISA.
These assumptions may change periodically based on actual performance or other
factors. During 1999 and 1998, the Company utilized prepayment rates of 1.6% ABS
in computing RISA. Cumulative net credit loss assumptions utilized for the 1999
and 1998 securitization transactions ranged from 6% to 7%. The Company used a
discount rate of 425 basis points over the two-year Treasury rate at the time of
securitization in discounting future earnings.
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 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.
The following table sets forth the components of the RISA:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Estimated net undiscounted RISA earnings $ 417,586 $ 361,209
Off-balance sheet allowance for losses (204,433) (170,664)
Discount to present value (23,224) (19,315)
----------- -----------
Retained interests in securitized assets $ 189,929 $ 171,230
=========== ===========
Outstanding balance of automobile loans sold through securitizations $ 3,968,534 $ 3,491,452
Off-balance sheet allowance for losses as a percent of automobile
loans sold through securitizations 5.15% 4.89%
</TABLE>
The Company believes that the off-balance sheet allowance for losses is
currently adequate to absorb potential losses in the sold portfolio.
11
<PAGE> 12
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITALIZED SERVICING RIGHTS
Capitalized servicing rights consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Purchased mortgage servicing rights $ 5,790 $ 6,360
Originated mortgage servicing rights 7,116 6,136
Impairment allowance for mortgage servicing rights (3,608) (3,723)
------- -------
$ 9,298 $ 8,773
======= =======
</TABLE>
CSR assets represent an allocation of the cost basis of loans sold between the
CSR and the loans based upon their relative fair value at the date the loans are
originated or purchased. The fair value of CSR is calculated by estimating
future servicing revenues, including servicing fees, late charges, other
ancillary income, and float benefit, less the actual cost to service loans.
For the three months ending March 31, 1999, the Company capitalized servicing
rights totaling $1.5 million compared with $8.8 million for the same period a
year earlier. The decline in CSR is the result of the Company's decision in the
fourth quarter of 1998 to shift from originating prime mortgage products that
was sold primarily on a servicing retained basis to originating sub-prime
mortgage products that are sold on a whole loan servicing released basis. The
mortgage servicing rights are included in capitalized servicing rights and the
amortization is a component of mortgage banking income in non-interest income.
The fair value of the CSR was $9.3 million and $8.8 million at March 31, 1999
and December 31, 1998, 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, CSR are stratified on the basis of loan type, loan coupon
and loan term.
CSR are evaluated for impairment based on the excess of the carrying amount of
the CSR over their fair value.
Amortization of capitalized servicing rights is reflected as a component of
mortgage banking income in non-interest income. Amortization expense for the
three months ended March 31, 1999 was $1.0 million, compared with $4.9 million
for the three months ended March 31, 1998.
NOTE 6 - DIVIDENDS
- ------------------
On January 12, 1999, the Company declared a quarterly cash dividend of $0.05 per
share which was paid on February 8, 1999. On April 27, 1999, the Company
declared a cash dividend of $0.05 per share for shareholders of record as of May
10, 1999 payable May 24, 1999.
NOTE 7 - EARNINGS PER SHARE
- ---------------------------
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common share outstanding
and does not include the impact of any potentially dilutive common stock
equivalents. The diluted earnings per share is arrived at by dividing net income
by the weighted average number of shares outstanding, adjusted for the dilutive
effect of outstanding stock options.
12
<PAGE> 13
WESTCORP AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
BASIC & DILUTED
Net income (loss) $ 9,340 $ (12,202)
Average common shares outstanding 26,474,995 26,288,431
Net income (loss) per common share - basic and diluted $ 0.35 $ (0.46)
============ ============
</TABLE>
Options to purchase 383,517 shares of common stock ranging from $9.06 to $18.69
per share respectively were outstanding at March 31, 1999 but were not included
in the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common share, and
therefore, the effect would be antidilutive. Options to purchase 868,455 shares
of common stock at March 31, 1998 were not included in the computation of
diluted earnings per share because the Company experienced a loss from
operations. The weighted average exercise price at March 31, 1999 and 1998 was
$11.50 and $14.91, respectively, for the outstanding options.
13
<PAGE> 14
WESTCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - BUSINESS SEGMENT DATA
- ------------------------------
In addition to its principal operations in banking, the Company conducts a
significant amount of automobile lending as presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Automobile lending
Net interest income $ 17,657 $ 12,020
Total other income 56,996 25,511
-------- --------
Total automobile lending $ 74,653 $ 37,531
======== ========
Banking operations
Net interest income $ 10,752 $ 13,894
Total other income 774 1,872
-------- --------
Total banking operations $ 11,526 $ 15,766
======== ========
Other operations
Net interest income $ (953) $ (1,023)
Total other income 1,434 2,945
-------- --------
Total other operations 481 1,922
-------- --------
Total revenues $ 86,660 $ 55,219
======== ========
Depreciation
Automobile lending $ 1,576 $ 2,212
Banking operations 83 124
Other operations 674 948
-------- --------
Consolidated total depreciation $ 2,333 $ 3,284
======== ========
Segment profit or loss
Automobile lending $ 20,001 $(23,068)
Banking operations (2,110) (779)
Other operations (791) (909)
-------- --------
Consolidated operating income (loss) $ 17,100 $(24,756)
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ----------
<S> <C> <C>
Segment assets
Automobile lending $1,190,816 $1,444,340
Banking operations 2,617,027 2,219,870
Other operations 97,888 139,304
---------- ----------
Consolidated total assets $3,905,731 $3,803,514
========== ==========
</TABLE>
The Company has two reportable segments: automobile lending and banking
operations. The automobile lending segment involves the purchase, origination,
sale and servicing of automobile loans. The banking operations segment includes
activities associated with commercial banking, mortgage banking, retail banking
and other ancillary services. Segments below the quantitative thresholds are
attributable to two operating segments of the Company. Those segments include a
life insurance business and a broker-dealer of securities business.
14
<PAGE> 15
WESTCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The revenues for each segment are generated through lending and related
activities from unaffiliated customers. The Company derives a majority of its
revenues from interest. In addition, management primarily relies on net interest
revenue, not gross revenue and expense amounts, in managing the segments.
Therefore, as permitted by SFAS 131 "Disclosure About Segments of an Enterprise
and Related Information", the accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on profit or loss from operations before
income taxes.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires specific industry expertise in management and each business
requires different marketing strategies.
NOTE 9 - EXTRAORDINARY GAIN
- ---------------------------
During the first quarter of 1999, the Company acquired $8.9 million of its
subordinated debentures and subsequently retired these debentures. As a result
of this early retirement, the Company recorded an extraordinary gain of $1.0
million net of taxes.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets increased $102 million or 2.7% to $3.9 billion at March 31, 1999
from $3.8 billion at December 31, 1998. This increase is primarily the result of
an increase in mortgage-backed securities available for sale and other
short-term investments which offsets the decline in loans.
LOANS
Loans (including loans held for sale), net of unearned discounts and undisbursed
loan proceeds, decreased $611 million or 42.9% from $2.0 billion at December 31,
1998 to $1.4 billion at March 31, 1999. The decrease is due to the timing of the
securitization of automobile loans. The Company has retained the servicing on
automobile loans sold and receives a servicing fee therefrom. Included in the
portfolio are loans held for sale of which $57.4 million are mortgage loans
secured primarily by single family residences and $572 million of which are
consumer loans secured by automobiles.
Consumer loan originations increased by $146 million to $754 million for the
three months ended March 31, 1999 from $608 million for the same period in 1998,
which represents a 24% increase in production. The Company securitized $1.0
billion of automobile loans for the three months ended March 31, 1999 compared
with $525 million for the same period in 1998.
Real estate originations decreased $819 million to $129 million for the three
months ended March 31, 1999 from $947 million for the same period in 1998. The
decline is the result of the Company's increased focus on sub-prime mortgage
products while de-emphasizing prime and non-agency mortgage products. The focus
on sub-prime mortgage products is designed to generate wider margins and more
fee revenues than prime mortgage products and at a lower overall cost. The
Company sold $377 million of mortgage loans for the three months ended March 31,
1999 compared with $820 million for the same period in 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- ---------------------------------------------
MORTGAGE COMMERCIAL CONSUMER MORTGAGE COMMERCIAL CONSUMER
----------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 1,006,937 $ 64,720 $ 921,176 $ 1,538,888 $ 41,668 $ 288,988
Originations (1) 128,512 48,588 754,106 947,055 19,141 608,544
Sales (2) (376,943) (1,000,000) (819,731) (525,000)
Principal reductions (3) (50,281) (58,957) (55,709) (125,491) (15,707) (40,221)
----------- ----------- ----------- ----------- ----------- -----------
Ending balance $ 708,225 $ 54,351 $ 619,573 $ 1,540,721 $ 45,102 $ 332,311
=========== =========== =========== =========== =========== ===========
</TABLE>
- ----------------
(1) Includes sales loans purchased from automobile dealers.
(2) Loans sold or securitized.
(3) Includes scheduled payments, prepayments and chargeoffs.
16
<PAGE> 17
The Company's real estate loan portfolio (including those held for sale)
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Single family residential loans:
First trust deeds $ 352,625 49.8% $ 617,308 61.3%
Second trust deeds 8,055 1.1 27,051 2.7
---------- ----- ---------- -----
360,680 50.9 644,359 64.0
Multifamily residential loans 320,791 45.3 331,652 32.9
Construction loans 11,131 1.6 18,951 1.9
Other 16,501 2.3 17,031 1.7
---------- ----- ---------- -----
709,103 100.1 1,011,993 100.5
Less: Undisbursed loan proceeds 878 0.1 5,056 0.5
---------- ----- ---------- -----
$ 708,225 100.0% $1,006,937 100.0%
========== ===== ========== =====
</TABLE>
The following table sets forth information on the amount of fixed rate mortgage
loans and adjustable rate mortgage loans in the Company's portfolio.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate loans $ 55,770 7.9% $ 280,589 27.9%
Adjustable rate loans:
Negative amortization 481,650 68.0 514,819 51.1
Without negative amortization 170,805 24.1 211,529 21.0
---------- ----- ---------- -----
$ 708,225 100.0% $1,006,937 100.0%
========== ===== ========== =====
</TABLE>
The composition of the consumer loan portfolio, all of which is fixed rate, was
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------- ------------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Automobile loans, net $583,466 94.2% $875,647 95.1%
Other 36,107 5.8 45,529 4.9
-------- ----- -------- -----
$619,573 100.0% $921,176 100.0%
======== ===== ======== =====
</TABLE>
The Company had outstanding commercial loans of $54.4 million at March 31, 1999
compared with $64.7 million at December 31, 1998. The Company originated $48.6
million of commercial loans for the three months ended March 31, 1999 compared
with $19.1 million for the comparable period in 1998. Though the Company
continues to focus on expanding its commercial banking operations, it is not a
significant source of revenue for the Company.
MORTGAGE-BACKED SECURITIES
- --------------------------
During the first three months of 1999, the Company purchased $641 million and
sold $32.0 million of mortgage-backed securities ("MBS"). This is part of the
Company's continuing strategy to increase net interest income.
17
<PAGE> 18
ASSET QUALITY
DELINQUENCY
The percent of loans 60 days or more delinquent increased to 1.1% at March 31,
1999 compared with 0.8% at December 31, 1998. Delinquent loans by type of loan
and as a percentage of loans by type are summarized as follows at March 31, 1999
and December 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1999
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 $ 2,646 0.7% $ 6,195 1.7% $ 8,841 2.4%
Multifamily residential 643 0.2 643 0.2
Consumer 2,260 0.4 2,688 0.5 4,948 0.8
------- --- ------- --- ------- ---
$ 4,906 0.4% $ 9,526 0.7% $14,432 1.1%
======= === ======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
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 $ 1,416 0.2% $ 6,172 1.0% $ 7,588 1.2%
Multifamily residential 669 0.2 669 0.2
Consumer 3,969 0.4 3,174 0.4 7,143 0.8
Construction 692 5.0 272 2.0 964 6.9
------- --- ------- --- ------- ---
$ 6,077 0.3% $10,287 0.5% $16,364 0.8%
======= === ======= === ======= ===
</TABLE>
NONPERFORMING ASSETS
Total nonperforming assets ("NPA") increased to $16.4 million or 0.4% of total
assets at March 31, 1999 compared with $16.3 million or 0.4% of total assets at
December 31, 1998.
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 but unpaid interest is
reversed. Interest on nonperforming loans excluded from interest income
decreased to $0.5 million at March 31, 1999 from $0.6 million at March 31, 1998.
18
<PAGE> 19
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 March
31, 1999, impaired loans remained constant at $4.0 million from December 31,
1998.
NONPERFORMING LOANS
Nonperforming loans consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unimpaired loans on nonaccrual $ 8,798 $ 8,181
Impaired loans 4,011 4,046
------- -------
$12,809 $12,227
======= =======
</TABLE>
Nonperforming loans by loan type consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Single family residential loans $ 7,156 $ 5,789
Multifamily 5-36 units 1,052 1,082
Multifamily 37+ units 3,723 3,755
Other 878 1,601
------- -------
$12,809 $12,227
======= =======
</TABLE>
The migration of nonperforming loans and real estate owned from December 31,
1998 to March 31, 1999 is shown below:
<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, December 31, 1998 $ 12,227 $ 5,789 $ 1,082 $ 3,755 $ 1,601
New nonperforming loans 4,510 3,823 450 -- 237
REO (840) (627) (202) -- (11)
Cures and payoffs (2,356) (1,804) (278) (32) (242)
Chargeoffs (732) (25) -- -- (707)
-------- -------- -------- -------- --------
Balance, March 31, 1999 $ 12,809 $ 7,156 $ 1,052 $ 3,723 $ 878
======== ======== ======== ======== ========
</TABLE>
19
<PAGE> 20
REAL ESTATE OWNED
<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, December 31, 1998 $ 4,861 $ 3,747 $ 1,114
New REO 1,312 1,109 203
Sales (3,043) (2,182) (861)
Writedowns 490 469 21
------- ------- ------- -------- --------
Balance, March 31, 1999 $ 3,620 $ 3,143 $ 477 $ $
======= ======= ======= ======== ========
</TABLE>
Assets secured by single family residential properties comprised the largest
portion of nonperforming assets although no single loan or series of such loans
predominate. At March 31, 1999, $7.2 million or 56% of NPLs and $3.1 million or
87% of REOs were secured by single family residential properties. The Company
had an allowance for real estate losses of $784 thousand at March 31, 1999 and
December 31, 1998, respectively.
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
Consistent with loan value, loan sales, losses, nonaccural loans and other
relevant factors, the Company increased its allowance for loan losses to $45.1
million at March 31, 1999 compared with $37.7 million at December 31, 1998. The
allowance for the loan losses is maintained at a level believed by management to
be adequate to absorb potential losses in the loan portfolio.
20
<PAGE> 21
The following table presents summarized data relative to the allowance for loan
losses:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total loans (1) $ 1,382,149 $ 1,992,833
Allowance for loan losses 45,097 37,660
Allowance for real estate losses 784 784
Loans past due 60 days or more 14,432 16,364
Nonperforming loans 12,809 12,227
Nonperforming assets (2) 16,429 16,304
Allowance for loan losses as a percent of:
Total loans (1) 3.3% 1.9%
Loans past due 60 days or more 312.5% 230.1%
Nonperforming loans 352.1% 308.0%
Total allowance for loan losses and real estate losses as a percent
of nonperforming assets 294.7% 235.8%
Nonperforming loans as a percent of total loans 0.9% 0.6%
Nonperforming assets as a percent of total assets 0.4% 0.4%
</TABLE>
- --------------
(1) Loans, net of unearned discounts and undisbursed loan proceeds.
(2) Nonperforming loans and real estate owned.
21
<PAGE> 22
The following table sets forth the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $ 37,660 $ 33,834
Chargeoffs:
Mortgage loans (973) (1,251)
Consumer loans (5,523) (3,381)
-------- --------
(6,496) (4,632)
Recoveries:
Mortgage loans 23 15
Consumer loans 1,753 640
-------- --------
1,776 655
-------- --------
Net chargeoffs (4,720) (3,977)
Provision for loan losses 12,157 6,388
-------- --------
Balance at end of period $ 45,097 $ 36,245
======== ========
Ratio of net chargeoffs during period to average
loans outstanding during the period (annualized) 1.31% 0.82%
======== ========
</TABLE>
RESULTS OF OPERATIONS
SUMMARY
- -------
The Company reported net income of $9.3 million or $0.35 per diluted share for
the three months ended March 31, 1999, compared with a net loss of $12.2 million
or $0.46 per diluted share for the comparable period of 1998. Improved first
quarter earnings were the result of improved automobile lending income and lower
noninterest expenses. Improvement in automobile lending income is primarily the
result of the Company issuing a record $1.0 billion in automobile asset-backed
securities through its subsidiary WFS Financial, as well as improving net
spreads after estimated credit losses due to the attractive interest rates and
the timing of the securitization. Improvement in noninterest expenses is the
result of the Company's restructuring initiative implemented last year.
NET INTEREST INCOME
- -------------------
Net interest income for the three months ended March 31, 1999 was $27.5 million
compared with $24.9 million for the same period a year earlier.
The total interest rate spread increased 67 basis points for the three months
ended March 31, 1999, compared with the same period of 1998 due to an increase
of 13 basis points in the yield on interest earning assets while the cost of
funds decreased by 54 basis points.
22
<PAGE> 23
The increase in income on interest earning assets for the three months ended
March 31, 1999, compared with the same period of 1998 is due to a greater
percentage of automobile loans held on the balance sheet for the first quarter
of 1999 compared with a year earlier. The decrease in the cost of interest
bearing liabilities is the result of a 43 basis point decline in the cost of
deposits resulting from the Company continuing to increase the amount of its
core deposits which includes commercial and retail deposit accounts.
Interest rates for interest earning assets and liabilities for the three months
ended March 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- ------
YIELD/ YIELD/
RATE RATE
<S> <C> <C>
Interest earning assets:
Investment securities 5.46% 5.48%
Mortgage-backed securities 6.06 6.94
Other investments 4.96 5.58
Loans:
Consumer 16.12 15.61
Mortgage (1) 7.35 7.51
Commercial 7.94 8.72
----- -----
Total interest earning assets 8.31 8.18
Interest bearing liabilities:
Deposits 4.92 5.35
Subordinated debentures 8.90 8.95
Securities sold under agreements to repurchase 5.02 5.99
FHLB advances and other borrowings 6.14 7.12
----- -----
Total interest bearing liabilities 5.31 5.85
----- -----
Interest rate spread 3.00% 2.33%
===== =====
Net yield on average interest earning assets 3.70% 3.07%
===== =====
</TABLE>
(1) For the purposes of these computations, nonaccruing loans are included in
the average loan amounts.
23
<PAGE> 24
PROVISION FOR LOAN LOSSES
- -------------------------
The Company maintains an allowance for credit losses to cover anticipated losses
for loans held on balance sheet. The allowance for loan losses is increased by
charging the provision for loan losses and decreased by actual losses on the
loans held on balance sheet or by the reduction of the amount of loans held on
balance sheet and expected losses. The Company believes that the allowance for
loan losses is currently adequate to absorb potential losses in the on balance
sheet portfolio. For the three months ended March 31, 1999, the provision for
loan losses totaled $12.2 million compared with $6.4 million for the same period
in 1998. The increase for the three months ended March 31, 1999 compared with
the same period a year earlier is the result of an increased level of automobile
loans held on balance sheet compared with a year earlier and because the Company
may be holding a greater percentage of automobile loans on the balance sheet.
NONINTEREST INCOME
- ------------------
Noninterest income totaled $59.2 million for the first quarter of 1999 compared
with $30.3 million for the same period a year earlier. The increase is due to
higher automobile lending and mortgage banking income.
Automobile Lending
The Company originates and sells automobile loans in the asset-backed market
with servicing rights retained. Income from automobile lending includes gain
from the sale of loans, as well as loan servicing income, net of amortization of
RISA, and other related income such as document fees and late charges. For the
three months ended March 31, 1999, automobile lending generated income of $52.6
million compared with $25.3 million for the same period of 1998.
During the three months ended March 31, 1999, net gain from sale of automobile
loans totalled $24.6 million compared with $8.3 million for the same period of
1998. Gain on sale as a percent of contracts securitized increased to 2.5% for
the first quarter of 1999 compared with 1.6% for the same period a year earlier.
The higher gain on sale for the first quarter is the result of a $475 million
increase in the amount of contracts securitized for the first quarter compared
with the same period a year earlier as well as improving net spreads after
estimated credit losses.
Loan servicing and retained interest income totaled $18.7 million for the three
months ended March 31, 1999, compared with $7.8 million for the comparable
period of 1998 due to higher retained interest income resulting from lower
losses and a higher level of securitized contracts. The Company serviced $4.0
billion of automobile loans for others at March 31, 1999 compared with $3.5
billion at March 31, 1998.
24
<PAGE> 25
Total automobile lending income for the three months ended March 31, 1999 and
1998 is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1999 1998
------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gain on sale of automobile loans $24,623 $ 8,270
Loan servicing income and retained interest income 18,722 7,839
Other fee income 9,245 9,183
------- -------
$52,590 $25,292
======= =======
</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 months ended March 31, 1999, mortgage
banking income totaled $3.7 million compared with a loss of $0.6 million for the
same period of 1998. The Company's mortgage banking results reflect the impact
of the Company's decision to shift from originating prime mortgage products that
were sold primarily on a servicing retained basis to originating sub-prime
mortgage products that are sold on a whole loan servicing released basis, and
the Company's decision to sell substantially all of its mortgage servicing
rights.
Mortgage banking income for the three months ended March 31, 1999 and 1998 is
summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gain on sale of mortgage loans $ 1,692 $ 1,960
Loan servicing income (loss) 1,714 (3,229)
Other fee income 298 682
------- -------
$ 3,704 $ (587)
======= =======
</TABLE>
NONINTEREST EXPENSE
- -------------------
Noninterest expense consists of salaries and associate benefits, occupancy, data
processing expense, insurance, and other miscellaneous expenses. Noninterest
expense decreased to $57.4 million for the three months ended March 31, 1999
compared with $73.6 million for the same period in 1998. The decrease is due to
a $10.5 million restructuring charge related to the restructuring of the
Company's automobile lending business in 1998 and a decrease of $4.2 million in
salaries and associate benefits, as the Company continues to experience the
positive impact of its restructuring programs initiated last year. The ratio of
noninterest expenses to average serviced assets was 3.3% for the three months
ended March 31, 1999 compared with 4.2% for the same period in 1998.
INCOME TAXES
- ------------
The effective tax rate for the three months ended March 31, 1999 was 42.3%
compared with 41.2% for the same period in 1998.
25
<PAGE> 26
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
The Company requires substantial capital resources to support its business. The
primary cash requirements related to operating activities include (i) amounts
needed to purchase loans or investment securities, (ii) amounts paid to brokers
and dealers, (iii) securitization costs, and (iv) principal and interest
advances to trusts. WFS also uses significant amounts of cash for operating
expenditures. Sources available to the Company include (i) retail and commercial
deposits, (ii) loan sales or securitizations, (iii) collection of principal and
interest from loans and investment securities, (iv) other borrowing sources.
These sources provide the Company the liquidity needed to fund its operations.
PRINCIPAL USES OF CASH
Acquisition of Loans or Investment Securities
The most significant cash flow requirement for the Company is the acquisition of
loans or investment securities. Total loan originations for the Company for the
three months ended March 31, 1999 was $931 million compared with $1.6 billion in
the same period in the prior year. The Company purchased $641 million of total
investment securities during the first quarter of 1999 compared with $226
million for the same period in 1998.
Amounts Paid to Brokers and Dealers
The Company is not a retail based operation. The Company acquires automobile
loans through its relationships with franchised new and independent used car
dealers. The Company pays an up-front dealer participation to the originating
dealer for most automobile loans purchased. Participation paid by the Company to
dealers during the first three months ended March 31, 1999 was $20.1 million
compared with $17.2 million for the same period a year earlier. The Company
acquires its mortgage loans primarily through relationships with real estate
brokers and agents that assists property buyers, homebuilders and thrifts.
Advances to Fund Spread Account
The Company is required to maintain spread accounts related to automobile
securitizations. At the time a securitization transaction closes, the Company is
required to advance monies to initially fund spread accounts. The Company funds
these spread accounts by foregoing receipt of excess cash flow until these
accounts exceed predetermined levels. The amounts due from trusts at March 31,
1999, including initial advances not yet returned, was $379 million compared
with $333 million at December 31, 1998.
Advances Due to Servicer
As the servicer of automobile loans sold in securitizations, the Company
periodically makes advances to the securitization trusts to provide for
temporary delays in the receipt of required payments by borrowers in accordance
with servicing agreements. The Company receives reimbursement of these advances
through payments from the obligor on the automobile loan or from the trustee at
the time a contract liquidates.
PRINCIPAL SOURCES OF CASH
The Company employs various financing vehicles to fund its operations, including
deposits, securitizations, commercial paper, advances from the FHLB, repurchase
agreements, subordinated debentures and other borrowings. The sources used vary
depending on such factors as rates paid, maturities, and the impact on capital.
26
<PAGE> 27
Deposits
The Company attracts both short-term and long-term deposits from the general
public, commercial enterprises and institutions by offering a variety of
accounts and rates. The Company offers regular passbook accounts, various money
market accounts, demand deposit accounts, fixed interest rate certificates with
varying maturities and individual retirement accounts. In 1999, the retail
banking division continued its strategy to lower overall cost of funds. This
strategy involved becoming the primary bank for its customers by providing
checking accounts, money market accounts, ATMs, debit cards, overdraft
protection and alternative investments (primarily mutual funds and annuities).
The Company's deposits are obtained primarily from the areas surrounding its
banking offices in California.
The variety of deposits offered by the Company has allowed it to remain
competitive in obtaining funds and to respond with flexibility to changes in
customer demand and competitive pressures. Generally, the Company, as other
financial institutions, has become more subject to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. The ability
of the Company to attract and maintain deposits and control its cost of funds
has been, and will continue to be, significantly affected by money market
conditions.
Securitizations
The primary source of funds used by the Company for automobile loans is the sale
of such products through asset-backed securities in the secondary markets. The
Company has regularly securitized automobile loans through underwritten public
sales of securities since 1985. Although the underlying interest costs
associated with the securitizations fluctuate, they are primarily market driven
and not necessarily related to the operations of the Company. The Company
expects to continue to utilize securitization transactions as part of its
liquidity strategy when the appropriate market conditions exist. During the
first quarter of 1999, the Company securitized $1.0 billion of automobile loans
compared with $525 million for the same period of 1998.
The primary source of funds used by the Company for mortgage loans is the sale
of such products. Historically, the Company has been active in the secondary
market, it has sold FHA and VA loans, as well as other conforming and
non-conforming loans to FNMA, FHLMC, and other established conduits. As part of
the Company's focus of originating sub-prime mortgage, the Company will continue
to sell all its originations on a whole-loan, servicing released basis. During
the three months ended March 31, 1999, the Company sold $377 million of mortgage
loans through the secondary markets compared with $820 million during the same
period a year earlier.
Borrowings and Other Sources of Funds
The Company's other sources of funds include issuing commercial paper and
obtaining advances from the FHLB, selling securities under agreements to
repurchase and other borrowings as well as loan repayments and cash generated
from operations. The Company selects from among these funding alternatives based
on the timing and duration of its cash needs, as well as the costs, maturities
and other requirements of each funding source.
The FHLB system functions in a reserve capacity for savings institutions. As a
member, the Company is required to own capital stock in the FHLB and is
authorized to apply for advances from the FHLB on security of such stock and on
certain residential mortgage loans. The Bank has been pre-approved for advances
up to 25% of its assets, based on remaining availability under credit facilities
established by the Bank with the FHLB, with 24 hours notice. Such borrowings may
be made pursuant to several different programs offered from time to time by the
FHLB. Additional funds are available subject to additional collateral and other
requirements. Each credit program has its own interest rate, which may be fixed
or variable, and range of maturities. The FHLB prescribes the acceptable uses to
which advances pursuant to each program may be put, as well as limitations on
the sizes of advances and repayment provisions.
Savings associations such as the Bank also have authority to borrow from the
Federal Reserve System ("FRS") "discount window". FRS regulations require these
institutions to exhaust all reasonable alternative sources of
27
<PAGE> 28
funds, including FHLB sources, before borrowing from the FRS. Federal
regulations have been promulgated which connect CRA performance with access to
long term advances from FHLB to member institutions. The Bank received a
"satisfactory" rating in its most recent CRA evaluation.
Subordinated Capital Debentures
In 1993 and 1997, the Company, through the Bank, issued $125 million of 8.5% and
$150 million of 8.875% Subordinated Capital Debentures due 2003 and 2007,
respectively, of which $240 million is currently outstanding. In addition to
being a funding source, the Bank is permitted to include these Debentures,
subject to regulatory limitations, in supplementary capital for purposes of
determining compliance with risk-based capital requirements.
CAPITAL REQUIREMENTS
The Bank, a federally chartered savings bank, is subject to certain minimum
capital requirements imposed by the Financial Institution Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). FDICIA separates all financial institutions
into one of five capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." In order to be considered "well capitalized," an
institution must have a total risk-based capital ratio of 10% or greater, a Tier
1 (i.e., core) risk-based capital ratio of 6% or greater, a leverage ratio of 5%
or greater and not be subject to any OTS order. The Bank currently meets all of
the requirements of a "well capitalized" institution. Its regulatory capital
position at March 31, 1999 for this purpose, was as follows:
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 March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
TIER 1
TANGIBLE CORE RISK-BASED RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
------- ------- ---------- ----------
MARCH 31, 1999 (DOLLARS IN THOUSANDS)
- --------------
<S> <C> <C> <C> <C>
Actual Capital:
Amount $356,426 $356,426 $356,426 $597,389
Capital ratio 9.08% 9.08% 6.61% 11.07%
FIRREA minimum required capital:
Amount $ 58,860 $117,721 N/A $431,609
Capital ratio 1.50% 3.00% N/A 8.00%
Excess $297,566 $238,705 N/A $165,780
FDICIA well capitalized required capital:
Amount N/A $196,201 $323,706 $539,511
Capital ratio N/A 5.00% 6.00% 10.00%
Excess N/A $160,225 $ 32,720 $ 57,878
DECEMBER 31, 1998
- -----------------
Actual Capital:
Amount $345,427 $345,427 $345,427 $604,552
Capital ratio 9.02% 9.02% 6.42% 11.23%
FIRREA minimum required capital:
Amount $ 57,464 $114,929 N/A $430,112
Capital ratio 1.50% 3.00% N/A 8.00%
Excess $287,963 $230,498 N/A $174,440
FDICIA well capitalized required capital:
Amount N/A $191,548 $322,584 $537,640
Capital ratio N/A 5.00% 6.00% 10.00%
Excess N/A $153,879 $ 22,843 $ 66,912
</TABLE>
28
<PAGE> 29
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 March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bank shareholder's equity-GAAP basis $ 341,363 $ 332,951
Adjustments for tangible and core capital:
Unrealized gains under SFAS 115 (2,013) (3,693)
Non-permissible activities (1) (4,718) (4,811)
Disallowed capitalized servicing rights (930) (877)
Minority interest in equity of subsidiaries 22,724 21,857
--------- ---------
Total tangible and core capital 356,426 345,427
Adjustments for risk-based capital:
Subordinated debentures (2) 199,109 224,844
General loan valuation allowance (3) 41,854 34,281
--------- ---------
Risk-based capital $ 597,389 $ 604,552
========= =========
</TABLE>
- -----------------
(1) Does not include minority interest in joint venture subsidiaries.
(2) Maximum includable is 40% of risk-based capital and excludes issue costs.
(3) Limited to 1.25% of risk-weighted assets.
YEAR 2000
- ---------
During 1997, the Company began a formal risk evaluation of potential Year 2000
issues. The Year 2000 issue arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail and create
erroneous results. The outcome of the risk evaluation was the formation of a
Year 2000 Committee that consists of officers and employees of the Company. In
addition, there is a committee that consists of directors that provide oversight
and direction to the Year 2000 Committee. The purpose of this committee is to
assess all risks, analyze current systems, coordinate upgrades and replacements,
and report current and projected status of all known Year 2000 compliance
issues.
The Bank, a federally chartered savings bank, is subject to supervision and
regulation by the Office of Thrift Supervision ("OTS"). As such, the Bank's
compliance to Year 2000 issues are subject to the examination by the OTS.
The Company has initiated a five-phase program to address the issues related to
the Year 2000 and the impact on the Company's information and non-information
technology systems. In addition, as part of the program the Company is in
contact with its principal vendors to assess whether their Year 2000 issues, if
any, will affect the Company.
The Company, in phase one, identified Year 2000 issues and created a plan. In
phase two, the Company took inventory of the systems and programs affected by
the Year 2000 issues. In the third and fourth phases, the Company will test for
Year 2000 compliance. The Company has completed phases one through three and is
currently in the fourth and fifth phases of its Year 2000 plan. Phase four, in
which the Company tests for Year 2000 compliance, is anticipated to be completed
by May 31, 1999. The final phase implements the tested Year 2000 compliant
system. The final phase has begun and is now estimated to be completed by June
30, 1999.
29
<PAGE> 30
The Company's replacement or remedied costs for Year 2000 compliance issues
expense is estimated at approximately $1.8 million, which the Company will
expense as incurred. This estimated cost consists primarily of software upgrades
that include new features which are combined with Year 2000 corrections. The
Company's inception to date Year 2000 cost in approximately $1.1 million.
Due to the uncertainty by the electrical utility industry regarding becoming
Year 2000 compliant, the Company estimates that the worst case Year 2000
scenario would be a possible discontinuance of electrical power. In the event of
an electrical power failure, the Company has the capability to run its
information systems at its servicing locations on diesel powered generators.
There is no guarantee, however, that all issues will be foreseen and corrected,
or that no material disruption of our business will occur.
FORWARD-LOOKING STATEMENTS
The preceding Management Discussion and Analysis of Financial Condition and
Results of Operations section contains several "forward-looking" statements.
Forward-looking statements are those which use words such as "believe",
"expect", "anticipate", "intend", "plan", "may", "will", "should", "estimate",
"continue" or other comparable expressions. Theses words indicate future events
and trends. Forward-looking statements are our current views with respect to
future events and financial performance. These forward-looking statements are
subject to many risks and uncertainties which could cause actual results to
differ significantly from historical results or from those anticipated by us.
The most significant risks and uncertainties we face are:
(1) the level of chargeoffs, as an increase in the level of
chargeoffs will decrease our earnings;
(2) our ability to originate new loans in a sufficient amount to
reach our needs, as a decrease in the amount of loans we
originate will decrease our earnings;
(3) a decrease in the difference between the average interest rate we
receive on the loans we originate and the rate of interest we
must pay to fund our cost of originating those loans; as a
decrease will reduce our earnings;
(4) the continued availability of sources of funding for our
operations, as a reduction in the availability of funding will
reduce our ability to originate loans;
(5) maintaining the level of operating costs; as an increase in those
costs will reduce our net earnings; and
(6) the Year 2000 issues; as a disruption of our collection efforts
as a result of Year 2000 problems or an increase in our costs to
correct Year 2000 issues will reduce earnings.
There are other risks and uncertainties we face, including the effect of changes
in general economic conditions and the effect of new laws, regulations and court
decisions. You are cautioned not to place undue reliance on our forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
30
<PAGE> 31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Credit risk and interest rate risk are the primary risks facing the Company. The
Company relies upon loan review and an adequate loan loss reserve in order to
address credit risk
The Company's Asset/Liability committee is responsible for the management of
interest rate risk. This committee closely monitors interest rate risk and
recommends policy for managing this risk. The primary measurement tool for
evaluating this risk is the use of interest rate shock analysis. This analysis
simulates the effects of an instantaneous and sustained change in interest rates
(in increments of 100 basis points) on the Company's assets and liabilities and
measures the resulting increase or decrease to the net present value ("NPV") of
the Company's assets and liabilities. Another important measurement of the
Company's interest rate risk is its "GAP". GAP is defined as the difference
between the amount of interest sensitive assets that reprice versus the amount
of interest-sensitive liabilities that also reprice within a defined period of
time. For the Company, more interest rate sensitive liabilities than assets are
repricing in the shorter maturity buckets and more interest rate sensitive
assets then liabilities are repricing in the longer maturity buckets. The
following table summarizes the maturity GAP position of the Company at March 31,
1999.
31
<PAGE> 32
Interest Rate Sensitivity Analysis
at March 31, 1999
<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 $ 25,214 $ 40,342 $ 10,680 $ 1,387 $ 77,623
Other investments $ 216,170 718 216,888
Mortgage-backed securities 210,715 276,725 479,406 251,071 297,241 1,515,158
Consumer loans (1) 47,836 147,569 269,305 148,697 6,166 619,573
Mortgage loans:
Adjustable rate (2) 522,474 119,728 642,202
Fixed rate (2) 2,354 9,446 17,967 10,797 15,206 55,770
Construction (2) 10,253 10,253
Commercial 49,230 3,627 957 480 57 54,351
----------- ----------- ----------- ----------- ----------- ---------
Total interest earning assets 1,059,032 583,027 807,977 421,725 320,057 3,191,818
Interest bearing liabilities:
Deposits:
Savings accounts (3) 2,847 7,701 4,499 15,047
Money market deposit
accounts (3) 30,951 132,538 243,887 407,376
Certificate of deposit accounts (4) 508,736 986,358 98,762 38,456 1,632,312
Securities sold under agreements
to repurchase 482,911 482,911
FHLB advances (4) 6,500 2,823 9,323
Subordinated debentures 81,739 147,250 228,989
Other borrowings (4) 15,281 2,793 18,074
----------- ----------- ----------- ----------- ----------- -----------
Total interest bearing liabilities 1,040,726 1,126,597 353,648 120,195 152,866 2,794,032
----------- ----------- ----------- ----------- ----------- -----------
Excess interest earning assets
(liabilities) 18,306 (543,570) 454,329 301,530 167,191 397,786
Effect of hedging activities 795,000 (100,000) (100,000) (165,000) (430,000)
----------- ----------- ----------- ----------- ----------- -----------
Hedged excess (deficit) $ 813,306 $ (643,570) $ 354,329 $ 136,530 $ (262,809) $ 397,786
=========== =========== =========== =========== =========== ===========
Cumulative excess $ 813,306 $ 169,736 $ 524,065 $ 660,595 $ 397,786 $ 397,786
=========== =========== =========== =========== =========== ===========
Cumulative excess as a
percentage of total interest
earning assets 25.48% 5.32% 16.42% 20.70% 12.46% 12.46%
</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.
The Company utilizes a variety of means in order to manage interest rate risk
including originating adjustable rate loans, securitizing loans with liabilities
that have similar repricing and maturity characteristics, matching fixed rate
loans held in the portfolio with FHLB advances and selling fixed rate loans. The
Company hedges its MBS portfolio with interest rate caps and swaps. Also, as an
originator of fixed rate mortgage loans, the Company enters into MBS forward
agreements in order to limit the risk of a change in interest rates related to
its pipeline of mortgage loans. Similarly, the Company utilizes two-year
Treasury securities forward agreements in order to limit interest rate risk
related to automobile loans prior to their inclusion in securitization
transactions.
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
On April 27, 1999, the Company held its annual shareholders'
meeting. There were 26,475,090 shares of the Company's common
stock issued, outstanding and entitled to vote as of the record
date, March 8, 1999, and a total of 16,089,321 share (61%) were
represented at the meeting in person or by proxy. The following
summarizes vote results of proposals submitted to the Company's
shareholders.
1. Proposal to elect directors, each for a two-year term.
<TABLE>
<CAPTION>
FOR Withheld
--- --------
<S> <C> <C>
Howard C. Reese 16,307,594 51,727
Charles E. Scribner 16,050,963 38,358
Robert T. Barnum 16,050,963 38,358
Roy A. Henderson 16,050,963 38,358
</TABLE>
2. Proposal to approve the adoption of the Amended and Restated
1991 Stock Option Plan
FOR AGAINST WITHHELD
--- ------- --------
14,798,279 1,284,193 6,849
2. Proposal to ratify the appointment of Ernest & Young LLP as
independent auditors for the fiscal year ending December 31,
1999
FOR AGAINST WITHHELD
--- ------- --------
16,072,305 12,981 4,035
ITEM 5. OTHER INFORMATION
None
33
<PAGE> 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on April 9, 1999 by the
Company to announce three executive promotions. Joy
Schaefer, Chief Operating Officer of Westcorp, Vice
Chairman, Chief Executive Officer of WFS Financial and
Chief Operating Officer of Western Financial Bank was
appointed to the position of President of Westcorp. In
addition, James E. Tecca, former Executive Vice
President and head of the Commercial Banking Group,
was promoted to President of Western Financial Bank.
Thomas Wolfe, former Executive Vice President and
National Production Manager of WFS, was promoted to
President and Chief Operating Officer of WFS.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTCORP
- -------------------------------------------------------------------------------
(Registrant)
Date: May 14, 1999 By: /s/ JOY SCHAEFER
------------------------ --------------------------------
Joy Schaefer
President and Chief Operating
Officer
Date: May 14, 1999 By:/s/ LEE A. WHATCOTT
------------------------ --------------------------------
Lee A. Whatcott
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
35
<PAGE> 36
EXHIBIT INDEX
-------------
EXHIBIT
INDEX DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 250,940
<INT-BEARING-DEPOSITS> 718
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,592,781
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,382,150
<ALLOWANCE> 45,097
<TOTAL-ASSETS> 3,905,731
<DEPOSITS> 2,134,855
<SHORT-TERM> 500,985
<LIABILITIES-OTHER> 696,077
<LONG-TERM> 238,312
0
0
<COMMON> 26,475
<OTHER-SE> 309,027
<TOTAL-LIABILITIES-AND-EQUITY> 3,905,731
<INTEREST-LOAN> 39,512
<INTEREST-INVEST> 17,566
<INTEREST-OTHER> 3,992
<INTEREST-TOTAL> 61,070
<INTEREST-DEPOSIT> 25,893
<INTEREST-EXPENSE> 33,614
<INTEREST-INCOME-NET> 27,456
<LOAN-LOSSES> 12,157
<SECURITIES-GAINS> 302
<EXPENSE-OTHER> 57,403
<INCOME-PRETAX> 17,100
<INCOME-PRE-EXTRAORDINARY> 8,360
<EXTRAORDINARY> 980
<CHANGES> 0
<NET-INCOME> 9,340
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 0.86
<LOANS-NON> 12,809
<LOANS-PAST> 2,688
<LOANS-TROUBLED> 14,099
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,660
<CHARGE-OFFS> 6,496
<RECOVERIES> 1,776
<ALLOWANCE-CLOSE> 45,097
<ALLOWANCE-DOMESTIC> 45,097
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
