<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   -----------

                                  FORM 10-Q/A-1

              /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

              / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

       For the quarter ended March 31, 1999 Commission file number 0-20526

                                   -----------

                             ARCADIA FINANCIAL LTD.
             (Exact name of registrant as specified in its charter)

                MINNESOTA                                 41-1664848
       (State or other jurisdiction             (I.R.S. Employer Identification
    Of incorporation or organization)                       Number)

            7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (612) 942-9880

                                   -----------

         Indicate by checkmark 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 require to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes  X  No
                                                                   ---    ---

         The number of shares of the Common Stock of the registrant
outstanding as of May 7, 1999 was 39,204,110.

<PAGE>

         The undersigned registrant hereby amends its Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 to amend Items 1 and 2 of Part
I in their entirety. Such amendments reflect a restatement of the Company's
consolidated balance sheets and related consolidated statements of operations
and comprehensive income, and cash flows. Refer to Note 2 to the Unaudited
Consolidated Financial Statements for additional information.

                             FORM 10-Q/A-1 INDEX

<TABLE>
<CAPTION>
                                                                              PAGE
<S>           <C>                                                             <C>
    PART I    FINANCIAL INFORMATION
    Item 1.   Consolidated Financial Statements                                  3
    Item 2.   Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                            11
    Item 3.   Quantitative and Qualitative Disclosures About Market Risk        21

    PART II   OTHER INFORMATION
    Item 6.   Exhibits and Reports on Form 8-K                                  22

    SIGNATURES                                                                  23
</TABLE>

         The financial information for the interim periods presented herein
is unaudited. In the opinion of management, all adjustments necessary (which
are of a normal recurring nature) have been included for a fair presentation
of the results of operations. The results of operations for an interim period
are not necessarily indicative of the results that may be expected for a full
year or any other interim period.

                       SAFE HARBOR STATEMENT UNDER THE
             PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         Certain statements under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may be identified by the use of terminology such as "may," "will,"
"expect," "anticipate," "estimate," "should," or "continue" or the negative
thereof or other variations thereon or comparable terminology. Such
forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results
or from those results presently anticipated or projected. Such factors
include, among other things, the following: increased delinquency and loan
loss rates; accounting and regulatory changes; interest rate fluctuations;
difficulties or delays in the securitization of automobile loans;
availability of adequate short- and long-term financing; general economic and
business conditions; and other matters set forth under the caption
"Cautionary Statements" in exhibit 99.1 to the Company's 1998 Annual Report
on Form 10-K filed March 24, 1999.

                                       2
<PAGE>

                             ARCADIA FINANCIAL LTD.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          (RESTATED,
                                                                          SEE NOTE 2)
(DOLLARS IN THOUSANDS, EXCEPT SHARE  AND PER SHARE AMOUNTS)              MARCH 31, 1999           DECEMBER 31, 1998
                                                                      ---------------------      ------------------
<S>                                                                   <C>                        <C>

                                                      ASSETS

Cash and cash equivalents                                                          $ 2,146                 $ 6,326
Restricted cash                                                                      9,970                   4,501
Due from securitization trust                                                           -                   62,081
Auto loans held for sale                                                           192,550                  17,899
Finance income receivable                                                          607,996                 587,946
Furniture, fixtures and equipment                                                   16,239                  17,511
Other assets                                                                        31,379                  31,419
                                                                            ---------------          --------------

     Total assets                                                                $ 860,280               $ 727,683
                                                                            ---------------          --------------
                                                                            ---------------          --------------

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

Amounts due under warehouse facilities                                           $ 129,482            $         -
Senior notes                                                                       366,911                 366,657
Subordinated notes                                                                  59,764                  51,898
Capital lease obligations                                                            3,167                   3,384
Accounts payable and accrued liabilities                                            25,330                  36,935
                                                                            ---------------          --------------

     Total liabilities                                                             584,654                 458,874

Commitments and contingencies

Shareholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized:
    Common stock 39,204,110 and 39,156,888 shares issued
    and outstanding, respectively                                                      392                     392
Additional paid-in capital                                                         324,995                 324,565
Accumulated other comprehensive income                                              17,062                  18,550
Retained earnings                                                                  (66,823)                (74,698)
                                                                            ---------------          --------------

     Total shareholders' equity                                                    275,626                 268,809
                                                                            ---------------          --------------

     Total liabilities and shareholders' equity                                  $ 860,280               $ 727,683
                                                                            ---------------          --------------
                                                                            ---------------          --------------
</TABLE>

            See notes to unaudited consolidated financial statements.

                                       3
<PAGE>

                             ARCADIA FINANCIAL LTD.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                   ----------------------------------------
                                                                                      (RESTATED,
                                                                                      SEE NOTE 2)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                               1999                    1998
                                                                                   ----------------       -----------------
<S>                                                                                <C>                    <C>
REVENUES:
  Net interest margin                                                                      $21,289                $ 19,947
  Gain on sale of loans                                                                     25,971                  27,000
  Servicing fee income                                                                      21,815                  19,666
                                                                                   ----------------       -----------------

      Total revenues                                                                        69,075                  66,613

EXPENSES:
  Salaries and benefits                                                                     18,479                  17,685
  General and administrative and other operating expenses                                   25,279                  28,149
                                                                                   ----------------       -----------------

      Total operating expenses                                                              43,758                  45,834
  Long-term debt and other interest expense                                                 13,466                  12,785
                                                                                   ----------------       -----------------

      Total expenses                                                                        57,224                  58,619
                                                                                   ----------------       -----------------

  Operating income before income taxes and cumulative effect                                11,851                   7,994
  Income tax expense                                                                             -                   3,038
                                                                                   ----------------       -----------------

  Operating income before cumulative effect                                                 11,851                   4,956
  Cumulative effect of change in accounting, net of taxes of $0 (note 2)                    (3,976)                      -
                                                                                   ----------------       -----------------
       Net income                                                                            7,875                   4,956

OTHER COMPREHENSIVE INCOME (LOSS):
  Net unrealized gain (loss) on finance income receivable                                   (1,488)                  2,024
  Income tax expense                                                                             -                     771
                                                                                   ----------------       -----------------
                                                                                            (1,488)                  1,253
                                                                                   ----------------       -----------------

  COMPREHENSIVE INCOME (LOSS)                                                             $  6,387                $  6,209
                                                                                   ----------------       -----------------
                                                                                   ----------------       -----------------

EARNINGS PER SHARE:
  Operating income per share before cumulative effect - basic                             $   0.30                $   0.13
  Cumulative effect per share - basic                                                     $  (0.10)                      -
                                                                                   ----------------       -----------------
  Net income per share - basic                                                            $   0.20                $   0.13
                                                                                   ----------------       -----------------
                                                                                   ----------------       -----------------

  Operating income per share before cumulative effect - diluted                           $   0.30                $   0.13
  Cumulative effect per share - dilutive                                                  $  (0.10)                      -
                                                                                   ----------------       -----------------
  Net income per share - dilutive                                                         $   0.20                $   0.13
                                                                                   ----------------       -----------------
                                                                                   ----------------       -----------------
Weighted average shares:
      Basic                                                                             39,204,110              38,988,885
      Diluted                                                                           39,279,849              39,360,968

</TABLE>

            See notes to unaudited consolidated financial statements.

                                       4
<PAGE>
                             ARCADIA FINANCIAL LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                         MARCH 31,
                                                                            ------------------------------------
                                                                              (RESTATED,
                                                                              SEE NOTE 2)
(DOLLARS IN THOUSANDS)                                                           1999                  1998
                                                                            --------------         -------------
<S>                                                                         <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                        $ 7,875               $ 4,956
Adjustments to reconcile net income to net cash used in
  operating activities:
  Depreciation and amortization                                                     2,018                 2,938
  (Increase) decrease in assets:
      Automobile loans held for sale:
          Purchases of automobile loans                                          (583,671)             (585,583)
          Sales of automobile loans                                               463,262               588,194
          Repayments of automobile loans                                            7,839                25,939
      Restricted Cash                                                              (5,469)               (3,065)
      Finance income receivable                                                   (21,538)              (51,630)
      Due from securitization trusts                                                   -                (15,016)
      Prepaid expenses and other assets                                               156                   500
  Increase (decrease) in liabilities:
      Deferred income taxes                                                            -                  3,807
      Accounts payable and accrued liabilities                                    (11,605)               (5,865)
                                                                            --------------         -------------

          Total cash used in operating activities                                (141,133)              (34,825)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of furniture, fixtures, and equipment                           1,078                    -
Purchase of furniture, fixtures and equipment                                      (1,713)               (1,431)
Collections on subordinated certificates                                              236                   274
                                                                            --------------         -------------

          Total cash used in investing activities                                    (399)               (1,157)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock                                            221                   304
Proceeds from borrowings under warehouse facilities                               542,284               716,229
Repayment of borrowings under warehouse facilities                               (412,802)             (693,190)
Unsecured subordinated notes, net                                                   7,866                  (927)
Reduction of capital lease obligations                                               (217)                 (386)
                                                                            --------------         -------------

          Total cash provided by financing activities                             137,352                22,030
                                                                            --------------         -------------

Net increase (decrease) in cash and cash equivalents                               (4,180)              (13,952)
Cash and cash equivalents at beginning of period                                    6,326                18,946
                                                                            --------------         -------------

Cash and cash equivalents at end of period                                         $2,146               $ 4,994
                                                                            --------------         -------------
                                                                            --------------         -------------

Supplemental disclosures of cash flow information: Cash paid for:
    Interest                                                                      $25,659               $24,638
</TABLE>

            See notes to unaudited consolidated financial statements.

                                       5
<PAGE>

                             ARCADIA FINANCIAL LTD.
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          ACCUMULATED
                                               NUMBER OF       COMMON     ADDITIONAL         OTHER          RETAINED
                                                COMMON           PAR        PAID IN      COMPREHENSIVE      EARNINGS
                                                SHARES         VALUE        CAPITAL          INCOME         (DEFICIT)       TOTAL
                                               ------------  -----------  ------------  ----------------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                            <C>             <C>          <C>           <C>             <C>            <C>
BALANCE, DECEMBER 31, 1998                       39,156,888    $      392    $  324,565    $   18,550     $  (74,698)    $  268,809
Issuance of Common Stock:
    Benefit plans                                    47,222             -           221             -              -            221
Amortization of deferred compensation                     -             -           209             -              -            209
Unrealized loss on financed income receivable             -             -             -        (1,488)             -         (1,488)
Net income                                                -             -             -             -          7,875          7,875
                                                 ----------    ----------    ----------    ----------     ----------     ----------

BALANCE, MARCH 31, 1999                          39,204,110    $      392    $  324,995    $   17,062     $  (66,823)    $  275,626
                                                 ----------    ----------    ----------    ----------     ----------     ----------
                                                 ----------    ----------    ----------    ----------     ----------     ----------
</TABLE>

            See notes to unaudited consolidated financial statements.

                                       6
<PAGE>

                             ARCADIA FINANCIAL LTD.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE QUARTER ENDED MARCH 31, 1999


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION. The interim financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to quarterly reports on Form
10-Q. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although management believes that the disclosures present
fairly the financial position of the Company and its subsidiaries for the
periods presented. These financial statements should be read in conjunction
with the audited consolidated financial statements and related notes and
schedules included in the Company's 1998 Annual Report on Form 10-K filed
March 24, 1999.

         The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

         Certain reclassifications have been made to the March 31, 1998
balances to conform to current period presentation. Certain balance sheet
amounts have been reclassified from their December 31, 1998 presentation.

         USE OF ESTIMATES

         In conformity with generally accepted accounting principles,
management utilizes assumptions and estimates that affect the reported value
of finance income receivable and the gain on sale of automobile receivables.
Such assumptions include, but are not limited to, estimates of loan
prepayments, defaults, recovery rates and present value discount. The Company
uses a combination of its own historical experience, industry statistics and
expectation of future performance to determine such estimates. The Company's
estimation process is evaluated on a regular basis and modified when deemed
necessary. Modifications to the estimation process may result in changes in
estimates utilized to determine the carrying value of financed income
receivables. Actual results may differ from the Company's estimates due to
numerous factors both within and beyond the control of Company management.
Changes in these factors could require the Company to revise its assumptions
concerning the amount of voluntary prepayments, the frequency and/or severity
of defaults and the recovery rates associated with the disposition of
repossessed vehicles. The range of assumptions, as well as actual
performance, are reflective of the risk characteristics of the loans within
specific securitization pools.

                                       7
<PAGE>

2.  CHANGES IN ACCOUNTING METHOD AND ACCOUNTING ESTIMATES

         Effective January 1, 1999 the Company changed its accounting method
for recognition of sales of asset-backed securities. Previously, the Company
recognized sales of asset-backed securities once an irrevocable commitment
had been received, the loans to be sold had been identified and segregated
from loans held for sale, and cash proceeds had been placed in the trust by a
third party. The Company now records sales of asset-backed securities upon
physical settlement, which generally occurs within 5 to 10 days of the
segregation of the loans to be sold. As a result of the change, gain on sale
of approximately $9.0 million related to the sale of approximately $148.8
million of automobile loans was recorded in the second quarter, that
otherwise would have been recorded in the first quarter. In addition, the
Company removed an accrual which was recorded in the first quarter for
unidentified loan loss contingencies of approximately $9.0 million. The
significant effects of the restatement on the Consolidated Balance Sheet at
March 31, 1999 and the Consolidated Statements of Operations and
Comprehensive Income are as follows:

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                                           MARCH 31, 1999
                                                                            -----------------------------------------
                                                                                   AS                       AS
(In millions, except per share data)                                            REPORTED                 RESTATED
                                                                            -----------------        ----------------
<S>                                                                          <C>                     <C>
CONSOLIDATED BALANCE SHEET:
  Due from securitization trust                                                 $  148,819           $          -
  Auto loans held for sale                                                      $   43,731           $    192,550

CONSOLIDATED STATEMENT OF OPERATIONS:
  Gain on sale of loans                                                         $   21,995           $     25,971
  Operating Income before cumulative effect                                     $    7,875           $     11,851
  Cumulative effect of change in accounting, net of tax of $0                   $        -           $     (3,976)
  Net income                                                                    $    7,875           $      7,875
  Basic earnings per share - net income                                         $     0.20           $       0.20
  Diluted earnings per share - net income                                       $     0.20           $       0.20

</TABLE>

         The impact of the change in accounting method on the three months
ended March 31, 1999 was to reduce earnings by approximately $5.0 million.
Had the Company applied this accounting method for the three months ended
March 31, 1998 earnings would have been lower by approximately $1.4 million.


                                       8
<PAGE>



                             ARCADIA FINANCIAL LTD.
     NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                     FOR THE QUARTER ENDED MARCH 31, 1999



3. FINANCE INCOME RECEIVABLE

The following table sets forth the components of finance income receivable:

<TABLE>
<CAPTION>
                                                                                         AT                 AT
                                                                                      MARCH 31,        DECEMBER 31,
                                                                                        1999               1998
                                                                                   ----------------   ---------------
(DOLLARS IN THOUSANDS)
<S>                                                                                 <C>                   <C>
Estimated cash flows on loans sold, net of estimated prepayments (1)                    $1,201,030        $1,195,466
Deferred servicing income                                                                 (102,034)         (101,996)
Reserve for loan losses                                                                   (399,004)         (415,401)
                                                                                   ----------------   ---------------

Undiscounted cash flows on loans sold, net of estimated prepayments                        699,992           678,069
Discount to present value                                                                  (91,996)          (90,123)
                                                                                   ----------------   ---------------
                                                                                         $ 607,996         $ 587,946
                                                                                   ----------------   ---------------
                                                                                   ----------------   ---------------
Reserve for loan losses as a percentage of securitized servicing portfolio                   8.05%             8.18%
</TABLE>

--------------
(1)  Includes restricted cash deposits in securitization spread accounts of
     $237.8 million and $227.7 million at March 31, 1999 and December 31, 1998,
     respectively.


The following represents the roll-forward of the finance income receivable
balance:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                                                    <C>
BALANCE, DECEMBER 31, 1998                                                             $ 587,946
  Present value of estimated future cash flows from current period securitizations        49,765
  Interest earned on spread accounts                                                       3,790
  Recognition of present value effect of discounted cash flows                            13,242
  Unrealized loss on retained assets                                                      (1,488)
  Less:
    Excess cash flows released to the Company (1)                                        (45,259)
                                                                                     ------------
BALANCE AT MARCH 31, 1999                                                              $ 607,996
                                                                                     ------------
                                                                                     ------------
</TABLE>

----------------
  (1)    Pursuant to an arrangement between the Company and its provider of
         asset-backed securities insurance, if any insured securitization trust
         exceeds a specified portfolio performance test as defined within the
         trust agreement, the Company may, in lieu of retaining excess cash from
         that securitization trust in the related spread accounts, pledge an
         equivalent amount of cash, which has the effect of preventing the
         violation of the portfolio performance test. Under such arrangement,
         the Company had approximately $9.4 million pledged and deposited in
         restricted accounts at March 31, 1999. Such pledged amounts are
         included in restricted cash. Restrictions on the pledged
         amounts may be lifted if the portfolio performance for the related
         securitization trusts tests are met and maintained as defined in the
         arrangement, the violations are waived, or the loans within the
         securitization trust are repurchased by the Company at the end of the
         securitization term.

                                       9
<PAGE>

                             ARCADIA FINANCIAL LTD.
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                      FOR THE QUARTER ENDED MARCH 31, 1999


4. OTHER ASSETS

<TABLE>
<CAPTION>
                                                                       AT                            AT
                                                                 MARCH 31, 1999              DECEMBER 31, 1998
                                                               ------------------          ---------------------
(DOLLARS IN THOUSANDS)
<S>                                                             <C>                         <C>
Interest advances to securitization trusts                            $ 4,743                     $ 5,967
Deferred debt issuance costs                                            9,757                      10,110
Investment in subordinated certificates                                 1,637                       1,873
Servicing fee receivable                                                4,932                       4,841
Prepaid expenses                                                        1,398                       1,717
Other assets                                                            8,912                       6,911
                                                                --------------             ---------------
                                                                     $ 31,379                    $ 31,419
                                                                --------------             ---------------
                                                                --------------             ---------------
</TABLE>


5. SUBORDINATED NOTES

<TABLE>
<CAPTION>
                                                                      AT                            AT
                                                                MARCH 31, 1999             DECEMBER 31, 1998
                                                               ---------------             -----------------
(DOLLARS IN THOUSANDS)
<S>                                                            <C>                         <C>
Senior subordinated notes, Series 1996-A                            $ 30,000                       $ 30,000
Junior subordinated notes                                             29,764                         21,898
                                                                --------------             ----------------
                                                                    $ 59,764                       $ 51,898
                                                                --------------             ----------------
                                                                --------------             ----------------
</TABLE>

6. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share for each of the three month periods ended March 31:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                     1999                        1998
                                                                --------------             ---------------
<S>                                                             <C>                         <C>
Numerator:
  Income from operations before cumulative effect                  $  11,851                    $   4,956
                                                                --------------             ---------------
                                                                --------------             ---------------
Denominator:
  Denominator for basic earnings per share - weighted
     average shares                                               39,204,110                   38,988,885
  Dilutive effect of options and warrants (1)                         75,739                      372,083
                                                                --------------             ---------------

  Denominator for diluted earnings per share - adjusted
     weighted average shares                                      39,279,849                   39,360,968
                                                                --------------             ---------------
                                                                --------------             ---------------
Basic income from operations before cumulative effect               $   0.30                     $   0.13
                                                                --------------             ---------------
                                                                --------------             ---------------
Diluted income from operations before cumulative effect             $   0.30                     $   0.13
                                                                --------------             ---------------
                                                                --------------             ---------------
</TABLE>

-------------
  (1)    At March 31, 1999 and 1998, there were options and warrants outstanding
         to purchase an aggregate 7.0 million and 4.9 million common shares,
         respectively. All of these potential common shares have been excluded
         from the computation of diluted earnings per share because their
         inclusion would have been anti-dilutive.

                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

         The Company derives substantially all of its earnings from the
purchase, securitization and servicing of consumer automobile loans
originated in 45 states primarily by car dealers affiliated with major
foreign and domestic manufacturers. Loans are purchased through 18 regional
buying centers (or "hubs") located in 15 states, supplemented by a network of
dealer development representatives ("DDRs") which develop and maintain
relationships with car dealers operating within each "hub's" immediate market
area or in surrounding market areas referred to as "spokes." Credit approval
and loan processing are generally performed at the "hub" or at the Company's
headquarters in Minneapolis, Minnesota. The Company acts as the servicer of
all loans originated and securitized by it in return for a monthly servicing
fee. To perform its servicing responsibilities the Company operates a
national customer service center in Minneapolis, Minnesota and four regional
collection centers located in Charlotte, North Carolina; Dallas, Texas;
Denver, Colorado; and Minneapolis, Minnesota.

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

RESULTS OF OPERATIONS

         Changes in Accounting Method and Accounting Estimates

         Effective January 1, 1999 the Company changed its accounting method
for recognition of sales of asset-backed securities. Previously, the Company
recognized sales of asset-backed securities once an irrevocable commitment
had been received, the loans to be sold had been identified and segregated
from loans held for sale, and cash proceeds had been placed in the trust by a
third party. The Company now records sales of asset-backed securities upon
physical settlement, which generally occurs within 5 to 10 days of the
segregation of the loans to be sold. As a result of the change, gain on sale
of approximately $9.0 million related to the sale of approximately $148.8
million of automobile loans was recorded in the second quarter, that
otherwise would have been recorded in the first quarter. In addition, the
Company removed an accrual which was recorded in the first quarter for
unidentified loan loss contingencies of approximately $9.0 million.

         NET INTEREST MARGIN. The components of net interest margin for each
of the three months ended March 31 were:

<TABLE>
<CAPTION>
                                                                        1999            1998
                                                                    -----------      -----------
(DOLLARS IN THOUSANDS)
<S>                                                                 <C>              <C>
Interest income on loans, net                                           $ 7,105          $ 6,279
Interest income on short-term investments and other cash accounts         1,842            3,060
Recognition of present value discount                                    13,242           11,577
Provision for credit losses on loans held for sale                         (900)            (969)
                                                                    -----------      -----------
    Net interest margin                                                $ 21,289          $19,947
                                                                    -----------      -----------
                                                                    -----------      -----------
</TABLE>

         Net interest margin for the three months ended March 31, 1999
increased 7%, compared with the same period a year ago. The change in net
interest margin is primarily due to an increase in present value discount
recognized, resulting from higher discount rate assumptions used during the
first quarter of 1999 in connection with the gain on sale of loans and the
establishment of finance income receivable.

         Net interest margin also benefited from an increase in the average
monthly balance of loans held for sale, on which the Company earns interest
income until such loans are securitized, to $233.8 million from $183.1
million during the quarters ended March 31, 1999 and 1998, respectively, and
a rise in the weighted average net interest rate spread earned on such loans
held for sale to 12.18% during the first quarter of 1999 compared with 11.48%
during the same period in 1998.

                                       11
<PAGE>

         The Company's loan purchasing and securitization volume for each of
the three months ended March 31 are set forth in the table below.

<TABLE>
<CAPTION>
                                           1999               1998
                                     --------------      --------------
(DOLLARS IN THOUSANDS)
<S>                                  <C>                 <C>
Total automobile loans purchased       $ 582,468           $ 583,973

Automobile loans securitized           $ 463,262           $ 588,194
</TABLE>

            GAIN ON SALE OF LOANS. Revenue provided from gain on sale of
loans was $26.0 million and $27.0 million during the three months ended March
31, 1999 and 1998, respectively. The decrease in gain on sale of loans
reflects a 21% decrease in loan securitization volume and the effect of lower
estimated recovery rates on future loan charge-offs compared with recovery
rate estimates utilized in the first quarter of 1998. The Company made a
change in accounting estimate and recognized a special charge to earnings
during the second quarter of 1998, after determining it appropriate to lower
its estimate of future recovery rates.

         The following table summarizes the significant factors and assumptions
utilized in determining gain on sale of loans for each of the three month
periods ended March 31:

<TABLE>
<CAPTION>
                                                                                   1999         1998
                                                                             -------------  ------------
<S>                                                                          <C>             <C>
Weighted average APR of loans securitized                                          17.31%        17.04%
Weighted average securitization rate                                                5.92          5.98
                                                                             -------------  ------------
   Gross interest rate spread (1)                                                  11.39%        11.06%
                                                                             -------------  ------------
                                                                             -------------  ------------
Weighted average cumulative net losses (2)                                          8.33%         6.14%
</TABLE>

----------
  (1)    Before gains/losses on hedging transactions.
  (2)    Assumptions for 1998 are based on original computation prior to
         adjustments to record permanent impairment of finance income receivable
         during June 1998.

         The rise in gross interest rate spread during the three months ended
March 31, 1999 is primarily due to the Company's continued refinements to its
risk-based pricing strategy resulting in slightly higher APR's.

         Any unamortized balance of participations paid to dealers is
expensed at the time the related loans are securitized and recorded as a
reduction to gain on sale. Participations paid as a percentage of the
principal balance of loans purchased declined slightly to 2.83% during the
three months ended March 31, 1999, from 2.86% in the same period a year ago.

         Gain on sale of loans has been adjusted for a $70,100 net realized
gain and a $5.8 million net realized loss on hedging transactions during the
first quarters of 1999 and 1998, respectively. The first quarter of 1998
realized hedging losses primarily resulted from the downward movement of
treasury rates.

         SERVICING FEE INCOME. The components of servicing fee income for
each of the three month periods ended March 31 were:

<TABLE>
<CAPTION>
                                               1999                1998
                                           -------------       ------------
     (DOLLARS IN THOUSANDS)
<S>                                        <C>                  <C>
     Contractual servicing fee income        $14,354             $13,928
     Other servicing income                    7,461               5,738
                                           -------------       ------------
        Total servicing fee income           $21,815             $19,666
                                           -------------       ------------
                                           -------------       ------------
</TABLE>

        The Company earns contractual servicing fee income for servicing
loans sold to investors through securitizations. Contractual servicing income
is earned at rates ranging from 1% to 1.25% per annum on the outstanding
principal balance of all loans securitized. The Company's servicing fee
approximates adequate compensation as defined by SFAS 125 and therefore, the
Company has not recorded a servicing asset or liability at March 31, 1999.

                                       12
<PAGE>

         Other servicing income consists primarily of collection fees, such
as late payment fees and insufficient fund charges, and interest on
collection accounts earned by the Company as servicer of the loans. The rise
in other servicing income for the quarter ended March 31, 1999 compared to
the quarter ended March 31, 1998 is primarily due to an increase in fees
associated with certain customer payment services utilized for collecting
delinquent accounts. Prior to the second quarter of 1998 the majority of such
services were provided by outside vendors in return for a portion of the fee.

         The following table reflects the growth in the Company's servicing
portfolio from March 31, 1998 to March 31, 1999:

<TABLE>
<CAPTION>
                                                                            AT MARCH 31,
                                                                       1999              1998
                                                                  --------------    ---------------
       (DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<S>                                                                <C>               <C>
       Principal balance of automobile loans held for sale          $   192,944        $    21,129
       Principal balance of loans serviced under securitizations      4,956,003          5,005,350
                                                                  --------------    ---------------
       Servicing portfolio                                          $ 5,148,947        $ 5,026,479
                                                                  --------------    ---------------
                                                                  --------------    ---------------
       Average unpaid principal balance (actual dollars)            $    11,177        $    11,775
       Number of loans serviced                                         460,692            426,884

</TABLE>

        The Company's servicing portfolio (measured by principal balance)
increased 2% from March 31, 1998 to March 31, 1999, reflecting loan purchases
and subsequent securitizations, partially offset by defaults, prepayments and
scheduled repayments. The decline in average outstanding balance of loans
during the first quarter of 1999 reflects an increase in the proportion of
used to new cars financed by the Company and a reduction in average
loan-to-value ratio on loan purchases resulting from the Company's more
selective buying practices.

        OPERATING EXPENSES. Salaries and benefits increased to $18.5 million
in the first quarter of 1999, up 4% from $17.7 million during the same period
in 1998. The increase in salaries and benefits is primarily due to an
enhanced incentive program for collectors, partially offset by fewer FTE's
and lower overtime compensation resulting from centralizing the Company's
collection operations during 1998.

         Other operating costs, including administrative, occupancy,
depreciation and amortization, origination, servicing and collection
expenses, decreased 11% for the three months ended March 31, 1999, compared
with the same period in 1998. The decrease is primarily attributable to lower
repossession and remarketing expenses due to the elimination of the Company's
retail remarketing program.

         IMPACT OF YEAR 2000. The Company recognizes that the arrival of the
Year 2000 poses a unique worldwide challenge to the ability of all computer
based applications to recognize the date change from December 31, 1999 to
January 1, 2000, potentially causing miscalculations, system failures and
other operational problems.

         One of the Company's most critical operating systems is its loan
accounting system. In July 1997, an internal implementation team along with
outside consultants was assigned to evaluate, select, and implement a new
installment loan accounting system and various sub-systems (the "ILA system")
in connection with an initiative to replace and enhance the Company's key
operating systems. One of the requirements for consideration was that the new
ILA system be Year 2000 compliant. In late 1997, a contract was signed with a
nationally recognized vendor to provide the Company with such a system. The
contract warrants, among other things, that the core software system being
purchased is fully Year 2000 compliant and that the software will be
installed and in a testing phase with the Company's current system in the
second quarter of 1999. To date, the Company believes that the terms of the
contract have been met and that testing will be complete and the new ILA
system placed into operation early in the third quarter of 1999.

                                       13
<PAGE>

         In addition, in early 1998 the Company formed a dedicated project
team to conduct an extensive analysis of the impact that the Year 2000 issue
might have on its automated information systems (exclusive of the ILA
system), business support systems and facility operating systems. The project
team has been responsible for the prioritization of Year 2000 tasks,
development of implementation plans, and the establishment of timetables for
completion and testing of all necessary modifications. As a result, the
Company has initiated the replacement, modification or reprogramming of Year
2000 non-compliant hardware and software and since 1997 has required that all
new hardware and software be certified as Year 2000 compliant prior to
purchase. To assist in this process, the Company engaged an independent
company to aid in the remediation of non-compliant programs. The
modification, reprogramming, testing and implementation of the Company's
non-compliant programs were completed in the first quarter of 1999. All Year
2000 testing was executed in an isolated systems environment dedicated for
Year 2000 issues. As a contingency to the possibility of an unplanned delay
in the implementation of the new ILA system discussed above, the Company's
current loan accounting system was included in the programs provided to the
independent company for remediation. This provides a Year 2000 compliant
installment loan accounting system even if the implementation of the new ILA
system should be delayed beyond the end of 1999.

         The Company estimates that the cost of its Year 2000 project will
aggregate approximately $1.5 million, of which approximately $0.8 million has
been expended through March 31, 1999. These costs do not include amounts
related to the implementation of the ILA system or other hardware and
software purchases which the Company had planned to acquire and which are not
directly related to, or the purchase of which has not been accelerated
because of, the Year 2000 issue. Consistent with the Company's capitalization
policy, the cost of such non-Year 2000 hardware and software purchases will
be capitalized and amortized over their expected useful lives.

         Ultimately, the potential impact of the Year 2000 issue will depend
not only on the success of the corrective measures that the Company
undertakes, but also on the way in which the Year 2000 issue is addressed by
its business partners, service providers, utility providers, governmental
agencies and other entities with which the Company does business. The Company
has developed and implemented a plan to contact parties which provide
services critical to the successful operation of its business to heighten
their awareness of the Year 2000 issue, to learn how they are addressing it
and to evaluate any likely impact on the Company. For example, the Company
completed a Year 2000 survey of its credit bureaus, investment bankers and
warehouse providers during 1999. The Year 2000 efforts of third parties are
not within the Company's control, however, and their failure to remediate
Year 2000 issues successfully could result in business disruption, increased
operating costs and increased credit risk for the Company. At the current
time, it is not possible to determine whether any such events are likely to
occur, or to quantify any potential negative impact they may have on the
Company's future results of operations and financial condition.

         The Company believes that it has an effective plan in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary processes of its Year 2000 plan. The
Company plans to continuously monitor the status of completion of its Year
2000 plan and, based on such information, will develop contingency plans as
necessary. In the event that the Company does not complete any additional
phases of its plan, the Company may be unable to perform its key operating
activities, such as the purchase of loans and the invoicing, collecting and
application of obligor repayments. The Company could be subject to litigation
for computer systems failure, such as improper application of repayments and
resulting incorrect credit reporting to credit bureaus. In addition,
disruptions in the economy generally resulting from Year 2000 issues could
also materially adversely affect the Company. The amount of potential
liability and lost revenue cannot reasonably be estimated at this time.

         The foregoing discussion regarding Year 2000, including the
discussion of the timing and effectiveness of implementation and cost of the
Company's Year 2000 project, contains forward-looking statements, which are
based on management's best estimates derived using various assumptions. These
forward-looking statements involve inherent risks and uncertainties, and
actual results could differ materially from those contemplated by such
statements. Factors that might cause material difference include, but are not
limited to, the continued availability of key Year 2000 personnel, the
Company's ability

                                       14
<PAGE>

to locate and correct all relevant computer codes, the performance of
contractors and companies retained to provide new software and to remediate
existing hardware and software, and the Company's ability to respond to
unforeseen Year 2000 complications. Such material differences could result
in, among other things, business disruption, operational problems, financial
loss, legal liability and similar risks.

         INCOME TAXES. The Company did not record an income tax provision
during the three months ended March 31, 1999, due to the utilization of net
operating loss carryforwards.

         FINANCIAL CONDITION

         AUTO LOANS HELD FOR SALE. The Company's portfolio of auto loans held
for sale increased to $192.5 million at March 31, 1999, compared with $17.9
million at December 31, 1998, primarily due to the Company's change in
accounting policy described above and increase in loan purchasing volume
during the first quarter 1999 compared with the fourth quarter of 1998.

         FINANCE INCOME RECEIVABLE. Finance income receivable increased to
$608.0 million at March 31, 1999 from $587.9 million at December 31, 1998.
This increase is primarily due to amounts capitalized upon completion of
securitization transactions during the first quarter of 1999 related to the
present value of estimated cash flows partially off-set by excess cash flows
released to the Company from securitization trusts.

         ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. Accounts payable and
accrued liabilities decreased 31% to $25.3 million at March 31, 1999 as
compared with $36.9 million at December 31, 1998. This decrease primarily
reflects the semi-annual payment in March 1999 of accrued interest associated
with the Company's Senior Notes.

                                       15
<PAGE>



DELINQUENCY, CREDIT LOSS AND REPOSSESSION EXPERIENCE

         The following tables describe the delinquency and credit loss and
repossession experience of the Company's servicing portfolio for the periods
indicated. A delinquent loan may result in the repossession and foreclosure
of the collateral for the loan. Losses resulting from repossession and
disposition of automobiles are charged against applicable allowances, which
management reviews on a monthly basis. There can be no assurance that future
delinquency, credit loss and repossession experience will be comparable to
that set forth below.

DELINQUENCY EXPERIENCE (1):

<TABLE>
<CAPTION>
                                                          MARCH 31, 1999                        DECEMBER 31, 1998
                                                 ---------------------------------     -----------------------------------
                                                   NUMBER OF                             NUMBER OF
                                                     LOANS             BALANCE             LOANS               BALANCE
                                                 --------------     --------------     ---------------      --------------
(DOLLARS IN THOUSANDS)
<S>                                               <C>                <C>                <C>                  <C>
Servicing portfolio at end of period                   460,692         $5,148,947             450,635          $5,096,222
Delinquencies:
  31-60 days                                             8,021           $ 87,630              12,176           $ 135,633
  61-90 days                                             3,505             39,477               4,161              47,599
  91 days or more                                        5,596             60,381               5,165              60,591
                                                 --------------     --------------     ---------------      --------------
Total loans delinquent 31 or more days                  17,122          $ 187,488              21,502           $ 243,823
                                                 --------------     --------------     ---------------      --------------
                                                 --------------     --------------     ---------------      --------------
Delinquencies as a percentage of
  number of loans and amount
  outstanding at end of period (2)                        3.72 %             3.64 %              4.77 %              4.78 %
Amount in repossession                                   5,542           $ 31,501               5,686            $ 32,676
</TABLE>

-----------
(1)   All amounts and percentages are based on the principal amount scheduled to
      be paid on each loan. The information in the table includes previously
      sold loans which the Company continues to service.

(2)   Amounts shown do not include loans which are less than 31 days delinquent.

(3)   Amount in repossession represents financed automobiles which have been
      charged-off but not yet liquidated.

CREDIT LOSS/REPOSSESSION EXPERIENCE (1):

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                    ----------------------------------
                                                                        1998                1997
                                                                    --------------     ---------------
(DOLLARS IN THOUSANDS)
<S>                                                                 <C>                 <C>
Average servicing portfolio outstanding during the period              $5,112,482          $5,001,781
Average number of loans outstanding during the period                     451,813             419,179
Number of charge-offs                                                       8,116               7,597

Gross charge-offs (2)                                                    $ 62,907            $ 52,479
Recoveries (3)                                                              8,207               3,576
                                                                    --------------     ---------------
Net losses                                                               $ 54,700            $ 48,903
                                                                    --------------     ---------------
                                                                    --------------     ---------------

Annualized gross charge-offs as a percentage of average
  servicing portfolio                                                        4.92 %              4.20 %
Annualized net losses as a percentage of average
   servicing portfolio                                                       4.28 %              3.91 %
</TABLE>

-----------
(1)      All amounts and percentages are based on the principal amount scheduled
         to be paid on each loan. The information in the table includes
         previously sold loans which the Company continues to service.
(2)      Gross charge-offs represent principal amounts which management
         estimated to be uncollectable after the consideration of anticipated
         proceeds from the disposition of repossessed assets and selling
         expenses.
(3)      Includes post-disposition amounts received on previously charged off
         loans.

                                       16
<PAGE>

         The Company's delinquency rate has declined compared to December 31,
1998, in part because of a recovery from the normal seasonal pressure on
collection efforts which is generally highest in the fourth quarter of the
year. Management also believes that the decrease in the delinquency rate
reflects improvements in the Company's collections and servicing functions
implemented during 1998 and the first quarter of 1999.

         The increase in gross charge-offs and net losses during the three
months ended March 31, 1999, compared to the same period a year ago primarily
reflects the utilization of only wholesale disposition channels for the sale
of repossessed vehicles. Although recovery rates on the sale of vehicles
through wholesale channels is generally lower than those realized through
retail distribution channels, management believes that its decision in June
1998 to discontinue its retail remarketing operations has enabled it to
better manage its level of repossessed inventory, due to the increase in the
speed at which repossessed vehicles can be liquidated, and as a result has
improved the timing of excess cash flows released to the Company from
securitization trusts.

LIQUIDITY

         The Company's business requires substantial cash to support its
operating activities. The principal cash requirements include (i) the
purchase and financing of automobile loans pending securitization, (ii)
payment of dealer participations, (iii) deposits of cash held from time to
time in restricted accounts to support securitizations and warehouse
facilities and other securitization expenses, (iv) interest advances to
securitization trusts, (v) the cost of repossessed inventory, and (vi)
interest expense. The Company also uses significant amounts of cash for
operating expenses. The Company receives cash principally from interest on
loans held pending securitization, excess cash flow received from
securitization trusts and fees earned through servicing of loans held by such
trusts. The Company has operated to date on a negative operating cash flow
basis and expects to continue to do so in the near future. The Company has
historically funded these negative operating cash flows principally through
borrowings from financial institutions, sales of equity securities and sales
of senior and subordinated notes. The Company expects that it will require
additional capital in the future to fund continued negative cash flows,
although there can be no assurance that the Company will have access to
capital markets in the future or that financing will be available to satisfy
the Company's operating and debt service requirements or to fund its future
growth. See "Capital Resources."

         PRINCIPAL USES OF CASH IN OPERATING ACTIVITIES

         PURCHASE AND FINANCING OF AUTOMOBILE LOANS. Automobile loan
purchases represent the Company's most significant cash flow requirement. The
Company purchased $582.5 million of loans during the first three months of
1999 compared to $584.0 million during the same period in 1998. The Company
funds the purchase price of loans primarily through the use of warehouse
facilities. However, because the warehouse facilities limit the advance rate
to less than 100% of the loan balances being purchased, the Company is
required to fund the remainder of all purchases prior to securitization with
other available cash resources.

         DEALER PARTICIPATIONS. Consistent with industry practice, the
Company pays dealer participations for selling loans to the Company. These
participations typically require the Company to advance an up-front amount to
dealers. When loans are securitized, the related dealer participation is
expensed and subsequently recovered over the estimated life of the related
loan through the return to the Company of excess cash flow from the
securitization trust. Participations paid by the Company to dealers during
the three months ended March 31, 1999 were $16.5 million, or approximately
2.83% of the principal balance of loans purchased, compared with $16.7
million, or approximately 2.86% of loans purchased, during the same period in
1998.

        SPREAD ACCOUNT AND SECURITIZATION EXPENSES. In connection with
securitizations, the Company is required to fund spread accounts related to each
transaction. The Company primarily funds these spread accounts by foregoing
receipt of excess cash flow until these spread accounts exceed predetermined
levels. In addition, for certain securitizations the Company has been required
to provide initial cash deposits into the spread accounts which generally ranged
from one to two percent of the principal balance of loans securtized. In
exchange for an increase in the insurance premiums paid to the Company's
provider of asset-backed

                                       17
<PAGE>

securities insurance, the Company has eliminated or significantly reduced the
amount of cash required for initial deposits in connection with
securitizations completed since 1997. There can be no assurance that similar
insurance arrangements will be negotiated for future securitizations; failure
to negotiate similar terms would increase the Company's need for cash to fund
its securitization activity.

      The Company had $237.8 million of restricted cash in spread accounts at
March 31, 1999, compared with $227.7 million at December 31, 1998. The
increase in restricted cash in spread accounts reflects the continued
securitization of loan purchases and the related accumulation of excess cash
flows to levels defined within each securitization agreement, partially
offset by the release of excess cash flows from securitization trusts spread
accounts which have reached appropriate levels. In addition to the restricted
cash noted above, spread accounts were further supported by $34.5 million and
$18.5 million of reinsurance contracts at March 31, 1999 and December 31,
1998, respectively, purchased by the Company's asset-backed securities
insurance provider in connection with the initial deposit arrangement
discussed above, as well as an additional $60.0 million in reinsurance
contracts related to the early release of $60.0 million of cash from spread
accounts during 1998. The $60.0 million will be replenished in the relevant
spread accounts, and the amount of reinsurance reduced, by means of a $3.0
million reduction in the level of monthly cash releases from the spread
accounts beginning in May 1999 and increasing to $5.0 million per month
beginning in October 1999.

         The Company also incurs certain expenses in connection with
securitizations, including underwriting fees, credit enhancement fees,
trustee fees and other costs, which approximate 0.5% of the principal amount
of the asset-backed securities sold into the securitizations.

         INTEREST ADVANCES TO SECURITIZATION TRUSTS. As the servicer of loans
sold in securitizations, the Company periodically makes interest advances to
the securitization trusts to provide for temporary delays in the receipt of
required interest payments from borrowers. In accordance with the relevant
servicing agreements, the Company makes advances only in the event it expects
to recover such advances through the ultimate payments from the obligor over
the life of the loan.

         REPOSSESSED INVENTORY. At March 31, 1999, repossessed inventory
managed or owned by the Company and held for resale was $31.5 million,
compared with $32.7 million at December 31, 1998. The rate of repossessed
inventory turnover impacts cash available for deposit to spread accounts from
securitization trusts and, consequently, the excess cash potentially
available for distribution to the Company. At March 31, 1999, and December
31, 1998, repossessed inventory was 0.6% of the total servicing portfolio.
Any improvement in excess cash flows due to an increase in the inventory
turnover rate may be partially reduced by lower recoveries realized through
the exclusive use of wholesale auctions after December 31, 1998, and
generally lower wholesale used car prices.

         INTEREST EXPENSE. Although the Company records net interest margin
as earned, a significant portion of the interest income component is
generally received in cash from excess cash flow, while the interest expense
component (primarily warehousing interest) is paid prior to securitization.
The Company also incurs interest expense related to both short-term and
long-term debt obligations.

         PRINCIPAL SOURCES OF CASH IN OPERATING ACTIVITIES

    EXCESS CASH FLOW. The Company receives excess cash flow from
securitization trusts, including the realization of gain on sale, the
recovery of dealer participations, and the recovery of accrued interest
receivable earned, but not yet collected, on loans held for sale prior to
securitization. During the first quarter of 1999, the Company received $45.3
million of excess cash flow, compared with $25.0 million during the first
quarter 1998. The Company has entered into an arrangement with its provider
of asset-backed insurance which provides that, if any insured securitization
trust exceeds its specified portfolio performance test as defined within the
trust agreement, the Company may, in lieu of retaining excess cash from that
securitization trust in the related spread accounts, pledge an equivalent
amount of cash, which has the effect of preventing the violation of the
portfolio performance test. At March 31, 1999 an aggregate $9.4 million of
cash released from spread accounts was restricted pursuant to such
arrangement. Such pledged amounts are included in restricted cash.
Restrictions on the pledged amounts may be lifted if the portfolio
performance tests for the

                                       18
<PAGE>

related securitization trusts are met and maintained as defined in the
arrangement, the violations are waived, or the loans within the
securitization trusts are repurchased at the end of the securitization term.
There can be no assurance that the restrictions will be lifted or, absent
amendments to the portfolio performance tests, that additional performance
tests will not be exceeded thereby increasing the level of excess cash which
must be pledged. A significant increase in the level of cash pledged under
such arrangement would significantly limit the Company's ability to fund the
purchase and securitization of loans.

         SERVICING FEES. The Company receives servicing fees for servicing
securitized loans included in various securitization trusts. The servicing
fee for loans in securitization trusts ranges from one percent to 1.25
percent of the outstanding principal balance on loans subsequently
securitized. The Company also receives collection fees, such as late payment
fees and insufficient fund charges, and interest on collection accounts
earned by the Company as servicer of the loans. During the three months ended
March 31, 1999 and 1998, the Company received cash for such services in the
amount of $21.8 million and $19.9 million, respectively. Servicing fee income
is reflected in the Company's revenues as earned.

CAPITAL RESOURCES

         The Company finances the acquisition of automobile loans primarily
through (i) warehouse facilities, pursuant to which loans are financed
generally on a temporary basis, and (ii) the securitization of loans,
pursuant to which loans are sold as asset-backed securities. Additional
financing is required to fund the Company's operations.

         WAREHOUSE FACILITIES. Automobile loans held for sale are funded on a
short-term basis primarily through warehouse facilities. At March 31, 1999,
the Company had three warehouse facilities in place with various financial
institutions and institutional lenders with an aggregate capacity of $700.0
million, of which $570.5 million was available. Proceeds from
securitizations, generally received within seven to ten days following the
cut-off date established for the securitization transaction, are applied to
repay amounts outstanding under warehouse facilities. One of the Company's
warehouse facilities with a capacity of $400.0 million will expire in July
1999 and the remaining facilities expire in September and October of 1999.
Management believes that these facilities will be renewed or replaced and
will continue to provide adequate capacity for loan originations. However,
failure to renew or find satisfactory replacements for these facilities,
would have a significant adverse impact on the Company's operations by
significantly reducing the Company's ability to purchase automobile loans.

         SECURITIZATION PROGRAM. An important capital resource for the
Company has been its ability to realize the value of its automobile loans in
the secondary markets through securitizations. The following table summarizes
the Company's securitization transactions during the three months ended March
31, 1999, all of which were publicly issued and rated "AAA/Aaa".

<TABLE>
<CAPTION>

                                                            REMAINING
                                                           BALANCE AS A                                     CURRENT
                                           REMAINING        PERCENTAGE      CURRENT         WEIGHTED         GROSS
                                           BALANCE AS           OF         WEIGHTED         AVERAGE         INTEREST
    SECURITIZATION          ORIGINAL      OF MARCH 31,       ORIGINAL       AVERAGE      SECURITIZATION       RATE
     TRANSACTION            BALANCE           1999            BALANCE         APR             RATE           SPREAD
----------------------   -------------   --------------   --------------  ----------     ---------------   -----------
(DOLLARS IN THOUSANDS)
<S>                      <C>             <C>               <C>            <C>            <C>               <C>
1999-A (1)               $ 550,000       $    394,943        71.81%          17.34%           5.95%           11.39%

</TABLE>
---------------
(1)  As of March 31, 1999, the Company had delivered $401.2 million of
     automobile loans for the 1999-A securitization transaction and
     $148.8 million of cash remained in the pre-funded portion of the trust.

                                       19
<PAGE>

         HEDGING STRATEGY

         The Company enters into hedging transactions to manage its gross
interest rate spread on loans held for sale. The Company sells forward US
Treasuries that most closely parallel the average life of its portfolio of
loans held for sale. Hedging gains and losses are recognized as a component
of the gain on sale of loans on the date such loans are sold. To the extent
hedging gains or losses are significant, the resulting up-front cash payments
or receipts may impact the Company's liquidity. These up-front cash receipts
or payments are off-set in future periods through the realization of a lower
or higher spread, respectively, established at the time of pricing the hedged
transaction. During the first quarter of 1999, the Company's hedging
activities generated net cash flows to the Company of $70,107 compared to a
net use of cash during the same period a year ago of $5.8 million. There were
no unrealized gains or losses outstanding at March 31, 1999.

         OTHER CAPITAL RESOURCES

         Historically, the Company has utilized various debt and equity
financings to offset negative operating cash flows and support its operations.

         The Company has a program to sell up to $100.0 million of unsecured
subordinated notes (the "Junior Subordinated Notes") to be offered to the
public from time to time (the "Note Program"). Issuance of Junior
Subordinated Notes under the Note Program is subject to restrictions under
the Company's Senior Note indenture. The Note Program includes Junior
Subordinated Notes extendible by the investor having maturities of 90 and 180
days and one year after the date of issue and fixed-term Junior Subordinated
Notes having maturities of one, two, three, four, five and 10 years after the
date of issue. Interest rates on any unsold Junior Subordinated Notes are
subject to change by the Company from time to time based on market
conditions. Interest rates on extendible Junior Subordinated Notes may be
adjusted at any roll-over date. During the first three months of 1999
proceeds from the issuance of Junior Subordinated Notes, net of redemptions,
were $7.9 million.

                                       20
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Because the Company's funding strategy is dependent upon the
issuance of interest-bearing securities and the incurrence of debt,
fluctuations in interest rates impact the Company's profitability. Therefore,
the Company employs various hedging strategies to minimize the risk of
interest rate fluctuations. See "Management's Discussion and Analysis -
Capital Resources -Hedging Strategy" for additional information regarding
such market risks.

                                       21
<PAGE>


                            PART II-OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

        The following exhibits are filed in response to Item 601 of Regulation
S-K.

<TABLE>
<CAPTION>
   EXHIBIT
     NO.      DESCRIPTION
  --------    -----------
<S>           <C>
   18.1       Preferability Letter (filed herewith).

   27.1       Financial Data Schedule (filed herewith).

</TABLE>


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<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
amendment to its Quarterly Report on Form 10-Q be signed on its behalf by the
undersigned, thereunto duly authorized.

                                       ARCADIA FINANCIAL LTD.


<TABLE>
<CAPTION>
                   SIGNATURE                                            TITLE                         DATE
<S>                                           <C>                                                     <C>
           /s/ Richard A. Greenawalt          Director and Chief Executive Officer                     July 28, 1999
      -------------------------------------   (Principal Executive Officer)
             Richard A. Greenawalt

               /s/ John A. Witham             Executive Vice President and Chief Financial Officer     July 28, 1999
      -------------------------------------   (Principal Financial Officer)
                 John A. Witham

             /s/ Brian S. Anderson            Senior Vice President, Corporate Controller and          July 28, 1999
      -------------------------------------   Assistant Secretary (Principal Accounting Officer)
               Brian S. Anderson

</TABLE>

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