<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-Q
 
<TABLE>
<S>        <C>
/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
</TABLE>
 
For the quarter ended September 30, 1997          Commission file number 0-20526
 
                            ------------------------
 
                             ARCADIA FINANCIAL LTD.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                            <C>
          MINNESOTA                 41-1664848
(State or other jurisdiction     (I.R.S. Employer
     of incorporation or          Identification
        organization)                 Number)
</TABLE>
 
            7825 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MN 55439-2435
                    (Address of principal executive office)
 
       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 required 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
November 5, 1997 was 38,116,501.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                FORM 10-Q 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..........          12
 
PART II     OTHER INFORMATION
Item 1.     Legal Proceedings..............................................................................          24
Item 2.     Changes in Securities..........................................................................          24
Item 3.     Defaults Upon Senior Securities................................................................          24
Item 4.     Submission of Matters to a Vote of Security Holders............................................          24
Item 5.     Other Information..............................................................................          24
Item 6.     Exhibits and Reports on Form 8-K...............................................................          24
SIGNATURES.................................................................................................          28
EXHIBIT INDEX..............................................................................................          29
</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
 
    This Form 10-Q for quarter ended September 30, 1997 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "should"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The matters set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Cautionary
Statements" herein and "Cautionary Statements" in Exhibit 99.1 filed herewith
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
 
                                       2
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                (UNAUDITED)
                                                               SEPTEMBER 30,    DECEMBER 31,
                                                                   1997             1996
                                                              ---------------  --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                                           <C>              <C>
                                           ASSETS
Cash and cash equivalents...................................     $  17,720       $   16,057
Due from securitization trust...............................       149,430          177,076
Auto loans held for sale....................................        55,630           36,285
Finance income receivable...................................       353,019          362,916
Restricted cash in spread accounts..........................       226,566          142,977
Furniture, fixtures and equipment...........................        17,269           13,630
Other assets................................................        32,622           29,289
                                                              ---------------  --------------
      Total assets..........................................     $ 852,256       $  778,230
                                                              ---------------  --------------
                                                              ---------------  --------------
 
                            LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities......................     $ 126,263       $  111,140
Senior term notes...........................................       291,886          145,000
Subordinated notes..........................................        51,294           53,689
Capital lease obligations...................................         5,942            7,729
Deferred income taxes.......................................        16,394           54,387
Accounts payable and accrued liabilities....................        16,495           13,192
                                                              ---------------  --------------
      Total liabilities.....................................       508,274          385,137
Commitments and contingencies
 
Shareholders' equity:
  Capital stock, $.01 par value, 100,000,000 shares
    authorized:
    Common stock 38,116,501 and 36,416,802 shares issued and
      outstanding, respectively.............................           381              364
  Additional paid-in capital................................       322,866          310,187
  Retained earnings.........................................        20,735           82,542
                                                              ---------------  --------------
      Total shareholders' equity............................       343,982          393,093
                                                              ---------------  --------------
      Total liabilities and shareholders' equity............     $ 852,256       $  778,230
                                                              ---------------  --------------
                                                              ---------------  --------------
</TABLE>
 
           See notes to unaudited consolidated financial statements.
 
                                       3
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                                           --------------------------  --------------------------
                                                               1997          1996          1997          1996
                                                           ------------  ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>           <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES:
  Net interest margin....................................  $     20,122  $     18,079  $     57,617  $     45,464
  Gain on sale of loans, net of $98.0 million special
    charge in March 1997.................................        28,788        30,113       (22,640)       80,794
  Servicing fee income...................................        12,155         7,474        32,680        19,774
  Other non-interest income..............................         2,599         1,406         6,983         4,579
                                                           ------------  ------------  ------------  ------------
    Total revenues.......................................        63,664        57,072        74,640       150,611
EXPENSES:
  Salaries and benefits..................................        16,230        10,286        45,823        28,196
  General and administrative and other operating
    expenses.............................................        24,471        13,107        74,446        35,150
                                                           ------------  ------------  ------------  ------------
    Total operating expenses.............................        40,701        23,393       120,269        63,346
  Long-term debt and other interest expense..............        10,400         6,660        28,642        18,609
                                                           ------------  ------------  ------------  ------------
    Total expenses.......................................        51,101        30,053       148,911        81,955
                                                           ------------  ------------  ------------  ------------
  Operating income (loss) before income taxes and
    extraordinary item...................................        12,563        27,019       (74,271)       68,656
  Income tax expense (benefit)...........................         4,774         9,862       (28,292)       25,706
                                                           ------------  ------------  ------------  ------------
  Income (loss) before extraordinary item................         7,789        17,157       (45,979)       42,950
  Extraordinary item.....................................            --            --       (15,828)           --
                                                           ------------  ------------  ------------  ------------
  Net income (loss)......................................  $      7,789  $     17,157  $    (61,807) $     42,950
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
PRIMARY EARNINGS PER SHARE:
  Net income (loss) per common share before extraordinary
    item.................................................  $       0.20  $       0.47  $      (1.17) $       1.32
  Extraordinary item per common share....................            --            --         (0.41)           --
                                                           ------------  ------------  ------------  ------------
  Net income (loss) per common share.....................  $       0.20  $       0.47  $      (1.58) $       1.32
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
FULLY DILUTED EARNINGS PER SHARE:
  Net income (loss) per share before extraordinary
    item.................................................  $       0.20  $       0.44  $      (1.17) $       1.20
  Extraordinary item per share...........................            --            --         (0.41)           --
                                                           ------------  ------------  ------------  ------------
  Net income (loss) per share............................  $       0.20  $       0.44  $      (1.58) $       1.20
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Weighted average common and common equivalent shares
  outstanding:
  Primary................................................    39,231,961    35,896,149    39,221,089    31,564,219
  Fully diluted..........................................    39,412,220    39,423,446    39,309,403    35,851,933
</TABLE>
 
           See notes to unaudited consolidated financial statements.
 
                                       4
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                                                             SEPTEMBER 30,
                                                                                       --------------------------
                                                                                           1997          1996
                                                                                       ------------  ------------
<S>                                                                                    <C>           <C>
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................................  $    (61,807) $     42,950
Adjustments to reconcile net income to net cash used in operating activities:
  Depreciation and amortization......................................................         5,163         3,052
  (Gain) Loss on sales of furniture, fixtures and equipment..........................            (9)          147
  (Increase) decrease in assets:
    Automobile loans held for sale:
      Purchases of automobile loans..................................................    (2,323,464)   (2,009,930)
      Sales of automobile loans......................................................     2,276,335     2,067,225
      Repayments of automobile loans.................................................        27,784        42,336
    Finance income receivable........................................................         9,897      (121,952)
    Restricted cash in spread accounts...............................................       (83,589)      (58,491)
    Due from securitization trusts...................................................        27,646      (188,373)
    Prepaid expenses and other assets................................................           350        (6,919)
  Increase (decrease) in liabilities:
    Deferred income taxes............................................................       (37,993)       25,705
    Accounts payable and accrued liabilities.........................................         3,303        10,237
                                                                                       ------------  ------------
        Total cash used in operating activities......................................      (156,384)     (194,013)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of furniture, fixtures and equipment....................................        (7,055)       (2,746)
Purchase of subordinated certificates................................................            --        (1,869)
Collections on subordinated certificates.............................................         1,187           817
                                                                                       ------------  ------------
        Total cash used in investing activities......................................        (5,868)       (3,798)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock...........................................         2,976       150,879
Payment of dividends on 8% Convertible Preferred Stock...............................            --        (1,152)
Proceeds from borrowings under warehouse facilities..................................     2,559,245     1,297,228
Repayment of borrowings under warehouse facilities...................................    (2,544,122)   (1,285,272)
Subordinated notes, net proceeds (repayments)........................................        (2,395)       40,558
Repayments of long-term debt.........................................................      (145,000)           --
Proceeds from issuance of Senior Notes...............................................       300,000            --
Deferred debt issuance cost, net.....................................................        (4,870)         (338)
Reduction of capital lease obligations...............................................        (1,919)       (1,839)
                                                                                       ------------  ------------
        Total cash provided by financing activities..................................       163,915       200,064
                                                                                       ------------  ------------
Net increase in cash and cash equivalents............................................         1,663         2,253
Cash and cash equivalents at beginning of period.....................................        16,057         1,340
                                                                                       ------------  ------------
Cash and cash equivalents at end of period...........................................  $     17,720  $      3,593
                                                                                       ------------  ------------
                                                                                       ------------  ------------
Supplemental disclosures of cash flow information:
  Non cash activities:
    Additions to capital leases......................................................  $        132  $      5,964
  Cash paid for:
    Interest.........................................................................  $     36,669  $     20,062
</TABLE>
 
           See notes to unaudited consolidated financial statements.
 
                                       5
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                                        ---------------------------------------------------------
                                        NUMBER OF                 ADDITIONAL
                                         COMMON     COMMON PAR     PAID IN   RETAINED
                                         SHARES        VALUE       CAPITAL   EARNINGS     TOTAL
                                        ---------  -------------  ---------  ---------  ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                     <C>        <C>            <C>        <C>        <C>
BALANCE, DECEMBER 31, 1996............  36,416,802   $     364    $ 310,187  $  82,542  $ 393,093
Issuance of options and warrants......         --           --        8,590         --      8,590
Exercise of options and warrants......  1,495,539           15        2,392         --      2,407
Issuance of Common Stock:
  Benefit plans.......................    204,160            2          566         --        568
Amortization of deferred
  compensation........................         --           --        1,131         --      1,131
Net income............................         --           --           --    (61,807)   (61,807)
                                        ---------        -----    ---------  ---------  ---------
BALANCE, SEPTEMBER 30, 1997...........  38,116,501   $     381    $ 322,866  $  20,735  $ 343,982
                                        ---------        -----    ---------  ---------  ---------
                                        ---------        -----    ---------  ---------  ---------
</TABLE>
 
           See notes to unaudited consolidated financial statements.
 
                                       6
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
 
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 1996 Annual
Report on Form 10-K filed February 10, 1997.
 
    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 September 30, 1996 and
December 31, 1996 balances to conform to current period presentation.
 
    FINANCE INCOME RECEIVABLE.  In April 1997, the Company changed its
accounting policy with respect to valuation of repossessed vehicles. This policy
requires the Company to record the estimated realizable value of repossessed
vehicles at amounts which approximate that which is expected to be achieved
through wholesale disposition. See Management's Discussion and Analysis--SPECIAL
CHARGES for additional discussion.
 
    Effective January 1, 1997 the Company is required to account for gains on
sale of loans in accordance with Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"). The Company's implementation of
SFAS 125 incorporates the change in accounting policy discussed above in
determining the fair value of assets retained by the Company. In addition, the
Company has applied a discount rate in determining the present value of
estimated future cash flows that reflects its revised estimates of the yields
required by purchasers of similar financial instruments. Exclusive of the effect
of the change in accounting policy discussed above, the implementation of SFAS
125 did not have a significant effect on the Company's accounting for gains on
sale of loans.
 
    EARNINGS PER SHARE.  In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share," ("SFAS 128") which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share (EPS)
and to restate all prior periods. SFAS 128 replaces the presentation of primary
EPS with a presentation of basic EPS and fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS gives effect to all dilutive
potential
 
                                       7
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
common shares outstanding during the period. The proforma basic and diluted EPS
of the Company, for the three and nine months ended September 30, 1997 and 1996,
are presented below:
 
<TABLE>
<CAPTION>
                                                                                     THREE MONTHS          NINE MONTHS
                                                                                        ENDED                 ENDED
                                                                                    SEPTEMBER 30,         SEPTEMBER 30,
                                                                                 --------------------  --------------------
<S>                                                                              <C>        <C>        <C>        <C>
                                                                                   1997       1996       1997       1996
                                                                                 ---------  ---------  ---------  ---------
Basic..........................................................................  $    0.20  $    0.50  $   (1.60) $    1.43
Diluted........................................................................  $    0.20  $    0.44  $   (1.58) $    1.21
</TABLE>
 
2. FINANCE INCOME RECEIVABLE
 
    The following table sets forth the components of finance income receivable.
 
<TABLE>
<CAPTION>
                                                                                 AT             AT
                                                                            SEPTEMBER 30,  DECEMBER 31,
                                                                                1997           1996
                                                                            -------------  ------------
<S>                                                                         <C>            <C>
(DOLLARS IN THOUSANDS)
Estimated cash flows on loans sold, net of estimated prepayments..........   $   687,720    $  549,876
Deferred servicing income.................................................       (86,611)      (59,473)
Reserve for loan losses...................................................      (218,280)      (95,005)
                                                                            -------------  ------------
Undiscounted cash flows on loans sold, net of estimated prepayments.......       382,829       395,398
Discount to present value.................................................       (29,810)      (32,482)
                                                                            -------------  ------------
                                                                             $   353,019    $  362,916
                                                                            -------------  ------------
                                                                            -------------  ------------
Reserve for loan losses as a percentage of servicing portfolio............          4.52%         2.51%
</TABLE>
 
    The following represents the roll-forward of the finance income receivable
balance:
 
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                                                         <C>
BALANCE, DECEMBER 31, 1996................................................................  $    362,916
  Estimated cash flows on loans sold, net of estimated prepayments........................       187,299
  Recognition of present value effect of discounted cash flows............................        16,603
Less:
  Excess cash flows deposited to spread accounts (1)......................................      (115,799)
  Change in estimate of future recovery rates (2).........................................       (98,000)
                                                                                            ------------
BALANCE, SEPTEMBER 30, 1997...............................................................  $    353,019
                                                                                            ------------
                                                                                            ------------
</TABLE>
 
------------------------
 
(1) Includes approximately $2.3 million of cash released to the Company from
    remaining spread account balances associated with three securitization
    transactions initiated in 1993 and closed out during 1997.
 
(2) Refer to Management's Discussion and Analysis--SPECIAL CHARGES.
 
                                       8
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
 
3. RESTRICTED CASH IN SPREAD ACCOUNTS
 
    The following represents the roll-forward of restricted cash in spread
accounts:
 
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                                                           <C>
BALANCE, DECEMBER 31, 1996..................................................................  $  142,977
  Excess cash flows deposited to spread accounts............................................     115,799
  Initial spread account deposits...........................................................      19,375
  Interest earned on spread accounts........................................................       7,311
Less:
  Excess cash flows released to the Company (1).............................................     (58,896)
                                                                                              ----------
BALANCE, SEPTEMBER 30, 1997.................................................................  $  226,566
                                                                                              ----------
                                                                                              ----------
</TABLE>
 
------------------------
 
(1) Includes $14.5 million that has been restricted pursuant to an arrangement
    between the Company and its provider of asset-backed securities insurance.
    Such arrangement provides that, if any insured securitization trust exceeds
    the 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. Such pledged amounts are included in cash and
    cash equivalents. Restrictions on the pledged amounts may be lifted if the
    portfolio performance tests are met and maintained for the related
    securitization trusts as defined in the arrangement, the violations are
    waived, or the loans within the securitization trust are repurchased by the
    Company.
 
4. OTHER ASSETS
 
<TABLE>
<CAPTION>
                                                                                     AT                 AT
                                                                             SEPTEMBER 30, 1997  DECEMBER 31, 1996
                                                                             ------------------  -----------------
<S>                                                                          <C>                 <C>
(DOLLARS IN THOUSANDS)
Advances due to servicer...................................................      $    5,008          $   8,140
Deferred debt issuance costs...............................................           9,308              4,438
Investment in subordinated certificates....................................           3,142              4,329
Servicing fee receivable...................................................           4,106              3,121
Prepaid expenses...........................................................           1,814              2,755
Servicing assets...........................................................           3,724                 --
Other assets...............................................................           5,520              6,506
                                                                                    -------            -------
                                                                                 $   32,622          $  29,289
                                                                                    -------            -------
                                                                                    -------            -------
</TABLE>
 
                                       9
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
 
5. SUBORDINATED NOTES
 
<TABLE>
<CAPTION>
                                                                                     AT                 AT
                                                                             SEPTEMBER 30, 1997  DECEMBER 31, 1996
                                                                             ------------------  -----------------
<S>                                                                          <C>                 <C>
(DOLLARS IN THOUSANDS)
Senior subordinated notes, Series 1996-A...................................      $   30,000          $  30,000
Junior subordinated notes..................................................          21,294             23,689
                                                                                    -------            -------
                                                                                 $   51,294          $  53,689
                                                                                    -------            -------
                                                                                    -------            -------
</TABLE>
 
6. SENIOR NOTES
 
    In March 1997, the Company sold to the public $300.0 million aggregate
principal amount of 11.50% Senior Notes, due 2007 (the "Senior Notes") and
received net proceeds of approximately $291.2 million. Each Senior Note includes
a detachable warrant, and such warrant when exercised entitles the holders to
acquire an aggregate of 2,052,000 shares of the Company's common stock. Interest
on the Senior Notes is payable semi-annually on March 15 and September 15 of
each year, beginning September 15, 1997. The Senior Notes may not be redeemed
prior to March 15, 2002. At any time on such date or thereafter, the Company may
at its option elect to redeem the Senior Notes, in whole or in part, at a
premium ranging from 105.75% to 101.92% of the principal amount of Senior Notes
redeemed between the years 2002-2004, respectively, or 100% thereof on or after
March 15, 2005, plus accrued interest to and including the redemption date. The
Senior Notes are general, unsecured obligations of the Company and will rank
pari passu in right of payment to all existing and future senior debt (as
defined in the indenture governing the Senior Notes). Approximately $173.5
million of the net proceeds from the issuance of the Senior Notes was used to
repurchase and covenant defease the Company's 13% Senior Term Notes (including a
prepayment premium and accrued interest) and the remainder made available for
working capital. The premium paid for the early extinguishment of debt
(approximately $20.3 million) and the charge-off of remaining capitalized debt
financing costs (approximately $3.2 million) were recognized and accounted for
as an extraordinary item.
 
7. SHAREHOLDERS' EQUITY
 
    As discussed in Note No. 6 above, the Company issued warrants to purchase an
aggregate of 2,052,000 shares of the Company's common stock in connection with
its issuance of Senior Notes. The fair value of the warrants on the date of
issue, as determined by the Company, has been recognized as a component of
additional paid-in capital. In October 1997, the Company announced that the
warrants will detach from the Senior Notes and will trade separately from the
Senior Notes as of October 10, 1997. The warrants are exercisable at a price of
$11.00 per share.
 
8. SUBSEQUENT EVENTS
 
    In October 1997, the Company sold to the public $75.0 million aggregate
principal amount of 11.50% Senior Notes, due 2007 (the "Notes") and received net
proceeds of approximately $71.2 million. Interest on the Notes is payable
semi-annually on March 15 and September 15 of each year, beginning March 15,
1998. The Notes may not be redeemed prior to March 15, 2002. At any time on such
date or thereafter, the Company may at its option elect to redeem the Notes, in
whole or in part, at a premium ranging from
 
                                       10
<PAGE>
                             ARCADIA FINANCIAL LTD.
 
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997
 
8. SUBSEQUENT EVENTS (CONTINUED)
105.75% to 101.92% of the principal amount of Notes redeemed between the years
2002-2004, respectively, or 100% thereof on or after March 15, 2005, plus
accrued interest to and including the redemption date. The Notes are general,
unsecured obligations of the Company and will rank pari passu in right of
payment to all existing and future senior debt (as defined in the indenture
governing the Senior Notes). The net proceeds from the issuance of the Notes
will be used to support the purchase of automobile loans, for working capital
and for other general corporate purposes.
 
                                       11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
    Substantially all of the Company's earnings are derived from the purchase,
securitization and servicing of consumer automobile loans originated in 43
states primarily by car dealers affiliated with major foreign and domestic
manufacturers. Loans are purchased through 18 regional buying centers serving as
"hubs," supplemented by a network of dealer development representatives
("DDRs"). DDRs generate loans in "hubs" or "spokes" (a market outside the
specific area of a "hub"), while credit approval and loan processing are
generally performed at the "hub" or at the Company's headquarters in
Minneapolis, Minnesota. The Company services loans through its national customer
service center and four regional collection centers.
 
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
 
    RESULTS OF OPERATIONS
 
    SPECIAL CHARGES.  Included in the Company's financial results during the
nine month period ended September 30, 1997 are two special charges taken in
March 1997. These charges include a non-cash after-tax charge of approximately
$63.9 million, due primarily to a change in accounting estimate and
modifications to the Company's retail disposition strategy, and an extraordinary
charge of approximately $15.8 million, net of tax, due to the early
extinguishment of the Company's 13% Senior Term Notes, due 2000 (see
Management's Discussion and Analysis--EXTRAORDINARY ITEM).
 
    Approximately $60.8 million of the $63.9 million after-tax charge is due to
(i) a change in estimated recovery rates on current repossessed inventory and
anticipated future inventory arising from existing securitization transactions,
and (ii) a change in the Company's accounting policy with respect to the
estimated recovery rate realized upon disposition of repossessed inventory. The
remaining $3.1 million after-tax charge relates to various litigation and
severance charges (see Management's Discussion and Analysis--OPERATING
EXPENSES).
 
    The recovery rate on repossessed inventory is measured by the liquidation
amount realized on the repossessed vehicles as a percentage of the outstanding
principal balance of the charged-off loans associated with the repossessed
vehicles. The Company's change in estimated recovery rates was based, in part,
on a decline in the weighted average recovery rate experienced by the Company
during the first three months of 1997. During the first quarter of 1997, the
weighted average recovery rate on repossessed vehicles declined to approximately
70% from approximately 83% for the year ended December 31, 1996. This reduction
in recovery rates primarily reflects increased liquidation of repossessed
inventory through wholesale auctions. The Company increased its use of wholesale
auctions after a review by the Company's new chief executive officer and other
members of management conducted in mid-March 1997 indicated that based on the
number of retail dispositions during the first half of March 1997 the Company's
current retail distribution channels were not sufficient to liquidate vehicles
at a pace satisfactory to management and would not, in the foreseeable future,
be adequate to exceed the number of additional repossessions expected each
month. In order to reduce the Company's repossessed inventory to a level more
acceptable to management, the Company sold a significantly increased number of
repossessed vehicles at wholesale auctions during the last half of March 1997.
As a result, the Company sold approximately 35% of first quarter sales of
repossessed vehicles through wholesale auctions, as compared with 30% during the
calendar year 1996. The Company's recovery rates were also affected during the
first quarter of 1997 due to lower pricing of repossessed vehicles sold through
the Company's retail distribution channels in an attempt to accelerate the
liquidation of repossessed vehicles while maintaining consistent credit quality.
 
    Estimated recovery rates are also determined by an analysis of anticipated
recovery trends in future periods. Based on its evaluation of certain events
occurring late in the first quarter of 1997, the Company
 
                                       12
<PAGE>
believes that recovery rates are not likely to increase above the level
experienced during the first quarter of 1997 and that certain events may cause a
further decline in these rates in future periods. As explained above, the
Company does not believe that it has sufficient capacity to sell an increasing
number of repossessed vehicles through its current network of retail consignment
dealers. Accordingly, the Company expects to control the size of its repossessed
inventory by continuing to increase the use of wholesale auctions to dispose of
repossessed vehicles. In April 1997, the Company's new chief executive officer
completed a review of the Company's retail disposition strategy. Consequently,
based on the recommendation of the new chief executive officer, the Company
adopted modifications to its retail disposition strategy that are intended to
reduce liquidity requirements of this strategy and establish more efficient
operating procedures. The Company's retail disposition strategy generally
requires it to hold a repossessed vehicle in inventory for a longer period of
time than would a wholesale disposition strategy, and as a consequence delays
the receipt of excess cash flows from securitization trusts following default of
a loan. In light of this, the Company has established a policy that limits the
length of time a repossessed vehicle may be held for resale through retail
channels. The limitation on the length of time a repossessed vehicle is held for
sale is intended to reduce delays in cash flow, but may reduce overall recovery
rates due to an increased use of wholesale auctions. Under the modified retail
disposition strategy, the Company intends to measure the effectiveness of the
strategy by the program's profitability as compared to a wholesale disposition
strategy. Management of the retail disposition program will be accountable for
optimizing the recovery rates on the repossessed inventory and achieving
acceptable profitability levels. As a result, it is expected that managers
responsible for the modified retail disposition program will increase the use of
wholesale auctions to control inventory size and the costs associated with the
operation of the program. The Company's retail disposition strategy, as
modified, is relatively new and evolving, and therefore, the Company's
management has concluded that recoveries under the program are uncertain and may
be subject to further change.
 
    In addition, the Company anticipated a continued softening of the used car
market and therefore lower retail and wholesale prices. Factors contributing to
this market softening include the recent start-up of superstore competition and
forecasted levels of used lease vehicles that will be available in the market.
Further, the Company considered the risk of potentially higher interest rates
which have a direct impact on pricing of vehicles. The Company concluded that,
for the reasons described above, future recovery rates (after giving effect to
related costs) will be lower for the foreseeable future than those reflected in
the Company's prior accounting estimates. In light of these items, the Company
elected to record an after-tax charge of approximately $45.3 million in March
1997 which reflected an adjustment of current inventory and estimated reduction
to future cash flows due to lower expected recovery rates on future inventory
arising from existing securitization trusts.
 
    At the same time as the Company changed its estimated recovery rates, the
Company also deemed it appropriate to review its accounting policy concerning
the valuation of repossessed vehicles in light of the modifications to its
retail disposition strategy and other factors. As a result of this review, the
Company has decided to change its accounting policy concerning the valuation of
repossessed vehicles. This change in policy requires the Company to record all
current and expected repossessed vehicles at recovery rates that reflect
expected values to be achieved through wholesale auctions (which the Company
currently believes to be approximately 60% of principal balance outstanding),
regardless of the specific asset disposition strategy to be employed. To the
extent actual results are more favorable than estimates, greater recoveries are
reflected in current period earnings when the vehicles are liquidated. As a
consequence of this policy change, the Company's results of operations will
depend, in part, on sales prices for used vehicles in wholesale auctions.
 
    Decline in wholesale recovery rates may adversely effect the Company's
results unless offset by higher retail recovery rates during the period. The
Company believes that the revised accounting policy will better reflect its
modified retail disposition strategy and, accommodate a better understanding by
users of the Company's financial statements. Moreover, the Company believes this
change in accounting policy provides a financial presentation that is more
comparable to other consumer finance companies and
 
                                       13
<PAGE>
responds to recent events in the consumer finance industry which, the Company
believes, provides further evidence that lower estimated recovery rates are
appropriate. For these reasons, the Company believes the change in accounting
policy adopted in April 1997 reflects a preferable application of generally
accepted accounting principles. Because the change in policy is inseparable from
the estimation process referred to above, it is appropriate to reflect the
effect of the change in accounting policy of approximately $15.5 million
after-tax, as a reduction to current period earnings.
 
    NET INTEREST MARGIN.  The components of net interest margin for each of the
three and nine months ended September 30 were:
 
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED    NINE MONTHS ENDED
                                                                           SEPTEMBER 30,         SEPTEMBER 30,
                                                                        --------------------  --------------------
<S>                                                                     <C>        <C>        <C>        <C>
                                                                          1997       1996       1997       1996
                                                                        ---------  ---------  ---------  ---------
(DOLLARS IN THOUSANDS)
Interest income on loans, net of interest expense on warehouse
  facilities..........................................................  $   9,260  $   9,161  $  26,391  $  21,801
Interest income on short-term investments, spread accounts and other
  cash accounts.......................................................      6,238      4,105     16,504     11,140
Recognition of present value discount.................................      5,671      5,048     16,603     13,001
Provision for credit losses on loans held for sale....................     (1,047)      (235)    (1,881)      (478)
                                                                        ---------  ---------  ---------  ---------
  Net interest margin.................................................  $  20,122  $  18,079  $  57,617  $  45,464
                                                                        ---------  ---------  ---------  ---------
                                                                        ---------  ---------  ---------  ---------
</TABLE>
 
    Net interest margin increased 11% and 27% during the three and nine months
ended September 30, 1997, respectively, compared with the same periods in 1996.
The rise in net interest margin is primarily due to (i) growth in the average
balance of loans held for sale pending securitization, (ii) wider net interest
rate spreads earned on loans held for sale and (iii) interest earned on spread
accounts and other securitization related cash accounts, partially offset by an
increase in the provision for credit losses on loans held for sale.
 
    The Company's loan purchasing volume for each of the three and nine months
ended September 30 are set forth in the table below.
 
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                   SEPTEMBER 30,             SEPTEMBER 30,
                                                               ----------------------  --------------------------
<S>                                                            <C>         <C>         <C>           <C>
                                                                  1997        1996         1997          1996
                                                               ----------  ----------  ------------  ------------
(DOLLARS IN THOUSANDS)
Premier......................................................  $  326,087  $  438,792  $  1,087,825  $  1,362,185
Classic......................................................     434,230     279,433     1,192,865       647,429
                                                               ----------  ----------  ------------  ------------
Total loans purchased........................................  $  760,317  $  718,225  $  2,280,690  $  2,009,614
                                                               ----------  ----------  ------------  ------------
                                                               ----------  ----------  ------------  ------------
</TABLE>
 
    The rise in loan purchasing volume and timing of securitization transactions
during the three and nine months ended September 30, 1997 resulted in 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 $258.1
million and $254.4 million, respectively, up from $242.5 million and $221.2
million in the same periods of 1996, respectively. During the three and nine
months ended September 30, 1997, the weighted average net interest rate spread
earned on loans held for sale pending securitization rose to 10.43% and 10.08%
respectively, compared with 8.98% and 8.47%, respectively, during the same
periods in 1996. The rise in net interest rate spread is principally due to an
increase in the average annual percentage rates ("APR") paid by obligors due to
the Company's continued expansion of its Classic loan program.
 
                                       14
<PAGE>
    Interest income on short-term investments, spread accounts and other cash
accounts established in connection with securitization transactions increased
52% and 48% for the three and nine months ended September 30, 1997,
respectively, compared with the same periods during 1996. This increase is
primarily due to growth in the average balances of spread accounts and other
securitization related cash accounts resulting from higher securitization
volume. Income from the recognition of present value discount also grew due to
the increased volume of securitizations.
 
    GAIN ON SALE OF LOANS.  Revenues provided from gain on sale of loans
declined 4% during the three months ended September 30, 1997 compared to the
same period of 1996. The reduction in gain on sale reflects an increase in the
loss rate, servicing fee and discount factor assumptions utilized in the
computation of gain on sale. (See Management's Discussion and Analysis--SPECIAL
CHARGES for discussion of change in estimates). This impact was partially offset
by a 2% increase in loan securitization volume and a 185 basis point widening of
the gross interest rate spread earned on loans securitized (see table of gross
interest rates below). As a result of the change in estimates noted above, gain
on sale of loans as a percentage of loans securitized fell to 3.82% during the
third quarter of 1997 compared to 4.09% in the same period a year ago. The
Company believes that this percentage should increase over the next few quarters
as interest spreads continue to widen resulting from a continued expansion of
the Classic loan program and refinement of the Company's pricing strategy.
Although management believes that increased interest rate spreads can be
achieved, material factors affecting interest rate spreads are difficult to
estimate and could cause management's expectations to be materially inaccurate.
Such factors include changes in consumer interest rates and demand for
automobile securitization transactions.
 
    Included in gain on sale of loans during the nine months ended September 30,
1997 is a non-recurring pre-tax charge to gain on sale of loans of $98.0 million
resulting in a year-to-date loss on sale of loans of $22.6 million (See
Management's Discussion and Analysis--SPECIAL CHARGES). The Company securitized
$2.3 billion of loans held for sale during the nine months ended September 30,
1997, compared with $2.0 billion in the same period a year ago. The Company
realized a gain on sale of these loans of approximately $75.4 million, before
the non-recurring charge compared with $80.8 million realized during the same
period of 1996. The reduction in gain on sale of loans during the first nine
months of 1997, before the non-recurring charge, is primarily due to an increase
in the loss rate, servicing fee and discount factor assumptions utilized in the
Company's computation of gain on sale. See Management's Discussion and
Analysis--SPECIAL CHARGES for discussion of change in estimates.
 
    The following table summarizes the Company's gross interest rate spreads for
each of the three and nine months ended September 30:
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED    NINE MONTHS ENDED
                                                                 SEPTEMBER 30,         SEPTEMBER 30,
                                                              --------------------  --------------------
<S>                                                           <C>        <C>        <C>        <C>
                                                                1997       1996       1997       1996
                                                              ---------  ---------  ---------  ---------
Weighted average APR of loans securitized...................      16.25%     14.77%     15.85%     14.34%
Weighted average securitization rate........................       6.37       6.74       6.46       6.39
                                                              ---------  ---------  ---------  ---------
Gross interest rate spread (1)..............................       9.88%      8.03%      9.39%      7.95%
                                                              ---------  ---------  ---------  ---------
                                                              ---------  ---------  ---------  ---------
</TABLE>
 
------------------------
 
    (1) Before gains/losses on hedging transactions.
 
    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. Due to the increased proportion of Classic loan purchases, which generally
require lower participation rates than Premier loans, and a reduction in the
maximum participation rate allowable under the Premier program, participations
paid as a percentage of the principal balance of loans purchased declined to
3.08% and 3.16% during the three and nine months ended September 30, 1997,
compared to 3.33% and 3.52%, respectively, in the same periods a year ago.
 
                                       15
<PAGE>
    Gain on sale of loans also reflects realized losses on hedging transactions
of $4.0 million and $4.3 million during the three and nine months ended
September 30, 1997, compared to realized gains of $1.2 million and $4.6 million,
respectively, in the same periods a year ago.
 
    SERVICING FEE INCOME.  The Company's servicing fee income increased to $12.2
million during the three months ended September 30, 1997 from $7.5 million in
the same three months in 1996. For the nine months ended September 30, 1997,
servicing fee income was $32.7 million compared with $19.8 million for the same
period in 1996. The increase in servicing fee income was directly related to an
increase in the average servicing portfolio outstanding and due to an increase
in the contractual servicing rate beginning with the third quarter 1997
securitization transaction. The following table reflects the growth in the
Company's servicing portfolio from September 30, 1996 to September 30, 1997.
 
<TABLE>
<CAPTION>
                                                                         AT SEPTEMBER 30,
                                                                    --------------------------
<S>                                                                 <C>           <C>
                                                                        1997          1996
                                                                    ------------  ------------
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
Principal balance of automobile loans held for sale...............  $     57,023  $     21,104
Principal balance of loans serviced under securitizations.........     4,767,605     3,373,470
                                                                    ------------  ------------
Servicing portfolio...............................................  $  4,824,628  $  3,394,574
                                                                    ------------  ------------
                                                                    ------------  ------------
Average unpaid principal balance (actual dollars).................  $     12,248  $     12,537
Number of loans serviced..........................................       393,926       270,759
</TABLE>
 
    OTHER NON-INTEREST INCOME.  The Company's other non-interest income rose to
$2.6 million during the three months ended September 30, 1997 from $1.4 million
in the same three months in 1996. For the nine months ended September 30, 1997,
other non-interest income was $7.0 million compared with $4.6 million for the
same period in 1996. The rise in other non-interest income is principally due to
increases in income from late fees and insufficient fund charges reflecting the
increase in delinquency rates and growth in the servicing portfolio (See
Management's Discussion and Analysis--DELINQUENCY, CREDIT LOSS AND REPOSSESSION
EXPERIENCE).
 
    OPERATING EXPENSES.  During the three and nine months ended September 30,
1997, salary and benefit expenses increased 58% and 63%, respectively, from the
same periods a year ago. The increase in salaries and benefits is primarily
attributable to an increase in the number of employees to 1,545 at September 30,
1997 from 1,003 at September 30, 1996. Increased staffing has been necessary to
accommodate the rise in loan purchasing volume and the subsequent servicing of
such loans and reflects additional associates hired to staff four new regional
collection centers opened from October through December of 1996.
 
    Other operating costs, including administrative, occupancy, depreciation and
amortization, origination, servicing and collection expenses, increased 87% and
112% during the three and nine months ended September 30, 1997, respectively,
compared to the same periods of 1996. The increase in other operating costs is
primarily due to the expansion of the regional collection and buying centers,
the rise in loan and collection expenses as a result of the higher percentage of
Classic program loans in the portfolio and the seasoning of the Company's
existing servicing portfolio, and the growth in loan purchasing. As loan
purchasing volume increases, the Company incurs incremental increases in costs
associated with the underwriting, servicing and collecting of such loans. Also
included in the operating costs during the first nine months of 1997 is a
one-time pre-tax charge of approximately $5.0 million recorded in March. This
special charge was primarily related to legal costs associated with defending
litigation against the Company as well as costs associated with resolving legal
issues involving improper practices at certain of the Company's initial
consignment dealers. The Company has since terminated its business relationship
with such dealers. Also included in the special charge were severance expenses
for certain former executives of the Company.
 
                                       16
<PAGE>
    LONG-TERM DEBT AND OTHER INTEREST EXPENSE.  Long-term debt and other
interest expense increased 56% and 54% during the three and nine months ended
September 30, 1997, respectively, compared to the same periods in 1996. These
increases are primarily due to the issuance of $300.0 million of 11.5% Senior
Notes in March 1997, partially offset by the concurrent extinguishment of $145.0
million of 13% Senior Term Notes in March 1997.
 
    EXTRAORDINARY ITEM.  In March 1997, the Company issued $300.0 million 11.5%
Senior Notes and utilized approximately $173.5 million to repurchase and
covenant defease the Company's $145.0 million 13% Senior Term Notes, including
accrued interest of $7.9 million and a premium of approximately $20.3 million.
These charges and additional professional fees incurred to retire such debt have
been treated as an extraordinary item, net of tax.
 
    FINANCIAL CONDITION
 
    FINANCE INCOME RECEIVABLE.  Finance income receivable decreased to $353.0
million at September 30, 1997 from $362.9 million at December 31, 1996. This 3%
decrease reflects a non-recurring $98.0 million pre-tax charge during the first
quarter of 1997 (See Management's Discussion and Analysis--SPECIAL CHARGES)
partially offset by amounts capitalized upon completion of the Company's first,
second, and third quarter securitizations related to the present value of
estimated cash flows.
 
    DEFERRED INCOME TAX.  Deferred income taxes declined to $16.4 million at
September 30, 1997 from $54.4 million at December 31, 1996. This decrease
reflects the recognition of a tax benefit from the first quarter loss from
operations and extraordinary charge, partially offset by the income tax
provision of $8.3 million incurred since the first quarter.
 
    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES.  Accounts payable and accrued
liabilities increased 25% to $16.5 million at September 30, 1997 as compared
with $13.2 million at December 31, 1996. This increase is partly due to
increased accruals for salaries and various operating expenses reflecting the
continued growth in the Company's staffing and servicing portfolio. In addition,
the Company recorded accruals during the first quarter of 1997 related to
severance agreements for certain former executives. The severance accruals are
reversed as payments are made over the term of the severance agreements.
 
                                       17
<PAGE>
DELINQUENCY, CREDIT LOSS AND REPOSSESSION EXPERIENCE
 
    The following tables describe the Company's delinquency, credit loss and
repossession experience 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 foreclosure of loans are charged against
applicable allowances.
 
DELINQUENCY EXPERIENCE (1):
<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30, 1997          DECEMBER 31, 1996
                                                               -------------------------  -------------------------
<S>                                                            <C>          <C>           <C>          <C>
                                                                NUMBER OF                  NUMBER OF
                                                                  LOANS       BALANCE        LOANS       BALANCE
                                                               -----------  ------------  -----------  ------------
 
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                            <C>          <C>           <C>          <C>
Servicing portfolio at end of period.........................     393,926   $  4,824,628     302,450   $  3,791,857
Delinquencies:
  31-60 days.................................................       6,331   $     77,911       3,884   $     47,225
  61-90 days.................................................       2,055         25,657       1,255         15,877
  91 days or more............................................       2,945         35,161       2,911         37,019
                                                               -----------  ------------  -----------  ------------
Total automobile loans delinquent 31 or more days............      11,331   $    138,729       8,050   $    100,121
Delinquencies as a percentage of number of loans and amount
  outstanding at end of period (2)...........................        2.88%          2.88%       2.66%          2.64%
Amount in repossession (3)...................................       5,379   $     48,563       4,651   $     64,929
                                                               -----------  ------------  -----------  ------------
Total delinquencies and amount in repossession (2)...........      16,710   $    187,292      12,701   $    165,050
                                                               -----------  ------------  -----------  ------------
                                                               -----------  ------------  -----------  ------------
</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          NINE MONTHS ENDED
                                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                                           --------------------------  --------------------------
<S>                                                        <C>           <C>           <C>           <C>
                                                               1997          1996          1997          1996
                                                           ------------  ------------  ------------  ------------
 
<CAPTION>
(DOLLARS IN THOUSANDS)
<S>                                                        <C>           <C>           <C>           <C>
Average servicing portfolio outstanding during the
  period.................................................  $  4,661,818  $  3,194,633  $  4,318,830  $  2,822,414
Average number of loans outstanding during the period....       379,681       255,881       349,480       227,276
Number of charge-offs....................................         6,843         3,884        17,208        10,146
Gross charge-offs (2)....................................  $     38,681  $      9,432  $    118,352  $     22,994
Recoveries (3)...........................................         2,468         1,842         6,881         4,448
                                                           ------------  ------------  ------------  ------------
Net losses...............................................  $     36,213  $      7,590  $    111,471  $     18,546
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Annualized gross charge-offs as a percentage of average
  servicing portfolio....................................          3.32%         1.18%         3.65%         1.09%
Annualized net losses as a percentage of average
  servicing portfolio....................................          3.11%         0.95%         3.44%         0.88%
</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.
 
                                       18
<PAGE>
(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. Anticipated proceeds
    are based on an amount which management believes the company can receive
    through wholesale distribution channels, currently 60% of the loan value at
    date of charge-off. Prior to March 31, 1997, the Company estimated proceeds
    based on the anticipated disposition strategy for each vehicle (wholesale or
    retail disposition).
 
(3) Includes post-disposition amounts received on repossessed assets, net of
    selling expenses.
 
    The Company's delinquency rate at September 30, 1997, increased compared to
December 31, 1996, reflecting the continued expansion of the Classic loan
program and seasoning of the Company's existing servicing portfolio. Management
anticipates that delinquency rates will continue to increase during the next
several quarters. The number of repossessed vehicles has increased since
December 31, 1996, reflecting a continued rise in defaults due to growth of the
Company's portfolio and seasoning of loans purchased under the Company's Classic
loan program. The net realizable value of the repossessed inventory has declined
due to the Company's revised policy with respect to inventory valuation (see
Management's Discussion and Analysis--SPECIAL CHARGES). Under its new policy,
repossessions are recorded at a value which approximates that which the Company
believes can be achieved through wholesale distribution channels (regardless of
the distribution strategy ultimately utilized). This change in valuation policy
has resulted in significantly higher gross charge-off and net loss percentages
compared with the prior year due to a valuation adjustment to existing inventory
at the time the policy was adopted and the application of such policy beginning
in the second quarter of 1997. Gross charge-off and net loss percentages have
also increased from the first quarter (on a pre-adjusted basis) due to the
continued rise in Classic loan volume, the seasoning of the existing portfolio,
a recent increase in the rate of turnover for the Company's servicing and
collection personnel and also the effect of selling an increased proportion of
repossessed vehicles through wholesale auctions. Since the first quarter of
1997, the Company has liquidated approximately 47% of all repossessed vehicles
sold through wholesale auctions compared to 35% in the first quarter of 1997.
 
LIQUIDITY
 
    The Company's business requires substantial cash to support its operating
activities. The principal cash requirements include (i) amounts necessary to
purchase and finance automobile loans pending securitization, (ii) dealer
participations, (iii) cash held from time to time in restricted spread accounts
to support securitizations and other securitization expenses, (iv) interest
advances to securitization trusts, (v) 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
from fees earned through servicing of loans held by such trusts. The Company has
operated on a negative operating cash flow basis and expects to continue to do
so in the near future. The Company has historically funded, and expects to
continue to fund, these negative operating cash flows, subject to limitations in
various debt covenants, principally through borrowings from financial
institutions, sales of equity securities and sales of senior and subordinated
notes, among other resources, 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
 
    PURCHASES AND FINANCING OF AUTOMOBILE LOANS.  Automobile loan purchases
represent the Company's most significant cash flow requirement. The Company
funds the purchase price of loans primarily through the use of warehouse
facilities. However, because advance rates under the warehouse facilities
generally provide funds from 90% to 97% of the principal balance of the loans,
the Company is required to fund the remainder of all purchases prior to
securitization with other available cash resources. The Company purchased $2.3
billion of loans during the first nine months of 1997 compared to $2.0 billion
during the same period in 1996.
 
                                       19
<PAGE>
    DEALER PARTICIPATIONS.  Consistent with industry practice, the Company pays
dealers participations for selling loans to the Company. These participations
typically require the Company to advance an up-front amount to dealers.
Participations paid by the Company to dealers during the nine months ended
September 30, 1997 were $72.1 million, or approximately 3.16% of the principal
balance of loans purchased, compared with $70.8 million, or approximately 3.52%
of loans purchased, during the same period in 1996. The decrease in dealer
participation as a percentage of loans purchased reflects the growth in volume
in Classic loans (which are generally associated with lower dealer
participations) and a reduction in the maximum allowable participation paid for
Premier loans.
 
    SECURITIZATION OF AUTOMOBILE LOANS.  In connection with securitizations, the
Company is required to fund spread accounts related to each transaction. The
Company funds these spread accounts by foregoing receipt of excess cash flow
until these spread accounts exceed predetermined levels. In addition, the
Company has been required to provide initial cash deposits into the spread
accounts for certain securitizations. In connection with the third quarter 1997
securitization, the Company and its asset-backed securities insurance provider
entered into an arrangement whereby the Company agreed to pay a higher insurance
rate in lieu of providing an initial deposit. The Company had $226.6 million of
restricted cash in spread accounts at September 30, 1997, compared with $143.0
million at December 31, 1996. The increase in restricted cash in spread accounts
reflects the Company's growth in securitization volume and the accumulation of
excess cash flows and initial deposits related to such securitizations.
 
    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.
 
    NET INTEREST MARGIN.  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.
 
    ADVANCES DUE TO SERVICER.  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 by
borrowers. In accordance with servicing agreements, the Company makes advances
only in the event it expects to recover them through the ultimate payments from
the obligor on the loan. Beginning in December 1996, the Company's servicing
agreements were modified to require interest advances only when the related loan
is 31 days delinquent or greater.
 
    REPOSSESSED INVENTORY.  At September 30, 1997, repossessed inventory managed
or owned by the Company and held for resale was $48.6 million, compared with
$64.9 million at December 31, 1996. The rate of repossessed inventory turnover
impacts cash available for spread accounts under securitization trusts and,
consequently, the excess cash available for distribution to the Company. At
September 30, 1997, repossessed inventory was 1.0% of the total servicing
portfolio compared with 1.7% at December 31, 1996. This reduction is primarily
the result of the Company's April 1997 modification to its retail disposition
strategy with a goal of increasing its rate of repossessed inventory turnover
(See Management's Discussion and Analysis--SPECIAL CHARGES). Any improvement in
excess cash flows due to an increase in the inventory turnover rate may be
partially reduced by lower recoveries realized through an increased use of
wholesale auctions.
 
    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. Recovery of dealer participations and
accrued interest receivable, which occur throughout the life of the
securitization, result in a reduction of the finance income receivable and,
because they have been considered in the original determination of the
 
                                       20
<PAGE>
gain on sale of loans, have no effect on the Company's results of operations in
the year in which the participations and interest are recovered from the
securitization trust. During the first nine months of 1997, the Company received
$59.0 million of excess cash flow, compared with $28.9 million during the same
nine months in 1996. The Company received an additional $2.3 million and $2.5
million of cash during the first nine months of 1997 and 1996, respectively,
which was released from spread accounts associated with certain securitization
transactions closed-out during such periods. Included in the 1997 cash released
from spread accounts is $14.5 million of cash which is restricted pursuant to an
arrangement between the Company and its asset-backed securities insurance
provider.
 
    SERVICING FEES.  The Company also receives servicing fees for servicing
securitized loans held under certain warehouse facilities and for the loans
included in various securitization trusts. The servicing fee for loans in
securitization trusts is equal to one percent per annum of the outstanding
principal balance of the loans for all securitizations entered into prior to
September 1997 and 1.25 percent per annum on loans included in its third quarter
1997 securitization. During the nine months ended September 30, 1997 and 1996,
the Company received cash for such servicing in the amount of $31.7 million and
$18.9 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 sold or 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 primarily
through warehouse facilities. At September 30, 1997, the Company had warehouse
facilities in place with various financial institutions and institutional
lenders with an aggregate capacity of $647.7 million, of which $521.4 million
was available. Proceeds from securitizations, generally received within seven to
ten days following the cut-off date established for the transaction, are applied
to repay amounts outstanding under warehouse facilities.
 
    SECURITIZATION PROGRAM.  An important capital resource for the Company has
been its ability to sell automobile loans in the secondary markets through
securitizations. The following table summarizes the Company's securitization
transactions for the nine months ended September 30, 1997, all of which were
publicly issued and rated "AAA/Aaa".
 
<TABLE>
<CAPTION>
                                       REMAINING
                                        BALANCE     REMAINING                                CURRENT
                                          AS      BALANCE AS A    CURRENT     WEIGHTED        GROSS
                                       OF SEPT.   PERCENTAGE OF  WEIGHTED      AVERAGE      INTEREST
                            ORIGINAL      30,       ORIGINAL      AVERAGE   SECURITIZATION    RATE
DATE                         BALANCE     1997        BALANCE        APR         RATE         SPREAD
--------------------------  ---------  ---------  -------------  ---------  -------------  -----------
(DOLLARS IN THOUSANDS)
<S>                         <C>        <C>        <C>            <C>        <C>            <C>
March 1997................  $ 775,000  $ 657,088        84.79%       15.56%        6.54%         9.02%
June 1997.................    775,000    717,679        92.60%       15.85%        6.50%         9.35%
September 1997 (1)........    775,000    681,014        87.87%       16.31%        6.36%         9.95%
                            ---------  ---------
                            $2,325,000 $2,055,781
                            ---------  ---------
                            ---------  ---------
</TABLE>
 
------------------------
 
(1) As of September 30, 1997, the Company had delivered $688.9 million of
    automobile loans and $86.1 million cash remained in the pre-funded portion
    of the trust.
 
    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
 
                                       21
<PAGE>
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. The Company receives the up-front
gains or losses back over time through a higher or lower spread at the time of
securitization. At September 30, 1997, the Company had unrealized losses on
hedge contracts of $5.2 million.
 
    OTHER CAPITAL RESOURCES
 
    Historically, the Company has utilized various debt and equity financings to
offset negative operating cash flows and support its operations.
 
    In March 1997, the Company sold $300 million 11.50% Senior Notes, due 2007.
Net proceeds received from the offering of the Senior Notes approximated $291.2
million.
 
    In October 1997, the Company sold $75 million 11.5% Senior Notes, due 2007.
Net proceeds received from the offering of the Senior Notes approximated $71.2
million.
 
    CAUTIONARY STATEMENTS
 
    Information or statements provided by the Company from time to time may
contain certain "forward-looking information" including information relating to
anticipated earnings per share, anticipated returns on equity, anticipated
growth in automobile loan purchases, anticipated net interest margins,
anticipated loan securitizations and gain on sale, anticipated operations costs
and employment growth and anticipated delinquency, loan loss and repossession
experience. The cautionary statements provided below and in Exhibit 99.1 filed
herewith are being made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act") and with the intention of obtaining
the benefits of the "safe harbor" provisions of the Act for any such
forward-looking information. Many of the following important factors discussed
below, as well as other factors, have also been discussed in the Company's prior
public filings.
 
    The Company cautions readers that any forward-looking information provided
by the Company is not a guarantee of future performance and that actual results
may differ materially from those in the forward-looking information as a result
of various factors, including but not limited to:
 
    - The effects of increased delinquency rates and loan loss rates, including
      further write downs of finance income receivable and decreases in cash
      flow from securitization trusts in the event certain portfolio performance
      tests are violated.
 
    - The effects of "seasoning" of the Company's loan portfolio and increased
      use of the Company's Classic loan program, each of which are likely to
      adversely affect the Company's level of delinquencies and losses, which
      may require higher loss reserves and decrease cash flow from
      securitization trusts in the event certain portfolio performance tests are
      violated.
 
    - The effects of the Company's modified retail disposition program, which
      may result in an increased use of wholesale dispositions for repossessed
      inventory and potentially lower recovery rates.
 
    - The effects of interest rate fluctuations on the Company's net interest
      margin and the value of its assets and liabilities; the continued legal or
      commercial availability of techniques (primarily hedging) used by the
      Company to manage the risk of such fluctuations and the continuing
      operational viability of those techniques and the accounting and
      regulatory treatment of such instruments.
 
    - Difficulties or delays in the securitization of the Company's automobile
      loans and the resulting impact on the cost and availability of such
      funding. Such difficulties and delays may result from changes in the
      availability of credit enhancement in securitizations, the current legal,
      regulatory, accounting and tax environment and adverse change in the
      performance of the securitized loans.
 
                                       22
<PAGE>
    - Changes in the availability, amount, cost and other terms of warehouse
      financing to purchase loans.
 
    - The amount, and rate of growth in, the Company's expenses (including
      employee and marketing expenses); the effects of changes within the
      Company's organization or in its compensation and benefit plans; and the
      impact of unusual items resulting from the Company's ongoing evaluation of
      its business strategies, asset valuations and organizational structures.
 
    - The availability, amount, type and cost of debt or equity financing for
      the Company to support negative operating cash flows and any changes to
      that financing, including any impact from changes in the Company's debt
      ratings.
 
    - The effects of changes in economic conditions which may increase the risk
      of default on automobile loans, increase the number of customers seeking
      protection under bankruptcy laws, reduce demand for automobile loans, and
      reduce demand for used cars through retail channels.
 
    - The effects of intense competition from financial institutions, such as
      banks, other automobiles finance companies, thrifts, leasing companies and
      captive finance companies owned by automobile manufacturers.
 
    - The costs and other effects of legal and administrative cases and
      proceedings, settlements and investigations, claims and changes in those
      items, developments or assertions by or against the Company or its
      subsidiaries; adoptions of new, or changes in existing, accounting
      policies and practices and the application of such policies and practices.
 
                                       23
<PAGE>
                           PART II--OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
    On June 25, 1997, the United States District Court for the District of
Minnesota issued an order consolidating the shareholder suits described in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
into one action, In re Olympic Financial Ltd. Securities Litigation. Plaintiffs
in the consolidated action allege that during the period from July 20, 1995
through March 3, 1997 the defendants, in violation of federal securities laws,
engaged in a scheme that had the effect of artificially inflating, maintaining
and otherwise manipulating the value of the Company's Common Stock by, among
other things, making baseless, false and misleading statements about the current
state and future prospects of the Company, particularly with respect to the
Classic program and the refinancing of repossessed automobiles. Plaintiffs
allege that this scheme included making false and misleading statements and/or
concealing material adverse facts. The consolidated action is in the preliminary
stages and the parties have not begun discovery. The Company has reviewed the
complaint in the consolidated action and believes that the consolidated action
is without merit and intends to defend it vigorously. There can, however, be no
assurance that the Company will prevail in such defense or that any order,
judgement, settlement or decree arising out of this litigation will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
 
    The nature of the Company's business is such that it is routinely a party or
subject to other items of pending or threatened litigation, including litigation
involving actions against borrowers to collect amounts on loans or to repossess
vehicles and litigation challenging the terms of loans purchased by the Company.
Although the ultimate outcome of certain of these matters cannot be predicted,
management of the Company believes, based upon information currently available
and the advice of counsel, that the resolution of these various matters will not
result in any material adverse effect on the Company or its results of
operations.
 
ITEM 2. CHANGES IN SECURITIES
 
    None
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
    None
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURING HOLDERS
 
    None
 
ITEM 5. OTHER INFORMATION
 
    None
 
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
------ --------------------------------------------------------------------------
<C>    <S>
  3.1  Restated Articles of Incorporation of the Company, as amended
         (incorporated by reference to Exhibit 3.1 to the Company's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1997).
</TABLE>
 
                                       24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
 NO.   DESCRIPTION
------ --------------------------------------------------------------------------
<C>    <S>
  3.2  Restated Bylaws of the Company, as amended (incorporated by reference to
         Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the
         quarter ended June 30, 1997).
  4.1  Rights Agreement dated as of November 1, 1996, between the Company and
         Norwest Bank Minnesota, National Association, as Rights Agent
         (incorporated by reference to Exhibit 1 to the Company's Registration
         Statement on Form 8-A filed November 7, 1996).
  4.2  First Amendment and Restatement, dated as of April 28, 1995 of Indenture,
         dated July 1, 1994, between the Company and Norwest Bank Minnesota,
         National Association, as Trustee, relating to the Company's Unsecured
         Extendible Notes and Fixed Term-Notes, including forms of Notes
         (incorporated by reference to Exhibit No. 4.8.1 to Post-Effective
         Amendment No. 2 on Form S-3 to the Company's Registration Statement on
         Form S-1, File No. 33-81512).
  4.3  Indenture, dated as of April 28, 1995, between the Company and Norwest
         Bank Minnesota, National Association, as Trustee, relating to the
         Company's 13% Senior Notes due 2000 (incorporated by reference to
         Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1995).
  4.4  First Supplemental Indenture, dated as of August 11, 1995, to Indenture,
         dated as of April 28, 1995, between the Company and Norwest Bank
         Minnesota, National Association, as Trustee, relating to the Company's
         13% Senior Notes due 2000 (incorporated by reference to Exhibit 4.6 to
         the Company's Annual Report on Form 10-K for the year ended December 31,
         1995).
  4.5  Second Supplemental Indenture dated as of March 11, 1997 to Indenture
         dated as of April 28, 1995 between the Company and Norwest Bank
         Minnesota, National Association (incorporated by reference to Exhibit
         4.7 to the Company's current report on Form 8-K dated March 12, 1997 and
         filed March 18, 1997).
  4.6  Indenture dated as of March 15, 1996, between the Company and Norwest Bank
         Minnesota, National Association, as Trustee, relating to the Company's
         Subordinated Notes, Series 1996-A due 2001 (incorporated by reference to
         Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1996).
  4.7  First Supplemental Indenture, dated as of March 15, 1996, to Indenture,
         dated as of March 15, 1996, between the Company and Norwest Bank
         Minnesota, National Association, as Trustee, relating to the Company's
         Subordinated Notes, Series 1996-A due 2001 (incorporated by reference to
         Exhibit 4.6 to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1996).
  4.8  Indenture dated as of March 12, 1997, between the Company and Norwest Bank
         Minnesota, National Association, as Trustee (incorporated by reference
         to Exhibit 4.1 to the Company's Current Report on Form 8-K dated March
         12, 1997 and filed March 18, 1997).
  4.9  First Supplemental Indenture, dated as of March 12, 1997 between the
         Company and Norwest Bank Minnesota, National Association, as Trustee
         (incorporated by reference to Exhibit 4.2 to the Company's Current
         Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
  4.10 Warrant Agreement, dated as of March 12, 1997 by and between the Company
         and Norwest Bank Minnesota, National Association, as Warrant Agent
         (incorporated by reference to Exhibit 4.3 to the Company's Current
         Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
</TABLE>
 
                                       25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
 NO.   DESCRIPTION
------ --------------------------------------------------------------------------
<C>    <S>
  4.11 Form of Unit (incorporated by reference to Exhibit 4.4 to the Company's
         Current Report on Form 8-K dated March 12, 1997 and filed March 18,
         1997).
  4.12 Form of 11.5% Senior Notes due March 15, 2007 (incorporated by reference
         to Exhibit 4.5 to the Company's Current Report on Form 8-K dated March
         12, 1997 and filed March 18, 1997).
  4.13 Form of Initial Warrant Certificate (incorporated by reference to Exhibit
         4.6 to the Company's Current Report on Form 8-K dated March 12, 1997 and
         filed March 18, 1997).
  4.14 Second Supplemental Indenture, dated as of October 8, 1997, to Indenture,
         dated as of March 12, 1997, between the Company and Norwest Bank
         Minnesota, National Association, as Trustee, including form of Notes
         (incorporated by reference to Exhibit 4.1 to the Company's Current
         Report on Form 8-K dated October 8, 1997, filed October 15, 1997).
 10.1  First Amendment, dated as of August 9, 1997, to Note Purchase Agreement,
         dated as of December 3, 1996, among Arcadia Financial Ltd. (formerly
         known as Olympic Financial Ltd.), Arcadia Receivables Conduit Corp.,
         Receivable Capital Corporation and Bank of America National Trust and
         Savings Association (incorporated by reference to Exhibit 10.1 to the
         Company's Current Report on Form 8-K dated October 1, 1997, filed
         October 1, 1997).
 10.2  First Amendment, dated as of August 4, 1997, to Repurchase Agreement,
         dated as of December 3, 1996, by and between Arcadia Receivables Conduit
         Corp. and Arcadia Receivables Finance Corp. (incorporated by reference
         to Exhibit 10.2 to the Company's Current Report on Form 8-K dated
         October 1, 1997, filed October 1, 1997).
 10.3  First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated
         as of December 3, 1996, among Arcadia Receivables Conduit Corp., Arcadia
         Financial Ltd. (formerly known as Olympic Financial Ltd.), in its
         individual capacity and as Servicer, and Bank of America National Trust
         and Savings Association (incorporated by reference to Exhibit 10.3 to
         the Company's Current Report on Form 8-K dated October 1, 1997, filed
         October 1, 1997).
 10.4  First Amendment, dated as of August 1, 1997, to the Insurance and
         Indemnity Agreement, dated as of December 3, 1996, among Financial
         Security Assurance Inc., Arcadia Receivables Conduit Corp., Arcadia
         Receivables Finance Corp. and Arcadia Financial Ltd. (formerly known as
         Olympic Financial Ltd.), as Servicer (incorporated by reference to
         Exhibit 10.4 to the Company's Current Report on Form 8-K dated October
         1, 1997, filed October 1, 1997).
 10.5  Amended and Restated Trust Agreement, dated as of July 31, 1997, between
         Arcadia Receivables Finance Corp. II and Wilmington Trust Company
         (incorporated by reference to Exhibit 10.5 to the Company's Current
         Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 10.6  Amended and Restated Indenture, dated as of July 31, 1997, between Olympic
         Automobile Receivables Warehouse Trust and Norwest Bank Minnesota,
         National Association (incorporated by reference to Exhibit 10.6 to the
         Company's Current Report on Form 8-K dated October 1, 1997, filed
         October 1, 1997).
 10.7  Amended and Restated Receivables Purchase Agreement and Assignment, dated
         as of July 31, 1997, between Arcadia Receivables Finance Corp. II and
         Arcadia Financial Ltd. (incorporated by reference to Exhibit 10.7 to the
         Company's Current Report on Form 8-K dated October 1, 1997, filed
         October 1, 1997).
</TABLE>
 
                                       26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
 NO.   DESCRIPTION
------ --------------------------------------------------------------------------
<C>    <S>
 10.8  Amended and Restated Sale and Servicing Agreement, dated as of July 31,
         1997, among Olympic Automobile Receivables Warehouse Trust, Arcadia
         Receivables Finance Corp. II, Arcadia Financial Ltd. And Norwest Bank
         Minnesota, National Association (incorporated by reference to Exhibit
         10.8 to the Company's Current Report on Form 8-K dated October 1, 1997,
         filed October 1, 1997).
 10.9  Amended and Restated Custodian Agreement, dated as of July 31, 1997, among
         Arcadia Financial Ltd., Norwest Bank Minnesota, National Association,
         and Olympic Automobile Receivables Warehouse Trust (incorporated by
         reference to Exhibit 10.9 to the Company's Current Report on Form 8-K
         dated October 1, 1997, filed October 1, 1997).
 10.10 Amended and Restated Note Purchase Agreement, dated as of July 31, 1997,
         among Olympic Automobile Receivables Warehouse Trust, Arcadia Financial
         Ltd., Delaware Funding Corporation and Morgan Guaranty Trust Company of
         New York (incorporated by reference to Exhibit 10.10 to the Company's
         Current Report on Form 8-K dated October 1, 1997, filed October 1,
         1997).
 10.11 Amended and Restated Certificate Purchase Agreement, dated as of July 31,
         1997, among Olympic Automobile Receivables Warehouse Trust, Arcadia
         Financial Ltd., each Purchaser (as defined) and Morgan Guaranty Trust
         Company of New York (incorporated by reference to Exhibit 10.11 to the
         Company's Current Report on Form 8-K dated October 1, 1997, filed
         October 1, 1997).
 10.12 Asset Purchase Agreement, dated as of July 31, 1997, among Morgan Guaranty
         Trust Company of New York and certain parties listed therein
         (incorporated by reference to Exhibit 10.12 to the Company's Current
         Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 10.13 Series 1997-C Supplement, dated as of September 18, 1997, to spread
         Account Agreement dated as of March 25, 1993, as amended and restated as
         of June 1, 1997, among Arcadia Financial Ltd., Arcadia Receivables
         Finance Corp., Financial Security Assurance, Inc., The Chase Manhattan
         Bank and Norwest Bank Minnesota, National Association (incorporated by
         reference to Exhibit 10.13 to the Company's Current Report on Form 8-K
         dated October 1, 1997, filed October 1, 1997).
 10.14 Insurance and Indemnity Agreement, dated as of September, 18, 1997, among
         Financial Assurance Inc., Arcadia Automobile Receivables Trust, 1997-C,
         Arcadia Receivables Finance Corp. and Arcadia Financial Ltd.
         (incorporated by reference to Exhibit 10.14 to the Company's Current
         Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 10.15 Form of Indemnification Agreement by and between the Company and certain
         of its officers and directors (incorporated by reference to Exhibit
         10.15 to the Company's Current Report on Form 8-K dated October 1, 1997,
         filed October 1, 1997).
 11.1  Computation of Earnings Per Share (filed herewith).
 27.1  Financial Data Schedule (filed herewith).
 99.1  Cautionary Statement (filed herewith).
</TABLE>
 
        (b) REPORTS ON FORM 8-K
 
    On September 24, 1997, the Company filed a Current Report on Form 8-K dated
June 5, 1997, reporting certain information with regard to the Company's
performance as servicer of Olympic Automobile Receivables Trust, 1996-C.
 
                                       27
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                             ARCADIA FINANCIAL LTD.
 
<TABLE>
<CAPTION>
               SIGNATURE                                      TITLE                                 DATE
---------------------------------------  ------------------------------------------------  ----------------------
<C>                                      <S>                                               <C>
 
       /s/ RICHARD A. GREENAWALT         President, Chief Executive Officer, and Director  November 13, 1997
    -------------------------------
         Richard A. Greenawalt
 
          /s/ JOHN A. WITHAM             Executive Vice President and Chief Financial      November 13, 1997
    -------------------------------      Officer (Principal Financial Officer)
            John A. Witham
 
         /s/ BRIAN S. ANDERSON           Senior Vice President, Corporate Controller and   November 13, 1997
    -------------------------------      Assistant Secretary (Principal Accounting
           Brian S. Anderson             Officer)
</TABLE>
 
                                       28
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT NO.   DESCRIPTION
-------------  -----------------------------------------------------------------------------------------------------
<C>            <S>
       3.1     Restated Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit
                3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
 
       3.2     Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.2 to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
 
       4.1     Rights Agreement dated as of November 1, 1996, between the Company and Norwest Bank Minnesota,
                National Association, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's
                Registration Statement on Form 8-A filed November 7, 1996).
 
       4.2     First Amendment and Restatement, dated as of April 28, 1995 of Indenture, dated July 1, 1994, between
                the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the Company's
                Unsecured Extendible Notes and Fixed Term-Notes, including forms of Notes (incorporated by reference
                to Exhibit No. 4.8.1 to Post-Effective Amendment No. 2 on Form S-3 to the Company's Registration
                Statement on Form S-1, File No. 33-81512).
 
       4.3     Indenture, dated as of April 28, 1995, between the Company and Norwest Bank Minnesota, National
                Association, as Trustee, relating to the Company's 13% Senior Notes due 2000 (incorporated by
                reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year ended December 31,
                1995).
 
       4.4     First Supplemental Indenture, dated as of August 11, 1995, to Indenture, dated as of April 28, 1995,
                between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the
                Company's 13% Senior Notes due 2000 (incorporated by reference to Exhibit 4.6 to the Company's
                Annual Report on Form 10-K for the year ended December 31, 1995).
 
       4.5     Second Supplemental Indenture dated as of March 11, 1997 to Indenture dated as of April 28, 1995
                between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to
                Exhibit 4.7 to the Company's current report on Form 8-K dated March 12, 1997 and filed March 18,
                1997).
 
       4.6     Indenture dated as of March 15, 1996, between the Company and Norwest Bank Minnesota, National
                Association, as Trustee, relating to the Company's Subordinated Notes, Series 1996-A due 2001
                (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year
                ended December 31, 1996).
 
       4.7     First Supplemental Indenture, dated as of March 15, 1996, to Indenture, dated as of March 15, 1996,
                between the Company and Norwest Bank Minnesota, National Association, as Trustee, relating to the
                Company's Subordinated Notes, Series 1996-A due 2001 (incorporated by reference to Exhibit 4.6 to
                the Company's Annual Report on Form 10-K for the year ended December 31, 1996).
 
       4.8     Indenture dated as of March 12, 1997, between the Company and Norwest Bank Minnesota, National
                Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on
                Form 8-K dated March 12, 1997 and filed March 18, 1997).
</TABLE>
 
                                       29
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT NO.   DESCRIPTION
-------------  -----------------------------------------------------------------------------------------------------
<C>            <S>
       4.9     First Supplemental Indenture, dated as of March 12, 1997 between the Company and Norwest Bank
                Minnesota, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the
                Company's Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
 
       4.10    Warrant Agreement, dated as of March 12, 1997 by and between the Company and Norwest Bank Minnesota,
                National Association, as Warrant Agent (incorporated by reference to Exhibit 4.3 to the Company's
                Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
 
       4.11    Form of Unit (incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K
                dated March 12, 1997 and filed March 18, 1997).
 
       4.12    Form of 11.5% Senior Notes due March 15, 2007 (incorporated by reference to Exhibit 4.5 to the
                Company's Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
 
       4.13    Form of Initial Warrant Certificate (incorporated by reference to Exhibit 4.6 to the Company's
                Current Report on Form 8-K dated March 12, 1997 and filed March 18, 1997).
 
       4.14    Second Supplemental Indenture, dated as of October 8, 1997, to Indenture, dated as of March 12, 1997,
                between the Company and Norwest Bank Minnesota, National Association, as Trustee, including form of
                Notes (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated
                October 8, 1997, filed October 15, 1997).
 
      10.1     First Amendment, dated as of August 9, 1997, to Note Purchase Agreement, dated as of December 3,
                1996, among Arcadia Financial Ltd. (formerly known as Olympic Financial Ltd.), Arcadia Receivables
                Conduit Corp., Receivable Capital Corporation and Bank of America National Trust and Savings
                Association (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
                dated October 1, 1997, filed October 1, 1997).
 
      10.2     First Amendment, dated as of August 4, 1997, to Repurchase Agreement, dated as of December 3, 1996,
                by and between Arcadia Receivables Conduit Corp. and Arcadia Receivables Finance Corp. (incorporated
                by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated October 1, 1997,
                filed October 1, 1997).
 
      10.3     First Amendment, dated as of August 4, 1997 to Servicing Agreement, dated as of December 3, 1996,
                among Arcadia Receivables Conduit Corp., Arcadia Financial Ltd. (formerly known as Olympic Financial
                Ltd.), in its individual capacity and as Servicer, and Bank of America National Trust and Savings
                Association (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
                dated October 1, 1997, filed October 1, 1997).
 
      10.4     First Amendment, dated as of August 1, 1997, to the Insurance and Indemnity Agreement, dated as of
                December 3, 1996, among Financial Security Assurance Inc., Arcadia Receivables Conduit Corp.,
                Arcadia Receivables Finance Corp. and Arcadia Financial Ltd. (formerly known as Olympic Financial
                Ltd.), as Servicer (incorporated by reference to Exhibit 10.4 to the Company's Current Report on
                Form 8-K dated October 1, 1997, filed October 1, 1997).
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      10.5     Amended and Restated Trust Agreement, dated as of July 31, 1997, between Arcadia Receivables Finance
                Corp. II and Wilmington Trust Company (incorporated by reference to Exhibit 10.5 to the Company's
                Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 
      10.6     Amended and Restated Indenture, dated as of July 31, 1997, between Olympic Automobile Receivables
                Warehouse Trust and Norwest Bank Minnesota, National Association (incorporated by reference to
                Exhibit 10.6 to the Company's Current Report on Form 8-K dated October 1, 1997, filed October 1,
                1997).
 
      10.7     Amended and Restated Receivables Purchase Agreement and Assignment, dated as of July 31, 1997,
                between Arcadia Receivables Finance Corp. II and Arcadia Financial Ltd. (incorporated by reference
                to Exhibit 10.7 to the Company's Current Report on Form 8-K dated October 1, 1997, filed October 1,
                1997).
 
      10.8     Amended and Restated Sale and Servicing Agreement, dated as of July 31, 1997, among Olympic
                Automobile Receivables Warehouse Trust, Arcadia Receivables Finance Corp. II, Arcadia Financial Ltd.
                And Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 10.8 to the
                Company's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 
      10.9     Amended and Restated Custodian Agreement, dated as of July 31, 1997, among Arcadia Financial Ltd.,
                Norwest Bank Minnesota, National Association, and Olympic Automobile Receivables Warehouse Trust
                (incorporated by reference to Exhibit 10.9 to the Company's Current Report on Form 8-K dated October
                1, 1997, filed October 1, 1997).
 
      10.10    Amended and Restated Note Purchase Agreement, dated as of July 31, 1997, among Olympic Automobile
                Receivables Warehouse Trust, Arcadia Financial Ltd., Delaware Funding Corporation and Morgan
                Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.10 to the Company's
                Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 
      10.11    Amended and Restated Certificate Purchase Agreement, dated as of July 31, 1997, among Olympic
                Automobile Receivables Warehouse Trust, Arcadia Financial Ltd., each Purchaser (as defined) and
                Morgan Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.11 to the
                Company's Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 
      10.12    Asset Purchase Agreement, dated as of July 31, 1997, among Morgan Guaranty Trust Company of New York
                and certain parties listed therein (incorporated by reference to Exhibit 10.12 to the Company's
                Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
 
      10.13    Series 1997-C Supplement, dated as of September 18, 1997, to spread Account Agreement dated as of
                March 25, 1993, as amended and restated as of June 1, 1997, among Arcadia Financial Ltd., Arcadia
                Receivables Finance Corp., Financial Security Assurance, Inc., The Chase Manhattan Bank and Norwest
                Bank Minnesota, National Association (incorporated by reference to Exhibit 10.13 to the Company's
                Current Report on Form 8-K dated October 1, 1997, filed October 1, 1997).
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      10.14    Insurance and Indemnity Agreement, dated as of September, 18, 1997, among Financial Assurance Inc.,
                Arcadia Automobile Receivables Trust, 1997-C, Arcadia Receivables Finance Corp. and Arcadia
                Financial Ltd. (incorporated by reference to Exhibit 10.14 to the Company's Current Report on Form
                8-K dated October 1, 1997, filed October 1, 1997).
 
      10.15    Form of Indemnification Agreement by and between the Company and certain of its officers and
                directors (incorporated by reference to Exhibit 10.15 to the Company's Current Report on Form 8-K
                dated October 1, 1997, filed October 1, 1997).
 
      11.1     Computation of Earnings Per Share (filed herewith).
 
      27.1     Financial Data Schedule (filed herewith).
 
      99.1     Cautionary Statement (filed herewith).
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