Results Reflect New Guidance on "Cash-out" Accounting Under FAS Rule No. 125
MINNEAPOLIS, Jan. 26 /PRNewswire/ -- Arcadia Financial Ltd. (NYSE: AAC)
today reported net income of $4,973,000, or $.13 per diluted share, on total
revenues of $61,335,000 for the fourth quarter ended December 31, 1998. In
the comparable 1997 period, Arcadia Financial reported restated net income of
$4,733,000, or $.12 per diluted share, on total revenues of $61,956,000.
For the year ended December 31, 1998, Arcadia reported a net loss of
$83,241,000, or $2.13 per diluted share, on total revenues of $146,383,000
compared to a restated net loss of $59,018,000, or $1.53 per share, on total
revenues of $133,570,000 for the year ended December 31, 1997.
Pursuant to the FASB's Special Report, "A Guide to Implementation of
Statement 125 on Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, Second Edition," dated December 1998, and
public comments from the Securities and Exchange Commission released on
December 8, 1998, the company has retroactively changed its practice of
measuring and accounting for all excess cash flows to the "cash-out"
accounting method. As a result, the company's financial results for all prior
periods presented have been restated. Results for the quarter and year ended
December 31, 1998 also reflect adoption of the "cash-out" accounting method.
Initial deposits to cash spread accounts and subsequent cash flows
received by securitization trusts accumulate until certain targeted levels are
achieved (spread account caps), after which cash is distributed from the
spread accounts to the company. Under the "cash-in" method previously used by
Arcadia, (i) the assumed discount period for measuring the present value of
spread account cash flows ended when these cash flows were deposited into the
trusts and (ii) initial deposits to spread accounts were recorded at face
value. Under the "cash-out" method now called for by the FASB and SEC, the
assumed discount period for measuring the present value of future cash flows
from the trusts ends when cash, including return of the initial deposits, is
distributed to the company on an unrestricted basis.
The impact of the restatement reduced Arcadia's cumulative reported
earnings for all periods presented by approximately $22 million. However,
because of currently unrealized gains included in other comprehensive income
related to accounting for retained interests at fair value, as required by FAS
125, the reduction of the company's shareholders' equity as of December 31,
1998, is only $2.5 million. Arcadia has attached a table showing the affected
periods prior to December 31, 1998. Arcadia also noted that it expects the
effect of the adoption of the "cash-out" accounting method on anticipated 1999
results will be minimal.
The company's 1998 results reflect the effects of an after tax, non-cash
charge of $99.9 million, or $2.56 per share, taken in the year's second
quarter, and its 1997 results included special charges totaling $79.6 million,
or $2.06 per share, taken in the first quarter.
Cash flows continue to meet the company's expectations. Cash released from
restricted spread accounts totaled approximately $43 million during the fourth
quarter of 1998, down slightly from $44 million in the third quarter.
During the quarter, the company purchased $466.5 million in automobile
loans and securitized $484 million in two transactions. The securitizations
were accomplished at near record net interest rate spreads.
Rich Greenawalt, Arcadia's chief executive officer, noted that while
delinquencies in the company's servicing portfolio increased during the fourth
quarter of 1998, loan losses were relatively flat compared to 1998 third
quarter levels. He attributed the increase in delinquencies primarily to the
normal December quarter peak and the effects of higher risk loans no longer
being purchased. "Looking ahead, we expect staffing, training and technology
improvements in our servicing operations to reduce delinquencies in the
future."
"Loan loss reserves increased slightly during the quarter, primarily due
to the near record net interest rate spreads on our securitizations, favorable
prepayment experience, and a recovery rate on repossessed vehicles that
continues to be comfortably above our 45 percent assumption," said Greenawalt.
The company's inventory of repossessed vehicles totaled $33 million at
December 31, 1998, down from $36 million at September 30, 1998, and its
average age declined from 64 days at September 30, 1998 to 46 days at year
end. Arcadia has ended the retail remarketing of repossessed vehicles and
closed its last remaining retail consignment lots during the fourth quarter.
"The past year was a challenging transition year for us," said Greenawalt.
"We are looking forward confidently to 1999 when we expect the changes in
strategy, the organizational refinements and the improvements in training,
technology and analytical tools we have made will begin to benefit our
operating performance and financial results."
Selected Fourth Quarter Results
-- Fourth quarter loan purchases totaled $466.5 million compared to
$570 million in the third quarter and $582.1 million in the 1997 fourth
quarter.
-- The net interest rate spread on the $484 million of loans securitized
during the quarter was 9.74% compared to 9.30% in the third quarter and
8.85% in the 1997 fourth quarter.
-- Operating expenses as a percentage of the average servicing portfolio
were 3.39% for the fourth quarter compared to 3.38% in the third
quarter and 3.41% in the 1997 fourth quarter.
-- The company's servicing portfolio totaled $5.1 billion at December 31
and September 30, 1998, and $5.0 billion at December 31, 1997.
-- Loans delinquent more than 30 days were 4.78% of the servicing
portfolio at December 31, 1998 compared to 4.08% of the servicing
portfolio at September 30, 1998 and 3.63% of the servicing portfolio at
December 31, 1997.
-- Annualized net losses as a percentage of the average servicing
portfolio were 4.34% for the quarter ended December 31, 1998 compared
to 4.29% for the quarter ending September 30, 1998 and 3.58% for the
quarter ending December 31, 1997.
-- Reserves for loan losses totaled $415.4 million, or 8.15% of the
servicing portfolio, at December 31, 1998 compared to $413.1 million,
or 8.04% of the servicing portfolio, at September 30, 1998 and
$235.6 million, or 4.75% of the servicing portfolio, at December 31,
1997.
Arcadia Financial Ltd. is a Minneapolis-based consumer financial services
company specializing in purchasing, selling and servicing retail installment
contracts for new and used automobiles originated in 45 states. The company,
founded in 1990, is the nation's largest independent provider of automobile
financing. Its 18 Regional Buying Centers are located in Arizona; northern
and southern California; Colorado; Florida; Georgia; Maryland; Massachusetts;
Minnesota; Missouri; New York; North Carolina; Ohio; Tennessee; north, south
and west Texas; and Washington.
This news release contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. The most significant among these risks and
uncertainties are (1) the company's ability to achieve adequate interest rate
spreads, (2) the level of delinquencies, gross charge-offs and net losses, and
(3) the level of operating expenses. Earnings may also be affected by the
effects of economic factors on consumer debt and by competitive pressures.
Additional risks which may affect the company's future performance are
detailed under the caption "Cautionary Statements" in Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(Selected financial information follows.)
Arcadia Financial LTD
Selected Financial and Other Operating Data
December 31, 1998
Three months ended Twelve Months Ended
(Restated) (Restated)
Dollars in thousands, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
except per share data 1998 1997 1998 1997
REVENUES:
Net interest margin $18,274 $20,311 $81,867 $80,369
Gain on sale of loans,
net of special charges 21,132 21,310 (18,499) (14,895)
Servicing fee income 21,929 20,335 83,015 68,096
61,335 61,956 146,383 133,570
EXPENSES:
Operating expenses 43,309 41,748 187,187 162,017
Long term debt and
other interest expense 13,053 12,574 51,672 41,216
Total expenses 56,362 54,322 238,859 203,233
Operating income (loss)
before income taxes
and extraordinary item 4,973 7,634 (92,476) (69,663)
Income tax expense (benefit) -- 2,901 (9,235) (26,473)
Net income (loss) before
extraordinary item 4,973 4,733 (83,241) (43,190)
Extraordinary item -- -- -- (15,828)
Net income (loss) $4,973 $4,733 $(83,241) $(59,018)
Basic Earnings per Share:
Income (loss) per common share
before extraordinary item $0.13 $0.12 $(2.13) $(1.12)
Extraordinary item per
common share -- -- -- (0.41)
Net income (loss) per
common share $0.13 $0.12 $(2.13) $(1.53)
Diluted Earnings per Share:
Income (loss) per share
before extraordinary item $0.13 $0.12 $(2.13) $(1.12)
Extraordinary item per share -- -- -- (0.41)
Net Income (loss) per share $0.13 $0.12 $(2.13) $(1.53)
Weighted average shares
outstanding
Basic 39,156,888 38,806,897 39,071,412 38,700,346
Diluted 39,183,495 39,242,445 39,071,412 38,700,346
Number of buying centers 18 18
Servicing portfolio
(in millions) $5,096.2 $4,956.1
Delinquencies as a
percentage of servicing
portfolio 4.78% 3.63%
Book value per common share $6.86 $8.64
Automobile loan purchases
(in millions) $466.5 $582.1 $2,193.4 $2,862.8
Annualized net losses as a
percentage of average
servicing portfolio 4.34% 3.58% 4.62% 3.48%
(Restated)
Dec. 31, Dec. 31,
Dollars in thousands 1998 1997
ASSETS
Cash and cash equivalents $10,827 $17,274
Due from securitization trust 62,081 107,207
Auto loans held for sale 17,899 49,133
Finance income receivable (a) 587,946 602,454
Other assets 48,930 49,854
Total assets $727,683 $825,922
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts due under warehouse facilities $ -- $30,880
Senior term notes 366,657 365,640
Subordinated notes 51,898 50,772
Capital lease obligations 3,384 5,368
Deferred income taxes -- 11,506
Accounts payable and accrued liabilities 36,935 26,302
Total liabilities 458,874 490,468
Shareholders' equity 268,809 335,454
Total liabilities and shareholders' equity $727,683 $825,922
(a) Includes restricted cash deposits in spread accounts of $227.7 million
and $250.3 million, respectively.
Arcadia Financial Ltd.
Financial Statement Restatement
(In Millions)
Year Ended Year Ended Year Ended Qtr. Ended
12/31/94 12/31/95 12/31/96 3/31/97
Revenue:
Originally Reported $28,788 $108,732 $213,495 $(47,863)
As Restated 27,089 101,280 198,687 (49,821)
Net Income:
Originally Reported 4,185 25,461 60,316 (75,339)
As Restated 3,006 20,990 50,987 (76,622)
Diluted earnings per share:
Originally Reported 0.19 0.96 1.65 (1.96)
As Restated 0.07 0.64 1.40 (2.00)
FIR:
Originally Reported 79,948 249,581 505,893 465,136
As Restated 78,249 240,430 481,934 439,998
Shareholders' Equity:
Originally Reported 60,862 180,813 393,093 329,103
As Restated 59,683 175,163 378,114 312,478
Arcadia Financial Ltd.
Financial Statement Restatement
(In Millions)
Qtr. Ended Qtr. Ended Qtr. Ended Year Ended
6/30/97 9/30/97 12/31/97 12/31/97
Revenue:
Originally Reported $58,839 $63,664 $60,773 $135,413
As Restated 58,554 62,881 61,956 133,570
Net Income:
Originally Reported 5,743 7,789 4,000 (57,807)
As Restated 5,566 7,304 4,733 (59,019)
Diluted earnings per share:
Originally Reported 0.15 0.20 0.10 (1.49)
As Restated 0.14 0.19 0.12 (1.53)
FIR:
Originally Reported 527,735 579,585 622,282 622,282
As Restated 505,762 560,647 602,455 602,455
Shareholders' Equity:
Originally Reported 335,270 343,982 347,942 347,942
As Restated 319,920 329,737 335,454 335,454
Arcadia Financial Ltd.
Financial Statement Restatement
(In Millions)
Qtr. Ended Qtr. Ended Qtr. Ended
3/31/98 6/30/98 9/30/98
Revenue:
Originally Reported $65,389 $(47,737) $63,574
As Restated 66,612 (46,143) 64,578
Net Income:
Originally Reported 4,197 (93,917) 7,295
As Restated 4,955 (101,469) 8,299
Diluted earnings per share:
Originally Reported 0.11 (2.41) 0.19
As Restated 0.13 (2.60) 0.21
FIR:
Originally Reported 671,919 568,534 598,221
As Restated 655,338 554,629 592,951
Shareholders' Equity:
Originally Reported 353,130 259,180 267,845
As Restated 342,655 245,275 262,575
SOURCE Arcadia Financial Ltd.
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http://www.prnewswire.com/comp/652638.html or fax,
800-758-5804, ext. 652638
CONTACT:
Scott R. Fjellman, Investor Relations of
Arcadia, 612-944-4582
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