Wilshire Financial Services Group Inc. has reduced its previously reported first-quarter earnings by 98% because of changes in the way it accounts for servicing revenue.

The Portland, Ore.-based finance company restated first quarter earnings to $63,000, or 1 cent per share, from an originally reported $3.1 million, or 41 cents per share.

In a press release, the company said it restated earnings after its new accounting firm, Arthur Andersen LLP, recommended that Wilshire defer $5.6 million of servicing revenue over the life of a loan portfolio, which the company expects to be 18 months.

Officials at Wilshire released the restated earnings after the market closed Wednesday.

"We have the ($5.6 million) in hand," said Wilshire chief executive Andrew A. Wiederhorn.

"But our accountant says we must extend it out. So it's a timing issue, not a business issue."

Darrell Hendrix, a financial industry analyst at Friedman, Billings, Ramsey & Co., Arlington, Va., agreed, saying the company's restated earnings do not reflect anything seriously wrong with the company, which has $1.1 billion in assets and went public last December in an offering underwritten by Mr. Hendrix' firm.

"This has more to do with their changing accountants than anything else," Mr. Hendrix said. "Their previous accountant let them book the servicing money when they received it, but the new one had them stretch it out over the life of the loans."

The company's previous accountant was Deloitte & Touche.

Wilshire Financial buys distressed real estate loans from banks and government agencies and securitizes the assets. The company makes most of its money from servicing fees.

Wilshire also owns two thrifts in southern California, both of which are operating under cease-and-desist orders from the Office of Thrift Supervision due to concerns they were growing too quickly.

Shares of Wilshire Financial closed down 75 cents, at $17, after a active day of trading when they fell as low as $15.50.

Nevertheless, Mr. Hendrix of Friedman Billings, who saw his share of financial disasters as a subprime auto analyst at Duff & Phelps Credit Rating Co., said he's maintaining his earnings estimates for Wilshire. He's also keeping his rating of "speculative buy."

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