Aames Financial Corporation Reports Year-End Results.

LOS ANGELES--(BUSINESS WIRE)--Sept. 3, 1999--

Past Fiscal Year Dedicated to Repositioning The Company, Entering the Fiscal Year With Strengthened Balance Sheet and Stronger Capital Base;

Completes $400 Million Mortgage Loan Securitization in August

Aames Financial Corporation (NYSE:AAM), a leader in subprime home equity lending, today reported the results from operations for the fiscal year ended June 30, 1999, reporting as expected, a net loss of $(248) million, or $(8.00) per share (diluted) including the effects of a $194 million write down in the second quarter to reflect revaluation of residual assets on its balance sheet. The Company also announced that as part of its new loan disposition strategy, it successfully completed a $400 million mortgage loan securitization in August, which represents its first securitization since the quarter ended September 30, 1998.

Mani Sadeghi, Aames' Chief Executive Officer, stated, "Last year was a very challenging year for the Company. The specialty finance industry faced extraordinarily difficult operating and capital markets conditions which prompted Aames to take difficult, but necessary, actions to position the Company for long-term growth and profitability.

"From an operational standpoint we took decisive action to streamline operations, reduce costs and strengthen the balance sheet. As a result, we enter the new fiscal year with a more efficient organizational structure and a strengthened capital base. Most importantly the Company obtained an equity investment commitment from Capital Z Financial Services Fund, II, L.P. ("Capital Z") to invest up to $126.5 million in the Company, of which $101.5 million has already been received. This equity investment paved the way to recapitalizing the company and making necessary adjustments to our balance sheet.

"In addition to the operational actions taken, management adjusted the assumptions used to value its residual assets during the second fiscal quarter ended December 31, 1998, reflecting negative market conditions, as well as new FASB guidelines, recording a $194 million write down on these assets.

"Finally, the results for the year include a prolonged period during which the Company was effectively precluded from its traditional financing source, the asset backed securities market. From September, 1999, through the end of the past fiscal year, the Company relied on whole loan sales. Gains recorded from whole loan sales are generally lower than the gains recorded for securitizations.

"Our goal going forward is to focus origination activities in our core franchises while implementing a balanced funding strategy using securitization and whole loan sales. The successful completion last month of our first securitization in three quarters represents a significant step in that direction," Sadeghi added.

Financial Results

The Company reported a net loss of $(248) million, or $(8.00) per share (diluted), for the fiscal year ended June 30, 1999, compared to net income of $28 million, or $0.87 per share (diluted), for the fiscal year ended June 30, 1998. Total revenue for the year, including the effects of the $194 million write down in the second quarter, was ($16.2 million), as compared to $266 million in fiscal 1998. The write down of residual assets was caused in part by negative market conditions which adversely affected the prepayment, loss and discount rate assumptions historically applied by the Company in estimating the value of its residual assets. The Company also changed to the "cash-out" method from the "cash-in" method for the treatment of credit enhancements relating to securitizations in accordance with new FASB guidelines. While the total amount of the revenue recognized over the term of the securitization is the same under either method, the cash-out method results in lower initial gains and higher subsequent loan service revenues. Revenue for the year excluding the write-down was $170 million, down 36% from 1998, reflecting the Company's reliance on whole-loan sales for cash during the last three fiscal quarters of 1999. The decrease in total revenue also reflects the lower gains on sale resulting from the $13.5 million hedge losses on the Company's $650 million securitization closed in the quarter ended September 30, 1998.

The Company sold $1.89 billion of loans in the fiscal year ended June 30, 1999, compared to $2.45 billion in the prior year. Of the total amount of loans sold during the year, $650 million were sold in securitizations and $1.24 billion in whole loan sales for cash, compared to $2.03 billion in securitizations and $416 million in whole loan sales in the prior year. The Company did not complete a securitization during the quarters ended December 31, 1998, March 31, 1999, and June 30, 1999. In August 1999, the Company completed a securitization of $400 million of mortgage loans. A significant amount of the loans sold in the August securitization were comprised of loans held for sale as of June 30, 1999.

Total loan production for the year in the Company's core retail and broker production channels increased by $215 million over 1998's totals. Neil Kornswiet, Aames President, noted, "Loan production growth was hindered by the Company's restricted warehouse capacity during the middle part of the year. Our retail production increased from $636 million in 1998 to $770 million in 1999. The Company's decentralized retail network, which commenced operations in March 1998 contributed to this growth. Broker production increased from $1.1 billion in 1998 to $1.2 billion in 1999. Correspondent production decreased from $646 million in 1998 to $241 million in 1999 reflecting our decision to eliminate bulk purchases because such loans have performed more poorly than loans originated from our core operations and because we have considered the asking prices for these loans to be unattractive."

Compensation expense for the fiscal year ended June 30, 1999, decreased 15.5% to $80.2 million, due primarily to personal reductions on a Company-wide basis. General and administrative costs increased $19.9 million, reflecting increased operating costs resulting from expansion of the company's branch network (some of which was later cut back) and a number of non-recurring increases in legal and other professional costs related primarily to the negotiation and closing of the Company's equity and debt agreements.

The Company also recorded a one-time, nonrecurring charge of $37 million during the year related to servicing advances which are recorded as accounts receivable on the Company's balance sheet. The charge relates to payments made by the Company to the securitization trusts for which it acts as servicer, in accordance with its obligation to advance or loan to the trusts the delinquent interest. The Company, as servicer, is entitled to recover these advances from regular monthly cash flows into the trusts. During the year, the Company determined that a portion of these advances were not recoverable from the trusts' monthly cash flows and as a result, accounts receivable were written down by $37 million.

During 1999, the Company began to explore ways to reduce the cash burden of its servicing advance obligations. During April, the Company entered into a sub-servicing arrangement with a third-party servicer with respect to $388 million of loans. The third party servicer also agreed to make future advances on those loans. In June 1999, the Company entered into an arrangement with an investment bank to purchase outstanding advances against substantially all the Company's pre-1999 securitization trusts and make a significant portion of future servicing advances on those trusts.

Aames Financial Corporation is a leading home equity lender, and currently operates 101 branches serving borrowers in 37 states, plus the District of Columbia. Its broker division operates 35 offices serving 28 states.

Safe Harbor Statement:

From time to time the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance and results of the Company's business include the following: negative cash flows and capital needs; delinquencies and losses in securitization trusts; negative impact on cash flow; right to terminate mortgage servicing; changes in interest rate environment; year 2000 compliance and technological enhancement; prepayment risk; basis risk; credit risk; risk of adverse changes in the secondary market for mortgage loans; dependence on funding sources; dependence on broker network; risks involved in commercial mortgage lending; strategic alternatives; competition; concentration of operations in California; timing of loan sales; economic conditions; contingent risks; and government regulation. For a more complete discussion of these risks and uncertainties, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" in the Company's form 10-K for the fiscal year ended June 30, 1999.

Financial Tables to Follow

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                    AAMES FINANCIAL CORPORATION
                   QUARTERLY FINANCIAL STATISTICS


                      THREE MONTHS               TWELVE MONTHS
                         JUNE                        JUNE
                   1999         1998          1999           1998

ORIGINATION VOLUME
 BROKER
 NETWORK (1)   315,422,000  329,776,000  1,182,135,000  1,101,154,000
 RETAIL        136,076,000  178,803,000    638,686,000    634,659,000
 RETAIL DIRECT  51,777,000    1,477,000    131,340,000      1,477,000
 CORRESPONDENT   13,337,00  163,884,000    241,475,000    646,348,000
 TOTAL         516,612,000  673,940,000  2,193,636,000  2,383,638,000

RETAIL WTD AVG.
 COMMISSION
  RATE                4.83%        4.12%          4.10%          4.28%

SERVICING PORTFOLIO (2)(3)               3,841,290,000  4,147,100,000

PORTFOLIO SERVICED IN-HOUSE              3,428,291,000  3,941,100,000

LOAN SALES:
 WHOLE LOANS
 SOLD          295,012,000  305,000,000  1,236,050,000    416,390,000
 SECURITIZATIONS        --  299,985,000    649,999,000  2,034,300,000
 TOTAL         295,012,000  604,985,000  1,886,049,000  2,450,690,000

SERVICING
 SPREAD ON
 SECURITIZATIONS       --          4.12%          3.61%          4.28%

COMPONENTS OF REVENUE (4)
GAIN ON SALE
 OF LOANS        8,190,000   35,884,000    44,855,000     120,828,000
VALUATION
(WRITE-DOWN)
 OF INTEREST-
 ONLY STRIPS            --    5,682,000  (186,451,000)     19,495,000
COMMISSIONS
 RETAIL          4,343,000    6,529,000    26,437,000      24,893,000
 BROKER NETWORK  1,906,000      (66,000)    5,146,000         677,000
 OTHER              34,000      670,000     1,451,000       2,094,000

LOAN SERVICE
 SERVICING
 SPREAD         13,125,000    7,827,000    27,798,000      32,392,000

 PREPAYMENT
 FEES            3,409,000    3,514,000    13,772,000      11,761,000

 LATE CHARGES
 AND OTHER
 SERVICING FEES    856,000    2,209,000     8,330,000       7,489,000

INTEREST INCOME
 AND FEES
 CLOSING            26,000      714,000     1,325,000       2,668,000
 APPRAISAL         583,000      778,000     2,822,000       2,617,000
 UNDERWRITING      559,000      263,000     1,839,000       1,085,000
 INTEREST
 INCOME         10,492,000    8,239,000    35,853,000      40,110,000
 OTHER             172,000     (132,000)      670,000         380,000

 TOTAL REVENUE
 INCLUDING
 WRITE-DOWN     43,695,000   72,111,000   (16,153,000)    266,489,000

(1) Includes commercial loans
(2) Includes loan serviced on an interim basis.
(3) Loans serviced as of June 30, 1999 include $84.0M serviced on
    an interim basis.
(4) Revenues for the three months ended June 30, 1998 have been
    restated.



               AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED BALANCE SHEET

                                      June 30, 1999     June 30, 1998

                                ASSETS

Cash and cash equivalents                20,764,000       12,322,000
Loans held for sale, at
lower of cost or market                 559,869,000      198,202,000
Accounts receivable                      56,964,000       51,072,000
Interest-only strips, at
estimated fair market value             332,327,000      490,542,000
Mortgage servicing rights, net           20,928,000       32,090,000
Equipment and improvements, net          13,495,000       13,939,000
Prepaid and other                        15,013,000       17,020,000
Income tax refund receivable              1,737,000               --
      Total assets                    1,021,097,000      815,187,000


                   LIABILITIES AND STOCKHOLDERS' EQUITY


Borrowings                              281,220,000      286,990,000
Revolving warehouse and
repurchase facilities                   535,997,000      141,012,000
Accounts payable and accrued expenses    50,505,000       49,964,000
Income taxes payable                      7,819,000       33,170,000
      Total liabilities                 875,541,000      511,136,000


Stockholders' equity:

Series A Preferred Stock, par value
$.001 per share; 500,000 shares
authorized; none outstanding                     --               --

Series B Convertible Preferred Stock,
par value $.001 per share; 100,000
shares authorized; 26,704 and -0-
shares outstanding                       26,704,000               --

Series C Convertible Preferred Stock,
par value $.001 per share; 100,000
shares authorized; 75,046 and -0-
shares outstanding (includes 25,000
shares issued August 3, 1999)            65,475,000               --

Common Stock, par value $.001 per
share; 50,000,000 shares authorized;
31,016,964 and 30,962,578 shares
outstanding                                  31,000           31,000

Additional paid-in capital              250,116,000      249,851,000

Retained earnings (deficit)            (196,770,000)      54,169,000
 Total stockholders' equity             145,556,000      304,051,000
 Total liabilities and
 stockholders' equity                 1,021,097,000      815,187,000



             AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                               (Audited)

                       Three Months Ended       Twelve Months Ended
                       June 30,    June 30,    June 30,      June 30,
                         1999       1998         1999         1998
                                 (Restated)

Revenue:
 Gain on sale of
 loans              $  8,190,000  35,884,000   44,855,000 120,828,000
 Valuation (write-
 down) of interest-
 only strips                  --   5,682,000 (186,451,000) 19,495,000
 Commissions           6,283,000   7,133,000   33,034,000  27,664,000
 Loan service         17,390,000  13,550,000   49,900,000  51,642,000
 Interest income and
 fees                 11,832,000   9,862,000   42,509,000  46,860,000
 Total revenue
 including write-
 down                 43,695,000  72,111,000  (16,153,000) 266,489,000

Expenses:
 Compensation         14,707,000  24,152,000   80,167,000  94,820,000
 Production            9,182,000  11,565,000   40,061,000  34,195,000
 General and
 administrative       22,163,000  12,764,000   60,635,000  40,686,000
 Interest             12,330,000  11,361,000   44,089,000  43,982,000
 Nonrecurring
 charges                      --          --   37,044,000          --
 Total expenses       58,382,000  59,842,000  261,996,000 213,683,000

Income (loss) before
income taxes         (14,687,000) 12,269,000 (278,149,000) 52,806,000
Provision (benefit)
for income taxes        (600,000)  5,827,000  (30,182,000) 25,243,000
Net income (loss)   $(14,087,000)  6,442,000 (247,967,000) 27,563,000

Net income (loss)
per share:
Basic                   $  (0.46)       0.21        (8.00)       0.97
Diluted                    (0.46)       0.20        (8.00)       0.87
Dividends per share           --        0.03         0.03        0.13

Weighted average
number of shares
outstanding:
 Basic                31,007,000  30,253,000   31,000,000  28,548,000
 Diluted              31,007,000  37,233,000   31,000,000  35,749,000