Aames Investment Corporation Reports Fourth Quarter Financial Results and Updates on Corporate Changes.LOS ANGELES Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. -- Aames Aames is a surname and may refer to:
This page or section lists people with the surname Aames. Investment Corporation (NYSE NYSE See: New York Stock Exchange : AIC AIC Association des Infermières Canadiennes. ): --Company to Convert to C Corp. Status Through Corporate Restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and Creation of Captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). --Wholesale Cost Reductions Begun with Closure of 2 Centers and Elimination of 100 Positions --Core EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. for the Quarter of $0.02, GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). EPS Loss of $0.07 Aames Investment Corporation (NYSE: AIC), a nationwide subprime mortgage lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. today announced full financial results for the fourth quarter of 2005 and provided an update on recently announced corporate changes. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. core EPS for the quarter equaled $0.02, while diluted net loss per common share for the December December: see month. 2005 quarter equaled $0.07 on a GAAP basis. During the quarter, the Company recorded a pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. loss under FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). 133 of $5.3 million, representing a diluted non-core loss per share of $0.09. Fourth Quarter 2005 Highlights --Net cost to originate o·rig·i·nate v. 1. To bring into being; create. 2. To come into being; start. of 1.75%, compared to 2.08% in the September September: see month. 2005 quarter; --Total loan production of $1.9 billion, with the Retail Channel accounting for 43% of total; --Taxable portfolio net interest margin of 2.75%; --Weighted average interest rate of 7.81% on the quarter's production, up 40 basis points from the third quarter of 2005. Mr. A. Jay Meyerson Meyerson can refer to:
Update on Corporate Restructuring Mr. Meyerson commented on the Company's restructuring, "In our summary earnings announcement on the 17th of March we mentioned our plan to eliminate our REIT status at the parent company level and to expand our corporate cost reduction initiatives. The actions that we are taking are designed to substantially reduce our cost to originate, increase our stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. and improve our ability to generate meaningful net income. We have taken these steps because we believe that the recent challenges in the subprime sector are likely to continue into the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future. Aames, however, has a number of unique assets through which we can effectively address the challenges currently faced by the subprime industry, including our strong retail franchise, and $304.1 million of net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. carry-forward See Loss Carry-Back. (NOLs) in our taxable REIT subsidiary." Elimination of REIT Status Meyerson stated, "In order to take full advantage of our NOLs, while eliminating the REIT status at the parent company level to preserve capital, we decided to reorganize re·or·gan·ize v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es v.tr. To organize again or anew. v.intr. To undergo or effect changes in organization. so that Aames Financial, our current TRS See traffic engineering methods. TRS - term rewriting system will become our parent company and a C Corp for tax purposes, and our existing REIT will become a captive REIT subsidiary. This structure will allow us to utilize our NOLs to shelter A general term used in statutes that relates to the provision of food, clothing, and housing for specified individuals; a home with a proper environment that affords protection from the weather. the vast majority of the income produced by our current loan portfolio. In addition, we currently believe that the captive REIT structure will allow us to potentially access the preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. market to fund additional portfolio growth." Aames expects to file shortly a proxy/registration statement with the SEC in connection with the corporate restructuring and will seek shareholder approval of the change at a special shareholders meeting in the next several months. Wholesale Consolidation Mr. Meyerson also commented on the consolidation of the Company's wholesale operations and the resulting cost reductions. "We continue to improve our efficiency in our retail platform, lowering our net cost to originate each quarter of 2005. Our wholesale operation, however, has struggled to achieve meaningful operating leverage Operating Leverage A measurement of the degree to which a firm or project relies on fixed rather than variable costs. Notes: The higher the degree of operating leverage, the greater the potential danger from forecasting risk. in the current environment, requiring us to make a number of structural changes to our cost base. We are in the process of closing two wholesale operating centers, in Deerfield Deerfield, towns, United States Deerfield. 1 Village (1990 pop. 17,327), Cook and Lake counties, NE Ill., a residential suburb of Chicago; inc. 1903. The huge Sara Lee Bakery is its major industry, and there is other light manufacturing. , Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and and Parsippany, New Jersey, and will consolidate Consolidate To combine the assets, liabilities, and other financial items of two or more entities into one. Notes: This term is generally used in the context of consolidated financial statements. the functions previously performed in those centers into our Irvine, California Irvine is an incorporated city in Orange County, California, United States. It is a planned city, mainly developed by the Irvine Company since the 1960s. Formally incorporated on December 28 1971, the 69.7 square mile (180.5 km²) city has a population of 202,079 (as of 2007). , Jacksonville, Florida “Jacksonville” redirects here. For other uses, see Jacksonville (disambiguation). Jacksonville is the largest city in the state of Florida and the county seat of Duval County. and Dallas, Texas “Dallas” redirects here. For other uses, see Dallas (disambiguation). The City of Dallas (pronounced [ˈdæl.əs] or [ˈdæl. locations. We have also eliminated 100 positions in our wholesale channel. We estimate that the combined annual savings from these initial actions will be $10 million. We have identified additional cost reductions in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $10 million, which we plan on eliminating within the next four months. We are making a number of other changes to our wholesale operations, in order to reduce our fixed and variable cost components and move the net cost ratio down to a level that allows us to achieve a profit in our wholesale division in the current market environment. We have made solid progress in achieving our goal of a 2006 net cost to originate ratio at or below our current level." In connection with these cost reduction initiatives, Aames estimates that it will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. a first quarter 2006 charge of approximately $2.0 million. The Company anticipates that it will begin to realize the benefits of these cost reductions beginning in the second quarter of 2006. Aames also continues to review its entire cost structure to determine additional expense reductions to further improve efficiency. Earnings Guidance Policy The Company believes that current market conditions preclude pre·clude tr.v. pre·clud·ed, pre·clud·ing, pre·cludes 1. To make impossible, as by action taken in advance; prevent. See Synonyms at prevent. 2. it from providing a narrow range of estimates for earnings at this time and that any estimates are subject to changes given the volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. market conditions in the subprime sector. Based on the Company's current outlook, core EPS for 2006 is estimated to range from $0.80 to $1.00 per share. The Company expects that the current loan pricing environment, along with its focus on restructuring activities will result in a core net loss for the first quarter of 2006, with a target of returning to profitability by the second quarter. The Company will review its guidance policy each quarter based on changes in market conditions and its own financial performance. Financial Disclosure The Company has included measurements of core financial metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. , including core net interest income, core net income and loss and core diluted earnings and loss per share, which are non-GAAP financial metrics. Core earnings excludes the mark-to-market derivative gain or loss under FASB 133, as well as non-core charges or credits to income. The Company does not account for its derivative financial instruments as cash flow or fair value hedges under the provisions of Statement of Financial Accounting Standards No. 133 (Accounting for Derivative Financial Instruments and Hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. Activities) and, as a result, the unrealized mark to market gains or losses on the derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. are recorded as income or losses, even thought the cash flows will not be received until sometime in the future. By excluding the impact of the mark-to-market gain or loss from the net income or net loss, management believes that core net interest income and core net income or loss can provide a useful measurement of the Company's operating performance. Throughout this press release, the Company will provide comparisons between the fourth quarter of 2005 and both the third quarter of 2005 and the fourth quarter of 2004. Due to the change in the Company's primary operating strategy following its November November: see month. 2004 reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. from a mortgage banking platform, where the Company originated and sold all of its production for a cash gain, to a mortgage REIT Mortgage REIT An REIT that invests in loans secured by real estate which derive income from mortgage interest and fees. mortgage REIT in which the Company retains a substantial portion of its production for its loans held for investment portfolio and generates interest income, management believes that some comparisons to prior year periods do not provide the best measurement of the Company's financial performance. Revenue The following table details the components of total and core revenues for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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12/31/2005 12/31/2004 9/30/2005 Y-Y Sequential
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Net interest
income after
provision
for loan
losses(1) $34,734 $21,690 $42,677 60.1% -18.6%
Noninterest
income 2,554 10,989 21,300 -76.8% -88.0%
----------- ----------- ----------
Total revenue 37,288 32,679 63,977 14.1% -41.7%
Mark-to-market
loss (gain)
on derivative
financial
instruments 5,300 (6,344) (7,121) nm -174.4%
----------- ----------- ----------
Total core
revenue $42,588 $26,335 $56,856 61.7% -25.1%
=========== =========== ==========
(1) NII for all 2005 periods includes the FASB 133 mark-to-market
gain or loss on derivative financial instruments.
Total core revenue for the December 2005 quarter equaled $42.6 million, a 25% sequential One after the other in some consecutive order such as by name or number. decrease from the September 2005 quarter. The decrease resulted from an 88% decline in non interest income Non-interest income is derived from the execution/processing business, the advisory business and any principal business that does not appear on the balance sheet. Financial institutions that wish to maximize execution/processing income depend on volume and efficiency for profits. , related entirely to the net gain on sale for the December quarter falling to $0.3 million from $19.6 million in the September quarter. Total revenue for the fourth quarter of 2005 was $37.3 million compared to $64.0 million in the third quarter of the year. Included in the total revenue numbers were a mark to market loss of $5.3 million for the fourth quarter and a mark to market gain of $7.1 million in the third quarter. Net Interest Income The following table details the components of net interest income before the provision for loan losses for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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Interest earned on:
Loans held for
investment $71,371 $15,957 $74,651 347.3% -4.4%
Loans held for
sale 18,987 15,289 10,601 24.2% 79.1%
Overnight
investments 1,120 281 812 298.6% 37.9%
Income from
derivative
financial
instruments 11,922 488 8,244 nm 44.6%
Amortization of
net deferred
loan
origination costs (1,578) (200) (1,345) nm 17.3%
Prepayment
penalty fees 9,015 88 7,946 nm 13.5%
Other 92 121 82 -24.0% 12.2%
----------- ----------- ----------
Total interest
income $110,929 $32,024 $100,991 246.4% 9.8%
Interest expense $59,134 $12,525 $48,731 372.1% 21.3%
Mark-to-market
(gain) loss
on derivative
financial
instruments 5,300 (6,344) (7,121) nm nm
Amortization of
financing costs 2,662 1,718 3,550 54.9% -25.0%
Other 170 535 154 -68.2% 10.4%
----------- ----------- ----------
Total interest
expense $67,266 $8,434 $45,314 697.6% 48.4%
Net interest
income(1) $43,663 $23,590 $55,677 85.1% -21.6%
Add (subtract)
mark-to-market
(gain) loss on
derivative
financial
instruments 5,300 (6,344) (7,121)
----------- ----------- ----------
Core net interest
income(1) $48,963 $17,246 $48,556 183.9% 0.8%
=========== =========== ==========
(1) Before the provision for losses on loans held for investment.
Core net interest income for the fourth quarter of 2005, which excludes the impact of any mark-to-market gains or losses on derivative instruments, was $49.0 million, compared to $48.6 million in the third quarter of 2005. Net interest income for the quarter reflected higher interest income from loans held for sale, the benefit of the Company's interest rate derivative An interest rate derivative is a derivative where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate. The interest rate derivatives market is the largest derivatives market in the world. instruments, higher prepayment penalty Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. income and lower amortization of financing costs, offset by lower income from loans held for investment and higher interest expense. During the fourth quarter of 2005, the average balance of loans held for investment decreased by approximately $126 million to $4.1 billion, as the Company chose to sell the majority of lower coupon A certificate evidencing the obligation to pay an installment of interest or a dividend that must be cut and presented to its issuer for payment when it is due. Coupons are usually attached to a document, such as a promissory note, bond, share of stock, or a bearer loans produced earlier in the quarter as it increased coupons and retain for its portfolio the higher coupon loans originated later in the quarter. The table below provides the details of the components of the REIT net interest margin for the December and September 2005 quarters.
Quarter Ended
----------------------
12/31/2005 9/30/2005
----------- ----------
Gross yield on LHFI 6.97% 7.07%
Prepayment penalty fees 0.88% 0.75%
Amortization of premiums -0.70% -0.43%
Amortization of deferred loan fees
and costs -0.15% -0.13%
----------- ----------
Net yield on LHFI 7.00% 7.26%
Net cost of funding for LHFI 3.63% 3.63%
Hedge premium amortization 0.07% 0.76%
----------- ----------
Net interest margin 3.30% 2.87%
Servicing costs -0.47% -0.45%
----------- ----------
Portfolio net interest margin 2.83% 2.42%
Net charge-offs -0.11% 0.00%
Portfolio income margin 2.72% 2.42%
=========== ==========
LHFI = Loans held for investment
The net interest margin for the Company's REIT portfolio for the fourth quarter of 2005 equaled 2.72%, compared to 2.42% in the third quarter of the year. The increase in the net interest margin resulted from a lower funding cost, driven by a reduced amortization of interest rate hedge expenses, partially offset by a lower interest income ratio, driven by a lower gross yield on loans held for investment and higher amortization of deferred premium. The reduced hedge premium amortization for the quarter reflected a true up of the amortization level to more closely match the income expected from the derivative financial instruments. The Company had been amortizing its hedge premiums based on estimated notional no·tion·al adj. 1. Of, containing, or being a notion; mental or imaginary. 2. Speculative or theoretical. 3. balance run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → . The Company estimates that a normalized hedge premium amortization is approximately 65 basis points, which results in a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma fourth quarter 2005 portfolio income margin of 2.14%. Noninterest Income The following table details the components of noninterest income for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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Noninterest income:
Gain on sale
of loans $348 $10,258 $19,580 -96.6% -98.2%
Loan servicing
revenue 2,206 731 1,720 201.8% 28.3%
----------- ----------- ----------
Total noninterest
income $2,554 $10,989 $21,300 -76.8% -88.0%
=========== =========== ==========
Total noninterest income for the fourth quarter of 2005 decreased by $18.7 million compared to the third quarter of 2005, due to a decrease in the net gain on sale of loans, partially offset by higher servicing revenue. The following table details the components of the gain on sale of loans for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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Gain on sale of loans:
Gain on whole
loan sales $14,087 $9,417 $21,838 49.6% -35.5%
Loan originations
fees, net 330 2,160 1,558 -84.7% -78.8%
Provision for
representation,
warranty and
other losses (13,848) (494) (3,796) nm 264.8%
Gains (losses) on
interest rate cap
hedges for loans
held for sale - (584) - nm
Miscellaneous
costs (221) (241) (20) -8.3% 1005.0%
----------- ----------- ----------
Total gain on
sale of loans $348 $10,258 $19,580 -96.6% -98.2%
=========== =========== ==========
Whole loan market
sales $1,165,887 $426,736 $915,457
Gross gain on
sale rate 1.21% 2.21% 2.39%
Net gain on sale
rate 0.03% 2.40% 2.14%
The gross gain on sale of loans for the fourth quarter of 2005 equaled 1.21% of loans sold, a ratio that reflects both the composition of the loans sold as well as current market premiums for whole loan sales. During the fourth quarter, a number of issues impacted the gain on sale of loans, including the dramatic reduction in the demand and pricing for second lien loans A Second Lien Loan is a simple loan with a subordinated security (finance) structure or no security at all (unsecured debt), meaning that the borrower grants another provider of a finance instrument (eg. and the rapid increase in the coupons required by loan buyers on loans to obtain premium pricing Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. . Loans originated during the third quarter and held for sale into the fourth quarter accounted for 40.0% of total loan sales for the December quarter and had coupons below the prevailing rate on more recent loans. Second lien loans accounted for 8.8% of total loan sales during the fourth quarter. During the fourth quarter, pricing for second liens decreased dramatically, with most second loans trading below par, reflecting the market's concern over general credit conditions and home values. The proportion of second liens in the total loan sales also negatively impacted the net points and fees realized in the gain on sale ratio, since the majority of the Company's second lien loans are originated in the wholesale channel where Aames collects only modest amounts of such revenue. Combined with a $13.8 million provision for LOCOM LOCOM Lower of Cost or Market (inventory valuation method/rule) LOCOM Lake Oswego Communications (Oregon emergency dispatch) , representation, warranty An assurance, promise, or guaranty by one party that a particular statement of fact is true and may be relied upon by the other party. Warranties are used in a variety of commercial situations. In many instances a business may voluntarily make a warranty. and other losses, the lower points and fees resulted in a net gain on sale ratio of 0.03% for the December 2005 quarter. The provision for representation, warranty and other losses included the following items for the fourth quarter of 2005.
(dollars in thousands)
Provision for representation,
warranty and other losses:
Lower of cost or market
provision (15,193)
Representation and warranty
provision 1,345
---------
Total $(13,848)
=========
The provision for representations, warranty and other losses on loans sold during the quarter also contributed to the substantially reduced net gain on sale of loans. Based on the market valuation of loans held for sale as of December 31, 2005, the Company made a lower of cost or market lower of cost or market A method for determining an asset's value such that either the original cost or the current replacement cost, whichever is lowest, is used for financial reporting purposes. provision of $15.2 million. This was partially offset by a benefit for representations and warranty contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. of $1.3 million, as the contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the exposure on certain loans sold in earlier periods expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. with lower actual representation and warranty losses than anticipated. Servicing revenue for the December 2005 quarter equaled $2.2 million, compared to $1.7 million in the September quarter. The increase reflects higher late charges and other fees collected on loans serviced, primarily in the Company's held for investment portfolio. Noninterest Expense The following table details the components of noninterest expense for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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Noninterest expense:
Personnel $24,107 $40,064 $23,783 -39.8% 1.4%
Production 8,716 8,605 9,258 1.3% -5.9%
General and
administrative 8,567 15,476 10,312 -44.6% -16.9%
----------- ----------- ----------
Total
noninterest
expense 41,390 64,145 43,353 -35.5% -4.5%
Non-core income
(expense) - (21,512) 1,635 nm nm
----------- ----------- ----------
Core
noninterest
expense $41,390 $42,633 $44,988 -2.9% -8.0%
=========== =========== ==========
Total core noninterest expense for the December 2005 quarter decreased by approximately $3.6 million, or 8% compared to the September 2005 quarter. The sequential decrease in core noninterest expense reflects lower production and G&A expense, offset slightly by higher personnel expenses. During the fourth quarter the Company undertook additional cost reduction actions, including the consolidation of additional retail branches into Super Branch locations. As of December 31, 2005, the Company had a total of 76 retail locations, down from 83 at September 30, 2005. As of December 31, 2005, 50 of the Company's 76 retail branches were Super Branches. Net Cost to Originate The net cost to originate loans is a non GAAP measurement of the Company's efficiency trends within the meaning of Regulation G promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. by the Securities and Exchange Commission. The data represents reported operating expenses, plus the origination Origination The process through which a mortgage lender creates a mortgage secured by some amount of the mortgagor's real property. Notes: Also known as loan origination, everyone must go through the origination process when securing a mortgage for a piece of real costs deferred under SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 91 (Accounting for Nonrefundable Nonrefundable Not permitted, under the terms of an indenture, to be refundable. Fees and Costs Associated with Origination or Acquiring Loans and Initial Direct Costs of Leases), less (i) the cost of servicing the Company's loans held for investment portfolio, (ii) certain corporate overhead costs overhead costs see fixed costs. and (iii) the fees received on originations less points paid on wholesale originations. The Company believes that the non GAAP measurement of the net cost to originate is indicative indicative: see mood. of its ability to generate profits from the sale of its loans into the secondary markets and an indication of its overall efficiency. The table below details the components of the net cost to originate loans for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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Total
noninterest
expense $41,390 $64,145 $43,353 -35.5% -4.5%
Non-core income
(expense) - (21,512) 1,635 nm nm
Deferred loan
origination
costs 24,306 19,619 24,319 23.9% -0.1%
Loan servicing
and other costs (3,274) (1,739) (2,733) 88.3% 19.8%
----------- ----------- -----------
Total expenses 62,422 60,513 66,574 3.2% -6.2%
Loan origination
fees received (29,567) (13,820) (26,716) 113.9% 10.7%
----------- ----------- -----------
Net cost to
originate $32,855 $46,693 $39,858 -29.6% -17.6%
=========== =========== ===========
Total loan
originations $1,882,603 $1,709,536 $1,913,296 10.1% -1.6%
Cost Ratios:
Core
noninterest
expense 2.20% 2.49% 2.35% -11.8% -6.5%
Deferred loan
origination
costs 1.29% 1.15% 1.27% 12.5% 1.6%
Loan
servicing
and other
costs -0.17% -0.10% -0.14% 71.0% 21.7%
----------- ----------- -----------
Total expenses 3.32% 3.54% 3.48% -6.3% -4.7%
Loan origination
fees received -1.57% -0.81% -1.40% 94.3% 12.5%
----------- ----------- -----------
Net cost to
originate 1.75% 2.73% 2.08% -36.1% -16.2%
=========== =========== ===========
The net cost to originate for the December 2005 quarter equaled 1.75% of total loan production, a 16% decrease from the third quarter of 2005. The improvement in the cost ratio resulted from retail loans representing a higher percentage of total originations and lower core operating expenses. As previously stated, the Company believes that in the current market environment, a cost to originate ratio in the 1.40% to 1.50% range is required to produce net profits in its mortgage banking division. The Company intends to achieve this lower cost ratio through a combination of a higher percentage of originations from the retail channel as well as the planned wholesale cost reductions. Loan Portfolio Total loans held for investment as of December 31, 2005 equaled $4.1 billion, compared to $4.2 billion as of September 30, 2005. The Company also had $951.2 million of loans held for sale as of December 31, 2005. At the end of the fourth quarter, the Company's leverage ratio, defined as total loans held for investment divided by total consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. , equaled 15.2 times. This leverage ratio is slightly higher than the previous 12 to 14 times equity range of the Company's targets. As a C Corp, the Company currently expects to maintain a leverage ratio near 15 times its equity base. Loan Production The following table details the Company's loan production for the quarters ended December and September 2005 and December 2004.
(dollars in Quarter Ended Percentage Change
thousands)
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12/31/2005 12/31/2004 9/30/2005 Y-Y Sequential
----------- ----------- ----------- ----- ----------
Retail $811,096 $574,625 $793,851 41.2% 2.2%
Wholesale 1,071,507 1,134,911 1,119,445 -5.6% -4.3%
----------- ----------- -----------
Total loan
production $1,882,603 $1,709,536 $1,913,296 10.1% -1.6%
=========== =========== ===========
Loan production for the fourth quarter of 2005 equaled $1.9 billion, a $30.7 million sequential decrease from the third quarter of 2005 primarily as a result of normal seasonal volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the . Retail loans increased by 2.2% over the September 2005 level and by 41.2% over the December 2004 quarter, while wholesale loans decreased by 4.3% and 5.6% respectively for the same periods. Wholesale production accounted for 56.9% of total production for the fourth quarter of 2005, compared to 58.5% for the third quarter, while retail production accounted for 43.1% for the December 2005 quarter and 41.5% for the September quarter. Credit Quality The allowance for loan losses for the loans held for investment portfolio as of December 31, 2005 equaled $43.4 million, or 1.05% of the gross loans held for investment portfolio. The Company provided $8.9 million for loan losses during the fourth quarter of 2005. Total delinquencies in the loans held for investment portfolio equaled 7.0% at the end of the December 2005 quarter, compared to 4.4% at the end of the September 2005 quarter. While the level of delinquencies in the held for investment portfolio is higher than anticipated, the Company continues to experience loan losses that are better than expectations. The December 2005 quarter was the first quarter in which the REIT portfolio experienced any net charge-offs, with total net losses of $1.4 million, or an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. 0.14% of the average held for investment portfolio. The Company continues to anticipate an increase in the level of delinquencies and credit losses as the loans held for investment portfolio seasons and less new loans are added to the portfolio. The Company continues to evaluate exposure to its production levels and delinquencies as a result of hurricanes Katrina KATRINA Keeping All the Resources in New Orleans Alive KATRINA Krewe Aiding Trash Removal In the New Orleans Area , Rita and Wilma. While no assurances can be given, the Company currently believes that its consolidated financial position and results of operations will not be materially effected by the events. About Aames Investment Corporation Aames is a fifty-year old national mortgage banking company that originating subprime residential mortgage loans in 47 states through wholesale and retail channels under the name "Aames Home Loan." To find out more about Aames, please visit www.aames.com. Information Regarding Forward Looking Statements This press release may contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. under federal securities laws. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties that may cause the Company's performance and results to vary include: (i) limited cash flow to fund operations and dependence on short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. financing facilities; (ii) changes in overall economic conditions and interest rates; (iii) increased delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. rates in the portfolio; (iv) intense competition in the mortgage lending industry; (v) adverse changes in the securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. and whole loan market for mortgage loans; (vi) declines in real estate values; (vii) an inability to originate subprime hybrid/adjustable mortgage loans; (viii) obligations to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. mortgage loans and indemnify To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which investors; (ix) concentration of operations in California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). , Florida, New York Florida is the name of some places in the U.S. state of New York:
relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company, see the Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2005 and other filings with the SEC made by the Company. Aames Investment expressly disclaims any obligation to update or revise any forward-looking statements in this press release. Further Information For more information, contact Steven Ste´ven n. 1. Voice; speech; language. Ye have as merry a steven As any angel hath that is in heaven. - Chaucer. 2. An outcry; a loud call; a clamor. To set steven to make an appointment. C. Canup, Senior Vice President, Corporate Development and Investor Relations Investor relations The process by which the corporation communicates with its investors. , in Aames Investment's Investor Relations Department at (323) 210-5311 or at investorinfo@aamescorp.com Financial tables and supplementary information follows.
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Balance Sheets
(In thousands)
December 31, December 31,
2005 2004
------------- ---------------
(unaudited)
Assets
Cash and cash equivalents:
Unrestricted $36,078 $31,641
Restricted 87,094 6,139
Loans held for sale, at lower of cost or
market 951,177 484,963
Loans held for investment, net 4,085,536 1,725,046
Advances and other receivables 39,591 22,740
Derivative financial instruments, at
estimated fair value 58,147 31,947
Prepaid and other assets 70,012 98,399
------------- ---------------
Total assets $5,327,635 $2,400,875
------------- ---------------
Liabilities and Stockholders' Equity
Financings on loans held for investment $3,623,188 $1,157,470
Revolving warehouse and repurchase
facilities 1,341,683 809,213
Other borrowings 16,487 7,680
Other liabilities 76,773 68,886
------------- ---------------
Total liabilities 5,058,131 2,043,249
Stockholders' equity 269,504 357,626
------------- ---------------
Total liabilities and stockholders'
equity $5,327,635 $2,400,875
------------- ---------------
Shares outstanding 61,828 61,360
------------- ---------------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Twelve Months
Ended Ended
December 31, December 31,
------------------- ------------------
2005 2004 2005 2004
--------- --------- --------- --------
Interest income $110,929 $32,024 $340,515 $93,181
Interest expense 67,266 8,434 170,942 32,396
--------- --------- --------- --------
Net interest income 43,663 23,590 169,573 60,785
Provision for losses on loans
held for investment 8,929 1,900 40,294 1,900
--------- --------- --------- --------
Net interest income after
provision for
loan losses 34,734 21,690 129,279 58,885
--------- --------- --------- --------
Noninterest income:
Gain on sale of loans 348 10,258 30,277 177,607
Loan servicing 2,206 731 6,330 6,634
--------- --------- --------- --------
Total noninterest income 2,554 10,989 36,607 184,241
--------- --------- --------- --------
Net interest income after
provision for loan losses
and noninterest income 37,288 32,679 165,886 243,126
--------- --------- --------- --------
Noninterest expense:
Personnel 24,107 40,064 91,217 120,608
Production 8,716 8,605 35,351 36,504
General and administrative 8,567 15,476 44,707 49,162
--------- --------- --------- --------
Total noninterest expense 41,390 64,145 171,275 206,274
--------- --------- --------- --------
Income (loss) before income
taxes (4,102) (31,466) (5,389) 36,852
Income tax provision (benefit) 73 37 842 (4,933)
--------- --------- --------- --------
Net income (loss) $(4,175) $(31,503) $(6,231) $41,785
--------- --------- --------- --------
Net income (loss) to common
stockholders:
Basic $(4,175) $(32,595) $(6,231) $32,085
Diluted $(4,175) $(31,503) $(6,231) $41,785
Net income (loss) per common
share:
Basic $(0.07) $(0.53) $(0.10) $0.52
Diluted $(0.07) $(0.51) $(0.10) $0.68
Weighted average number of
common shares outstanding:
Basic 62,512 61,335 62,517 61,316
Diluted 62,512 61,335 62,517 61,348
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Other Financial Data
(Unaudited)
(In thousands)
Twelve Months Ended
December 31,
---------------------------------
2005 2004
-------------- -----------------
Condensed Statement of Cash Flows
Information
Net cash provided by (used in):
Operating activities $(450,756) $255,422
Investing activities (2,406,124) (1,730,704)
Financing activities 2,942,272 1,501,451
-------------- -----------------
Net increase (decrease) in cash and
cash equivalents 85,392 26,169
Cash and cash equivalents, beginning
of period 37,780 11,611
-------------- -----------------
Cash and cash equivalents, end of
period $123,172 $37,780
-------------- -----------------
December 31, December 31,
2005 2004
-------------- -----------------
Revolving Warehouse and Repurchase
Facilities
Committed facilities $2,700,000 $2,450,000
Uncommitted facilities 100,000 100,000
-------------- -----------------
Total warehouse and repurchase
facilities $2,800,000 $2,550,000
-------------- -----------------
Amount utilized on committed $1,341,683 $809,213
-------------- -----------------
Borrowing capacity on committed $1,358,317 $1,640,787
-------------- -----------------
Liquidity
Unrestricted cash $36,078 $31,641
Plus: Unencumbered loans held for
sale 87,597 87,955
Less: Margin and ineligible mortgage
collateral (80,962) (22,153)
Plus: Capacity available under S/T
collateralized financing facility 9,154 -
-------------- -----------------
$51,867 $97,443
-------------- -----------------
AAMES INVESTMENT CORPORATION
(Parent Company Only)
(Unaudited)
(In thousands)
December 31,
----------------------------
Condensed Balance Sheets(1) 2005 2004
---------------------------- ----------------------------
Cash and cash equivalents:
Unrestricted $13,042 $7,206
Restricted 87,094 6,139
Loans held for investment, net:
Securitized 3,659,657 1,187,435
Not yet securitized 461,452 531,261
Net deferred loan origination costs 7,787 8,250
Deferred loan acquisition premium 41,131 29,226
Allowance for loan losses (43,359) (1,900)
------------ --------------
Total loans held for investment, net 4,126,668 1,754,272
------------ --------------
Investment in subsidiaries 78,697 149,028
Accrued interest and other 57,480 24,208
Derivative financial instruments 58,147 31,947
------------ --------------
Total assets $4,421,128 $1,972,800
============ ==============
Financings on loans held for investment $3,623,188 $1,157,470
Revolving warehouse and repurchase
facilities 433,241 409,199
Other borrowings 16,487 -
Other liabilities 37,577 19,279
------------ --------------
Total liabilities 4,110,493 1,585,948
Stockholders' equity 310,635 386,852
------------ --------------
Total liabilities and stockholders'
equity $4,421,128 $1,972,800
============ ==============
(1) Before intercompany elimination entries.
Three Months Twelve Months
Ended Ended
December 31, December 31,
Condensed Statements of Operations 2005 2005
---------------------------------- ------------- --------------
Net interest income $24,491 $113,270
Provision for losses on loans held for
investment (8,929) (40,294)
------------ --------------
Net interest income after provision
for loan losses 15,562 72,976
Noninterest expense (1,302) (8,784)
------------ --------------
Income before equity in net loss of
subsidiary 14,260 64,192
Equity in net loss of subsidiary (25,266) (58,518)
------------ --------------
Net income $(11,006) $5,674
============ ==============
GAAP Net Income to Taxable Income Reconciliation
------------------------------------------------
Net income $(11,006) $5,674
Equity in net loss of subsidiary 25,266 58,518
------------ --------------
Income before equity in net loss of
subsidiary 14,260 64,192
Tax basis adjustments 11,018 20,833
------------ --------------
Estimated taxable income $25,278 $85,025
============ ==============
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
Three Months Ended
-----------------------------------
December 31, September 30,
2005 2004 2005
----------- --------- -------------
Retail Loan Production
Total dollar amount
(in thousands) $811,096 $574,625 $793,851
Number of loans 5,269 4,431 5,194
Average loan amount $153,937 $129,683 $152,840
Average initial LTV 75.05% 75.82% 75.51%
Weighted average interest rate 7.56% 7.36% 7.27%
Wholesale Loan Production
Total dollar amount
(in thousands) $1,071,507 $1,134,911 $1,119,445
Number of loans 7,356 7,841 7,809
Average loan amount $145,664 $144,741 $143,353
Average initial LTV 81.90% 81.19% 81.80%
Weighted average interest rate 8.00% 7.46% 7.51%
Total Loan Production
Total dollar amount
(in thousands) $1,882,603 $1,709,536 $1,913,296
Number of loans 12,625 12,272 13,003
Average loan amount $149,117 $139,304 $147,143
Average initial LTV 78.95% 79.38% 79.19%
Weighted average interest rate 7.81% 7.43% 7.41%
Twelve Months Ended
-----------------------
December 31,
2005 2004
----------- -----------
Retail Loan Production
Total dollar amount
(in thousands) $2,746,321 $2,421,525
Number of loans 18,496 19,088
Average loan amount $148,482 $126,861
Average initial LTV 75.63% 76.77%
Weighted average interest rate 7.42% 7.38%
Wholesale Loan Production
Total dollar amount
(in thousands) $4,008,207 $4,998,120
Number of loans 28,023 34,140
Average loan amount $143,033 $146,401
Average initial LTV 81.37% 81.42%
Weighted average interest rate 7.70% 7.37%
Total Loan Production
Total dollar amount
(in thousands) $6,754,528 $7,419,645
Number of loans 46,519 53,228
Average loan amount $145,199 $139,394
Average initial LTV 79.03% 79.90%
Weighted average interest rate 7.59% 7.37%
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
(In thousands)
Three Months Ended
-----------------------------------
December 31, September 30,
2005 2004 2005
----------- -------- -------------
Loan Production by Loan Purpose
Cash-out refinance $1,106,317 $1,019,194 $1,100,577
Purchase money 710,890 636,721 742,363
Rate/term refinance 65,396 53,621 70,356
----------- ----------- -----------
$1,882,603 $1,709,536 $1,913,296
----------- ----------- -----------
Loan Production by Property Type
Single-family $1,638,562 $1,510,413 $1,649,844
Multi-family 136,022 111,322 149,188
Condominiums 108,019 87,801 114,264
----------- ----------- -----------
$1,882,603 $1,709,536 $1,913,296
----------- ----------- -----------
Loan Production by State/Region Produced
California $389,707 $523,701 $390,278
Florida 459,669 345,653 493,682
New York 157,288 103,796 147,913
Texas 141,395 129,579 146,327
Other Western states 164,982 184,520 161,850
Other Midwestern states 116,635 140,751 100,603
Other Northeastern states 275,863 161,677 291,243
Other Southeastern states 177,064 119,859 181,400
----------- ----------- -----------
$1,882,603 $1,709,536 $1,913,296
----------- ----------- -----------
Loan Production by Interest Rate Type
Hybrid:
Traditional $1,297,802 $1,252,757 $1,172,707
Interest only 167,197 91,203 257,551
Fixed rate 417,604 365,576 483,038
----------- ----------- -----------
$1,882,603 $1,709,536 $1,913,296
----------- ----------- -----------
Twelve Months Ended
-----------------------
December 31,
2005 2004
----------- -----------
Loan Production by Loan Purpose
Cash-out refinance $3,906,641 $4,423,226
Purchase money 2,618,182 2,674,084
Rate/term refinance 229,705 322,335
----------- -----------
$6,754,528 $7,419,645
----------- -----------
Loan Production by Property Type
Single-family $5,883,238 $6,498,417
Multi-family 494,107 507,426
Condominiums 377,183 413,802
----------- -----------
$6,754,528 $7,419,645
----------- -----------
Loan Production by State/Region Produced
California $1,592,215 $2,393,732
Florida 1,623,052 1,444,562
New York 493,117 529,251
Texas 535,525 505,165
Other Western states 594,704 749,268
Other Midwestern states 413,789 638,506
Other Northeastern states 890,394 683,193
Other Southeastern states 611,732 475,968
----------- -----------
$6,754,528 $7,419,645
----------- -----------
Loan Production by Interest Rate Type
Hybrid:
Traditional $4,432,645 $5,382,666
Interest only 763,666 274,180
Fixed rate 1,558,217 1,762,799
----------- -----------
$6,754,528 $7,419,645
----------- -----------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
December 31, December 31,
2005 2004
------------- -------------
Servicing Portfolio
Mortgage loans serviced:
Loans held for investment $4,077,448 $1,718,696
Loans serviced on an interim basis 1,926,876 771,830
Loan subserviced for others on a long-term
basis 92,213 129,016
Loans in off-balance sheet securitization
trusts - 224,345
------------- -------------
Total serviced in-house 6,096,537 2,843,887
Loans held for investment subserviced by
others 50,202 -
------------- -------------
Total servicing portfolio $6,146,739 $2,843,887
------------- -------------
Percentage serviced in-house 99.2% 100.0%
------------- -------------
Loan Delinquencies
Percentage of dollar amount of delinquent loans
serviced (period end):
One month 1.9% 0.3%
Two months 0.9% 0.2%
Three or more months:
Not foreclosed 2.5% 1.8%
Foreclosed 0.1% 0.2%
------------- -------------
5.4% 2.5%
------------- -------------
Percentage of dollar amount of delinquent
loans in:
Loans held for investment serviced:
In-house 7.0% 0.2%
Loans serviced on an interim basis 2.0% 1.5%
Loans subserviced for others on a long-term
basis 8.9% 4.8%
Loans in off-balance sheet securitization
trusts serviced:
In-house N/A 22.5%
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
At or During the
Twelve Months Ended
December 31,
-----------------------
2005 2004
----------- -----------
Loan Foreclosures
Percentage of dollar amount of loans foreclosed
during the period to servicing portfolio
(period end) 0.3% 0.3%
Number of loans foreclosed during the period 147 152
Principal amount of loans foreclosed
during the period $16,317 $10,928
Number of loans liquidated during the period 226 397
Net losses on liquidations during the period
from:
Loans held for investment serviced:
In-house $161 $-
Loans serviced on an interim basis 5,494 2,960
Loans serviced for others on a long-term basis 38 -
Loans in off-balance sheet securitization
trusts serviced:
In-house 2,850 12,009
----------- -----------
$8,543 $14,969
----------- -----------
Percentage of annualized losses to
servicing portfolio 0.2% 0.4%
Servicing portfolio at period end $6,147,000 $2,844,000
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