Aames Investment Corporation Reports Second Quarter 2005 Results; REIT Portfolio Climbs to $3.9 Billion; Company Declared $0.34 per Common Share Quarterly Dividend; Company Achieved Targeted Leverage Ratio.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. ), a mortgage real estate investment trust today announced financial results for the second quarter of 2005. Total loans held for investment increased by 35% over the balance at March 31, 2005 to $3.9 billion and mortgage loan production for the June June: see month. quarter totaled $1.6 billion, 17% higher than the first quarter of 2005. The 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. net loss per common share for the quarter equaled $0.37. During the quarter, the Company recorded a 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 $11.5 million, and non-core charges of $3.7 million, equal to a combined pretax loss pretax loss A loss reported before tax benefits are considered. per common share of $0.25. Excluding these charges, core diluted net loss per common share equaled $0.12. Second Quarter 2005 Highlights --Loans held for investment in the REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). portfolio as of June 30, 2005 equaled $3.9 billion, a 35% increase over the balance as of March 31, 2005; --Total loan originations The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. were $1.6 billion, 17% greater than during the first quarter of 2005; --Company declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. a $0.34 per common share dividend for the quarter; --Net cost to originate o·rig·i·nate v. 1. To bring into being; create. 2. To come into being; start. decreased by 20% to 2.33% and --Company achieved its targeted leverage ratio of 12 times equity. Mr. A. Jay Meyerson Meyerson can refer to:
execute - execution our growth strategy as 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 on a number of fronts. Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , we built our REIT portfolio to $3.9 billion with quality mortgages that met our credit and return criteria criteria (krītēr´ē  ),n. , which positions us to provide our shareholders a stable dividend from our REIT. Now that we have reached our targeted leverage ratio, we intend to sell the majority of our production in the whole loan market, which should generate consistent net income at our TRS See traffic engineering methods. TRS - term rewriting system ." Meyerson continued, "We were pleased to report an increase in our originations for the quarter by 17% over the first quarter of the year, while maintaining a disciplined credit profile. We also made progress on our efficiency initiatives and reduced our cost to originate to 2.33%, 20% lower than the first quarter of the year. We generated higher loan production with a net reduction in the dollar level of core expenses compared to the first quarter. Finally, our retail channel accounted for the majority of the core production growth in the quarter, and generated substantial fee income, which contributed to the lower net cost to originate." Financial Summary As the Company continued to build its portfolio of loans held for investment, it retained the majority of its loan production for the quarter. As a result, gain on sale of loans and total revenue decline compared to the year ago quarter, while net interest income increased. These were the primary factors that contributed to a net loss of $22.6 million, or $0.37 per diluted share. Included in the net loss for the second quarter of 2005 were a mark-to-market derivative loss under FASB 133 of $11.5 million, a $3.0 million charge for a mediated me·di·ate v. me·di·at·ed, me·di·at·ing, me·di·ates v.tr. 1. To resolve or settle (differences) by working with all the conflicting parties: legal settlement and a $0.7 million charge for occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal related to the closure of certain branch locations, all of which totaled $15.2 million, or $0.25 per diluted share. Excluding these charges, core net loss equaled $7.4 million, or $0.12 per diluted share. The core net loss for the March 2005 quarter, which excluded a mark-to-market derivative gain of $9.0 million, was $10.3 million or $0.17 per common share. 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 loss and core diluted loss per common share, which are non-GAAP financial metrics. Core earnings exclude the mark-to-market derivative gain or loss under FASB 133. 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 gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and 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, even though the cash flows the derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. are economically ec·o·nom·i·cal adj. 1. Prudent and thrifty in management; not wasteful or extravagant. See Synonyms at sparing. 2. Intended to save money, as by efficient operation or elimination of unnecessary features; economic: hedging will not be received until sometime in the future. By excluding the impact of the mark-to-market gain or loss from net loss, management believes that core net interest income and core net loss can provide a useful measure of the Company's operating performance. Revenue
Quarter Ended Percentage Change
-------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Net interest income
after loan
loss provision (1) $16,632 $11,985 $35,236 38.8% -52.8%
Non interest income 6,030 64,789 6,723 -90.7% -10.3%
---------- ---------- ----------
Total revenue 22,662 76,774 41,959 -70.5% -46.0%
Mark-to-maket nm
loss (gain) 11,495 - (9,532) -220.6%
---------- ---------- ----------
Total core revenue $34,157 $76,774 $32,427 -55.5% 5.3%
========== ========== ==========
(1) NII for all periods includes the FAS 133 mark-to-market gain or
loss on derivatives.
The following chart details the components of revenue for the quarters ended June and March 2005 and June 2004. Total core revenue (which includes net interest income after provision for loan losses and 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. and before the impact of mark-to-market loss or gain on derivatives) for the June 2005 quarter increased by $1.7 million, or 5.3% from the first quarter of 2005 due to higher core net interest income earned from the higher balance in the Company's REIT portfolio. Core revenue for the June 2005 quarter decreased by $42.6 million from the year ago quarter, due primarily to a $58.8 million decrease in noninterest income, primarily from gain on sale of loans, partially offset by $16.1 million increase in core net interest income after provision. The decrease in core revenue from the year ago quarter reflects the Company's continued transition from a mortgage banking model to a hybrid hybrid (hī`brĭd), term applied by plant and animal breeders to the offspring of a cross between two different subspecies or species, and by geneticists to the offspring of parents differing in any genetic characteristic (see genetics). REIT model, wherein where·in adv. In what way; how: Wherein have we sinned? conj. 1. In which location; where: the country wherein those people live. 2. Aames achieves a higher percentage of revenue and earnings from portfolio generated interest income, and to a lesser extent from gain on sale revenue from its Taxable REIT Subsidiary. The Company believes that this combination of earnings will provide both a stable source of dividends to shareholders along with mortgage banking income to support future portfolio growth or enhance the dividend from the REIT. Net Interest Income The following chart details the components of net interest income before the provision for loan losses for the quarters ended June and March 2005 and June 2004.
Quarter Ended Percentage Change
-------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Interest income $66,535 $19,204 $49,671 246.5% 34.0%
Amortization of net
deferred loan
origination costs (1,142) - (673) nm 69.7%
Prepayment fees 4,856 - 1,884 nm 157.7%
Other interest nm
income 4,694 66 2,750 70.7%
---------- ---------- ----------
Total Interest
Income $74,943 $19,270 $53,632 288.9% 39.7%
Interest expense $32,326 $5,889 $19,992 448.9% 61.7%
Mark-to-market nm
(gain) loss 11,495 - (9,532) -220.6%
Amortization of
financing costs 2,087 1,272 1,195 64.1% 74.6%
Other 538 124 261 333.9% 106.1%
---------- ---------- ----------
Total interest
expense $46,446 $7,285 $11,916 537.6% 289.8%
Net interest income $28,497 $11,985 $41,716 137.8% -31.7%
Core net interest
income $39,992 $11,985 $32,184 233.7% 24.3%
Net interest income for the second quarter of 2005 totaled $28.5 million. Excluding the $11.5 million mark-to-market charge to the fair value of derivative instruments, core net interest income was $40.0 million. The $7.9 million increase in the core net interest income for the June 2005 quarter compared to the March 2005 quarter, resulted from the continued growth in the Company's portfolio of loans held for investment, offset by a higher funding cost on loans added to the portfolio during the June 2005 quarter. The significant increase in net interest income for the second quarter 2005 compared to the prior year period reflects the Company's transition from holding loans for sale to a loan portfolio driven model. Management anticipates completing additional securitizations of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.2 billion during the third quarter of 2005. Following these securitizations, the Company expects to utilize a smaller portion of its loan production to maintain the balance of loans held for investment and core net interest income levels, while selling the majority of its loan production in the whole loan market. During the June 2005 quarter, the net interest margin for the REIT portfolio, which excludes net interest income on loans held for sale, interest earned on temporary investments and the FASB 133 mark to market adjustment was 2.61%, compared to 3.28% during the March 2005 quarter. The decrease in the net interest margin resulted from increased funding costs on the loans added to the portfolio during the June 2005 quarter, as well as higher amortization of deferred loan acquisition premium, and net deferred loan origination costs due to a higher than anticipated rate of loan repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan in the REIT loan portfolio, and to a slight decrease in the gross yield on loans held for investment portfolio. A summary of the Company's yield on loans held for investment and funding costs for such loans during the quarters ended June and March 2005 are presented below.
Quarter Ended
---------------------
6/30/2005 3/31/2005
---------- ----------
Gross yield on LHFI 7.16% 7.26%
Prepayment fees 0.59% 0.33%
Amortization of premiums -0.64% -0.34%
Amortization of deferred loan fees
and costs -0.14% -0.12%
---------- ----------
Net yield on LHFI 6.97% 7.13%
Net cost of funding for LHFI 3.88% 3.42%
---------- ----------
Net interest margin 3.09% 3.71%
Servicing costs -0.48% -0.43%
---------- ----------
REIT Net Interest Margin 2.61% 3.28%
========== ==========
Noninterest income
Quarter Ended Percentage Change
-------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest income
Gain on sale of
loans $4,666 $63,292 $5,683 -92.6% -17.9%
Loan servicing
revenue 1,364 1,497 1,040 -8.9% 31.2%
---------- ---------- ----------
Total noninterest
income $6,030 $64,789 $6,723 -90.7% -10.3%
========== ========== ==========
The following chart details the components of noninterest income for the quarters ended June and March 2005 and June 2004. Total non interest income for the June 2005 quarter of $6.0 million decreased by $58.8 million from the prior year period due to a lower gain on sale of loans. As part of its previously stated strategy of building its portfolio of loans held for investment, the Company has retained in portfolio substantially all of its higher value hybrid ARM loan production, which accounted for a large majority of its loan production, and sold its lower value fixed rate and 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. , which comprised a smaller percentage of loan production. During the second quarter of 2005, the Company sold approximately $410.7 million of loans into the whole loan market, or 25.7% of total originations, compared to $1.8 billion, or 90% of originations in the June 2004 quarter. Non interest income for the second quarter of 2005 decreased by 10.3% compared to the first quarter of the year, due to a lower net gain on sale of loans. The components of gain on sale of loans for the first two quarters of 2005 and the second quarter of 2004 are detailed in the following chart.
Quarter Ended Percentage Change
-------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Gain on sale of
loans $7,060 $63,770 $4,583 -88.9% 54.0%
Loan originations
fees and costs,
net 2,617 7,937 2,097 -67.0% 24.8%
Provision for
representation,
warranty and
other losses (4,016) (8,129) (785) -50.6% 411.6%
Miscellaneous costs (995) (286) (212) 247.9% 369.3%
---------- ---------- ----------
Net gain on sale of
loans $4,666 $63,292 $5,683 -92.6% -17.9%
========== ========== ==========
The decrease in the net gain on sale ratio during the June 2005 quarter from the March 2005 quarter resulted primarily from a higher provision for estimated 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 on loans held for sale and recent loan sales. The Company recorded a provision of approximately $2.0 million for future representation 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. on loans previously sold. In addition, the Company recorded a provision of approximately $2.0 million for loans held for sale with collateral collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although or other deficiencies, including nonperforming loans received in the June 2005 pool call. Excluding the provision for the called loans, the net gain on sale ratio for the June 2005 was approximately 1.62%. Servicing revenue for the first two quarters of 2005 and the second quarter of 2004 was relatively flat. Servicing income consists primarily of prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. fees on loans in off-balance sheet 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. trusts, late charges and other fees the Company retained and servicing fees earned on securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. pools, reduced by sub-servicing costs related to servicing advance arrangements. Management anticipates that servicing income will continue to decrease due to the elimination in loans serviced in off-balance sheet securitizations due to the June 15, 2005 call. Noninterest Expense The following chart details the components of noninterest expense for the quarters ended June and March 2005 and June 2004.
Quarter Ended Percentage Change
-------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest
expense:
Personnel $20,980 $32,600 $22,347 -35.6% -6.1%
Production 8,577 9,005 8,800 -4.8% -2.5%
General and
administrative 15,015 10,793 10,813 39.1% 38.9%
---------- ---------- ----------
Total
noninterest
expense $44,572 $52,398 $41,960 -14.9% 6.2%
Legal settlement
costs (3,000) - -
Office closure
costs (700) - -
---------- ---------- ----------
Core noninterest
expense $40,872 $52,398 $41,960 -22.0% -2.6%
========== ========== ==========
The $7.8 million decrease in total noninterest expense for the June 2005 quarter from the prior year period resulted primarily from the decrease in loan production between the periods, as well as lower expenses due to the Company's cost reduction initiatives. During the second quarter of 2005, the Company charged income for $3.7 million, comprised of a $3.0 million charge for a mediated legal settlement on a previously disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). case related to over-time payment practices, as well as a $0.7 million charge for the costs incurred in the closure of certain production locations. Excluding these charges, total noninterest expenses during the June 2005 quarter decreased by $11.5 million compared to the year ago quarter. The decrease in core expenses resulted from both the lower level of loan production in the 2005 quarter, as well as reduced head count and other expense reduction initiatives. Core noninterest expense during the June 2005 quarter decreased by $1.1 million, or 2.6%, from the first March 2005 quarter, due to lower compensation expenses from a headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. reduction, offset by higher commissions from increased production. Net Cost to Originate The net cost to originate loans, a non GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (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 Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , 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 net cost to originate improved during the June 2005 quarter compared to the March 2005, due to the higher level of loan production, the higher percentage of production from the retail operations and from the Company's cost reduction initiatives. The chart below details the components of the net cost to originate loans for the first two quarter of 2005 and for the second quarter of 2004.
Quarter Ended Percentage Change
----------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Total operating
expense $44,572 $52,398 $41,960 -14.9% 6.2%
Non core items (3,700) - - nm nm
Deferred
origination
costs 19,434 12,764 16,620 52.3% 16.9%
Loan servicing
and other costs (2,274) (2,521) (3,209) -9.8% -29.1%
----------- ----------- -----------
Total G&A
Expenses 58,032 62,641 55,371 -7.4% 4.8%
Fees recieved on
originations (20,901) (16,721) (15,594) 25.0% 34.0%
Total Cost to
Originate $37,131 $45,920 $39,777 -19.1% -6.7%
Total
Originations $1,597,014 $1,965,869 $1,361,616 -18.8% 17.3%
Cost Ratios:
Core
operating
expenses 2.56% 2.67% 3.08% -4.0% -17.0%
Deferred
origination
costs 1.22% 0.65% 1.22% 87.4% -0.3%
Loan
servicing
and other
costs -0.14% -0.13% -0.24% 11.0% -39.6%
----------- ----------- -----------
Total G&A
Expenses 3.63% 3.19% 4.07% 14.0% -10.6%
Fees recieved on
originations -1.31% -0.85% -1.15% 53.9% 14.3%
Net Cost to
Originate 2.33% 2.34% 2.92% -0.5% -20.4%
The net cost to originate ratio for the June 2005 quarter improved by 20% compared to the March 2005 quarter due to the higher loan production volume in the June quarter, as well as restrained expense growth and the higher net fees earned on production due to a higher percentage of retail loans in the total production volume. The Company believes that the non GAAP measurement of the net cost to originate is indicative indicative: see mood. of its ability to generate profit from the sale of its loan production and a measurement of the overall efficiency from its operations. The decrease in the net cost to originate from the second quarter of 2004 to the second quarter of 2005 resulted primarily from retail originations accounting for a higher percentage of total originations, generating higher fees received on loan production. Management has undertaken a cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. program designed to lower the net cost to produce and maximize In a graphical environment, to enlarge a window to the full size of the screen. See Win Maximize windows. the net gain on sale of loans achieved when the Company begins to sell the majority of its production in the second half of the year. Loan Portfolio During the quarter ended June 2005, the Company securitized approximately $1.1 billion of mortgage loans. Total loans held for investment as of June 30, 2005 increased to $3.9 billion, compared to $2.9 billion and $1.7 billion as of March 2005 and December December: see month. 31, 2004, respectively. Loans held for investment at June 30, 2005 included $686.5 million of loans held for investment but not yet securitized. At June 30, 2005, 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 12.3 times, which was within management's leverage ratio target. Management anticipates that future REIT portfolio growth may be financed primarily from retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. generated through the TRS mortgage banking activities and that the Company will maintain its leverage ratio within the targeted levels. During the June 2005 quarter, the Company experienced prepayment speeds Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. on its loans held for investment higher than in previous quarters, offsetting the impact of the growth from the second quarter loan production volume. Total principal payments, including scheduled principal payments and prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. , were approximately 37% of the principal balance of loans held for investment at the beginning of the quarter. Consistent with the Company's strategy of building and maintaining a portfolio of loans held for investment, the higher than anticipated rate of loan repayment has required the use of a higher portion of the Company's loan production to build and maintain its REIT loan portfolio, resulting in a lower balance of loans available for sale into the whole loan markets. In addition, the higher level of loan repayments accelerated the amortization of deferred loan acquisition costs and net deferred loan origination costs at the REIT, reducing the level of taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. generated by the REIT. Loan Production
Quarter Ended Percentage Change
----------------------------------- -----------------
6/30/2005 6/30/2004 3/31/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Retail $624,816 $645,294 $516,558 -3.2% 21.0%
Wholesale 920,506 1,320,578 845,058 -30.3% 8.9%
Purchased loans 51,692 - - nm nm
----------- ----------- -----------
Total Loan
Production $1,597,014 $1,965,872 $1,361,616 -18.8% 17.3%
=========== =========== ===========
The following chart details the Company's loan originations for the quarters ended June and March 2005 and June 2004. Total loan production equaled $1.6 billion in the June 2005 quarter, compared to $2.0 billion during the year ago period and $1.4 billion in the first quarter of 2005. The 17.3% increase in total loan originations during the second quarter of 2005 over the first quarter of 2005, resulted from a number of initiatives undertaken by management. As previously reported, early in the first quarter of 2005, the Company focused on the value of its production and maintained loan pricing in the face of keen competitive pressure, which negatively impacted the level of loan production. During the June 2005 quarter the general level of pricing in the sub-prime mortgage sector improved as many of the Company's competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. adjusted their rates to levels at or near those charged by the Company. The Company also made selected price reductions to certain loan products and introduced the new 40/30 loan, both of which enhanced loan production volume. The decrease in production levels during the second quarter of 2005 compared to the year ago quarter resulted from the Company's continued caution in originating interest-only loans Interest-only loan A loan in which payment of principal is deferred and interest payments are the only current obligation. , which have become a larger percentage of the overall subprime mortgage market's production, as well as the negative impact which higher interest rates have had on overall mortgage production activities. As in previous quarters, the Company limited interest-only loans to higher credit categories of borrowers, and maintained rate premiums on all interest-only loan products. Management believes that these loans represent a higher risk profile than its traditional hybrid, fully amortizing mortgages and that the higher pricing is required to compensate for these additional risks. Many of the Company's peers price interest-only loans at lower premiums than the Company and as a result attract a greater volume of these loans. During the second quarter of 2005 the Company purchased a $51.7 million pool of fixed rate single family loans from a 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). based community bank. The pool has an average loan balance of $623,000, FICO scores FICO Score A standard credit score which makes up a substantial portion of a credit report that credit bureaus sell to lenders so they can asses an applicant's credit risk and whether to extend them credit. in the low to mid 700 range and an average loan to value ratio of 53%. Due to their credit characteristics and fixed rate terms, management believes these loans provide an efficient means of adding an attractive risk-based yield, extend the duration of the Company's portfolio and adds diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. to the seasoned, higher 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 , higher LTV LTV See: Loan-to-value ratio , and lower FICO FICO See: Financing corporation collateral added to the REIT portfolio from the June 15, 2005 securitized pool call. During the quarter ended June 30, 2005, wholesale and retail production accounted for 57.7% and 39.1% of production, respectively, while purchased loans accounted for 3.2%. In the first quarter of 2005, wholesale and retail production accounted for 62.1% and 37.9% of production, respectively, with no purchased loans in the quarter. Management continues to believe that a branch based retail franchise adds value to the Company in providing direct access to consumers, which generally results in higher overall value of loans production. The benefits of growing the retail originations was demonstrated in the lower net cost to produce achieved in the second quarter of 2005, which was the result of the higher points and fees generated through the retail system. Credit Quality At June 30, 2005, the allowance for loan losses for the held for investment portfolio equaled $20.3 million, or 0.52% of gross loans held for investment. Delinquent delinquent 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent. DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty. loans as a percentage of total loans held for investment were 1.9% at June 30, 2005. Delinquencies in the Company's three recent securitizations continue to be below estimated levels and below the Company's historic trends. During the June 2005 quarter the Company provided $11.9 million for credit losses, compared to $6.5 for the first quarter of the year. The Company did not experience any loan charge-offs in its held for investment portfolio during the June 2005 quarter, due to the early seasoning of its portfolio. Management expects that as the Company's loans held for investment portfolio seasons, the level of loan delinquencies and charge-offs will increase. Contact 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 info@aamescorp.com via email. Additional information may also be obtained by visiting www.aames.com, Aames Investment's website. 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 our performance and results to vary include: (i) changes in overall economic conditions and interest rates; (ii) an inability to originate subprime hybrid/adjustable mortgage loans; (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 our portfolio; (iv) adverse changes in the securitization and whole loan market for mortgage loans; (v) declines in real estate values; (vi) 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; (vii) concentration of operations in California, 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, 2004 and other filings with the SEC made by the company pursuant to the Securities Exchange Act of 1934. Aames Investment expressly disclaims any obligation to update or revise any forward-looking statements in this press release.
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed financial statements
(In thousands)
CONDENSED BALANCE SHEETS
--------------------------
June 30, December 31,
2005 2004
------------ -------------
(unaudited)
Cash and cash equivalents:
Unrestricted $63,697 $31,641
Restricted 59,455 6,139
Loans held for sale, at lower of cost or
market 380,491 484,963
Loans held for investment, net 3,873,873 1,725,046
Advances and other receivables 23,802 22,740
Residual interests, at estimated fair value - 39,082
Derivative instruments, at estimated fair
value 49,183 31,947
Prepaid and other assets 66,659 59,317
------------ -------------
Total assets $4,517,160 $2,400,875
------------ -------------
Financings on loans held for investment $3,162,354 $1,157,470
Revolving warehouse and repurchase
facilities 967,798 809,213
Other borrowings - 7,680
Other liabilities 71,118 68,886
------------ -------------
4,201,270 2,043,249
Stockholders' equity 315,890 357,626
------------ -------------
Total liabilities and stockholders'
equity $4,517,160 $2,400,875
------------ -------------
Shares outstanding at December 31, 2004 61,645 61,360
------------ -------------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed financial statements
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2005 2004 2005 2004
----------- -------- ----------- --------
(Unaudited) (Unaudited)
Interest income $74,943 $19,270 $128,595 $36,947
Interest expense 46,446 7,285 58,362 13,863
----------- -------- ----------- --------
Net interest income 28,497 11,985 70,233 23,084
Provision for losses on
loans held for investment 11,865 - 18,365 -
----------- -------- ----------- --------
Net interest income
after provision for
losses 16,632 11,985 51,868 23,084
Noninterest income:
Gain on sale of loans 4,666 63,292 10,349 117,891
Loan servicing 1,364 1,497 2,404 3,651
----------- -------- ----------- --------
Total noninterest income 6,030 64,789 12,753 121,542
----------- -------- ----------- --------
Net interest income and
noninterest income 22,662 76,774 64,621 144,626
Noninterest expense:
Personnel 20,980 32,600 43,327 57,948
Production 8,577 9,005 17,377 19,339
General and administrative 15,015 10,793 25,828 22,167
----------- -------- ----------- --------
Total noninterest
expense 44,572 52,398 86,532 99,454
----------- -------- ----------- --------
Income (loss) before income
taxes (21,910) 24,376 (21,911) 45,172
Provision (benefit) for
income taxes 665 395 1,430 302
----------- -------- ----------- --------
Net income (loss) $(22,575) $23,981 $(23,341) $44,870
----------- -------- ----------- --------
Net income (loss) to common
stockholders:
Basic $(22,575) $21,112 $(23,341) $39,132
----------- -------- ----------- --------
Diluted $(22,575) $24,503 $(23,341) $45,915
----------- -------- ----------- --------
Net income (loss) per common
share:
Basic $(0.37) $2.94 $(0.38) $5.48
----------- -------- ----------- --------
Diluted $(0.37) $0.24 $(0.38) $0.48
----------- -------- ----------- --------
Dividends per common share -
declared $0.27 $- $0.27 $-
----------- -------- ----------- --------
Weighted average number of
common shares outstanding:
Basic 61,535 7,170 61,478 7,145
----------- -------- ----------- --------
Diluted 61,535 104,071 61,478 96,375
----------- -------- ----------- --------
AAMES Investment Corporation June 30,
(Parent Company) 2004
-----------
Condensed Balance Sheet (Unaudited)
Cash and cash equivalents
Unrestricted $49,200
Restricted 59,455
Loans held for investment - Securitized 3,195,144
Loans held for investment - Not Yet Securitized 686,493
Deferred loan origination fees and costs, net 12,501
Deferred acquisition premium 45,025
Allowance for credit losses (20,265)
-----------
Loans held for investment, net 3,918,898
-----------
Investment in subsidiaries 116,092
Accrued interest and other 43,473
Derivatives 49,183
-----------
$4,236,301
-----------
Financings on loans held for investment $3,162,354
Revolving warehouse and repurchase facilities 684,218
Other liabilities 28,814
-----------
3,875,386
-----------
Stockholders' equity 360,915
-----------
$4,236,301
-----------
AAMES Investment Corporation
(Parent Company Only) Three Six
Months Months
Condensed Statements of Operations Ended Ended
(in thousands) June 30, June 30,
2005 2005
----------- --------
(Unaudited)
Net interest income $15,493 $47,956
Provision for credit losses (11,865) (18,365)
----------- --------
Net interest income after provision for loan
losses 3,628 29,591
Noninterest expense (2,164) (4,199)
----------- --------
Income before undistributed net loss of
subsidiary 1,464 25,392
Equity in undistributed net loss of subsidiary (10,563) (32,935)
----------- --------
Net loss $(9,099) $(7,543)
----------- --------
GAAP net loss to taxable income reconciliation:
Net loss $(9,099) $(7,543)
Add: Equity in undistributed net loss of
subsidiary 10,563 32,935
----------- --------
1,464 25,392
Add (subtract) GAAP to tax items:
Provision for credit losses 11,865 18,365
Derivative mark to market 6,460 (6,927)
----------- --------
Estimated taxable income $19,789 $36,830
----------- --------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
Three Months Ended Six Months Ended
----------------------------------- ----------------------
June 30, March 31, June 30,
2005 2004 2005 2005 2004
----------- ----------- ----------- ----------- ----------
(Unaudited) (Unaudited)
RETAIL
PRODUCTION
Total
dollar
amount (in
thousands) $624,816 $645,291 $516,558 $1,141,374 $1,231,818
Number of
loans 4,315 5,087 3,718 8,033 9,764
Average
loan
amount $144,801 $126,651 $138,934 $142,086 $126,159
Average
initial
LTV 76.33% 76.92% 75.88% 76.12% 77.36%
Weighted
average
interest
rate 7.37% 7.30% 7.53% 7.44% 7.28%
WHOLESALE
PRODUCTION
Total
dollar
amount (in
thousands) $920,506 $1,320,578 $845,058 $1,765,564 $2,600,279
Number of
loans 6,747 8,947 6,028 12,775 17,577
Average
loan
amount $136,432 $147,600 $140,189 $138,205 $147,936
Average
initial
LTV 81.90% 81.62% 81.25% 81.59% 81.65%
Weighted
average
interest
rate 7.78% 7.30% 7.60% 7.69% 7.24%
PURCHASED
LOANS
Total
dollar
amount (in
thousands) $51,692 $- $- $51,692 $-
Number of
loans 83 - - 83 -
Average
loan
amount $622,800 $- $- $622,800 $-
Average
initial
LTV 53.29% - % - % 53.29% - %
Weighted
average
interest
rate 5.57% - % - % 5.57% - %
TOTAL
PRODUCTION
Total
dollar
amount (in
thousands) $1,597,014 $1,965,869 $1,361,616 $2,958,630 $3,832,097
Number of
loans 11,145 14,034 9,746 20,891 27,341
Average
loan
amount $143,294 $140,079 $139,710 $141,622 $140,159
Average
initial
LTV 78.79% 80.08% 79.21% 78.98% 80.27%
Weighted
average
interest
rate 7.55% 7.30% 7.57% 7.56% 7.25%
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
(in thousands)
Three Months Ended
-----------------------------------
June 30, March 31,
2005 2004 2005
----------- ----------- -----------
(Unaudited)
Total production by loan purpose:
---------------------------------
Cash-out refinance $900,379 $1,162,572 $799,368
Purchase money 645,301 717,387 519,628
Rate/term refinance 51,334 85,910 42,620
----------- ----------- -----------
Total $1,597,014 $1,965,869 $1,361,616
----------- ----------- -----------
Total production by property type:
----------------------------------
Single family $1,399,906 $1,711,934 $1,194,927
Multi-family 114,499 137,445 94,399
Condominiums 82,609 116,490 72,290
----------- ----------- -----------
Total $1,597,014 $1,965,869 $1,361,616
----------- ----------- -----------
Total production by state / region produced:
--------------------------------------------
California $439,308 $667,690 $372,922
Florida 372,851 369,802 296,851
New York 94,357 142,981 93,558
Texas 136,411 123,530 111,392
Other Western states 128,581 196,614 139,291
Other Midwestern states 101,325 163,293 95,226
Other Northeastern states 177,435 187,215 145,853
Other Southeastern states 146,746 114,744 106,523
----------- ----------- -----------
Total $1,597,014 $1,965,869 $1,361,616
----------- ----------- -----------
Production by interest rate type:
Three Months Ended
-----------------------------------
June 30, June 30, March 31,
2005 2004 2005
----------- ----------- -----------
Hybrid:
Traditional $1,014,616 $1,388,226 $947,520
Interest only 190,111 93,310 148,807
Fixed rate 392,287 484,333 265,289
----------- ----------- -----------
$1,597,014 $1,965,869 $1,361,616
----------- ----------- -----------
Six Months Ended
-----------------------
June 30,
2005 2004
----------- -----------
(Unaudited)
Total production by loan purpose:
---------------------------------
Cash-out refinance $1,699,747 $2,314,465
Purchase money 1,164,929 1,325,596
Rate/term refinance 93,954 192,036
----------- -----------
Total $2,958,630 $3,832,097
----------- -----------
Total production by property type:
----------------------------------
Single family $2,594,833 $3,342,176
Multi-family 208,898 273,656
Condominiums 154,899 216,265
----------- -----------
Total $2,958,630 $3,832,097
----------- -----------
Total production by state / region produced:
--------------------------------------------
California $812,230 $1,284,899
Florida 669,702 733,934
New York 187,915 294,561
Texas 247,803 242,649
Other Western states 267,872 390,047
Other Midwestern states 196,551 331,418
Other Northeastern states 323,288 327,085
Other Southeastern states 253,269 227,504
----------- -----------
Total $2,958,630 $3,832,097
----------- -----------
Production by interest rate type:
Six Months Ended
-----------------------
June 30, June 30,
2005 2004
----------- -----------
Hybrid:
Traditional $1,962,136 $2,784,338
Interest only 338,918 93,310
Fixed rate 657,576 954,449
----------- -----------
$2,958,630 $3,832,097
----------- -----------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
LOAN SERVICING
(Dollars in thousands) June 30, December 31,
2005 2004 2004
------------ ----------- -----------
(Unaudited)
Mortgage loans serviced:
Loans held for investment $3,830,109 $- $1,718,696
Loans serviced on an interim
basis 491,464 1,897,464 771,830
Loan subserviced for others on
a long-term basis 108,672 160,371 129,016
Loans in securitization trusts - 229,308 224,345
------------ ----------- -----------
Serviced in-house 4,430,245 2,287,143 2,843,887
Loans held for investment
subserviced
by others 51,676 - -
Loan in off-balance sheet
securitization trusts
subserviced by others - 53,885 -
Loans serviced by others -
------------ ----------- -----------
Total servicing portfolio $4,481,921 $2,341,028 $2,843,887
------------ ----------- -----------
Percentage serviced in-house 98.8% 97.7% 100.0%
------------ ----------- -----------
At or During the Six
Months Ended
------------------------
June 30, December
31,
---------------
2005 2004 2004
------- ------- --------
(Unaudited)
Percentage of dollar amount of delinquent
loans
serviced (period end):
One month 0.9% 0.3% 0.3%
Two months 0.4% 0.2% 0.2%
Three or more months:
Not foreclosed 1.3% 2.4% 1.8%
Foreclosed 0.1% 0.3% 0.2%
------- ------- --------
Total 2.7% 3.2% 2.5%
------- ------- --------
Percentage of dollar amount of delinquent
loans in:
Loans held for investment serviced:
In-house 1.9% N/A 0.2%
By others 0.0% N/A 0.0%
Loans serviced on an interim basis 7.7% 0.6% 1.5%
Loans subserviced for others on a long-term
basis 6.1% 2.7% 4.8%
Loans in off-balance sheet securitization
trusts serviced:
In-house N/A 13.0% 22.5%
By others N/A 7.7% 0.0%
Percentage of dollar amount of loans
foreclosed during the period to
servicing portfolio 0.1% 0.3% 0.1%
Number of loans foreclosed during the period 83 120 68
Principal amount of foreclosed loans during
the period $6,284 $7,343 $3,585
Number of loans liquidated during the period 151 234 163
Net losses on liquidations during the period
from:
Loans held for investment serviced:
In-house $42 $- $-
By others - - -
Loans serviced on an interim basis 2,646 1,737 1,224
Loans serviced for others on a long-term
basis 19 -
Loans in off-balance sheet ssecuritization
trusts serviced:
In-house 2,850 4,599 5,554
By others - 1,856 -
------- ------- --------
$5,557 $8,192 $6,778
------- ------- --------
Percentage of annualized losses to servicing
portfolio 0.2% 0.7% 0.5%
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