Aames Investment Corporation Reports Third Quarter Core EPS of $0.20; Net Cost to Originate Decreases to 2.08%; Loan Originations Total $1.9 Billion; Company Declared a $0.35 per Share Dividend for the Quarter.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 third quarter of 2005. Core 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. 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 equaled $0.20, while diluted net income per common share for the September September: see month. 2005 quarter equaled $0.34. 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. gain under FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). 133 of $7.1 million and a pretax $1.6 million monoline insurance Definition Monoline insurers (also referred to as "monoline insurance companies" or simply "monolines") leverage their financial strength ratings (credit ratings) to guarantee the timely repayment of bond principal and interest when an issuer defaults. premium reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , representing non-core diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.14. Earnings per share for the third quarter of 2005 resulted from a combination of net interest income generated by the Company's loans held for investment portfolio and net gain realized from the sales of loans into the secondary market by the Company's taxable REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). subsidiary, or TRS See traffic engineering methods. TRS - term rewriting system . Third Quarter 2005 Highlights --Net loans held for investment increased to $4.2 billion; --Gross gain on sale rate of loans was 2.39%; --Net cost to originate o·rig·i·nate v. 1. To bring into being; create. 2. To come into being; start. declined to 2.08%, 10.7% lower than the second quarter of 2005; --Total loan production of $1.9 billion, a 19.8% increase from the second quarter of 2005; --Taxable REIT net interest margin equaled 2.12%. Mr. A. Jay Meyerson Meyerson can refer to:
For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data the strategy we have pursued since converting to a REIT: building a stable dividend stream from our REIT portfolio, balancing loan production growth and value, expanding our retail franchise, and focusing on lowering our cost to originate. During the quarter we found strong demand for our production, and achieved an overall gross gain on sale rate of 2.39% for the quarter, including the sale of our lower value fixed 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. . The continued growth in our retail franchise, combined with corporate cost control initiatives, resulted in a net cost to originate of just above 200 basis points. While recognizing the challenging market environment and the outlook for higher market interest rates, we are committed to maintaining our disciplined operating strategy." Dividend Guidance The Company reaffirmed previous dividend guidance for the fourth quarter of 2005. Based on the characteristics of the current loans held for investment portfolio and management's view of near term loan production, management estimates that the REIT portfolio will generate a dividend per share of $0.34 to $0.36 for the fourth quarter of 2005. 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 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. 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 third quarter of 2005 and both the second quarter of 2005 and the third 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. Financial Summary The Company achieved its targeted REIT portfolio leverage ratio during the third quarter and as a result, began to sell a larger percentage of its production into the secondary markets compared to the past two quarters. This shift to higher loans sales, which management anticipates continuing in the fourth quarter, generated higher net gain on sale of loans for the third quarter compared to the first two quarters of 2005. Combined with a lower net cost to originate and net interest income, the higher total revenue resulted in core net income for the September 2005 quarter of $12.5 million, or $0.20 of net income per diluted share. Including the pretax mark-to-market derivative gain under FASB 133 of $7.1 million and a pretax monoline insurance premium reimbursement of $1.6 million, total net income for the third quarter equaled $21.3 million, or $0.34 of net income per diluted share. Revenue The following table details the components of total and core revenues for the quarters ended September and June June: see month. 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Net interest income
after provision
for loan losses (1) $42,677 $14,111 $16,632 202.4% 156.6%
Non interest
income 21,300 51,709 6,030 -58.8% 253.2%
---------- ---------- ----------
Total revenue 63,977 65,820 22,662 -2.8% 182.3%
Mark-to-market
loss (gain)
on derivative
financial
instruments (7,121) - 11,495 nm nm
---------- ---------- ----------
Total core
revenue $56,856 $65,820 $34,157 -13.6% 66.5%
========== ========== ==========
(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 third quarter of 2005 of $56.9 million increased by 66.5% sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen over the second quarter of 2005. The increase resulted from: (1) higher net interest income generated by a larger loans held for investment portfolio and a higher average balance of loans held for sale and (2) higher net gain on sale of loans into the secondary market as the Company returned to selling a significant portion of its core 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). loans for cash gain, which generated a higher net gain on sale ratio than in the past several quarters. Total core revenue for the September 2005 quarter decreased by 13.6% compared to the prior year's quarter. The decline was due to a lower gain on sale of loans resulting from a lower volume of loans sold into the secondary market as well as a lower gain on sale rate. The lower gain on sale was partially offset by higher net interest income after provision for loan losses generated by a higher balance of loans held for investments. Prior to its conversion to a mortgage REIT, the Company typically sold nearly all of its quarterly production into the secondary markets. Since its REIT conversion in November 2004, the Company has retained a portion of its loans for the loans held for investment portfolio in order to generate a stable stream of net interest income, which in turn, is the primary driver for dividends for shareholders. Net Interest Income The following table details the components of net interest income before the provision for loan losses for the quarters ended September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Interest earned on:
Loans held for
investment $74,651 $- $59,261 nm 26.0%
Loans held for
sale 10,601 24,145 6,754 -56.1% 57.0%
Overnight
investments 812 - 520 nm 56.2%
Income from
derivative
financial
instruments 8,244 - 4,629 nm 78.1%
Amortization of net
deferred loan
origination costs (1,345) - (1,142) nm 17.8%
Prepayment penalty
fees 7,946 - 4,856 nm 63.6%
Other 82 65 65 26.2% 26.2%
---------- ---------- ----------
Total interest
income $100,991 $24,210 $74,943 317.1% 34.8%
Interest expense $48,731 $8,174 $32,326 496.2% 50.7%
Mark-to-market
(gain) loss
on derivative
financial
instruments (7,121) - 11,495 nm nm
Amortization of
financing costs 3,550 1,420 2,087 150.0% 70.1%
Other 154 505 538 -69.5% -71.4%
---------- ---------- ----------
Total interest
expense $45,314 $10,099 $46,446 348.7% -2.4%
Net interest
income (1) $55,677 $14,111 $28,497 294.6% 95.4%
Add (subtract)
mark-to-market
(gain)
loss on
derivative
financial
instruments (7,121) - 11,495
---------- ---------- ----------
Core net interest
income (1) $48,556 $14,111 $39,992 244.1% 21.4%
========== ========== ==========
(1) Before the provision for losses on loans held for investment.
The Company reported a core net interest income for the September 2005 quarter of $48.6 million, a 21.4% sequential One after the other in some consecutive order such as by name or number. increase over the second quarter of the 2005. The growth in core net interest income resulted from a higher average balance of loans in both the loans held for investment and held for sale portfolio, offset by a higher funding cost for both portfolios. During the September 2005 quarter the Company added approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $313.2 million to its loans held for investment portfolio, which at September 30, 2005 was $4.2 billion. Under current market conditions, the Company anticipates modestly growing the loans held for investment portfolio and selling the majority of its loan production into the secondary markets. The average balance of the Company's loans held for investment portfolio for the third quarter was $4.2 billion, an increase of approximately $900 million from the second quarter of 2005. The REIT net interest margin for the quarter, which excludes net interest income on the held for sale portfolio, interest earned on temporary investments, the provision for losses on loans held for investment and the FASB 133 mark-to-market adjustment, was 2.43%, compared to 2.60% in the second quarter of 2005. The 17 basis points, or 6.5%, decrease in the net interest margin reflects the higher cost of funding on loans added to the loans held for investment portfolio during the third quarter of 2005, partially offset by higher prepayment penalty Prepayment penalty A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. fees and somewhat lower amortization of deferred loan acquisition premiums and net deferred loan origination 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. costs. The table below provides the details of the components of the REIT net interest margin for the September and June 2005 quarters.
Quarter Ended
---------------------
9/30/2005 6/30/2005
---------- ----------
Gross yield on LHFI 7.07% 7.16%
Prepayment penalty fees 0.75% 0.58%
Amortization of premiums -0.43% -0.64%
Amortization of deferred loan fees
and costs -0.13% -0.14%
---------- ----------
Net yield on LHFI 7.26% 6.96%
Net cost of funding for LHFI 4.38% 3.88%
---------- ----------
Net interest margin 2.88% 3.08%
Servicing costs -0.45% -0.48%
---------- ----------
REIT net interest margin 2.43% 2.60%
Management fees & other
REIT costs -0.31% -0.21%
---------- ----------
REIT taxable income margin 2.12% 2.39%
========== ==========
LHFI = Loans held for investment
For the September quarter, taxable REIT income equaled $22.4 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. 2.12% of the average loans held for investment portfolio, compared to $19.8 million, or an annualized 2.39% for the second quarter of 2005. The REIT loans held for investment portfolio did not experience any charge-offs during either period. As previously reported, the 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 $0.35 per share dividend for the third quarter, equal to $22.2 million of taxable REIT income. The Company retained approximately $0.003 per share in income to recapture recapture n. in income tax, the requirement that the taxpayer pay the amount of tax savings from past years due to accelerated depreciation or deferred capital gains upon sale of property. (See: income tax) RECAPTURE, war. a portion of the $0.03 per share return of capital included in the $0.34 per share dividend declared for the second quarter of 2005. Management anticipates declaring a dividend for the fourth quarter of 2005 in the $0.34 to $0.36 per share range, after recapture of the remaining $.027 per share return of capital in the June quarter. Noninterest Income The following table details the components of noninterest income for the quarters ended September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest income:
Gain on sale of
loans $19,580 $49,458 $4,666 -60.4% 319.6%
Loan servicing
revenue 1,720 2,251 1,364 -23.6% 26.1%
---------- ---------- ----------
Total noninterest
income $21,300 $51,709 $6,030 -58.8% 253.2%
========== ========== ==========
Total noninterest income for the third quarter of 2005 increased by $15.3 million compared to the second quarter of 2005, due primarily to an increase in the net gain on sale of loans. Compared to the prior year quarter, total noninterest income decreased by $30.4 million. The decrease was due primarily to a lower net gain on sale of loans in the September 2005 quarter resulting from a lower volume of loans sold into the secondary market, as well as lower servicing income from a decreased balance of loans serviced for others. The following table details the components of the gain on sale of loans for quarters ended September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
--------------------------------- ------------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ----------- ---------- ------- ----------
Gain on sale of
loans:
Gain on sale of
loans $21,838 $64,913 $7,060 -66.4% 209.3%
Loan
originations
fees and costs,
net 1,558 (7,963) 2,617 nm -40.5%
Provision for
representation,
warranty and
other losses (3,796) (7,627) (4,016) -50.2% -5.5%
Miscellaneous
costs (20) 135 (995) nm -98.0%
---------- ----------- ----------
Gain on sale of
loans $19,580 $49,458 $4,666 -60.4% 319.6%
========== =========== ==========
Whole loan market
sales $915,457 $1,964,934 $410,714
Gross gain on
sale rate 2.39% 3.30% 1.72%
Net gain on sale
rate 2.14% 2.52% 1.14%
The increased gain on sale rate for the third quarter of 2005 compared to the June 2005 quarter resulted from the mix in the composition of the loans sold by the Company. As previously stated, during the first half of 2005, the Company sold primarily lower margin loans, including fixed rate, second lien A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the and higher FICO FICO See: Financing corporation loans, in order to retain its core higher value hybrid loans in the loans held for investment portfolio. Upon achieving its targeted REIT portfolio leverage ratio during the third quarter of 2005, the Company began selling higher value hybrid loans into the secondary markets. During the third quarter the Company sold approximately $915.5 million of loans into the secondary markets for a gross gain on sale of 2.39%. The recognition of net loan origination fees and costs for the September 2005 quarter decreased by approximately $1.0 million compared to the June 2005 quarter, a result of the higher percentage of wholesale loans sold in the September quarter than in the June quarter. The decrease in recognized net loan origination fees and costs was partially offset by a lower provision for 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 net gain on sale of loans for the September 2005 quarter was 2.14%, compared to 1.14% for the June 2005 quarter. Based on current market conditions in the secondary market, and the anticipated mix of the composition of loan sales in the fourth quarter, the Company believes that the gross gain on sale rates earned on whole loan sales during the fourth quarter of 2005 may be below the gross gain on sale rate reported for the third quarter of 2005. Servicing revenue for the September 2005 quarter of $1.7 million increased 26.1% from the June 2005 quarter and decreased 23.6% from the prior year quarter. The decrease from the prior year reflects the elimination of off-balance sheet securitizations on which the Company earned contractual servicing fee income, as well as a decrease in loans serviced for third parties. The Company anticipates that servicing fee income in the next several quarters will remain relatively stable to the levels earned in the third quarter of 2005. Noninterest Expense The following table details the components of noninterest expense for the quarters ended September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest expense:
Personnel $23,783 $22,596 $20,980 5.3% 13.4%
Production 9,258 8,560 8,577 8.2% 7.9%
General and
administrative 10,312 11,519 15,015 -10.5% -31.3%
---------- ---------- ----------
Total noninterest
expense 43,353 42,675 44,572 1.6% -2.7%
Non-core income
(expense) 1,635 - (3,700) nm nm
---------- ---------- ----------
Core noninterest
expense $44,988 $42,675 $40,872 5.4% 10.1%
========== ========== ==========
Total core noninterest expense for the September 2005 quarter was $4.1 million, 10.1%, higher than in the June 2005 quarter and $2.3 million, or 5.4%, above the year ago quarter. The sequential increase in core noninterest expense reflects the higher production volume in the third quarter of 2005 compared to the second quarter as well as a higher compensation expense from increased staffing related to selected additions to support anticipated growth. Core general and administrative expenses were relatively flat from the second quarter of 2005, a result of the Company's 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. efforts. Net Cost to Originate The net cost to originate loans is 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 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 September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
----------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Total
noninterest
expense $43,353 $42,675 $44,572 1.6% -2.7%
Non-core income
(expense) 1,635 - (3,700) nm nm
Deferred loan
origination
costs 24,319 21,780 19,434 11.7% 25.1%
Loan servicing
and other costs (2,733) (2,341) (2,274) 16.7% 20.2%
----------- ----------- -----------
Total expenses 66,574 62,114 58,032 7.2% 14.7%
Loan origination
fees received (26,716) (16,466) (20,901) 62.2% 27.8%
----------- ----------- -----------
Net cost to
originate $39,858 $45,648 $37,131 -12.7% 7.3%
=========== =========== ===========
Total
Originations $1,913,296 $1,878,012 $1,597,014 1.9% 19.8%
Cost Ratios:
Core
noninterest
expense 2.35% 2.27% 2.56% 3.5% -8.2%
Deferred loan
origination
costs 1.27% 1.16% 1.22% 9.5% 4.1%
Loan
servicing
and other
costs -0.14% -0.12% -0.14% 16.7% 0.0%
----------- ----------- -----------
Total expenses 3.48% 3.31% 3.63% 5.2% -4.1%
Loan origination
fees received -1.40% -0.88% -1.31% 59.1% 6.9%
----------- ----------- -----------
Net Cost to
Originate 2.08% 2.43% 2.33% -14.4% -10.7%
=========== =========== ===========
The 2.08% net cost to originate ratio for the September 2005 quarter represented a 10.7% decrease from the 2.33% ratio for the second quarter of 2005 and a 14.4% decrease from the September 2004 ratio. The decrease in the net cost to originate ratio from both periods resulted from higher loan production, corporate cost containment efforts and the continued benefits from a higher production contribution from the Company's retail channel, the points and fees from which reduce the net cost to originate. Loan Portfolio Total loans held for investment as of September 30, 2005 equaled $4.2 billion, an 8.1% increase from the $3.9 billion balance as of June 30, 2005. The Company also had $632.5 million of loans held for sale as of September 30, 2005. At the end of the third 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 13.2 times. This leverage ratio is within the 12 to 14 times equity range of management's targets, and management expects to maintain the ratio within this approximate range Noun 1. approximate range - near to the scope or range of something; "his answer wasn't even in the right ballpark" ballpark ambit, range, scope, reach, compass, orbit - an area in which something acts or operates or has power or control: "the range of a during the next several quarters. The Company experienced an average prepayment speed 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 portfolio of 35.7%, roughly equal to the rate during the second quarter of 2005. This rate of repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan remains higher than typical for the Company's loans and continues to have a negative impact on its financial performance. In addition to requiring that the Company retain a higher percentage of total production to maintain its loans held for investment portfolio, the higher than typical repayment rate Noun 1. repayment rate - the amount of money paid out per unit time installment rate, payment rate, rate of payment charge per unit, rate - amount of a charge or payment relative to some basis; "a 10-minute phone call at that rate would cost $5" can accelerate the amortization of capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. loan acquisition and origination costs, thereby reducing the net yield on the loans held for investment portfolio and taxable REIT income. Loan Production The following table details the Company's loan production for the quarters ended September and June 2005 and September 2004.
(dollars in thousands) Quarter Ended Percentage Change
----------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Retail $793,851 $615,082 $624,816 29.1% 27.1%
Wholesale 1,119,445 1,262,930 920,506 -11.4% 21.6%
Purchased loans - - 51,692 nm nm
----------- ----------- -----------
Total loan
production $1,913,296 $1,878,012 $1,597,014 1.9% 19.8%
=========== =========== ===========
Loan production for the third quarter of 2005 equaled $1.9 billion, a $316.3 million sequential increase from the second quarter of 2005 and a $35.3 million increase from the year ago quarter. The increased loan production was due primarily to a combination of increased productivity from the Company's retail channel and a competitive market more aligned with the Company's loan pricing. The components of the Company's loan production during the September 2005 quarter remained consistent with those of prior quarters, with traditional hybrid loans accounting for 61.3% of total production, fixed rate loans 25.2% of total production and interest-only hybrid loans 13.5% of total production. The Company did not purchase any loan pools during the third quarter of 2005, and excluding the pool purchased during the second quarter of the year, total production increased 23.8% sequentially. During the September 2005 quarter wholesale and retail production represented 58.5% and 41.5% of total production, respectively, compared to 67.2% and 32.8% for the September 2004 quarter and 59.6% and 40.4% for the second quarter of 2005, excluding the purchased loans. Management continues to focus on optimizing the retail branch operating structure and increasing the retail division's percentage of total production. The Company continues to believe that its retail franchise represents an important competitive advantage, as it is able to achieve a higher degree of 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. as the division increases its lending volume. This impact was apparent in the September 2005 quarter as the higher points and fee retained by the Company from its retail production made a significant contribution to the lower net cost to originate reported for the September 2005 quarter. Credit Quality The allowance for loan losses for the loans held for investment portfolio as of September 30, 2005 equaled $33.3 million, or 0.79% of the loans held for investment portfolio. The Company provided $13.0 million for loan losses during the third quarter of 2005. Total delinquencies in the loans held for investment portfolio equaled 4.4% at the end of the September 2005 quarter, compared to 1.9% at the end of the June 2005 quarter. As in the first two quarters of 2005, the Company did not experience any credit losses during the September quarter, primarily due to the early seasoning of the loans held for investment portfolio and, to a lesser degree, to lower than anticipated levels of defaults in the loans 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 recent events. About Aames Investment Corporation Aames is a mortgage REIT and, through its subsidiary Aames Financial Corporation, originates mortgage loans in 47 states. Aames Financial is a fifty-year old national mortgage banking company focused primarily on originating subprime residential mortgage loans 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 December: see month. 31, 2004 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 infor@aamescorp.com Financial tables and supplementary information follows.
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Balance Sheets
(In thousands)
September 30, December 31,
2005 2004
------------- -------------
(unaudited)
Assets
Cash and cash equivalents:
Unrestricted $43,162 $31,641
Restricted 91,388 6,139
Loans held for sale, at lower of cost or
market 632,515 484,963
Loans held for investment, net 4,187,076 1,725,046
Advances and other receivables 34,404 22,740
Residual interests, at estimated fair
value - 39,082
Derivative financial instruments, at
estimated fair value 63,448 31,947
Prepaid and other assets 74,438 59,317
------------- -------------
Total assets $5,126,431 $2,400,875
------------- -------------
Liabilities and Stockholders' Equity
Financings on loans held for investment $4,137,790 $1,157,470
Revolving warehouse and repurchase
facilities 596,440 809,213
Other borrowings - 7,680
Other liabilities 75,453 68,886
------------- -------------
Total liabilities 4,809,683 2,043,249
Stockholders' equity 316,748 357,626
------------- -------------
Total liabilities and stockholders'
equity $5,126,431 $2,400,875
------------- -------------
Shares outstanding 61,665 61,360
------------- -------------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
--------- -------- --------- --------
Interest income $100,991 $24,210 $229,586 $61,157
Interest expense 45,314 10,099 103,676 23,962
--------- -------- --------- --------
Net interest income 55,677 14,111 125,910 37,195
Provision for losses on loans
held for investment 13,000 - 31,365 -
--------- -------- --------- --------
Net interest income after
provision for
loan losses 42,677 14,111 94,545 37,195
--------- -------- --------- --------
Noninterest income:
Gain on sale of loans 19,580 49,458 29,929 167,349
Loan servicing 1,720 2,251 4,124 5,902
--------- -------- --------- --------
Total noninterest income 21,300 51,709 34,053 173,251
--------- -------- --------- --------
Net interest income after
provision for loan losses
and noninterest income 63,977 65,820 128,598 210,446
--------- -------- --------- --------
Noninterest expense:
Personnel 23,783 22,596 67,110 80,544
Production 9,258 8,560 26,635 27,899
General and administrative 10,312 11,519 36,140 33,686
--------- -------- --------- --------
Total noninterest expense 43,353 42,675 129,885 142,129
--------- -------- --------- --------
Income (loss) before income
taxes 20,624 23,145 (1,287) 68,317
Income tax provision (benefit) (661) (5,272) 770 (4,970)
--------- -------- --------- --------
Net income (loss) $21,285 $28,417 $(2,057) $73,287
--------- -------- --------- --------
Net income (loss) to common
stockholders:
Basic $21,285 $25,548 $(2,057) $64,680
--------- -------- --------- --------
Diluted $21,285 $28,939 $(2,057) $73,287
--------- -------- --------- --------
Net income (loss) per common
share:
Basic $0.34 $3.55 $(0.03) $9.03
--------- -------- --------- --------
Diluted $0.34 $0.28 $(0.03) $0.71
--------- -------- --------- --------
Weighted average number of
common shares outstanding:
Basic 62,444 7,192 62,519 7,161
--------- -------- --------- --------
Diluted 62,533 103,656 62,519 103,374
--------- -------- --------- --------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Other Financial Data
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
--------------------------
2005 2004
------------- ------------
Condensed Statement of Cash Flows Information
Net cash provided by (used in):
Operating activities $(123,989) $(148,884)
Investing activities (2,496,585) (2,727)
Financing activities 2,717,344 161,475
------------- ------------
Net increase (decrease) in cash and
cash equivalents 96,770 9,864
Cash and cash equivalents, beginning of
period 37,780 11,611
------------- ------------
Cash and cash equivalents, end of period $134,550 $21,475
------------- ------------
September 30, 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 $596,440 $809,213
------------- ------------
Borrowing capacity on committed $2,103,560 $1,640,787
------------- ------------
Liquidity
Unrestricted cash $43,162 $31,641
Plus: Unencumbered loans held for sale 76,382 87,955
Less: Margin and ineligible mortgage
collateral (36,206) (22,153)
Plus: Retained bond financing 17,328 -
------------- ------------
$100,666 $97,443
------------- ------------
AAMES INVESTMENT CORPORATION
(Parent Company Only)
(Unaudited)
(In thousands)
September 30,
Condensed Balance Sheet (1) 2005
----------------------------------------- -------------
Cash and cash equivalents:
Unrestricted $6,795
Restricted 91,388
Loans held for investment, net:
Securitized 4,173,048
Not yet securitized 36,407
Net deferred loan origination costs 10,910
Deferred loan acquisition premium 47,964
Allowance for loan losses (33,289)
-------------
Total loans held for investment, net 4,235,040
-------------
Accrued interest and other 153,388
Derivative financial instruments 63,448
-------------
Total assets $4,550,059
-------------
Financings on loans held for investment $4,137,790
Revolving warehouse and repurchase
facilities 22,992
Other liabilities 24,565
-------------
Total liabilities 4,185,347
Stockholders' equity 364,712
-------------
Total liabilities and stockholders'
equity $4,550,059
-------------
(1) Before intercompany elimination entries.
Three Months Nine Months
Ended Ended
September 30, September 30,
Condensed Statements of Operations 2005 2005
----------------------------------------- ------------- --------------
Net interest income $40,823 $88,779
Provision for losses on loans held for
investment (13,000) (31,365)
------------- --------------
Net interest income after provision
for loan losses 27,823 57,414
Noninterest expense (3,283) (7,482)
------------- --------------
Income before equity in undistributed
net loss of subsidiary 24,540 49,932
Equity in undistributed net loss of
subsidiary (317) (33,252)
------------- --------------
Net income $24,223 $16,680
------------- --------------
GAAP Net Income to Taxable Income
Reconciliation
-----------------------------------------
Net income $24,223 $16,680
Add: Equity in undistributed net loss of
subsidiary 317 33,252
------------- --------------
Income before equity in undistributed
net loss of subsidiary 24,540 49,932
Add (subtract) GAAP to tax items:
Provision for losses on loans held for
investment 13,000 31,365
Derivative mark to market adjustment (15,132) (22,059)
Net recoveries (charge-offs) 24 24
------------- --------------
Estimated taxable income $22,432 $59,262
------------- --------------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
Three Months Ended Nine Months Ended
---------------------------------- -----------------------
September 30, June 30, September 30,
2005 2004 2005 2005 2004
----------- ---------- ----------- ----------- -----------
Retail Loan
Production
Total dollar
amount
(in
thousands) $793,851 $615,082 $624,816 $1,935,225 $1,846,900
Number of
loans 5,194 4,893 4,315 13,227 14,657
Average loan
amount $152,840 $125,706 $144,801 $146,309 $126,008
Average
initial LTV 75.51% 76.46% 76.33% 75.87% 77.06%
Weighted
average
interest
rate 7.27% 7.58% 7.37% 7.37% 7.38%
Wholesale Loan
Production
Total dollar
amount
(in
thousands) $1,119,445 $1,262,930 $920,506 $2,885,009 $3,863,209
Number of
loans 7,809 8,722 6,747 20,584 26,299
Average loan
amount $143,353 $144,798 $136,432 $140,158 $146,896
Average
initial LTV 81.80% 81.17% 81.90% 81.67% 81.49%
Weighted
average
interest
rate 7.51% 7.57% 7.78% 7.62% 7.35%
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 Loan
Production
Total dollar
amount
(in
thousands) $1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
Number of
loans 13,003 13,615 11,145 33,894 40,956
Average loan
amount $147,143 $137,937 $143,294 $143,740 $139,421
Average
initial LTV 79.19% 79.62% 78.79% 79.07% 80.06%
Weighted
average
interest
rate 7.41% 7.57% 7.55% 7.50% 7.36%
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
---------------------------------- ----------------------
September 30, June 30, September 30,
2005 2004 2005 2005 2004
---------- ----------- ----------- ---------- -----------
Loan Production by Loan
Purpose
Cash-out
refinance $1,100,577 $1,085,506 $900,379 $2,800,324 $3,404,042
Purchase
money 742,363 717,421 645,301 1,907,292 2,037,357
Rate/term
refinance 70,356 75,085 51,334 164,310 268,710
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
Property Type
Single-
family $1,649,844 $1,645,825 $1,399,906 $4,244,676 $4,988,004
Multi-family 149,188 122,449 114,499 358,086 396,104
Condominiums 114,264 109,738 82,609 269,164 326,001
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
State/Region Produced
California $390,278 $585,137 $439,308 $1,202,507 $1,870,031
Florida 493,682 364,979 372,851 1,163,383 1,098,910
New York 147,913 130,896 94,357 335,829 425,455
Texas 146,327 132,929 136,411 394,131 375,585
Other Western
states 161,850 174,705 128,581 429,722 564,749
Other
Midwestern
states 100,603 166,340 101,325 297,154 497,756
Other
Northeastern
states 291,243 194,421 177,435 614,531 521,515
Other
Southeastern
states 181,400 128,605 146,746 434,669 356,108
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
Interest Rate Type
Hybrid:
Traditional $1,172,707 $1,345,569 $1,014,617 $3,134,843 $4,129,909
Interest only 257,551 89,667 190,110 596,469 182,977
Fixed rate 483,038 442,776 392,287 1,140,614 1,397,223
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
September 30, December 31, September 30,
2005 2004 2004
------------- ------------ -------------
Servicing Portfolio
Mortgage loans serviced:
Loans held for investment $4,158,876 $1,718,696 $-
Loans serviced on an interim
basis 1,343,638 771,830 2,608,203
Loan subserviced for others
on a long-term basis 100,645 129,016 144,214
Loans in off-balance sheet
securitization trusts - 224,345 204,298
------------- ------------ -------------
Total serviced in-house 5,603,159 2,843,887 2,956,715
Loans held for investment
subserviced by others 50,673 - -
Loan in off-balance sheet
securitization trusts
subserviced by others - - 48,587
------------- ------------ -------------
Total servicing portfolio $5,653,832 $2,843,887 $3,005,302
------------- ------------ -------------
Percentage serviced in-house 99.1% 100.0% 98.4%
------------- ------------ -------------
Loan Delinquencies
Percentage of dollar amount
of delinquent loans
serviced (period end):
One month 1.5% 0.3% 0.4%
Two months 0.6% 0.2% 0.2%
Three or more months:
Not foreclosed 1.4% 1.8% 1.8%
Foreclosed 0.1% 0.2% 0.2%
------------- ------------ -------------
3.6% 2.5% 2.6%
------------- ------------ -------------
Percentage of dollar amount
of delinquent loans in:
Loans held for investment
serviced:
In-house 4.4% 0.2% N/A
By others 0.0% 0.0% N/A
Loans serviced on an interim
basis 1.0% 1.5% 0.5%
Loans subserviced for others
on a long-term basis 7.2% 4.8% 4.3%
Loans in off-balance sheet
securitization
trusts serviced:
In-house N/A 22.5% 18.6%
By others N/A N/A 39.0%
AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
At or During the
Nine Months Ended
September 30,
-----------------------
2005 2004
----------- -----------
Loan Foreclosures
Percentage of dollar amount of loans
foreclosed during the period to
servicing portfolio (period end) 0.2% 0.3%
Number of loans foreclosed during the period 105 147
Principal amount of loans foreclosed
during the period $9,199 $8,787
Number of loans liquidated during the period 193 318
Net losses on liquidations during the period
from:
Loans held for investment serviced:
In-house $(24) $-
By others - -
Loans serviced on an interim basis 4,553 2,268
Loans serviced for others on a long-term basis 19 -
Loans in off-balance sheet securitization
trusts serviced:
In-house 2,850 6,352
By others - 3,124
----------- -----------
$7,398 $11,744
----------- -----------
Percentage of annualized losses to
servicing portfolio 0.2% 0.5%
Servicing portfolio at period end $5,654,000 $3,005,000
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