SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 25, 1997
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 0-19604 95-4340340
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(213) 640-5000
(Registrant's Telephone Number, Including Area Code)
N/A
_____________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
Reference is made to the press releases of Registrant issued on August 25,
1997 and August 27, 1997, which contain information meeting the requirements
of this Item 5 and which are incorporated herein by this reference. Copies of
the press releases are attached to this Form 8-K as Exhibits "1" and "2".
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report on Form 8-K to be
signed on its behalf by the undersigned hereunto duly authorized.
August 29, 1997 AAMES FINANCIAL CORPORATION
By: /S/ CARY H. THOMPSON
--------------------
Cary H. Thompson
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
1 Press release issued August 25, 1997
2 Press release issued August 27, 1997
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EXHIBIT 1
PAGE 5
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Contact: Greg Witherspoon
Chief Financial Officer
Aames Financial
Corporation
(213) 210-5243
or
Jeffrey Lloyd
(310) 788-2850
FOR IMMEDIATE RELEASE
AAMES FINANCIAL CORPORATION REPORTS
RECORD QUARTERLY LOAN PRODUCTION;
TAKES ACTIONS TO REDUCE EXPENSES
AND ENHANCE PROFITABILITY AND CASH FLOW
RETAINS FINANCIAL ADVISOR AND IS IN
DISCUSSIONS ON POSSIBLE BUSINESS COMBINATION
REPORTS YEAR-END RESULTS
LOS ANGELES, CALIF. AUGUST 25, 1997 - AAMES FINANCIAL CORPORATION
(NYSE: AAM) announced today record fourth quarter loan production and that
it has taken steps to enhance profitability and to ensure its leadership
position in the subprime home equity lending industry. While the Company is
in discussions concerning a possible business combination, it also believes
that the profit enhancing steps taken in the fourth quarter create a strong
foundation upon which to remain independent and continue to grow its
production channels and servicing platform. "As a result of our assessment
of industry trends, we believe that there will be major changes in the
subprime home equity lending industry. Recognizing this, in June we
retained Donaldson, Lufkin & Jenrette Securities Corporation to work with us
in developing a means to maximize opportunities for our Company and
shareholders, whether by remaining independent and continuing to grow
internally and through acquisition, or selling the Company or entering into
a business combination transaction. Over the past several months, we have
explored these various options and have met and spoken with a number of
institutions, with one objective in mind, and that was to maximize
shareholder value," said Cary H. Thompson, Aames' chief executive officer.
Concurrently, the Company today announced a series of actions to reduce
expenses and enhance profitability and cash flow. In the fourth quarter,
Aames incurred severance costs primarily related to the efficiencies
achieved in connection with its acquisition of One Stop Mortgage, Inc.
In addition, Aames securitized only $500 million of its record $644 million
of loan production in the fourth quarter, increasing the amount of loans
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carried over to the first quarter of fiscal 1998 to $243 million. This
represents an increase in Aames' loan carryover of approximately $136
million, or 127 percent over the third quarter's carryover amount.
Aames President, Neil B. Kornswiet stated, "While these moves had a
negative impact on our profitability in the fourth quarter, they provide
Aames with additional cash flows, efficiencies and flexibility in the
future."
Kornswiet continued, "We are especially pleased with the strong loan
production during the fourth fiscal quarter in light of our decision in May
to de-emphasize our bulk correspondent production. The decision to refocus
our attention on our core retail and One Stop mortgage production paid off
handsomely as these units had record originations."
The Company also reported net income of $17.1 million, or $0.60 per
share (fully diluted), for the fiscal year ended June 30, 1997, as compared
with net income of $29.8 million, or $1.14 per share (fully diluted), for
fiscal 1996. The results for fiscal 1997 include a pre-tax $28.0 million
($16.2 million after tax) unrealized loss on the valuation of its interest-
only strip and $32.0 million ($20.9 million after tax) of nonrecurring
charges, of which $28.1 million ($18.6 million after tax) was related to the
One Stop acquisition recorded in the first quarter. The unrealized loss on
the valuation of the interest-only strip represents less than a 10 percent
reduction in the carrying value of that asset. Without these items, the
Company would have had net income of $54.2 million or $1.68 per share,
for the year. Revenues for fiscal 1997 rose 82.0 percent to $273 million
from $150 million a year ago. Net income per share for fiscal 1997 was
based upon 26.7 percent more weighted shares outstanding reflecting the
effect of a public offering of common stock in October 1996.
Thompson added, "The $28.0 million unrealized loss on the valuation of
the Company's interest-only strip resulted from our quarterly review of that
asset and reflects management's current assessment of future pool
performance in view of the acceleration of prepayment rates in some of the
Company's earlier pools. We believe this adjustment accurately reflects
economic reality and appropriately values our interest-only strips."
Aames reported for the three months ended June 30, 1997, a net loss of
$14.1 million, or $0.37 per share (fully diluted), compared to net income of
$8.3 million, or $0.29 per share (fully diluted), for the three months ended
June 30, 1996. The primary reason for the loss was the $28.0 million ($16.2
million after tax) valuation adjustment of the interest-only strip and, to a
lesser extent, the increase in the carryover amount, the severance costs and
a reduction in the gain on sale percentage recorded by the Company as a
result of more conservative prepayment assumptions. The Company said that
fourth quarter results were also affected by the impact of higher prices
paid for bulk product prior to the implementation of the previously
announced change in its bulk pricing methodology.
Total loan originations and purchases in fiscal 1997 reached a record
$2.3 billion, the majority of which were sold through five Aames-sponsored
mortgage loan securitizations aggregating $2.3 billion in the year, nearly
triple the volume of a year ago. The previously announced change in bulk
pricing methodology did not have a materially adverse impact on fourth
quarter loan
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production, which increased to a record $644 million, or 7.9 percent, over
the third quarter's production. The Company recognized an 88.7 percent
increase in its gain on sale of loans net of the unrealized loss on the
valuation of the interest-only strip.
Aames' loan servicing portfolio surpassed the three billion-dollar mark
at fiscal year end 1997, reaching $3.2 billion, which is more than double
that of year end 1996. Thompson added, "We are beginning to realize
efficiencies and increased income as the percentage of our servicing
portfolio serviced in-house continues to grow."
From time to time the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects and similar matters. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and experience
to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance and results of
the Company's business include the following: negative cash flows and
capital needs, delinquencies, risks of contracted servicing, dependence on
funding sources, capitalized excess servicing receivables, prepayment and
credit risk, recent addition of wholesale correspondent program, recent
acquisition of One Stop, concentration of wholesale correspondent program,
competition, concentration of operations, timing of loan sales, economic
conditions, contingent risks and government regulation. For a more complete
discussion of these risks and uncertainties, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -- Risk Factors" in the Company's form 10-K for the fiscal year ended June
30, 1996, and form 10-Q for the quarter ended March 31, 1997.
Aames Financial Corporation is a leading home equity lender and
currently operates 58 Aames Home Loan offices in 25 states throughout the
United States. Its wholly-owned subsidiary, One Stop Mortgage, Inc.
operates in 35 states out of 41 offices.
# # #
[Financial Tables Follow]
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<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Twelve Months Ended
June 30 June 30
------------------------------- --------------------------------
1996 1997 1996 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans $34,771,000 $32,525,000 $95,299,000 $198,736,000
Net unrealized loss on valuation
of interest-only strip - (24,053,000) - (18,950,000)
Commissions 5,895,000 6,077,000 21,564,000 29,250,000
Loan service 5,014,000 6,973,000 18,186,000 25,804,000
Fees and other 5,981,000 11,250,000 15,215,000 37,679,000
----------- ----------- ----------- -----------
Total revenue 51,661,000 32,772,000 150,264,000 272,519,000
----------- ----------- ----------- -----------
Expenses:
Compensation and related expenses 13,504,000 19,738,000 40,758,000 81,021,000
Sales and advertising costs 6,247,000 6,430,000 19,036,000 27,229,000
General and administrative expenses 6,845,000 8,917,000 17,377,000 31,716,000
Interest expense 6,072,000 9,553,000 12,370,000 33,105,000
Provision for loan losses 3,465,000 8,500,000 8,424,000 33,941,000
Nonrecurring charges - 3,892,000 - 32,000,000
----------- ----------- ----------- -----------
Total expenses 36,133,000 57,030,000 97,965,000 239,012,000
----------- ----------- ----------- -----------
Income before income taxes 15,528,000 (24,258,000) 52,299,000 33,507,000
Provision for income taxes 7,249,000 (10,143,000) 22,508,000 16,398,000
----------- ----------- ----------- -----------
Net income $8,279,000 ($14,115,000) $29,791,000 $17,109,000
=========== =========== =========== ===========
Net income per share
Primary $0.32 $ (0.48) $1.18 $0.60
=========== =========== =========== ===========
Fully diluted $0.29 $ (0.37) $1.14 $0.60
=========== =========== =========== ===========
Dividends $0.03 $0.03 $0.13 $0.13
=========== =========== =========== ===========
Weighted average number
of shares outstanding
Primary 25,543,000 29,167,000 25,194,000 28,371,000
=========== =========== =========== ===========
Fully Diluted 31,704,000 35,273,000 27,248,000 34,516,000
=========== =========== =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 June 30
1996 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $23,941,000 $26,902,000
Loans held for sale, at lower of cost or market 186,189,000 242,987,000
Accounts receivable, less allowance for
doubtful accounts of $473,000 and $664,000 9,685,000 59,180,000
Interest-only strip, at fair market value 129,113,000 270,422,000
Mortgage servicing rights 10,902,000 21,641,000
Residual assets 44,676,000 112,827,000
Equipment and improvements, net 6,674,000 12,685,000
Prepaid and other 10,295,000 14,949,000
----------------- ----------------
Total assets $421,475,000 $761,593,000
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $138,045,000 $286,990,000
Revolving warehouse facility 112,363,000 137,500,000
Accounts payable and accrued expenses 11,380,000 23,219,000
Accrued compensation and related expenses 4,427,000 6,078,000
Income taxes payable 21,831,000 39,452,000
----------------- ----------------
Total liabilities 288,046,000 493,239,000
================= ================
Stockholders' equity:
Preferred Stock, par value $.001 per
share, 1,000,000 shares authorized;
none outstanding
Common Stock, par value $.001 per share
50,000,000 shares authorized;
23,845,300 and 27,758,800 shares outstanding 24,000 28,000
Additional paid-in capital 88,134,000 209,358,000
Retained earnings 45,271,000 58,968,000
---------------- ---------------
Total stockholders' equity 133,429,000 268,354,000
---------------- ---------------
Total liabilities and stockholders' equity $421,475,000 $761,593,000
================ ===============
</TABLE>
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<TABLE>
<CAPTION>
AAMES FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS
------------------------------------------------------------------------------
QTR ENDED QTR ENDED YR TO DATE YR TO DATE
Jun-96 Jun-97 Jun-96 Jun-97
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ORIGINATION VOLUME:
- -------------------
WHOLESALE CORRESPONDENT 237,268,000 288,779,000 628,177,000 1,169,968,000
BROKER NETWORK 118,828,000 233,037,000 319,888,000 741,067,000
RETAIL 72,194,000 121,697,000 220,880,000 436,903,000
-----------------------------------------------------------------------------
TOTAL 428,290,000 643,513,000 1,168,945,000 2,347,938,000
-----------------------------------------------------------------------------
RETAIL WTD AVG COMM RATE 6.65% 4.70% 7.74% 4.88%
SERVICING PORTFOLIO: 1,370,000,000 3,174,000,000
- --------------------
LOAN SALES:
- -----------
WHOLE LOANS SOLD 46,167,000 202,182,000 7,532,000
SECURITIZATIONS 303,700,000 500,000,000 791,300,000 2,262,700,000
SERVICING SPREAD 4.95% 3.91% 4.93% 4.16%
EXPENSES AS % OF REVENUE:
- -------------------------
COMPENSATION 26% 60% 27% 30%
SALES & ADVERTISING 12% 20% 13% 10%
GENERAL & ADMINISTRATIVE 13% 27% 12% 12%
INTEREST 12% 29% 8% 12%
COMPONENTS OF REVENUE:
- ----------------------
GAIN ON SALE OF LOANS $ 34,771,000 $ 32,525,000 $ 95,299,000 $ 198,736,000
NET UNREALIZED LOSS ON VALUATION
OF INTEREST ONLY STRIP - (24,053,000) - (18,950,000)
COMMISSIONS:
RETAIL 4,565,000 4,901,000 16,802,000 21,320,000
BROKER NETWORK 446,000 450,000 1,683,000 4,837,000
OTHER 884,000 726,000 3,079,000 3,093,000
LOAN SERVICE:
SERVICING SPREAD 3,285,000 3,820,000 12,667,000 16,265,000
PREPAYMENT FEES 1,091,000 1,917,000 3,229,000 5,815,000
LATE CHGS & OTHER SERV FEES 638,000 1,236,000 2,290,000 3,724,000
FEES & OTHER:
CLOSING 781,000 573,000 2,512,000 2,723,000
APPRAISAL 376,000 448,000 1,167,000 1,854,000
UNDERWRITING 480,000 223,000 1,600,000 1,382,000
INTEREST INCOME 4,131,000 10,011,000 9,127,000 31,160,000
OTHER 213,000 (5,000) 809,000 560,000
-----------------------------------------------------------------------------
TOTAL REVENUE $ 51,661,000 $ 32,772,000 $ 150,264,000 $ 272,519,000
-----------------------------------------------------------------------------
</TABLE>
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EXHIBIT 2
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CONTACT: Gregory J. Witherspoon
Aames Financial Corporation
(213) 210-5243
Cecilia A. Wilkinson/Roger S. Pondel
Pondel Parsons & Wilkinson
(310) 207-9300
FOR IMMEDIATE RELEASE
_____________________
AAMES DECLARES REGULAR QUARTERLY CASH DIVIDEND
Los Angeles, California -- August 26, 1997 -- The board of directors
of Aames Financial Corporation (NYSE:AAM) today declared a regular
quarterly cash dividend of $0.033 per share, payable on September 19, 1997
to stockholders of record as of September 5, 1997.
Aames Financial Corporation is a leading home equity lender and
currently operates 58 Aames Home Loan offices in 25 states throughout the
United States. Its wholly-owned subsidiary, One Stop Mortgage, Inc.,
operates in 35 states out of 41 offices.
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