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): January 28, 1998
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 0-19604 95-4340340
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(213) 210-5000
(Registrant's Telephone Number, Including Area Code)
NA
(Former Name or Former Address, if Changed Since Last
Report)
<PAGE>
ITEM 5. OTHER EVENTS
Reference is made to the press releases of Registrant
issued on January 28, 1998, which contain information meeting the
requirements of this Item 5 and are incorporated herein by this
reference. Copies of the press releases are attached to this
Form 8-K as Exhibits 99.1 and 99.2.
Page 2
<PAGE>
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.
February 2, 1998 AAMES FINANCIAL CORPORATION
By: /s/ Barbara S. Polsky
-----------------------
Barbara S. Polsky
Executive Vice President,
General Counsel and Secretary
Page 3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
99.1 Press release issued January 28, 1998 regarding earnings
99.2 Press release issued January 28, 1998 regarding letter
of intent
<PAGE>
EXHIBIT 99.1
IMMEDIATE RELEASE
- -----------------
Contact:
David A. Sklar
Aames Financial Corporation
(213) 210-5311
or
Jeffrey Lloyd/Steve Hawkins
Sitrick And Company
(310) 788-2850
AAMES FINANCIAL CORPORATION ADOPTS NEW BUSINESS STRATEGY TO:
- REDUCE NON-CASH "GAIN ON SALE" RISKS
- PROVIDE POSITIVE CASH FLOW
REPORTS SECOND QUARTER RESULTS
AND DECLARES REGULAR QUARTERLY DIVIDEND
LOS ANGELES, CALIFORNIA, JANUARY 28, 1998 -- AAMES FINANCIAL
CORPORATION (NYSE: AAM), a leader in subprime home equity lending, today
announced that it has adopted a new business strategy designed to reduce
the risks associated with non-cash "gain on sale" accounting and provide
positive cash flow. The Company also reported its financial results for
the second quarter of fiscal 1998, ending December 31, 1997.
Cary H. Thompson, Aames' chief executive officer, said, "This new
business strategy represents a fundamental change in the way that we do
business. In order to achieve our objectives, we intend to focus on the
sale of whole loans in the secondary market to generate cash earnings."
Thompson added, "The recent formation of a number of real estate
investment trusts (REITs) with voracious appetites for mortgage product has
augmented an already established whole loan market. In order to maximize
our whole loan market opportunities, we are contemplating sponsoring a REIT
in which we would retain an ownership interest and receive cash dividends.
We may also enter into strategic alliances with existing mortgage REITs.
In any case, we would offer to sell our product to REITs or other
purchasers for cash, while retaining a right to service the loans.
<PAGE>
"While this change will have a negative impact on earnings, it will
improve the quality of those earnings and strengthen our balance sheet. By
reducing our reliance on non-cash gain on sale accounting and relying
principally on cash whole loan sales, we will be building a stronger
company, with positive cash flow that is in the best long-term interests of
our shareholders," Thompson said.
Neil B. Kornswiet, Aames co-chairman and president, said, "This new
business strategy allows us to concentrate our efforts in areas where we
have developed considerable expertise and a competitive advantage: high
quality home equity loan origination through our core retail sales force
and One Stop Mortgage broker network, and in-house loan servicing. Both of
these activities are expected to provide positive cash flow and a stable
revenue stream."
FINANCIAL RESULTS FOR THREE AND SIX MONTHS ENDED DECEMBER 31, 1997
Revenue for the second quarter of fiscal 1998 was $87.7 million, up
from $80.0 million earned in last year's second quarter. The current
quarter's gain on sale revenue reflects the ongoing application of the
previously announced changes in prepayment assumptions and wider spreads
over the index rates in the asset-backed securities market. In the fourth
quarter of fiscal 1997, the Company increased the prepayment rate
assumptions, which resulted in the recognition of lower gain on sale. This
reduction was offset by the positive impact of reduced reliance on high
premium correspondent bulk purchases. Net income for the quarter was $13.3
million, down from $18.3 million for the same period a year ago, reflecting
the revised gain on sale assumptions, increased costs associated with the
opening of a record number of new retail offices, additional expenses
incurred in developing in-house loan servicing capability, and an increase
in the provision for loan losses. On a basic and diluted per share basis,
net income per share for the quarter was $0.48 and $0.41, compared with
$0.67 and $0.53 in the prior year period.
Revenue for the first six months of fiscal 1998 totaled $166 million,
up from $156 million reported a year ago. For the first half of fiscal
1998, net income was $26.4 million, compared to $13.7 million for last
year's first half. Excluding nonrecurring charges of $18.6 million (net of
taxes) in the prior year's first half, net income amounted to $32.3 for
that period. On a basic and diluted per share basis, net income for the
first six months totaled $0.95 and $0.80, compared to $1.26 and $1.00
(excluding nonrecurring charges and adjusted for the three-for-two stock
split in the form of a stock dividend effected in February 1997) in last
year's comparable period.
Kornswiet said, "Our core retail and broker production units continue
on their record-breaking paths. Total retail loan originations for the
quarter were $157 million, up 37 percent from $115 million a year ago.
Originations for the One Stop broker network totaled $274 million for the
quarter, up 44 percent from $190 million a year ago. Total loan production
for the quarter was $616 million, down 2 percent from $629 million a year
ago, due primarily to a reduction in less profitable correspondent loan
production as a result of the previously announced pricing changes."
<PAGE>
Kornswiet added, "This quarter's results also reflect the Company's
focus on fostering further growth in its core production units.
Implementation of the Company's previously announced aggressive growth
strategy resulted in the opening of a record 15 new retail offices during
the quarter. Included in that total are two new retail offices located in
Texas which, along with One Stop's existing presence there, positions the
Company to reap the benefits of this new home equity market. Effective
January 1, 1998, restrictions on home equity lending in Texas were
significantly relaxed. We feel that the additional expenses incurred
during the quarter to expedite and accommodate this growth will pay off
handsomely for the Company."
The Company securitized $605 million of loans during the quarter.
During last year's comparable quarter, the Company securitized $603
million. The larger percentage of higher credit grade loans (which carry
higher loan-to-value ratios) included in this quarter's securitized pool
resulted in an increase in the provision for loan losses over last year's
comparable period. The carryover of loans held for sale at December 31,
1997 increased to $216 million from $204 million at September 30, 1997.
Thompson said, "At December 31, 1997, Aames' loan servicing portfolio
increased to $3.8 billion, up 65 percent from $2.3 billion at December 31,
1996. We are continuing to increase our in-house serviced portfolio through
the transfer of loans which had been serviced by third parties, as well as
continuing to service directly substantially all of our new production.
In-
house servicing grew to $2.8 billion, up 133 percent from $1.2 billion a
year ago."
Thompson explained that "included in the quarterly and six month
results is the additional compensation expense incurred in anticipation of
the transfer of servicing in-house." He said that the Company is now in a
position to accommodate by the end of the March quarter the transfer in-
house of substantially all of its portfolio subserviced by third parties.
AAMES' BOARD DECLARES REGULAR CASH DIVIDEND
The Company also announced that its board of directors has declared a
regular quarterly cash dividend of $0.033 per share, payable on February
20, 1998, to stockholders of record as of February 6, 1998.
Aames Financial Corporation is a leading home equity lender, and
currently operates 80 Aames Home Loan offices serving 31 states throughout
the United States. Its wholly owned subsidiary, One Stop Mortgage, Inc.
currently operates 43 offices serving 39 states.
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, negative impact on cash flow, right to
terminate mortgage servicing; prepayment, basis and credit risk; losses in
securitization trusts, right to terminate mortgage servicing;
<PAGE>
risks of contracted servicing; dependence on funding sources; capitalized
interest-only strips, mortgage servicing rights; recent acquisition of
One Stop; dependence on broker network; impact of increases in correspondent
pricing; risks associated with high loan-to-value loan products; risks
involved in commercial mortgage lending; competition; concentration of
operations in California; timing of loan sales; economic conditions;
contingent risks; and government regulation. For a more complete
discussion of these risks and uncertainties, see "Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- --Risk Factors" in the Company's form 10-K for the fiscal year ended
June 30, 1997 and form 10-Q for the quarter ended September 30, 1997.
# # #
[Financial Tables Follow]
<PAGE>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1997 1996 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans $56,960,000 $52,443,000 $113,160,000 $97,164,000
Net unrealized gain on valuation
of interest-only strips - 5,726,000 - 10,755,000
Commissions 7,841,000 7,161,000 15,587,000 13,016,000
Loan service 5,402,000 10,362,000 10,062,000 20,144,000
Fees and other 9,825,000 11,962,000 16,860,000 24,487,000
----------- ----------- ------------ -----------
Total revenue 80,028,000 87,654,000 155,669,000 165,566,000
----------- ----------- ------------ -----------
Expenses:
Compensation and related expenses 19,709,000 24,561,000 39,033,000 46,320,000
Production expenses 6,760,000 7,541,000 14,234,000 13,338,000
General and administrative expenses 7,156,000 9,580,000 14,718,000 17,665,000
Interest expense 7,743,000 10,819,000 15,187,000 20,917,000
Provision for loan losses 7,150,000 10,893,000 16,932,000 19,463,000
Nonrecurring charges - - 28,108,000 -
----------- ----------- ------------ -----------
Total expenses 48,518,000 63,394,000 128,212,000 117,703,000
----------- ----------- ------------ -----------
Income before income taxes 31,510,000 24,260,000 27,457,000 47,863,000
Provision for income taxes 13,236,000 10,917,000 13,807,000 21,439,000
----------- ----------- ------------ -----------
Net income $18,274,000 $13,343,000 $13,650,000 $26,424,000
=========== =========== ============ ===========
Net income per share
Basic $0.67 $0.48 $0.53 $0.95
=========== =========== ============ ===========
Diluted $0.53 $0.41 $0.45 $0.80
=========== =========== ============ ===========
Dividends per share $0.03 $0.03 $0.07 $0.07
=========== =========== ============ ===========
Weighted average number
of shares outstanding
Basic 27,397,000 27,799,000 25,577,000 27,784,000
=========== =========== ============ ===========
Diluted 35,814,000 34,949,000 34,038,000 35,272,000
=========== =========== ============ ===========
</TABLE>
<PAGE>
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1997
----------- ------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $26,902,000 $8,691,000
Loans held for sale, at lower
of cost or market 242,987,000 215,861,000
Accounts receivable 59,180,000 41,418,000
Interest-only strips, estimated
at fair market value 270,422,000 327,146,000
Mortgage servicing rights 21,641,000 28,218,000
Residual assets 112,827,000 154,208,000
Equipment and improvements, net 12,685,000 12,835,000
Prepaid and other 14,949,000 15,700,000
------------ ------------
Total assets $761,593,000 $804,077,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $286,990,000 $286,990,000
Revolving warehouse facilities 137,500,000 129,500,000
Accounts payable and accrued expenses 29,297,000 38,305,000
Income taxes payable 39,452,000 56,094,000
------------ ------------
Total liabilities 493,239,000 510,889,000
------------ ------------
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;
27,758,800, and 27,812,000 shares
outstanding 28,000 28,000
Additional paid-in capital 209,358,000 209,602,000
Retained earnings 58,968,000 83,558,000
------------ ------------
Total stockholders' equity 268,354,000 293,188,000
------------ ------------
Total liabilities and stockholders' equity $761,593,000 $804,077,000
============ ============
</TABLE>
<PAGE>
AAMES FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS
CONSOLIDATED STATEMENTS OF INCOME:
(UNAUDITED)
<TABLE>
<CAPTION>
QTR ENDED QTR ENDED YR TO DATE YR TO DATE
Dec-96 Dec-97 Dec-96 Dec-97
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
ORIGINATION VOLUME:
CORRESPONDENT 324,535,000 184,615,000 583,548,000 312,374,000
BROKER NETWORK 189,685,000 273,756,000 330,602,000 535,590,000
RETAIL 114,549,000 157,292,000 215,938,000 290,838,000
----------- ----------- ------------- -------------
TOTAL 628,769,000 615,663,000 1,130,088,000 1,138,802,000
----------- ----------- ------------- -------------
RETAIL WTD AVG COMM RATE 4.99% 4.34% 5.40% 4.45%
SERVICING PORTFOLIO: 2,274,400,000 3,750,750,000
LOAN SALES:
WHOLE LOANS SOLD - 1,002,000 7,532,000 40,035,000
SECURITIZATIONS 602,770,000 605,142,000 1,129,770,000 1,109,278,000
SERVICING SPREAD 4.43% 3.86% 4.41% 4.00%
COMPONENTS OF REVENUE:
GAIN ON SALE OF LOANS $ 56,960,000 $ 52,443,000 $ 113,160,000 $ 97,164,000
NET UNREALIZED GAIN ON VALUATION
OF INTEREST-ONLY STRIPS - 5,726,000 - 10,755,000
COMMISSIONS:
RETAIL 5,537,000 6,507,000 10,658,000 11,461,000
BROKER NETWORK 1,344,000 220,000 3,243,000 758,000
OTHER 960,000 434,000 1,686,000 797,000
LOAN SERVICE:
SERVICING SPREAD 3,540,000 5,251,000 6,547,000 11,421,000
PREPAYMENT FEES 1,186,000 3,263,000 2,220,000 5,618,000
LATE CHGS & OTHER SERV FEES 676,000 1,848,000 1,295,000 3,105,000
FEES & OTHER:
CLOSING 689,000 670,000 1,536,000 1,257,000
APPRAISAL 459,000 634,000 929,000 1,135,000
UNDERWRITING 333,000 294,000 948,000 540,000
INTEREST INCOME 8,151,000 10,078,000 13,044,000 21,109,000
OTHER 193,000 286,000 403,000 446,000
----------- ----------- ------------- -------------
TOTAL REVENUE $ 80,028,000 $ 87,654,000 $ 155,669,000 $ 165,566,000
----------- ----------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
- ---------------------
NEWS RELEASE
CONTACT:
David Sklar
Aames Financial Corporation
(213) 210-5311
or
Christine Reich
Ocwen Financial Corporation
Ocwen Asset Investment Corp.
(561) 681-8957
or
Jeffrey Lloyd/Steve Hawkins
Sitrick And Company
(310) 788-2850
OCWEN ASSET INVESTMENT CORP., AAMES FINANCIAL CORP. AND OCWEN FINANCIAL
CORP. ANNOUNCE NEGOTIATION OF PURCHASE AND SALE OF SUBORDINATE RESIDUAL
INTERESTS AND SPECIAL SERVICING OF UNDERLYING MORTGAGE LOANS
WEST PALM BEACH, FL AND LOS ANGELES, CA, JANUARY 28, 1998 -- IN A
JOINT STATEMENT ISSUED TODAY, OCWEN ASSET INVESTMENT CORP. (NASDAQ: OAIC),
AAMES FINANCIAL CORPORATION (NYSE: AAM) AND OCWEN FINANCIAL CORPORATION
(NYSE: OCN) announced that they have entered into a nonbinding letter of
intent pursuant to which they are negotiating for OAIC to acquire
subordinated residual interests with respect to up to $600 million of
mortgage loans originated or acquired by Aames through the first quarter of
1998 and for OCN to assume responsibility for the special servicing of
nonperforming loans underlying such residuals.
As currently envisioned, OAIC would have the right to purchase such
residuals at a predetermined price and upon predetermined terms which would
be agreed by the parties in definitive agreements. In addition, OAIC would
have the right to review and accept such loans in advance of their
securitization, a mutually agreed upon third party would purchase and
securitize the accepted loans, Aames would be the master servicer for the
performing securitized loans and Ocwen Federal Bank FSB, a wholly-owned
subsidiary of OCN, would be the special servicer for the nonperforming
securitized loans.
Cary H. Thompson, Chief Executive Officer of Aames, and William C.
Erbey, Chairman of OAIC and Chairman and Chief Executive Officer of OCN,
jointly stated: "We are very pleased to be negotiating a mutually
beneficial relationship which is consistent with the strategies and
objectives of all three companies." Mr. Thompson added, "This arrangement
furthers Aames' new business strategy of focusing on whole loan sales to
provide positive cash flow."
<PAGE>
Mr. Erbey added, "OAIC believes that an advance arrangement to
purchase these residual interests at a specified price and terms would be
beneficial to OAIC and its investment objectives. Further, OCN is very
pleased to be able to provide the special servicing in order to facilitate
this arrangement."
OAIC and Aames anticipate negotiating definitive agreements between
them over the next several weeks with respect to such transactions. There
can be no assurance that definitive agreements between the parties will be
reached, and if reached, there can be no assurance that the terms and
conditions set forth in such agreements will be satisfied or that the
transactions will be consummated.
Certain statements contained herein are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act, as amended, including, but
not limited to, the expected benefits of the transaction. These forward-
looking statements may be identified by reference to a future period(s) or
by the use of forward-looking terminology. Actual results could differ
materially from those indicated in such statements due to a variety of
factors, including, but not limited to, changes in international, national,
regional or local economic environments, competitive products and pricing,
government fiscal and monetary policies, changes in prevailing interest
rates, the course of negotiations, the inability of the parties to agree to
material terms of the transaction or to fulfill contractual conditions
(including obtaining appropriate Board approvals), the occurrence of
material adverse changes in the business of either party, the inability to
obtain a mutually acceptable third party to purchase and securitize the
mortgage loans on mutually acceptable terms, a material change in factors
inherent to the valuation and pricing of residual interests and other
factors generally understood to affect the real estate acquisition,
mortgage and leasing markets and security investments.
###
