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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 12, 1998
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 0-19604 95-340340
(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) 210-5000
(Registrant's Telephone Number, Including Area Code)
NA
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
Reference is made to the press release of Registrant issued on August
12, 1998 which contains information meeting the requirements of this Item 5 and
is incorporated herein by this reference. A copy of the press release is
attached to this Form 8-K as Exhibit 99.
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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.
AAMES FINANCIAL CORPORATION
Dated: August 24, 1998 By: /s/ Barbara S. Polsky
-----------------------------------
Barbara S. Polsky
Executive Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
99 Press release issued August 12, 1998
</TABLE>
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EXHIBIT 99
FOR IMMEDIATE RELEASE
Contact: David Sklar
Aames Financial Corporation
(213) 210-5311
or
Jeffrey Lloyd/Steve Hawkins
Sitrick And Company
(310) 788-2850
AAMES FINANCIAL CORPORATION REPORTS
RECORD YEAR-END RESULTS AND
DECLARES REGULAR QUARTERLY DIVIDEND
CORE RETAIL AND BROKER UNITS REPORT RECORD VOLUME
LOS ANGELES, CALIFORNIA, AUGUST 12, 1998 - AAMES FINANCIAL CORPORATION
(NYSE: AAM), a leader in subprime home equity lending, today reported record
earnings for the fiscal year ended June 30, 1998.
Net income for the three months ended June 30, 1998 was $9.8 million,
or $0.29 per share (diluted), compared to a net loss of $14.1 million, or
($0.37) per share (diluted), for the three months ended June 30, 1997. The loss
in the fourth quarter of the prior year was primarily attributable to a $28.0
million valuation adjustment of the interest-only strip recorded in the year's
fourth fiscal quarter. Revenue for the quarter was a record $91.2 million, up
178 percent when compared to $32.8 million for the fourth quarter last year.
Eliminating the impact of last year's $28.0 interest-only strip valuation
adjustment, last year's revenue amounted to $60.8 million. Accordingly, revenue
for the quarter increased 50 percent from comparative levels of a year ago.
Net income for the twelve month period was a record $40.3 million, up
136 percent from the prior year's $17.1 million. Net income per share for the
year was a record $1.41 (basic) and $1.23 (diluted), up 117 percent and 105
percent, respectively, from $0.65 (basic) and $0.60 (diluted) for the prior
year. Record revenues for the twelve month period were up 19 percent to $325
million, versus $273 million in the prior year.
Neil B. Kornswiet, Aames co-chairman and president, said, "The retail
and broker units reported record levels of loan production in the quarter and
for the fiscal year. Retail loan originations for the fourth fiscal quarter were
$180 million, up 48 percent from $122 million a year ago. The strong retail
growth continued into this quarter with total retail production
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reaching a monthly record $76.0 million for July. Originations for the One Stop
broker network totaled $310 million for the quarter, up 37 percent from $226
million a year ago. Total loan production for the quarter was $674 million, up
4.7 percent from $644 million a year ago, despite a 43 percent reduction in less
profitable bulk correspondent loan production.
"On an annual basis, the retail and broker units also set new loan
production records. Retail originations were $636 million for the year, up 46
percent from $437 million a year ago. Broker loan production surpassed the $1.0
billion mark, reaching $1.05 billion for the year, compared with $734 million a
year ago," Kornswiet added.
"Certain of our expenses increased during the year to generate the
sizable gains in production and net income for the year. In particular, certain
of the increased expenses related to our expedited retail expansion, our new One
Stop retail direct unit ("Retail Direct"), our new One Stop U.K. operation and
the build up of our servicing operation as substantially all of Aames' loans are
now being serviced in house. We expect to see the benefits of these expenses
during the next year, as these new offices and operations mature," Kornswiet
concluded.
Cary Thompson, Aames chief executive officer, stated, "When we
announced our new business strategy earlier this year, we said that we intended
to be opportunistic, taking advantage of market opportunities in order to
maximize profit and cash flow opportunities in our loan dispositions through a
combination of securitizations and loan sales for cash. This past quarter we
took advantage of positive market conditions for subprime loans that were
similar to those in early 1997 in the asset-backed market. As a result, we sold
a total of $697 million in loans, $625 million of which was securitized and $72
million of which was sold for cash in the whole loan market."
Thompson said that the quarter's gain on sale was $63.3 million, which
included $5.7 million of a net unrealized gain on valuation of interest-only
strips related to loans sold. The quarter's gain on sale reflects the larger
amount of loans sold, offset by the lower premiums earned in the whole loan
sales and the lower weighted average interest rates charged on the loans
included in the securitizations. The carryover of loans held for sale at June
30, 1998 increased to $198 million from $174 million at March 31, 1998.
He added, "During the comparable 1997 quarter, the Company sold $500
million in loans in securitization transactions and reported an $8.5 million
gain on sale, including the effects of a $28.0 million fourth quarter valuation
adjustment of the interest-only strip."
Thompson said that in its regular quarterly review of its interest-only
strip, the Company considered the historic and expected performance of its
securitized loan pools, as well as the recent prepayment experience of those
pools. The Company did not record an unrealized loss on any previously recorded
interest-only strip during the quarter or year ended June 30, 1998.
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Gain on sale of loans for the year, which included $19.5 million of
unrealized gain on valuation of interest-only strips related to loans sold, was
$208 million, a 16 percent increase from $180 million a year ago. The year's
gain on sale revenue reflects the record level of loan production sold, offset
by the lower cash gains attributable to the $416 million of whole loans sold and
the application of the increase in prepayment assumptions during the 1997 fourth
fiscal quarter. Last year=s gain on sale was reduced by the $28.0 million
valuation adjustment of the Company's interest-only strip in the fourth quarter
of the prior year. The provision for loan losses increased by $5.2 million
during the fiscal year ended June 30, 1998, when compared to last year. The
increase is attributable to the larger percentage of higher credit-grade loans
included in the securitized product, offset by the sale of a significant portion
of loans in the whole loan, servicing released sales.
Thompson added, "At June 30, 1998, Aames' loan servicing portfolio
increased to $4.1 billion, up 28 percent from $3.2 billion at June 30, 1997.
More important to Aames is that loans serviced in house increased to $3.9
billion from $1.5 billion, a 162 percent increase year-over- year. By calendar
year end we plan to eliminate our use of third party subservicers and by fiscal
year end we expect to begin subservicing for others. Our loan servicing unit,
which we also view as a core business, is expected to become an even more
significant contributor to our revenues and cash flows."
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 September 9,
1998, to stockholders of record as of August 24, 1998.
Aames Financial Corporation is a leading home equity lender, and
currently operates 98 Aames Home Loan offices serving 32 states throughout the
United States. Its wholly owned subsidiary, One Stop Mortgage, Inc. currently
operates 47 broker offices serving 45 states and the United Kingdom and 5 Retail
Direct offices serving 4 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; risks of contracted servicing; risk of
adverse changes in the secondary market for mortgage loans; 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
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involved in commercial mortgage lending; competition; concentration of
operations in California; timing of loan sales; year 2000 compliance; 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 quarters ended September 30, 1997, December 31, 1997 and March
31, 1998.
# # #
[Financial Tables Follow]
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED, TWELVE MONTHS ENDED,
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans $ 32,525,000 57,659,000 $ 198,736,000 $ 188,578,000
Net unrealized gain or loss on valuation
of interest-only strips (24,053,000) 5,682,000 (18,950,000) 19,495,000
Commissions 6,077,000 7,133,000 29,250,000 27,664,000
Loan service 6,973,000 10,899,000 25,804,000 42,677,000
Fees and other 11,250,000 9,862,000 37,679,000 46,860,000
------------- ------------- ------------- -------------
Total revenue 32,772,000 91,235,000 272,519,000 325,274,000
------------- ------------- ------------- -------------
Expenses:
Compensation and related expenses 19,738,000 24,152,000 81,021,000 94,820,000
Production expenses 6,430,000 11,565,000 27,229,000 34,195,000
General and administrative expenses 8,917,000 12,763,000 31,716,000 40,686,000
Interest expense 9,553,000 11,361,000 33,105,000 43,982,000
Provision for loan losses 8,500,000 14,001,000 33,941,000 39,164,000
Nonrecurring charges 3,892,000 32,000,000
------------- ------------- ------------- -------------
Total expenses 57,030,000 73,842,000 239,012,000 252,847,000
------------- ------------- ------------- -------------
Income before income taxes (24,258,000) 17,393,000 33,507,000 72,427,000
Provision for income taxes (10,143,000) 7,620,000 16,398,000 32,110,000
------------- ------------- ------------- -------------
Net income $( 14,115,000) $ 9,773,000 $ 17,109,000 $ 40,317,000
============= ============= ============= =============
Net income per share
Basic $( 0.51) $ 0.32 $ 0.65 $ 1.41
============= ============= ============= =============
Diluted $( 0.37) $ 0.29 $ 0.60 $ 1.23
============= ============= ============= =============
Dividends per share $ 0.03 $ 0.03 $ 0.13 $ 0.13
============= ============= ============= =============
Weighted average number
of shares outstanding
Basic 27,747,000 30,253,000 26,400,000 28,548,000
============= ============= ============= =============
Diluted 35,273,000 37,232,000 34,516,000 35,749,000
============= ============= ============= =============
</TABLE>
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1998
------------ ------------
(Audited) (Audited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 26,902,000 $ 12,322,000
Loans held for sale, at lower of cost or market 242,987,000 198,202,000
Accounts receivable 59,180,000 51,072,000
Interest-only strips, estimated at fair market value 270,422,000 359,600,000
Mortgage servicing rights 21,641,000 32,090,000
Residual assets 112,827,000 194,561,000
Equipment and improvements, net 12,685,000 13,939,000
Prepaid and other 14,949,000 17,020,000
------------ ------------
Total assets $761,593,000 $878,806,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings $286,990,000 $286,990,000
Revolving warehouse facilities 137,500,000 141,012,000
Accounts payable and accrued expenses 29,297,000 49,964,000
Income taxes payable 39,452,000 55,437,000
------------ ------------
Total liabilities 493,239,000 533,403,000
------------ ------------
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 30,962,600 shares outstanding 28,000 31,000
Additional paid-in capital 209,358,000 249,851,000
Retained earnings 58,968,000 95,521,000
------------ ------------
Total stockholders' equity 268,354,000 345,403,000
------------ ------------
Total liabilities and stockholders' equity $761,593,000 $878,806,000
============ ============
</TABLE>
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AAMES FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
June 30, June 30,
--------------------------------------- ---------------------------------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
ORIGINATION VOLUME:
BROKER NETWORK $ 226,187,000 $ 309,552,000 $ 734,217,000 $ 1,047,250,000
RETAIL 121,697,000 180,280,000 436,903,000 636,136,000
CORRESPONDENT 288,779,000 163,884,000 1,169,968,000 646,348,000
COMMERCIAL 6,850,000 20,224,000 6,850,000 53,904,000
--------------- --------------- --------------- ---------------
TOTAL $ 643,513,000 $ 673,940,000 $ 2,347,938,000 $ 2,383,638,000
=============== =============== =============== ===============
RETAIL WTD AVG COMM RATE 4.70% 4.12% 4.88% 4.28%
SERVICING PORTFOLIO: $ 3,174,000,000 $ 4,147,100,000
SERVICED IN-HOUSE: 1,506,200,000 $ 3,941,100,000
LOAN SALES:
WHOLE LOANS SOLD $ -- $ 71,600,000 $ 7,532,000 $ 416,390,000
SECURITIZATIONS 500,000,000 625,100,000 2,262,700,000 2,034,300,000
SERVICING SPREAD ON SECURITIZATIONS 3.91% 3.75% 4.16% 3.91%
COMPONENTS OF REVENUE:
GAIN ON SALE OF LOANS $ 32,525,000 $ 57,659,000 $ 198,736,000 $ 188,578,000
NET UNREALIZED GAIN OR LOSS ON
VALUATION OF INTEREST-ONLY STRIPS (24,053,000) 5,682,000 (18,950,000) 19,495,000
COMMISSIONS:
RETAIL 4,901,000 6,529,000 21,320,000 24,893,000
BROKER NETWORK 450,000 (66,000) 4,837,000 677,000
OTHER 726,000 670,000 3,093,000 2,094,000
LOAN SERVICE:
SERVICING SPREAD 3,820,000 5,176,000 16,265,000 23,427,000
PREPAYMENT FEES 1,917,000 3,514,000 5,815,000 11,761,000
LATE CHGS & OTHER SERV FEES 1,236,000 2,209,000 3,724,000 7,489,000
FEES & OTHER:
CLOSING 573,000 714,000 2,723,000 2,668,000
APPRAISAL 448,000 778,000 1,854,000 2,617,000
UNDERWRITING 223,000 263,000 1,382,000 1,085,000
INTEREST INCOME 10,011,000 8,239,000 31,160,000 40,110,000
OTHER (5,000) (132,000) 560,000 380,000
--------------- --------------- --------------- ---------------
TOTAL REVENUE $ 32,772,000 $ 91,235,000 $ 272,519,000 $ 325,274,000
=============== =============== =============== ===============
</TABLE>
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
DELINQUENCY AND LOSS STATISTICS
The following table sets forth delinquency, foreclosure, liquidation loss and
reserve information of the Company's servicing portfolio for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended
June 30,
-----------------------------------------------------------
1996 1997 1998
------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Percentage of dollar amount of delinquent loans
to loans serviced (period end) (1)(2)(3)(11)
One month 4.9% 4.3% 3.8%
Two months 1.8% 1.9% 1.3%
Three or more months:
Not foreclosed (4) 8.0% 8.1% 9.0%
Foreclosed (5) 1.0% 1.0% 1.5%
------------- ------------- -------------
Total 15.7% 15.3% 15.6%
Percentage of dollar amount of loans foreclosed to
loans serviced (period end) (2)(11) 1.1% 1.5% 2.0%
Number of loans foreclosed (6) 221 (6) 560 (6) 1,125 (6)
Principal amount of foreclosed loans (6) $ 14,349 $ 48,029 $ 84,613
Liquidation losses (7) $ 931 $ 5,470 $ 26,488
One-time charge against loan loss reserve ( 8) $ 6,000
Percentage of annualized losses to average
servicing portfolio(9)(11) 0.09% 0.24% 0.72%
Liquidation loss reserve (10) $ 10,300 $ 43,586 $ 50,262
Servicing portfolio (period end) (11) $ 1,370,000 $ 3,174,000 $ 4,147,000 (11)
</TABLE>
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis
of the total dollar amount of mortgage loans originated or purchased by
the Company and, in each case, serviced by the Company, and any
subservicer as of the end of the periods indicated. Percentages for
fiscal year 1996 have not been restated to include delinquencies on
loans originated by One Stop. The Company believes any such adjustment
would not be material.
(3) At June 30, 1998, the dollar volume of loans delinquent more than 90
days in the Company's twelve REMIC trusts formed in November 1992,
December 1992 and June 1993 and during the period from December 1994 to
December 1996 exceeded the permitted limit in the related pooling and
servicing agreements. Seven of those trusts plus one additional trust
exceeded certain loss limits.
(4) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(5) Represents properties acquired following a foreclosure sale and still
serviced by the Company.
(6) The increase in the number of loans foreclosed and principal amount of
loans foreclosed in fiscal year 1998 and 1997 relative to fiscal year
1996 is due to the larger, more seasoned servicing portfolio.
(7) Represents losses, net of gains, on foreclosed properties sold during
the period indicated.
(8) Represents a one-time charge in March 1998 to the loss reserve resulting
from the Company's delay in recording information transferred from a
third party servicer.
(9) Does not include the one-time charge referred to in footnote (8) above.
(10) Represents period end reserves for future liquidation losses.
(11) Includes $82 million of loans subserviced by the Company on an interim
basis at June 30, 1998.
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