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Aames Financial Corporation Reports September 2001 Quarter Results

LOS ANGELES--(BUSINESS WIRE)--Nov. 9, 2001--Aames Financial Corporation (NYSE: AAM):

  • Announces net income of $626,000 compared to $693,000 a year ago
  • September 2001 quarter loan production of $723.3 million an increase of $39.1 million over June 2001 quarter
  • Company completes a $175.0 million securitization in September
  • Writes down residual interests by $10.0 million

Aames Financial Corporation (NYSE: AAM), a leader in subprime home equity lending, today reported results of operations for the three months ended September 30, 2001. The Company reported net income of $626,000 for the three months ended September 30, 2001 compared to net income of $693,000 during the same period a year ago. After the convertible preferred stock dividend accrual of $4.3 million and $3.2 million for the three months ended September 30, 2001 and 2000, respectively, the net loss to common shareholders was $3.7 million and $2.5 million, respectively. The diluted net loss per common share was $0.59 for the three months ended September 30, 2001 compared to diluted net loss per common share of $0.40 during the same period a year ago.

Results of operations during the three months ended September 30, 2001 include a $10.0 million write-down to the Company's residual interests. At the close of the September 2001 quarter, the Company changed its credit loss and prepayment rate assumptions used in valuing its residual interests in light of the recent economic uncertainty resulting from the events of September 11, and recent higher than expected credit losses and prepayment activity in the Company's securitized trusts. Excluding the write-down, net operating results during the three months ended September 30, 2001 were $10.6 million compared to $0.7 million during the same period a year ago.

In making the announcement, A. Jay Meyerson, Aames' Chief Executive Officer, stated, ``We are pleased by the improvements in the core operating performance of the Company during the September 2001 quarter, both in continued growth in our loan production, and in our continued improvements in expense management and cost efficiencies throughout the Company.'' Meyerson added, ``In the current quarter, we continue to focus on improving our core business fundamentals, and integrating the Residential Money Centers (`RMC') acquisition, which should increase the Company's operating efficiencies and retail Internet production.''

``The $10.0 million residual adjustment addresses a recent increase of credit losses due primarily to negative economic factors impacting mortgagors, and increased prepayment speeds resulting from borrowers refinancing their loans in the lower current mortgage interest rate environment,'' commented Ronald J. Nicolas, Jr., Chief Financial Officer of Aames. ``Worsening economic conditions could lead to greater stress on homeowners' cash flows and, potentially contribute to credit losses in the securitization trusts in excess of management's current assumptions. Additionally, while the current mortgage interest rate environment is favorable to the Company's loan production, continued prepayment activity might also continue to negatively effect the Company's residual interests,'' continued Nicolas. ``The Company will continue to closely monitor the actual performance of its residual assets relative to their underlying valuation assumptions with a goal of keeping pace with economic factors in the marketplace,'' Nicolas said.


Summary of Financial Results for the 3 Months Ended September 30, 2001


Total Revenues
During the three months ended September 30, 2001 total revenue was $53.1 million, down $6.8 million from $59.9 million of total revenue reported during the comparable period a year ago. Revenues during the three months ended September 30, 2001 include a $10.0 million write-down to the Company's residual interests.

Excluding the $10.0 million residual interest write-down during the three months ended September 30, 2001, total revenue was $63.1 million, up $3.2 million, or 5.3% from $59.9 million of total revenue during the three months ended September 30, 2000. The increase is primarily attributable to a $3.9 million increase in gain on sale of loans during the three months ended September 30, 2001 to $23.8 million from the $19.9 million in gain on sale of loans reported during the same period a year ago. To a lesser extent, the increase in total revenues during the three months ended September 30, 2001 over those reported a year ago resulted from a $1.5 million increase in origination fees which rose to $13.8 million from $12.3 million during the three months ended September 30, 2000. This increase is attributable to increases in retail production during the September 2001 quarter over a year ago. Partially offsetting these increases were declines in loan servicing and interest income of $1.2 million and $1.0 million, to $3.1 million and $22.4 million, respectively, from $4.3 million and $23.4 million, respectively, reported during the three months ended September 30, 2000.

Total Expenses
Total expenses during the three months ended September 30, 2001 declined $7.2 million, or 12.2%, to $52.0 million from $59.2 million of total expenses reported for the three months ended September 30, 2000. The decrease in total expenses was largely attributable to declines of $2.9 million and $3.9 million in general and administrative and interest expense, respectively, from amounts reported during the same period a year ago.

Loan Production

Total Production
During the three months ended September 30, 2001, the Company originated a total of $723.3 million of mortgage loans an increase of $39.1 million, or 5.7%, over the $684.2 million of total loan production reported during the three months ended June 30, 2001, and an increase of $205.2 million, or 39.6%, over the $518.1 million of total mortgage loans originated during the three months ended September 30, 2000.

Retail Production
During the three months ended September 30, 2001, loan origination through the Company's retail branch network increased $6.9 million, or 2.4%, to $299.3 million from the $292.4 million reported during the three months ended June 30, 2001, and increased $88.3 million, or 41.8%, from the $211.0 million of retail branch production reported during the September 2000 quarter.

Meyerson noted, ``Retail production in the later half of the month of September was negatively impacted by the tragic events of September 11, 2001. However, we anticipate stronger growth in our retail production in the current quarter.''

Broker Production
The Company's total broker loan production during the three months ended September 30, 2001 was $369.3 million, an increase of $24.5 million, or 7.1%, over the $344.8 million of total broker production reported during the June 2001 quarter, and an increase of $83.4 million, or 29.2%, from the $285.9 million of total broker production reported during the three months ended September 30, 2000.

Of the total broker loan production during the three months ended September 30, 2001, mortgage loan origination through the Company's traditional broker network was $345.7 million, an increase of $14.3 million, or 4.3%, over the $331.4 million of traditional broker production during the June 2001 quarter, and an increase of $74.0 million, or 27.2% from the $271.7 million of mortgage loans produced through the traditional broker network during the September 2000 quarter. Broker loan production originated through telemarketing and the Internet was $23.6 million during the three months ended September 30, 2001 compared to $13.4 million during the June 2001 quarter and $14.2 million during the three months ended September 30, 2000.

Meyerson stated, ``The Company is pleased by the continued improvement in broker production through both our traditional broker channel, as well as through telemarketing and the Internet.''

National Loan Center
Loan production through the Company's National Loan Center, which originates mortgage loans primarily through affiliations with certain Internet sites, increased $7.7 million, or 16.4%, to $54.7 million during the three months ended September 30, 2001 from $47.0 million reported during the three months ended June 30, 2001, and increased $33.5 million over the $21.2 million of production reported during the three months ended September 30, 2000.

Meyerson stated, ``As the Company previously reported, we acquired certain assets and operations of RMC, an affiliate of GMAC-RFC, effective November 1, 2001, including their retail Internet origination platform. With this acquisition, we expect Internet lending to increase further in the current quarter.''

Loan dispositions and loan servicing

Loan dispositions
During the three months ended September 30, 2001, the Company securitized and sold a total of $745.7 million of mortgage loans which included loans pooled and sold in securitizations of $175.0 million and whole loan sales for cash of $570.7 million. In comparison, during the June 2001 quarter, the Company securitized and sold $533.4 million of loans, of which $150.0 million and $383.4 million were sold in securitizations and whole loan sales for cash, respectively. During the three months ended September 30, 2000, the Company securitized and sold of an aggregate of $667.9 million of mortgage loans comprised of $460.0 million of mortgage loans pooled and sold securitized and $207.9 million of whole loan sales for cash. During the three months ended September 30, 2001, the Company sold for cash the residual interest created in its securitization to an affiliate, and the servicing rights in its securitizations to an unaffiliated loan servicing company.

``In order to maximize our cash flow, during the September quarter we sold most of our adjustable rate mortgage loans in whole loan sales and most of our fixed rate mortgage loans in the securitization completed during the quarter, and sold the residual interest and the servicing rights in the securitization for cash,'' said Meyerson.

Loan servicing
At September 30, 2001, June 30, 2001 and September 30, 2000, the Company's servicing portfolio was $2.7 billion, $2.7 billion and $3.4 billion, respectively, of which $2.6 billion, $2.5 billion and $3.2 billion, respectively, or 93.8%, 93.2% and 92.9%, respectively, was serviced in-house. The decline in the Company's servicing portfolio from a year ago is due to run off, and the disposition of all loans on a servicing released basis since January 1, 2000. Included in the servicing portfolio at September 30, 2001 is $543.0 million of mortgage loans that were sold by the Company but were being serviced for others on an interim basis. Such loans have either since been transferred or will be subsequently transferred to new servicers as directed by the purchasers of the underlying loans.

Aames Financial Corporation is a leading home equity lender, and at September 30, 2001 operated 100 retail Aames Home Loan branches, five wholesale loan centers and one National Loan Center throughout the United 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 flow and continued access to outside sources of cash to fund operations; dependence on funding sources; third party rights to terminate mortgage servicing; high delinquencies and losses in the Company's securitization trusts; prepayment risk; changes in interest rates; basis risk; prolonged interruptions or reductions in the secondary market for mortgage loans; timing of loan sales; dependence on broker network; competition; concentration of operations in California and Florida; economic conditions; contingent risks on loans sold; government regulation; changes in federal income tax laws; ability to pay dividends and the concentrated ownership of the Company's controlling stockholder. 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 Annual Report on Form 10-K for the year ended June 30, 2001 and subsequent filings by the Company with the United States Securities and Exchange Commission.

Financial Tables and Supplementary Information Follow


             AAMES FINANCIAL CORPORATION and SUBSIDIARIES


                           Financial tables


                 (In thousands, except per share data)





                                              September 30,  June 30,


                                                 2001          2001


                                              (Unaudited)   (Audited)


CONDENSED CONSOLIDATED BALANCE SHEETS


Cash and cash equivalents                     $  13,746    $  27,583


Loans held for sale, at lower of cost


 or market                                      395,355      417,164


Accounts receivable                              76,015       71,052


Residual interests, at estimated fair value     224,152      237,838


Mortgage servicing rights, net                    5,479        6,545


Other assets                                     25,058       25,215


    Total assets                              $ 739,805    $ 785,397


Borrowings                                    $ 269,720    $ 269,720


Revolving warehouse and repurchase


 facilities                                     342,213      393,301


Accrued dividend on convertible preferred


 stock                                           28,299       23,975


Other liabilities                                57,386       52,516


                                                697,618      739,512


Stockholders' equity                             42,187       45,885


    Total liabilities and stockholders'


     equity                                   $ 739,805    $ 785,397





                                                 Three Months Ended


                                                    September 30,


                                                 2001          2000


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


Revenue:


  Gain on sale of loans                       $  23,824    $  19,921


  Write-down of residual interests              (10,000)          --


  Origination fees                               13,835       12,332


  Loan servicing                                  3,072        4,306


  Interest                                       22,393       23,354


    Total revenue, including write-down of


     residual interests                          53,124       59,913


Expenses:


  Personnel                                      25,900       26,072


  Production                                      4,325        4,514


  General and administrative                     10,697       13,589


  Interest                                       11,050       15,009


      Total expenses                             51,972       59,184


Income before income taxes                        1,152          729


Provision for income taxes                          526           36


Net income                                    $     626    $     693


Net loss to common shareholders               $  (3,698)   $  (2,470)


Net loss per common share:


  Basic                                       $   (0.59)   $   (0.40)


  Diluted                                     $   (0.59)   $   (0.40)


Weighted average number of common shares:


  Basic                                           6,265        6,211


  Diluted                                         6,265        6,211








             AAMES FINANCIAL CORPORATION and SUBSIDIARIES


                       Supplemental Information


                            (In thousands)





MORTGAGE LOAN ORIGINATION VOLUMES:


                                    Three Months Ended    Three Months


                                       September 30,         Ended


                                    2001          2000   June 30, 2001





Broker                          $ 369,270     $ 285,937     $ 344,833


Retail                            299,293       210,975       292,368


National Loan Center               54,735        21,226        47,009


    Total                       $ 723,298     $ 518,138     $ 684,210





SECURITIZATIONS AND WHOLE LOAN SALES:


                                   Three Months Ended     Three Months


                                      September 30,          Ended


                                  2001            2000   June 30, 2001





Loan securitizations            $ 175,008     $ 207,939     $ 150,007


Whole loan sales                  570,644       460,002       383,415


    Total                       $ 745,652     $ 667,941     $ 533,422





LOAN SERVICING:


                                       September 30,         June 30,


                                  2001 (1)     2000 (2)      2001 (3)





Servicing portfolio            $2,724,000    $3,399,000   $ 2,717,000


Serviced in-house               2,555,000     3,159,000     2,533,000


Percentage serviced in-house        93.8%         92.9%         93.2%





(1) Includes $543.0 million of loans subserviced for others by the


    Company on an interim basis, and $169.1 million of loans


    subserviced by others.


(2) Includes $518.6 million of loans subserviced for others by the


    Company on an interim basis, and $240.0 million of loans


    subserviced by others.


(3) Includes $334.5 million of loans subserviced for others by the


    Company on an interim basis, and $184.0 million of loans


    subserviced by others.
MortgageDaily.com
Contact:
Aames Financial Corporation
Ronald J. Nicolas, Jr. or Jon D. Van Deuren
323.210.5311
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