-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILaT8rLy3D200vOFSLykJO1tIzXWyOixWnuwHxJ9QGbDXjohga56A+en6nPgc7Im q11aTdSA9vHyXYJKQI5Qvg== 0000950150-98-001448.txt : 19980825 0000950150-98-001448.hdr.sgml : 19980825 ACCESSION NUMBER: 0000950150-98-001448 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980812 ITEM INFORMATION: FILED AS OF DATE: 19980824 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAMES FINANCIAL CORP/DE CENTRAL INDEX KEY: 0000879957 STANDARD INDUSTRIAL CLASSIFICATION: LOAN BROKERS [6163] IRS NUMBER: 954340340 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13660 FILM NUMBER: 98696633 BUSINESS ADDRESS: STREET 1: 350 SOUTH GRAND AVE STREET 2: 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2132105000 MAIL ADDRESS: STREET 1: 3731 WILSHIRE BLVD 10TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90010 8-K 1 FORM 8-K 1 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) 1 2 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. 2 3 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 3 4 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ----------- ---------------------- 99 Press release issued August 12, 1998
4 EX-99 2 PRESS RELEASE ISSUED AUGUST 12, 1998 1 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 5 2 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. 6 3 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 7 4 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] 8 5 AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED, TWELVE MONTHS ENDED, JUNE 30, JUNE 30, ---------------------------------- ---------------------------------- 1997 1998 1997 1998 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
9 6 AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30, 1997 1998 ------------ ------------ (Audited) (Audited) 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 ============ ============
10 7 AAMES FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS
THREE MONTHS ENDED TWELVE MONTHS ENDED June 30, June 30, --------------------------------------- --------------------------------------- 1997 1998 1997 1998 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 =============== =============== =============== ===============
11 8 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:
Year Ended June 30, ----------------------------------------------------------- 1996 1997 1998 ------------- ------------- ------------- (Dollars in Thousands) 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)
(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. 12 -----END PRIVACY-ENHANCED MESSAGE-----