Arlington Asset Investment (NYSE:AIC)
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From Jul 2019 to Jul 2024
Aames Investment Corporation (NYSE:AIC), a mortgage real
estate investment trust, today reported financial results for the
first quarter of 2005. Total loans held for investment increased to
$2.9 billion, the Company declared a $0.27 per share dividend for the
quarter and diluted net loss per share equaled $0.01. During the
quarter, the Company reported a mark-to-market derivative gain under
FASB 133 of $9.5 million, or $0.16 per share. Excluding this gain,
core diluted loss per share totaled $0.17.
First Quarter Highlights
-- Loans held for investment in the REIT portfolio increased by
66% over December 31, 2004 to $2.9 billion;
-- The Company generated a 4.6% net interest margin on average
loans;
-- Total REIT portfolio delinquencies equaled 1.1%;
-- Total mortgage loan production of $1.4 billion, of which 62%
was wholesale and 38% retail.
Mr. A. Jay Meyerson, Chairman and CEO of Aames, commented, "Our
results for the first quarter of 2005 demonstrate our ability to
successfully execute our strategy as a mortgage REIT. We continued to
build a mortgage portfolio through the origination of loans that meet
our underwriting standards and our yield requirements. Pursuing a
portfolio strategy enables Aames to produce more stable and
predictable earnings and a dividend stream that is less sensitive to
quarterly changes in production compared to a reliance on one-time
gains produced through whole-loan sales"
Meyerson continued, "In addition, we have begun to see the
benefits from our efficiency initiatives and are making solid progress
in achieving our long-term cost cutting goals while maintaining a
sound production platform. We continue to review our product offering
and pricing to assure that we remain competitive. We will not,
however, focus simply on lending volume, but will manage to maximize
the returns on and quality of our loan portfolio."
Financial Summary
The net loss for the quarter ended March 31, 2005 totaled
$766,000, or a diluted loss per share of $0.01. Included in the net
loss was a $9.5 million pretax mark-to-market derivative gain, which
represents a non-cash market adjustment to the Company's interest rate
hedges that reduced interest expense for the quarter. Excluding this
gain, the net loss of the quarter totaled $10.3 million, or $0.17 per
share. Total operating revenue for the first quarter equaled $42.0
million, with net interest income of $33.4 million after a $6.5
million provision for loan losses, gain on sale of loans of $5.7
million and loan servicing revenue of $2.9 million. Excluding the FASB
133 hedge related fair value adjustment, core operating revenue
equaled $32.4 million, with core net interest income after provision
for loan losses of $23.8 million. The net yield on average loans for
the quarter was 4.55%. The net gain on sale rate for the first quarter
equaled 1.77%. Total non-interest expense equaled $42.0 million, or
3.08% of total loan production.
Comparison of the Quarter Ended March 31, 2005 and 2004
Total operating revenue for the first quarter of 2005 decreased by
$25.9 million from the first quarter of 2004 while core operating
revenue declined by $35.4 million. The decline resulted from the
continuing transition to a mortgage REIT, which changed the
composition of the Company's earnings from primarily a gain on sale
model to an interest income driven loan portfolio model. Gain on sale
of loans for the 2005 quarter equaled $5.7 million, compared to $54.6
million in the year ago quarter, as the Company retained the majority
of its higher value hybrid production in its loan portfolio, and sold
approximately 24% of its production in the first quarter of 2005,
primarily second lien, fixed rate and Alt-A loans. Net interest income
after the provision for losses for the March 2005 quarter increased
$22.3 million from the 2004 quarter, while core net interest income
after the provision for losses for the 2005 quarter increased $12.7
million. Included in net interest income for the first quarter of 2005
was a provision for loan losses of $6.5 million. There was no
provision in the March 2004 quarter. Total non interest expense for
the first quarter of 2005 declined by $5.1 million compared to the
year ago period, driven by lower compensation and production costs
from reduced loan volumes as well as lower general and administrative
expense due to the Company's efficiency initiatives.
Comparison of the Quarter Ended March 31, 2005 and December 31,
2004
Total operating revenue for the first quarter of 2005 increased by
$9.0 million over the fourth quarter of 2004, while core operating
revenue decreased by $497,000. Core net interest income after
provision for losses increased by $1.5 million, with a $6.5 million
provision for loan losses in the first quarter of 2005 compared to a
$1.2 million provision for loan losses in fourth quarter of 2004. Gain
on sale of loans for the quarter decreased by $4.1 million, again due
to the Company's focus on building its loans held for investment
portfolio. Non-interest expense for the first quarter 2005 decreased
by $428,000 compared to core non-interest expense for the fourth
quarter of 2004, which excludes $22.0 million of one time charges
related to the REIT conversion and corporate reorganization for that
period.
Balance Sheet
Total loans held for investment as of March 31, 2005 increased to
$2.9 billion, compared to $1.7 billion as of December 31, 2004. During
the quarter, the Company closed a $1.2 billion on-balance sheet
securitization, and retained an additional $31.2 million of loans held
for investment but not yet securitized on its March 31, 2005 balance
sheet. As of the close of the first quarter of 2005, Aames also held
$383.5 million of loans for sale into the secondary markets, which
were comprised primarily of fixed rate, second mortgage and Alt-A
loans. Average loans for the first quarter equaled $2.7 billion,
including $2.3 billion of loans held for investment and $366.2 million
of loans held for sale into the secondary markets.
The allowance for loan losses as of March 31, 2005 totaled $8.4
million, or 0.29% of the held for investment portfolio. During the
first quarter of 2005, the Company provided $6.5 million for losses.
The Company did not experience any charge-offs in its held for
investment portfolio in the quarter, due primarily to the early
seasoning of its held for investment portfolio. Loan delinquencies in
the held for investment portfolio as of March 31 were 1.1%, and were
below estimated levels.
Total equity as of March 31, 2005 equaled $356.8 million, compared
to $357.6 million as of December 31, 2004. The Company continues to
build its loans held for investment portfolio with a targeted leverage
ratio of approximately 12 to 14 times equity. The actual leverage
ratio (total loans held for investment divided by total stockholders'
equity) at March 31, 2005 was approximately 8 times equity, and the
Company anticipates achieving its target ratio in mid 2005. After
reaching this target, the Company will assess the relative benefits in
capital and earnings generation from selling the majority of its loan
production for cash gains or raising additional capital to fund
further portfolio growth.
Operating Results
Net interest income for the first quarter of 2005 totaled $39.9
million. The core net interest income equaled $30.3 million, or 4.55%
of average loans. Management anticipates closing an on-balance sheet
securitization of approximately $1.2 billion in the second quarter of
2005 as part its target to increase the loan portfolio to
approximately $4.0 billion. Management believes that the net interest
income from loans held for investment will represent a majority of
revenue as the Company becomes fully levered and that such income will
be a more sustainable, stable source of earnings than cash gain on
sale.
Gain on sale of loans for the March 2005 quarter equaled $5.7
million. During the quarter, Aames sold approximately $320.6 million
of loans into the secondary markets for cash gain, receiving an
average net premium of 1.77%. As in the fourth quarter of 2004, the
Company generated a lower gain on sale rate as it sold lower value
fixed rate, second mortgage and Alt-A loans, retaining hybrid loans
for its held for investment portfolio. In addition, competitive
pricing pressures and increased market interest rates resulted in
lower premiums paid for whole-loan sales in the first quarter of 2005.
While management anticipates continued pricing pressure on secondary
market premiums, the composition of loan sales is expected to generate
higher gain on sale margins. Upon achieving its targeted leverage
ratio, Aames intends to sell a larger volume of higher value hybrid
loans into the secondary market, which it expects will generate higher
premiums than the loans that the Company currently sells.
Loan servicing income for the first quarter of 2005 totaled $2.9
million, generated primarily by the Company's portfolio of on-balance
sheet securitizations. As the Company continues to grow its loan
portfolio, the components of servicing fees will move from fees earned
on loans serviced for third parties to fees earned on retained loans,
including late fees and prepayment penalties.
Non-interest expense for the March 2005 quarter equaled $42.0
million, comprised of $22.3 million of compensation expense, $8.8
million of expenses related to loan production and $10.8 million of
general and administrative expenses. Total expenses as a percentage of
loan production equaled 3.08%. In response to the margin compression
created by the competitive environment and in an effort to maximize
the return on its loan portfolio, management initiated a number of
cost reduction programs in the first quarter to lower net operating
cost as a percentage of loan production. The Company believes that the
results of these initiatives will begin to contribute to its financial
results in the second half of 2005. Compared to the fourth quarter of
2004, the total dollar volume of operating expenses, excluding the
$22.0 million reorganization charge in the fourth quarter of 2004,
decreased by approximately $500,000 during the March 2005 quarter.
Core compensation expense decreased by $717,000 with production and
core general and administrative expenses up slightly. Core expenses
eliminate the impact of one time charges taken in the fourth quarter
of 2004 related to the Company's conversion to a REIT and its initial
public offering.
Loan Production
The Company originated $1.4 billion of mortgage loans during the
first quarter of 2005, compared to $1.7 billion in the fourth quarter
of 2004 and $1.9 billion in the first quarter of 2004. The decreased
production resulted from the sustained competitive environment,
including aggressive actions by a number of peers on loan coupons and
terms, as well as the impact of higher interest rates on origination
volumes. In response to the current challenging market environment,
the Company has focused more on the quality of and returns generated
by its loan portfolio and its overall cost to originate loans, rather
than simply on absolute volume. The Company remains committed,
however, to offering competitive products that meet the borrowing
needs of its core customers.
Wholesale loan originations for the first quarter equaled $845.1
million, or 62.1% of total production, while retail originations
equaled $516.6 million, or 37.9% of total production. For the fourth
quarter of 2004, wholesale and retail originations accounted for 66.4%
and 33.6% of total production, respectively. Management believes that
the value of its retail franchise is maximized in the current lending
environment, where direct access to the consumer and ability to
achieve better loan pricing will increase the value of loan
production. During the first quarter, the Company opened 3 Super
Branches and closed 11 traditional retail branches.
About Aames Investment Corporation
Aames is a mortgage REIT and, through its subsidiary Aames
Financial Corporation, originates mortgage loans in 47 states. Aames
Financial is a fifty-year old national mortgage banking company
focused primarily on originating subprime residential mortgage loans
through wholesale and retail channels under the name "Aames Home
Loan." To find out more about Aames, please visit www.aames.net.
Information Regarding Forward Looking Statements
This press release may contain forward-looking statements under
federal securities laws. These statements are based on management's
current expectations and beliefs and are subject to a number of trends
and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The risks and
uncertainties that may cause our performance and results to vary
include: (i) changes in overall economic conditions and interest
rates; (ii) an inability to originate subprime hybrid/adjustable
mortgage loans; (iii) increased delinquency rates in our portfolio;
(iv) adverse changes in the securitization and whole loan market for
mortgage loans; (v) declines in real estate values; (vi) limited cash
flow to fund operations and dependence on short-term financing
facilities; (vii) concentration of operations in California, Florida,
New York and Texas; (viii) extensive government regulation;(ix)
intense competition in the mortgage lending industry and (x) an
inability to comply with the federal tax requirements applicable to
REITs and effectively operate within limitations imposed on REITs by
federal tax rules. For a more complete discussion of these risks and
uncertainties and information relating to the company, see the Form
10-K for the year ended December 31, 2004 and other filings with the
SEC made by the company pursuant to the Securities Exchange Act of
1934. Aames Investment expressly disclaims any obligation to update or
revise any forward-looking statements in this press release.
Further Information
For more information, contact Steven Canup, Senior Vice President,
Corporate Development and Investor Relations, in Aames Investment's
Investor Relations Department at (323) 210-5311 or at
info@aamescorp.com via email.
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed financial statements
(In thousands)
CONDENSED BALANCE SHEETS
-------------------------
March 31, December 31,
2005 2004
------------ -----------
(unaudited)
Cash and cash equivalents 128,366 $37,780
Loans held for sale, at lower of cost or
market 383,478 484,963
Loans held for investment, net 2,862,407 1,725,046
Advances and other receivables 24,579 22,740
Residual interests, at estimated fair value 18,862 39,082
Derivative instruments, at estimated fair
value 51,970 31,947
Prepaid and other assets 58,449 59,317
-------------- -----------
Total assets $3,528,111 $2,400,875
-------------- -----------
Financings on loans held for investment $2,258,106 $1,157,470
Revolving warehouse and repurchase
facilities 854,383 809,213
Other borrowings - 7,680
Other liabilities 58,814 68,886
-------------- -----------
3,171,303 2,043,249
Stockholders' equity 356,808 357,626
-------------- -----------
Total liabilities and stockholders'
equity $3,528,111 $2,400,875
-------------- -----------
Shares outstanding 61,421,757 61,360,271
-------------- -----------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed financial statements
(In thousands, except per share data)
Three Months Ended
March 31,
--------------------
2005 2004
--------------------
(Unaudited)
Interest income $51,768 $17,678
Interest expense 11,916 6,579
----------- --------
Net interest income 39,852 11,099
Provision for losses on loans held for investment 6,500 -
----------- --------
Net interest income after provision for
losses 33,352 11,099
Noninterest income:
Gain on sale of loans 5,683 54,599
Loan servicing 2,924 2,155
----------- --------
Total noninterest income 8,607 56,754
----------- --------
Net interest income and noninterest income 41,959 67,853
Noninterest expense:
Personnel 22,347 25,348
Production 8,800 10,333
General and administrative 10,813 11,375
----------- --------
Total noninterest expense 41,960 47,056
----------- --------
Income (loss) before income taxes (1) 20,797
Provision (benefit) for income taxes 765 (93)
--------------------
Net income (loss) $(766) $20,890
--------------------
Net income (loss) to common stockholders:
Basic $(766) $18,021
--------------------
Diluted $(766) $21,412
--------------------
Net income (loss) per common share:
Basic $(0.01) $2.53
--------------------
Diluted $(0.01) $0.20
--------------------
Weighted average number of
common shares outstanding:
Basic 61,420 7,120
--------------------
Diluted 61,420 104,800
--------------------
Mark to market on interest rate cap agreements
designed to hedge interest rate risk on
financings
of loans held for investments $9,532 $-
Income (loss) before income taxes, excluding mark
to market adjustment (9,533) 20,797
Provision (benefit) for income taxes 765 (93)
--------------------
Net income (loss) to common stockholders,
excluding mark to market adjustment $(10,298) $20,890
--------------------
Diluted net income (loss) per common share,
excluding mark to market adjustment $(0.17) $0.20
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Other financial data (Unaudited)
(In thousands)
Condensed Statement of Cash
Flow Information
Three Months Ended March 31,
------------------------------
2005 2004
------------ ----------
Net cash provided by (used in):
Operating activities $101,221 $(82,947)
Investing activities (1,144,929) (930)
Financing activities 1,134,294 89,337
------------ ----------
Net increase (decrease) in cash and cash
equivalents 90,586 5,460
Cash and cash equivalents, beginning of period 37,780 11,611
------------ ----------
Cash and cash equivalents, end of period $128,366 $17,071
------------ ----------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
LOAN PRODUCTION:
(In thousands)
Three Months Ended
-----------------------------------
March 31, December 31,
2005 2004 2004
----------------------- -----------
(Unaudited)
RETAIL PRODUCTION
Total dollar amount $516,558 $586,527 $574,625
Number of loans 3,718 4,677 4,431
Average loan amount $138,934 $125,407 $129,683
Average initial LTV 75.88% 77.85% 75.82%
Weighted average interest rate 7.53% 7.26% 7.36%
WHOLESALE PRODUCTION
Total dollar amount $845,058 $1,279,701 $1,134,911
Number of loans 6,028 8,630 7,841
Average loan amount $140,189 $148,285 $144,741
Average initial LTV 81.25% 81.68% 81.19%
Weighted average interest rate 7.60% 7.17% 7.46%
TOTAL PRODUCTION
Total dollar amount $1,361,616 $1,866,228 $1,709,536
Number of loans 9,746 13,307 12,272
Average loan amount $139,710 $140,244 $139,304
Average initial LTV 79.21% 80.47% 79.38%
Weighted average interest rate 7.57% 7.20% 7.43%
Total production by loan purpose:
----------------------------------
Cash-out refinance $799,342 $1,146,498 $1,019,194
Purchase money 519,656 616,352 636,722
Rate/term refinance 42,618 103,378 53,620
----------- ----------- -----------
Total $1,361,616 $1,866,228 $1,709,536
----------- ----------- -----------
Total production by property type:
----------------------------------
Single family $1,194,927 $1,630,242 $1,510,413
Multi-family 94,399 136,211 111,322
Condominiums 72,290 99,775 87,801
----------- ----------- -----------
Total $1,361,616 $1,866,228 $1,709,536
----------- ----------- -----------
Total production by state/region
produced:
----------------------------------
California $372,922 $617,210 $523,701
Florida 296,851 364,132 345,653
New York 93,558 151,579 103,796
Texas 111,392 119,119 129,579
Other Western states 139,291 193,433 184,520
Other Midwestern states 95,226 168,125 140,751
Other Northeastern states 145,853 139,870 161,677
Other Southeastern states 106,523 112,760 119,859
----------- ----------- -----------
Total $1,361,616 $1,866,228 $1,709,536
----------- ----------- -----------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
Production by interest rate type:
Three Months Ended
-------------------------------------------------
March 31, 2005 March 31, 2004 December 31, 2004
--------------- --------------- -----------------
Hybrid:
Traditional $947,520 $1,396,112 $1,252,757
Interest only 148,807 - 91,203
Fixed rate 265,289 470,116 365,576
--------------- --------------- -----------------
$1,361,616 $1,866,228 $1,709,536
--------------- --------------- -----------------
Loan production by credit grade during the three months ended
March 31, 2005 (in thousands):
Average Weighted Weighted
Credit Dollar Amount % of Credit Average Average
Grade of Loans Total Score Interest LTV
Rate
----------- -------------- ---------- ------------- --------- --------
A + $1,045,216 77% 627 7.4% 80%
A 135,323 10% 584 7.6% 77%
A - 57,664 4% 557 8.0% 75%
B 76,578 6% 559 8.4% 76%
C 37,533 3% 552 9.0% 70%
C- 9,302 NM 550 10.4% 64%
-------------- ---------- ------------- --------- --------
Total $1,361,616 100% 610 7.6% 79%
-------------- ---------- ------------- --------- --------
Loan production by credit grade during the three months ended
March 31, 2004 (in thousands):
Average Weighted Weighted
Credit Dollar Amount % of Credit Average Average
Grade of Loans Total Score Interest LTV
Rate
------------ ------------- ----------- ------------- -------- --------
A + $1,341,449 72% 625 7.0% 82%
A 242,310 13% 591 7.2% 80%
A - 105,960 6% 562 7.6% 78%
B 118,208 6% 562 8.0% 77%
C 47,070 4% 554 8.6% 71%
C- 11,063 1% 540 9.8% 67%
D 168 NM 503 6.7% 71%
------------- ----------- ------------- -------- --------
Total $1,866,228 100% 609 7.2% 80%
------------- ----------- ------------- -------- --------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
Loan production by credit score range during the three months ended
March 31, 2005 (in thousands):
Weighted Weighted
Credit Score Dollar Amount % of Average Average
Range of Loans Total Interest Rate LTV
-------------- ------------- -------- --------------- ---------------
Above 700 $88,485 6% 7.0% 79%
661-700 176,452 13% 7.0% 79%
621-660 371,222 27% 7.3% 81%
581-620 329,911 27% 7.4% 80%
541-580 230,475 17% 8.1% 79%
540 and below 163,907 12% 8.6% 74%
Not available 1,164 NM 8.2% 84%
------------- -------- --------------- ---------------
Total $1,361,616 100% 7.6% 79%
------------- -------- --------------- ---------------
Loan production by credit score range during the three months ended
March 31, 2004 (in thousands):
Weighted Weighted
Credit Score Dollar Amount % of Average Average
Range of Loans Total Interest Rate LTV
-------------- ------------- --------- -------------- --------------
Above 700 $122,334 7% 6.6% 79%
661-700 239,961 13% 6.8% 82%
621-660 466,311 25% 7.0% 81%
581-620 424,989 23% 7.1% 81%
541-580 363,860 19% 7.6% 81%
540 and below 246,350 13% 8.1% 76%
Not available 2,423 NM 7.6% 81%
------------- --------- -------------- --------------
Total $1,866,228 100% 7.6% 80%
------------- --------- -------------- --------------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Supplemental Information
LOAN SERVICING
(Dollars in thousands)
March 31, December 31,
2005 2004 2004
------------ ----------- ---------------
(Unaudited)
Mortgage loans serviced:
Loans held for investment $2,858,192 $- $1,718,696
Loans serviced on an interim
basis 625,211 2,074,602 771,830
Loan subserviced for others
on a long-term basis 119,908 - 129,016
Loans in securitization
trusts 106,522 260,743 224,345
------------ ----------- ---------------
Serviced in-house 3,709,833 2,335,345 2,843,887
Loans serviced by others - 59,727
------------ ----------- ---------------
Total servicing portfolio $3,709,833 $2,395,072 $2,843,887
------------ ----------- ---------------
Percentage serviced in-house 100.0% 97.5% 100.0%
------------ ----------- ---------------
At or During the Three Months Ended
March 31, December 31,
-------------------
2005 2004 2004
----------- ----------- -----------
(Unaudited)
Percentage of dollar amount of
delinquent loans serviced
(period end):
One month 0.5% 0.4% 0.3%
Two months 0.3% 0.2% 0.2%
Three or more months:
Not foreclosed 1.4% 2.5% 1.8%
Foreclosed 0.2% 0.3% 0.2%
----------- ----------- -----------
Total 2.4% 3.4% 2.5%
----------- ----------- -----------
Percentage of dollar amount of
delinquent loans in:
Loans held for investment (1) 1.1% - 0.2%
Loans serviced on an interim
basis (2) 4.2% 0.7% 1.5%
Loans subserviced for others
on a long-term basis 5.5% 1.7% 4.8%
Loans in off-balance
securitization trusts
serviced:
In-house 23.2% 15.8% 22.5%
By others - 39.8% -
Percentage of dollar amount of
loans foreclosed during the
period to
servicing portfolio 0.1% 0.2% 0.1%
Number of loans foreclosed during
the period 42 61 68
Principal amount of foreclosed
loans during the period $2,351 $4,659 $3,585
Number of loans liquidated during
the period 69 125 163
Net losses on liquidations during
the period $2,104 $4,518 $6,778
Percentage of annualized losses to
servicing portfolio 0.3% 0.6% 0.5%
Servicing portfolio at period end $3,710,000 $2,395,000 $2,844,000
(1) REIT portfolio of loans held for investment
(2) Loans held for sale and loan sold to third parties with pending
transfer of servicing
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