Arlington Asset Investment (NYSE:AIC)
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From Jun 2019 to Jun 2024
Aames Investment Corporation (NYSE:AIC), a mortgage real
estate investment trust today announced financial results for the
third quarter of 2005. Core diluted EPS for the quarter equaled $0.20,
while diluted net income per common share for the September 2005
quarter equaled $0.34. During the quarter, the Company recorded a
pretax mark-to-market derivative gain under FASB 133 of $7.1 million
and a pretax $1.6 million monoline insurance premium reimbursement,
representing non-core diluted earnings per share of $0.14. Earnings
per share for the third quarter of 2005 resulted from a combination of
net interest income generated by the Company's loans held for
investment portfolio and net gain realized from the sales of loans
into the secondary market by the Company's taxable REIT subsidiary, or
TRS.
Third Quarter 2005 Highlights
-- Net loans held for investment increased to $4.2 billion;
-- Gross gain on sale rate of loans was 2.39%;
-- Net cost to originate declined to 2.08%, 10.7% lower than the
second quarter of 2005;
-- Total loan production of $1.9 billion, a 19.8% increase from
the second quarter of 2005;
-- Taxable REIT net interest margin equaled 2.12%.
Mr. A. Jay Meyerson, Chairman and CEO of Aames, commented, "The
results of the third quarter validate the strategy we have pursued
since converting to a REIT: building a stable dividend stream from our
REIT portfolio, balancing loan production growth and value, expanding
our retail franchise, and focusing on lowering our cost to originate.
During the quarter we found strong demand for our production, and
achieved an overall gross gain on sale rate of 2.39% for the quarter,
including the sale of our lower value fixed and second lien loans. The
continued growth in our retail franchise, combined with corporate cost
control initiatives, resulted in a net cost to originate of just above
200 basis points. While recognizing the challenging market environment
and the outlook for higher market interest rates, we are committed to
maintaining our disciplined operating strategy."
Dividend Guidance
The Company reaffirmed previous dividend guidance for the fourth
quarter of 2005. Based on the characteristics of the current loans
held for investment portfolio and management's view of near term loan
production, management estimates that the REIT portfolio will generate
a dividend per share of $0.34 to $0.36 for the fourth quarter of 2005.
Financial Disclosure
The Company has included measurements of core financial metrics,
including core net interest income, core net income and loss and core
diluted earnings and loss per share, which are non-GAAP financial
metrics. Core earnings excludes the mark-to-market derivative gain or
loss under FASB 133, as well as non-core charges or credits to income.
The Company does not account for its derivative financial instruments
as cash flow or fair value hedges under the provisions of Statement of
Financial Accounting Standards No. 133 (Accounting for Derivative
Financial Instruments and Hedging Activities) and, as a result, the
unrealized gains or losses on the derivative instruments are recorded
as income or losses, even thought the cash flows will not be received
until sometime in the future. By excluding the impact of the
mark-to-market gain or loss from the net income or net loss,
management believes that core net interest income and core net income
or loss can provide a useful measurement of the Company's operating
performance.
Throughout this press release, the Company will provide
comparisons between the third quarter of 2005 and both the second
quarter of 2005 and the third quarter of 2004. Due to the change in
the Company's primary operating strategy following its November 2004
reorganization from a mortgage banking platform, where the Company
originated and sold all of its production for a cash gain, to a
mortgage REIT in which the Company retains a substantial portion of
its production for its loans held for investment portfolio and
generates interest income, management believes that some comparisons
to prior year periods do not provide the best measurement of the
Company's financial performance.
Financial Summary
The Company achieved its targeted REIT portfolio leverage ratio
during the third quarter and as a result, began to sell a larger
percentage of its production into the secondary markets compared to
the past two quarters. This shift to higher loans sales, which
management anticipates continuing in the fourth quarter, generated
higher net gain on sale of loans for the third quarter compared to the
first two quarters of 2005. Combined with a lower net cost to
originate and net interest income, the higher total revenue resulted
in core net income for the September 2005 quarter of $12.5 million, or
$0.20 of net income per diluted share. Including the pretax
mark-to-market derivative gain under FASB 133 of $7.1 million and a
pretax monoline insurance premium reimbursement of $1.6 million, total
net income for the third quarter equaled $21.3 million, or $0.34 of
net income per diluted share.
Revenue
The following table details the components of total and core
revenues for the quarters ended September and June 2005 and September
2004.
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(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Net interest income
after provision
for loan losses (1) $42,677 $14,111 $16,632 202.4% 156.6%
Non interest
income 21,300 51,709 6,030 -58.8% 253.2%
---------- ---------- ----------
Total revenue 63,977 65,820 22,662 -2.8% 182.3%
Mark-to-market
loss (gain)
on derivative
financial
instruments (7,121) - 11,495 nm nm
---------- ---------- ----------
Total core
revenue $56,856 $65,820 $34,157 -13.6% 66.5%
========== ========== ==========
(1) NII for all 2005 periods includes the FASB 133 mark-to-market gain
or loss on derivative financial instruments.
*T
Total core revenue for the third quarter of 2005 of $56.9 million
increased by 66.5% sequentially over the second quarter of 2005. The
increase resulted from: (1) higher net interest income generated by a
larger loans held for investment portfolio and a higher average
balance of loans held for sale and (2) higher net gain on sale of
loans into the secondary market as the Company returned to selling a
significant portion of its core hybrid loans for cash gain, which
generated a higher net gain on sale ratio than in the past several
quarters.
Total core revenue for the September 2005 quarter decreased by
13.6% compared to the prior year's quarter. The decline was due to a
lower gain on sale of loans resulting from a lower volume of loans
sold into the secondary market as well as a lower gain on sale rate.
The lower gain on sale was partially offset by higher net interest
income after provision for loan losses generated by a higher balance
of loans held for investments. Prior to its conversion to a mortgage
REIT, the Company typically sold nearly all of its quarterly
production into the secondary markets. Since its REIT conversion in
November 2004, the Company has retained a portion of its loans for the
loans held for investment portfolio in order to generate a stable
stream of net interest income, which in turn, is the primary driver
for dividends for shareholders.
Net Interest Income
The following table details the components of net interest income
before the provision for loan losses for the quarters ended September
and June 2005 and September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Interest earned on:
Loans held for
investment $74,651 $- $59,261 nm 26.0%
Loans held for
sale 10,601 24,145 6,754 -56.1% 57.0%
Overnight
investments 812 - 520 nm 56.2%
Income from
derivative
financial
instruments 8,244 - 4,629 nm 78.1%
Amortization of net
deferred loan
origination costs (1,345) - (1,142) nm 17.8%
Prepayment penalty
fees 7,946 - 4,856 nm 63.6%
Other 82 65 65 26.2% 26.2%
---------- ---------- ----------
Total interest
income $100,991 $24,210 $74,943 317.1% 34.8%
Interest expense $48,731 $8,174 $32,326 496.2% 50.7%
Mark-to-market
(gain) loss
on derivative
financial
instruments (7,121) - 11,495 nm nm
Amortization of
financing costs 3,550 1,420 2,087 150.0% 70.1%
Other 154 505 538 -69.5% -71.4%
---------- ---------- ----------
Total interest
expense $45,314 $10,099 $46,446 348.7% -2.4%
Net interest
income (1) $55,677 $14,111 $28,497 294.6% 95.4%
Add (subtract)
mark-to-market
(gain)
loss on
derivative
financial
instruments (7,121) - 11,495
---------- ---------- ----------
Core net interest
income (1) $48,556 $14,111 $39,992 244.1% 21.4%
========== ========== ==========
(1) Before the provision for losses on loans held for investment.
*T
The Company reported a core net interest income for the September
2005 quarter of $48.6 million, a 21.4% sequential increase over the
second quarter of the 2005. The growth in core net interest income
resulted from a higher average balance of loans in both the loans held
for investment and held for sale portfolio, offset by a higher funding
cost for both portfolios.
During the September 2005 quarter the Company added approximately
$313.2 million to its loans held for investment portfolio, which at
September 30, 2005 was $4.2 billion. Under current market conditions,
the Company anticipates modestly growing the loans held for investment
portfolio and selling the majority of its loan production into the
secondary markets. The average balance of the Company's loans held for
investment portfolio for the third quarter was $4.2 billion, an
increase of approximately $900 million from the second quarter of
2005. The REIT net interest margin for the quarter, which excludes net
interest income on the held for sale portfolio, interest earned on
temporary investments, the provision for losses on loans held for
investment and the FASB 133 mark-to-market adjustment, was 2.43%,
compared to 2.60% in the second quarter of 2005. The 17 basis points,
or 6.5%, decrease in the net interest margin reflects the higher cost
of funding on loans added to the loans held for investment portfolio
during the third quarter of 2005, partially offset by higher
prepayment penalty fees and somewhat lower amortization of deferred
loan acquisition premiums and net deferred loan origination costs.
The table below provides the details of the components of the REIT
net interest margin for the September and June 2005 quarters.
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Quarter Ended
---------------------
9/30/2005 6/30/2005
---------- ----------
Gross yield on LHFI 7.07% 7.16%
Prepayment penalty fees 0.75% 0.58%
Amortization of premiums -0.43% -0.64%
Amortization of deferred loan fees
and costs -0.13% -0.14%
---------- ----------
Net yield on LHFI 7.26% 6.96%
Net cost of funding for LHFI 4.38% 3.88%
---------- ----------
Net interest margin 2.88% 3.08%
Servicing costs -0.45% -0.48%
---------- ----------
REIT net interest margin 2.43% 2.60%
Management fees & other
REIT costs -0.31% -0.21%
---------- ----------
REIT taxable income margin 2.12% 2.39%
========== ==========
LHFI = Loans held for investment
*T
For the September quarter, taxable REIT income equaled $22.4
million, or an annualized 2.12% of the average loans held for
investment portfolio, compared to $19.8 million, or an annualized
2.39% for the second quarter of 2005. The REIT loans held for
investment portfolio did not experience any charge-offs during either
period.
As previously reported, the Company declared a $0.35 per share
dividend for the third quarter, equal to $22.2 million of taxable REIT
income. The Company retained approximately $0.003 per share in income
to recapture a portion of the $0.03 per share return of capital
included in the $0.34 per share dividend declared for the second
quarter of 2005. Management anticipates declaring a dividend for the
fourth quarter of 2005 in the $0.34 to $0.36 per share range, after
recapture of the remaining $.027 per share return of capital in the
June quarter.
Noninterest Income
The following table details the components of noninterest income
for the quarters ended September and June 2005 and September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest income:
Gain on sale of
loans $19,580 $49,458 $4,666 -60.4% 319.6%
Loan servicing
revenue 1,720 2,251 1,364 -23.6% 26.1%
---------- ---------- ----------
Total noninterest
income $21,300 $51,709 $6,030 -58.8% 253.2%
========== ========== ==========
*T
Total noninterest income for the third quarter of 2005 increased
by $15.3 million compared to the second quarter of 2005, due primarily
to an increase in the net gain on sale of loans. Compared to the prior
year quarter, total noninterest income decreased by $30.4 million. The
decrease was due primarily to a lower net gain on sale of loans in the
September 2005 quarter resulting from a lower volume of loans sold
into the secondary market, as well as lower servicing income from a
decreased balance of loans serviced for others.
The following table details the components of the gain on sale of
loans for quarters ended September and June 2005 and September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
--------------------------------- ------------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ----------- ---------- ------- ----------
Gain on sale of
loans:
Gain on sale of
loans $21,838 $64,913 $7,060 -66.4% 209.3%
Loan
originations
fees and costs,
net 1,558 (7,963) 2,617 nm -40.5%
Provision for
representation,
warranty and
other losses (3,796) (7,627) (4,016) -50.2% -5.5%
Miscellaneous
costs (20) 135 (995) nm -98.0%
---------- ----------- ----------
Gain on sale of
loans $19,580 $49,458 $4,666 -60.4% 319.6%
========== =========== ==========
Whole loan market
sales $915,457 $1,964,934 $410,714
Gross gain on
sale rate 2.39% 3.30% 1.72%
Net gain on sale
rate 2.14% 2.52% 1.14%
*T
The increased gain on sale rate for the third quarter of 2005
compared to the June 2005 quarter resulted from the mix in the
composition of the loans sold by the Company. As previously stated,
during the first half of 2005, the Company sold primarily lower margin
loans, including fixed rate, second lien and higher FICO loans, in
order to retain its core higher value hybrid loans in the loans held
for investment portfolio. Upon achieving its targeted REIT portfolio
leverage ratio during the third quarter of 2005, the Company began
selling higher value hybrid loans into the secondary markets. During
the third quarter the Company sold approximately $915.5 million of
loans into the secondary markets for a gross gain on sale of 2.39%.
The recognition of net loan origination fees and costs for the
September 2005 quarter decreased by approximately $1.0 million
compared to the June 2005 quarter, a result of the higher percentage
of wholesale loans sold in the September quarter than in the June
quarter. The decrease in recognized net loan origination fees and
costs was partially offset by a lower provision for representation,
warranty and other losses. The net gain on sale of loans for the
September 2005 quarter was 2.14%, compared to 1.14% for the June 2005
quarter. Based on current market conditions in the secondary market,
and the anticipated mix of the composition of loan sales in the fourth
quarter, the Company believes that the gross gain on sale rates earned
on whole loan sales during the fourth quarter of 2005 may be below the
gross gain on sale rate reported for the third quarter of 2005.
Servicing revenue for the September 2005 quarter of $1.7 million
increased 26.1% from the June 2005 quarter and decreased 23.6% from
the prior year quarter. The decrease from the prior year reflects the
elimination of off-balance sheet securitizations on which the Company
earned contractual servicing fee income, as well as a decrease in
loans serviced for third parties. The Company anticipates that
servicing fee income in the next several quarters will remain
relatively stable to the levels earned in the third quarter of 2005.
Noninterest Expense
The following table details the components of noninterest expense
for the quarters ended September and June 2005 and September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
-------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
---------- ---------- ---------- ------ ----------
Noninterest expense:
Personnel $23,783 $22,596 $20,980 5.3% 13.4%
Production 9,258 8,560 8,577 8.2% 7.9%
General and
administrative 10,312 11,519 15,015 -10.5% -31.3%
---------- ---------- ----------
Total noninterest
expense 43,353 42,675 44,572 1.6% -2.7%
Non-core income
(expense) 1,635 - (3,700) nm nm
---------- ---------- ----------
Core noninterest
expense $44,988 $42,675 $40,872 5.4% 10.1%
========== ========== ==========
*T
Total core noninterest expense for the September 2005 quarter was
$4.1 million, 10.1%, higher than in the June 2005 quarter and $2.3
million, or 5.4%, above the year ago quarter. The sequential increase
in core noninterest expense reflects the higher production volume in
the third quarter of 2005 compared to the second quarter as well as a
higher compensation expense from increased staffing related to
selected additions to support anticipated growth. Core general and
administrative expenses were relatively flat from the second quarter
of 2005, a result of the Company's cost containment efforts.
Net Cost to Originate
The net cost to originate loans is a non GAAP measurement of the
Company's efficiency trends within the meaning of Regulation G
promulgated by the Securities and Exchange Commission. The data
represents reported operating expenses, plus the origination costs
deferred under SFAS No. 91 (Accounting for Nonrefundable Fees and
Costs Associated with Origination or Acquiring Loans and Initial
Direct Costs of Leases), less (i) the cost of servicing the Company's
loans held for investment portfolio, (ii) certain corporate overhead
costs and (iii) the fees received on originations less points paid on
wholesale originations. The Company believes that the non GAAP
measurement of the net cost to originate is indicative of its ability
to generate profits from the sale of its loans into the secondary
markets and an indication of its overall efficiency.
The table below details the components of the net cost to
originate loans for the quarters ended September and June 2005 and
September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
----------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Total
noninterest
expense $43,353 $42,675 $44,572 1.6% -2.7%
Non-core income
(expense) 1,635 - (3,700) nm nm
Deferred loan
origination
costs 24,319 21,780 19,434 11.7% 25.1%
Loan servicing
and other costs (2,733) (2,341) (2,274) 16.7% 20.2%
----------- ----------- -----------
Total expenses 66,574 62,114 58,032 7.2% 14.7%
Loan origination
fees received (26,716) (16,466) (20,901) 62.2% 27.8%
----------- ----------- -----------
Net cost to
originate $39,858 $45,648 $37,131 -12.7% 7.3%
=========== =========== ===========
Total
Originations $1,913,296 $1,878,012 $1,597,014 1.9% 19.8%
Cost Ratios:
Core
noninterest
expense 2.35% 2.27% 2.56% 3.5% -8.2%
Deferred loan
origination
costs 1.27% 1.16% 1.22% 9.5% 4.1%
Loan
servicing
and other
costs -0.14% -0.12% -0.14% 16.7% 0.0%
----------- ----------- -----------
Total expenses 3.48% 3.31% 3.63% 5.2% -4.1%
Loan origination
fees received -1.40% -0.88% -1.31% 59.1% 6.9%
----------- ----------- -----------
Net Cost to
Originate 2.08% 2.43% 2.33% -14.4% -10.7%
=========== =========== ===========
*T
The 2.08% net cost to originate ratio for the September 2005
quarter represented a 10.7% decrease from the 2.33% ratio for the
second quarter of 2005 and a 14.4% decrease from the September 2004
ratio. The decrease in the net cost to originate ratio from both
periods resulted from higher loan production, corporate cost
containment efforts and the continued benefits from a higher
production contribution from the Company's retail channel, the points
and fees from which reduce the net cost to originate.
Loan Portfolio
Total loans held for investment as of September 30, 2005 equaled
$4.2 billion, an 8.1% increase from the $3.9 billion balance as of
June 30, 2005. The Company also had $632.5 million of loans held for
sale as of September 30, 2005. At the end of the third quarter, the
Company's leverage ratio, defined as total loans held for investment
divided by total consolidated shareholders' equity, equaled 13.2
times. This leverage ratio is within the 12 to 14 times equity range
of management's targets, and management expects to maintain the ratio
within this approximate range during the next several quarters.
The Company experienced an average prepayment speed on its loans
held for investment portfolio of 35.7%, roughly equal to the rate
during the second quarter of 2005. This rate of repayment remains
higher than typical for the Company's loans and continues to have a
negative impact on its financial performance. In addition to requiring
that the Company retain a higher percentage of total production to
maintain its loans held for investment portfolio, the higher than
typical repayment rate can accelerate the amortization of capitalized
loan acquisition and origination costs, thereby reducing the net yield
on the loans held for investment portfolio and taxable REIT income.
Loan Production
The following table details the Company's loan production for the
quarters ended September and June 2005 and September 2004.
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(dollars in thousands) Quarter Ended Percentage Change
----------------------------------- -----------------
9/30/2005 9/30/2004 6/30/2005 Y-Y Sequential
----------- ----------- ----------- ------ ----------
Retail $793,851 $615,082 $624,816 29.1% 27.1%
Wholesale 1,119,445 1,262,930 920,506 -11.4% 21.6%
Purchased loans - - 51,692 nm nm
----------- ----------- -----------
Total loan
production $1,913,296 $1,878,012 $1,597,014 1.9% 19.8%
=========== =========== ===========
*T
Loan production for the third quarter of 2005 equaled $1.9
billion, a $316.3 million sequential increase from the second quarter
of 2005 and a $35.3 million increase from the year ago quarter. The
increased loan production was due primarily to a combination of
increased productivity from the Company's retail channel and a
competitive market more aligned with the Company's loan pricing. The
components of the Company's loan production during the September 2005
quarter remained consistent with those of prior quarters, with
traditional hybrid loans accounting for 61.3% of total production,
fixed rate loans 25.2% of total production and interest-only hybrid
loans 13.5% of total production. The Company did not purchase any loan
pools during the third quarter of 2005, and excluding the pool
purchased during the second quarter of the year, total production
increased 23.8% sequentially.
During the September 2005 quarter wholesale and retail production
represented 58.5% and 41.5% of total production, respectively,
compared to 67.2% and 32.8% for the September 2004 quarter and 59.6%
and 40.4% for the second quarter of 2005, excluding the purchased
loans. Management continues to focus on optimizing the retail branch
operating structure and increasing the retail division's percentage of
total production. The Company continues to believe that its retail
franchise represents an important competitive advantage, as it is able
to achieve a higher degree of operating leverage as the division
increases its lending volume. This impact was apparent in the
September 2005 quarter as the higher points and fee retained by the
Company from its retail production made a significant contribution to
the lower net cost to originate reported for the September 2005
quarter.
Credit Quality
The allowance for loan losses for the loans held for investment
portfolio as of September 30, 2005 equaled $33.3 million, or 0.79% of
the loans held for investment portfolio. The Company provided $13.0
million for loan losses during the third quarter of 2005. Total
delinquencies in the loans held for investment portfolio equaled 4.4%
at the end of the September 2005 quarter, compared to 1.9% at the end
of the June 2005 quarter. As in the first two quarters of 2005, the
Company did not experience any credit losses during the September
quarter, primarily due to the early seasoning of the loans held for
investment portfolio and, to a lesser degree, to lower than
anticipated levels of defaults in the loans held for investment
portfolio. The Company continues to anticipate an increase in the
level of delinquencies and credit losses as the loans held for
investment portfolio seasons and less new loans are added to the
portfolio. The Company continues to evaluate exposure to its
production levels and delinquencies as a result of hurricanes Katrina,
Rita and Wilma. While no assurances can be given, the Company
currently believes that its consolidated financial position and
results of operations will not be materially effected by the recent
events.
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.com.
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 the company's performance and results to
vary include: (i) limited cash flow to fund operations and dependence
on short-term financing facilities; (ii) changes in overall economic
conditions and interest rates; (iii) increased delinquency rates in
the portfolio; (iv) intense competition in the mortgage lending
industry; (v) adverse changes in the securitization and whole loan
market for mortgage loans; (vi) declines in real estate values; (vii)
an inability to originate subprime hybrid/adjustable mortgage loans;
(viii) obligations to repurchase mortgage loans and indemnify
investors; (ix) concentration of operations in California, Florida,
New York and Texas; the occurrence of natural disasters (including the
adverse impact of hurricanes Katrina, Rita and Wilma); (x) extensive
government regulation; and (xi) 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. 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 C. Canup, Senior Vice
President, Corporate Development and Investor Relations, in Aames
Investment's Investor Relations Department at (323) 210-5311 or at
infor@aamescorp.com
Financial tables and supplementary information follows.
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Balance Sheets
(In thousands)
September 30, December 31,
2005 2004
------------- -------------
(unaudited)
Assets
Cash and cash equivalents:
Unrestricted $43,162 $31,641
Restricted 91,388 6,139
Loans held for sale, at lower of cost or
market 632,515 484,963
Loans held for investment, net 4,187,076 1,725,046
Advances and other receivables 34,404 22,740
Residual interests, at estimated fair
value - 39,082
Derivative financial instruments, at
estimated fair value 63,448 31,947
Prepaid and other assets 74,438 59,317
------------- -------------
Total assets $5,126,431 $2,400,875
------------- -------------
Liabilities and Stockholders' Equity
Financings on loans held for investment $4,137,790 $1,157,470
Revolving warehouse and repurchase
facilities 596,440 809,213
Other borrowings - 7,680
Other liabilities 75,453 68,886
------------- -------------
Total liabilities 4,809,683 2,043,249
Stockholders' equity 316,748 357,626
------------- -------------
Total liabilities and stockholders'
equity $5,126,431 $2,400,875
------------- -------------
Shares outstanding 61,665 61,360
------------- -------------
*T
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2005 2004 2005 2004
--------- -------- --------- --------
Interest income $100,991 $24,210 $229,586 $61,157
Interest expense 45,314 10,099 103,676 23,962
--------- -------- --------- --------
Net interest income 55,677 14,111 125,910 37,195
Provision for losses on loans
held for investment 13,000 - 31,365 -
--------- -------- --------- --------
Net interest income after
provision for
loan losses 42,677 14,111 94,545 37,195
--------- -------- --------- --------
Noninterest income:
Gain on sale of loans 19,580 49,458 29,929 167,349
Loan servicing 1,720 2,251 4,124 5,902
--------- -------- --------- --------
Total noninterest income 21,300 51,709 34,053 173,251
--------- -------- --------- --------
Net interest income after
provision for loan losses
and noninterest income 63,977 65,820 128,598 210,446
--------- -------- --------- --------
Noninterest expense:
Personnel 23,783 22,596 67,110 80,544
Production 9,258 8,560 26,635 27,899
General and administrative 10,312 11,519 36,140 33,686
--------- -------- --------- --------
Total noninterest expense 43,353 42,675 129,885 142,129
--------- -------- --------- --------
Income (loss) before income
taxes 20,624 23,145 (1,287) 68,317
Income tax provision (benefit) (661) (5,272) 770 (4,970)
--------- -------- --------- --------
Net income (loss) $21,285 $28,417 $(2,057) $73,287
--------- -------- --------- --------
Net income (loss) to common
stockholders:
Basic $21,285 $25,548 $(2,057) $64,680
--------- -------- --------- --------
Diluted $21,285 $28,939 $(2,057) $73,287
--------- -------- --------- --------
Net income (loss) per common
share:
Basic $0.34 $3.55 $(0.03) $9.03
--------- -------- --------- --------
Diluted $0.34 $0.28 $(0.03) $0.71
--------- -------- --------- --------
Weighted average number of
common shares outstanding:
Basic 62,444 7,192 62,519 7,161
--------- -------- --------- --------
Diluted 62,533 103,656 62,519 103,374
--------- -------- --------- --------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Other Financial Data
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
--------------------------
2005 2004
------------- ------------
Condensed Statement of Cash Flows Information
Net cash provided by (used in):
Operating activities $(123,989) $(148,884)
Investing activities (2,496,585) (2,727)
Financing activities 2,717,344 161,475
------------- ------------
Net increase (decrease) in cash and
cash equivalents 96,770 9,864
Cash and cash equivalents, beginning of
period 37,780 11,611
------------- ------------
Cash and cash equivalents, end of period $134,550 $21,475
------------- ------------
September 30, December 31,
2005 2004
------------- ------------
Revolving Warehouse and Repurchase
Facilities
Committed facilities $2,700,000 $2,450,000
Uncommitted facilities 100,000 100,000
------------- ------------
Total warehouse and repurchase facilities $2,800,000 $2,550,000
------------- ------------
Amount utilized on committed $596,440 $809,213
------------- ------------
Borrowing capacity on committed $2,103,560 $1,640,787
------------- ------------
Liquidity
Unrestricted cash $43,162 $31,641
Plus: Unencumbered loans held for sale 76,382 87,955
Less: Margin and ineligible mortgage
collateral (36,206) (22,153)
Plus: Retained bond financing 17,328 -
------------- ------------
$100,666 $97,443
------------- ------------
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AAMES INVESTMENT CORPORATION
(Parent Company Only)
(Unaudited)
(In thousands)
September 30,
Condensed Balance Sheet (1) 2005
----------------------------------------- -------------
Cash and cash equivalents:
Unrestricted $6,795
Restricted 91,388
Loans held for investment, net:
Securitized 4,173,048
Not yet securitized 36,407
Net deferred loan origination costs 10,910
Deferred loan acquisition premium 47,964
Allowance for loan losses (33,289)
-------------
Total loans held for investment, net 4,235,040
-------------
Accrued interest and other 153,388
Derivative financial instruments 63,448
-------------
Total assets $4,550,059
-------------
Financings on loans held for investment $4,137,790
Revolving warehouse and repurchase
facilities 22,992
Other liabilities 24,565
-------------
Total liabilities 4,185,347
Stockholders' equity 364,712
-------------
Total liabilities and stockholders'
equity $4,550,059
-------------
(1) Before intercompany elimination entries.
Three Months Nine Months
Ended Ended
September 30, September 30,
Condensed Statements of Operations 2005 2005
----------------------------------------- ------------- --------------
Net interest income $40,823 $88,779
Provision for losses on loans held for
investment (13,000) (31,365)
------------- --------------
Net interest income after provision
for loan losses 27,823 57,414
Noninterest expense (3,283) (7,482)
------------- --------------
Income before equity in undistributed
net loss of subsidiary 24,540 49,932
Equity in undistributed net loss of
subsidiary (317) (33,252)
------------- --------------
Net income $24,223 $16,680
------------- --------------
GAAP Net Income to Taxable Income
Reconciliation
-----------------------------------------
Net income $24,223 $16,680
Add: Equity in undistributed net loss of
subsidiary 317 33,252
------------- --------------
Income before equity in undistributed
net loss of subsidiary 24,540 49,932
Add (subtract) GAAP to tax items:
Provision for losses on loans held for
investment 13,000 31,365
Derivative mark to market adjustment (15,132) (22,059)
Net recoveries (charge-offs) 24 24
------------- --------------
Estimated taxable income $22,432 $59,262
------------- --------------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
Three Months Ended Nine Months Ended
---------------------------------- -----------------------
September 30, June 30, September 30,
2005 2004 2005 2005 2004
----------- ---------- ----------- ----------- -----------
Retail Loan
Production
Total dollar
amount
(in
thousands) $793,851 $615,082 $624,816 $1,935,225 $1,846,900
Number of
loans 5,194 4,893 4,315 13,227 14,657
Average loan
amount $152,840 $125,706 $144,801 $146,309 $126,008
Average
initial LTV 75.51% 76.46% 76.33% 75.87% 77.06%
Weighted
average
interest
rate 7.27% 7.58% 7.37% 7.37% 7.38%
Wholesale Loan
Production
Total dollar
amount
(in
thousands) $1,119,445 $1,262,930 $920,506 $2,885,009 $3,863,209
Number of
loans 7,809 8,722 6,747 20,584 26,299
Average loan
amount $143,353 $144,798 $136,432 $140,158 $146,896
Average
initial LTV 81.80% 81.17% 81.90% 81.67% 81.49%
Weighted
average
interest
rate 7.51% 7.57% 7.78% 7.62% 7.35%
Purchased Loans
Total dollar
amount
(in
thousands) $- $- $51,692 $51,692 $-
Number of
loans - - 83 83 -
Average loan
amount $- $- $622,800 $622,800 $-
Average
initial LTV - % - % 53.29% 53.29% - %
Weighted
average
interest
rate - % - % 5.57% 5.57% - %
Total Loan
Production
Total dollar
amount
(in
thousands) $1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
Number of
loans 13,003 13,615 11,145 33,894 40,956
Average loan
amount $147,143 $137,937 $143,294 $143,740 $139,421
Average
initial LTV 79.19% 79.62% 78.79% 79.07% 80.06%
Weighted
average
interest
rate 7.41% 7.57% 7.55% 7.50% 7.36%
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
---------------------------------- ----------------------
September 30, June 30, September 30,
2005 2004 2005 2005 2004
---------- ----------- ----------- ---------- -----------
Loan Production by Loan
Purpose
Cash-out
refinance $1,100,577 $1,085,506 $900,379 $2,800,324 $3,404,042
Purchase
money 742,363 717,421 645,301 1,907,292 2,037,357
Rate/term
refinance 70,356 75,085 51,334 164,310 268,710
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
Property Type
Single-
family $1,649,844 $1,645,825 $1,399,906 $4,244,676 $4,988,004
Multi-family 149,188 122,449 114,499 358,086 396,104
Condominiums 114,264 109,738 82,609 269,164 326,001
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
State/Region Produced
California $390,278 $585,137 $439,308 $1,202,507 $1,870,031
Florida 493,682 364,979 372,851 1,163,383 1,098,910
New York 147,913 130,896 94,357 335,829 425,455
Texas 146,327 132,929 136,411 394,131 375,585
Other Western
states 161,850 174,705 128,581 429,722 564,749
Other
Midwestern
states 100,603 166,340 101,325 297,154 497,756
Other
Northeastern
states 291,243 194,421 177,435 614,531 521,515
Other
Southeastern
states 181,400 128,605 146,746 434,669 356,108
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
Loan Production by
Interest Rate Type
Hybrid:
Traditional $1,172,707 $1,345,569 $1,014,617 $3,134,843 $4,129,909
Interest only 257,551 89,667 190,110 596,469 182,977
Fixed rate 483,038 442,776 392,287 1,140,614 1,397,223
---------- ----------- ----------- ---------- -----------
$1,913,296 $1,878,012 $1,597,014 $4,871,926 $5,710,109
---------- ----------- ----------- ---------- -----------
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
September 30, December 31, September 30,
2005 2004 2004
------------- ------------ -------------
Servicing Portfolio
Mortgage loans serviced:
Loans held for investment $4,158,876 $1,718,696 $-
Loans serviced on an interim
basis 1,343,638 771,830 2,608,203
Loan subserviced for others
on a long-term basis 100,645 129,016 144,214
Loans in off-balance sheet
securitization trusts - 224,345 204,298
------------- ------------ -------------
Total serviced in-house 5,603,159 2,843,887 2,956,715
Loans held for investment
subserviced by others 50,673 - -
Loan in off-balance sheet
securitization trusts
subserviced by others - - 48,587
------------- ------------ -------------
Total servicing portfolio $5,653,832 $2,843,887 $3,005,302
------------- ------------ -------------
Percentage serviced in-house 99.1% 100.0% 98.4%
------------- ------------ -------------
Loan Delinquencies
Percentage of dollar amount
of delinquent loans
serviced (period end):
One month 1.5% 0.3% 0.4%
Two months 0.6% 0.2% 0.2%
Three or more months:
Not foreclosed 1.4% 1.8% 1.8%
Foreclosed 0.1% 0.2% 0.2%
------------- ------------ -------------
3.6% 2.5% 2.6%
------------- ------------ -------------
Percentage of dollar amount
of delinquent loans in:
Loans held for investment
serviced:
In-house 4.4% 0.2% N/A
By others 0.0% 0.0% N/A
Loans serviced on an interim
basis 1.0% 1.5% 0.5%
Loans subserviced for others
on a long-term basis 7.2% 4.8% 4.3%
Loans in off-balance sheet
securitization
trusts serviced:
In-house N/A 22.5% 18.6%
By others N/A N/A 39.0%
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AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)
At or During the
Nine Months Ended
September 30,
-----------------------
2005 2004
----------- -----------
Loan Foreclosures
Percentage of dollar amount of loans
foreclosed during the period to
servicing portfolio (period end) 0.2% 0.3%
Number of loans foreclosed during the period 105 147
Principal amount of loans foreclosed
during the period $9,199 $8,787
Number of loans liquidated during the period 193 318
Net losses on liquidations during the period
from:
Loans held for investment serviced:
In-house $(24) $-
By others - -
Loans serviced on an interim basis 4,553 2,268
Loans serviced for others on a long-term basis 19 -
Loans in off-balance sheet securitization
trusts serviced:
In-house 2,850 6,352
By others - 3,124
----------- -----------
$7,398 $11,744
----------- -----------
Percentage of annualized losses to
servicing portfolio 0.2% 0.5%
Servicing portfolio at period end $5,654,000 $3,005,000
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