Aames Financial Corporation Reported Fiscal Year 2004 and Fourth Quarter 2004 Results

Business Wire, Sept 2, 2004

LOS ANGELES -- Aames Financial Corporation (OTCBB:AMSF):

--Fiscal Year 2004 Net Income of $90.7 Million.

--Fiscal Year 2004 Loan Production of $7.0 Billion Compared to $4.4 Billion a Year Ago.

--June 30, 2004 Quarter Net Income of $24.0 Million.

--Quarter Ended June 30, 2004 Mortgage Loan Production of $2.0 Billion Compared to $1.2 Billion During the Same Quarter a Year Ago.

Aames Financial Corporation (OTCBB:AMSF), a 50 year old national subprime mortgage lender, today reported net income of $90.7 million during the year ended June 30, 2004, compared to net income of $29.2 million a year ago. Net income during the years ended June 30, 2004 and 2003 included income tax benefits of $17.7 million and $1.8 million, respectively.

During the year ended June 30, 2004, basic and diluted net income to common stockholders were $77.7 million and $92.8 million, respectively, resulting in basic and diluted net income per common share of $11.02 and $0.89, respectively. In comparison, basic and diluted net income to common stockholders a year ago were $15.7 million and $29.2 million, respectively, resulting in basic and diluted net income per common share of $2.39 and $0.30, respectively. Dividends accrued on convertible preferred stock were $13.1 million and $13.5 million during the years ended June 30, 2004 and 2003, respectively. All dividends accrued through June 30, 2004 on convertible preferred stock were paid on June 30, 2004.

The Company experienced continued growth in its mortgage loan production, increasing loan production $2.5 billion, or 57.2%, to $7.0 billion during the year ended June 30, 2004, over $4.4 billion of total loan production a year ago. The Company sold $6.4 billion in mortgage loans during fiscal 2004, an increase of $1.9 billion, or 42.9%, over $4.5 billion sold in fiscal 2003.

Summary of Financial Results for the Year Ended June 30, 2004

Net Interest Income and Other Income

During the year ended June 30, 2004, net interest income and other income was $312.8 million, an increase of $81.1 million, or 35.0%, over $231.7 million of net interest income and other income reported a year ago, reflecting increases of $9.2 million and $71.9 million in net interest income and other income, respectively.

Net interest income

During the year ended June 30, 2004, net interest income (interest income less interest expense) was $43.2 million, an increase of $9.2 million, or 26.9%, over $34.1 million reported during the year ended June 30, 2003.

Interest income was $69.4 million during the year ended June 30, 2004 an increase of $0.2 million, or 0.4%, over $69.2 million of interest income during the year ended June 30, 2003. Interest income increased during the year ended June 30, 2004 over a year ago primarily due to an increase of $12.4 million in interest income on loans held for sale. The increase in interest income on loans held for sale was attributable to higher outstanding balances of loans held for sale by the Company during fiscal 2004 despite such loans having lower weighted average coupon rates during fiscal 2004 when compared to such balances and coupon rates during the year ended June 30, 2003. Offsetting the increase in interest income on loans held for sale was a $12.2 million decline in accretion income recognized by the Company on its residual interests. During the year ended June 30, 2004, the Company's balances of residual interests were lower than during the year ended June 30, 2003.

Interest expense declined $8.9 million, or 25.3%, to $26.2 million during the year ended June 30, 2004 from $35.1 million during the year ended June 30, 2003 due to lower interest rates on the Company's revolving warehouse and repurchase facilities despite increased average borrowings under the facilities during fiscal 2004 when compared to such rates and average borrowings outstanding during fiscal 2003. All of the Company's revolving warehouse and repurchase facilities are indexed to one-month LIBOR. During the year ended June 30, 2004, one-month LIBOR was lower than during the year ended June 30, 2003. To a lesser extent, the decrease in interest expense during the year ended June 30, 2004 from a year ago resulted from a decline in amounts outstanding under nonrevolving borrowings and such nonrevolving borrowings bearing lower average interest rates during fiscal 2004 when compared to outstanding balances and interest rates a year ago.

Other income

Gain on sale of loans. During the year ended June 30, 2004, gain on sale of loans increased $72.8 million, or 53.8%, to $208.4 million over $135.6 million in gain on sale of loans reported a year ago. The increase in gain on sale is attributable to the $1.9 billion, or 42.9%, increase to $6.4 billion in the total amount of loans sold during the year ended June 30, 2004 over $4.5 billion of total loans sold during the year ended June 30, 2003.

Origination fees, net. During the year ended June 30, 2004, origination fees, net, increased $0.2 million, or 0.3%, to $53.4 million over $53.2 million during the year ended June 30, 2003. The $0.2 million increase in net origination fee revenue consists of an $8.9 million increase in origination fee revenue, offset by an $8.7 million increase in the deferral of origination fee income during the year ended June 30, 2004, when compared to amounts reported a year ago. The $8.9 million increase in origination fees, net, during the year ended June 30, 2004 over the amount reported during the year ended June 30, 2003 was primarily due to a $21.0 million increase in the points and fees charged at the time of origination by the retail channel, partially offset by a $12.1 million increase in net yield spread premium paid by the wholesale channel. The increase in retail points and fees collected is primarily due to the $605.0 million increase in retail loan originations, and the increase in the net yield spread premium is due primarily to the $1.9 billion increase in wholesale loan originations during the year ended June 30, 2004 when compared to such originations during the year ended June 30, 2003.