FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Aames Financial Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %>
3731 Wilshire Boulevard, 10th Floor
Los Angeles, CA 90010-2828
(213) 351-6100

UNION CITY, CA (February 14, 1997)/FOOLWIRE/ --- Aames Financial released second quarter 1997 results on January 29th. Revenue for the quarter reached a record $72.9 million, more than double the second quarter last year which had revenues of $32.4 million. Net income for the second quarter also more than doubled to $18.3 million. Net income per share was $0.80 compared to $0.44 per share last year.

VOLUME/ORIGINATION HIGHLIGHTS. Loan origination volume totalled $616 million, up 129% from $263 million a year ago and up 25% from $492 million for Q1. Of the $616 million, $325 million represented correspondent volume in the second quarter. Both of their core businesses, Aames and One Stop, increased dramatically. $190 million came from One Stop, up 35% from last quarter. Their core business retail volume represented $102 million, an increase of over 12%. Their loan servicing portfolio on December 31st totalled $2.3 billion, up 27% from last year. Loans held for sale increased 10% over the previous quarter to $155 million. Retail business in December set a new record at over $40 million.

REVENUE HIGHLIGHTS. Revenue for the first 6 months rose 2.5 times to $55.2 million. Net income totalled $13.7 million, up from $12.9 million a year ago. Included in net income for the first half of this year are non-recurring pre-tax charges of $28.1 million, primarily associated with the acquisition of One Stop Mortgage. Earnings per share for the first half totalled $0.68. Before the non-recurring charges, earnings per share were $1.50 compared with $0.78 per share for the same period last year.

SUMMARY REMARKS ON PERFORMANCE. They think the stellar performance they have experienced reflects the leadership and strength that Aames continues to demonstrate in the sub-prime lending area including the wonderful contribution of One Stop Mortgage. Additionally they benefitted from their active and growing correspondent business and their nationwide retail expansion program, all of which contributed to growth in their revenues and once again they are eagerly behind the continued expansion of that retail business as well as the continuing expansion of the One Stop Mortgage operation nationally. The One Stop acquisition was a very good one for them and they continue to look at possible acquisition opportunities.

SECURITIZATIONS DURING THE QUARTER. During the quarter, Aames completed the sale of a $603 million mortgage pool as part of their regular program to securitize the majority of their loans. This pool included $53 million of loans that carry a special agreement as to a portion of their cash flow. This was the largest pool in their history.

EXPENSES DECREASED. Overall expenses decreased in the quarter as a percentage of revenue and, as they continue to add to their management structure and marketing programs, they intend to keep pace with their growth plans even though they will strive to continue to lower that percentage to revenue. They are continuing to improve their marketing and advertising programs and maintain their leadership position. They look for continued improvement there.

RETAIL. Currently they have a net of 52 branch offices open. They closed a couple in California but opened a bunch outside the state. Their offices outside of California continue to do quite well. One Stop is now open in 26 states. They opened one new office in the quarter. One Stop should open 1-1.5 offices per quarter on a go-forward basis. Retail should be opening somewhere between 3 and 4 offices per quarter for the next couple of quarters and then it should start to slow down a little bit.

SERVICING PORTFOLIO. In terms of servicing the loan portfolio, in November, they converted over to Datalink which will allow them over the course of 1997 to bring virtually all the new loans over a 9-10 month period into Aames. By October or November this year, all the new loans they originate will be serviced at Aames. They have staffed up significantly in the third and fourth quarter of calendar 1996. They have not yet realized the benefit of that staffing. As they leverage the volume over the next 12 months and bring it all in, they expect their servicing margins will materially improve and is something they look at as a very strong part of their core business.

CASH FLOW. One of their most important strategic goals was to improve their cash flow with the ultimate goal of bringing their company to be a self-financing company. With some new things they are going to do this year, they believe they can do that. The three things that will help them in their goal to become self financing are: first they are going to start selling off whole loan sales this next year. They are going to start this quarter and it will gradually build up. They will take more and more of their volume and sell it off to the whole loan market which has become extremely attractive. They will also explore a debt for tax structure. The third thing, they have been approached by a number of banks on residual financing and the levels of residual financing have risen dramatically. They have been offered 60% of book as opposed to the 35-40% they had last Summer. They think that is because banks are more comfortable with the value of their residual. While they don't need the money yet, over the next 2-3 quarters, they will look to that financing arena to assist them in their ultimate goal of becoming self financing.

MIX CHANGE DUE TO ONE STOP. One Stop has been very successful bringing volume. They also bring Aames a much higher quantity of A- and B paper than they had before. This quarter they had about 22% C- and D paper in their portfolio versus two quarters ago when it was about 42%. They would expect that mix change to continue. That will cause their delinquencies to go down. They have strong demand in their core business. They expect that to continue as they grow across the country. Margins remain strong in those sectors. They are looking forward to a good year this year. They expect the sequential increase in loan volume to slow down in the next few months, especially with One Stop, due to seasonality.

REVENUES. Revenues increased 125% quarter over quarter. The biggest increase was in their fees and other and the biggest substantial part of that was an increase in interest income. As they hold larger and larger amounts of loans on their balance sheet pending securitization, their interest income will tend to grow and the spread between the mortgage rate and the warehouse rate is a very big profit center for Aames. That grew 248% for the quarter. The second fastest growing was their excess servicing gain, up 169% quarter-over-quarter from $18.5 million to almost $50 million. Although they did securitize almost 3 times more product, the reason the gain was only up 169% is that they shortened their estimated lives on their assumptions for their securitization and increased their conservative position on what they reserved for losses. They currently have on their balance sheet approximately $26 million reserved for loan losses on their 20 securitizations. That contrasts to just over $5.7 million at the end of December 1995. They had about $850,000 worth of loan losses at the end of this quarter and about $1.8 million for the 6 month period. They think their reserves are very adequate. Commissions from their retail branch originations were up 20% quarter-over-quarter. Loan servicing revenues were up 21%. Their portfolio was up 167% and the reason for this is that they have also elected to amortize their excess servicing gain at a 30% amortization rate even though historically they actually have amortizations in the low 20s, they book their gain in the 26% range flat across the board, regardless of credit category. They like to be a little more conservative so they avoid any spikes in the amortization and a potential breakdown.

EXPENSES. Expenses compensation went from 33% of revenue down to 27%. Sales and advertising costs decreased from 13% to 9% of revenues for the quarter. G&A went from 11% down to 10%. For the six month period G&A actually went from 10% up to 11%, but that is basically due to the acquisition of One Stop last quarter and they expect that percentage to continue to decrease. The only increase they had was interest expenses which went from 6% of revenues up to 11% for both the 3-month and 6-month period and that was mainly because of the debt they did last quarter and the fact that they carry a lot more loans on their warehouse line although they do make a positive spread on that interest.

SECURITIZATION SPREADS Spreads on the securitization for the quarter were down 5% from last year although historically at 443 basis points, they are still very pleased with those. They receive by far the best execution on any securitization they have done. The adjustable rate product has come down from at six months, 37.5 basis points over Libor to just 22 basis points over and they have heard a report from someone who did it at just 18 basis points already.

BALANCE SHEET. Delinquencies at December 31st are 14.2%, that is loans with more than one payment due, versus 15.2% for the last quarter. Again their losses were $850,000 for the quarter versus 1.5 million for the six months. In the debt for tax structure, because of the new FASB 125, they believe they are able to change the structure of the way they securitize adjustable rate product and pay taxes on the income as it is received in cash. This should amount to a significant cash savings in the balance of their fiscal 1997 and all of fiscal 1998. Again, they have not done this, they are investigating it, but it looks very promising.

STOCK SPLIT AND DIVIDEND. One of the things they were going to announce shortly is a 3-for-2 stock split which the board declared on January 29th. For stockholders of record as of February 10th, the fractional shares will be settled in cash. The board also declared a regular quarterly cash dividend of $0.033 per post-split share payable on February 24, 1997 to shareholders of record as of February 10, 1997. On a pre-split basis that dividend remains at $0.05 per share.

OUTBOUND TELEMARKETING PROGRAM. They talked about their new outbound telemarketing program last quarter when it was still in its embryonic stage. It is now up and running. They are delighted with the results they have had so far. They think it is going to grow at an exponential rate.

VIRTUAL OFFICE. Another innovative thing they talked about was the creation of what they call the "virtual office" which is an office staffed by loan officer personnel who work in conjunction with the inbound and outbound telemarketing components of their company to talk to borrowers throughout the country whether Aames has an office nearby or not. It is able, as a result of the electronic media they employ and the historical direct mail program they have established nationally, to handle calls from virtually any village or hamlet irrespective of its proximity to an Aames branch and handle that loan transaction virtually by computer and by mail and by using signing services to go to the homes of those borrowers when necessary to consummate those transactions. This provides an additional layer of penetration for Aames' marketing effort. They will raise their conversion rate, lower their incremental lead costs as a result of now being able to service borrowers who are outside the physical proximity of Aames locations. Starting next month they will set up a test program of loan officer/sales personnel who will be armed with laptop computers and who will actually begin to implement a nationwide program of in-house (in the borrower's home or place of business) home loan signings and sales consummations.

SUB-PRIME INDUSTRY. The demand for sub-prime lending continues unabated. They also believe what they call sub-prime lending is now taking on a new cloak and they think the service they offer sub-prime borrowers is now being looked at very favorably by prime borrowers as evidenced by the increase in the A, A-, and B categories of Aames business. They believe that this marketshare will continue to grow as the enlightenment of the public continues to identify the fact that the old line lending institutions, terrific in checking accounts and loaning to businesses, are not really interested in or specializing in offering convenient services to homeowners in the home equity lending area. They don't believe they will be called "sub-prime" lenders for very long. They believe they will begin to be known as specialists in arranging consumer home equity loans irrespective of whether they are prime or sub-prime and that is their goal -- to take into their fish net and their area of influence all borrowers who need to borrow on their homes.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.