Aames Financial Q4
|
Aames Financial Q4
|
|
(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Aames Financial Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> UNION CITY, Ca., August 8, 1996/FOOLWIRE/ --- Aames Financial Corp reported Q4 1996 earnings yesterday after the market close. Revenues were $44.1 million, a 185% increase over Q4 last year. Earnings per share were $0.63, up 97% over last year and above analyst consensus estimates of $0.58 per share.
The company just announced their quarterly cash dividend of $0.05 per share that will be paid August 29th to stockholders of record as of August 15th.
Revenues were up 134% for the fiscal year ended 1996 over 1995. That was driven principally by the gain on sales increase of 241% from $23 million to in excess of $78 million. This was accomplished because their pooled sales were up by more than 150% and their average spread on the pooled sales went from 390 basis points to in excess of 490 basis points for the year ended 1996.
They had 121% growth on loan servicing revenues as their loan servicing portfolio grew from $609 million to $1.25 billion at the end of June of 1996. Their retail loan originations were up 48% giving rise to fees and other incomes growing by 52%.
They maintain their expense levels with an increase of only 98% compared to the 134% growth in revenues. The largest increase in expenses was due to interest expense which they incur on their warehouse lines where they are holding loans pending securitization. All this gave rise to a 209% increase in income, more than tripling, and earnings per share fully diluted going from $1.11 to $2.09. Book value is slightly over $8 per share.
That includes the effect of FASB 122 which they implemented at the beginning of the fiscal year. FASB 122 requires that they apply part of the cost of the loan to the right to service the loan. So, when they securitize the loans they maintain that right to service the loans, therefore part of the cost of loans is maintained on their balance sheet. At the end of the year that accounted for about $11 million net of amortization during the year and accounted for $0.37 per share fully diluted for the year ended June 30, 1996 and $0.11 per share for the quarter ended June 30, 1996. FASB 122 prohibits retroactive application, so there were no applicable numbers for 1995.
Origination volumes grew from $388 million to $896 million and their pool spreads grew by more than 25% from 390 basis points to in excess of 490 basis points. The relationship between wholesale and retail remains a 3-to-1 or 4-to-1 ratio over the next year or two. They think critical mass will be achieved somewhere between 18-24 months from now on the wholesale in terms of domestic product. And they see no horizon with respect to domestic retail. They think retail, after that, becomes a bigger component of the securitizations in ratio than it is now.
They still have a terrific number of new territories in which to open retail branches and haven't really covered half the country yet in terms of what they believe the foreseeable penetration provides. On the wholesale side they are still relative newcomers -- they've only been in the wholesale business a couple of years and feel that they are only in the beginning. To say that they can triple their business year after year, they think, would be a bit arrogant and presumptious. But, from a purely pragmatic perspective, the opportunity exists and whether they will or not remains to be seen. It is certainly their intention to try.
Their concern is maintaining tight management control over the rather accelerated growth of the company. By adding intellect to infrastructure, strong people, and mature and sober management decisions, they should be able to retain that. Their concern is becoming overly ambitious.
The company's delinquency rate was 15.8% on the portfolio as of June 30th. The net losses for the year was slightly over $1 million ($400,000 for the quarter) on an average portfolio of around $900 million (so, about 12 basis points) and they have reserves against that of about $10.7 million.
The delinquencies, as well, are on a substantially larger number of loans outstanding. The static pool delinquency percentage has gone up, however the actual dollar amount remains constant. But, it is within their traditional ranges. They think that as the volume continues to ramp up and the wholesale percentage of their business continues to grow, they think net losses of 25 to 30 basis points is not an unrealistic assumption to make. The loan to value ratio seems to average in the mid 60s -- on the wholesale it is 66% and on retail it is about 60%. And, they have not moved their brackets up in the prior year.
They opened 17 new offices in 10 new states. Those states they are looking forward to doing strong retail business in include Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Minnesota, Ohio, Pennsylvania, and Utah. Expansion plans in FY 1997 call for more new states and filling in additional offices in the current regions to strengthen their market position.
In addition, last week they began their first outbound retail telemarketing operation which they believe will enhance their retail operations on an ongoing basis.
In summary, they now have 48 offices in 16 states for their retail operation. They are continuing to expand on infrastructure enhancements. Their new loan servicing computer system, Datalink, remains on schedule. Datalink will allow them to service all of their loans on an ongoing basis when it comes up instead of just part of their loans.
They have had some good executive additions in the quarter. They hired a Chief Credit Officer for this quarter and have added another Senior Officer to their Appraisal Department. Aames University continues to train additional Loan Office and Branch Managers to fill out their employee base.
In addition, this Fall they begin a new marketing program which is highlighted by their return to television in September with a powerful new campaign that gives their customers "credit for being human." They have worked very hard on this and they are very excited about its prospects.
Aames distinguished itself for the last 40-43 years in building brand name recognition throughout the state of California and, more recently, Colorado, Nevada, and Washington by the use of electronic media. They are back strong with a new series of TV commercials breaking in September to continue to implement the philosophy of building brand name. They are terribly concerned with their core retail business. They want to continue to build it. It is their ambition to be the Coca-Cola of this sector and they feel that these TV commercials will serve them well in pursuit of that objective.
The company was asked how they view the infringement of Countrywide Credit Corp. on their market, given that Countrywide is a competitor with a much wider distribution system both wholesale and retail than Aames and Countrywide has also stated that they want to compete by building themselves to be the key brand name in the market.
The company responded that Countrywide is a superb company and distinguished themselves for many years in the A-paper business. Aames thinks there is a certain degree of information enlightenment and sophistication associated with embarking on an adventure into the area that Aames specializes in, which is the C and D sector. Aames views themselves as specialists in collateral lending versus Countrywide -- which they categorize as specialists in real estate lending, oriented largely to the credit capability of the borrower.
Aames believes that Countrywide's ambitions in their area are certainly welcome, however they don't see Countrywide's activities manifesting themselves in the C and D sector, which is the home plate of Aames.
Secondly, they believe that the C and D sector is so dramatically underserved in relation to the perceived number of borrowers that are available against the market share that all the companies in the sector collectively are realizing, that they think it will be many years before the pasture really runs out for companies like Aames.
So, they welcome Countrywide and really think that Countrywide coming in will help popularize and legitimatize even more the efficacy of this alternative form of lending. * 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. |
|
|
Copyright 1996, The Motley Fool |