Aames’ Profit Rises on Growth in Lending
Aames Financial Corp. on Wednesday said it had net income of $9.8 million, or 29 cents a diluted share, in the quarter ended June 30, contrasted with a loss in the year-ago period, as it made more home loans to consumers.
The Los Angeles-based home lender, which specializes in lending to consumers with tarnished credit records, was expected to earn 27 cents a share, the average estimate from five analysts surveyed by First Call Corp. Aames reported a loss of $14.1 million, or 37 cents a diluted share, in the same period last year, as it wrote off part of the value of securities in its portfolio because more borrowers than it expected paid off loans ahead of time.
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Earnings for the latest period, Aames’ fiscal fourth quarter, reflected robust home lending as interest rates remained low.
“Loan volume grew quite strongly,” said Piper Jaffray Inc. analyst Jeffrey Evanson.
Aames reported earnings after U.S. markets closed. The company’s shares rose 44 cents to close at $11.06 on the New York Stock Exchange.
The company said its total loan production rose 4.7% to $674 million in the period, even though Aames sharply cut purchases of loans made by other lenders. Retail loans and loans made through brokers rose 48% and 37%, respectively, from the year-ago quarter.
Aames sold $697 million in loans during the latest quarter, $625 million of which were packaged as securities, while $72 million were sold for cash. The company reported $63.3 million in gains on the sale of securitized loans, more than seven times the gain on sale reported in the comparable period a year ago. The gains last year were unusually low because of write-downs in the value of securities the company kept in its own portfolio.
Late last year, Aames said it was moving away from loan securitization and gain-on-sale accounting. The practice had become unpopular on Wall Street because reported earnings under gain-on-sale depend on assumptions about the future performance of loans packaged as securities. Several finance companies, including Aames, had reported losses when loans were paid off faster than expected and expected revenue didn’t materialize.
