SOURCE: Aames Investment Corporation

May 10, 2006 16:15 ET

Aames Investment Corporation Reports First Quarter Financial Results

Loan Production up 15% From Year Ago; Retail Production up 44%

Company in Discussions Regarding Possible Merger

Core EPS Loss of $0.10, GAAP EPS Loss of $0.22

Cost Reduction Program Proceeding

LOS ANGELES, CA -- (MARKET WIRE) -- May 10, 2006 -- Aames Investment Corporation (NYSE: AIC), a nationwide subprime mortgage lender today reported diluted net loss per common share of $0.22 for the first quarter of 2006. Excluding a pretax mark-to-market derivative loss under FASB 133 of $5.2 million and charges related to the Company's cost reduction program and other non-core charges of $2.3 million, core loss per diluted share for the quarter equaled $6.0 million or $0.10 per share.

First Quarter 2006 Highlights

--  Total loan production of $1.6 billion, 15% above year-ago volume, and
    17% below the fourth quarter 2005, reflecting seasonal variation;
--  Retail Channel production increased by 44% from the first quarter of
    2005 and accounted for 48% of total production compared with 43% in the
    fourth quarter of 2005;
--  Net cost to originate of 2.20%, compared with 2.92% in the first
    quarter of 2005;
--  Taxable portfolio net interest margin of 2.75%;
--  Weighted average interest rate on quarter's production of 8.39%,
    compared with 7.81% for the fourth quarter of 2005.
    
Aames also announced that it is in discussions with several parties regarding a potential merger or sale of the Company. While there can be no assurance that any transaction will be completed or of the price of any such acquisition, the Company currently believes that there is a significant probability that it will enter into a definitive agreement with one of the parties during the second quarter. Aames has retained Credit Suisse, Inc. as its financial advisor in connection with its consideration of a potential transaction.

Mr. A. Jay Meyerson, Chairman and CEO of Aames, said, "We were pleased with the success of our retail growth strategy in the first quarter, with the division growing by 44% over last year and now accounting for nearly half of our total production. We were also encouraged with the progress on our strategies to improve our results for the remainder of the year, even as we began pursuing a possible sale to better position this enterprise for the longer term. We are moving forward on our plans announced on March 27 to reorganize our parent company to eliminate its REIT status and have successfully eliminated a meaningful amount of operating costs. By April, we closed two wholesale operating centers and eliminated over 120 positions in the Company. At the same time, we continue to focus on growing profitable loan volume, with a particular focus on our strong retail franchise, which enhances our ability to weather the challenges in the subprime industry."

Meyerson continued, "However, we were disappointed that we experienced a higher than anticipated loss in the quarter and have taken actions to address several issues that led to the negative financial results. Our lower-than-expected gain on sale revenues resulted from increases on loan coupons not keeping pace with the market, as well as provisioning for an unanticipated loan repurchase. The prices paid in the whole loan market for second liens and lower FICO loans continued to decrease during the first quarter, which particularly impacts our wholesale operation, where a majority of our production is in 80/20 loans. In response, we have tightened credit guidelines and made more aggressive increases in our coupons, originating loans in the past several weeks with first lien rates in the 8.30% to 8.45% range. We have also eliminated a number of loan categories from our product menu, which will reduce volume in our wholesale channel but improve our gross gain on sale rates."

Revised Guidance

Based on the current outlook for the Company and the subprime industry, management expects diluted core EPS for 2006 in a range of $0.65 to $0.75 per share. Although the Company continues to anticipate positive core diluted EPS in the second quarter, the change from the previously announced guidance reflects the higher-than-anticipated net loss for the first quarter, as well as the subprime sector's current loan-pricing environment and volatility.

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 exclude 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 mark-to-market gains or losses on the derivative instruments are recorded as income or losses, even though 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 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 first quarter of 2006 and the fourth quarter of 2005 and the first quarter of 2005. 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.

Core Revenue and Expense

The following table details the components of total and core revenue and expense and core net income or loss for the quarters ended March 31, 2006 and March 31 and December 31, 2005.

(dollars in thousands)        Quarter Ended            Percentage Change
                     -------------------------------   -----------------
                     3/31/2006  3/31/2005  12/31/2005   Y-Y   Sequential
                     ---------  ---------  ----------  -----  ----------

Net interest income
 after provision for
 loan losses (1)     $  26,497  $  35,236  $   34,734  -24.8%      -23.7%
Noninterest income       8,418      6,723       2,554   25.2%      229.6%
                     ---------  ---------  ----------

Total revenue           34,915     41,959      37,288  -16.8%       -6.4%
  Mark-to-market
    loss (gain)on
    derivative
    financial
    instruments          5,187     (9,532)      5,300     nm        -2.1%
                     ---------  ---------  ----------
Total core revenue   $  40,102  $  32,427  $   42,588   23.7%       -5.8%

Noninterest expense  $  48,415  $  41,960  $   41,390   15.4%       17.0%
  Non core non
   interest expense     (2,323)         -           -     nm          nm
                     ---------  ---------  ----------
Total core expenses     46,092     41,960      41,390    9.8%       11.4%

Core pretax income
 (loss)                 (5,990)    (9,533)      1,198  -37.2%     -600.0%

Income tax provision        17        765          73  -97.8%      -76.7%
                     =========  =========  ==========
Core net income
 (loss)              $  (6,007) $ (10,298) $    1,125  -41.7%     -634.0%


Core EPS             $   (0.10) $   (0.17) $     0.02  -42.7%     -633.8%

(1) NII for all  periods includes the FASB 133 mark-to-market gain or loss
    on derivative financial instruments.
Total core revenue for the March 2006 quarter equaled $40.1 million, a 5% sequential decrease from the December 2005 quarter. The decrease resulted from a lower core net interest income resulting from a temporary decrease in the amortization of hedge premiums in the December 2005 quarter; this was partly offset by a higher noninterest income resulting from a higher net gain on sale of loans in the March 2006 quarter.

Total core expense for the first quarter of 2006 increased by 11.2% sequentially, reflecting higher expenses related to additional staffing levels in the retail channel, seasonal increases in benefits and compensation expenses and a planned increase in marketing costs for the retail channel. In order to reduce its expenses going forward, the Company closed two wholesale operating centers and eliminated 100 positions at the beginning of the second quarter. Aames anticipates beginning to realize the benefits of these cost reductions in the second quarter and it remains on track to achieve its goal of reducing core expenses by $10 to $15 million from the 2005 levels.

Net Interest Income

The following table details the components of net interest income before the provision for loan losses for the quarters ended March 2006 and March and December 2005.

(dollars in thousands)        Quarter Ended            Percentage Change
                     --------------------------------   -----------------
                     3/31/2006  3/31/2005  12/31/2005    Y-Y   Sequential
                     ---------  ---------  ----------   -----  ----------

Interest earned on:
  Loans held for
   investment        $  71,178  $  41,604  $   71,371    71.1%       -0.3%
  Loans held for
   sale                 19,926      7,866      18,987   153.3%        4.9%
 Overnight
  investments            1,040        220       1,120   372.7%       -7.1%
Income from
 derivative financial
 instruments            13,634      2,630      11,922   418.4%       14.4%
Amortization of net
 deferred loan
 origination costs      (1,318)      (672)     (1,578)   96.1%      -16.5%
Prepayment penalty
 fees                    7,515      1,884       9,015   298.9%      -16.6%

Other                       70        120          92   -41.7%      -23.9%
                     ---------  ---------  ----------
  Total interest
   income            $ 112,045  $  53,652  $  110,929   108.8%        1.0%


Interest expense     $  63,093  $  19,992  $   59,134   215.6%        6.7%
Mark-to-market
 (gain) loss on
 derivative financial
 instruments             5,187     (9,532)      5,300  -154.4%       -2.1%
Amortization of
 financing costs         4,547      1,319       2,662   244.7%       70.8%

Other                      120        137         170   -12.4%      -29.4%
                     ---------  ---------  ----------
  Total interest
   expense           $  72,947  $  11,916  $   67,266   512.2%        8.4%

Net interest
 income(1)           $  39,098  $  41,736  $   43,663    -6.3%      -10.5%
  Add (subtract)
  mark-to-market(gain)
  loss on derivative
  financial
  instruments           5,187     (9,532)      5,300   -154.4%       -2.1%
                     ---------  ---------  ----------
Core net interest
 income (1)          $  44,285  $  32,204  $   48,963    37.5%       -9.6%
                     =========  =========  ==========

(1) Before the provision for losses on loans held for investment.
Core net interest income for the March 2006 quarter, which excludes the impact of any mark-to-market gains or losses on derivative instruments, was $44.3 million, compared with $49.0 million in the December 2005 quarter. This decrease in net interest income reflected (i) higher amortization of debt issuance related to the higher volume of sales of lower rated bonds from the Company's loan securitization, (ii) higher hedge premium amortization over an atypical level in the fourth quarter of 2005 and (iii) higher interest expense from the normal pay-down of the higher rated, lower coupon tranches of the Company's securitization financing.

During the first quarter of 2006, the average balance of loans held for investment decreased by approximately $150 million to $4.0 billion, as the Company chose to sell the majority of lower-valued loans to the market and retain for its portfolio the higher-coupon loans that the Company originated during the quarter.

The table below provides the details of the components of the held for investment portfolio net interest margin for the March 2006 and December 2005 quarters.

                                                    Quarter Ended
                                              ------------------------
                                               3/31/2006   12/31/2005
                                              -----------  -----------

Gross yield on LHFI                                  7.22%        6.97%
  Prepayment penalty fees                            0.76%        0.88%
  Amortization of premiums                          -0.53%       -0.70%
  Amortization of deferred loan fees and costs      -0.13%       -0.15%
                                              -----------  -----------
Net yield on LHFI                                    7.32%        7.00%

Net cost of funding for LHFI                         4.88%        3.70%
                                              -----------  -----------

Net interest margin                                  2.44%        3.30%
The net interest margin for the Company's REIT portfolio for the first quarter of 2006 equaled 2.44%, compared with 3.30% in the fourth quarter of 2005. The decrease in the net interest margin resulted from the above mentioned factors. Using a normalized 65 basis points of hedge premium amortization, the pro forma net interest margin for the fourth quarter of 2005 would have been 2.72%.

Noninterest Income

The following table details the components of noninterest income for the quarters ended March 2006 and December and March 2005.

(dollars in thousands)       Quarter Ended           Percentage Change
                     ------------------------------  -----------------
                     3/31/2006 3/31/2005 12/31/2005   Y-Y   Sequential
                     --------- --------- ----------  -----  ----------
Noninterest income:
   Gain on sale of
    loans            $   5,995 $   5,683 $      348    5.5%     1622.7%
   Loan servicing
    revenue              2,423     1,040      2,206  133.0%        9.8%
                     --------- --------- ----------
Total noninterest
 income              $   8,418 $   6,723 $    2,554   25.2%      229.6%
                     ========= ========= ==========
Total noninterest income for the March 2006 quarter increased by $5.9 million compared to the fourth quarter of 2005, due to both a higher net gain on sale of loans and higher servicing revenue.

The following table details the components of the gain on sale of loans for the quarters ended March 2006 and December and March 2005.

(dollars in
 thousands)                 Quarter Ended             Percentage Change
                  ---------------------------------   -----------------
                  3/31/2006   3/31/2005  12/31/2005    Y-Y   Sequential
                  ----------  ---------  ----------   -----  ----------
Gain on sale of
 loans:
 Gain on whole
  loan sales      $    9,861  $   4,583  $   14,087   115.2%      -30.0%
 Loan originations
  fees, net            7,525      2,097         330   258.8%     2180.3%
 Provision for
  representation,
  warranty and
  other losses       (11,255)      (785)    (13,848)     nm       -18.7%
 Miscellaneous
  costs                 (136)      (212)       (221)  -35.8%      -38.5%
                  ----------  ---------  ----------
  Total gain on
   sale of loans  $    5,995  $   5,683  $      348     5.5%         nm
                  ==========  =========  ==========

Whole loan market
 sales            $1,494,848  $ 320,638  $1,165,887
Gross gain on
 sale rate              0.66%      1.43%       1.21%
Net gain on sale
 rate                   0.40%      1.77%       0.03%
The gross gain on sale of loans for the first quarter of 2006 equaled 0.66% of loans sold, a ratio that reflects the continuation of reduced premiums for a wide range of loan products. Whole loan prices for second liens, higher LTV and lower FICO loans further declined from the fourth quarter of 2005. The composition of loans also contributed to the lower gross gain rate, as the Company cleared its loan pipeline of lower value loans that it discontinued during the fourth quarter. As a result of current premiums paid for selected loans, the Company made additional changes to its loan underwriting guidelines, including eliminating certain higher loan-to-value loans and lower FICO bands. The Company has also made sustained increases in its loan rates across the majority of its products.

The net gain on sale ratio for the first quarter increased to 0.40%, compared with 0.03% for the fourth quarter of 2005. This increase was a result of higher net fees realized upon the sale of loans and a lower provision for LOCOM adjustments, representation, warranty and other losses.

Of the $11.3 million of provisions for representation warranty and other losses in the first quarter 2006, $5.7 million was for a repurchase of loans that had been included in a whole loan sale in the third and fourth quarter of 2005. The buyer of that pool of loans exercised its right to put, or return for repurchase at par cost, certain loans from that pool. Although these loans had at least one incident of delinquent payments since they were sold, 70% of these loans were current at the time the buyer presented them to the Company for repurchase in the first quarter. The Company will sell these loans during the second quarter.

Servicing revenue for the March 2006 quarter equaled $2.4 million, compared with $2.2 million in the December 2005 quarter. This increase reflects higher late charges and other fees collected on loans serviced, primarily in the Company's held for investment portfolio.

Noninterest Expense

The following table details the components of noninterest expense for the quarters ended March 2006 and December and March 2005.

(dollars in thousands)            Quarter Ended         Percentage Change
                          ----------------------------  ------------------
                          3/31/20-            12/31/20-           Sequent-
                             06     3/31/2005    05       Y-Y       ial
                          --------  --------- --------- --------  --------

Noninterest expense:
Personnel                 $ 24,891  $  22,347 $  24,107     11.4%      3.3%
Production                   9,377      8,800     8,716      6.6%      7.6%
General and
 administrative             14,147     10,813     8,567     30.8%     65.1%
                          --------  --------- ---------
   Total noninterest
    expense                 48,415     41,960    41,390     15.4%     17.0%

Non-core income (expense)   (2,323)         -         -       nm        nm
                          --------  --------- ---------
   Core noninterest
    expense               $ 46,092  $  41,960 $  41,390      9.8%     11.4%
                          ========  ========= =========
Total core noninterest expense for the first quarter of 2006 increased by approximately $4.7 million, or 11% compared with the December 2005 quarter. The sequential increase in core noninterest expense reflects the previously mentioned higher operating expenses.

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 March 2006 and March and December 2005.

(dollars in
 thousands)               Quarter Ended                Percentage Change
              -------------------------------------  ---------------------
               3/31/2006    3/31/2005   12/31/2005     Y-Y     Sequential
              -----------  -----------  -----------  --------  -----------

Total
 noninterest
 expense      $    48,415  $    41,960  $    41,390      15.4%        17.0%
Non-core
 income
 (expense)         (2,323)           -            -        nm           nm
Deferred loan
 origination
 costs             21,148       16,620       24,306      27.2%       -13.0%
Loan
 servicing
 and other
 costs             (3,025)      (3,209)      (3,274)     -5.7%        -7.6%
              -----------  -----------  -----------
  Total
   expenses        64,215       55,371       62,422      16.0%         2.9%

Loan
 origination
 fees
 received         (29,696)     (15,594)     (29,567)     90.4%         0.4%
              -----------  -----------  -----------
   Net cost
    to
    originate $    34,519  $    39,777  $    32,855     -13.2%         5.1%
              ===========  ===========  ===========

Total loan
 originations $ 1,565,524  $ 1,361,616  $ 1,882,603      15.0%       -16.8%

Cost Ratios:
   Core
    noninter-
    est expe-
    nse              2.94%        3.08%        2.20%     -4.5%        33.9%
   Deferred
    loan
    originat-
    ion costs        1.35%        1.22%        1.29%     10.7%         4.6%
   Loan
    servicing
    and other
    costs           -0.19%       -0.24%       -0.17%    -18.0%        11.1%
              -----------  -----------  -----------
  Total
   expenses          4.10%        4.07%        3.32%      0.9%        23.7%
Loan
 origination
 fees
 received           -1.90%       -1.15%       -1.57%     65.6%        20.8%
              -----------  -----------  -----------

Net cost to
 originate           2.20%        2.92%        1.75%    -24.5%        26.3%
              ===========  ===========  ===========
The net cost to originate for the March 2006 quarter equaled 2.20% of total loan production, a 26% increase from the December 2005 quarter and a 25% decrease from the March 2005 quarter. The sequential increase reflects the seasonally lower origination volume in the first quarter of the year, the above mentioned increase in operating costs, offset by higher net points and fees earned on originations resulting from retail loans accounting for a higher percentage of total originations.

As previously stated, the Company believes that in the current market environment, a cost to originate ratio in the 1.40% to 1.50% range is required to produce net profits in its mortgage banking division. The Company intends to achieve this lower cost ratio through a combination of retail loans accounting for a higher percentage of total loan volume as well as the planned cost reductions and wholesale consolidation initiatives. The Company executed a number of its cost reduction initiatives at the end of the first quarter and anticipates recognizing lowered operating costs in the second quarter.

Loan Portfolio

Total loans held for investment as of March 31, 2006 equaled $3.7 billion, compared with $4.1 billion as of December 31, 2005. The Company also held $1.1 billion of loans for sale as of March 31, 2006. The decrease in the balance of loans held for investment reflects the impact of loan repayments, particularly on older securitizations, as well as the Company's decision to sell a larger portion of its production into the secondary markets and to retain only those loans that meet its risk adjusted return criteria.

At the end of the first quarter of 2006, the Company's leverage ratio, defined as total loans held for investment divided by total consolidated shareholders' equity, equaled 14.3 times. This leverage ratio is within the range management believes is appropriate, following its decision to reorganize to eliminate its status as a REIT and become a C Corp. for tax purposes.

Loan Production

The following table details the Company's loan production for the quarters ended March 2006 and December and March 2005.

(dollars in
 thousands)               Quarter Ended               Percentage Change
                ----------------------------------- ----------------------
                3/31/2006   3/31/2005   12/31/2005      Y-Y     Sequential
                ----------- ----------- ----------- ----------  ----------

Retail          $   746,131 $   516,558 $   811,096       44.4%       -8.0%
Wholesale           819,393     845,058   1,071,507       -3.0%      -23.5%
                ----------- ----------- -----------
  Total loan
   production   $ 1,565,524 $ 1,361,616 $ 1,882,603       15.0%      -16.8%
                =========== =========== ===========
Loan production for the March 2006 quarter totaled $1.6 billion, $317 million lower than the fourth quarter of 2005. Compared with the prior year quarter, March 2006 production increased by $204 million, or 15%. The sequential decrease represents normal seasonal volatility in loan production.

Retail loan production decreased by 8% sequentially and increased by 44% year over year. Retail production accounted for 48% of total production during the March 2006 quarter, compared with 43% for the December 2005. Wholesale production accounted for 52% of total production for the first quarter of 2006, compared with 57% for the fourth quarter of 2005.

Credit Quality

The allowance for loan losses for the loans held for investment portfolio as of March 31, 2006 equaled $53.3 million, or 1.44% of the gross loans held for investment portfolio.

The Company provided $12.6 million for loan losses during the first quarter of 2006, consistent with the Company's current loan loss allocation model. Based on the level of losses to date, the current level of loan loss allowance has exceeded its targeted levels and the Company is in the process of reviewing it provisioning model. The Company believes that a modestly lower level of provisioning may be appropriate during the remaining quarters of 2006.

Total delinquencies in the loans held for investment portfolio equaled 7.4% at the end of the first quarter of 2006, compared with 7.0% at the end of 2005. While the level of delinquencies in the held for investment portfolio is higher than anticipated, the Company continues to experience loan losses that are better than expectations.

Net charge-offs for loans held for investments in the March 2006 quarter equaled $2.6 million, or an annualized 0.27% of the average 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 fewer new loans are added to the portfolio.

About Aames Investment Corporation

Aames is a fifty-year old national mortgage banking company that originates subprime residential mortgage loans in 47 states 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, 2005 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 Aames Investment's Investor Relations Department at (323) 210-5311 or at info@aamescorp.com.

AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Balance Sheets
(In thousands)

                                                     March 31, December 31,
                                                       2006        2005
                                                    ----------- -----------
                                                    (unaudited)
                      Assets

Cash and cash equivalents:
  Unrestricted                                      $    30,993 $    36,078
  Restricted                                             87,016      87,094
Loans held for sale, at lower of cost or market       1,063,290     951,177
Loans held for investment, net                        3,656,520   4,085,536
Advances and other receivables                           37,957      39,591
Prepaid expenses and other assets                        73,782      70,012
Derivative financial instruments, at estimated fair
 value                                                   52,961      58,147
                                                    ----------- -----------
  Total assets                                      $ 5,002,519 $ 5,327,635
                                                    =========== ===========


       Liabilities and Stockholders' Equity

Financings on loans held for investment             $ 3,240,614 $ 3,623,188
Revolving warehouse and repurchase facilities         1,454,933   1,341,683
Other borrowings                                          1,324      16,487
Other liabilities                                        49,473      76,773
                                                    ----------- -----------
  Total liabilities                                   4,746,344   5,058,131
Stockholders' equity                                    256,175     269,504
                                                    ----------- -----------
  Total liabilities and stockholders' equity        $ 5,002,519 $ 5,327,635
                                                    =========== ===========


Shares outstanding                                       61,883      61,828
                                                    =========== ===========




AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Condensed Statements of Operations
(Unaudited)
(In thousands, except per share data)

                                                       Three Months Ended
                                                            March 31,
                                                      --------------------
                                                        2006       2005
                                                      ---------  ---------

Interest income                                       $ 112,045  $  53,652
Interest expense                                         72,947     11,916
                                                      ---------  ---------
  Net interest income                                    39,098     41,736
Provision for losses on loans held for investment        12,601      6,500
                                                      ---------  ---------
  Net interest income after provision for
   loan losses                                           26,497     35,236
                                                      ---------  ---------
Noninterest income:
  Gain on sale of loans                                   5,995      5,683
  Loan servicing                                          2,423      1,040
                                                      ---------  ---------
    Total noninterest income                              8,418      6,723
                                                      ---------  ---------
Net interest income after provision for loan losses
  and noninterest income                                 34,915     41,959
                                                      ---------  ---------
Noninterest expense:
  Personnel                                              24,891     22,347
  Production                                              9,377      8,800
  General and administrative                             14,147     10,813
                                                      ---------  ---------
    Total noninterest expense                            48,415     41,960
                                                      ---------  ---------
Loss before income taxes                                (13,500)        (1)
Income tax provision                                         17        765
                                                      ---------  ---------
  Net loss                                            $ (13,517) $    (766)
                                                      =========  =========


Net loss to common stockholders:
  Basic                                               $ (13,517) $    (766)
  Diluted                                             $ (13,517) $    (766)

Net loss per common share:
  Basic                                               $   (0.22) $   (0.01)
  Diluted                                             $   (0.22) $   (0.01)

Weighted average number of
 common shares outstanding:
  Basic                                                  62,535     62,593
  Diluted                                                62,535     62,593




AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Other Financial Data
(Unaudited)
(In thousands)

                                                    Three Months Ended
                                                         March 31,
                                                --------------------------
                                                    2006          2005
                                                ------------  ------------

Condensed Statement of Cash Flows Information

Net cash provided by (used in):
  Operating activities                          $   (112,438) $    101,344
  Investing activities                               415,640    (1,144,929)
  Financing activities                              (308,365)    1,134,171
                                                ------------  ------------
Net increase (decrease) in cash and
  cash equivalents                                    (5,163)       90,586
Cash and cash equivalents, beginning of period       123,172        37,780
                                                ------------  ------------
Cash and cash equivalents, end of period        $    118,009  $    128,366
                                                ============  ============




                                                  March 31,   December 31,
                                                    2006          2005
                                                ------------  ------------

Revolving Warehouse and Repurchase Facilities

Committed facilities                            $  2,700,000  $  2,700,000
Uncommitted facilities                               100,000       100,000
                                                ------------  ------------
  Total warehouse and repurchase facilities     $  2,800,000  $  2,800,000
                                                ============  ============

Amount utilized on committed                    $  1,454,933  $  1,341,683
                                                ============  ============

Borrowing capacity on committed                 $  1,245,067  $  1,358,317
                                                ============  ============



Liquidity

Unrestricted cash                               $     30,993  $     36,078
Plus:  Unencumbered loans held for sale               89,444        87,597
Less:  Margin and ineligible mortgage
 collateral                                          (88,970)      (80,962)
Plus:  Short-term collateralized financing
 facility                                                  -         9,154
Plus:  Revolving line of credit facility              25,000             -
                                                ------------  ------------
                                                $     56,467  $     51,867
                                                ============  ============


AAMES INVESTMENT CORPORATION
(Parent Company Only)
(Unaudited)
(In thousands)

                                                                 December
                                                   March 31,       31,
Condensed Balance Sheets (1)                          2006         2005
                                                  -----------  -----------
Cash and cash equivalents:
  Unrestricted                                    $    16,505  $    13,042
  Restricted                                           87,016       87,094
Loans held for investment, net:
  Securitized                                       3,241,334    3,659,657
  Not yet securitized                                 462,431      461,452
  Net deferred loan origination costs                   6,092        7,787
  Deferred loan acquisition premium                    35,418       41,131
  Allowance for loan losses                           (53,337)     (43,359)
                                                  -----------  -----------
    Total loans held for investment, net            3,691,938    4,126,668
                                                  -----------  -----------
Investment in subidiaries                              51,970       78,697
Accrued interest and other assets                      94,175       57,480
Derivative finanancial instruments                     52,961       58,147
                                                  -----------  -----------
  Total assets                                    $ 3,994,565  $ 4,421,128
                                                  ===========  ===========


Financings on loans held for investment           $ 3,240,614  $ 3,623,188
Revolving warehouse and repurchase facilities         443,805      433,241
Borrowings                                              1,324       16,487
Other liabilities                                      17,230       37,577
                                                  -----------  -----------
  Total liabilities                                 3,702,973    4,110,493
Stockholders' equity                                  291,592      310,635
                                                  -----------  -----------
  Total liabilities and stockholders' equity      $ 3,994,565  $ 4,421,128
                                                  ===========  ===========

  (1) Before intercompany elimination entries.


                                                     Three Months Ended
                                                          March 31,
                                                  ------------------------
Condensed Statements of Operations                    2006         2005
                                                  -----------  -----------
Net interest income                               $    22,115  $    32,463
Provision for losses on loans held for investment     (12,601)      (6,500)
                                                  -----------  -----------
  Net interest income after provision for loan
   losses                                               9,514       25,963
Noninterest expense                                    (2,068)      (2,035)
                                                  -----------  -----------
  Income before equity in net loss of subsidiary        7,446       23,928
Equity in net loss of subsidiary                      (26,677)     (22,372)
                                                  -----------  -----------
  Net income                                      $   (19,231) $     1,556
                                                  ===========  ===========


AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)

                                               Three Months Ended
                                     -------------------------------------
                                             March 31,         December 31,
Loan Production                          2006         2005         2005
                                     -----------  -----------  -----------

Retail

Total dollar amount
  (in thousands)                     $   746,131  $   516,558  $   811,096
Number of loans                            4,814        3,718        5,269
Average loan amount                  $   154,992  $   138,934  $   153,937
Average initial LTV                        74.44%       75.88%       75.05%
Weighted average interest rate              8.13%        7.53%        7.56%


Wholesale

Total dollar amount
  (in thousands)                     $   819,393  $   845,058  $ 1,071,507
Number of loans                            5,702        6,028        7,356
Average loan amount                  $   143,703  $   140,189  $   145,664
Average initial LTV                        82.06%       81.25%       81.90%
Weighted average interest rate              8.63%        7.60%        8.00%


Total

Total dollar amount
  (in thousands)                     $ 1,565,524  $ 1,361,616  $ 1,882,603
Number of loans                           10,516        9,746       12,625
Average loan amount                  $   148,871  $   139,710  $   149,117
Average initial LTV                        78.43%       79.21%       78.95%
Weighted average interest rate              8.39%        7.57%        7.81%


AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Production Information
(Unaudited)
(In thousands)

                                               Three Months Ended
                                     -------------------------------------
                                             March 31,         December 31,
Loan Production                          2006         2005         2005
                                     -----------  -----------  -----------

By Loan Purpose

Cash-out refinance                   $   950,589  $   799,342  $ 1,106,317
Purchase money                           559,527      519,656      710,890
Rate/term refinance                       55,408       42,618       65,396
                                     -----------  -----------  -----------
                                     $ 1,565,524  $ 1,361,616  $ 1,882,603
                                     ===========  ===========  ===========


By Property Type

Single-family                        $ 1,359,045  $ 1,194,927  $ 1,638,563
Multi-family                             106,542       94,399      136,021
Condominiums                              99,937       72,290      108,019
                                     -----------  -----------  -----------
                                     $ 1,565,524  $ 1,361,616  $ 1,882,603
                                     ===========  ===========  ===========


By State/Region Produced

California                           $   322,733  $   372,922  $   389,707
Florida                                  424,039      296,851      459,669
New York                                 121,819       93,558      157,288
Texas                                    130,170      111,392      141,395
Other Western states                     133,245      139,291      164,982
Other Midwestern states                   84,691       95,226      116,635
Other Northeastern states                199,534      145,853      275,863
Other Southeastern states                149,293      106,523      177,064
                                     -----------  -----------  -----------
                                     $ 1,565,524  $ 1,361,616  $ 1,882,603
                                     ===========  ===========  ===========


By Loan Product

Hybrid:
 Traditional                         $   688,062  $   947,520  $   931,507
 Interest Only                            30,131      148,807      167,197
 40/30                                   540,549            -      366,295
                                     -----------  -----------  -----------
                                       1,258,742    1,096,327    1,464,999
                                     -----------  -----------  -----------
Fixed Rate:
 Traditional                             279,316      265,289      380,559
 40/30                                    27,466            -       37,045
                                     -----------  -----------  -----------
                                         306,782      265,289      417,604
                                     -----------  -----------  -----------

                                     $ 1,565,524  $ 1,361,616  $ 1,882,603
                                     ===========  ===========  ===========


AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)

                                                   March 31,   December 31,
                                                      2006         2005
                                                  -----------  -----------

Servicing Portfolio

Mortgage loans serviced:
  Loans held for investment                       $ 3,670,346  $ 4,077,448
  Loans serviced on an interim basis                1,812,531    1,926,876
  Loan subserviced for others on a long-term basis     85,717       92,213
                                                  -----------  -----------
    Total serviced in-house                         5,568,594    6,096,537

  Loans held for investment subserviced by others      49,844       50,202
                                                  -----------  -----------
      Total servicing portfolio                   $ 5,618,438  $ 6,146,739
                                                  ===========  ===========

Percentage serviced in-house                             99.1%        99.2%
                                                  ===========  ===========


Loan Delinquencies

Percentage of dollar amount of delinquent loans
 serviced (period end):
  One month                                               1.9%         1.9%
  Two months                                              0.9%         0.9%
  Three or more months:
    Not foreclosed                                        3.1%         2.5%
    Foreclosed                                            0.3%         0.1%
                                                  -----------  -----------
                                                          6.2%         5.4%
                                                  ===========  ===========

Percentage of dollar amount of delinquent loans in:
  Loans held for investment serviced:
    In-house                                              7.4%         7.0%
    By others                                             0.0%         0.0%
  Loans serviced on an interim basis                      3.6%         2.0%
  Loans subserviced for others on a long-term
   basis                                                  7.6%         8.9%


AAMES INVESTMENT CORPORATION and SUBSIDIARIES
Loan Servicing Information
(Unaudited)
(Dollars in thousands)

                                                      Three Months Ended
                                                           March 31,
                                                    ----------  ----------
                                                       2006        2005
                                                    ----------  ----------

Loan Foreclosures

Percentage of dollar amount of loans foreclosed
  during the period to servicing portfolio
  (period end)                                             0.2%        0.0%
Number of loans foreclosed during the period               104          42
Principal amount of loans foreclosed
  during the period                                 $   13,144  $    2,351
Number of loans liquidated during the period                43          69

Net losses on liquidations during the period from:
  Loans held for investment serviced in-house       $      891  $        -
  Loans serviced on an interim basis                       522         963
  Loans subserviced for others on a long-term basis          -           -
  Loans in off-balance sheet securitization trusts
   serviced in-house                                         -       1,141
                                                    ----------  ----------
                                                    $    1,413  $    2,104
                                                    ==========  ==========

Percentage of annualized losses to servicing
 portfolio                                                 0.1%        0.3%
Servicing portfolio at period end                   $5,618,000  $3,710,000

Contact Information

  • For more information, contact:
    Aames Investment's Investor Relations Department
    (323) 210-5311
    Email Contact