- Earnings call transcript Q3 2022

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Operator

Greetings and welcome to Angel Oak Mortgage Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Randy Chrisman, Chief Marketing and Corporate Investor Relations Officer. to over and you, you sir. Thank

Randy Chrisman

our Thank Oak Mortgage afternoon. This in we release the you is on results, earnings www.angeloakreit.com. for Angel for morning detailing press our website today Investors us filed quarter REIT’s available call. XXXX which joining conference Good third our third at Section XXXX quarter

call statements. forward-looking a remarks As include reminder, made may on today's conference

today. materially of We statements that are not may and cause from subject those to results in or statements obligation discussed Forward-looking any events. uncertainties differ do forward-looking undertake to new to actual our future risks update information light

most a more SEC the our affect refer filings. For may to discussion our detailed earnings release factors quarter recent that results, this please the company's for of to and

hosted discussing are financial most will earnings in More and During Co-CIO, the measures. Prabhu; about financial Brandon measures Oak we the release will after reconciliations up SEC Chief we is Angel Executive these This your to this financial Filson; to will and by Financial Capital's contained call, Officer, Sreeni certain GAAP non-GAAP which REIT’s, Oak Sinha. some conference prepared non-GAAP call measures filings. Officer, Management open our make comments, and Angel questions. call comparable be Namit Chief Mortgage directly information

Additionally, we at recommend viewing our earnings supplement website posted on www.angeloakreit.com. our

to over the Sreeni. I call turn Now, will

Sreeni Prabhu

and everyone today. you for Randy thank you, us Thank joining

for lead phase its team to sincere I'm to Robert publicly CEO, to through my a both this like Before set our as launch for to first contributions gratitude to Robert REIT, guidance I the many well our the as Williams, traded his post-IPO. dive year I growth. in, excited predecessor helped his a and foundation express company, next to of my as would as strong first

As outlook. such, QX turn to results will I our and

driving across contributing slowed sales than and presented felt benefit conforming from unprecedented challenges a quarter the the less interest during this year markets about third slowed hikes, rates financial have in impact Federal liquidity of refinancing XXXX know, widened capital rates markets QX. substantially, abate of disruption with factors magnitude to fixed have Spreads amid Reserve have to in remained particular, widespread challenges the many the the income mortgage the to which mortgage mortgage cause persist did Inflation X% REITs, not Consequently, ago eliminated forcing and of As most in and you over continue doubled have across originations instability. assets. base all more concerns. has elevated, home and rate as higher X% today. of affordability These to

meaningful quality remains a unemployment in housing low. the the country remains shortage there across and supply However, of

X. Importantly, rates loss near credit performance strong. are and are infrequent low, severity are remains foreclosures Delinquencies

like and drove are declines mark-to-market with to book These value the portfolio whole marks driven are downward uncertainty For has these represent substantially QX securitization, faced example, trended the of quarter the XX.X%, losses. portfolio fair the and and the in volatility come percentage AOMR rate and GAAP surprise that downward portfolios. will delinquent assets, on XX-plus of has marks associated pressure on in RMBS and on XX.X% was I of an book respectively. spread AOMR that emphasize which since loan, our of unrealized X.XX% as loans XXXX. declines value had It interest sheet economic end impact QX, balance We by value and that our no each the QX. do

expected the to par pay I've assets be at said and or would As stated these point, losses at the which previously, remain strong, credit offset. consistently performance mark-to-market of off they're

are noting protecting shifted purchased market, that Lending, current the our in locks stabilize. a in is which managing most the Angel to sister coupon while loans mortgage in position activity strategy fewer the And is over the markets economic that liquidity, it a We more rate we and defensive are AOMR QX, for once Mortgage than over grow so a to the capital Given though quarters, the company previous these average worth of was Oak mortgage recent Oak, Angel purchases mortgage X.X%. X%. structure

coupon of quarters, rates current methodical purchasing securitizing our process be to originated of loans. a coming reposition the to Over plan to newly these resume we portfolio and more high and reflective

we'll potential As non-mark-to-market securitizations evaluate a and well as process, credit new loan sales part of as facility. the

have as the share Lastly, of $X.XX our payable Brandon. over stockholders dividend in our With November record November common made I'll XXXX market of reduce quarterly to right-size order to dividend XX, XXXX. reflect it conditions XX, turn to on and decision that, yield, to common to current we to per

Brandon Filson

Thank thanks, you, Sreeni, for everyone, and us. joining

increased $X.XX million For $XX.X of we the loan contributed third a XXXX, $XX.X share. $XX.X Interest as $X.XX The financing quarter Unrealized or this net share. net rate of of attributable between securitized XX% had or loss GAAP portfolio is losses as was realized for common on our GAAP per reporting. profile GAAP difference and distributable fixed the million return and to gains earnings variable whole the loan the our upon the portfolio our interest $XX.X losses loan add-back that impact securitized is hedges. GAAP loan from unrealized underlying Note primarily securitization, of margin the is and were earnings million, common used or of income loan was million per costs mark-to-market value the Distributable that for on but loss. as quarter loans well securitized the portfolio. on portfolios of net interest $X.XX

value to paid impact XXXX, of share June value June the XX, This XXXX. includes were all $XX.XX from losses rate share to September XX, securitization $XX.XX key XX, GAAP down declined of As as spread share share includes book a Sreeni XX, as value, value XXXX, on mark-to-market decline. per by valuing their and the XXXX, basis XX. $XX.XX to September XX.X% fair contributors per from $X.XX Economic Unrealized the of obligations XX.X% widening was per of book in common per as diluted which down August. stated $XX.XX our book driven on dividend

quarter, During $XX of at coupon average cost as portfolio average loan purchased a is whole X.XX% the across portfolio weighted an weighted of of the of coupon in average increased mortgages of The to end X.X%. we quarter. our weighted of our X.XX%. million nonagency loans of X.XX% funds with loan the securitized The average third coupon

capital portfolio into and purchases, the up will securitization deploy loans originated loan improve of over coupon with drive newly we of As weighted execution. average help coupons X.X% loan the

loan month will typically a origination month X locks As given always, reflect purchases in please note loan to that X loan our prior. due to the process, for months

short our window capital opportunity Turning we of at $XXX securitization July, now X.X% reduced with credit activity. receiving to securitization a of XX.X% loan XX.X%. weighted of AAA of ratio our of by financing X.XX%, coupon loans advantage loan-to-value over additional million. of placed deal This deal structure cash, weighted and to included rating. freed tranche rated securitization since take with funding. XX% of our an IPO, debt-to-income and to fourth we $XXX, $XXX average The the able of cost average up the In a This million a score by was senior average where facilities Fitch were complete securitization, a XXX transaction

for $X.X and for operating which third cash at we September equivalents, cash during had operating million. in debt-to-equity was When a quarter million were expenses, QX, to representing $X recourse XX, securitization in our expenses severance there about comparable was a adjusted $XX.X were $XX.X million, savings With X.X ratio versus million $X.X securitization. and the expenses the regard not million balance Our times. sheet, our of

of fair residential of pre-IPO the trust; billion; mortgage billion AOMT residential from $XXX and loans and billion billion RMBS, million. retained of undrawn $XX.X of financing $X.X We loans million have unpaid at quarter principal with securitization. securities capacity finished We balance a the loan $X.X of $X.X of $X.X of including value whole securitization

to financial As had facility $X.X facilities we of capacity X end, financing today. financing a total After financing as on billion bringing we new quarter and facility, matured XX, added institutions. our of September with loan

liquidity As new we rising including rates. We of plan to non-mark-to-market period committed facilities, Sreeni strategy this a facilities. management mentioned, to sound evaluate remain during

a XXXX. X, or a share dividend XX, as of on Finally, record November XX% payable XXXX, shareholders on $X.XX November declared of XXXX. This $X.XX common implies November XX, an the the of per per of price share has yield annualized of to Board as rate dividend closing

turn For back it supplement our additional for now closing Sreeni review color to the please on I our financial remarks. website. will available earnings results, on

Sreeni Prabhu

Thank you, Brandon.

Angel the and challenges market current has fundamental have Oak's has While necessitated changed. presented not change, differentiators

investments aligned with profile. providing asset the experienced our access return risk and and are the and most managers mortgages, non-QM of high-quality seasoned originators meet that to We

performed into and This always platform takes that loans dislocation on its continuing that sheet to uniquely far unprecedented is positioned future. been and balance We our core originating not look to borrowers credit the superior Oak so has non-QM provide underwriting, and to and unique year. for skills strong our this processes will have We Angel our among forward environment any the a more underwriting insight has risks. remain We diligent the resilience market proven confident in change. capitalize strength success in

Operator? up I Oak your for contributions As the successes. With do and Angel hard entire to like our to always, to open thank we'll their work questions. the team that, call

Operator

Don of Wells [Operator question first question. from you. Thank Our is Fargo. Fandetti state from the your line Instructions] Please

Donald Fandetti

And on About securitized? getting that your any about position -- cash? are you how of near-term you liquidity the loans feel your are in terms not repayments

Brandon Filson

gotten when you the very have I Don, think part Hey off of question restarted. cut that may first

Donald Fandetti

that a position about near-term cash No position? loans help and problem. you're and could your or position that getting on talk repayments Can any whether not your you little liquidity bit

Brandon Filson

in been little we're think bit much volatility, There's market. for where now a buying Yes. No, just I I loans. we've the many that think, not in too position

a using a pay down in to good position. been we've cash So debt -- keep liquidity just to

plenty if million capacity We we were unlevered cash have have and of financing to cash, -- to additional and we of additional loans we use raise securities still as unlevered $XX but it.

Donald Fandetti

of selling sure the would was And consider thinking portfolio? wasn't that part loans? of you sort of I the if

Brandon Filson

targeting can. choppy has No, on to that hopefully, a think a prepared few regular believe out we lately. Sreeni you'll securitizations basis always very his in things. quarter, we're been Yes. get extent to I I market remarks, That the on see, touched this

the as would turn we We of easily as are a soon that into portion liquidity of looking free selling loans ahead, coupons significantly lot to done. up higher move a that's at can that and

Sreeni Prabhu

Don, is to this balance what offense. play want for -- liquidity some Sreeni Dan, sorry. our optimize to sheet we do is so and Quickly, also

believe a selling the are just best them to want and we this we and we into it coupons have everything of to securitization, we -- that give optimize quarter. by But loans, combination we optionality at return execution. all don't which So because over look low a up is want

Donald Fandetti

Got it, thank you.

Operator

is B. Thank you. Howlett next line the Riley. question go Our [Operator Please from Matthew ahead. from Instructions] of

Matthew Howlett

Thanks, thanks morning, for taking my question. good

What's housekeeping. few $X the the $X a billion UPB loans? on what's Just the Is unsecuritized the coupon? plus million of commercial, it

Brandon Filson

coupon billion our $X.X about of over unsecuritized today, is and UPB So loans that just X.X%. is

Matthew Howlett

those below Okay. been And marked down here par? presumably have

Brandon Filson

fair The those is Yes. $X.X about billion. value of

Matthew Howlett

Got you.

billion RMBS the then is repurchase that of $X.X and Okay, much pledged CMBS, and facilities? how in to I mean

Brandon Filson

$XX About worth. million

Matthew Howlett

Got you.

be? Okay. I to sense we there's within where in expectations, keeping. just and some the a you the mean, talking mean is us end no in mean, duration? I stuff you losses on said par and hold about mean, I Brandon, when just events then Then up what I that remain more if securitizations credit would -- are can loans your book what's terms value -- you the What duration? and you give right

Brandon Filson

Yes.

look, will off as paid value. barring would unsecuritized. on was loan back say, point point, event, to if that at every at be which that today, marking those off comment XX-point-ish credit loans interest are that rates We I we're a do -- paid par, this the down this rise. just loan the on think is Obviously, it expect, pickup be

billion $X.X billion. $X.X So be at instead paying off they'd of

it million would be of $XXX recovery. So worth

so which time then And slowly, anyways, X.X% in book quarters, to coupon the the system. take from we to work hope the next is several that loans very loans meantime, its through value today over will that way help will some the perspective. securitize prepaying Now those

to I sale value a few the a terms of the execution in is like economic ahead think still points of company. loan the securitization

Matthew Howlett

just headlines any appreciate at been I just on management. you. company? And things last on update what's just Oak lending, mean, asset key question, Angel of next spend the And there's Mortgage -- lot a minutes it. this just just personnel, I of couple of that Got to movements, you going then on Oak the mother on a just nature. can use Angel

Sreeni Prabhu

There's everything here. Sreeni Angel is about of lot conversations this Oak. a been Matt,

holding Oak there's Angel Angel there's Angel the company. and management at Oak So Oak level, company asset Mortgage

no through asset go there Oak of. has management. There So I'll changes speak Angel really over to been

funds, We issue any we financing credit fixed have no across that's like issue. in as and not we management terms asset the private the and We've We on face have anything continue normal. of operate volatility funds vehicles, That's been but that. mutual as lines any income our our had markets, or to side. same

On company mortgage which did have mortgages, a all in wholesale the is the and predominantly predominantly hear, And and of our a you company that mortgage what And what be side, a we other including did. company company. we we the retail actually things, we in funds. the REIT things retail which wholesale agency mortgage company, sorts have mortgages, buy nonqualified is clear, we to does mortgage

just So to as we And in that they workforce company, the our non-QM focus had any per mortgages that, there, still yes, are we future. space. or would has REIT more speculate volumes would shrink this we originate in other over on but that's in near would be our I lender do, else like hopefully in mortgage than our shrink still in not still But like the either I down to shifted. anybody funds primarily speculate going environment. this what

manager. of shrinkage but there's out asset the the So company, in definitely in mortgage nothing usual

Matthew Howlett

Okay.

and layoffs tables. So of you're still traditional -- in mean, sort been I but space, that, still you the there's you just are just on saying #X league

there's gone been competitors I admit have completely your While, a of few just of out business?

Sreeni Prabhu

this in have much Obviously, came Yes. which partnership with asset we a always place. And into helps. better we manager, the

the have money. We raised

originate-to-sell we model. said that originate-to-own credit. not have are an always As we We

up as had being that furious. prudent are mentioned, the be said, it how to fast REITs where deploys rates mortgage in Brandon going environment Now cash the on an and

our thoughtfully we preserve mortgage in so to origination wanted slowed along the the with funds down in because cash our And we company REIT. the

So definitely any operations, down. we're of our we there. non-QM, people -- of we terms terms underwriting, shrinkage But our we of of done in in had in credit slowed for sort our terms -- haven't

Matthew Howlett

Right, thanks it. appreciate I guys,

Operator

Thank you.

next ahead. Our line from America. Derek from Please go of is Hewett question the Bank of

Derek Hewett

higher? given continued GAAP have everyone. has morning trended Could book you how talk Good value rates about quarter-to-date that to grind

Namit Sinha

Yes.

of from standpoint, trended loans that So those of in brought have addition happened few higher, significantly actually What part interest months tightening duration these rate -- bout of But the have that carried that widened that some levels, futures. in obviously, spreads tandem. has up a was wide couple market. through were last and a all to as in is a there these had that mark-to-market rate over there was given the pretty rates all Almost out on of gone spreads respite rate the to the in in volatility of duration actually have pretty loans rates and months. book over moves, the hedged a meaningful summer then September value in a There equation more wall. period big rate down happened was that when actually,

And little to higher. the so the a we bit way to back wides -- went all and

value. created has we So in that decline the the book see in what

Derek Hewett

if the about sure but end you not answered what Okay. I'm value And as book of then question, October? my of

Brandon Filson

environment mean, increasing, was see continue Yes, where widening. it I to at, rates Namit that's it's think over are I passed spreads to just, him, I getting why and what we an

be of from couple September. end at points of of where book So value end are expect another I the down we to October, would

Derek Hewett

you. thank great, Okay,

Operator

Thank of call would gentlemen, remarks. you. the we I the and reached closing Ladies question-and-answer to for end like to session, turn have management the and back the

Sreeni Prabhu

feel any Angel for you, questions, Thank us. In have look in with Oak REIT. you reach everyone, a to please free your day. We guys interest great next you time connecting the if forward Mortgage to meantime, Have again and quarter.

Operator

conference. concludes today's This

this your for you may your Thank at You disconnect participation. lines time.

Angel Oak Mortgage (AOMR) 12 Nov 222022 Q3 Earnings call transcript