Earnings call transcript Q2 2023

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Operator

Good day. And welcome to the Angel Oak Mortgage REIT Second Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

is event this note, being recorded. Please like Randy Chrisman, would now Investor to to over conference the Chief turn Relation. I Marketing Corporate and Please ahead. go

Randy Chrisman

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

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

cause to Forward-looking to and risks actual statements may discussed results materially that subject those from are differ uncertainties today.

obligation We undertake events. update not in do statements light new any future to or our information forward-looking of

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

these financial most in our reconciliations to about GAAP measures filings. information SEC and and non-GAAP are the financial measures earnings contained comparable directly More release

hosted Executive and Chief Oak This Angel Mortgage call conference Oak Capital’s Chief Angel Officer, is Financial Co-CIO, Namit REIT’s morning’s Sinha. Prabhu; by Brandon Sreeni Officer, Filson;

Management lead off we some which after the first open by call up comments, to will prepared call making your the questions. will

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

will call to I over Now Sreeni. the turn

Sreeni Prabhu

newly quarter thank second and done results. Thank you, demonstrated work the expenses. In loans, we over to upon We loans the work second a us originated joining and we done securitize low our coupon have proud today. the everyone we Randy, you to for were have the pool we purchasing build began see previous reduce in of quarter, quarters

taken business expense period are actively believe our we pace and the securitization savings increased actions. unique competitive we the marked and our economy demonstrated rates, working and continued model of rising have in by time purchases, strength next a advantages. we uncertainty the and loan end, quarter have Since of In towards resilience our additional broader its have of

negatively rates impacted our and down widen, book spreads and mark-to-market drew and quarter, continue which earnings of portfolio to second the interest During valuations value.

expectations several or near guidance the However, is market to and volatility that dampened cycle. Fed the hike prior quarters interest are end rate of compared at

While that supporting is we to growth. experiencing business encouraging are well have view capitalize demand, our recovery but and originations to our and mortgage positioned some applications suppressed, drive modest

We key with the to successes continue progress year and optimism number through belt. our a of under strategic

focus our strategy. growth of We towards our have our returned execution

AOMT high our captured by We additional our our XXXX us enhanced affiliated year from the second value liquidity and loans the the ability our yielding originator, of quarter. loans during loan which we of tailor originated characteristics securitization newly purchase securing quality the supported allows position purchase. the Dashboard to and credit to

debt also warehouse The sheet strengthened structural converting leverage. it term our securitization non-recourse by to and balance our reducing

carried while have XXXX cost most facility, warehouse new contributed previously on be expensive Additionally, loan Dashboard AOMT the the loans on purchases facilities. lower will to our placed

expect to securitization. end, as our current expected a whole size loans, purchasing than X.X we is of more times reach we one equivalent that position is a transaction, continue newly of to X don’t To value securitization although, to times debt portfolio and roughly our the warehouse increase whole originated single estimated loan to loan the

over partially that increases positive impact side, have offset the this our though, proud continued of rate we interest reduced compressed warehouse the was margins. interest net of by debt the effect are by On beginning year, the to debt since the of XX% reduction

attractive loans These loans can proud continue this significantly have mid-X% quarter. With we purchases loans originated than that whole range. current accelerated we portfolio newly said, an high at we and are our higher coupon coupons purchasing to carry loan of believe

portfolio. consisting expect we net securitizations of we the the continue coming in expand quarters, result, especially to as legacy execute interest a As to loans margin from

impact income as immediate loan well. expansion, the portfolio securitization interest future of addition, execution coupon a will In higher improve whole net

into second We into year, our plan newly our will with our quarterly both we to the goals. continue to originated liquidity rotation results. portfolio expect higher demonstrated of securitization, continued half be of increasingly which our the growth in support Going coupon and loans

While a the focused that We tailor prudently risks risk and market, on we will is our we to assuming remain the continues and ability to loans the those of competitive we in to characteristics differentiator. advantage. where competitive that continue credit feel be believe are have our

half the we second We confident our have achieved capital opportunities structure the capitalize in we in are on flexibility of ability year. adapt with and are and our of the proud to

the to turn now will call Brandon. over I

Brandon Filson

Sreeni. you, Thank

of the are color We both of current the are in risk portfolio, and go proud position from our through results I growth details of a particular, we additional and In quarter. the perspective. the second pleased second and some the the half with our management look as year. will will to results we provide of financial context

marked loss net payments apart. trust, received $X.X loans, GAAP of a of a million loss was loss or unrealized common share. and on the For valuations. earnings $X.XX had share. per diluted million discount, $X.X $X.XX to key net million that a corresponding principal quarter second these assets due securitization or although $X.X The GAAP we our loss the negative per XXXX, Distributable Note at common mark-to-market are are of liability were of driver

$X.X quarter variable was Interest the higher which to $XX.X compressed million remain income and rate interest due net interest for million, will expense. margin was

line income coming net we Dashboard in loan financing grows new mentioned, expect and reduced quarters expand securitization the Sreeni margin as in and subsequent securitizations XXXX AOMT to with As interest purchases. costs interest

million securitization $X.X of of XXXX savings year-to-date a versus million $X.X and costs. were $X.X million million Total savings operating QX a excluding first the of represents of half or This expenses versus $X.X XXXX.

actively operating our additional with working pleased reductions are in to are We quarters. coming achieve savings and sustained the expense

the balance Turning to sheet.

XX, an had XXXX. million we of As $XX XXXX, June cash, QX million representing $XX.X of of in increase from

execution. provides dry powder six showcases support trailing loan purchases liquidity This sustained interest cash months securitization the will that our improve income, us focus in additional the healthy maintaining position cash strong grow net flows with on for Our liquidity and level.

XX to as debt was times. of June ratio recourse equity Our X.X

our As repurchase of short-term ratio decrease July. X.X from of that of a X.X of call obligation reflects versus recourse in the as today’s which This times, trade is is times to debt recourse the equity of early ratio equity matured the X times. earnings date, last debt comparable maturity

debt, fair million off-balance loans securities $XXX residential sheet have and of whole $XXX from of financed loans retained residential million, of We warehouse and billion AOMT of securitization at $XX.X securitizations. million trust from with X.X RMBS value

of $XXX of held we quarter RMBS million Additionally, whole end. as loan

quarter financing capacity $XXX approximately undrawn warehouse of million. the We with finished

have a As $XXX we decrease total approximately approximately the quarter. warehouse a XX% of of of million today, debt, previous of representing over

XXXX remaining which AOMT had coupon X.X%. our which securitization whole average We This Dashboard portfolio, were coupon securitization future of a rate lower coupon loan deal of pleased average loan weighted the weighted subsequently the our helped with pipeline. improve improves

We so our executed into have the expect quarter half heading the goal we to of of to per securitization do and year. second it continue one

decrease cost has the our GAAP previously funding value. book XX, of loans value of XXXX. as and $X.XX the corresponding which fixed for are per drove of the impact share liability, GAAP in mark-to-market from been trust decreased to The $X.XX as and of book securitizations underlying securitization which loans of XXXX total June mentioned $X.XX $X.XX March XX,

all as per values June Economic down securitization by which $XX.XX driven XX, of non-recourse QX, quarterly $X.XX value, fair obligations share our dividend. book was $X.XX XXXX, from

the fluctuate As valuation economic in GAAP cause with book last expect spread to and rate we quarter, and value from interest near resulting changes movements to term.

of The the for the weighted of whole second rate was increased quarter, of have first to the and basis end approximately and X.XX% quarter. Since average second we end as of purchased portfolio loan as coupon XX the loans. of of our $XX of additional points million end purchase locked the quarter X.XX%

of year a XX% Our average a weighted score loan average this rate purchases weighted LTV X.X%, weighted of XXX. carry and of average FICO coupon

new the first weighted over weighted since will X.XX%, an whole purchased. residential coupon basis increase the these continue representing end as coupons our loans, XX portfolio additional of With loans quarter. of approximately The the average the average are points increase in is loan of

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

For additional earnings color review the please our financial on our on results, supplement website. available

turn it back Sreeni now will I closing remarks. to for

Sreeni Prabhu

Thank Brandon. you,

with over Operator turning Q&A, some brief to like Before the conclude to remarks. call I do for the

have half the of We head the done focus our second into we as to are growth to year. excited

foundation mirror, respond market with the the the volatility and to in completely is flexibility a portfolio conditions current likely, not market evolve. as has While strong rearview composition of our rate

industry. the for radar the on remains risk Credit

ecosystem, management the that certain ability of feel one By competitive characteristics. strengths. we on However, credit our based we have risk of adjust to is leveraging the key credit offerings engine

Credit risk credit. and selection to it with performance profitable to like loans Credit to portfolio sound own select a is we has expect have comparably the we strong the of continue to we and been perform well. ability

our in results of look model to the half second resilience and year. of in good business first of our the we our year demonstrating demonstrated have the believe We forward strength half the the and potential the

long-term As team shareholders. the contribution, Angel value and always, work build as I Oak we to to hard our thank their for would like entire seek for

up to your open With that, the will we questions. Operator? call

Operator

first question with Don ahead. with Please Wells The Thank go Fandetti you. Instructions] [Operator Fargo.

Don Fandetti

think It like time like and Do it you to on some or you more the to Yes. sense NII the dividend -- sounds expense efficient makes higher for coupons that? over loans maybe at then point trend higher some grow there’s due and is the into funding saves. can you heading do feel

Brandon Filson

start did our No. to we expensive Net X% then debt, margin significantly a which a rate one that went quarter. off the cash of was paying Thanks Don. loan most purchases. Yeah. warehouse next with financing to interest the securitization of with the the increase and new amount things over No. we question, should mean, I securitization lower for Yeah. is

you additional cost savings. We also see, should mentioned, the like

into covering, going few to flow So just not the but the a from basis, are we over that point believe a from perspective. next to we dividend adequately net quarters, we cash earnings where are true grow

Don Fandetti

all Okay. have. Thanks. Great. I That’s

Operator

next Please Riley. The ahead. Howlett Matthew comes with with B. question you. go Thank

Matthew Howlett

update to just are hear tightening, Okay. just which think coupons the they a little Thanks. When what are market update and about rated And in or you you the you are retaining securitization, then we on My securitization now. they XXXX into now an the how you I look on tremendous type on should selling I’d be market the deals what where -- foresee still where spreads up-to-date? -- bonds? like, off like us the ROE of are the are forward us have to on next thinking we going this IRR question look, Just give trust and are at give a securitization and the today you position, in been going? few is should these down

Namit Sinha

is This Namit. Sure.

you tightening in quarter today So from in standpoint, tightening like market. a are Board spreads, not across the non-QM spreads from the meaningful we but end risk the securitization to seen and for overall second have right, just

is quarter, And which going reverse potentially over next well, the we rest the of seen it so itself quarter. doesn’t if show have the the to benefits up, that as of likely in

in of spread in rates over unchanged month been for have securitized market last tightening deals current have We meaningful the sort bit have manner. the that a coupon generally volatile and market of a been unchanged little the seen

a So, see overall, our that portfolio. spread we to tightening to benefit

question the high-teens the the marginal that speaking on generally penciled when around higher retained around we come coupons. at NIMs at these what these coupons, new in for the the X.X for we is so loans and X.XX, your -- to securitization gross in loans so is then that returns portfolio coupon, And create generally

and up higher. mixed get the coupons coupons they lower Obviously, bring with the

portfolio loans So of lower an accretive with the IRR. versus the a carry blended securitization coupons margin, that these element that coupon post-securitizations and to is are pool the these higher high-teens loans. of comes on But

Matthew Howlett

excited really IRR, that When a and think, get every… about incorporates high-teens talk -- loss adjusted equity these are you and I investors like

Namit Sinha

and It scenario the there’s, yeah. returns funds the of delinquencies -- stressors the you are bring prepayments, the incorporates that down base incorporates can incorporates those the defaults assumptions market today to It case and Obviously, down. run as obviously, we see cost and line. it in reasonable around

if the these is to it you slightly see to high-teens of coupons speed a case, as probably what down we usually these brings coupons base elevated and at mid-teens. down But maybe higher the assumption line, it think

Matthew Howlett

company much like, lines, add paid a you portfolio the down existing base how would capital -- the next the you up can would ups your ask how most much with securitization Okay. And capital. loan lot of can portfolio, question grow you your in freed you people today of the that, REPO

they next into advanced where not, can grow on rates or I -- market, you grow securitization we are can much in the much how have how Given full don’t if capacity? here changed

Brandon Filson

Brandon. Yeah. It’s We -- Matt. hey,

We have or back have capacity coupon to probably principal securitizations sized the in three four to to look we to new keep get loans either grow. markets that at before payments enough for to good growing wait and capital time with

Matthew Howlett

million, Will say, like around, that? you $XXX perform by something securitization million, $XXX around

Brandon Filson

Yeah. Exactly.

a call billion, loans of $X.X few maybe $X it, the a cycles. that worth Somewhere, system through times, billion goes few

Matthew Howlett

Great.

back you. We to growth. on Thank will look Congrats forward to getting that.

Brandon Filson

Thanks, Matt.

Operator

go Please Instructions] ahead. next with from Hewett America. of comes [Operator The Derek Bank

Derek Hewett

that where spreads trended the value book quarter-to-date how Could per of share? everyone. then an have Good provide morning, and update in impacts terms you

Namit Sinha

Yeah.

of since be AAA points. would very come all and would non-QM have points between current It we spreads So same is historically coupon. at happen senior coupon seen quarter, which in because end XX on pretty securitizations XX much quarter-to-date in the somewhere second the space, basis -- the the basis

X.X and versus when X.X and But today, so deals, deals, landscape was so look deals are you the coupon coupon X.X forth. at transportable. the easily -- sell One coupon X.X there other deals

issue of there’s the down points we for about So the bit basis basis in structure. basis have capital little XX But and directly a spread AAAs to generally points tightening come speaking, in at XX new of seen a there. space

Derek Hewett

Okay. July have an end value update either quarter-to-date of And as August? of book of early do then like terms through you the in or

Brandon Filson

now, No. Nothing right Derek.

Derek Hewett

Thank right. All Okay. you.

Operator

would finished Ladies our have CFO turn and session. gentlemen, like question-and-answer and of go to ahead. Please I Filson, it with company. we the over Mr. to that, Brandon

Brandon Filson

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

Operator

This you attending for conference has concluded. now Thank presentation. today’s

a day. disconnect. good You may Have now

Angel Oak Mortgage (AOMR) 8 Aug 232023 Q2 Earnings call transcript