AOMR - Earnings call transcript Q2 2024 | Angel Oak Mortgage, Inc.

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Operator

Good day, and welcome to the Angel Oak Mortgage Second Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to KC Kelleher, Head of Corporate Finance and Investor Relations. Please go ahead.

KC Kelleher

Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's Second Quarter 2024 Earnings Conference Call. our the detailing website Investors filed is results, at we in available section morning, press these release which angeloakreit.com. This on our

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

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

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

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

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

the will call Sreeni. I to turn Now over

Sreeniwas Prabhu

on everyone Thank XXXX, and the we us productive you, first forward. which in QX and year, trajectory, going began capitalize on thank half continuing had expect a the to continue KC, call joining of AOMR for you today. very an to upward to

$XXX reducing current during costs. We securitization the million loans For led we quarter, and a net quarter, by fourth consecutive borrowing deal. AOMTXXXX-X, the coupon income increased while managing interest purchasing a

reduced to costs Oak in higher-yielding a rotate and strategies. modest freed a These alongside deal had capital participation other also assets. into up Angel funding securitizations We

we the historically. currently mid- are to what is which high yields more aligned to in teens, observed securitization We projecting

senior million growth. Additionally, shelf to next raises shelf will be then issue used $XX unsecured the used for a quarters capital that immediately $XXX to fund to years. over of future filed few notes million in that used our be next the We we several

our Now some of highlighting results.

marked growth acquisition, on second and costs is quarterly basis. consecutive management of fourth and loan new of of quarter improvements year-over-year year-to-date sizable This capital interest and income The financing methodical a diligent quarter a efficient our net securitizations. result with

efforts market-leading targeted manage structure the and to alongside These efforts portfolio low company Oak cost costs. led judiciously management origination success. prudent to platforms Additionally, securitization have supported operating our and positions Angel with for by operating its enabled ecosystem are the risk sustained continued

of environment, reflect XXXX, dynamics high capitalize a optimistic interest accretive prepared to to additional we and and are Looking ahead origination while second well continue on half purchases. variable rate to we loan remain believe

our of the mortgage of for in portfolio to the at second the year. to a performance quarter GAAP GAAP the competitors book quarter, other X.X% payment. indicating advantage Delinquency relative is assessing the first maintain securitizations securitized book demonstrates we book between tool quarter delinquency time our us Angel down value. When and economic which in conversion dividend, quality unique our value originator early decreased our a see affiliated which is quarterly essentially that over in marketplace. pay this a Oak's versus par X.X% quarter, X.X% of value decreased credit quarter, Our our as Economic that allows useful partnership management and the of at XX-day of activity value our decrease of muted, dividend X% impact across credit first with the was in average X.X% the loans, to remained versus weighted RMBS net and end the rate of the loans our whole the expect

and second of and capital, I'll disciplined additional greater July, continued and additional we health million and to detail. AMR. With profitable greater the walk management performance maintain interest issuance purchase us to our the momentum intend We high-quality, in in excellent accomplishments unsecured to financial facilitated into thoughtful credit who we for senior catalyze We'll the manner. propel and of over $XX These allocation, our are and the for the by determined it phase to strategy. With net newly earnings, the through maintain performance to will loans vigilant quarter display to this capital growth income which deliver methodical our expect in continue notes trend we securitizations. a of originated Brandon, the continue liquidity execution positive that, portfolio carried underwriting next turn

Brandon Filson

earnings. Thank GAAP the share. loss Distributable gains had $X.XX common a common of and the $X.X earnings you, loss per The of loss GAAP distributable or of company In exclusion was primary Sreeni. were or net per million unrealized $X.XX $X.X loans on between second million results difference of share. quarter, of the residential a the driver

strength progress mentioned, for after demonstrated in stance over a course our growing top by compared line income upward the of of the growth. and the the gains XX% income Sreeni defensive to interest signaling sizable fourth the the of taking quarter half through growth quarter XXXX, in past which XXXX. The company's return net saw year-over-year, growing interest much and portfolio. and of net to annualization of income XXXX nearly consecutive sustained interest XXXX an We of first second continued As and the QX net interest expanded quarter, marks

to expense interest to as deployment compared the improvement X% for over XXXX. have pace our marking expense. over AOMR. Interest X%. and grew of income when XX% was $XX.X for notes and growth and in quarter a senior a July's XX% catalyze million, $X.X next of year-ago the the improvement the interest quarters proceeds We the of X second believe million progress maintained first quarter We levels income and averaging securitization from net quarter reduced a precursor the nearly expect quarter quarters unsecured that our income to of operating XXXX Interest phase quarter over of the per was decreased future of continued issuance we recent serves

expanded operating net from While interest over interest allocation. We disciplined decrease to rates issuance. basis same the by have as our been acquisition metric in to This loan directly income growing and to by our XXX has stock has in first versus with well expense to prior and execution metric the purchases, securitization continue expense expenses, excluding $X.X of expect approach were since of pause accretive are costs $XXX,XXX QX exclude a July's million second remain quarter the from as we the are million quarters, securitization debt deploy capital stock In noncash to loan $X.X in focused compensation remained our or activity a costs points to securitization quarter, compensation committed compensation. Growth a as interest net next few our margin compared and related XXXX. When growth cash driven proceeds the decrease stock in analyze choose impacted and see same quarter. our and interest may we income we securitizations temporary pragmatic by though not the elevated, our expenses in the noncash net represents of returns line plan. $XXX,XXX business we

always, are these to structure to savings we level will most be will, operating behind as explore forward. while cost confident optimize bulk diligently us, of And expenses. low likely the our maintain able going are opportunities we efforts We the

Turning to the balance sheet.

June As hand. $XX million had of XX, on of we cash

ratio recourse end at Our XX, quarter of debt-to-equity was March X.Xx as X.Xx to compared XXXX.

well short-term of recourse end million As X.Xx, our is as maturity reflecting issuance $XX agreements approximately unsecured corresponding repurchase million quarter the share our repurchase. of $XX ratio U.S. held our today's as debt-to-equity assets senior and notes date, treasury and at

do levels increase. As continue we expect opportunistically loans, to acquire to debt we

ratio long-term our basis. debt-to-equity we X.Xx recourse will that a below believe remain However, on

AOMT million quarter in other Our of on million with sheet. In a of billion loan of are of $XX We whole financed retention portfolio in trust unpaid we RMBS, assets X.X%. balance transaction and investments $X.X balance a save the to $XXX the had residential points the risk approximately the fair us deal. weighted quarter, basis underlying at was deal XXX our with of included vehicles, securitization loans stood residential warehouse The XXXX-X, of loans stand-alone million coupon which average debt. second first to year, our on principal contributed of $XXX closed loans including million enabled end, the and as $XXX scheduled the mortgage of and which which we financing of of $XXX securitization value million rate

we AOMT residential not XXXX-X confident million we've loans quarter we contributed executed remain in forward, combined originated in securitizations Additionally, our $XX loan end quarter X loans unpaid be of principal third though quarter, work to securitization with been or our effectively steadily and approximately originated in with cleared AOMT next participated as quarter first of the the out to towards next purchasing our June we balance. These newly until the securitization fourth which toward unsecuritized early portfolio, We securitization. may loans. XXXX-X with late portfolio per going averaging replenish newly scheduled

target management are daily our through primarily capital maintaining originator. high-quality methodically operating to committed continue to loans affiliated We we our strategy. Furthermore, as disciplined of part

continue to to leverage with remain we while ensuring adequate our liquidity. We when that maximize judicious will earnings assets, applying operating

book Looking value. to

from to June value X% quarter. Our the down in GAAP of book per first $XX.XX as XX, decreased share $XX.XX

per as $XX.XX of nonrecourse of as down June Our the fair quarter. share values from securitization per economic XX, all book X.X% value, $XX.XX which was share first obligations

month a today's approximately that we economic quarter, well rate positive We a as of our weighted weighted as value and reduction carried In with and and weighted XX.X% expect in had of a X.X%, of result book of $XXX.X average share spread as XXX. movements average LTV date. of of dividend repurchase the course a FICO on million average the the GAAP a second as loans that of purchased impact a score over last costs coupon

increase carried average point of the second as Our residential XX a since of the increase first XXXX. quarter X.XX% from a XXXX basis a second portfolio loan the the point coupon end nearly end whole of XXX quarter, basis of of of and the quarter weighted

purchases, date, be principal portfolio and the unpaid projected unsecuritized over purchases accretive and is the highly As form of will next additional company to million. from their and balance our $XXX today's loan AOMR stockholders. loans of and should securitization including These the committed

XXXX. proceeds which and of of income On should further XX driving points, net loans, XX, the to unsecured into an has the offering July for deploy spread earnings senior high-quality feeds majority this the to growth. portfolio AOMR. We incremental be next due phase plan notes X.X% We that raise an non-QM the the originated warehouse end to accretive successfully to capital lead to additional July. for of reduced newly intend growth our capital our closed interest investment issuance Additionally, pricing now million, expand of by we on $XX on facility largest basis been

Additionally, value and cost investors, an up to the $XX one proceeds our shares of our of repurchase from opportunity the per drive viewed economic to capital book as of million we overall pre-IPO share. which reduce

Finally, XX, XXXX. the paid be to a per company common of stockholders declared as of August share dividend, August record XXXX, XX, which $X.XX will on

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

Sreeniwas Prabhu

Thank you, Brandon.

is equal, over we because capital a of cost newly are in focused allocation. From investment else the financing our our are past environment and Powered our business entering the see securitization perspective, to made into the plan primarily We have we are that portfolio. we positive have raised phase our begin that acquisition the and of increase to would expect growth pleased a reductions continued consensus next into a of execution valuation we rate believe months positioned business general, environment. we by loans, on progress a increases XX well through declining being and with All the would capital, the to accommodative in existing rate significant more for shareholders. the impact likely

and our would fears While still financing we a economic offerings there newly ours on sparked rate credit reduction on ecosystem, a may and Credit due Fed the We continue benefit trends loans, sticky be earnings the costs of and also heightened SOFR with of cuts. With to is to decrease adjust relationship strength that days have expect credit that our expect employment credit the specific net originated coupon Oak that believe risk weaker recent risk the characteristics. with in we based and Angel ability choose is desired of to risk. funds downturn said, to well. management comparably provides would in to to us which a with based perform our see we own, a potential competitive portfolio

economic only will mortgage additional broader as markets the that non-QM be capital outlook background We but market, well. may potentially generally in our not are and to in residential optimistic supportive of opportunities lead

We your to will now open questions. the call Operator?

Operator

from Instructions] first Fandetti comes [Operator question Our Fargo. Wells Don with

Donald Fandetti

little about feel a to the talk you position NII with current can bit maintain in you're level? Brandon, dividend you increasing, a do like

Brandon Filson

Don, We've increasing quarters. now X absolutely. for yes, been the NII

an grows, expansion issuance. of this deploy next the in But you believe, about if covering from expenses at then XX% margin again, that, of the XX% the interest the but perspective, look basis. a lever pause we little to think by proceeds dividend. it to line a cash we -- a I a probably -- coverage from will dividend will work to -- probably were less the as I like -- be debt net quarter top coverage expect I effective up that we further quarter just QX, from improve and we this have We said, cash

Donald Fandetti

Got economic in What a and pretty it. August? rates. is value big in book had then move you've And July your

Brandon Filson

we chance to in our to I least since up. had we if haven't decreases it's spread also of that as rates component out at now mean dramatic. on widened Yes, need June decrease put there's in a spreads there's we meet the at flat, not and actually the to had it of business to be least -- move then so which any But rate empirically a see the think pen I been kind would in XX of paper temporarily.

Operator

Doug with from UBS. comes Harter question next Our

Douglas Harter

how about think kind can repurchase you the that provide net you the do talk did? Can that of growth issuance much unsecured you of

Brandon Filson

round, probably us securitize. $XXX and or of space, probably can loan $XX residential buy about be next I that, from acquisition. the to on it million But loan that's Yes. next X -- the After this in $X buy purchases steps loans. quarters for you're of the We of going of we million billion kind net left X we'll $XXX think runway of so worth $XX that quarters. quarters just another million the something or of first could over the mean provide several the and proceeds down We forward. after consistent point several kind then that million, will like the again, supportive repurchase,

Douglas Harter

of the to up look you leverages, to how And your issue do the business? guess, then unsecured be I given you able where continue scale think about additional kind of recourse as ability to to kind

Brandon Filson

I mean we'll looking something certainly be it's at.

raised to -- at I We just think grow we're we to want we're just to -- we don't cost. just it want money, and this putting any work.

We did moves sheet tighten at to latest do in bit. in we in balance with here if pricing a we're come the in loan backs We -- maybe on hold we time. should And we obviously, purchases mean, want little the the debt the -- I it call it, could rate going very $XXX tranche that weeks. another this of to based just have But committed about, the next more. think order million that make sure short few in to right

Operator

And next with question from Eric the BTIG. comes Hagen

Jake Katsikas

This Eric. is Jake for Katsikas on

prepayment to expecting you Just meaningfully? activity, pickup begin of prepayment of activity interest moves? a talking think And a you at in recent activity about result accelerate do will as what rate the rates prepayment more level are

Brandon Filson

and pickup prepayment I even really before move down prepayment bit up a in We've to slightly. our speeds would a rates move already book rates compared bit think. mean of but were a this seen little you otherwise economic little didn't quarter where move at why Yes. GAAP value the did

our down, of single-digit portfolio the points. like question, our those prepayment we've yield. money, sides, been which and increased and I -- way X protection than performance a quite got got going That's coupon I much materially, X% move the that is has a really proceeds back to or up We've we -- historically X% are like a to Recently, we a But much speeds most long we'll tailwind in more the catch the that, think, to case at and rates going in take have portfolio, a a of, increasing mean, portfolio, the investing securitization bit be with that of right, a tail we've just should rates got have speeds the by least to little are non-QM market. prepayment going I Remember, on your thing down, maybe XX even prepayments. But similar to move be right? our keep a means because going into costs the assets that prepayments CPR. very huge that's XX our financing we is in slower sensitive that's modeling think base XX level. there's what assumptions in answer to

level a XX% expecting several are the quarters. we to So next over return XX%

Operator

[Operator from Riley. B. Instructions] Matthew Our comes next question Howlett with

Matthew Howlett

quarters report. now, coupons on great a they what mean are going sense be on fluid a I on they're rates on the around higher I'm Congrats any putting assuming retained going but move ROEs the securitizations were we XX%, you're know herein and be of with you than I ago. with to right things forward? thought couple lot a interest will

Brandon Filson

low to we'd where that IPO so a to Well, 'XX the right that maybe if -- call, conditions be funding term, a We little, XX% long-term reduce, a be next stay funding But what really, allow. bit could higher year, securitization a a the that there for expect XX-X. cost. if coupons mean meaning will I I'll still high securitizations few mid- I will XX-X and -- period economic Matt, there's have little hurdle than saw Goldilock and at after could looking higher return next we'll rates loan Yes. will it ROE. back our potential, do a with be in, have coupon think that our relative in costs teens come reduce, in, to our that But long

Matthew Howlett

mortgage you Have has started lowering -- company lowering the rates? started

Sreeniwas Prabhu

Matt, Sreeni here.

the been days, noticed, before So I have not spreads credit few But the weeks, just lower last the just of last what's X days. because in last rates entire would X sympathy last the we on have -- rates as widened -- you market. the days, been few the yes, last say side the lowering happening going securitization have really from over

I now, or the high, you the answer company see if you're too. question and people would And have pick of right that mortgage should we rates to So prepayment lower keep your -- across but board, activity say side, rates, flat that stayed on expect on we before to to will part is going see you also up rates.

I whole will the here. as So a industry think rates lower

Matthew Howlett

that I market. next good just billion I I securitization up the that's you quarters? and I that couple the raised impact going few pretty do probably those right your summary, but I quarters, you leverage with do loan grow of per of think but if couple And with dividend, you nonrecourse you on mean securitization to a your know access the Did way don't still in $X to words here about about above you in acquisitions. if it's have put summarize of X mouth, a July hear I take mean you huge acquisition NII do heard. will you quarter, So can new in of can in what capital kind billion the I loan could a $X

Brandon Filson

that plus that Yes. and also piece That what then unsecured of support senior should an had notes a will available $X be is billion. we fund the

Matthew Howlett

space? Absolutely but of you mean, the the leader in competition non-key cleaned mean or anyone, bumping guys we couple in of haven't any size last years. in are sort are I you is, last the anybody? And much guys, following league has quite it you the and you guess seen you it's been bumping into I a this question mean activity. I out of -- just I are WIM incredible. seeing

Sreeniwas Prabhu

leader. gotten we batch, No. to to they've say, out. would management credit the ourselves consistency securitization, would origination previous Yes, the consider a in from of guys cleaned a be I

continue to We seeing how but REIT the they stronger, less the don't I very But competitive. are go the as small we're not from lower to enough from we're achieve, bid companies, think industry insurance companies not feel company, what and be doing, have buyers. competition where are And the insurance rates from selective insurance we about Obviously, what we stretched. that -- in there'll they're be get gets from the may still securitization constrained involved. we or trying

Matthew Howlett

Exactly. Right. of look to the we growth it. of forward company. Appreciate certainly, wave the next Well,

Operator

I over back question-and-answer like would any turn Brandon remarks. our concludes to the to This Filson session. for conference closing

Brandon Filson

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

Operator

Thank now conference The attending you has for concluded. today's presentation.

You may now disconnect.

Angel Oak Mortgage (AOMR) 6 Aug 242024 Q2 Earnings call transcript