AOMR - Earnings call transcript Q3 2024 | Angel Oak Mortgage, Inc.

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Operator

Good day, and welcome to the Angel Oak Mortgage REIT Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. KC Kelleher. Please go ahead.

KC Kelleher

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

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

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

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

During contained information directly release the call, financial most filings. will non-GAAP in non-GAAP and GAAP SEC reconciliations certain measures. about measures financial our to this comparable More earnings are be financial we discussing these measures and

hosted Officer, call is Sreeni and Oak call questions. will Investment Chief Prabhu; conference the Management after open prepared which up Financial we your comments, REIT's Officer, Angel Officer, Chief morning's by Brandon Filson; will make Namit Chief Capital's Executive some to Angel This Sinha. Oak Mortgage

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

Now over call turn Sreeni. to I'll the

Sreeniwas Prabhu

and joining thank everyone Thank you, call for to KC, the us on you today.

to reduce the rates were inflation a third the half since to of our on quarter time first Fed of for to and the rate as the from AOMR employment to We interest momentum pleased shift position shift capitalize carrying see confidence enough easing begin first environment in the productive and stability gave year. XXXX. in was the XXXX March this began second of half

loan deployed QX having goals of securitization with income near-term of leverage our its senior the to are capital accretive, months making currently loans. newly call net within all purchases, earnings originated, fully accretive into to interest that unsecured These non-QM regard notes high-quality achieved issued communicated during our July's have combined our newly net additional interest cost income X issuance, debt with producing issuance. debt, activity, exceeds the We

we a originated to loans, recycling securitization early due net many income is This drive possible in loan a growth. compounded disciplined designed of is October, interest of asset Additionally, extending completed and risks. than returns. attractive to capital approach operate operational additional consistent rather speculative with to on target strategy decision-making and purchases our into those focused and newly that sound, investor deliver business a focus We long-term into and

GAAP our net largely growth We that To observed end, with quarter, saw over by meaningful an economic increase over third of portfolio. sheet the balance book in valuations increased income value and X%. value across driven by increasing book XX%

quarter, down from capital income flat As to covering run the more expected, quarter. quarters. July's interest as than slightly, By interest our the end net we stayed see of debt expense, was meaningful was rate in coming relatively the incremental the deployed expect interest throughout we income issuance growth but fresh and net

in Additionally, September's expanded AOMT drive cut rate forward. October margin issuance will and XXXX-XX Fed funds our going both

a successful platform, focused our prioritizes stem approach team. affiliated and management earnings securitization sustainable predictable of This origination, from creation purchase designed proprietary Our model achievements and and generation. our by the

runs operators, structured is smoothly our experienced and highly business by deployment capital efficiently. ensuring that managed investment Our and process and

enthusiasm credit as economic capital and activity. prior especially investors significant mortgage Angel trends entering heightened Mortgage opportunities. such Oak those Looking for as in observed cycles REIT ahead, indicate we that positive potential see around a constructive cycle Historical are and in growth we non-QM has markets believe Investment sector. we private macroeconomic period momentum, gain broader REIT may a of the

investment collateralized, process. underwriting highly essentially stable is private proven standardized a with credit Non-QM and

further can balance accretive on ourselves and drive ready shareholder be transactions will potential capital those positioning execute are that to sheet value. our opportunities enhance raises and for We and

As we prospects capitalizing exciting lie for outcomes on move shareholders ahead. and positive we dedicated the delivering that our to remain forward,

quarter turn performance I'll detail. it third financial that, greater us Brandon over With in to through who will the for walk our

Brandon Filson

you, Thank Sreeni.

largely perspective. line quarter third significant interest near net growth were from with Sreeni expectations see results as we and income And in to a term. in Our expect the mentioned, expense

offset with a As the previously result debt expense during decrease additional a we're net the show was income. the by income interest company. was investment messaged, of as in margin Sreeni statement. as interest interest as with which incremental net activity roughly This a additional to quarter-over-quarter exceeding QX issuance, today, And July's the with slight sizable added mentioned, increase flat to of increase mostly quarter expected debt of cost the the

manage to platforms, prudent success. of position for operating the cost company Angel portfolio These efforts Oak the securitization have origination reduced delivered risk far with advantages this combined continued with management, operating our year. and along concerted Our leading thus expenses structure, the initiatives, our and ecosystem featuring sustainably embedded model

$X.X quarter, third rallied. per the realized share. unrealized a of $XX.X on per company gains our inclusion across or the $X.XX the net loss and In $X.XX common or share, of losses were exclusion common the GAAP results portfolio million of hedges as by had million of rates diluted earnings Distributable income driven

XXXX. capital compared for or increase quarter prior to of the was compared growth originated purchases. million an deployment third expansion of our driven and the into $X.X a quarter XX% newly X% income quarter primarily loan rapid This by of the was Interest to million, $XX.X

from debt continue quarter to from interest expense other return optimize against half purchases in third new our the our Interest coming by compared in we capital. as increase Approximately with million on the prior $XX.X leverage to $XX.X the loan quarter. was issuance the this half July driven million expense was

the was interest $X net In and coming income several quarter the interest we by expansion to income of decrease relative expect a Net a third marking quarters, million, over quarter small XX% improvement factors. driven prior XXXX. meaningful

loans the purchased our with issuance from a proceeds during earnings the we'll quarter. have full of First, quarter's debt worth third

cut from rate points. funds reductions basis observe Additionally, of federal the funding XX we will cost

an the AOMT lastly, recycling loan capital also loans savings XXXX-XX points into additional from additional basis We achieved of are AOMT securitization. the purchases. we released the on XXX cost underlying And XXXX-XX

loans of of average During QX, approximately coupon we average of $XXX.X a weighted XXX. weighted score LTV credit million of X.XX%, a a that carried and weighted purchased XX.X% average

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

shortly As rally reversed the and after $XXX has and of to remain for our by fund the further another which unsecuritized should end over or grow X% due balance Currently, loan cut over rate federal the be is partially today, purchases cuts. just Fed year around as million, of thereafter. coupon the volatility ready securitization loan rate uncertainty

or quarter excluding and the Third million This securitization $X.X quarter expense of the compares stock the $X.X metric same in compensation. were operating noncash in million prior and XXXX total million expenses third of to million $X.X quarter. $X.X

to cost efforts positive reduction Our results. continue bear

Now the to turning balance sheet.

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

end. debt-to-equity Our recourse quarter X.Xx was ratio at

As end. leverage U.S. maturity our is AOMT treasury XXXX-XX reflecting approximately recourse assets at ratio structural quarter debt-to-equity financing as of impact replaced well nonrecourse date, of X.Xx, term the our securitization, with warehouse as short-term today's the which held of the

which This XXXX, in the GAAP second gains of sizable and value to optimism in anticipate the rate book was between book the markets. result Our difference illustrates drive the across prepayment increased spread by book our we rate also securitizations, value interest This quarter economic convergence XX.X% GAAP time, valuation increased either the X.X% XXXX value economic a the activity by growth compared and book while driven GAAP that second portfolio, quarter in versus of third the economic quarter. or between the and over decrease value.

RMBS, quarter with had as million billion securitization warehouse $XXX loan Our $XXX.X other stood majority-owned financed debt. $X.X whole assets value affiliates, portfolio of are investments residential end, a in of residential trust our loans and including $XX.X included balance on fair We of million which at $XXX.X million in mortgage sheet. of and million of of

securitization was weighted of loans cost AOMT to the we a lowers the principal $XXX closed coupon we of a the the non-QM scheduled balance coupon loans our XXXX-XX, points. of underlying few second The year, average accretive, high-quality originated, reduced deal X.X%. average warehouse released funding stand-alone which million whole million, XXX with and weighted contributed transaction $XX and our of debt XXX Recently, $XXX the for into loan by purchases securitizations. capital With we that next million is our basis fill newly this back for securitization, securitization loan currently nearly by over will recycled being which portfolio

pursue to our loan are to daily capital continue high-quality dedicated approach. We aspect of as a practicing core and management acquisitions operational will disciplined

on As focus managing we in always, deliberate maintaining maximize sufficient a risk. and our leveraging assets be will to that ensure mind liquidity return in equity while we our with

around the metric quarter weighted portfolio total X at the with loans for X% muted remain days This stabilization percentage Delinquencies rate. second XXXX, hovered XX X.XX%. some delinquent credit. quarters consecutive to Turning back reflecting around to that average potentially of roughly of has

as large-scale LTVs we've underwriting such quarter portfolio-wide issue, quarters, normal if to our increases historically second quarter cycle. the credit a and an that deterioration. standards in slight we for opposed return robust this indicative becomes we credit to observed levels prior are will As have losses as low a mitigate harbinger Further, to what the compared throughout we that believe indicated of believe

flat end to effect as portfolios our comparatively of for the to a compared rates subdued prepay we trust the second we In and declining for this have expect X-month portfolio is RMBS speeds though couple of to third a securitization X.X% and rate increase, our prepay which the expect loans would are environment, reasons. on would quarter, a approximately quarter. of

and are First, loan below weighted still our a rates, loans or current homeowner's refinance. are to securitized incentive reducing eliminating well that RMBS toward portfolios

XX prepaid have increase CPR, returns. increase speeds expected capital opportunity XX portfolio. the we in has also seasoned will our will re-securitize effective the fall, to and room approximately re-lever non-QM we prepayment If still Second, securitizations, use to meet rates for continue to on and to which model have to yield investment historically an meaning

we of volatility since our to rate have quarter portfolio decreased the quarter. third end to end, mark-to-market expect valuations the of Due after the

above are well levels, new expect impact. still this incremental second as as to their on offset partially negative we However, well quarter purchases currently interest stable mark-to-market valuations loan and valuations income

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

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

I over for will back Sreeni call to closing remarks. now turn the

Sreeniwas Prabhu

Brandon. you, Thank

To is commentary, the summarize model our AOMR working.

investor-focused platforms approach, securitization holistic our management and affiliated philosophy purchase origination, our disciplined and are working. and Our

we shareholders to beyond. As in on deliver earlier, the intend returns believe strong and new environment position favorable ourselves opportunities I we a we and for and our to quarter mentioned our business, are to fourth entering capitalize

Operator? floor open now the I'll your that, to With questions.

Operator

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

Donald Fandetti

next the expectations Brandon, quarters? can volume few you talk new little bit about a investment

Brandon Filson

Yes.

next saw I the think this of mid kind million of $XXX quarter, and million what we'll what see $XXX we quarters few purchases. origination so, is or

Donald Fandetti

clarify And part Are a Okay. of this back book that you quarter saying it? comment? give value you you just the on can or increase good the bit of

Brandon Filson

today. has of It's of Yes. given about half that as been just back increase

Donald Fandetti

that still it. Okay. maintain you the you at And like -- Got of level? can I feel assume you this sort dividend

Brandon Filson

now do to as net should similar -- we next early you should to absolutely. being securitization again, on call, or that loans what saw securitization as year very will a more proceeds with those widen the margin -- interest also then invested, Yes, you out, the we as this well well, indicated plan in that off, new coming see on and QX. late We we going think

Operator

The JonesTrading. Matthew Erdner question comes next with from

Matthew Erdner

to expect million, we $XXX it one securitizations? should investments? as look I guess, a on we Should at a so the speak, of of run quarter per How rate, pace with kind

Brandon Filson

QX, we're -- I we a as one a pause other Yes, expecting in in kind of a calls, think I Obviously, now mentioned think took last QX. X that's we target few quarter. we in securitization quarter, but

probably proxy million what we around a we somewhere that's up So do, for get good $XXX for a to and securitization.

Matthew Erdner

what from there? execution on guys Got the you X? the how guys about is also you. And then And Yes, then that October helpful. you retained how been And has can the that's securitizations? speak

Brandon Filson

cost had No, Yes. of in the of the securitization October funds. capital the execution good. think retained we sold X.X% about at structure, very We under about I XX% was just

IO as piece retained deal, excess out, the single a the bond, mentioned, interest basis bond. particular servicing And the the points retained sold the a excess unrated dropped we piece bond. funding also the off B-rated cost. there, that XXX So we we strip, In position, of of and

Sreeniwas Prabhu

Yes. here. overall strong I This is market. an continues side, Sreeni execution mean From to execution in securitization the non-QM just be

AOMR. for close entity, Oak Angel year, this an securitizations as to done, we've XX So including

continued just spreads we will bit, So consistent spreads mid-XXXs the they out appetite a couple to from in ] but they're I mid-XXXs, And any to see and that of AAAs. [ widened think anywhere -- for somewhere little here. last weeks, been tighten Spreads are there. continue have stability broad

Matthew Erdner

very that's one next going kind yields helpful was Yes, asset vol expecting Do you I'm quarters? for any the assuming that, plays around last think then that's couple one it me. last rate it you do it's think X.X% on how there. there? And and of the of for have forward? are insight How securitization. sustainable all I but you

Brandon Filson

the average will in. rates come assets around obviously the weighted of a no, bit Yes, coupon Right. float as

the on Xs rate keeping next locks year is had, But But I the mortgages rate to going come spread down. now volatility the an cut. would in product. of with we've expect the that, coming Now essentially after to that back good today, up agency high kind Fed that to we're our right over dipped

And a which in is floating costs component the that, should SOFR, obviously, better securitization. well kind of in down, every there -- as also comes on tied with as of rate will concert course, it's to warehouse little we with come financing then get the cut. our lower-funding tied And

expect still XX% on like securitized So to we ROE. a basis levered a XX%

Operator

from question with comes next Eric The BTIG. Hagen

Eric Hagen

you opportunity we more draw maybe happen? looking if sources high What at to that opportunity at to with the back upon make leverage was to your get that these buyback there you are stock levels? at the these an How are aggressive How liquidity the buy levels? might take would

Brandon Filson

-- stock price we're as talking Yes, traded we're has it's about, always something right, the down.

X think we have a the guess, ago, come Eric, would been because $XX, months I wouldn't question up $XX here, have share. I

overhang investor away I we're with shares think our has largest moved got some some $XX. dealing -- as we've around stock

also a little broader around created the in extra or overhang which hard election on. the some I think volatility market, has decreased REIT the got hit we

would that the again. price you'll over or I quarter But that start so -- next appreciate stock I see the believe to

right make at pipe now. that apparent something. us consider and But If a if throughout is for becomes monitor XX% on quarter, is on try we we then buyback we nothing dividend in but something day-to-day the really the would now still we're So the decision. again, doing basis it isn't it the a table, -- almost to right might trading

Eric Hagen

ask about change? delinquencies delinquencies, now? that's you activity But guys. like you, to they mod what and potentially any And if very Got were feel I low. up I more is actually mean, want see did how the of to loan modification high, structure loan the a little remain loan stay activity bit pick would right taking like do we rates place

Sreeniwas Prabhu

just of the there's the appreciation refinancing because of a delinquencies, I appreciation of mean, versus probably Yes, home a with modification. be because not you, just to the home lot. honest price lot end activity, price up these

the delinquencies. because lower just So modification of is much activity

have publishing seeing the we'll delinquencies lower paper market, And information weeks. What some in are send are at to over the to But in through more to of the that on we we looking it. we're we're couple you that ours a next a have XXXX. the look point, are originations but for, lot than and

Operator

next question B. the with Riley. have from Howlett We Matthew

Matthew Howlett

'XX-XX XX%? the loss Brandon, say you leverage on XX% to was adjusted yield did

Brandon Filson

That's right.

Matthew Howlett

calling production. What's but earning than of you could these I'm of big-picture in mentioned your are you low gets I want let's type at new mean, hold When lower your the I just power well to which assume where question. talk to rate. in could me go? legacy recycling do a -- current those just guess into legacy with I deals, dividend the securitizations ROE assuming that. raising the the I consistent, returns ROE expense be mean today, to some the earnings teens, above dividend, of ratio, an and So something which think doing you I stays very don't you about look And that some this company

Brandon Filson

exceed No, yield of got maybe bit dividend, And a as question. ability a price I XX% net. at we a the to much of you're not Yes. right, have an securitizations. lot appreciate But the we've $X think I do share at a

securitizations I don't don't of have profile. reversed when that money, 'XX we than loan, buy the some pricing return. XX% ROE us was have that We and it it modeled. from lot pricing in said, to scenarios XX% XXXX, the like credit whole target in to much make a was is Namit then that Like loans, Obviously, higher some XXXX, there much reality lower. in And the

going XXX% become low of deals. in not call very ROE, 'XX low from coupon could a maybe money funding are Those single-digit XX% the with X% they're completely but be you to if cost 'XX. They XX% even double-digit IRR to or start perspective being could callable deals a get and a terms in the from in Those change. into your take X.X%, to money coupon, the to a IRR get will

XXXX we up, those We inside also back bit delevered of funding a though are somewhat little re-securitize. have a lot. deals some that costs kind of even those similar have to securitizations where also from today, is, package And funding can the actually

So expect And juice QX. much mentioned the to in expand up returns. next our our margin a can to times, toolbox like use like that again, the we we tool net a I quarter, in as interest few

to runway will there be QX start operating where yes, expanding dividend get time. think, and at a stay we at net still should discussion effective time. XXXX dividend that to it, the to capital with if keep start looking what about well we we low, do have that expenses at income, I interest through then ratio, to into and as you an that So But coverage grow

Matthew Howlett

And are returns. obviously, incredible Look, I my mean, next Yes. that's these question.

been coupons have guys You raising successfully.

type they've are I a of these guys on in some lot the returns, the the highest to are quite leader standing. of I'd time. they've -- last I they're economics of you highest it been been shaken -- like and securitization is sort mean With love cycle guy running and sounds competitors, the -- you Are know the you're

securitization anybody? are people you that type see sheets come going coupons? returns, to assuming running in? economics mean, could And good try X, you've of years? hear went do this these the haven't been they your where pressure term want I'm securitization to since or where versus mean, to you to thoughts. stand new I today With seen you X last I in public. Just are

Sreeniwas Prabhu

company, Matt, year. this great XXXX. this competitors. But day, build the Yes. Sreeni. was is consistency. No, is it to are From perspective, at business, good I is XXXX as gets of the a competitive as if again, this business And about there a mean, end also a more relative you mortgage name Angel Solutions, and a -- where there service-driven, more of we because loans, we of a our which which over competitive there targeting sourcing to less just are Oak tend is be recognition. a which are and our Mortgage is environment and is over in what we clients

service are is So day. competing than Price we on but price important not becomes price. more important, every

there's guys the the are loans, that's because that marketplace we that we are few have model every and day that. so And in doing only very buying

than and share in there but guys our price. is fair that what a market the are get do guys drives of in yes, lot There lot So consistency out, at the us more wanting are reasonable to a it. come a of to

Matthew Howlett

is point changes just we've was what sort credit Yes. seems just with commend sort you last in credit. the I of I on in your at here? other sticking to you're point, shelves holding That you mean, underwriting this It non-QM Are knitting whereas of portfolio seen time? steady, like any increase. was your in my going

Sreeniwas Prabhu

Yes.

constantly re-underwriting, of we all we credits from underwritten, slow community. also is brought what point, analyst again, are at what Matt. credit mortgage want we're do We want what type asset of seeing, loan to really are re-underwriting, will what the introduce And credits down, senior we we management. And doing of we we loans to the company And in that more. sorts a guy him into type have to some

of got are as our few lot a But aggressive. much -- said lower seeing coming peers. some previously of guys, obviously, ago, our I minutes new are out delinquencies We're a XXXX originations seeing than also trending where delinquencies entrants we

doing a that. we're write-up bit little a So on of

it you a send all get will as of it. we to guys little deep into So we bit out more

But to no, continue credit. our is goal to manage

thinks be today, end are nobody have will now, something of long right about day, we're that trends. point, mean, to a but at cycle the non-QM. all of I had in some landing. we'll -- seeing we've And there credit we sort any As discuss. But not But

Operator

next Instructions] Kotowski have question Oppenheimer. We the [Operator with Chris from

Christoph Kotowski

up securitization I did impact you just October. follow wanted in the to on the of

XXX said points savings You the it on about interest. was basis of

should a we like Is that expect $XXX,XXX, be of that to net basis? quarterly look at on interest $XXX,XXX it? incremental So income to way the

Brandon Filson

a like Well, it basis phase, out effectively levered versus place, the that levered. levered in was on warehouse to XX% took going of is be that's cost leverage XX% by said, additional some I savings in it taken that

So initially in be is $XX a again move whole already directly. runway use we've But up $X net the we'll it's really, have going of And a which securitization. that new which in terms year full deployed that of to feed loans margin. cash, that from a approximately affords freed capital million what million that into cash interest additional lateral to unlevered, one would

Christoph Kotowski

about correctly? of impact that it. of $X.X efficiency to should was in the it of be year million why like to I think securitization, it and that. that or one to So capital just a something I me, understand Am I the But trying sounds like do thinking isolation,

Brandon Filson

again, the we flat but of thing increased that the was only if where securitization, in leverage to would leverage. be before, the compared we did, additional were the the we've effectively results Well, because no, operating

cost. the So we have delta is a effectively at debt lower more

Operator

Mr. the conference Sreeni closing back comments. session. like concludes turn this our to the to CEO, Prabhu, question-and-answer gentlemen, over and would Ladies for I

Sreeniwas Prabhu

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

Operator

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

You disconnect. may now

Angel Oak Mortgage (AOMR) 6 Nov 242024 Q3 Earnings call transcript