Angel Oak Mortgage (AOMR) 9 Mar 232022 Q4 Earnings call transcript

Greetings and welcome to Angel Oak Mortgage Fourth Quarter Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Randy Chrisman, Chief Marketing Officer. may... you and you, Thank

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

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

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

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

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

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

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

Now, call I will over turn the to Sreeni.

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

XX, Marking years. unprecedented heightened level X.XX% and of volatility, the spread XX approved increases widening of rate March. and X.XX%, took As to you asset rate increases all These of battle the The as know, beginning December interest XXXX Fed was funds Fed year XXXX. from a in market we rising across very its in XX, over challenging to benchmark year inflation, as classes. as the most December seven highest course the XXXX

doubling approached about non-QM Mortgage and rates in the At time, X%. in more X% mortgages same October. peaking than kind rose

year. the extremely second half securitization the the challenging were in of Additionally, markets especially

a commenced and the quarter call, in last fourth financing mentioned However, as strategic our to plan reduce earnings we we risk liquidity. warehouse in increase

progress, have we Over the accomplishments. tremendous several months, made three including key last

we November, found risk the liquidity. we and gross loans the the with calculated and commensurate received securitization time. we coupon price at in X.X%, that in incremental First, mortgage was This that lack of of sold was reducing decision approximately that residential a financing releasing weighted liquidity markets with

also risk. strong approximately Second, debt large of converted one from existing in partnerships performing and our financing was our which with continually we $XXX global for financing to December mark-to-market banks. with January, This early of non-mark-to-market speaks loans, further million facility counterparties, bank reducing

an participated first Finally, of public offering. AOMT other to proceeds bonds deal. the year-end. we in participated in We This pro XXXX-X alongside which securitization Oak rata we since entities our the Oak the and securitization from our Angel subsequent share initial retained Angel was

of As since today, XX% this of reduced debt of percentage XX% warehouse end XXXX. a accomplishment, over as total by over we and debt by result have warehouse QX loan our of the whole mark-to-market

we interest And newly originated create was growth of and at purchases taken end, rates. own have important to our flexibility us call goal risk resume only to to to which gives debt future. to equity that the any also this corporate liquidity preferred note is but intend it restart Additionally, or not dealers, we not the rights and of our reduce The to we all that in engine. loans strategy on market tremendous that

to dynamics the to are reiterate. respect I’d couple a like there that With landscape, mortgage current of

meaningful housing a First, of in country. the supply there across remains shortage quality

help mortgage of a support underlying mortgage home increases slowed this While level for activity. rate have purchases, down should demand baseline constraint

strong. remained performance Second, credit remain low. Delinquencies

and rare loss zero. exceedingly severities are Foreclosures near are

rare lowering still a in versus has these LTVs year, moderate of loans event of we Even originated, prices many default. to meaningful price home where a factor slight in were decrease loans the in originated. since been appreciation expect we this growth if losses significant home there and Additionally, limiting were

Finally, even competitive to barriers the mortgage for This advantage past non-QM business. origination streamlined reinforces the non-QM relationship the has Angel volatility platform. higher well-established origination year entry resulted of this with in of our and Oaks

and plan the liquidity process, mortgage and methodical our Over to stress high while balance coming coupon we other quarters, securitization management portfolio protect to into the yielding all high rotate mortgage continuing loans a sheet. assets and sustain

to over it turn I'll Brandon. that, With

Thank you, Sreeni.

to then First, some our the details financial we're results and headed. through additional provide where talk like around current of position I and context would our

had loss was we per which of $X.X $X.XX November per of For by loan the of million loss XXXX, million drove or share. the $XX $X.XX fourth or roughly driven a GAAP incremental net The quarter loss share. sale,

Distributable November negative a sale of share earnings or $XX.X loss were of $X.XX $X.XX share. loan per million $XX distributable or loss approximately per contributed realized The The realized earnings. of million were loans which the in the loss. end of to all sold carried of as an million QX, addition the million $XX approximately of loss sale upon unrealized incremental in $XX

and higher the margin million, borrowing $XX.X which was variable $X.X net Interest compressed costs. million for was income quarter interest due to

for quarter were $X.X from the fourth million, million $X expenses representing QX. of over operating a Our decrease

QX, lower than which million our scaling Excluding $X than continued and severance operating lower in were securitization was expenses, QX, expenses demonstrating progress million operations. $X approximately

Now sheet. balance digging our into

million $XX.X had we of XX, cash. December of As

recourse X.X ratio the equity to versus to of times end X.X times at quarter. decreased Our debt third the

$XX billion securities $XXX fair of securitizations. of loans mortgage pre-IPO retained million. We billion million trust, Finance whole $X.X the a and securitization and value at and RMBS, have debt. $XXX loans from $X warehouse residential of AOMT residential was including million of

is And debt. securitization, is AOMT by approximately of of undrawn million. financing million. million driven $XXX This finished participation $XXX with year today, capacity the in difference as our which of $XXX January's mark-to-market our approximately loan capacity warehouse released We XXXX-X

million As subject of only debt, we is mark-to-market of of approximately $XXX have risk. today, which warehouse million $XXX to

of and contributed million $XXX approximately January market this principal the scheduled loans. in million securitization year. AOMT balance an $XXX.X was were securitization pleased The we We securitization of XXXX-X to approximately reenter

we million value in $XX.X of $XX.X million Additionally, while with bonds retained releasing fair and a cash. value $XX.X base million of

bonds retained expect We and XX% XX%. to between these yield

GAAP per November. to as $X.XX XX, November $X.XX value share September XXXX. sale the share $XX.XX common well of includes as paid per as book impact XX.X% XX, from as $X.XX XXXX, impact a our loan of from down in This December of the dividend declined

Excluding quarter. these flat impacts, relatively the GAAP book for value was

declined as fair non-recourse the of Economic expectations underlying of book in $XX.XX duration obligations per rates increased and of the values book all value, XXXX. value increase XX, obligations XX, lengthened, fair up as was December X.X% bonds per The XXXX, our $XX.XX which driving share share from securitization economic September as securitization value.

being as to loan flat of made remained February. offset our flat Assuming pricing and the be with of security dividend GAAP to impact by be economic book of and relatively XXXX, a end February We fairly in far in value March. in known of retreat the that well, estimate January's has as rally payment inclusive so the

earnings the a organically believe methodical we XX% to range the resume locks way continue purchases do and mid-X% originated these of and plan scores to grow throughout rate forward, the process. securitization We'll the on purchasing of we'll loans. this with newly is Looking We average the Recent liquidity XXX. of that maintaining of potential LTVs to portfolio. loans FICO selectively emphasize best and process

XXXX shareholders per $X.XX a XX, declared has XXXX. company to XX, on March record March as share common the payable dividend of Finally, of

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

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

We're the year XXXX was unique a you, and market. rates interest higher for of Thank set concerns. challenges rising inflation, Brandon. with recession

to these immune our to ensure growth we Oak the While and challenges, decisively our programs. to positioned ourselves not Angel capital strength structure was of acted have restart

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

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

you. Thank

[Operator question Kotowski We will with comes a Instructions] Chris session. be now Please Chris. from your proceed First question-and-answer Oppenheimer. question, from conducting

say day out? you can quarter. if just like far Thanks if the give into XX you expectations sale parts morning. on, quarter moving wonder taking interest I with second of net days XX guidance so and first and my or given a income I number could the Good large that see guess given can the some we're on and that the you for and for securitization and question.

million going Yeah. securitization top What down in NIM. interest slightly. margin higher that with costs. securitization compressed we're we slightly that NIM seeing, go will moved portfolio as some to out. haven't added costs, those to The $XXX off things another the securitization fixed to We'll much with but of expect through stay the bleed should that net line see we've borrowing due I'd

okay. million, dollar relative you And $X.X that in terms, mean to

In dollar terms.

be but will guesses then, coming And And it's then balance the And when I to add that's a if of trends overall. course the any the it helpful. you and sheet presumably the very a quarters, function in balance year? over fluid the of environment, likely sheet know very to okay,

Yeah.

get securitization the the very more reducing coupons. bit that originated be securitizing little his did, whole then smaller had start expect than we soon did Sreeni newly a We section, loans, which balance probably purchasing approaching another January. That much like think out to we in loans in but would one mentioned loan X% and

we we line in that as we market those buy come and bottom QX see 'XX. now. build will NIM wide coupon like interest you'll go line the But up won't balance some are of down sheet, loan both as So that we -- as as where loans, high did top

million expenses, Any one the to Okay. thought there? mean been And $X.X expect kind of then on and million $X quarter. on the they this had what in $X should range million I

of the decent amount $X includes million Well, cost. a Yeah. securitization

the over be management looking forward will decreasing. next Going fees at year,

based we on manager distributable pay Our the fee management is earnings. that the

as a is then this some loss And of down there. quarter, we're and analysis to of reduce. outsourced some So we've we rate good that go cost in going that's things previously happen, distributable going lot at to savings. about Run a the $X we brought as services doing other million had earnings

see million $X kind in of savings on You another, it, should basis. call normalized a

I at the… you said sorry, million. I'm $X looking was

million million fee less and then $X $X operating on expenses. million. on $X management

And OpEx? that's the relative on this to quarter million $X.XX

is annually management fee. and The about on million OpEx $X million $X.X saying a Yes. million quarter, on saving $X I'm us

are annual so. Those Okay. numbers,

right. That's

Okay. That's right. for it All me. you. Thank

with proceed Wolfe Please comes your from Thank you. question, next The from Fandetti Don Don. Fargo. question

Yes. how in a think is raising down hunker shot? about talk of you get really a environment? feel or done here? little had speaking rates another Does make the but still still has bit little the should securitization liquidity? Obviously, can and deal markets? January, about originating window type that Can in to sense this to I generally uncertain just it growing you start time. continue Fed mean do you you Do that you And

Hey, here. Don. Sreeni

broader consistently securitizing -- a we our markets, two franchise, January. vehicles. Obviously, We take to different of good I'll the it. the So in we securitization give but able you we're are because -- hit a we advantage and follow was markets the through REIT

done another other securitization our have We in vehicles. February here through

Don, the there the October, now, in the -- markets as last we're was obviously fickle. they'll these right And widen in right today, the volatile, get November done. situation of, is, getting markets of difference but a in are August, illiquidity seeing markets we're as They getting what between absolutely September, as when now, But year are of system. not of out

remember of done. been have new there's also a not originations lot that And

much to no look want we two -- buy REIT, have -- buy more non-QM they out at got to that's -- don't if going anymore one mean, the left up or supply buy-side guys securitizations. have to if don't literally I So not you bonds to now. be we nothing mean, There's of there. I shelf,

the did widen in So We're happens, acquisition are in REIT It March. to will now, already have on we're have but not Spreads We last could seeing market the intend behaving. back that that. markets go to that. loans but and February. a working we change, some very to in when stuff right

are, know. about loans guys liquidity and last think in we look, went the lot terms where the iterations of of mean, we a of these you if I year other as your have through non-mark-to-market But facility. question you we In

significant We risk. a not bit is $XXX million little over in mark-to-market have a facility, which

Brandon buy money to So to saying, closed, why loans. out month. the to the go month to just loans get locked, will get And putting relative we're look do loans down we buy securitization at the as or and we next looking if risk very going all the it and we're markets. thoughtfully work following relative the time by and and double not liquidity That's loans, to was even use

example, new for that if down we markets even March, in to loan. So a may securitization slow more don't buy behave,

position we to a feel are we're what now and that's in we focused. do both So good

us expect single X% double go don't please there. every buy yeah, coupon So down just to and out

plan of the terms dividend a sustainable What is in level?

last Yeah. least when analysis, Like been from set XX, XXXX for as throughout did we a subject the we at XX comfortable out quarter XX looked level comfortably we cut that to the to period. could sustainable we Always said at with still that opportunity are we review have months throughout, and would when the we XX that maintain but thought well.

it'll of that said, deals we bonds. have we retained XX% between where bonds function expected retained when go I And pre-IPO securitization, like we Like XX%. and our this themselves did last forward yield a those just

return. now marking to good the of and So that that it's down behind the is going discount because basically a had us be inherently we loans

Then relatively especially on the through of of calls quarters coupon new or that couple as the loans, buying we're it is of as almost Sreeni good lot start reduced. through year, this The margin building risk back we the out looks significantly loans. lower a said, NIM, like,

on around some ‘XX. $XXX me Sreeni we about from down about facility, million but numbers $X.X billion that's mentioned mark-to-market it. of our Let put QX just have

So it's less it's the not risk than year. it zero, is, the been has I in but mean, significantly

Thanks. it. Got

Instructions] question, question Howlett [Operator Matthew with you. Thank comes proceed Riley. The from Please from next B. Matthew. your

of look if focus stock at economic you morning, book down the -- the how Maybe the feel versus you unrestricted looking liquidity. taking at you us how But the -- XX% position Am buying loans Guys, everybody. my paying going on analysis? could repurchase Good to Thanks back or the do question. of you I today. warehouse the the here for recognized value. that address opportunity first, the give forward do in the cash new do line, buying terms you're at stock, potential Thanks.

take that. looking are Yeah. We've No, to been like continued on have nothing will, think I believe this -- look at and point we yield, we We analysis. future has you at time look that Obviously, return, shares. analysis. today we you an large that at at we where got have dividend because in today that you've a a There returns. immediate point looks decided repurchased if

from We've million of to is shrink $XXX base -- going in today. had the equity at same the that But time, $XXX to million capital size this company. gone we've about

we're So stock we'll we the necessarily goes. to also don't anymore, with want shrink it keep But see help to it float that and up again, the where trading. evaluating in

So million assets, we and easily. convertible unrestricted of million could then have -- about million about that of loans $XX either unlevered $XX but lever cash bonds unlevered we about and is today another easily are then pretty that sell that $XX is or also

No.

access why of It's is your lot in terms getting sort are that a address, note, credit And credit that it a cautious think big it's step. you down You did I where of look the mean, a you then is you non-QM hold a talked securitizations. talk that non-QM? I better and line investors, great another and know next I about maybe just just area for have non-QM It's you the you great than warehouse on could paying going the non-QM I the generic And industry to that broad it, HPA, just to for mean, but about could always of about is and forward and embedded job getting XXXX. trying it's overall vector. people up to And press. versus feel

add underwriting, qualities loan in to when that you loan always default people XXs, these a want of et combination I subprime in to all of cetera., we've and Yeah. you're one low. risk your Matt, true appraisals, told of of look, today Namit, full originate take it. not et underwriting credit, and non-QM of in XXXX. But And mean, have cetera., that the you jump a goes you values in I'll to if this is the a

happens. we're going to mean, that gone higher cash it just through of going naïve have delinquencies not cycle, how almost flow I Now we a so that to franchise, new have, we investor happen really by will our the But way matter in and our said, be way, originations slowed in And credit. recession, that's the are in go in down loans. have that a think defaults. there right? It's the up just when we just if across look, being a not we to

loans I all. doing not we're LTV not at doing are -- We mean, high

of terms we you you recession. on But that. good, are credit We your talk are about potential that clearly what conscious a about think we We though almost the even have know of going to are very need details is in daily. as company that conservative credit we very, tighten into more that now. the and to Namit, so thoughtful even But credit mortgage originating, we're right definitely because you that more

Sure. Yeah.

to that of to crisis period. from an agency scores average our to used of knowledge credit average happen is XXX loans you that the in These we plus originations. attributes different the look are And point, to there sort So of the aspect the being Sreeni's mortgage loan in and in about and Quite our originate, similar pre-global values so FICO when quality talk that right? historical the like low-XXs. originations financial

any of seven, our well. really, years performed loans last losses these had originations. And They've hardly really eight have in the

have you XX%. recession handle and where with do as we that delinquency delinquency book we a a some into go running we are a and up like expect a do goes Sreeni if mentioned, But macro in numbers environment, go if the delinquency. X% bumpy Now, increase into with

about talking X% to talking current still remained loan distraction if right? a that is and And being delinquency you these We because these a coupons coupon LTV. is and of prices are have especially originated of you the suppressed. FICO are with not of when think that market XX a XXX about return loan very the and huge You're have plus potential the close a X% originated, from that loans, being -- spread,

delinquencies X% it to So if take X% much. go your does from not

default rough X% rate. if at do math that marginal XX% and let's them you mean, loans, a around I say it extra

have you now XX So an points default. basis of extra

severity. apply You XX

You loss. in three points That's point that's years, yield. basis coupons an of Spread when a loans. extra anything basis the have look these X hardly over current on XX reduction loan at you

So given yes, But of recessionary quality a delinquencies. a period, percentage to environment matter goes in given any go number loans, is the quality the going prior loan the where of the to these no macro loans, not writing, increase you're the under to which what in earlier to into see expected sort the platform, of of that periods. tough programs be used in non-agency some given

market certainly like feel on what mortgage see Yeah. it's company? to just question, to Last XXXX? a what right you the disconnect you're anticipating. the position on quick in the is Do Oak Mortgage like the Angel you grow platform? Do update I'll between, feel seeing size,

Mortgage mean, Angel conversations that lot Yeah. Yeah. about a one. I'll Oak take of there's I Company. the

mortgage Just companies. to had reiterate, we two

important this just had. So for venture one one a and business discussion is was we

got non-core and to wanted not was we we money the because our business of and in. that's that market XXXX And the an dramatically which good had business reduced be agency we amount So really not made was where And largely function. mortgage that in We mortgage had originator. originator, of tough a licenses. a retail some in was really that XXXX we that's

the a which came is gone has not really On of obviously not what from They're the coupons on changes we solution risk approaching cost made flowing but mortgage have last are going what it's were of different. more that not probably credit. the infrastructure right volume, from terms majority any mortgage really through which have year. wholesale on we're originator, But now many in mortgage volume focused focused dropped. We exactly of perspective. here It's mortgage our sheet. and half we balance company But is same. to cuttings, but and every early up is being volume non-QM, We're through we X% speak. on, originating volumes And not really much as they what that's end company are

Great. Thanks, everyone.

at to turn like There to time. back Thank management for closing you. further questions this the you. no Thank are remarks. I'd call

Mortgage you time you, for much. anytime you out with and reach we forward Thank look invite please everyone this. our you to guys feel and Thank Oak to love to your to REIT. us next would Bye. Angel interest in so quarter, you again connecting free offices We [indiscernible]

this call. much you for does much. and you time. gentlemen, Ladies very Thank Thank conclude today's your very

your disconnect You may lines. now