Angel Oak Mortgage (AOMR) 4 May 232023 Q1 Earnings call transcript

Good morning, and welcome to the Angel Oak Mortgage REIT First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference to Randy Chrisman, Chief Marketing Officer. Please go ahead.

morning. Good joining earnings Angel conference for first Mortgage today XXXX quarter call. us you Oak for REIT's Thank

This morning, on we results, www.angeloakreit.com. which filed a press available the release on 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 Sinha. your is Sreeni and Oak call up Namit Co-CIO, Prabhu; conference to make we the after will call Financial open which REIT's Officer, Angel Officer, Chief morning's by Brandon Filson; some prepared Management Chief Capital's Executive comments, questions. Angel This will Oak Mortgage

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

I to Sreeni. the over will turn Now, call

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

return risk year to XXXX of solid opportunities marked term. the first short to The of our quarter business, taking start for to portfolio, both also mitigate as on strategy profile a earnings and to and holistic power the our our while execute continued we over long strengthen the

of key of strategy. warehouse exposure come level mark-to-market reduction decreased meaningfully has are debt whole our elements both and significantly, have amount our risk loan We of our down of which

while in of and which securitization believe originated we improved yields I releasing was book more detail purchasing risk additional the and further we upon saw and volatility, quarter economics for We shortly. pleased which first in AOMT will resumed economic by said, value market taking our loans, strategic heightened a With and GAAP advantage since the Building to with in positive are high-coupon deal, with appreciation battle have that Brandon XXXX-X markets position capital. newly QX produced XXXX, these to discuss rates. our strong January actions, continue with

Federal has rate three its hikes pushing a The rate XX over year. five funds actions, points times rate just now this higher it Fed continued where Reserve sitting The through than X%, year basis of is roughly sat ago. at

As see we fixed pause the in one moved would added rate the some and with to directionally the hike income with expect, mortgage activity potential for for are all tandem beginning a promise this, Fed, compression. from impacted Despite decision. this rates rate potential directly assets Fed's to

was as market but the savings. the through enhanced quarter, focus our the this exposures, management our build through through and expenses progressed by our cost with on also prudently G&A portfolio seen Thus as term seen primary to lower long internal operating was rate first the we for managing where quarter, reduction risks our and market Given focus efforts and expense far, costs. have

focus have key some take able to business progress actions the with and last model already quarter. selective remained our expenses and this we were to quarter, our liquidity to managing Though we position, regard thanks liquidity made unique

originated coupon newly range. have loans, First, mid-X% the an we resumed purchasing higher at attractive in notably

the our over risk. purchase in conservative us loans while flexibility us positioned has profile these liquidity to to meaningful actively the next providing quarter strong to while make manage Our loan acquisitions effort the being

standards to affiliated and suppressed months, market over the of been Oak prudent characteristics customize given entities. provides the our new recent origination the loan us underwriting Angel conditions, ecosystem to confidence ability to has While adjust our loan

not debt with over earnings the out been our far an allowed not ride forced refinance storm the taken. we created us I high-cost without that raise thus have has taken or Despite potential. debt. to actions to out dampen we that XX action have that the would future will optionality point we incurring turmoil protective important capital also The like market existing have months, to long-term liabilities to last

mitigation expense materialize. efforts began The in started that have XXXX to

have renegotiating on of our aggressive backdrop. expense for rightsizing the We current our service taken key management action and macro vendors including side, with levels

expense We of expect with representative run upside. that this potential be will some for rate go-forward quarter's the operating

value believe be we book We as meaningful are there have a growth from proud the we captured is achieved upside of we execute perspective, to a and strategy. our

we look shareholders. year, look we of the forward at and greater balance the As to delivering second to the returns our enter quarter

With that, I'll turn the Brandon. call over to

Sreeni. you, Thank

business AOMR's this despite volatility continued resilient proven quarter core rates. has in

sufficient aggressively the We and maintaining setting of the been the while stage liquidity, long-term managing our earnings strategically risk portfolio. all power for have

the our let's Now, of expectations and the talk for discuss through results, plans then I'll our some details financial future. of near

losses realized contributed the from securitization. of the the was this $X.XX per quarter of of diluted whole the first QX due our the securitization. we $XX securitization negative income income This the to on of XXXX-X share. per income million, of For loss loss net first impact earnings of a approximately share, by reversal quarter common the million of to or net or added driven XXXX, that $X.XX since XXXX. $XXX,XXX, Distributable is loans Please were recorded previously positive GAAP note GAAP unrealized $X.X

both for $X.X as financing our costs. well income in the was million, which of as net to due and size million, was margin quarter higher portfolio the a Interest compressed reduction $XX.X interest

securitization million $X.X a when Operating excluding for representing decrease. to adjusting million. $X.X expenses, expense, severance quarterly of $X.X XXXX million This compares average also were costs, a for quarterly

additional these to initiatives. are expense maintain savings savings As we actively expect stated, working and Sreeni on

March XX, we Turning an million XXXX, representing balance million $XX.X of as XXXX. of the cash, QX sheet, from to of had $X.X increase

debt-to-equity recourse was ratio as quarter. of end the the X.Xx Our of

in early our of quarter as end the XXXX. April. matured the equity that was maturity This ratio X.Xx to the today's of of which compares short-term of date, from to As obligations fourth recourse trades Xx, repurchase debt of reflects

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

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

of the of This a today, As only subject decrease warehouse have of quarters. of risk. two $XXX which a debt, total mark-to-market over represents million we XX% over is XX% to last

XXXX-X of We're happy the with result AOMT securitization. the

approximately the as date. to reducing deal interest are to between of value $XX had in securitization, debt, of the and company addition a in yield bonds economic rated bonds In fair its million which expected ownership million effective from These releasing retained the cash, $XXX warehouse of XX% $XX.X did million on have working a XX% down average we effect and the next contributed the We're X.XX%, average hope loans to weighted securitization, coupons execute go-forward weighted the X.XX%. to basis. shortly. coupon was bringing portfolio our actively of which deal the we of remaining on of loan The to residential which the

increased of X.X% per book obligations, as X.X% XXXX, from XX, to XX, $XX.XX of share $XX.XX $X.XX GAAP March as XXXX, December as share of up from per March securitization value, values December was as share of value XX, all XXXX. $X.XX share which XXXX. book non-recourse per XX, per fair Economic

movements over near power and economic of the book We as to continue and portfolio. tied value the interest earnings largely rebuild be our term we to our GAAP expect the spread changes to to rate

loans the locks newly have methodically purchase to Sreeni the our rate range and power quarter. a earnings new our resumed As loans prudently purchasing FICO volumes LTVs the portfolio. we plan in A balance mid-XXXs. average structured the for scores increase in discussed, originated is these process between X% XX%, and at throughout and Recent to way the develop are best with us securitization of

higher in move loans our current with into originated significantly As securitize, coupons loan newly we we'll non-QM more portfolio.

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

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

Thank you, Brandon.

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

apparent confident of and and embedded to in while this long-term current We portfolio strategic on outlook. quarters. fact navigate cracks model volatility not story move the will we credit are naive resilience business We strength credit environment strongly our to starting said, the the that be that the our are That to and story. rate will risk the our in appear ability progressing believe coming are to

loan lowering our to volatility box, that originations. our estate, loan residential in HPA being from assumptions we are all our in Currently, new that portfolio. not tightening conservative are and seen any are on judging But the we and values in loan seeing, we're the eyes we credit our and our weakness environment commercial on have real

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

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

We will first question-and-answer Don now will Wells session. begin [Operator Instructions] Fargo. the come question with Fandetti from Our

go now may ahead. You

Yeah.

that seems you So, securitization position? relatively for stable, to dividend? talk yet about $XXX can loans do about can securitized. things then are to a that the it able be you like you're talk the bit particular, mean, help can your I are of little in liquidity million if also, plans And with another

Yeah.

we still originating business to the started why in Yes, Don. buying it's and that time post I the lots locking been quarter-end, in much is of another loans next stronger we, do generating mortgage or the hopefully position mean securitization get than off The quarter. out of short hey, come if companies. again on the flow, order, especially we that's is our So, for X/XX, more past, by up meet cash new and liquidity post

higher-coupon the regional then we will start going But on NIM circumstances loans, strategies, that out -- and then with or coupling expense again, buying these and what's with soon as as banks we're in few anticipating mitigation side, we our dividend of obviously look achievable barring spilling start widening unforeseen on the coverage every at think that next coming -- over would to dividend the But ratio. we're $X.XX we target in kind an quarter. quarters is terms of that us,

Thanks. Okay.

would question-and-answer I it closing to like to session. any over turn our concludes management for remarks. back This

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

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

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