Angel Oak Mortgage (AOMR) 7 Nov 232023 Q3 Earnings call transcript

Good morning, and welcome to the Angel Oak Mortgage Third Quarter 2023 Earnings Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Randy Chrisman. Please go ahead.

Good morning. us Earnings Angel Conference joining Third Mortgage for XXXX Quarter Call. you today Oak for REIT's Thank This morning, on we results, www.angeloakreit.com. which filed a 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 Sreeni Co-CIO, contained we Chief This morning's information questions. Angel directly Management by release the up Officer, call, Capital's Oak financial most the which prepared off Officer, filings. will non-GAAP in Oak making to non-GAAP call and GAAP the SEC Brandon reconciliations open certain measures. about REIT's Angel call some Prabhu; comments, measures financial by Mortgage Namit our to this first comparable More Chief hosted earnings are lead after and Financial be will financial we conference discussing these Executive will your measures is Sinha. Filson call and

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

turn call will over the I Now to Sreeni.

and growth. set portfolio Oak shifted at with today. we year, Thank second Late our the momentum everyone, strong throughout you, the accomplished you, Randy, the and beginning very of started and out demonstrating results to increase our of off reposition the to Angel that, the We we year. thank then and built half joining us for of year to first positive liquidity. have emphasis the our the reduce and half growth risk year this last

this to can that in are see well. accomplishing on our quarter's this as goal we You way results

reducing as levers margin growing Our we managing risk and such maintaining control, liquidity. earnings can and net operating focus is expenses on interest that optimizing while the

loan to purchases progress interest grow quarter, end, during continue third that further rates To and attractive the as reducing at to selective our of step operating we expenses the In overall securitization and pursue made we interest continue current of quarter, to newly net improvement due margin activity a we change coupon strategic in loans. drove our and power earnings third portfolio. purchases the originated on

earnings we quarter call, interest third the our AOMT in results. driven securitization As by expense in our was demonstrated stated reduction XXXX-X the in second quarter

AOMR in completing our nimble to a remained activity, stand-alone have alongside addition in commingled deal. We Oak deals Angel X entities securitization other

third in the for currently of to at points including of and us The X.XX%, a end and these approximately the compared securitization Current loan for whole purchase ability quarter QX quarter Angel ecosystem coupon REIT. XX interest basis net commitments unsecuritized sits XXXX. The fit X.XX% increase of points XX pursue our average since purchases to basis coupons end income balances. as the loan purchased despite coupon lower Oak affords of [indiscernible] weighted the the grew to structures best during provide loans quarter since portfolio the that average context, quadrant further strategic

following evaluate coupon We momentum effort returns capital attractive proud the and NIM This and maintain drive we acquired high-quality characteristics assets the opportunities by we and feel risk redeploy have actively our be yields. and will to higher significantly in with supported can growth desired within our rates. ability loans are made into and strategic we of the further as progress quarters we

As we AOMR. for on have focused remained of the quarters, operating expenses managing our to the effectiveness recent maximize

quarter. the our expenses, third reducing expenses. captured excluding by second versus we In significant year, reducing operating made Throughout XX.X% operating securitization additional the the first half we of quarter, the progress savings,

decrease to We rate weighted have also average order our financing in on made efforts to funding optimize cost. our our

are continue the of with and be interest there hike, rate rates the muted Fed mortgage originations signs applications years. end to While to recent the near remaining is that elevated relative

more size a to origination manage resilient in nominal exceed the than Xx uncertainty, whole the loan have market average securitization we'll bit loan our continue X.Xx given our and transaction GSE non-QM general Our but loans than value expectations. will our loans, position that volumes been whole to more expect not nominal of

high are point our debt by XXXX. year XX% since overall proud reduced warehouse XX% to of have We this and June the

to are while high-yield liquidity redeploying assets. committed capital into maintaining We high-quality,

in elevated believe are of proud in great we of assess on allocate very are we growth keeping quarter. a ability we a dealing our earnings market are to direct earnings with based levels uncertainty, where our advantage to have have We and while risk. still expense and feel that we resilient And though grow to We profile, adequate stable, select continue our liquidity achieved this a comparative position powerful engine focus we low on earnings portfolio. establishing to

call over Brandon. the turn now to will I

Thank a standpoint, you, the environment. more were we able feel grow NIM portfolio seen there given growth, happy for room the showcase current and market power the our is our through to how third ability and portfolio Sreeni. the risk to as strong income net is In our we and of We quarter, positioned especially are liquidity with from earnings results.

the income gain distributable common of third diluted quarter per share. per net $X.XX GAAP XXXX-X earnings or Distributable include $X.X $X.X net had do securitization. AOMT difference share. $X.XX The is million distributed that key between the a XXXX, or million For and of income earnings offsetting not loss were of earnings we on unrealized negative the

Excluding have distributable the been earnings securitization, the impact would million. XXXX-X $X.X of accounting

was the versus million, million $X.X the net a for quarter Interest margin and reflecting was million, $X expansion XXXX. quarter $XX.X interest income of second

as $X.X purchases loan of net securitization represents securitizations million, mentioned, in consistent current we or million to million with Sreeni $X.X costs a As our quarters Total and continue compensation. savings future grow versus interest debt. stock margin expenses our $XXX,XXX operating were million X $X.X excluding This in expand $X.X coupon other and warehouse The the compensation the book versus and coming reduced should and operating the our costs quarter. of driving resource achieved first XXXX. Year-to-date, premiums was noncash XXXX we securitization and expense quarter third efforts QX savings largest insurance management. D&O operating and vendor lower prior reduction the excluding of have versus expense, factor stock months

Turning balance to the sheet.

we equity of XX, had total million about or XX% our XXXX, As September in cash $XX.X base. of

months the on purchases from net and provides liquidity expenses. increasing will loan Our grow and showcases that and sustained costs the position trailing This strong cash overall cash powder lower additional for income, levels securitization healthy improve X reduced flow focus expanding funding interest maintaining cash liquidity our in dry support us flows with yields, execution.

the of balance was that we over leverage million use ratio September we to unlevered X.Xx. assets in Additionally, debt-to-equity to prudently $XXX additional net drive XX Recourse sheet increase as on can interest have margin.

debt end This date, today's as X.Xx recourse in of equity of Xx, of which call reflects earnings a is X.Xx short-term repurchase recourse down and our trade of that As quarter's versus to early XXXX. is matured maturity ratio from of the debt-to-equity is the the from X.Xx at decrease last October. ratio retest obligations comparable

this X.Xx future expecting As leverage we below we in are periods. but to additional loans, remain to to purchase increase begin

billion financed seen are undrawn securitizations. These weighted million loans trust portfolios with $XXX.X our warehouse million or from whole million LTV a a across debt, retained to at with have day capacity rates $XXX delinquencies securitization $X.X We residential approximately material from any We of credit remained of and and and QX loan in XX.X%. of of with have have off-balance residential in portfolio. average UPB loans have $XXX.X that of financing X.X% not performance slightly underlying RMBS we AOMT fair million. $XXX of sheet mortgage quarter million securities warehouse $XX.X securities value low change the favorable than these of more finished of XX-plus date,

In million. of XX, XXXX-X non-zero loan-to-value and total, original XXX in was XX, with an securitization from million debt as financing $XXX.X alongside value and Angel the XXXX. In releasing share other $X.XX per our contributing has XXX, Oak highest with an $XX.X loans million facility. score unpaid principal of XX.X% AOMT average scheduled entities, loans of of $X.XX balance to ratio book of August, XXXX, of XXXX-X consist at $XX participated balance a cost unpaid a principal approximately credit compared of September securitization GAAP of flat average The XX.X%. June nearly debt-to-income original ratio as we

our corresponding liability. whole loan securitized value by the purchases of New the portfolio decreases loan in the valuation offset were decreases portfolio fair their supported of valuation in of and our

of per per book was fair economic share Similarly, which obligations securitization $XX.XX XXXX, share an XX, $X.XX. the increase XXXX, of all as company's compared June nonrecourse values $XX.XX of as September XX, value, to

last and changes interest interest to movements coupon points weighted whole the and third GAAP book loan economic margin. As of net X.XX% of end basis rate average quarter. from spread to in the with XX we expect supplemented as our valuation fluctuate the quarter, low of coupon quarter the end loan third the representing also over since is the our quarter, value increased The because portfolio by portfolio of as growth resulting is first purchases a end up average increase of X.XX%, basis an commitments from X.XX% XXX This our of weighted loan in point of points. portfolio whole and this of Including approximately year.

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

We quarters. additional expect continue over purchases this the occur coming increase as loan to

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

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

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

you, Thank Brandon.

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

earnings pleased this past the for the we quarter third are demonstrated have this with truly financial We is the that performance strategic year. taken as impact of that actions first quarter our

portfolio and in balance generating for ability. strong sheet are liquidity a the a its we have earnings and what We holds future confident position, our and

the assets Additionally, our of strong. remains performance credit

creating resilient on that focus earnings generates is Our reliable evident. portfolio and a growing

risk of headwinds continue to and We grow mortgage while to our and and volatility, we position liquidity we what despite are proud expect have rate from activity achieved maintaining profile. earnings muted

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

Yes. It back core growth kind like of seems to phase. business modest the moving is

any significantly. on good. continued it so you're You've have seeing credit, the and based around Do you very what in to the economy improved the be profile high? funding on guess thoughts outlook or concerns I mortgage rates credit

This Namit. is

profile where looks of any there evidence are it certain value. in environment. XXs that the any cetera. et not the delinquency Obviously, haven't a about average XXX sectors is the we and credit results, close loan side, is impacted there we So first seen to that is important mentioned, That's very, on to get a to credit But in deterioration credit credit that realize portfolio even very we loss are increases low performance as have and or there. and we run that good, the to heard slowdown a recessionary anecdotally, score

slowdown more a impact the if subprimish into Like a the seeing of going do recession, or of. do we you're really much mix, do part on which go not we the portfolio to start

very home well. overall our have has that had But prices very under even given a delinquencies and be really very, generally been good a to muted environment. portfolio our have far, up so seen successful held have we expected more the So economy credit we what resilient backdrop, are

portfolio our been spot pretty much credit has So on. performance

And of just entities Angel it Oak more depend with it. plan participating stand-alone? or does kind of how terms on in Got securitizations, do the develops? market you other on future Or

commingled point Don, some Right deal then in with about deal to in future. we'll commingled our one come versus only we us Yes. more back deal a I'd use And the stand-alone out. to get process. thought that after opportunistically that, smaller we expect out standalone now, be probably at once

with Oppenheimer. next Kotowski question from comes Chris Our

in us through from mentioned earnings calculation distributable you it Can and little million bit you the said. it reported? detail and was think, was a how you distributable exactly take I that you've what that earnings Brandon, how of, $X.X calculated another always differs

loss. is do of to trying trying And net and eliminate add distributable but losses, you to GAAP bridge income any earnings. unrealized the between realized clarity as know, was I keeps What or just distributable earnings No. in and was I gains the gain Yes.

just and with million quarter, big the that's earnings included securitization, delta was this that, So of there $XX And thing. base unrealized one-off and when did and the driver XXXX-X that's excluded it's particular thing, from that earnings loss recovery a in a net we previously distributable earnings. income, recognized one between a GAAP transactional but distributable is that's about GAAP

highlight So $X.X so far we less from cash almost around of purchases bank coming another then look you that we to I quarter, widened to margin, mentioned bank the the that is in as interest taking out about X.X% $X for in new our to expenses, of loan today wanted at if because coupon million net have And the up what quarter. million. kind this

say When that $X bank, like thinking income the going fourth another into about you're million you in all-in of like level X.X%? net you base if quarter million your the the mean is like interest $X.X

right. That's

bit if it presumably, a another And Okay. improves year-end? there's before securitization

the the with securitization really Well, for additional and year. could of last it loan purchases the months X improve

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

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

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

disconnect. now may You