Angel Oak Mortgage REIT, Inc. Q3 FY2024 earnings call

• Rate environment shifted in Q3 with Fed rate cut, allowing AOMR to capitalize and deploy capital into accretive loans. • July's senior unsecured notes issuance fully deployed into high-quality non-QM loans, with net interest income exceeding cost of new debt within 3 months. • Completed securitization of newly originated loans in Oct, recycling capital for more loan purchases. • GAAP book value up over 10%, economic book value up over 6% due to portfolio valuations. • Cost reduction efforts led to sustainably reduced operating expenses. • Proprietary affiliated origination, purchase, securitization platform drives sustainable earnings.

In the third quarter, GAAP book value increased over 10%, with economic book value up over 6%. Net interest income was slightly down but flat as fresh capital was deployed. Interest income for the quarter was $27.4 million, an increase of $1.5 million or 6% compared to prior quarter. Interest expense was $18.4 million, up from prior quarter. Net interest income was $9 million, a small decrease from prior quarter but 22% improvement from Q3 2023. Third quarter had GAAP net income of $31.2 million, or $1.29 per diluted common share. Distributed earnings were a loss of $3.4 million, or $0.14 per common share. Loan purchases in Q3 were $264.8 million with weighted average coupon 7.74%, LTV 70.0%, credit score 754. Residential whole loan portfolio fair value $428.9 million, financed with $333 million warehouse debt. AOMT 2024-10 securitization contributed 661 non-QM loans, reduced warehouse debt by $260 million, released $40 million capital.

• Expect meaningful net interest income growth in coming quarters due to full quarter earnings from Q3 debt issuance proceeds, Fed funds rate cut, AOMT 2024-10 issuance. • Plan to do securitization late this year or early next. • Net interest margin expected to widen similar to Q2.

• Rate volatility could impact portfolio valuations and net interest income. • Credit risks if market conditions change, though current delinquencies are muted. • Competition in non-QM market could affect origination and securitization activity.

Q: Can you talk a little bit about new investment volume expectations for the next few quarters?

A: Mid $200 million or so, $200 million of origination and purchases.

Q: Are you saying that you'd give back a good bit of the increase this quarter or part of it?

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

Q: I assume that you still feel like you can maintain the dividend at this level?

A: Yes. With proceeds invested, securitization, new loans, and plan to do securitization late this year or early next, net interest margin should widen out more similar to Q2.

Q: How should we expect the pace of securitizations?

A: Target one securitization a quarter, expecting two in Q4, with around $300 million for a securitization.

Q: How has the execution been there? And how is that on the October 1? And then can you guys also speak about what you guys retain from the securitizations?

A: Execution in October securitization was very good. Sold about 95% of capital structure, retained at just under 5.5% cost of funds, dropped funding cost by over 110 basis points. Retained IO positions, excess servicing strip, etc.

Q: How are you expecting asset yields going forward?

A: Weighted average coupon of assets will float with rate changes. Expect levered, securitized basis ROE of 15% to 20%.

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

A: Buyback not on table now, but monitored. Stock price volatility and overhang considered. Leverage not discussed as immediate plan.

Q: How should we expect the impact of the securitization you did in October?

A: Savings on interest, capital freed up to feed new securitization, deployed into whole loans with net interest margin runway.