Angel Oak Mortgage REIT, Inc. Q3 FY2026 earnings call

• Credit Stability Amid Market Volatility: Underlying credit performance remains stable with low delinquencies (90+ day delinquency at ~2.1%), despite valuation pressures from higher interest rates and yield curve shifts.
• Securitization Strategy: Completed three securitizations in Q3 (AOMT 2026-3, AOMT 2026 HB1, and AOMT 2026-6 in late October) to mitigate interest rate risk, recycle capital, and manage financing costs. The company aims for roughly one securitization per quarter.
• Capital Deployment Discipline: Loan purchases totaled $233.1 million with strong underwriting standards (Weighted Avg Coupon 7.21%, CLTV 71.8%, Credit Score 758). Management maintains strict underwriting criteria rather than chasing incremental returns in a volatile environment.
• Financing Management: Renewed and extended financing facilities at lower spreads, though higher base rates offset near-term benefits. Maintained approximately $1 billion of undrawn loan financing capacity.
• Book Value Decline: Gap Book Value per share decreased 11.5% to $8.97, and Economic Book Value decreased 6.5% to $11.45, primarily driven by non-cash mark-to-market valuation declines due to rising rates, not credit deterioration.

The transcript does not break down financial performance by distinct product segments (e.g., Non-QM vs. HELOC) with separate revenue contributions or absolute P&L figures. The company operates as a single integrated mortgage REIT platform. Key aggregate financial metrics for the third quarter of 2026 include: GAAP Net Loss of $16.7 million ($0.72 per diluted share); Distributable Earnings of $6.4 million ($0.28 per diluted share); Interest Income of $42.5 million; and Net Interest Income of $10.2 million.

• Securitization Pace: Management expects to execute roughly one securitization per quarter (four per year), maintaining consistent access to capital markets.
• Return Normalization: CFO indicated that current returns on new loans are compressed but expected to recover to the historical 15-20% level if the interest rate environment stabilizes over the next month.
• Dividend Maintenance: The company declared a dividend of $0.32 per share, indicating a commitment to shareholder returns despite GAAP losses.
• No Share Repurchases: Management stated they are currently focused on keeping capital in the vehicle to support portfolio growth and liquidity rather than engaging in share repurchase programs due to compressed yields.

• Interest Rate Risk: Higher rates and an upward shift in the yield curve have significantly pressured asset valuations and compressed financing spreads, leading to unrealized losses.
• Valuation Volatility: Significant mark-to-market adjustments impact book value; while credit is stable, GAAP earnings are negatively affected by realized/unrealized losses in the securitization portfolio.
• Competitive Pressure: Wider spreads may lead to weaker competitors slowing down or exiting the market, but also results in whole loan tapes selling at slight discounts to market.
• Prepayment Speeds: Three-month prepayment speeds were 11.2%, below the modeled historical average of 20-30%, which impacts cash flow projections.

Q: Doug Harter asked how management quantifies the near-term impact of higher rates on returns and when they expect to return to normalized levels. / A: CFO Brandon Filson explained that current returns are below the target 15-20% range because new locks are coming in around 8%. However, he expects returns to recover to the 15-20% level within the next month if the interest rate environment remains stable.

Q: Marisa Lobo inquired about the drivers of the book value decline, specifically asking if it was due to rate moves versus spread widening, and sought insight into the competitive landscape regarding underwriting standards. / A: Filson attributed the book value drop to both rate increases and spread widening, noting AAA spreads widened from 130 bps to 160 bps. Sreeni Prabhu added that while competition isn't causing widespread underwriting slippage, weaker programs are seeing wider spreads and slight discounts on loan tapes, with some competitors potentially slowing down due to lack of capital market exit options.

Q: Timothy D'Agostino asked about the company's liquidity position, capital allocation priorities, and whether the board considers share repurchases given the callable 2029 notes. / A: Filson highlighted strong liquidity with consistent securitization access and $1 billion in undrawn capacity. He stated that while shares are theoretically callable, the company is prioritizing deploying capital into the portfolio over buybacks because current yields are compressed and close to the dividend yield, making reinvestment more accretive than reducing the balance sheet.

Q: D'Agostino followed up by asking for a breakdown of loan purchase appetite between Non-QM and HELOC products. / A: Filson noted that the Non-QM market remains strong, while the company temporarily pulled back on HELOC purchasing after participating in a recent deal. He observed that HELOC demand tends to increase as rates rise, as borrowers take on incremental borrowing costs, and expects volumes for both segments to remain consistent in the current high-rate environment.