Angel Oak Mortgage REIT Inc. Q1 2023 Earnings Call

Good morning, and welcome to the Angel Oak mortgage first quarter of 2023 earnings Conference call.

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I don't know where to turn the comfort Randy Christian Chief Marketing Officer.

Dawson.

Good morning, Thank you for joining us today for Angela mortgage reached first quarter of 2023 earnings conference call.

This morning, we filed a press release detailing these results which is available in the investors section on our website at Www Dot Angelo free Dot com.

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

Forward looking statements are subject to risks and uncertainties that may cause the actual results to differ materially from those discussed today.

We do not undertake any obligation to update our forward looking statements.

New information or future events.

Detailed discussion of the factors.

[noise] affect the company's results. Please refer to our earnings release for this quarter into our most recent SEC filings.

During this call we will be discussing certain non-GAAP financial measures.

More information about these non-GAAP financial measures and reconciliation as to the most directly comparable GAAP financial measures are contained in our earnings release and the SEC filings.

This morning's conference call is hosted by Angela mortgage reached Chief Executive Officer, Screaming, probably Chief Financial Officer, Brandon Pilson.

Angel capital cause see I, Oh, no I'm it's been.

Management will make some prepared comments afterward to open up the call to your questions.

Additionally, we recommend reviewing are earning supplement posted on our website at www Dot Angela <unk> Dot com.

Now I will turn over the call the streaming.

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

The first part of 2023 marked as solid start the year for a business.

As we continued to execute on a strategy to strengthen the holistic owning spyware and there it goes profile of her portfolio.

While also taking opportunities to mitigate risk overboard sharp and loved her.

We haven't meaningfully decreased amount of hormone warehouse death.

And a level of mark to market exposure has come down significantly.

Both of which are key elements of a risk reduction strategy.

Building up on the strategic actions, we believe a position was further improved by taking advantage of a strong suit graduation market in January .

A O M. G 2023, dash, one D, which produce positive economics, while releasing Eddie so capital.

We saw a gap in economic book value appreciation for the first quarter since Q3, 2021, and a beach to have resumed purchasing nearly originated I coupon loans, it's better than I will discuss in more detail shortly but that said we continue to a battle heightened risks in the markets.

But volatility deals and rates.

The Federal Reserve has continued street actions pushing through three rate hikes or 25 basis points of this year.

The federal funds rate is now sitting at over 5% roughly five times higher than very sad just a year ago. As one would expect this directly impacted all fiction glasses and mortgage rates move directionally in tandem with the fed's decision. Despite this we.

We are beginning to see some promise or potential pause to rate hike activity from the first.

With the added potential for Recompression.

Given when the market was this Carter a primary focus wants to build a portfolio for long term, but prudently managing risks as seemed to the market and read exposures, but also it has focused on our internal expenses and costs.

Thus far to the first quarter, we have progressed.

Operating expense reduction efforts as seen through Lord Jenny and management of cost savings.

Managing liquidity inexpensive remain the key focus last quarter textual unique business model and progress.

Already made with regards to liquidity position.

We were able to take some selective actions this garden.

We have resumed purchasing newly originated lows, notably added attractive higher coupons in the myths 8% range.

A strong liquidity profile has positioned us to make meaningful alone acquisitions over the next quarter, while providing the flexibility to butchers as loans, while being concerted effort to actively manage the risk.

While the new loan origination that has been suppressed over the recent months the angel of ecosystem provides us the confidence to just the market conditions, given the ability to customize loan characteristics and prudent underwriting standards offer affiliated industries.

I would also like to point out an important action that you have not taken.

Despite market turmoil over the last 18 months.

We have not been forced to raise capital or to refinance existing debt with high cost debt.

The protective actions, we have taken created the optionality that has allowed us a ride out the storm, thus far without entering long term liabilities that'll dampen our future earnings potential.

The expense mitigation efforts that began in 20 twenty-two have started to materialize.

Have taken aggressive action on our expense management side, including renegotiating with key vendors.

And right sizing a level of service for the current macro backdrop.

We expect that this card is operating expense will be representative of the go forward run rate with some potential for outside.

We are proud of the girls, we have achieved from a book value perspective, and we believe that as a meaningful upside to be captured as we actually go to a strategy.

As we enter the second quarter and look at the balance of the year.

We look forward to delivering greater returns to shareholders with that.

I've done the call over to Ben.

Thank you sure any.

Mars core business has proven resilient this quarter. Despite continued volatility in rates, we have been aggressively managing our risks and maintaining sufficient liquidity all wall strategically setting the stage for.

The long term earnings power over portfolio.

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

For the first quarter of 2000 twenty-three, we added GAAP net income of $500000 or two cents per diluted common sure. This is our first quarter of GAAP income since Q4 2021.

Distributable earnings were negative $9.1 billion or loss of 37 cents per share driven by the realized loss from 2023 Dash one securitization.

Please note that the net impact with the securitization was approximately $10 million a positive income.

A reversal of previously recorded unrealized losses on the whole loans contributed to the securitization.

Interest income for the quarter was $23.7 million in net interest margin was $6.8 million, which compressed due to a both a reduction in the size of our portfolio as well as higher financing costs.

Operating expenses, excluding securitization costs were $4.7 million. This compares to a quarterly average of $7.2 million for 2022. When also adjusting for severance expense, representing a 2.5 million dollar quarterly decrease of Sri stated, we expect to maintain these savings and are actively working.

Turning to the balance sheet as of March 31st 2023 30.

$36.8 million of cash representing an increase of $7.5 million from Q4 2022 or.

Ah recourse debt to equity ratio of 3.6 times as of the end of the quarter as.

As of today's date, a recourse debt to equity ratio was two times.

Reflects the maturity of repurchase obligations from short term trade that matured in early April .

This compares to 2.9 times as of the end of the fourth quarter of 2022.

We have residential whole lungs.

Fair value of $544 million finance with $439 million of warehouse that.

$1 billion of residential mortgage loans, and securitization trust and $523 million, a RMB S, including $73.7 million and retained Aot's securities from off balance sheet securitization.

We finished the quarter with on drawing financing capacity of approximately $690 million as of today, we have a total of 438 million a warehouse that only with 36% is subject to mark to market risk.

This represents a decrease of over 60% over the last two quarters.

We're happy with the result of the M. T 2023 Dash one securitization in addition to reducing $190 million, a warehouse that and releasing approximately $16 million in cash the company retained its effective economic ownership interest in the rated bonds from the securitization, which had a fair value of 21.8.

As of the deal they.

These bonds are expected to yield between 11 and 13 per cent on the Gulf War basis.

The weighted average coupons with loans, we contributed to the deal was 5.15 per cent.

Which did have the effect of bringing down the weighted average coupons or remaining residential loan portfolio to 4.63 per cent.

We're actively working on the next securitization, which we hope to execute shortly.

Yeah book value per share increased 3.3% to $9.80 per share as of March 31st 2023 from $9.49 as of December 31st 2022.

Economic book value, which fair values, all non recourse securitization obligations was $13.39 per share as of March 31st 2000, twenty-three up 2.1% from $13.11 per share as of December 31st 2022.

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

Ah streaming discussed we have resumed purchasing newly originated loans and plant and methodically and prudently increase our purchase volumes throughout the quarter recent rate locks or in the 8% range with Ltvs, 72% average FICO scores in the mid seven hundreds.

A balance between these new loans and a structured securitization process is the best way for us to develop the earnings power of our portfolio as we securitize will move into more newly originated knocks you on loans with significantly higher coupons and our current loan portfolio.

Finally, the company has declared a 32 cents per share common dividend payable on may 31st 2023 to shareholders of record as of May 22nd 2023. This implies an annual dividend rate of $1.28 per share our yield of approximately 17% as of the closing price on may.

Third of 2023.

Turn it back to Sri D for closing remarks.

Thank you Brandon before turning the call over to the operator for Q and a.

To conclude with some brief remarks.

We are confident in our ability to navigate this current environment like progressing on a long term strategic outlook.

We strongly believed that the embedded strength and resilience of her portfolio and the business model.

It'll be a parent in the coming quarters.

That's it.

We are not naive to the fact that credit cracks are starting to appear and read volatility story will move to credit risk story.

All eyes out on commercial real estate.

And we have not seen any weakness in a residential loan portfolio.

But judging from the environment that we're in and the volatility that'd be seeing we are we are tightening our credit books being conservative on H, b assumptions and lowering a loan to values and a new loan originations.

As always I would like to thank the entire angel team for their hard work and contributions as.

As we seek to be long term value for all shareholders, but that will open up the call to your questions operator.

We will now begin the question and answer session.

Question, you might <unk>, one on your telephone keypad.

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So let's try a question please press starting to.

At this time no problem enjoy the rest of them are roster.

Our first question will come from <unk> Daddy with Wells Fargo you.

You may not go ahead.

Yeah. So can you talk a little bit about your liquidity position I mean, it seems like you know things are relatively stable in particular, if you're able to do with the other securitization that can help with the $500 million of loans that are yet to be securitize and then also can you talk about plans for the dividend.

Yeah, So hey, Donna yeah, our liquidity position is much stronger than it's been in the past and that's why we post quarter and of course 331 started buying unlocking new loans originating out of the mortgage companies.

The business is still generating lots of cash flow.

Especially if we do get another securitization often short order I mean more to come on that hopefully by.

By the time, we meet up again for the next quarter.

But you know and then again on the on the dividend side as soon as we start buying the these higher coupon loans yard them will start widening out and then coupling that with you know expense mitigation strategies.

Ah you know barring.

Unforeseen circumstances, or what's going on with the regional banks spilling over to us.

We're kind of where we're anticipating that we would you know obviously look at the dividend every quarter, but the thing for 32 sentences and achievable target coming in the next few quarters in terms of coverage ratio.

Alright. Thanks.

This concludes our question and answer session.

Would like to turn it back over to management for any closing remarks.

[noise]. Thank you for your time and interest in Angel a mortgage we we look forward to connecting with all of you guys next Carter.

In the meantime, if you have any questions. Please feel free to reach out to us have a great day.

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