Q1 2024 Angel Oak Mortgage REIT Inc Earnings Call
Scott.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host KC Kilo head of corporate Finance and Investor Relations. Please go ahead Sir.
Good morning, Thank you for joining us today for Angel or mortgage Reits first quarter 2024 earnings Conference call. This morning, we filed our press release detailing these results, which is available in the investors section of our website at www Dot Angel or greed 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 actual results to differ materially from those discussed today.
We do not undertake any obligation to update our forward looking statements in light of new information or future events.
For a more detailed discussion of the factors that may affect the company's results. Please refer to our earnings release for this quarter and to our most recent SEC filings.
Ladies and gentlemen, good morning, and welcome to the Angel mortgage first quarter 'twenty pre Salt earnings Conference call.
During this call we will be discussing certain non-GAAP financial measures.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
This mornings conference call is hosted by Angela mortgage Reits, Chief Executive Officer, <unk>, Chief Financial Officer, Brandon Filson, and Angelo Capital's Chief investment Officer, Nymex and Hot.
It is now my pleasure to introduce your host KC kilo head of corporate finance and Investor Relations.
KC: Please go ahead Sir.
KC: Good morning, Thank you for joining us today for Angel <unk> mortgage Reits first quarter 2024 earnings Conference call. This morning, we filed our press release detailing these results which is available in the investors section of our website at Www Dot Angel O Green Dot com.
Management will make some prepared comments after which we will open up the call to your questions. Additionally.
Additionally, we recommend reviewing our earnings supplement posted on our website www Dot Angelo greed Dot com now I will turn the call over to <unk>.
Thank you Casey and thank you to everyone on the call for joining us today.
KC: 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 actual results to differ materially from those discussed today we.
The first quarter of 2024 reflected a continuation of the upward trajectory that we established last year.
Based on the momentum from 2023 rehab executed on our strategy to grow and fortify our portfolio's earnings potential and return profile.
KC: We do not undertake any obligation to update our forward looking statements in light of new information or future events.
KC: For a more detailed discussion of the factors that may affect the company's results. Please refer to our earnings release for this quarter and to our most recent SEC filings.
The first quarter of 2024 marks our third consecutive quarter of increased net interest income, reflecting our commitment to strategic portfolio expansion and consistent securitization execution in conjunction with sound risk management.
KC: During this call we will be discussing certain non-GAAP financial measures.
KC: More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings.
Additionally, distributable earnings GAAP book value and economic book value all increased versus both the prior quarter and the first quarter of 2023.
KC: This mornings conference call is hosted by Angela mortgage rates, Chief Executive Officer, Cyrene, probably Chief Financial Officer, Brandon Nelson and Angelo Capital's Chief investment Officer nominates and hot.
We have established this positive growth trend. Despite what continues to be an uncertain and at times unfavorable macro environment.
KC: Management will make some prepared comments after which we will open up the call to your questions.
This underscores the resilience of both our operating model.
And of the Angel ecosystem.
Speaker Change: Additionally, we recommend reviewing our earnings supplement posted on our website www Dot Angelo greed Dot com now I will turn the call over to <unk>.
Which is market, leading origination and securitization platforms.
Bind to position the company for continued financial success.
Throughout the remainder of the year and beyond.
Angela: Thank you Casey and thank you to everyone on the call for joining US today, the first quarter of 2024.
In the quarter, we achieved net interest income of $8 6, million% to 26% expansion versus the same quarter last year and the highest level since the third quarter of 2022.
Speaker Change: A continuation of the upward trajectory that we established last year.
Speaker Change: Based on the momentum from 2023 rehab executed on our strategy to grow and fortify our portfolio's earnings potential.
This is enabled by our effective securitization strategy and methodical purchases of high quality current coupon loans.
Speaker Change: <unk> profile.
Speaker Change: The first quarter of 2024 marks our third consecutive quarter of <unk>.
On balance sheet.
Notably after quarter end, we lead.
<unk> 2020 for dash for securitization.
Speaker Change: Increased net interest income.
Speaker Change: <unk>, our commitment to strategic portfolio expansion and consistent securitization execution.
Which was a $300 million deal with a weighted average coupon of seven 4%.
We earned work.
Speaker Change: In conjunction with sound risk management.
Purchasing newly originated loans with the proceeds from this deal which.
Speaker Change: And Additionally, distributable earnings GAAP book value and economic book value all increased versus both the prior quarter and the first quarter of 2023.
Which we expect to drive further net interest income expansion in the coming quarters.
This strong securitization execution and the ability to strategically leverage Angelo ecosystem.
Speaker Change: We have established this positive growth trend despite what continues to be in.
Serves as a competitive advantage in the market.
Speaker Change: Uncertain times unfavorable macro environment.
And further highlights the growth potential of our business model.
Speaker Change: This underscores the resilience of both our operating model.
As we continue to prioritize long term value creation.
Speaker Change: And of the Angel of ecosystem, which is market, leading origination and securitization platforms.
We note that our GAAP book value per share.
Grew to $10 55.
Speaker Change: Combined to position the company for continued financial success throughout the remainder of the year and beyond.
A two 8% increase over the previous quarter.
And economic book value per share grew to $13 78.
Speaker Change: In the quarter, we achieved net interest income of $8 6, million% to 26% expansion versus the same quarter last year and the highest level since the third quarter of 2022.
A one 8% increase over the previous quarter.
While our portfolio value is impacted by federal funds rate decisions.
Interest rate market volatility.
Speaker Change: This is enabled by our effective securitization strategy.
And then the impact on fixed income yields.
Speaker Change: Methodical purchases of high quality current coupon loans.
The position of our portfolio and current market coupon loans Dampens some of this volatility.
Speaker Change: On balance sheet.
Speaker Change: Notably after quarter end, we lead.
Though the magnitude and the timing of potential federal funds rate decreases remains uncertain.
Speaker Change: <unk> 2020 for dash for securitization.
Speaker Change: It was a $300 million deal with a weighted average coupon of seven 4%.
Maintain a positive outlook for the remainder of 2024.
As for credit performance.
Speaker Change: We are at work.
Speaker Change: Purchasing newly originated loans with the proceeds from this deal, which we expect to drive further net interest income expansion in the coming quarters.
Weighted average 90, plus day delinquency rate across our portfolio of whole loans securitized loans and our MBS was one 8% as of quarter end.
Speaker Change: This strong securitization execution and the ability to strategically leverage Angelo ecosystem.
As compared to two 2% at the end of the fourth quarter of 2023.
Resenting a decrease of approximately 18%.
Speaker Change: Serves as a competitive advantage in the market.
We continue to observe muted delinquency activity and believe that any future upticks in delinquencies.
Speaker Change: And further highlights the growth potential of our business model.
Speaker Change: As we continue to prioritize long term value creation.
<unk> represent a movement towards historical averages as opposed to a large scale events.
Speaker Change: We note that our GAAP book value per share grew to $10 55.
As previously stated we believe that the credit risk management is a key competitive strength due to our relationship.
Speaker Change: Okay.
With the Angel ecosystems affiliated mortgage originators.
This provides us the ability to adjust credit offerings based on our specific desired characteristics.
Credit performance is the risk we choose to and we expect our portfolio to continue to perform comparatively well.
With that.
I'll turn it over to Brandon, who will walk us through the financial performance for the first quarter in greater detail.
Thank you Sri.
In the first quarter of 2024, we maintained a consistent upward earnings trend.
We have established beginning the third quarter of 2023.
The Companys net interest income expanded for the third consecutive quarter.
<unk> sustained growth and profitability, we're pleased with the progress achieved in recent quarters and maintain an optimistic outlook for 2024 confident in our ability to continue to profitably grow the portfolio.
In the quarter the company had GAAP net income of $12 9 million or.
<unk> 51 per fully diluted common share distributable earnings were $2 8 million or <unk> 11 per share the.
The difference between GAAP and distributable earnings is primarily driven by unrealized gains in our residential loan securitized loan portfolios.
This quarter the relationship between GAAP and distributable earnings was more reflective of our long term expectation for GAAP and distributable earnings to converge in a normalized macro environment.
Interest income for the quarter was $25 $2 million and net interest income was $8 6 million.
Marking a 26% improvement over the first quarter of 2023, and a 33% improvement over the low point of Q2 2023.
This growth was driven by our continued purchases of high quality current market coupon non QM loans and our effective securitization strategy.
Interest income grew over 6% compared to the year ago quarter, while interest expense decreased nearly 2%.
While interest rates on our warehouse financing lines, which are tied to sofer have remained stubbornly high over the past year, we've been able to achieve sustained net interest income growth, which we expect to continue to do so.
In the first quarter, our operating expenses were $4 7 million a modest increase from the previous quarter, but a 17% decrease from the first quarter of 2023.
This increase versus the prior quarter was driven by 2023 year and legal and audit fees as well as the inclusion of an estimate for Unvested.
Stock based compensation.
When we analyze our expenses, we find it most useful to exclude our noncash stock compensation expenses as well as securitization cost.
Our stock compensation does not impact our cash returns and.
And costs related to securitization activity costs are directly in line with the execution of our business plan.
Excluding these expenses our first quarter 2020 for operating expense was $3 9 million.
Compared to $4 2 million in the first quarter of 2023.
We expect to maintain our current operational expense levels with some potential for further reductions as we work to identify opportunities to further optimize our cost structure.
Focusing on our balance sheet as of March 31, we had $39 $4 million of cash on hand or.
Our recourse debt to equity ratio was roughly one eight times at the end of the quarter compared to one nine times as of December 31, two.
23% since quarter end and maturity of our short term U S treasury assets and corresponding repurchase agreements on April nine 2024.
Reduced our recourse debt to equity ratio to one three times further the impact of <unk>.
2024, dashboard reduced our recourse debt to equity.
Asia to approximately.
Five times as of today's date.
This will likely increase as we continue to purchase loans, but we expect that our recourse debt to equity ratio remained low in the short term and below two five times on a long term basis.
Our residential whole loan portfolio stood at a fair value of $368 million as of quarter end financed with $284 million of warehouse debt one.
$1 2 billion of residential mortgage loans in securitization Trust.
<unk> hundred $63 billion of RMB us, including $18 million of investments in majority owned affiliates, which are included in other assets in our balance sheet.
We are pleased with the execution of.
2024 dashboard subsequent to quarter end, our first standalone securitization of the year to which we contributed loans with $300 million of scheduled unpaid principal balance and a weighted average coupon of seven 4%.
The deal removed approximately $236 million of warehouse debt and allowed us to save approximately 100 basis points on the financing rate of the loans contained within the deal.
Notably this securitization effectively removed the impact of the legacy aged loans from our portfolio. We are deploying the capital released from the deal into high quality high coupon loans, primarily from our affiliated non QM mortgage originator.
Targeting coupons above 8% in order to further expand our net interest margin on a go forward basis.
Additionally, we will use the capital to Opportunistically reduce other borrowings and an effort to grow net interest income by reducing funding costs.
Following the securitization, we are carrying a smaller unsecured ties loan portfolio balance, which we expect to replenish quickly with high quality current market coupon loans, we remain confident in our goal to complete one securitization each quarter this year on average.
Moving on our GAAP book value per share increased two 8% to $10 55 per share as of March 31 up from $10 26 in the fourth quarter, our economic book value with fair values. All nonrecourse securitization obligations was $13 78 per share as of March 30 <unk>.
Up one 8% from $13 54 per share as of the fourth quarter, we estimate that GAAP and economic book value, a roughly flat compared to the end of the quarter.
Today's date.
We purchased $43 2 million of loans in the first quarter victory at a weighted average coupon of approximately eight 1%.
And our weighted average LTV of 68, 7% and a weighted average FICO of 747.
The weighted average coupon for residential whole loan portfolio as of the end of the quarter was seven 1% representing an increase of 33 basis points since the end of the fourth quarter.
Loan purchases have accelerated in the second quarter as origination activity picks up following the slower winter months and we have increased capital released from the 2024 dashboard securitization.
Following that securitization the unpaid principal balance of our whole loan portfolio was approximately $80 million with a weighted average coupon of six 5%. Since then loan purchases and committed loan purchases have increased the weighted average coupon backup to approximately 7%.
Because of the reduced size of the residential loan portfolio post.
2024 dashboard.
Weighted average coupon will increase quickly with intended continued purchases of current market coupon months.
We remain optimistic in our ability to continue our plans for programmatic loan purchases and remain disciplined in our credit selection for the remainder of the year.
Finally, the company declared a <unk> 32 per share common dividend, which will be paid on may 31, 2024 to stockholders of record as of May 22024.
For additional color on our financial results. Please review the earnings supplement available on our website I will now turn it back to <unk> for closing remarks.
Thank you Brandon.
We are proud of the growth we have achieved from an execution standpoint, and we believe there's a meaningful upside to be captured as we continue to execute on our long term goals.
Our balance sheet is effectively de levered from our recourse debt to equity standpoint as up to date with.
We plan to deploy capital release from 2024 dashboard into new loan purchases through reductions and other borrowings and for other accretive purposes.
As we look to grow the earnings power of our portfolio further.
The company may elect to engage with capital markets.
That said, we note that any activity, which stem from an actionable opportunity with economics that we expect to be directly accretive to our business and results.
As we enter the second quarter.
And look towards the remainder of the year, we look forward to delivering positive returns to our shareholders.
With that we'll open up the call to your questions operator.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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Year.
Finally, the company declared a <unk> 32 per share common dividend, which will be paid on may 31, 2024 to stockholders of record as of May 22024.
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For additional color on our financial results. Please review the earnings supplement available on our website I will now turn it back to <unk> for closing remarks.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question is from the line of Doug <unk> with UBS. Please go ahead.
Thank you Brandon.
We are proud of the growth we have achieved from an execution standpoint.
And we believe there's a meaningful upside to be captured as we continued to execute on our long term goals.
Thanks, and good morning, hoping we could touch on the last point you brought up about accessing capital markets can you just talk about how you think about your cost of capital and kind of how you would define.
Our balance sheet is effectively de levered from our recourse debt to equity standpoint as of today.
We plan to deploy capital released from 2024 dashboard into new loan purchases reductions and other borrowings and for other accretive purposes.
Kind of what is accretive to shareholders and maybe along those lines you know kind of what type of instruments you would be looking at.
As we look to grow the earnings power of our portfolio further.
Hey, good morning, Doug.
The company may elect to engage with capital markets.
<unk>, yes.
That said, we know that any activity you would stem from an actionable opportunity with economics that we expect to be directly accretive to our business and results.
I think it's no secret right with our balance sheet that we're 100% really finance with.
Common equity.
So right now as we're looking at capital markets, most likely any kind of range would be somewhere in the debt space.
As we enter the second quarter.
And look towards the remainder of the year, we look forward to delivering positive returns to our shareholders.
Our current securitization execution kind of gets us pencils those back into.
With that we'll open up the call to your questions operator.
High teens low 20% return.
Thank you.
Hurdles so anything in that I think current market I mean, MFA did a deal recently about 9% coupon on a baby bond deal.
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The senior secured deals have gone up as well so anything in that range, we think would be very accretive to the common holders and allow us to continue to grow but again right. Now there is nothing necessarily in the pipe. We're just we're messaging much like we've done in previous quarters, and saying things.
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Around if we do choose to raise capital is going to be an accretive move for us.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Versus a refinance of debt, especially a refinance of the lower cost of capital debt with a higher cost of capital.
Our first question is from the line of Doug <unk> with UBS. Please go ahead.
I appreciate that Brandon you know I guess, just how do you think about.
Thanks, and good morning, hoping we could touch on the last.
You know the maturity or the duration of any debt that you could raise versus the duration of the assets you'd be putting on your comfort with.
Point, you brought up about the accessing capital markets.
Talk about how you think about your cost of capital and kind of how you would define you know kind of what is accretive to shareholders and maybe along those lines you know kind of what type of instruments you would be looking at.
With those two figures.
I think the current securitization execution.
The average life of those senior bonds are bonds, we hold would be somewhere kind of really close to.
Hey, good morning, Doug.
<unk>, yes.
I think it's no secret right with our balance sheet that we're 100% really finance with.
The duration of a typical debt being like a five year instrument five to seven year instrument. So I think it would be a pretty good match in terms of what we issued in than what we would use that capital for.
Common equity.
So right now as we're looking at capital markets, most likely any kind of raise would be somewhere in the debt space.
Great. Thank you.
Our current securitization execution kind of gets us pencils those back into.
Okay.
Thank you.
Ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.
High teens low 20% return.
Hurdles so anything in that I think current market I mean, MFA did a deal recently about 9% coupon on the baby bond deal.
Our next question is from the line of Don <unk> with Wells Fargo. Please go ahead.
Some of the senior secured deals have gone up as well so anything in that range, we think would be very accretive to the common holders and allow us to continue to grow but.
Hi can you talk more about your loan acquisition targets for Q2, I mean, Q1 was a little light at $43 million, obviously, some seasonality there, but you know if you've contributed 300 to the new securitization the balance of residential whole loans, it's pretty low.
Right now there is nothing necessarily in the pipe. We're just we're messaging much like we've done in previous quarters, and saying things.
Around if we do choose to raise capital is going to be an accretive move for us.
And then you are talking about raising potentially some debt I mean are you just originating from Angel oak or would you look at portfolios just trying to get a sense on.
Versus a refinance of debt, especially a refinance at a lower cost of capital debt with a higher cost of capital.
I appreciate that Brandon you know I guess, just how do you think about.
How you're feeling about the pipeline of new acquisitions.
You know the maturity or the duration of any debt that you could raise versus the duration of the assets you'd be putting on and you know your comfort with.
Yes.
You're right Q1 was a little lighter than we had been in the past and that was some seasonality and it was also as we are preparing and getting into 'twenty four four which closed just after quarter end.
With those two figures.
Okay.
Since that deal is closed we have essentially now used.
I think the current securitization execution.
All of that capital is to buy loans or two in the case of reduce some warehouse or sorry repo debt on some retained bond positions. So we essentially use that $40 million of capital already from an unlevered basis, we'll be working on levering that throughout this quarter.
Again with the <unk>.
Average life of those senior bonds or bonds, we hold would be somewhere kind of really close to the.
The duration of a typical debt being like a five year instrument five to seven year instrument. So I think it would be a pretty good match in terms of what we issued in than what we would use that capital for.
To get us in a position, where we'll issue another standalone current coupon securitization.
Great. Thank you.
Okay.
And most likely Q3 early Q3, so I would say this quarter, we're targeting $150 million to $200 million worth of acquisitions.
Thank you.
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And then.
Our next question is from the line of Don <unk> with Wells Fargo. Please go ahead.
Obviously, we can toggle that back and forth that that number is probably going to be about.
Yeah.
One half to two thirds from our affiliated originators, but we're starting to see decent opportunities in third party originated loans as well with the credit profiles similar to our own origination that we can use to fill the remaining pieces of the bucket.
Hi can you talk more about your loan acquisition targets for Q2 I mean.
Q1 was a little light at 43 million, obviously, some seasonality there, but you know if you contributed 300 to the new securitization the balance of residential whole loans, that's pretty low.
Okay.
I guess, if I just look at NII minus your expenses.
And then you were talking about raising potentially some debt I mean are you just originating from Angel oak or would you look at portfolios just trying to get a sense on.
It's below the dividend I guess do you feel like Youll just grow into that.
Yes.
How you're feeling about the pipeline of new acquisitions.
Exactly right and this quarter was a little lower growth in that metric than it has been in a couple of other quarters. It since we started buying loans in earnest in Q3 of 'twenty three.
Yes.
You're right Q1 was a little lighter than we had been in the past and that was some seasonality and it was also as we're preparing and getting into 'twenty four four which closed just after quarter end.
This quarter with again with 24 for going off we're saving about 9900 basis points off the financing rate there.
Since that deal is closed we have essentially now used.
Buying $40 million already kind of on leveraged loan positions that was were 8% loans.
All of that capital is to buy loans or two in the case of reduced some warehouse or sorry repo debt on some retained bond positions. So we essentially use that $40 million of capital already from an unlevered basis, we'll be working on levering that throughout this quarter.
Thereabouts. So you can kind of back into the math and then on the expense side.
Year end was a little higher just because as we went through the final audit is our first year with Sox compliance we had a more expensive on it than it had been.
To get us in a position, where we'll issue another standalone current coupon securitization.
In the past and then also you just.
K and proxy and annual meetings and things like that those expenses will go in moderate through Q2, Q3, Q4 et cetera, and we will get back a little bit where we were in terms of like a Q4 Q3 expense load as well as continuing to grow that net interest margin.
And most likely Q3 early Q3, so I would say this quarter, we are targeting $150 million to $200 million worth of acquisitions.
And then.
Obviously, we can toggle that back and forth.
Thanks.
Number is probably going to be about.
One half to two thirds from our affiliate originators, but we're starting to see decent opportunities in third party originated loans as well with the credit profiles similar to our own origination that we can use to fill the remaining pieces of the bucket.
Thank you.
Ladies and gentlemen, a reminder, once again if you wish to ask a question. Please press star and one.
Okay.
Okay.
As there are no further questions I would now hand, the conference over to Brandon Wilson for closing comments Brandon.
I guess, if I just look at NII minus your expenses.
It's below the dividend I guess do you feel like you'll just grow into that.
Thank you everyone for your time and interest in Angel Oak mortgage REIT, we look forward to connecting with you again next quarter in the meantime, if you have any questions at all please feel free to reach out and have a great day.
Yes.
Exactly right and this quarter was a little lower growth in that metric than it has been in a couple of other quarters. Since we started buying loans in earnest in Q3 of 'twenty three.
Thank you.
Angel mortgage has now concluded. Thank you for your participation you may now disconnect your lines.
KC: This quarter with again with 24 for going off we're saving about 9900 basis points off of financing right there.
KC: Buying $40 million already kind of on leveraged loan positions.
KC: That was where 8% loans.
KC: <unk>. So you can kind of back into the math and then on the expense side.
KC: Year end was a little higher just because as we went through the final audit is our first year with Sox compliance, we had a more expensive audit than it had been.
KC: In the past and then also just the core.
KC: K and proxy and annual meetings and things like that those expenses will go in moderate through Q2, Q3, Q4 et cetera, and we will get back a little bit where we were in terms of like a Q4 Q3 expense load as well as continuing to grow that net interest margin.
KC: Thanks.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, a reminder, once again if you wish to ask a question. Please press star and one.
KC: Yes.
KC: As there are no further questions I would now hand, the conference over to Brandon <unk> Wilson for his closing comments Brandon.
Brandon Robert Filson: Thank you everyone for your time and interest in Angela if mortgage REIT, we look forward to connecting with you again next quarter in the meantime, if you have any questions at all please feel free to reach out and have a great day.
Speaker Change: Thank you the conference of Angelo mortgage has now concluded. Thank you for your participation you may now disconnect your lines.
Speaker Change: Okay.
Angela: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.