Q4 2024 Angel Oak Mortgage REIT Inc Earnings Call

Operator: Good day and welcome to the Angel Oak Mrtg 4th Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Please signal a conference specialist by pressing star then zero on your telephone keypad.

Good day and welcome to the Angel Oak mortgage REIT fourth quarter 2024 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your tongue.

Phone keypad. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Casey.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. Draw your question. Please press star then 2.

Operator: Please note this event is being recorded.

KC Kelleher: I would now like to turn the conference over to Mr. KC Kelleher. Please go ahead.

Casey: Hello her please go ahead.

Sreeni Prabhu: Good morning. Thank you for joining us today for Angel Oak Mortgage REITs fourth quarter and full year 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.angeloakreit.com.

Casey: Good morning, Thank you for joining us today for Angel of mortgage Reits fourth quarter and full year 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 every dot com.

Sreeni Prabhu: 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.

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

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

Casey: We do not undertake any obligation to update our forward looking statements in light of new information or future events.

Sreeni Prabhu: 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 filing.

Casey: 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.

Sreeni Prabhu: During this call, we will be discussing certain non-GAAP financial measures. 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 filing.

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

KC Kelleher: This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu, Chief Financial Officer, Brandon Filson, and Angel Oak Capital's Co-CIO, Namit Sinha. Management will make some prepared comments, after which we will open up the call to your questions.

Casey: This mornings conference call is hosted by Angel Oak mortgage Reits, Chief Executive Officer Sweeney probably.

Speaker Change: Chief Financial Officer, Brandon Filson, and Angel Capitals, CIO now net center.

Speaker Change: Management will make some prepared comments after which we will open up the call to your questions.

Sreeni Prabhu: Additionally, we recommend reviewing our earnings supplement posted on our website www.angeloakreet.com.

Speaker Change: Additionally, we recommend reviewing our earnings supplement posted on our website www dot angel or Green Dot com.

Sreeni Prabhu: Now I will turn the call over to Sreeni. Thank you, Casey. And thank you all for joining us today. We closed out 2024 with another quarter of net interest margin expansion, reflecting solid financial and operational performance. Our continued progress increasing cash flow and dividend coverage. is a direct result of company's disciplined execution of a proven and repeatable Management Model designed to drive consistent, sustainable growth. Our focus remains on prioritizing long-term earnings accretion, methodical decision making, managing risk, and creating value for our shareholders. With this commitment, we have continued to perform in line with our growth expectations quarter after quarter throughout 2024.

Randy: Now I will turn the call over to Randy.

Randy: Thank you Casey and thank you all for joining us today.

Randy: About 2024.

Randy: Another quarter of net interest margin expansion, reflecting solid financial and operational performance.

Randy: Continued progress increasing cash flow and dividend coverage.

Randy: Is it a direct result of company's disciplined execution of a proven and repeatable.

Randy: Management model.

Randy: Designed to drive consistent sustainable growth.

Randy: Our focus remains on prioritizing long term earnings accretion metallic of decision, making managing risk and creating value for our shareholders.

Randy: With this commitment we have continued to perform in line.

Randy: With a good expectations quarter after quarter throughout 2020 four.

Sreeni Prabhu: Unfortunately, rates were not kind to our portfolio valuation during Q4, and we saw decline in book value during the quarter. Interest rate levels and volatility are a key driver to evaluation. Offer Portfolio and change according to latest macroeconomic data. So we may continue to experience these ups and downs from a valuation perspective as long as the rate paths remain uncertain.

Randy: Unfortunately rates were not kind of a portfolio valuation during Q4.

Randy: And we saw a decline in book value during the Florida.

Randy: Interest rate levels and volatility are a key driver to our valuation.

Randy: For our portfolio.

Randy: And change according to latest macroeconomic data points.

Randy: So we may continue to experience these ups and downs from a valuation perspective.

Randy: As long as the REIT bad remain uncertain.

Sreeni Prabhu: The advancements we have made in the past year continue to underscore the strength of our differentiated operating model. At its core is prudent risk management and efficient capital recycling, with credit selection serving as a key competitive advantage. We have continued to deliver sequential improvements driven by intelligent loan portfolio management, a consistent securitization strategy, and disciplined execution. In 2024, we completed five securitizations. exceeding our target of one per quarter, which in turn enhance our capital flexibility, increase portfolio yield, and fund further loan portfolio growth. The long-term backdrop of our business remains constructive, and we are encouraged by our portfolio's trajectory.

Randy: The advancements we have made in the past year continue to underscore the strength of our differentiated operating model.

Randy: At its core is.

Randy: Prudent risk management and efficient capital recycling with credit selection, serving as a key competitive advantage.

Randy: We have continued to deliver sequential improvements driven by intelligent loan portfolio management, it consistent securitization strategy and disciplined execution.

In 2024, we completed five securitization.

Randy: Exceeding our target of one per quarter.

Randy: Which in turn enhance our capital flexibility.

Randy: Increased portfolio yield.

Randy: And fun further loan portfolio growth.

Randy: The long term backdrop for our business remains constructive.

Randy: And we are encouraged by our portfolio's trajectory.

Sreeni Prabhu: Interest rates appear to have moderated from their peak in December, though further rate cuts seem more elusive now than they were in the prior quarter. We have not seen consistent momentum in one direction or other in terms of mortgage rates. We observed increased activity, along with improved execution and synchronizations in 2024, particularly in the non-QM space. This drove tightening spreads throughout the year as well. We view the current environment as active and deep, offering ample opportunities to recycle capital and continue growing our target asset portfolio. Our capital deployment strategy will remain adaptive and flexible, aligning with evolving market dynamics in order to maximize returns.

Randy: Interest rates appear to have moderated from their peak in December.

Randy: No further rate cuts seem more or less now than they were.

Randy: In the prior quarter.

Randy: We have not seen consistent momentum in one direction or other in terms of mortgage rates.

Randy: We observed increased activity, along with improved execution and Securitizations in 2024.

Randy: Particularly in the non QM space.

Randy: This drove tightening spreads throughout the year as well.

Randy: We view the current environment as active and deep offering up ample opportunities to recycle capital and.

Randy: And continue growing our target asset portfolio.

Our capital deployment strategy, but remain adaptive.

Randy: In flexible aligning with evolving market dynamics in order to maximize returns.

Sreeni Prabhu: Regarding raising capital, our approach remains to raise funds opportunistically. And when it provides additional earnings, this allows us to maintain flexibility and ensure that the investment decisions are accretive and value driven over near term and long term. We demonstrated the success of this approach with our senior unsecured note issuance this year, which was accrued to earnings within one quarter of issuance and continues to add to net interest margin with further loan purchases and securization activities. As we move forward, our focus remains on continuing to execute against our earnings generation model. and delivering positive outcomes for our shareholders.

Randy: Regarding raising capital our approach remains to raise funds opportunistically.

Randy: And when it provides additional earnings this allows us to maintain flexibility and ensure that the investment decisions that are accretive and value driven or near term and long term.

Randy: We demonstrated the success of this approach with a senior unsecured note issuance this year, which was accretive to earnings within one quarter of issuance and continues to add to net interest margin, but for the loan purchases and securitization activity.

Randy: As we move forward our focus remains on continuing to execute.

Randy: Against our earnings generation model.

Randy: And delivering positive outcomes for our shareholders, while positioning our balance sheet to capitalize on emerging accretive opportunities as they arise.

Sreeni Prabhu: while positioning our balance sheet to capitalize on emerging accretive opportunities as they arise.

Randy: Rice.

Brandon Filson: With that, I'll turn it over to Brandon, who will walk us through our fourth quarter and full year financial performance in greater detail. Thank you, Sreeni. Fourth quarter operating results followed expectations and the positive trend established throughout the year as we saw a 9% net interest income growth versus the third quarter, accompanied by the maintenance of reduced operating expense levels and supported by active loan purchasing and securitization activity. As Sreeni mentioned, rates sold off and spreads widened, which were a headwind for portfolio valuation during the fourth quarter. The valuation decrease was almost exclusively driven by unrealized losses in our securitized loan portfolio.

Randy: With that I'll turn it over to Brian.

Brian: Who will walk us through our fourth quarter and full year financial performance in greater detail.

Randy: Thank you you're screening.

Randy: Fourth quarter operating results, followed expectations and the positive trend established throughout the year as we saw a 9% net interest income growth versus the third quarter.

Randy: Company by the maintenance of reduced operating expense levels and supported by active loan purchasing securitization activity.

Speaker Change: You mentioned rates hold off and spreads widened which were a headwind for portfolio valuation during the fourth quarter.

Speaker Change: The valuation decrease was almost exclusively driven by unrealized losses in our securitized loan portfolio.

Brandon Filson: And I'll point out that the loans in our Securitize Loan portfolio continue to perform well and that these unrealized losses will be recouped as the loans pay off and or rates and spreads decline.

Speaker Change: And I'll point out that the loans in our securitized loan portfolio continued to perform well and that these unrealized losses will be recouped as the loans pay off and or rates and spreads decline.

Brandon Filson: For the fourth quarter of 2024, we had a gap net loss of $15 million, or $0.65 per common share. For the full year, we had gap net income of $28.8 million, or $1.17 per diluted common share. Distributable earnings for the fourth quarter, or $9.9 million, are $0.42 per diluted common share. As mentioned previously, the driver of the difference between gap net income and distributable earnings is the removal of unrealized gains and losses, primarily on our securitized and unsecuritized loan portfolios. In the fourth quarter, we had $24.4 million of unrealized losses on our residential and securitized loan portfolio.

Speaker Change: For the fourth quarter 2024, we had a GAAP net loss of $15 million or 65 per common share for the full year, we had GAAP net income of $28 8 million.

Speaker Change: Alright.

Speaker Change: <unk> 17 per diluted common share distributable earnings for the fourth quarter were $9 9 million or 42 cents per diluted common share.

Speaker Change: As mentioned previously the driver of the difference between GAAP net income distributable earnings is the removal of unrealized gains and losses, primarily on our securitized debt unsecured ties loan portfolios.

Speaker Change: In the fourth quarter, we had $24 4 million of unrealized losses on our residential securitized loan portfolios.

Brandon Filson: For the full year, distributable earnings were $7 million. The Difference Between Gap Net Income and Distributed Earnings was driven by the removal of $21.9 million of unrealized gains on our residential and securitized loan portfolio. Interest income for the fourth quarter was $31.9 million and net interest income was $9.9 million, which marked a 30% improvement in interest income and a 20% improvement in net interest income compared to the fourth quarter of 2020. Compared to the third quarter of 2024, interest income increased by 16% and net interest income increased by 9%. For the full year, interest income was $110.4 million, and net interest income was $36.9 million, which marks an improvement of 15% and 28%.

Speaker Change: For the full year distributable earnings were $7 million.

Speaker Change: The difference between GAAP net income and distributable earnings was driven by the removal of $21 9 million of unrealized gains on our residential and securitized loan portfolios.

Speaker Change: Yeah.

Speaker Change: Interest income for the fourth quarter was $31 9 million and net interest income was $9 $9 million, which market, 30% improvement in interest income and a 20% improvement in net interest income compared to the fourth quarter of 2023.

Speaker Change: Compared to the third quarter of 2024 interest income increased by 16% and net interest income increased by 9%.

Speaker Change: For the full year interest income was $110 4 million in net interest income was $36 $9 million, which marks an improvement of 15 and 28%.

Brandon Filson: respectively compared to 2023. We expect interest income to continue to grow as we purchase accretive loans, employ sound portfolio management. and Leverage Effective Securitization. Our $684 million of loan purchases this year carried a weighted average coupon of 7.64%, a weighted average loan-to-value ratio of 70.2%, and a weighted average FICO score of 740.0. The weighted average coupon of our residential whole loan portfolio as of the end of the year was 7.39%, representing an increase of 61 basis points since the end of 2023. Including loans purchased subsequent to the end of 2024, our weighted average coupon is approximately $7.5%.

Speaker Change: Respectively compared to 2023, we.

Speaker Change: We expect interest income to continue to grow as we purchase accretive loans employee sound portfolio management and leverage effective securitization execution.

Speaker Change: Our $684 billion of loan purchases. This year carried a weighted average coupon of 764% a weighted average loan to value ratio of 72% and a weighted average FICO score of 749.

Speaker Change: The weighted average coupon of our residential whole loan portfolio as at the end of the year was $7 three 9% representing an increase of 61 basis points at the end of 2023.

Speaker Change: Including loans purchased subsequent to the end of 2024, our weighted average coupon is approximately seven 5%.

Brandon Filson: We are pleased to have executed five securitizations over the course of the year. Outpacing our stated goal of one securitization per quarter through a combination of both standalone and commingled deals. In total, we securitized $855 million. Scheduled unpaid principal balance across these five securitizations. In the fourth quarter, we completed AOMT 24-10 as the sole contributor, contributing a balance of $316.8 million in revenue. Additionally, near the end of the year, we closed AOMT 2024-13, which was a $289 million securitization, to which we contributed $167 million in loans. As of the end of the year, our Securitized Loan Portfolio carried a weighted average coupon rate of 5.6% with a weighted average funding cost of approximately $4.5 million.

Speaker Change: Yes.

Speaker Change: We are pleased to have executed five securitizations over the course of the year.

Speaker Change: Outpacing our stated goal of one securitization per quarter through a combination of both standalone and commingled deals.

Speaker Change: In total we securitized $855 million.

Speaker Change: Scheduled unpaid principal balance across these five securitization.

Speaker Change: In the fourth quarter, we completed a 'twenty 'twenty four dash 10, as the sole contributor contributing a balance of $316 $8 million in laws. Additionally, near the end of the year, we closed <unk> $2024, 13, which was a $289 million securitization to which we control.

Speaker Change: We did $167 million a months.

Speaker Change: As of the end of the year, our securitized loan portfolio carried a weighted average coupon rate of five 6% with a weighted average funding cost of approximately 4%.

Brandon Filson: The securitization market remains active and receptive with tight spreads, and we plan to continue to access it via our methodical securitization strategy.

Speaker Change: The securitization market remains active and receptive with tight spreads and we plan to continue to access it via our methodical securitization strategy.

Brandon Filson: Operating expenses for the fourth quarter were $5.5 million. Excluding non-cash stock compensation expenses and securitization costs, fourth quarter operating expenses were $3.1 million. This represents a 16% decrease compared to the same metric in the fourth quarter of 2020. For the full year, operating expenses were $19.4 million, or $13.6 million excluding non-cash stock compensation expenses and securitization. This demonstrates approximately 14% decrease in expenses compared to the prior year.

Speaker Change: Operating expenses for the fourth quarter were $5 5 million exclude.

Excluding noncash stock compensation expenses and securitization costs fourth quarter operating expenses were $3 1 million. This represents a 16% decrease compared to the same metric in the fourth quarter of 2023.

Speaker Change: For the full year operating expenses were $19 4 million or $13 $6 million, excluding noncash stock compensation expenses and securitization costs. This demonstrates approximately 14% decrease in expenses compared to the prior year.

Brandon Filson: Looking at our balance sheet as of December 31st, we had $40.8 million in cash and our recourse debt-to-equity ratio was one time. Gap book value per share decreased 9.8% to $10.17 as of December 31, 2024, down from $11.28 as of September 30, 2024, a nearly flat year over year. Economic book value, which fair values all neon recourse securitization obligations was $13.10 per share as of December 31st, 2024, down from 6.6% from $14.02 per share as of September 30th, 2024, and down 3.3% versus December 31st, 2022. The decline in book value was driven primarily by the aforementioned unrealized losses on our securitized and unsecuritized portfolio as a result of interest rate and spread movements toward the end of the year.

Speaker Change: Looking at our balance sheet as of December 31, we had $48 million in cash and our recourse debt to equity ratio was one time at the end of the year.

Speaker Change: Yeah.

Speaker Change: GAAP book value per share decreased nine 8% to $10.17 as of December 31, 2024 down from 11 28 as of September 32024, and nearly flat year over year.

Speaker Change: Economic book value, which fair values, all non recourse securitization obligations was $13 10 per share as of December 31, 2024 down from six 6% from $14 <unk> per share as of September 32024, and down three 3% versus December 31 2023.

Speaker Change: The decline in book value was driven primarily by the aforementioned unrealized losses, our securitized debt unsecured ties portfolio as a result of interest rate and spread movements toward the end of the year.

Brandon Filson: We note that the loans in our securitized loan portfolio continue to perform well, and that these unrealized losses will be recouped as these loans pay off and rates or spreads decline.

Speaker Change: We note that the loans in our securitized loan portfolio continued to perform well at these unrealized losses will be recouped as these loans pay off and rates or spreads decline.

Brandon Filson: We ended the year with residential hold loans at fair value of $183.1 million, financed with $129.5 million of warehouse debt. $1.7 billion of Residential Mortgage Loans and Securitization Trust and $321 million of RMBS. including $20.7 million of investments in commingled securitization entities, which are included in other assets on our balance sheet. We finished the year with undrawn loan financing capacity of approximately $920 million.

Speaker Change: We ended the year with residential whole loans at fair value of $183 1 million financed with $129 $5 million of warehouse debt.

Speaker Change: $1 7 billion of residential mortgage loans in securitization trust and $321 million of our MBS.

Speaker Change: Including $27 million of investments and co mingled securitization entities, which are included in other assets on our balance sheet.

Speaker Change: We finished the year with Undrawn loan financing capacity of approximately $920 million.

Brandon Filson: Now looking at credit, we ended the year. With a total portfolio weighted average percentage of loans 90 days plus delinquent at 2.4%, inclusive of our residential loan, securitized loan, and RMBS portfolio. an increase from 1.85% as of the end of the third quarter of this year. As we stated previously, we expect this type of nominal increase and believe it is indicative of a return to normalized historical levels. We continue to expect that our portfolio-wide low LTV, tight underwriting standards, and inherent credit selection to mitigate losses throughout a cycle if credit becomes an issue. Three-month prepay speeds for our RMBS and securitized loan portfolios were 8.4% to end the year, marking a 10 basis point decrease compared to the third quarter.

Speaker Change: Now looking at credit we ended the year.

Speaker Change: With a total portfolio weighted average percentage of loans 90 days plus delinquent at two 4% inclusive of a residential loan securitized loan and RBS portfolios and.

Speaker Change: An increase from $1 eight 5% as of the end of the third quarter of this year. As we've stated previously we expect this type of nominal increase I believe it is indicative of returned to normalized historical levels.

Speaker Change: We continue to expect that our portfolio wide low LTV high underwriting standards and inherent credit selection to mitigate losses throughout a cycle if credit becomes an issue.

Three months prepay speeds for our our MBS and securitized loan portfolios were eight 4% to end the year, marking a 10 basis point decrease compared to the third quarter.

Brandon Filson: As borrowing rates remain steady, we do not expect prepay speeds to exhibit any meaningful increases on the 2021-23 securitization. If rates do fall, increasing prepay speeds are securitized loans. and RMBS portfolios are weighted towards loans that are still well below current rates. Reducing or eliminating a homeowner's incentive to refinance a non-QM is historically prepaid at 25-20 CPR.

Speaker Change: As borrowing rates remain steady we do not expect prepay speeds to exhibit any meaningful increases on the 2021 to 'twenty three securitizations.

Speaker Change: If rates do fall, increasing prepay speeds are securitized loan.

Speaker Change: And our MBS portfolios are weighted towards the ones that are still well below current rates.

Speaker Change: <unk> are eliminating our homeowners incentive to refinance and non QM as historically prepaid at 25 to 20 CPR.

Brandon Filson: Lastly, we do have the ability to use capital to re-securitize and re-leverage securitizations, which will increase the effective yield.

Speaker Change: Lastly, we do have the ability to use capital to re securitize and re lever securitizations, which will increase the effective yield.

Sreeni Prabhu: On a more somber note, our thoughts and prayers go out to all those impacted by the California wildfires that started in January 2025. We hope that those individuals and their families are able to return to a sense of normalcy soon. As it relates to our portfolio, our exposure was fortunately very small due to our lower exposure to the California mortgage market. We have completed a full set of collateral inspections of all loans in the affected areas, and one loan in our securitized loan portfolio appears to have been damaged. As a reminder, we require property insurance on all of our loans.

Speaker Change: On a more somber note our thoughts and prayers go out to all those impacted by the California wildfires that started January 2025, we hope that those individuals and their families are able to return to a sense of normalcy soon as it relates to our portfolio. Our exposure was fortunately very small due to our lower exposure to the California mortgage.

Speaker Change: Market.

We have completed a full set of collateral inspections of all loans in the affected areas and one loan in our securitized loan portfolio appears to have been damage. As a reminder, we required property insurance on all of our loans, which we expect to substantially mitigate or eliminate entirely or potential losses.

Sreeni Prabhu: which we expect to substantially mitigate or eliminate entirely our positional loss.

Sreeni Prabhu: Finally, as previously communicated, the company declared a $0.32 per share common dividend, which was paid on February 28, 2020.

Speaker Change: Finally, as previously communicated the company declared a <unk> 32 per share common dividend, which was paid on February 28 2025.

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

Speaker Change: For additional color on our financial results. Please review the earnings supplement available on our website I will now turn it back to screening for closing remarks.

Sreeni Prabhu: I will now turn it back to Sreeni for closing remarks. I would like to thank the entire Angel Oak team for their hard work and contributions over the last year as we seek to build long-term value for our shareholders. With that, we'll open up the call to your questions.

Speaker Change: I do like to thank the entire Angel oak team for their hard work and contributions over the last year as we seek to build long term value for our shareholders with that.

Speaker Change: We'll open up the call to your questions operator.

Operator: Operator? We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the At any time your question has been addressed and you would like to withdraw your Please press star then 2. At this time we will pause momentarily to assemble our roster.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question.

Speaker Change: Please press Star then two at this time, we will pause momentarily to assemble our roster.

Matthew Erdner: The first question comes from Matthew Erdner with Jones Trading. Please go ahead. Hey, good morning, guys. Thanks for taking the question. Brandon, thanks for touching on the prepayments there. But I kind of have a follow up to that, you know, with it looks like we're shifting into a new environment and rates are heading lower. You know, how insulated are those 21 to 23 vintages? And where do you think rates would kind of need to go to trigger significant prepayments there?

The first question comes from Matthew <unk> with Jones trading. Please go ahead.

Speaker Change: Hey, good morning, guys. Thanks for taking the question Brandon Thanks for touching on the prepayments there, but I kind of have a follow up to that you know well if it looks like we're shifting into a new environment and rates are heading lower yeah. How insulated are those 'twenty one to 'twenty, three vintages, and where do you think.

Speaker Change: Rates would kind of need to go to trigger a significant prepayments there.

Speaker Change: Yeah.

Brandon Filson: Yeah, hey, good morning. You know, those eight CPR, as I mentioned in the prepared remarks, I mean, historically, we expect 20 to 25 CPR in a kind of a stable, normalized environment. At 21 to 23 vintage, you know, those weighted average coupons are in the 5% range, five, five and a quarter, somewhere around there. So we think that real rates and mortgage rates would have to decline, you know, pretty significant amount, you know, as new productions in the mid sevens, mid to high sevens, you know, we'd probably be looking at 150, 200 basis points of move in that rate before someone might decide, you know, to cash out some equity or, you know, refinance.

Speaker Change: Yeah, Hey, good morning.

Speaker Change: Those eight H C P R.

Speaker Change: As I mentioned in the prepared remarks.

Speaker Change: Historically, we expect 20 to 25 CPR in a kind of a stable normalized environment at 21 to 'twenty three vintage where those weighted average coupons are in the 5% range.

Speaker Change: Five five and a quarter somewhere around there.

Speaker Change: So we think that real rates and mortgage rates have declined pretty significant amount.

Speaker Change: As new productions in the mid Sevens mid to high Sevens.

Speaker Change: We'd probably be looking at 150 200 basis points of move in that right before someone might decide.

Speaker Change: The cash out some equity or refinance so I think they're pretty well insulated I do expect over time as you mentioned they will go up their work while state eight forever.

Matthew Erdner: So I think they're pretty well insulated. I do expect over time, as you mentioned, they will go up, they won't stay at eight forever. But I don't really see, at least right now, a period where they're going to be certainly any more elevated than what we model when we go into a securitization. Got it. That's helpful there. I appreciate the color.

Speaker Change: But I don't really see at least right now a period, where theyre going to be certainly any more elevated than what we modeled when we go into a securitization.

Speaker Change: Got it that's helpful and I appreciate the color and then you know as you can.

Brandon Filson: And then, you know, as you kind of look to re-lever some of these down the road, generate that additional yield, how much incremental yield, you know, are you guys kind of expecting to get from those kind of re-securitization? I think it depends a lot on which actual securitizations you're talking about. If you're talking about our pre-IPO securitizations we had, so we'll call it the 2019 vintages out there, you know, those securitizations have de-levered. The weighted average coupon of those loans now are in the high sixes. So we're not we don't necessarily have too much leverage on them.

Speaker Change: Kind of look to re lever some of these down the road generate that additional yield how much incremental yield are you guys kind of expecting to get from those kind of re securitization.

I think it depends a lot of which actual securitizations youre talking about if youre talking about our pre IPO Securitizations, we had so we call it the 2019 vintages.

Speaker Change: Out there those those securitizations have de Levered.

Speaker Change: The weighted average coupon on those loans now or in the high sixes.

Speaker Change: So we're not we don't necessarily have too much leverage on them so call it up at 8%.

Brandon Filson: So call it a 8% If we call them and resecuritize or flip collateral into new collateral, we will lever that back up to the 12% or so during the whole loan aggregation phase and 15% with one securitized. Got it.

Speaker Change: Levered yield remaining on those deals if we call them and either re securitize or.

Speaker Change: Flip collateral into new collateral.

We will lever that back up to the 12% or so during the whole loan aggregation phase and 15% with securitized one securitized.

Matthew Erdner: Thank you. And then I apologize if I missed it, but did you provide book value quarter to date? Yeah, we didn't provide it at the time we wanted to get the most up to date information. But it's looking like as of February 28, or you know, you can call it as of today, we'd be looking up, excluding the dividend just over 6%. And then net of the dividend about 3% up. Got it. Thank you. from that 14 or 1310 level. on right as of December 31st. Okay, that's helpful. Thank you.

Speaker Change: Got it. Thank you and then I apologize if I missed it but did you provide book value quarter to date.

Speaker Change: Yeah.

Speaker Change: We didn't provide it at the time, we wanted to get the most up to date information, but it's looking like as of February 28, or you can call. It as of today we have.

Speaker Change: Looking up excluding the dividend just over 6% and then net of the dividend about 3%.

Got it thank you Tom.

Speaker Change: From that 14, or 13 10 level.

Speaker Change: Yeah on right as of December 31.

Speaker Change: Okay. That's helpful. Thank you.

Donald Fandetti: The next question comes from Donald Fandetti with Wells Fargo. Please go ahead. Brandon, can you talk a little bit about the pluses and minuses for thinking about NII in terms of the next quarter and then I assume you feel like the pipeline's strong enough to where you can just continue to grow NII each quarter as we progress through 25. Is that a fair assumption? Yes, that's right. I think that we we've obviously made some pretty big progress on NII over the last year, going up to where if you look at it, from like a cash, you know, use basis, I think the fourth quarter, we're somewhere around 90% covered on the dividend.

Speaker Change: The next question comes from Don Fan Dirty with Wells Fargo. Please go ahead.

Speaker Change: Hi, Brendan can you talk a little bit about the pluses and minuses for thinking about NII in terms of the next quarter and then.

Speaker Change: I assume you feel like the pipeline strong enough to where you can just continue to grow NII each quarter as we progress through 25 is that a fair assumption.

Speaker Change: Yes, that's right I think that we've obviously made some pretty big progress on NII over the last year.

Speaker Change: Going up to where if you look at it.

Mike: For Mike our cash.

Mike: Use basis, I think the fourth quarter, we're somewhere around 90% covered on the dividend if.

Brandon Filson: And if you look just at the end of the year, you know, we are respectively covered on the dividend.

Mike: If you look just at the end of the year, we respectively covered on the dividend I think that's going to continue to increase.

Brandon Filson: I think that's going to continue to increase over the next several quarters as we, you know, we're always working on another securitization, we have one that we're looking at now that'll happen, hopefully, by the end of the first quarter, if not into Q1 or into Q2. That'll obviously then free up a bunch more capital that we can put into, you know, additional loan purchases, the pipeline from our mortgage company continues to be strong. We have kind of as much product as we want to buy at the pace we want to buy and rates are still holding at like, you know, like I said, high sevens, mid seven range.

Mike: Over the next several quarters as we.

Mike: We're always working on another securitization we have one that we're looking at now that will happen hopefully by the end of the first quarter, if not into Q1 or into Q2.

Mike: That will obviously, then free up a bunch more capital that we can put into.

Mike: Additional loan purchases the pipeline from our mortgage company continues to be strong.

Mike: We have kind of as much product as we want to buy at the pace, we want to buy and rates are still.

Mike: <unk>.

Mike: At like.

Mike: I said high Sevens mid 7% range.

Mike:

Donald Fandetti: So we're pretty confident that NII will continue to grow throughout 25. Got it.

Mike: So we're pretty confident that NII will continue to grow throughout 'twenty five.

Donald Fandetti: And then, you know, as you look at the new administration and you think about non-QM and what might happen with the GSEs, how are you feeling about the non-QM market as you look out over the next few years, just given potential changes on the regulatory side? I think, you know, if we look at maybe what Trump was trying to do in his first term and think about what he might try to do in the second term, I think it could be positive for non-QM in terms of, you know, shaking loose some loans that used to be sitting with the GSEs and moving them out into non-QM or creating, you know, a little bit more of a market.

Mike: Got it and then.

Mike: If you look at the New administration, and you think about non QM and what might happen.

Mike: Gse's or are you feeling about the non QM market.

Mike: As you look out over the next few years, just given potential changes on the regulatory side.

Mike: I think if we look at maybe what.

Mike: Trump was trying to do in his first term.

Mike: And think about what he might try to do in the second term I think it could be positive for non QM in terms of shaking loose some some loans that used to be sitting with the GSE and moving them out into non QM are creating a little bit more of a market.

Donald Fandetti: But obviously, that's going to be a fluid and, you know, could much like the first term, nothing really ever happened with that. Or, you know, the way this one's going so far, maybe, you know, tomorrow, everything could change. But I think in general, I would I would be willing to bet that non-QM would be expanding if anything is done this term.

Mike: Obviously, that's going to be a fluid end.

Mike: Yes, it could but much like the first term nothing really ever happened.

Mike: With that or the way this one's going so far maybe tomorrow everything could change, but I think in general I would I would be willing to bet that non QM would be expanding.

Mike: If anything is done this term.

Donald Fandetti: Thank you.

Mike: Thank you.

Eric Hagen: This next question comes from Eric Hagen with BTIG. Hey, thanks. Good morning. Good to hear from you guys.

Speaker Change: The next question comes from Eric Hagen with B T. I G. Please go ahead.

Eric Hagen: Hey, Thanks, Good morning, good to hear from you guys. So when we look at accretive opportunities that you guys mentioned in the opening remarks can you remind us if you consider the GAAP book value of the economic book value is a more relevant benchmark and then with respect to completing incremental securitization deals could you ever consider taking the cash that gets released from completing a deal.

Eric Hagen: So when we look at accretive opportunities that you guys mentioned in the opening remarks, can you remind us if you consider the gap book value or the economic book value as the more relevant benchmark? And then with respect to completing incremental securitization deals, could you ever consider taking the cash that gets released from completing a deal and repurchase your stock at these valuations? Or even whether you see like the unsecured market as a possible source of cash for repurchasing stock as well? Thank you, guys.

Eric Hagen: [noise] and repurchase your stock at these valuations are even whether you see like the unsecured market.

Eric Hagen: Possible source of cash for repurchasing stock as well.

Speaker Change: Thank you guys.

Eric Hagen: Yeah.

Brandon Filson: You know, so I'll take the last, I mean, you know, looking at senior unsecured market, obviously, I think we've shown that it can be accretive to us from our July issuance. You know, it's something we continue to look at and monitor. I think that market's open and available for us when we choose, you know, if we choose to use it.

Eric Hagen: So I'll take the the the last I mean <unk>.

Eric Hagen: Looking at senior unsecured market, obviously, I think we've shown that it can be accretive to us from our July issuance. It's something we continue to look at and monitor I think that market is open and available for us when we choose.

Eric Hagen: If we choose to use it I wouldnt necessarily at this point be very keen on buying back too much stock.

Brandon Filson: I wouldn't necessarily at this point be very keen on buying back too much stock just because it's, you know, our equity base I'd like to build over time. And if you look at just a repurchase profile. Incremental capital dollars in right now are earning 15 to 20 return on equity versus our dividend yield today sitting around 13%. So it's It doesn't necessarily make too much sense other than a book value perspective, which I think over this year, obviously, we hit a little bit of a bump in Q4. The roadmap is really going to be over this year to look more like Q3 of 24 that had a decent increase in book value as either, again, prepayments continue to come in on some of those earlier deals or, you know, rates and spreads tighten up, which didn't happen, obviously, in Q4.

Eric Hagen: Just because it's.

Eric Hagen: Our our equity base I'd like to build over time, and if you look at just our repurchase profile.

Eric Hagen: Incremental capital dollars in right now are earning 15% to 20% return on equity versus our dividend yields today sitting around 13%. So it's.

Eric Hagen: It doesn't necessarily make too much sense other than a book value perspective, which I think over this year, obviously, we had a little bit of a bump in Q4.

Eric Hagen: The roadmap is really going to be over this year to look more like Q3 of 24 that had a decent increase in book value.

Eric Hagen: Either again prepayments continue to come in on some of those earlier deals or.

Eric Hagen: Rates and spreads tightened up.

Eric Hagen: Didn't happen obviously.

Brandon Filson: And, you know, the first one, when we look at GAAP and economic book value. You know, that's a get another complicated question, because we believe that economic book value is a real metric that is important to the company. However, you know, if you look at it, there's really two ways that GAAP and Economic Book are going to converge together, which is going to both will take some time. Either rates decreasing pretty dramatically, I mean, at the limit, it would be something back to 2021 level of effectively zero, or prepayments have to come in on those loans are underlying those securitizations as well, which with an 8% CPR, as we just discussed earlier, it's probably not going to happen for a while.

Eric Hagen: In Q4 and.

Eric Hagen: The first one when we look at GAAP and economic book value.

Eric Hagen: Get another complicated question, because we believe that economic book value is a real <unk>.

Eric Hagen: Metrics that is important to the company however.

Eric Hagen: However, a.

Eric Hagen: A few.

Eric Hagen: Look at it there's really two ways that GAAP and economic broker kind of converge together, what you're going to both will take some time.

Eric Hagen: Their rates decreasing pretty dramatically.

Eric Hagen: I mean at the limited would be something back to 2021 level is effectively zero.

Eric Hagen: Or prepayments has to come in on those loans are underlying those securitizations as well, which.

With an 8% CPR in Swedish <unk>.

Eric Hagen: First earlier, it's probably not going to happen for a while so as we look at accretive opportunities we start to trend more towards GAAP book value thinking as we get to.

Brandon Filson: So as we look at the creative opportunities, we start to trend more toward gap book value, thinking as we get to a, you know, premium over that or thinking about, you know, that level versus economic book.

Eric Hagen: Premium over that are thinking about that level versus economic book.

Eric Hagen: Gotcha.

Eric Hagen: Good explanation I appreciate that shifting over to the portfolio I mean, what do you guys consider a normalized level of delinquencies or what or maybe what are your expectations looking out over the next year.

Eric Hagen: What do you guys consider a normalized level of delinquencies, or what are your expectations looking out over the next year, and how do you feel like the mark-to-market will respond to any pickup? Yeah, I think if you, you know, the 1.8% we had, you know, before this quarter was was kind of a low point. If you look at our trend lines going back, you know, we're, we're trending back toward a more normalized level of two to 3% 90 day delinquencies in our in our loan book. And also, you know, our loan, some of our securitized loans from IPO are now starting to get more age.

Eric Hagen: Do you feel like the mark to market.

Eric Hagen: You know yeah.

Eric Hagen: How do you feel like the mark to market will respond to any pick up in.

Eric Hagen: Delinquencies.

Eric Hagen: Yeah.

Eric Hagen: Yes, Thanks Pete.

Eric Hagen: The 1.8% we had.

Eric Hagen: Before this quarter was kind of a low point.

Eric Hagen: If you look at our trend lines going back yes.

Eric Hagen: We're trending back toward a more normalized level of 2% to 3% 90 day delinquencies in our loan book and also in our loans.

Eric Hagen: Some of our securitized loans from IPO are now starting to get more age. So they are kind of self selecting as well.

Eric Hagen: So they're kind of self selecting as well. Based on, you know, pay downs and whatnot. So, you know, we're right in that range. We haven't seen any kind of overheating of delinquencies trickling in. Yeah, we're Not going to. We're trying to build in that protection on the new production as well. Okay, so it's safe to say that non-QM valuations embed maybe some increase in delinquencies from here, but not a material increase. Is that kind of fair? Okay, that's right. Thank you guys, appreciate you. Thank you, Eric.

Eric Hagen: Based on pay downs and whatnot. So we're right in that range I haven't seen any kind of overheating of delinquencies tricking it trickling in.

Eric Hagen: But yeah that's like.

Eric Hagen: Like I said I think we're right in the sweet spot of where I think it's a healthy level.

Eric Hagen: And.

Eric Hagen: We've continued to move up credit kind of every quarter again contemplating that theres going to be.

Eric Hagen: If we get enough period that Hasnt happened really since 2007 2008 of credit stress.

Eric Hagen: Sure.

Eric Hagen: Yes.

Eric Hagen: Not going to.

Speaker Change: We're trying to build in that protection on the new.

Speaker Change: Production as well.

Speaker Change: Okay. So its safe to say that non QM valuations embed.

Speaker Change: Some increase in delinquencies from here, but not a material increase is that.

Speaker Change: Perfect.

Speaker Change: Okay, that's right.

Speaker Change: Thank you guys appreciate you.

Speaker Change: Thank you Eric.

Operator: Again, if you have a question, please press star then 1.

Speaker Change: Again, if you have a question. Please press Star then one.

Jason Stewart: The next question comes from Jason Stewart with Jammie, please go ahead. Hey, good morning. Thanks. Just a follow up on Casey's question. I mean, obviously, from a FICO and LTV standpoint, the credit quality of the originations look very strong. Was there anything in the fourth quarter performance from a vintage standpoint where you saw transition or roll rates deteriorate? And then maybe if you could just give us a thought on where that's performing quarter to date in 2025 and 1Q, just taking seasonality into account. Yeah, we haven't really again, I think I think we haven't really seen a trend on particular vintage doing too much difference other than, you know, I think you would expect in a period where there's a little bit of economic stress, your later loans are going to have a little bit more of an uptick in delinquencies again, because they're that borrowers just not quite as invested in that property.

Speaker Change: The next question comes from Jason Stewart with Janney. Please go ahead.

Jason Stewart: Hey, good morning, Thanks, just to follow up on Casey's question.

Speaker Change: I mean, obviously from a FICO and LTV standpoint, the credit quality of the originations look very strong was there anything in the fourth quarter performance from a vintage standpoint, where you saw transitioning our roll rates deteriorate and then maybe if you could just give us a thought on where that's performing quarter to date in 2025, and <unk> taken seasonality into it.

Jason Stewart: Count.

Jason Stewart: Yeah, we haven't.

Jason Stewart: I think we haven't really seen a trend on.

Jason Stewart: It's a particular vintage are doing.

Jason Stewart: Doing too much.

Jason Stewart: Difference other than.

Jason Stewart: I think you would expect in a period, where there's a little bit of economic stress. Your later loans are going to have a little bit more of an uptick in delinquencies again, because they're that borrowers just not quite as invested in that property.

Brandon Filson: So we do see a slight difference in 24 loans, 24 originate loans versus earlier vintages, excluding, you know, the COVID loans, which still have some forbearance and things on a few of them, but nothing again, that's, that's too much. They're, they're kind of more in the two and a half percent range. And, you know, then, you know, Sorry, I forgot the second part of your question. I was just curious how the seasonality impacted that and maybe what you're seeing in terms of a reversal of the increase in delinquency so far in 2025. Okay, yeah, we have seen a little bit more payments come in, not quite 2.4% today, we're about 10 basis points down.

Jason Stewart: So we do see a slight difference in 24 loans 24 originated loans versus earlier vintages, excluding COVID-19 loans, which.

Jason Stewart: You'll have some forbearance and things off on a.

Jason Stewart: A few of them.

Jason Stewart: But nothing again, that's that's too much or they're kind of more in that two 5% range.

Jason Stewart: And.

Jason Stewart: Done.

Jason Stewart: <unk>.

Jason Stewart: Yes.

Jason Stewart: Sorry, I forgot the second part of your question.

Jason Stewart: I was just.

Jason Stewart: Curious, how the seasonality impacted that and maybe what youre seeing in terms of a reversal of the increase in delinquencies so far in 2025.

Jason Stewart: Yes, Okay, yes, we have seen a little bit more payments come in not quite two 4% today, we're about 10 basis points down.

Jason Stewart: on that level as of as of the latest information which again is a little bit Delayed because it was just the reporting, but effectively as of January, full January payments, you know, we took about 10 basis points back of that delinquency level. OK. All right. That makes sense. That was it for me. Thank you.

Jason Stewart: On that.

Jason Stewart: Level as us as of the latest information, which get us a little bit.

Jason Stewart: Delayed because it was just a reporting.

Jason Stewart: Effectively as of January full January payments.

Jason Stewart: We took about 10 basis points back that delinquency level.

Speaker Change: Okay, Alright that makes sense that was it for me. Thank you.

Brandon Filson: This concludes our question and answer session.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Brandon Philson for any closing remarks.

Brandon Filson: I would like to turn the conference back over to Brandon Filson for any closing remarks. Thank you everyone for your time and interest in Angel Oak Orchidry. We look forward to connecting with you again next quarter. In the meantime, if you have any questions, please feel free to reach out to us. Have a great day.

Brandon Philson: Thank you everyone for your time and interest in Angel mortgage REIT, we look forward to connecting with you again next quarter in the meantime, if you have any questions. Please feel free to reach out to us have a great day.

Operator: This conference has now concluded. Thank you for attending today's presentation.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: You may now disconnect.

Okay.

Speaker Change: [music].