Q3 2025 Angel Oak Mortgage REIT Earnings Call
Speaker #3: Good day . And welcome to the Angel Oak Mortgage wreath . Third quarter 2025 Earnings Conference Call . All participants will be in listen only mode .
Speaker #3: Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask question , to ask a question , you may press star then one on your telephone keypad .
Speaker #3: 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. Kasey .
Speaker #3: Please go ahead .
Speaker #4: Good morning and thank you for joining us today for Angel Oak Mortgage REIT, Inc. third Quarter 2020 Earnings Conference Call . This morning , we filed our press release detailing these results , which is available in the investors section on our website at .
Speaker #4: 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 .
Speaker #4: 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 .
Speaker #4: 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 .
Speaker #4: This morning's conference call is hosted by Angel Oak Mortgage REIT, Inc. Chief Executive Officer , Sreeniwas Prabhu and Chief Financial Officer Brandon Filson .
Speaker #4: Management will make some prepared comments , after which we will open up the call to your questions . Additionally , we recommend reviewing our earnings supplement posted on our website .
Speaker #4: Now , I will turn the call over to Srini .
Speaker #5: Thank you Casey , and thank you all for joining us today . Our third quarter performance reflected another period of disciplined execution and strategic progress for Omer .
Speaker #5: We continue to execute both operationally and strategically in a constructive market environment . We capitalized on a couple of strategic opportunities to reallocate capital into high yielding assets , improve our loan financing , funding costs , and diversify our lender base .
Speaker #5: And as as always , our team continued to focus on deploying capital into high quality income , accretive opportunities , supporting both portfolio growth and underlying earnings quality , while maintaining vigilance on credit .
Speaker #5: Our results this quarter were in line with our expectations . This was highlighted by our 13% growth in net interest income compared to third quarter of 2020 .
Speaker #5: For , and a 2% increase compared to second quarter of the year . GAAP book value per share increased by over 2% compared to the second quarter , driven by increases in valuations across our portfolio .
Speaker #5: Cash flow , dividend coverage increased and is expected to continue its growth trend as demonstrated over the last two years . This is driven by earnings from assets purchased during and post quarter end , as well as the securitization of some pre-IPO deals , which will rotate capital into higher yield uses .
Speaker #5: Credit continues to perform well , both in aggregate and relative to our peers , and are earning generation engine continues to strengthen . As I mentioned , we executed on several key initiatives during the quarter .
Speaker #5: First , we successfully called and retired two legacy vintage deals , which is something we have been opportunistically monitoring for the last several quarters .
Speaker #5: Retiring these deals allowed us to release and reinvest capital into new , attractive opportunities and further optimize the yield on our investment portfolio .
Speaker #5: Second , we added new warehouse credit facility and extended another facility at attractive funding rates , which , combined with decreases in sofr , are expected to improve margins while also diversifying our lender base .
Speaker #5: These actions , along with our continued focus on capital , recycling and securitization , emphasize the reliability and the of our strategy . We are encouraged by the strength and stability securitization market , as well as the constructive environment for portfolio growth .
Speaker #5: Securitization spreads continue to tighten , and the market continues to function efficiently with new and traditional participants active in the marketplace . The market backdrop has become more positive as the year has progressed , and the interest rate trajectory and the efficient securitization execution have supported valuation and earnings growth for Omer .
Speaker #5: While the competition in the space has increased . We see this as an indication of solid demand in an area where we have demonstrated expertise .
Speaker #5: Further , our differentiated platform and dynamic approach to capital deployment and portfolio management positions us to capitalize on opportunities as we look ahead , we remain committed to continued execution of our strategies , delivering strong results for shareholders and building on our solid historical track record .
Speaker #5: With that , I'll turn it over to Brandon , who will walk us through our third quarter financial performance in greater detail .
Speaker #6: Thank you Srini . Third quarter operating results were in line with our expectations , with 13% net interest income growth versus the third quarter of 2020 .
Speaker #6: For an expansion versus the second quarter of this year , demonstrating a positive return on May's senior unsecured debt issuance within one quarter .
Speaker #6: Year to date , net interest income increased 11% compared to 2020 for operating expenses , excluding securitization costs and stock compensation expense , were 13% lower than in the third quarter of 2020 .
Speaker #6: Four and 5% lower than the second quarter of 2025 . Year to date , operating expenses , excluding securitization costs and stock compensation , were 19% lower than in 2024 .
Speaker #6: As we continue to push hard on cost rationalization and key expense saving initiatives . Valuations were a tailwind during the third quarter as we observed increases in valuations across the portfolio .
Speaker #6: As of today , we expect that our book value has grown moderately compared to the end of the third quarter , alongside the recent rate rally for the third quarter of 2025 , we had GAAP net income of $11.4 million , or $0.46 per diluted common share .
Speaker #6: Distributable earnings for the second quarter were $529,000 . The primary driver of the difference between GAAP net income and distributable earnings were the impacts of $4.3 million of unrealized gains on our residential loan portfolios and $5 million of unrealized gains on hedge contracts .
Speaker #6: Interest income for the third quarter was $36.7 million , and net interest income was $10.2 million , marking a 34% improvement in interest income and a 13% improvement in net interest income , compared to the third quarter of 2020 .
Speaker #6: For compared sequentially to the second quarter of 2025 , interest income increased by 4% and net interest income increased by 2% . For the first nine months of the year , interest income was $104.6 million and net interest income was $30.2 million , which translates to increases of 33 and 12% , respectively , compared to the first nine months of 2020 .
Speaker #6: For . As we previously noted , we expect our net interest income to continue its growth trend with earnings generated from accretive loans purchased throughout the year and our securitization activity in Q4 .
Speaker #6: Our $238 million of loan purchases in the quarter carried a weighted average coupon of 7.74% , with a weighted average combined loan to value ratio of 69.4% and a weighted average Fico score of 759 .
Speaker #6: Our total residential loan portfolio had a weighted average coupon of 7.98% . As of the end of the quarter . The Non-qm portion of our loan portfolio carried a weighted average coupon of 7.37% and Helocs carried a 11.03% weighted average coupon .
Speaker #6: As of today . Our weighted average coupon is approximately 8.7% , reflecting the 2025 ten securitization , which closed in October . As of the end of the quarter , our loans and securitization trust portfolio carried a weighted average coupon rate of 5.8% , with a weighted average funding cost of approximately 4.2% .
Speaker #6: As Srini mentioned , the securitization market remains active , and we intend to continually leveraging this strength through our disciplined , methodical securitization strategy .
Speaker #6: As mentioned earlier , we called and retired our retained bonds from OMT 2019 two and AMT 2019 for securitizations in the third quarter .
Speaker #6: These deals had become delivered over time , and the call release $19 million of capital to be reinvested into higher yielding new loan purchases and other earnings accretive uses .
Speaker #6: Additionally , in October , we executed the AMT 2025 ten securitization . This securitization was a $274 million deal that enabled us to pay down $237 million of warehouse financing and release $22 million of cash for redeployment .
Speaker #6: The execution of this deal was strong , with the senior bonds issued at a spread of 125 basis points over treasuries . Operating expenses for the third quarter were $3.2 million , excluding non-cash stock compensation expenses and securitization costs .
Speaker #6: Third quarter operating expenses were $2.8 million . This represents a 13% decrease compared to the same metric in the third quarter of 2020 .
Speaker #6: For for the first nine months of the year , operating expenses were $11.3 million , excluding non-cash stock compensation expenses and securitization costs .
Speaker #6: Operating expenses for the first nine months of the year were $8.5 million , representing a decrease of 19% compared to the first nine months of 2020 .
Speaker #6: For . Going forward , we expect to maintain similar operating expense levels and will continue to be as efficient as possible with our expense structure .
Speaker #6: Looking at our balance sheet as of the end of the quarter , we have $51.6 million of cash and our recourse debt to equity ratio was 1.9 times as of today's date .
Speaker #6: And factoring in the October securitization , we estimate our recourse debt to equity ratio to be approximately one times GAAP book value per share .
Speaker #6: Increased 2.2% to $10.60 per share as of September 30th , 2025 , from $10.37 as of June 30th , 2025 . Economic book value , which fair values all non recourse securitization obligations was $12.72 per share as of September 30th , 2025 , down 1.9% from $12.97 per share as of June 30th , 2025 .
Speaker #6: The increase in GAAP book value was driven primarily by the aforementioned valuation increases across our portfolio and valuations of the sold bonds from our 2021 , four and 2021 seven securitizations are included as a liability in our economic book value calculation , and the markup of these bonds drove the directional difference between GAAP and economic book value .
Speaker #6: We ended the quarter with unsecured residential home loans at fair value of $425.8 million , financed with $342.6 million of warehouse debt , $1.9 billion of residential mortgage loans and securitization trust , and $256.2 million of R&D , including $21.2 million of investments in commingled securitization entities , which are included in other assets .
Speaker #6: On our balance sheet . We finished the quarter with an undrawn loan financing capacity of approximately $707.4 million . Now , looking at credit , we ended the quarter with a total portfolio weighted average percentage of loans 90 plus days delinquent at 2.2% , inclusive of our residential loan , securitized loan and portfolios , which represents a decrease of 15 basis points from the second quarter of 2025 .
Speaker #6: The OMT securitization shelf continues to demonstrate outperformance relative to other non-qm shelves . In terms of delinquency , we expect that throughout the credit cycle , this outperformance will lead to fewer defaults and lower credit losses than comparable non-qm securitization platforms .
Speaker #6: The expectation is borne out of our intentional effort to move up in credit for our loan originations and purchases over the past couple of years , which continues to provide us with the confidence that we will deliver consistently amid periods of potential volatility .
Speaker #6: Additionally , we expect our portfolio wide , low LTV , diligent underwriting standards and inherent credit selection to mitigate losses throughout a cycle .
Speaker #6: If credit becomes an issue . Three month prepay speeds for our Mwbes and securitized loan portfolios were 9.4% in the quarter , reflecting a marginal decrease compared to the second quarter of 2025 .
Speaker #6: As a reminder , we model our returns on historical average prepayment speeds of 20 to 30% . We continue to expect that mortgage rates would need to fall meaningfully in order to drive a significant uptick in refinances and prepayment speeds in our portfolio .
Speaker #6: Finally , the company declared a $0.32 per share common dividend , which will be paid on November 26th , 2025 , to common shareholders of record as of November 18th , 2025 .
Speaker #6: For additional color on our financial results , please review the earnings supplement available on our website . I will now turn it back to Srini for closing remarks .
Speaker #5: Thank you . Brandon . I would like to thank the entire Angelo team for their hard work towards building what we believe is the best non QM loan origination purchase and securitization platform .
Speaker #5: We look forward to continuing to build long term value for our shareholders in the coming quarters . And years . With that , we'll open up the call to your questions .
Speaker #5: Operator .
Speaker #3: Thank you . We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone .
Speaker #3: If you are 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 , please press star then two .
Speaker #3: At this time we will pause momentarily to assemble our roster . First question comes from Matthew Ordner with Jones Trading . Please go ahead .
Speaker #7: Hey good morning guys . Thanks for taking the question . I'd like to touch on kind of the calling of the old securitizations .
Speaker #7: There . You know , one , get your thoughts going forward and , you know , two , how much incrementally were you guys able to pick up on the margin there in terms of cost of funds ?
Speaker #7: You know , kind of coming in as a result of calling those securitizations . And then , you know , expectation going forward as to what other calls would do to that cost of funds .
Speaker #7: Thanks .
Speaker #6: Yeah . Hey . Thanks , Matt . Yeah . 1902 1904 . You know , those were our very first securitizations that we did even before .
Speaker #6: You know , this vehicle was a public REIT . They were very delivered . The point . I mean , the factors were down to very , very low levels where effectively our retained interest was earning the weighted average coupon of the deals are in some cases , even a bit less .
Speaker #6: So , you know , six 7% kind of retained yields on those bond positions at $19 million in cash would be then immediately reinvested into , you know , a whole loans .
Speaker #6: That would at least lever , you know , earn that unlevered yield today with leverage . You know , 12 to 14% . And then once we securitize , you know , 15 to 20% kind of return .
Speaker #6: So you can think of, you know, 8% of our capital over the next couple of quarters going from earning a 6% to a 14% at a base case level.
Speaker #6: As we look at other deals , I mean , we do have , you know , 1906 securitization in 2023 , securitization out there that we're evaluating what to do with them as they deliver .
Speaker #6: You know , the it all depends on what the execution price and where we are in terms of , you know , the cycle .
Speaker #6: But I'd expect us to to be looking hard at that over the next year .
Speaker #7: Yeah . Got it . That's helpful . There . You know , and then you guys mentioned competition earlier on the call . You know I'd like to touch on this given the amount of of people that have entered the space are starting to come in , you know , how are you guys able to go out there and kind of source the loans ?
Speaker #7: You know , that you find attractive , opportunistic and whatnot and kind of , you know , beat out that competition , so to speak .
Speaker #6: Yeah , I think we , you know , we with our affiliation with , you know , Angel Oak Mortgage Solutions and the Angel Oak platform in general , you know , we've had a very consistent Non-qm program over the past many years .
Speaker #6: Our rate sheets are are similar . We're always buying , you know , we're a surety of closing deals . So when we go out , you know , we think we are able to pull in , you know , good demand versus the maybe the the new guys entering the space that may not be there tomorrow .
Speaker #6: That may change their mind . And they're just coming in and out based on , you know , a trade item . You know , again , we've said many times this is a business for us , not a trade .
Speaker #6: So we have great relationships with our affiliated originators and other third party originators where they , you know , will show us the loans that we want with the rates we want and the prices we want , because they know that we'll be able to execute and , you know , close those loans .
Speaker #7: Got it . That's helpful . Thank you guys .
Speaker #3: The next question comes from Doug Harder with UBS . Please go ahead .
Speaker #8: Thanks . Hoping you could touch on your outlook for for growth in in the investment portfolio . You know I guess given a combination of the securitization opportunities plus maybe adding some more , you know , leverage to the balance sheet .
Speaker #6: Yeah . No , I think we have you know , we did our senior unsecured notes offering second one this last summer that those proceeds have effectively been deployed .
Speaker #6: Maybe not fully . I mean , it takes several cycles of of securitization to get 100% deployed in terms of capital . We released , you know , the securitization from the 1902 , 1904 deals .
Speaker #6: You'll also see in the filings and whatnot that we also took back an interest in a vehicle that holds some of the non-performing loans from those deals .
Speaker #6: It'd be about $7 million . That those proceeds should also be coming in . Today . Literally . Then , you know , 25 , ten released over $20 million in capital .
Speaker #6: So we have kind of a very good runway for growth in terms of what , you know , we're looking at in terms of purchasing volume .
Speaker #6: We like to be consistent in the space . You know , we've been buying 2 to $300 million a quarter really over the past year of loans .
Speaker #6: We're also looking at we have about $75 million worth of key locks on our portfolio . We're looking at doing a securitization in that regard here in the in the coming quarter that should release additional capital and , you know , continuing to grow .
Speaker #6: So we and then , as you mentioned , we're going to be looking at the 1902 and then the 2023 securitizations to re securitize .
Speaker #6: And , you know , call if you know , if and when that time opportunity comes up . Yeah . 1906 sorry if I said 1902 .
Speaker #8: Great . I appreciate that . And then , you know , I know in the prepared remarks , you , you did walk through some of the difference between gap and economic book value in the quarter .
Speaker #8: But , you know , if you could just kind of give a little more detail and just how we , might think about the drivers of change as we go forward , you know , on those metrics .
Speaker #6: Yeah . So the genesis of economic book value was the 21 four and 21 six securitizations that we did immediately post IPO . Those were the deals that were in the Goldilocks phase of the of the market .
Speaker #6: When interest rates were zero and the securitization market was incredibly accretive . So they had one of them , 21 for the coupon on the senior bond was just over 1% .
Speaker #6: So literally very little funding cost . We made the election at that time . If you recall , to hold those liabilities for those sold bonds at amortized cost , meaning that , as you know , obviously rates sold off over the next couple of years .
Speaker #6: They stayed at par when in reality , you know , the the fair value of those bonds or the fair value of the liability would have been significantly below par .
Speaker #6: As we're in this cycle now , where real rates are starting to decline , securitization markets are getting better , things are getting tighter .
Speaker #6: You know , there's there's a lot of demand for these products . And again , real rates are declining . Those bonds are starting to mark back up , which doesn't happen under GAAP .
Speaker #6: Book values . And that's why you see you know , the divergence or you know , the decrease in economic book value quarter versus the increase in GAAP book value , because , you know , from a gap book value perspective , if you think about those two securitizations , we effectively have an unhedged asset with several hundred million dollars in loans in it .
Speaker #6: And then , you know , from an economic book value , then we effectively then hedge that back down as that liability is starting to increase in value .
Speaker #6: And that that liability value is based on the value of those sold bonds .
Speaker #8: Great . Appreciate that . Thank you .
Speaker #3: Thank you . If you have a question please press star . Then one . The next question comes from Timothy D'Agostino with B Riley Securities .
Speaker #3: Please go ahead .
Speaker #9: Good morning . Thanks for taking the question . Just one for me regarding the size of securitizations . Just flipping back through prior quarters .
Speaker #9: It seemed like in 2024 , securitizations were slightly above 300 million so far . In 25 , they've kind of hovered around 280 was just kind of wondering if we could see future securitizations kind of get back to that 300 level , or if you guys are comfortable with kind of the size you're doing now .
Speaker #9: Thanks .
Speaker #6: Yeah , we .
Speaker #4: We've .
Speaker #6: Made the conscious decision to , you know , be hitting the securitization market very programmatically . And consistently . Right . And not waiting in this rate environment to get to a 300 , $400 million level .
Speaker #6: That was something we did , used to do . And now we found it better , especially with all the supply coming on the market to be a very consistent issuer .
Speaker #6: That's why , you know , this , this year , we're already up to , you know , ten , 11 real Non-qm securitizations .
Speaker #6: We've done the re securitization and then earlier in the year , we had our first HELOC securitization . And I say we here as OMT or , you know , Angel Oak itself .
Speaker #6: So we're consistently in the market and we find that has helped us tighten up our spreads and keep our risk low on our balance sheets .
Speaker #6: As you know , we we move to term out that funding cost .
Speaker #9: Okay , great . And just a quick follow up . Could could we see you investing more in HELOC going forward or are you going to continue to just like majority focus on Non-qm ?
Speaker #9: Thanks .
Speaker #6: We're we're majority focused on Non-qm . And we consider our HELOC kind of non-qm adjacent . A lot of times they're look a lot and they feel a lot like a non-qm loan from what we're doing .
Speaker #6: They're just especially in today's environment , they're very attractive in terms of their yield profile . You know , like you can see from some of the disclosures , the weighted average coupon on those are just north of 11% currently versus new originated Non-qm loans .
Speaker #6: Seven and a 6:45 point 5% . The funding cost is similar between the two . So you can get a lot of extra margin on those .
Speaker #6: I would imagine that , you know , over the coming quarters , we'll keep it kind of where we are today , which is 70 , call it 75 to $150 million worth of HELOC in the portfolio .
Speaker #6: And then and then we'll securitize them off after .
Speaker #9: Okay . Great . Thank you so much .
Speaker #3: Thank you . This concludes our question and answer session . I would like to turn the conference back over to Brandon Filson . For any closing remarks .
Speaker #6: All right . Thank you everyone for your time and interest in Angel Oak Mortgage REIT, Inc. . We look forward to connecting with you again for year end .
Speaker #6: In the meantime , if you have any questions , feel free to reach out to us and have a great day !