Angel Oak Mortgage, Inc. Q2 FY2025 earnings call

• Securitization and capital markets activity: The company completed 2 securitizations during the quarter and issued $42.5 million of unsecured debt, with capital deployed into high-quality loans expected to drive incremental earnings. • Net interest income: Second quarter net interest income was up 5% compared to Q2 2024, but slightly down from the first quarter due to the added expense of new senior unsecured notes. Year-to-date net interest income has grown 11% compared to the first half of 2024. • Book value: Book value per share declined slightly compared to the first quarter on a per share basis, driven by net decrease in valuations and the payment of the dividend. • Credit performance: 90+ day delinquency rates decreased portfolio-wide, with the AOMT shelf distinguishing itself in delinquency performance compared to peers, reflecting expertise as credit managers. • Strategy: Capital deployment strategy remains adaptive and flexible to align with evolving market dynamics to maximize expected returns for shareholders.

Second quarter net interest income grew 5% compared to Q2 2024, with a slight contraction from the first quarter due to the added expense of new senior unsecured notes. Year-to-date net interest income increased 11% compared to the first half of 2024. The company completed 2 securitizations during the quarter and issued $42.5 million of unsecured debt. The loan purchases in the quarter totaled $147 million, with a weighted average coupon of 8.68%. At the portfolio-wide level, 90+ day delinquency rates decreased compared to the past two quarters, driven by a reduction in delinquency rates for loans securitized in the past two years. As of the end of the quarter, the loans and securitization trust portfolio carried a weighted average coupon rate of 5.8% with a weighted average funding cost of approximately 4.1%.

• Preferred equity market: Considering new capital in the preferred equity market, especially if market conditions improve as seen with Annaly's recent deal. • Future performance: Expect to maintain similar operating expense levels. Anticipate next quarter to grow the net interest margin and continue to improve dividend coverage from a cash flow basis. • Securitization pipeline: There are several securitizations in the pipeline that will free up capital to continue purchasing loans, similar to the strategy employed last fall.

• Uncertainty: Continued uncertainty surrounding international trade and tariff activity. • Credit risk: While the AOMT shelf has strong delinquency performance, there remains potential credit risk and volatility in the credit cycle.

Q: Talk about the pathway for continuing to grow the portfolio, including additional unsecured issuance and recycling.

A: Considering the preferred equity market for new capital, especially if the stock starts trading well for potential ATM issuance. Currently, likely tapped out on senior unsecured notes issuance, but potential exists in the preferred market. Also, recycling by applying additional leverage from the $42 million unsecured portfolio and using securitizations in the pipeline to free up capital for continued loan purchases.

Q: Economics of relevering older securitizations?

A: Still in consideration, involving pre-IPO securitizations. The go-no-go decision is based on whether incremental dollars spent on relevering are as accretive as new loan purchases, especially with current HELOC purchases being less accretive compared to new loan purchases.

Q: Commentary on book value and timing of securitization?

A: Book value is flat to slightly up recently. Targeting securitization in September, depending on loan pipeline progress as some committed loan purchases take time to close from lock position to loan position.

Q: Acquisition market opportunities and securitization timing?

A: On the securitization side, targeting September for the deal, with $100-plus million of committed loan purchases. Origination volume in the acquisition market is relatively strong with stable rates. The securitization market is tight with tight spreads.

Q: Market competitive dynamic and hybrid ARMs?

A: More players entering the market, but the overall market pot is growing healthily. Not seeing significant creep in credit standards from new entrants. Regarding hybrid ARMs, haven't seen much demand yet, and it would depend on yield curve evolution, but currently, no immediate plans to supply hybrid ARM credit