Angel Oak Mortgage REIT, Inc. Reports Second Quarter 2024 Financial Results

Rhea-AI Summary

Angel Oak Mortgage REIT (NYSE: AOMR) reported its Q2 2024 financial results, highlighting a 47% increase in net interest income to $9.5 million compared to Q2 2023. The company's GAAP net loss was ($0.3) million, or ($0.01) per diluted share. AOMR's GAAP book value decreased to $10.23 per share, while its economic book value fell to $13.16 per share. The company declared a dividend of $0.32 per share. AOMR executed two securitizations during the quarter, reducing whole loan warehouse debt and financing costs. Post-quarter, the company issued $50 million in senior unsecured notes and repurchased shares worth $20 million. The company's recourse debt to equity ratio stood at 1.2x as of June 30, 2024.

Positive

• 47% increase in Q2 2024 net interest income compared to Q2 2023
• 36% increase in net interest income for the first six months of 2024 versus 2023
• Executed AOMT 2024-4 securitization, reducing whole loan warehouse debt by $235.9 million
• Issued $50 million of senior unsecured notes due 2029 for asset expansion and earnings growth
• Weighted average coupon of residential whole loans portfolio increased to 7.71%

Negative

• Q2 2024 GAAP net loss of ($0.3) million
• Q2 2024 Distributable Earnings loss of ($2.3) million
• GAAP book value decreased from $10.55 to $10.23 per share
• Economic book value decreased from $13.78 to $13.16 per share

Insights

Financial Analyst

Angel Oak Mortgage REIT's Q2 2024 results show a mixed performance. The 47% increase in net interest income to $9.5 million is impressive, indicating improved profitability from their loan portfolio. However, the company still reported a GAAP net loss of ($0.3) million and a Distributable Earnings loss of ($2.3) million.

The decline in book value from $10.55 to $10.23 per share is concerning, as it represents a decrease in shareholder value. The $50 million senior unsecured notes issuance could provide growth opportunities, but also increases leverage and interest expenses.

The dividend of $0.32 per share appears unsustainable given the current earnings, which may pressure future payouts. Investors should monitor the company's ability to generate positive earnings and maintain its dividend.

Mortgage Industry Specialist

Angel Oak's focus on non-QM loans is a double-edged sword. These loans offer higher yields, as evidenced by the 7.71% weighted average coupon on their residential whole loans portfolio. However, they also carry higher risk, especially in a potentially weakening economic environment.

The company's securitization activity is positive, reducing warehouse debt and financing costs. The AOMT 2024-4 securitization, in particular, lowered financing costs by 100 basis points, which should help improve margins.

The recourse debt to equity ratio of 1.2x (expected to remain below 2.5x) is relatively conservative for a mortgage REIT, providing some financial flexibility. However, the planned increase in leverage to purchase current-market coupon loans could increase risk if interest rates continue to rise or if credit quality deteriorates.

Investment Strategist

Angel Oak's strategy of leveraging its affiliated proprietary mortgage lending platform for loan acquisition is a potential competitive advantage. This could lead to better loan quality and pricing compared to peers relying solely on third-party originators.

The $20 million share repurchase from an affiliate of Davidson Kempner Capital Management is intriguing. While it reduces the share count, it also uses capital that could have been deployed for earning assets. Investors should consider whether this signals confidence in the company's valuation or a lack of attractive investment opportunities.

The company's ability to grow net interest income despite challenging market conditions is commendable. However, the failure to translate this into positive earnings is a concern. The success of Angel Oak's strategy will depend on its ability to scale operations efficiently and manage credit risk in its non-QM portfolio as it grows.

ATLANTA--(BUSINESS WIRE)-- Angel Oak Mortgage REIT, Inc. (NYSE: AOMR) (the “Company,” “we,” and “our”), a leading real estate finance company focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S. mortgage market, today reported financial results for the second quarter of 2024.

Second Quarter and Year-to-Date Highlights

• Q2 2024 net interest income of $9.5 million, an increase of 47% versus Q2 2023.
• Net interest income of $18.0 million in the first six months of 2024, an increase of 36% versus net interest income of $13.3 million in the first six months of 2023.
• Q2 2024 GAAP net loss of ($0.3) million, or ($0.01) per diluted share of common stock.
• Q2 2024 Distributable Earnings loss of ($2.3) million, or ($0.09) per diluted share of common stock.
• GAAP book value of $10.23 per share of common stock as of June 30, 2024, down from $10.55 per share of common stock as of March 31, 2024.
• Economic book value of $13.16 per share of common stock as of June 30, 2024, down from $13.78 per share of common stock as of March 31, 2024.
• Declared dividend of $0.32 per share of common stock, to be paid on August 30, 2024 to common stockholders of record as of August 22, 2024.

Sreeni Prabhu, Chief Executive Officer and President of Angel Oak Mortgage REIT, Inc., said "We are proud to mark our fourth consecutive quarter of net interest income expansion with growth of 47% from the second quarter of 2023 to the second quarter of 2024, and a 36% increase from the first six months of 2023 to the first six months of 2024. This performance underscores the momentum we carry as we deploy the proceeds of our $50 million senior unsecured notes issuance in July, which we expect to catalyze the next phase of growth for AOMR. With this additional capital, we intend to deliver further net interest income and earnings accretion, enabled by the purchase of additional newly-originated loans and the subsequent execution of profitable securitizations while maintaining our vigilant and methodical capital allocation and liquidity management strategy. We have demonstrated our ability to deliver consistent, sustained value creation and effectively manage capital, and we look forward to beginning our next phase of growth in the second half of 2024.”

Portfolio and Investment Activity

• During the quarter, the Company executed the AOMT 2024-4 securitization as the sole contributor of loans. The Company contributed loans with a scheduled unpaid principal balance of approximately $299.8 million and a 7.4% weighted average coupon. This securitization reduced the Company’s whole loan warehouse debt by $235.9 million and reduced financing costs by approximately 100 basis points compared to the financing cost prior to securitization.
• Additionally, the Company participated in the AOMT 2024-6 securitization during the second quarter. AOMT 2024-6 was an approximately $479.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which the Company contributed loans with a scheduled unpaid principal balance of approximately $22.9 million.
• As of June 30, 2024, the weighted average coupon of our residential whole loans portfolio increased to 7.71%, 60 basis points higher than at the end of the first quarter 2024 and 287 basis points higher than at the end of the second quarter of 2023.

Capital Markets Activity

• Subsequent to the end of the second quarter, on July 25, 2024, the Company issued $50 million of senior unsecured notes due 2029 with a coupon of 9.50%. This issuance is intended to be accretive, driving incremental asset expansion and earnings growth. The Company intends to use the majority of the net proceeds from the offering for general corporate purposes, which may include the acquisition of non-qualified residential mortgage loans and other target assets primarily sourced from the Company's affiliated proprietary mortgage lending platform or other target assets through the secondary market in a manner consistent with the Company's strategy and investment guidelines. Additionally, the Company used the net proceeds from the offering to repurchase 1,707,922 shares of the Company's common stock owned by Xylem Finance, LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.
• As of June 30, 2024, the Company was a party to three loan financing lines which permit borrowings in an aggregate amount of up to $1.1 billion, of which approximately $101 million is drawn, leaving capacity of approximately $950 million for new loan purchases.

Balance Sheet

• Target assets totaled $1.9 billion as of June 30, 2024.
• The Company held residential mortgage whole loans with fair value of $158.9 million as of June 30, 2024.
• The recourse debt to equity ratio was 1.2x as of June 30, 2024.
  • As of today’s date, our recourse debt to equity ratio is approximately 0.9x. This reflects the maturity of short-term U.S. Treasuries and their corresponding repurchase agreements held at the end of the second quarter, as well as the subsequent issuance of $50 million of senior unsecured notes and $20 million share repurchase.
  • Our recourse debt to equity ratio is expected to increase as current-market coupon loans are purchased, but is expected to remain below 2.5x.

Dividend

On August 6, 2024, the Company declared a dividend of $0.32 per share of common stock, which will be paid on August 30, 2024, to common stockholders of record as of August 22, 2024.

Conference Call and Webcast Information

The Company will host a live conference call and webcast today, August 6, 2024 at 8:30 a.m. Eastern time. To listen to the live webcast, go to the Investors section of the Company’s website at www.angeloakreit.com at least 15 minutes prior to the scheduled start time in order to register and install any necessary audio software.

To Participate in the Telephone Conference Call:

Dial in at least 15 minutes prior to start time.
Domestic: 1-844-826-3033
International: 1-412-317-5185

Conference Call Playback:

Domestic: 1-844-512-2921
International: 1-412-317-6671
Pass code: 10190401
The playback can be accessed through August 20, 2024.

Non-GAAP Metrics

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding (1) unrealized gains and losses on our aggregate portfolio, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by Falcons I, LLC, our external manager (our “Manager”), (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses. We believe that the presentation of Distributable Earnings provides investors with a useful measure to facilitate comparisons of financial performance among our real estate investment trust (“REIT”) peers, but has important limitations. We believe Distributable Earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings may not be comparable to similar measures presented by other REITs.

Distributable Earnings Return on Average Equity is a non-GAAP measure and is defined as annual or annualized Distributable Earnings divided by average total stockholders’ equity. We believe that the presentation of Distributable Earnings Return on Average Equity provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. Additionally, we believe Distributable Earnings Return on Average Equity provides investors with additional detail on the Distributable Earnings generated by our invested equity capital. We believe Distributable Earnings Return on Average Equity as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings Return on Average Equity should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs.

Economic book value is a non-GAAP financial measure of our financial position. To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to fair value. These adjustments are also reflected in our end of period total stockholders’ equity. Management considers economic book value to provide investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for our legally held retained bonds, irrespective of the accounting model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for book value per share of common stock or stockholders’ equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

Forward-Looking Statements

This press release contains certain forward-looking statements that are subject to various risks and uncertainties, including, without limitation, statements relating to the performance of the Company’s investments. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” or by the negative of these words and phrases or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe existing or future plans and strategies, contain projections of results of operations, liquidity and/or financial condition, or state other forward-looking information. The Company’s ability to predict future events or conditions or their impact or the actual effect of existing or future plans or strategies is inherently uncertain. Although the Company believes that such forward-looking statements are based on reasonable assumptions, actual results and performance in the future could differ materially from those set forth in or implied by such forward-looking statements. You are cautioned not to place undue reliance on these forward‐looking statements, which reflect the Company’s views only as of the date of this press release. Additional information concerning factors that could cause actual results and performance to differ materially from these forward-looking statements is contained from time to time in the Company’s filings with the Securities and Exchange Commission. Except as required by applicable law, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward‐looking statements. The Company does not undertake any obligation to update any forward-looking statements contained in this press release as a result of new information, future events or otherwise.

About Angel Oak Mortgage REIT, Inc.

Angel Oak Mortgage REIT, Inc. is a real estate finance company focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S. mortgage market. The Company’s objective is to generate attractive risk-adjusted returns for its stockholders through cash distributions and capital appreciation across interest rate and credit cycles. The Company is externally managed and advised by an affiliate of Angel Oak Capital Advisors, LLC, which, collectively with its affiliates, is a leading alternative credit manager with a vertically integrated mortgage origination platform. Additional information about the Company is available at www.angeloakreit.com

Angel Oak Mortgage REIT, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in thousands, except for share and per share data)
	Three Months Ended								Six Months Ended
	June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
INTEREST INCOME, NET
Interest income	$	25,902			$	23,763			$	51,114			$	47,503
Interest expense		16,439				17,311				33,072				34,252
NET INTEREST INCOME	$	9,463			$	6,452			$	18,042			$	13,251
REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	$	(6,770	)		$	(4,169	)		$	(8,192	)		$	(15,012	)
Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts		2,658				379				13,342				10,569
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	$	(4,112	)		$	(3,790	)		$	5,150			$	(4,443	)
EXPENSES
Operating expenses	$	1,333			$	2,214			$	3,333			$	4,418
Operating expenses incurred with affiliate		456				607				971				1,073
Due diligence and transaction costs		359				21				409				21
Stock compensation		630				207				1,260				748
Securitization costs		1,410				1,027				1,583				1,910
Management fee incurred with affiliate		1,294				1,493				2,606				3,015
Total operating expenses	$	5,482			$	5,569			$	10,162			$	11,185
INCOME (LOSS) BEFORE INCOME TAXES	$	(131	)		$	(2,907	)		$	13,030			$	(2,377	)
Income tax expense		142				781				429				781
NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS	$	(273	)		$	(3,688	)		$	12,601			$	(3,158	)
Other comprehensive income (loss)		125				(242	)			1,828				14,562
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(148	)		$	(3,930	)		$	14,429			$	11,404
Basic earnings (loss) per common share	$	(0.01	)		$	(0.15	)		$	0.51			$	(0.13	)
Diluted earnings (loss) per common share	$	(0.01	)		$	(0.15	)		$	0.50			$	(0.13	)
Weighted average number of common shares outstanding:
Basic		24,810,021				24,686,881				24,792,918				24,674,875
Diluted		24,810,021				24,686,881				24,973,501				24,674,875

Angel Oak Mortgage REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except for share and per share data)
	As of:
	June 30, 2024				December 31, 2023
ASSETS
Residential mortgage loans - at fair value	$	158,940			$	380,040
Residential mortgage loans in securitization trusts - at fair value		1,447,901				1,221,067
RMBS - at fair value		266,752				472,058
U.S. Treasury securities - at fair value		149,957				149,927
Cash and cash equivalents		43,956				41,625
Restricted cash		2,146				2,871
Principal and interest receivable		6,174				7,501
Unrealized appreciation on TBAs and interest rate futures contracts - at fair value		1,702				—
Other assets		36,246				32,922
Total assets	$	2,113,774			$	2,308,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Notes payable	$	101,200			$	290,610
Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts		1,372,272				1,169,154
Securities sold under agreements to repurchase		201,051				193,656
Unrealized depreciation on TBAs and interest rate futures contracts - at fair value		—				1,334
Due to broker		181,847				391,964
Accrued expenses		653				985
Accrued expenses payable to affiliate		397				748
Interest payable		460				820
Income taxes payable		78				1,241
Management fee payable to affiliate		10				1,393
Total liabilities	$	1,857,968			$	2,051,905
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value. As of June 30, 2024: 350,000,000 shares authorized, 24,998,549 shares issued and outstanding. As of December 31, 2023: 350,000,000 shares authorized, 24,965,274 shares issued and outstanding.	$	249			$	249
Additional paid-in capital		478,328				477,068
Accumulated other comprehensive income (loss)		(3,147	)			(4,975	)
Retained earnings (deficit)		(219,624	)			(216,236	)
Total stockholders’ equity	$	255,806			$	256,106
Total liabilities and stockholders’ equity	$	2,113,774			$	2,308,011

Angel Oak Mortgage REIT, Inc.
Reconciliation of Net Income (Loss) to Distributable Earnings
and Distributable Earnings Return on Average Equity
(Unaudited)
	Three Months Ended								Six Months Ended
	June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
	(in thousands)
Net income (loss) allocable to common stockholders	$	(273	)		$	(3,688	)		$	12,601			$	(3,158	)
Adjustments:
Net unrealized (gains) losses on trading securities		1,813				3,882				1,814				2,277
Net unrealized (gains) losses on derivatives		(2,592	)			(12,179	)			(3,037	)			12,357
Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation		2,579				4,777				(2,568	)			11,104
Net unrealized (gains) losses on residential loans		(4,431	)			3,278				(9,502	)			(36,159	)
Net unrealized (gains) losses on commercial loans		(27	)			(136	)			(49	)			(147	)
Non-cash equity compensation expense		630				207				1,260				748
Distributable Earnings	$	(2,301	)		$	(3,859	)		$	519			$	(12,978	)

	Three Months Ended								Six Months Ended
	June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
	($ in thousands)
Annualized Distributable Earnings	$	(9,204	)		$	(15,436	)		$	1,038			$	(25,956	)
Average total stockholders’ equity	$	259,565			$	239,991			$	258,412			$	238,345
Distributable Earnings Return on Average Equity		(3.5	)%			(6.4	)%			0.4	%			(10.9	)%

Angel Oak Mortgage REIT, Inc.
Reconciliation of Stockholders’ Equity to Stockholders’ Equity Including Economic Book Value Adjustments
and Economic Book Value per Share of Common Stock
(Unaudited)
	June 30, 2024		March 31, 2024		December 31, 2023		September 30, 2023		June 30, 2023
	(in thousands, except for share and per share data)
GAAP total stockholders’ equity	$	255,806	$	263,324	$	256,106	$	231,802	$	232,676
Adjustments:
Fair value adjustment for securitized debt held at amortized cost		73,053		80,599		81,942		97,592		95,326
Stockholders’ equity including economic book value adjustments	$	328,859	$	343,923	$	338,048	$	329,394	$	328,002
Number of shares of common stock outstanding at period end		24,998,549		24,965,274		24,965,274		24,955,566		24,924,886
Book value per share of common stock	$	10.23	$	10.55	$	10.26	$	9.29	$	9.34
Economic book value per share of common stock	$	13.16	$	13.78	$	13.54	$	13.20	$	13.16

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240806456884/en/

Investors:

investorrelations@angeloakreit.com

855-502-3920

IR Agency:

Nick Teves or Joseph Caminiti, Alpha IR Group

312-445-2870

AOMR@alpha-ir.com

Company:

KC Kelleher, Head of Corporate Finance & Investor Relations

404-528-2684

kc.kelleher@angeloakcapital.com

Source: Angel Oak Mortgage REIT, Inc.

FAQ

What was Angel Oak Mortgage REIT's (AOMR) net interest income for Q2 2024?

Angel Oak Mortgage REIT (AOMR) reported net interest income of $9.5 million for Q2 2024, representing a 47% increase compared to Q2 2023.

What was AOMR's GAAP net loss per share for Q2 2024?

AOMR reported a GAAP net loss of ($0.01) per diluted share of common stock for Q2 2024.

What dividend did Angel Oak Mortgage REIT (AOMR) declare for Q2 2024?

Angel Oak Mortgage REIT (AOMR) declared a dividend of $0.32 per share of common stock, to be paid on August 30, 2024.

How much senior unsecured notes did AOMR issue after Q2 2024?

AOMR issued $50 million of senior unsecured notes due 2029 with a coupon of 9.50% on July 25, 2024, after the end of Q2 2024.