Angel Oak Mortgage, Inc. (NYSE:AOMR) Q1 2024 Earnings Call Transcript May 7, 2024
Angel Oak Mortgage, Inc. misses on earnings expectations. Reported EPS is $0.11 EPS, expectations were $0.18. AOMR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good morning, and welcome to the Angel Oak Mortgage First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, KC Kelleher, Head of Corporate Finance and Investor Relations. Please go ahead, sir.
KC Kelleher: Good morning. Thank you for joining us today for Angel Oak Mortgage REIT’s First Quarter 2024 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section of our website at www.angeloakreit.com.
As a reminder, remarks made on today’s conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company’s results, please refer to our earnings release for this quarter and to our most recent SEC filings.
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.
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Q&A Session
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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 Chief Investment Officer, Namit Sinha.
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, www.angeloakreit.com.
Now I will turn the call over to Sreeni.
Sreeniwas Prabhu: Thank you, KC, and thank you to everyone on the call for joining us today.
The first quarter of 2024 reflected a continuation of the upward trajectory that we established last year. Based on the momentum from 2023, we have executed on our strategy to grow and fortify our portfolio’s earnings potential and return profile. The first quarter of 2024 marks our third consecutive quarter of increased net interest income, reflecting our commitment to strategic portfolio expansion and consistent securitization execution in conjunction with sound risk management.
Additionally, distributable earnings, GAAP book value and economic book value all increased versus both the prior quarter and the first quarter of 2023. We have established this positive growth trend despite what continues to be an uncertain and at times, unfavorable macro environment. This underscores the resilience of both our operating model and of the Angel Oak ecosystem, which is market-leading origination and securitization platforms, combined to position the company for continued financial success throughout the remainder of the year and beyond.
In the quarter, we achieved net interest income of $8.6 million, a 26% expansion versus the same quarter last year and the highest level since the third quarter of 2022. This is enabled by our effective securitization strategy and methodical purchases of high-quality current coupon loans on balance sheet. Notably, after quarter end, we led AOMT 2024-4 securitization, which was a $300 million deal, with a weighted average coupon of 7.4%.
We are at work, purchasing newly originated loans with the proceeds on this deal, which we expect to drive further net interest income expansion in the coming quarter. This strong securitization execution and the ability to strategically leverage Angel Oak ecosystem serves as a competitive advantage in the market and further highlights the growth potential of our business model.
As we continue to prioritize long-term value creation, we note that our GAAP book value per share grew to $10.55, a 2.8% increase over the previous quarter. And economic book value per share grew to $13.78, a 1.8% increase over the previous quarter. While our portfolio value is impacted by federal funds rate decisions, interest rate market volatility and the industry impact on fixed income yields, the position of our portfolio in current market coupon loans dampens some of this volatility. Though the magnitude and the timing of potential federal funds rate decreases remains uncertain, we maintain a positive outlook for the remainder of 2024.
As for credit performance, the weighted average 90-plus day delinquency rate across our portfolio of whole loans, securitized loans and RMBS was 1.8% as of quarter end as compared to 2.2% at the end of the fourth quarter of 2023, representing a decrease of approximately 18%. We continue to observe muted delinquency activity and believe that any future upticks in delinquencies would represent a movement towards historical averages as opposed to a large-scale event.
As previously stated, we believe that the credit risk management is a key competitive strength, due to our relationship with the Angel Oak ecosystem’s affiliated mortgage originator, which provides us the ability to adjust credit offerings based on our specific desired characteristics. Credit performance is a risk we choose to own, and we expect our portfolio to continue to perform comparably well.
With that, I’ll turn it over to Brandon, who will walk us through the financial performance for the first quarter in greater detail.
Brandon Filson: Thank you, Sreeni. In the first quarter of 2024, we maintained the consistent upward earnings trend that we have established beginning the third quarter of 2023. The company’s net interest income expanded for the third consecutive quarter, signaling sustained growth and profitability. We are pleased with the progress achieved in recent quarters and maintained an optimistic outlook for 2024, confident in our ability to continue to profitably grow the portfolio.
In the quarter, the company had GAAP net income of $12.9 million or $0.51 per fully diluted common share. Distributable earnings were $2.8 million or $0.11 per share. The difference between GAAP and distributable earnings is primarily driven by unrealized gains in our residential loan and securitized loan portfolios. This quarter, the relationship between GAAP and distributable earnings was more reflective of our long-term expectation for GAAP and distributable earnings to converge in a normalized macro environment.
Interest income for the quarter was $25.2 million and net interest income was $8.6 million, marking a 26% improvement over the first quarter of 2023 and a 33% improvement over the low point of Q2 2023. This growth was driven by our continued purchases of high-quality, current market coupon non-QM loans and our effective securitization strategy. Interest income grew over 6% compared to the year ago quarter, while interest expense decreased nearly 2%. While interest rates on our warehouse financing lines, which are tied to SOFR, have remained stubbornly high over the past year, we’ve been able to achieve sustained net interest income growth, which we expect to continue to do so.
In the first quarter, our operating expenses were $4.7 million, a modest increase from the previous quarter, but a 17% decrease from the first quarter of 2023. This increase versus the prior quarter was driven by 2023 year-end legal and audit fees as well as the inclusion of an estimate for unvested stock-based compensation. When we analyze our expenses, we find it most useful to exclude our noncash stock compensation expenses as well as securitization costs, as stock compensation does not impact our cash returns and costs related to securitization activity costs are directly in line with the execution of our business plan.
Excluding these expenses, our first quarter 2024 operating expense was $3.9 million compared to $4.2 million in the first quarter of 2023. We expect to maintain our current operational expense levels with some potential for further reductions as we work to identify opportunities to further optimize our cost structure.
