• GAAP Net Income: $31.2 million, or $1.29 per diluted common share.
• Distributable Earnings: Loss of $3.4 million, or $0.14 per common share.
• Interest Income: $27.4 million, a 6% increase from the prior quarter and 15% growth year-over-year.
• Interest Expense: $18.4 million, up from $16.4 million in the prior quarter.
• Net Interest Income: $9 million, a 22% improvement year-over-year.
• Loan Purchases: $264.8 million with a weighted average coupon of 7.74%.
• Operating Expenses: $3.8 million, or $3.2 million excluding certain expenses.
• Cash on Hand: $42.1 million as of September 30.
• Recourse Debt to Equity Ratio: 1.8 times at quarter end, reduced to 0.7 times post-securitization.
• GAAP Book Value Increase: 10.3% in the third quarter.
• Economic Book Value Increase: 6.5% in the third quarter.
• Residential Home Loan Portfolio: Fair value of $428.9 million.
• Dividend Declared: $0.32 per share, payable on November 27, 2024.

• Warning! GuruFocus has detected 2 Warning Sign with AOMR.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Angel Oak Mortgage REIT Inc (NYSE:AOMR) capitalized on a favorable rate environment, achieving all near-term goals and deploying capital into high-quality non-QM loans.
• The company observed meaningful balance sheet and net income growth in the third quarter, with GAAP book value increasing by over 10% and economic book value by over 6%.
• AOMR's proprietary affiliate origination, purchase, and securitization platform is delivering consistent and attractive investor returns.
• Interest income for the quarter increased by 6% compared to the prior quarter and 15% compared to the third quarter of 2023, driven by rapid deployment of capital.
• The company successfully completed a securitization in October, reducing funding costs by 110 basis points and releasing $40 million of capital for additional loan purchases.

Negative Points

• Net interest income was slightly down compared to the prior quarter, although it showed a 22% improvement over the third quarter of 2023.
• Approximately half of the GAAP book value increase from the third quarter has been given back due to market volatility.
• The company reported a distributable earnings loss of $3.4 million, driven by the exclusion of unrealized gains and inclusion of realized losses on hedges.
• Loan delinquencies, while low, have hovered around 2% for six consecutive quarters, indicating a potential return to historically normal levels.
• Due to rate volatility after quarter-end, the mark-to-market valuations of the portfolio have decreased since the end of the third quarter.

Q & A Highlights

Q: Can you talk a little bit about new investment volume expectations for the next few quarters? A: We expect to see similar volumes to this quarter, around $200 million of origination and purchases. (Brandon Filson, CFO)

Q: Can you clarify on the book value comment? Are you saying that you give back a good bit of the increase this quarter or part of it? A: About half of the book value increase has been given back as of today. (Brandon Filson, CFO)

Q: How should we expect the pace of securitizations? A: We target one securitization per quarter, aiming for around $300 million per securitization. (Brandon Filson, CFO)

Q: How is the execution on the October securitization, and what did you retain from it? A: The execution was strong; we sold about 95% of the capital structure and retained positions like the IO positions and excess servicing strip. (Brandon Filson, CFO)

Q: How are you expecting asset yields going forward? A: Asset yields will fluctuate with rate changes, but we expect them to remain in the high sevens, maintaining a good spread to agency products. (Brandon Filson, CFO)

Q: How are you looking at the opportunity to buy back stock at these levels? A: Currently, a buyback is not on the table, but we monitor the situation closely and may consider it if the stock continues to trade at a high dividend yield. (Brandon Filson, CFO)

Q: What is the structure of any loan modification activity taking place right now? A: There is minimal modification activity due to home price appreciation, which often leads to refinancing rather than modifications. (Sreeniwas Prabhu, CEO)

Q: What are your thoughts on the securitization economics today versus the past few years? A: The current environment is as favorable as it was in 2021, with strong execution and consistent spreads. (Sreeniwas Prabhu, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.