Angel Oak(AOMR) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers the Company's unaudited financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited condensed consolidated financial statements, including core statements and detailed notes Condensed Consolidated Balance Sheets Presents the Company's financial position, detailing assets, liabilities, and equity at specific points in time Key Balance Sheet Figures (in thousands): | Metric | March 31, 2025 | December 31, 2024 | Change | | :----------------------------------------- | :------------- | :---------------- | :----- | | Total assets | $2,676,535 | $2,269,769 | +$406,766 | | Residential mortgage loans - at fair value | $439,460 | $183,064 | +$256,396 | | RMBS - at fair value | $398,272 | $300,243 | +$98,029 | | Total liabilities | $2,425,055 | $2,030,802 | +$394,253 | | Notes payable | $360,470 | $129,459 | +$231,011 | | Due to broker | $302,619 | $201,994 | +$100,625 | | Total stockholders' equity | $251,480 | $238,967 | +$12,513 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Details the Company's revenues, expenses, and net income or loss over specific reporting periods Key Operations Figures (Three Months Ended, in thousands): | Metric | March 31, 2025 | March 31, 2024 | Change | | :---------------------------------------------------------------- | :------------- | :------------- | :----- | | Interest income | $32,867 | $25,212 | +$7,655 | | Interest expense | $22,780 | $16,633 | +$6,147 | | NET INTEREST INCOME | $10,087 | $8,579 | +$1,508 | | TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET | $13,443 | $9,262 | +$4,181 | | Total operating expenses | $2,999 | $4,680 | $(1,681) | | INCOME (LOSS) BEFORE INCOME TAXES | $20,531 | $13,161 | +$7,370 | | NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS | $20,531 | $12,874 | +$7,657 | | Basic earnings (loss) per common share | $0.88 | $0.52 | +$0.36 | | Diluted earnings (loss) per common share | $0.87 | $0.51 | +$0.36 | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in the Company's equity accounts, including net income, dividends, and stock transactions Changes in Stockholders' Equity (Three Months Ended, in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Stockholders' equity as of period start | $238,967 | $256,106 | | Dividends paid on common stock | $(7,520) | $(7,989) | | Stock compensation | $237 | $630 | | Unrealized gain (loss) on RMBS and CMBS | $(695) | $1,703 | | Net income | $20,531 | $12,874 | | Stockholders' equity as of period end | $251,480 | $263,324 | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting period Cash Flow Summary (Three Months Ended, in thousands): | Activity | March 31, 2025 | March 31, 2024 | | :-------------------------------------- | :------------- | :------------- | | Net cash provided by (used in) operating activities | $(201,748) | $40,222 | | Net cash provided by (used in) investing activities | $(75,867) | $(4,819) | | Net cash provided by (used in) financing activities | $278,192 | $(37,679) | | CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $577 | $(2,276) | | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $43,470 | $42,220 | Notes to the Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Organization and Basis of Presentation Describes the Company's business, its focus on non-QM loans, and its election to be taxed as a REIT - The Company is a real estate finance company focused on acquiring and investing in first lien non-qualified residential mortgage ("non-QM") loans and other mortgage-related assets in the U.S. mortgage market[23] - The Company is externally managed and advised by Falcons I, LLC (the "Manager"), an affiliate of Angel Oak Capital Advisors, LLC, and has elected to be taxed as a real estate investment trust (REIT) since December 31, 2019[27] Note 2. Variable Interest Entities Explains the Company's use of VIEs for securitization and consolidation of primary beneficiaries - The Company utilizes variable interest entities (VIEs) for securitizing whole mortgage loans to obtain long-term non-recourse financing, consolidating those where it is the primary beneficiary[36][37] Consolidated VIEs (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | | Residential mortgage loans in securitization trusts, at fair value | $1,672,189 | $1,696,995 | | Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts at fair value | $1,556,075 | $1,593,612 | Note 3. Residential Mortgage Loans Details the Company's residential mortgage loan portfolio, including fair value and delinquency rates Residential Mortgage Loan Portfolio (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Fair value | $439,460 | $183,064 | | Weighted average interest rate | 7.55 % | 7.39 % | | Number of mortgage loans 90+ days past due | 3 | — | | Recorded investment in mortgage loans 90+ days past due | $2,436 | $— | Note 4. Investment Securities Describes the Company's investment securities, including RMBS, Agency RMBS, and U.S. Treasury securities - Investment securities include non-agency RMBS (AOMT RMBS), Whole Pool Agency RMBS, and U.S. Treasury securities[51] Investment Securities at Fair Value (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Total RMBS | $398,272 | $300,243 | | AOMT RMBS | $97,210 | $98,791 | | Whole Pool Agency RMBS | $301,062 | $201,452 | | U.S. Treasury securities | $74,959 | $— | Note 5. Financing Outlines the Company's financing arrangements, including lines of credit, notes payable, and senior unsecured notes - The Company finances residential and commercial whole loans using lines of credit (notes payable) and has issued Senior Unsecured Notes[55][59] Financing Details (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total Notes Payable (Drawn Amount) | $360,470 | $129,459 | | Total Borrowing Capacity | $1,050,000 | N/A | | Available Financing | $689,530 | N/A | | Senior Unsecured Notes (Outstanding Principal) | $50,000 | $50,000 | | Senior Unsecured Notes Interest Rate | 9.500% | 9.500% | | Senior Unsecured Notes Maturity | July 30, 2029 | July 30, 2029 | - The financing facility with Multinational Bank 1 was extended through September 25, 2025, with the interest rate pricing spread reduced to a range from 1.65% to 2.10%[57][62] Note 6. Due to Broker Explains the 'Due to broker' balance, primarily related to quarter-end Whole Pool Agency RMBS purchases Due to Broker (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :----------- | :------------- | :---------------- | | Due to broker | $302,619 | $201,994 | - The increase in 'Due to broker' relates to the purchase of Whole Pool Agency RMBS at quarter-end, with settlement occurring in the subsequent month[67] Note 7. Securities Sold Under Agreements to Repurchase Details the Company's repurchase agreements, including outstanding amounts and weighted average rates Repurchase Agreements (in thousands): | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Amount Outstanding | $148,467 | $50,555 | | Weighted Average Interest Rate | 5.15 % | 5.76 % | | Weighted Average Remaining Maturity (Days) | 10 | 19 | Note 8. Derivative Financial Instruments Describes the Company's use of interest rate futures and TBAs for hedging interest rate and prepayment risk - The Company uses interest rate futures and To-Be-Announced ("TBA") securities as economic hedges to manage interest rate and prepayment risk[71][74][75] Derivative Gains and Losses (Three Months Ended March 31, 2025, in thousands): | Instrument | Net Realized Gains (Losses) | Net Change in Unrealized Appreciation (Depreciation) | | :------------------ | :-------------------------- | :------------------------------------------------- | | Interest rate futures | $(1,473) | $(1,935) | | TBAs | $1,163 | $893 | Note 9. Fair Value Measurements Explains the Company's fair value hierarchy for financial instruments, including Level 3 inputs and assumptions - The Company uses a fair value hierarchy (Level 1, 2, 3) for financial instruments, with Level 3 inputs involving significant unobservable assumptions such as prepayment rates, default rates, and loss severity[79][87] Financial Assets and Liabilities at Fair Value (March 31, 2025, in thousands): | Category | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------------------------------------- | :------ | :-------- | :------ | :------ | | Total assets, at fair value | $76,380 | $2,494,796 | $26,090 | $2,597,266 | | Residential mortgage loans (Level 3) | — | $437,228 | $2,232 | $439,460 | | Residential mortgage loans in securitization trusts (Level 3) | — | $1,648,331 | $23,858 | $1,672,189 | | Total liabilities, at fair value | $948 | $1,178,727 | $— | $1,179,675 | - The fair value of non-recourse securitization obligations held at amortized cost was approximately $95.3 million less than their amortized cost basis as of March 31, 2025[92] Note 10. Related Party Transactions Details transactions with affiliates, including loan purchases, management fees, and operating expenses - The Company purchases residential mortgage loans from affiliates and participates in securitization transactions with other Angel Oak Capital affiliates[103][105] Related Party Transactions (in thousands): | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Amount of Loans Purchased from Affiliates | $76,697 | N/A | | Management fee incurred with affiliate | $1,145 | $1,313 | | Operating expenses incurred with affiliate | $416 | $515 | - The management fee and operating expenses incurred with affiliates decreased due to a decrease in average Equity and resource alignment initiatives, respectively[160][163] Note 11. Commitments and Contingencies Summarizes the Company's purchase commitments and confirms no material legal claims as of March 31, 2025 Total Purchase Commitments (in thousands): | Date | Amount | | :---------------- | :------- | | March 31, 2025 | $108,600 | | December 31, 2024 | $152,600 | - The Company was not aware of any legal claims that could materially impact its financial condition as of March 31, 2025[110] Note 12. Accumulated Other Comprehensive Income/(Loss) Presents the changes in accumulated other comprehensive income or loss, including unrealized gains/losses Accumulated Other Comprehensive Income/(Loss) (in thousands): | Metric | March 31, 2025 | March 31, 2024 | | :------------------------------------ | :------------- | :------------- | | AOCI balance, beginning of period | $(3,475) | $(4,975) | | Net unrealized gain/(loss) on AFS securities | $(695) | $1,703 | | AOCI balance, end of period | $(4,170) | $(3,272) | Note 13. Other Assets Details other assets, including investments in majority-owned affiliates, commercial mortgage loans, and CMBS Other Assets (in thousands): | Category | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Investments in Majority-Owned Affiliates | $20,828 | $20,680 | | Commercial Mortgage Loans | $5,207 | $5,214 | | CMBS | $5,757 | $5,593 | | Total other assets | $36,941 | $36,918 | - Investments in Majority-Owned Affiliates (MOAs) are accounted for as equity method investments and held at amortized cost, representing risk retention bonds from securitization trusts[115] Note 14. Equity and Earnings per Share ("EPS") Provides details on the Company's equity and earnings per share calculations for common stockholders Earnings Per Share (Three Months Ended): | Metric | March 31, 2025 | March 31, 2024 | | :------------------------------------ | :------------- | :------------- | | Net income (loss) to common stockholders - basic | $20,498k | $12,814k | | Basic earnings (loss) per common share | $0.88 | $0.52 | | Diluted earnings (loss) per common share | $0.87 | $0.51 | Note 15. Subsequent Events Highlights significant events occurring after the reporting period, such as securitizations and dividend declarations - On April 11, 2025, the Company securitized residential mortgage loans with an unpaid principal balance of $284.3 million in the issuance of AOMT 2025-4[121] - On May 5, 2025, the Company declared a dividend of $0.32 per share of common stock, payable on May 30, 2025[121] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the Company's financial condition, operations, and liquidity, highlighting macroeconomic trends and portfolio performance General Provides an overview of the Company's business model, focus on non-QM loans, and the upcoming strategic transaction - Angel Oak Mortgage REIT, Inc. focuses on acquiring and investing in first lien non-qualified residential mortgage (non-QM) loans, primarily sourced from its affiliated mortgage lending platform[128] - The Company benefits from Angel Oak's vertically integrated platform, providing proprietary access to non-QM loans, underwriting transparency, and expertise in structured credit investments[130][132] - A strategic transaction is expected to close in Q2 or Q3 2025, where Brookfield Asset Management Ltd. will acquire approximately 51% beneficial ownership of Angel Oak Companies and indirectly the Manager, with no material changes anticipated for the Company's investment objectives or management[133] Trends and Recent Developments Discusses macroeconomic trends, interest rate movements, and their impact on asset pricing and loan purchases in Q1 2025 - The first quarter of 2025 presented a constructive macroeconomic environment with stable interest rates and decreasing expected rate and inflation paths, although new tariffs introduced uncertainty[136] - Treasury yields decreased across two, five, and ten-year terms (e.g., two-year yield decreased by approximately 36 basis points to 3.95%)[137] - 30-year fixed residential conforming mortgage rates decreased by 20 basis points to 6.65% by the end of Q1 2025, positively impacting asset pricing[138] - The Company observed a 77 basis point increase in the weighted average price of its residential whole loans portfolio and a 94 basis point increase in the weighted average price of its loans in securitization trusts portfolio[138] - During Q1 2025, the Company purchased $259.0 million of newly-originated non-QM residential mortgage loans with a weighted average coupon of 7.67%, LTV of 70.0%, and credit score of 751[141] Key Financial Metrics Presents non-GAAP measures like Distributable Earnings and Book Value per Share to assess financial performance - The Company uses non-GAAP measures such as Distributable Earnings, Distributable Earnings Return on Average Equity, Book Value per Share, and Economic Book Value per Share to assess financial performance[144][145][150][153] Distributable Earnings & Return on Equity (in thousands, except %): | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Distributable Earnings | $4,144 | $2,820 | | Annualized Distributable Earnings | $16,576 | $11,280 | | Distributable Earnings Return on Average Equity | 6.6 % | 4.3 % | Book Value & Economic Book Value per Share: | Metric | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Book value per share of common stock | $10.70 | $10.17 | | Economic book value per share of common stock | $13.41 | $13.10 | Results of Operations Summarizes the Company's net interest income, total gains/losses, operating expenses, and net income for the period Summary of Results of Operations (Three Months Ended, in thousands): | Metric | March 31, 2025 | March 31, 2024 | Change | | :---------------------------------------------------------------- | :------------- | :------------- | :----- | | Net Interest Income | $10,087 | $8,579 | +$1,508 | | Total Realized and Unrealized Gains (Losses), Net | $13,443 | $9,262 | +$4,181 | | Total Operating Expenses | $2,999 | $4,680 | $(1,681) | | Net Income (Loss) Allocable to Common Stockholders | $20,531 | $12,874 | +$7,657 | | Total Comprehensive Income (Loss) | $19,836 | $14,577 | +$5,259 | - Net interest income increased by 17.6% year-over-year, driven by a $7.7 million increase in interest income (due to higher asset amounts and yields) which outpaced a $6.2 million increase in interest expense (due to higher borrowings, mitigated by lower average borrowing costs)[156] - Total realized and unrealized gains, net, were primarily driven by gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation[158] - Total operating expenses decreased due to cost savings actions, vendor contract negotiations, and lower servicing fees[159] Our Portfolio Provides a detailed overview of the Company's investment portfolio, including residential mortgage loans and RMBS Portfolio Overview (March 31, 2025, in thousands): | Category | Fair Value | Collateralized Debt | Allocated Capital | % of Total Capital | | :------------------------------------ | :--------- | :------------------ | :---------------- | :----------------- | | Residential mortgage loans | $439,460 | $360,470 | $78,990 | 31.4 % | | Residential mortgage loans in securitization trust | $1,672,189 | $1,556,075 | $116,114 | 46.2 % | | RMBS | $398,272 | $73,903 | $324,369 | 129.0 % | | U.S. Treasury securities | $74,959 | $74,564 | $395 | 0.2 % | | Investments in Majority-Owned Affiliates | $20,828 | $— | $20,828 | 8.3 % | | Total investment portfolio | $2,605,708 | $2,065,012 | $540,696 | 215.0 % | Residential Mortgage Loans Characteristics (March 31, 2025): | Metric | Portfolio Weighted Average | | :------------------------------------ | :------------------------- | | Interest rate | 7.55% | | FICO score at loan origination | 750 | | LTV at loan origination | 71.2% | | Percentage of loans 90+ days delinquent (based on UPB) | 0.6% | Residential Mortgage Loans in Securitization Trusts Characteristics (March 31, 2025): | Metric | Value | | :------------------------------------ | :------ | | UPB | $1,738,099k | | Weighted average loan coupon | 5.55% | | Weighted average credit score at loan origination and deal date | 743 | | Percentage of loans 90+ days delinquent (based on UPB) | 1.7% | - The geographic distribution of residential mortgage loans shows concentrations in California (25.9%), Florida (15.9%), and Texas (7.9%) as of March 31, 2025[174] Liquidity and Capital Resources Details the Company's liquidity sources, financing lines, repurchase facilities, and cash flow activities - The Company's liquidity sources include principal and interest payments, unused borrowing capacity under loan financing lines and repurchase facilities, securitizations, and its ATM Program[201] Financing Lines and Capacity (March 31, 2025, in thousands): | Metric | Value | | :------------------------------------ | :---------- | | Total Borrowing Capacity | $1,050,000 | | Total Drawn Amount (Notes Payable) | $360,470 | | Available Financing | $689,530 | Short-Term Repurchase Facilities (March 31, 2025, in thousands): | Metric | Value | | :------------------------------------ | :---------- | | Amount Outstanding | $148,467 | | Weighted Average Interest Rate | 5.15 % | | Weighted Average Remaining Maturity (Days) | 10 | - Subsequent to quarter-end, in April 2025, the Company issued AOMT 2025-4, a $284.3 million securitization, using proceeds to repay $242.4 million of debt and retaining $24.7 million cash for new loan purchases and operations[234] - Cash and cash equivalents were $38.7 million and restricted cash was $4.8 million as of March 31, 2025, deemed sufficient to meet liquidity covenants and potential margin calls[8][250][251] - Cash flows from operating activities shifted from a $40.2 million provision in Q1 2024 to a $(201.7) million use in Q1 2025, primarily due to the volume of residential mortgage loans purchased[253] Critical Accounting Policies and Estimates States that critical accounting policies and estimates remain unchanged, anticipating GAAP earnings volatility - The Company's critical accounting policies and estimates, which involve significant judgment and assumptions, have not materially changed since December 31, 2024[257] - Management anticipates quarter-to-quarter GAAP earnings volatility due to changes in the fair values of consolidated assets and liabilities, and technical accounting issues and estimates[258] Recent Accounting Pronouncements Confirms no significant impact from recent Accounting Standards Updates on the Company's financial statements - There were no recent Accounting Standards Updates (ASUs) expected to have a significant impact on the Company's condensed consolidated financial statements[33][259] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, the Company is not required to provide quantitative and qualitative disclosures about market risk - The Company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[260] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025[261] - There have been no material changes in the Company's internal control over financial reporting during the fiscal quarter[262] PART II. OTHER INFORMATION This section contains other required information, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS The Company reported no legal proceedings during the quarter - No legal proceedings were reported by the Company[264] ITEM 1A. RISK FACTORS There have been no material changes to the Company's principal risk factors from those previously disclosed - No material changes to the Company's principal risk factors have occurred since the Annual Report on Form 10-K[265] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company did not engage in any unregistered sales or issuer purchases of equity securities during the quarter - There were no issuer purchases of equity securities during the quarter ended March 31, 2025[266] - There were no unregistered sales of equity securities during the quarter ended March 31, 2025[267] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company reported no defaults upon senior securities during the quarter - No defaults upon senior securities were reported[268] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company's operations - Mine Safety Disclosures are not applicable to the Company[269] ITEM 5. OTHER INFORMATION No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - None of the Company's directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025[270] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including governance documents and certifications - Exhibits include Articles of Amendment, Bylaws, CEO and CFO certifications (pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act), and Interactive Data Files (XBRL documents)[271] Signatures The Quarterly Report on Form 10-Q was signed on May 6, 2025, by the CEO and CFO - The report was signed by Sreeniwas Prabhu (Chief Executive Officer and President) and Brandon R. Filson (Chief Financial Officer and Treasurer) on May 6, 2025[275]