Angel Oak(AOMR) - 2022 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited Q1 2022 financial statements reveal a significant increase in total assets to $3.20 billion, a net loss of $43.5 million primarily from unrealized losses, and a decrease in stockholders' equity to $421.4 million Condensed Consolidated Balance Sheets As of March 31, 2022, total assets grew to $3.20 billion and liabilities to $2.78 billion, primarily from mortgage loans and securitization obligations, leading to a decline in stockholders' equity to $421.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,198,201 | $2,577,929 | | Residential mortgage loans - at fair value | $1,103,773 | $1,061,912 | | Residential mortgage loans in securitization trusts | $1,077,967 | $667,365 | | Total Liabilities | $2,776,765 | $2,086,539 | | Notes payable | $956,165 | $853,408 | | Non-recourse securitization obligation | $1,031,200 | $616,557 | | Total Stockholders' Equity | $421,436 | $491,390 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q1 2022, the company reported a net loss of $43.5 million, a significant shift from $9.5 million net income in Q1 2021, primarily due to $53.8 million in net unrealized losses on mortgage loans and derivatives Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $16,939 | $9,201 | | Total Realized and Unrealized (Losses) Gains, Net | $(53,765) | $2,230 | | Total Operating Expenses | $10,172 | $1,944 | | Net (Loss) Income | $(43,541) | $9,487 | | Basic (Loss) Earnings Per Common Share | $(1.77) | $0.60 | Condensed Consolidated Statements of Changes in Stockholder(s)' Equity Stockholders' equity decreased from $491.4 million to $421.4 million in Q1 2022, driven by a net loss of $43.5 million, common stock dividends, and unrealized losses on securities - Key drivers for the decrease in stockholders' equity in Q1 2022 were the net loss ($43.5 million), common stock dividends ($11.3 million), and unrealized losses on securities ($13.0 million)[15] Condensed Consolidated Statements of Cash Flows In Q1 2022, net cash used in operating activities was $606.4 million, offset by $261.4 million from investing and $388.6 million from financing, resulting in a $43.6 million increase in cash and restricted cash Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(606,423) | $(81,615) | | Net Cash Provided by Investing Activities | $261,363 | $64,060 | | Net Cash Provided by Financing Activities | $388,644 | $15,599 | | Change in Cash and Restricted Cash | $43,584 | $(1,956) | Notes to the Condensed Consolidated Financial Statements The notes detail the company's focus on non-QM residential mortgage loans, its REIT status, and the consolidation of the $537.6 million AOMT 2022-1 securitization, for which the fair value option was elected for the debt - The company's primary strategy is acquiring and investing in first lien non-qualified residential mortgage ("non-QM") loans, primarily sourced from affiliated lenders[20] - In Q1 2022, the company securitized approximately $537.6 million of residential non-QM mortgage loans through the AOMT 2022-1 transaction, which was consolidated as a VIE where the company is the primary beneficiary[32][33] - The company elected the fair value option for the non-recourse securitization obligation related to the AOMT 2022-1 issuance, a change from previous securitizations[30] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022's challenging macroeconomic environment, leading to unrealized losses, while highlighting a portfolio increase to $2.7 billion, $675.6 million in loan purchases, a $537.6 million securitization, and Distributable Earnings of $37.3 million Trends and Recent Developments Q1 2022 saw a challenging macroeconomic environment with rising interest rates and widening spreads, causing unrealized losses on the whole loan portfolio, despite the company purchasing $675.6 million in loans and completing a $537.6 million securitization - Rising interest rates and widening credit spreads in Q1 2022 negatively impacted the valuation of the company's whole loan portfolio, resulting in unrealized losses[128][129] - During Q1 2022, the company purchased $675.6 million in residential whole loans and completed a new securitization (AOMT 2022-1) with an unpaid principal balance of $537.6 million[130] Key Financial Metrics Key metrics for Q1 2022 include Distributable Earnings of $37.3 million, representing a 32.7% annualized return on average equity, and a decline in book value per share to $16.80 Distributable Earnings Reconciliation (in thousands) | Line Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net (loss) income allocable to common stockholder(s) | $(43,545) | $9,483 | | Net unrealized (gains) losses on residential loans | $64,587 | $(2,892) | | Net unrealized (gains) losses on derivatives | $(15,326) | $(1,610) | | Distributable Earnings | $37,293 | $4,839 | Book Value Per Share | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total stockholders' equity (in thousands) | $421,436 | $491,390 | | Shares outstanding | 25,085,796 | 25,227,328 | | Book value per share | $16.80 | $19.47 | Results of Operations For Q1 2022, the company reported a net loss of $43.5 million, primarily due to $53.8 million in net realized and unrealized losses on mortgage loans, despite an increase in net interest income to $16.9 million and higher operating expenses of $10.2 million - Net interest income increased to $16.9 million in Q1 2022 from $9.2 million in Q1 2021, driven by a higher average balance of residential mortgage loans[151] - Total realized and unrealized net losses were $53.8 million in Q1 2022, compared to a $2.2 million gain in Q1 2021. The loss was primarily due to unrealized losses on residential mortgage loans caused by widening interest rate spreads, partially offset by gains on interest rate futures and TBAs[153][154] - Total operating expenses rose to $10.2 million in Q1 2022 from $1.9 million in Q1 2021, due to increased public company costs, loan diligence, stock compensation, and $2.0 million in securitization costs for AOMT 2022-1[155][157][158][159] Our Portfolio As of March 31, 2022, the company's total investment portfolio reached $3.1 billion, with target assets of $2.7 billion primarily in residential mortgage loans and RMBS, characterized by a weighted average FICO of 735 and LTV of 70% at origination Portfolio Allocation as of March 31, 2022 (in thousands) | Asset Class | Fair Value | Allocated Capital | % of Total Capital | | :--- | :--- | :--- | :--- | | Residential mortgage loans | $1,103,773 | $148,039 | 35.1% | | Residential mortgage loans in securitization trust | $1,077,967 | $46,767 | 11.1% | | RMBS | $491,287 | $362,732 | 86.1% | | Total Target Assets | $2,703,786 | $587,866 | 139.5% | - The residential mortgage loan portfolio as of March 31, 2022, had a weighted average interest rate of 4.52%, an origination FICO score of 735, and an origination LTV of 70%[168] Liquidity and Capital Resources The company's liquidity is supported by $1.3 billion in loan financing lines ($956.2 million drawn) and repurchase facilities, with the AOMT 2022-1 securitization generating proceeds to repay $458.3 million in debt, and a new $340.0 million repurchase facility entered post-quarter - As of March 31, 2022, the company had six loan financing facilities with a total capacity of $1.3 billion and an outstanding balance of $956.2 million[221][249] - The company completed the AOMT 2022-1 securitization in February 2022, issuing $551.8 million in bonds and using proceeds to repay $458.3 million of existing debt[257] - Subsequent to the quarter end, on April 13, 2022, the company entered into a new $340.0 million repurchase facility with Royal Bank of Canada (RBC)[112][133] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Angel Oak Mortgage, Inc. is not required to provide this information - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company[269] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2022. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[270] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[271] Part II. Other Information Item 1. Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[272] Item 1A. Risk Factors There have been no material changes to the principal risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K[272] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2022, the company repurchased 179,959 shares of common stock at an average price of $16.67 per share, with approximately $17.3 million remaining available under its $25.0 million repurchase plan Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 106,875 | $17.01 | | Feb 2022 | 26,120 | $16.64 | | Mar 2022 | 46,964 | $15.91 | | Total | 179,959 | $16.67 | - The company's stock repurchase plan, initiated in June 2021, authorizes up to $25.0 million in share buybacks. As of March 31, 2022, approximately $17.3 million remained available under this authorization[274] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[276] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[276] Item 5. Other Information The company reported no other information - There is no other information to report[276] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to financing agreements, CEO and CFO certifications, and XBRL data files - The exhibits include amendments to master repurchase agreements with Barclays, Deutsche Bank, and Goldman Sachs, as well as a new master repurchase agreement with Royal Bank of Canada[277] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[277]