Angel Oak(US:AOMR)2024-11-08 16:56Financial Data and Key Metrics Changes - GAAP net income for Q3 2024 was $31.2 million, or $1.29 per diluted common share, while distributed earnings resulted in a loss of $3.4 million, or $0.14 per common share due to unrealized gains exclusion and realized losses on hedges [20][21] - Interest income increased to $27.4 million, a 6% increase from the prior quarter and a 15% increase compared to Q3 2023, driven by rapid capital deployment [21] - Net interest income was $9 million, showing a slight decrease from the prior quarter but a 22% improvement over Q3 2023 [23][29] - GAAP book value increased by 10.3% and economic book value increased by 6.5% compared to Q2 2024, reflecting significant valuation gains across the portfolio [29][30] Business Line Data and Key Metrics Changes - The company purchased $264.8 million of loans in Q3 2024, with a weighted average coupon of approximately 7.74% and a weighted average loan-to-value (LTV) of 70.0% [25] - The residential whole loan portfolio had a weighted average coupon of 7.73%, nearly a 200 basis point increase from Q3 2023 [25] - As of the end of Q3, the unsecuritized loan balance was just over $200 million, expected to grow for future securitization [26] Market Data and Key Metrics Changes - The company noted a constructive macroeconomic cycle for the mortgage REIT sector, with historical trends indicating potential for significant growth and heightened capital markets activity [14] - Delinquencies remained low, with the total portfolio weighted average percentage of loans 90 days delinquent at 1.95%, stable over the past six quarters [35] Company Strategy and Development Direction - The company is focused on a disciplined operational strategy aimed at delivering consistent and attractive investor returns, prioritizing sustainable earnings generation [10][13] - There is a commitment to high-quality loan acquisitions and disciplined capital management, with plans for future securitizations to enhance the balance sheet [34][41] - The management believes in capitalizing on new opportunities in the non-QM space, which is gaining positive momentum [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, anticipating meaningful net interest income growth due to recent Fed rate cuts and successful capital deployment [12][41] - The company expects to maintain its dividend level, supported by ongoing investments and anticipated net interest margin expansion [44][68] Other Important Information - The company declared a $0.32 per share common dividend, payable on November 27, 2024 [40] - The recent securitization (AOMT 2024-10) contributed to a reduction in funding costs by over 110 basis points, enhancing capital efficiency [32][80] Q&A Session Summary Question: Expectations for new investment volume in the next few quarters - Management expects mid $200 million in origination and purchases for the next few quarters [43] Question: Clarification on book value comments - Approximately half of the book value increase has been given back as of today [44] Question: Pace of securitizations - The company targets one securitization per quarter, expecting two in Q4 2024 [46] Question: Execution of recent securitization - The October securitization was executed well, with a significant portion of the capital structure sold and retained positions [48][49] Question: Opportunity for stock buybacks - Currently, stock buybacks are not on the table, but management monitors the situation closely [56][58] Question: Loan delinquencies and modification activity - Modification activity is low due to home price appreciation, with delinquencies remaining stable [59] Question: Recycling legacy securitizations - Management discussed the potential to recycle legacy securitizations into new production to enhance returns [66][68] Question: Securitization economics and competition - The current securitization economics are favorable, with a focus on consistency and service over price competition [71][73]