Angel Oak Mortgage (AOMR) Q3 2026 Earnings Call Transcript

DATE

Tuesday, Nov. 3, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Sreeni Prabhu
• Chief Financial Officer - Brandon Filson
• Chief Marketing Officer & Corporate Investor Relations Officer - Randy Chrisman

TAKEAWAYS

• GAAP Net Loss -- $16.7 million, or $0.72 per diluted share, primarily reflecting non-cash unrealized valuation declines in the securitization portfolio.
• Distributable Earnings -- $6.4 million, or $0.28 per diluted share, representing an increase from $500,000 in the third quarter of 2025.
• Net Interest Income -- $10.2 million, which remained relatively flat compared to the prior-year period.
• GAAP Book Value -- $8.97 per share, representing an 11.5% decrease from $10.13 at the end of the second quarter.
• Economic Book Value -- $11.45 per share, declining 6.5% from $12.24 as of June 30, 2026, due to market-driven valuation adjustments.
• Loan Purchases -- $233 million, consisting of newly originated non-QM mortgage loans and home equity lines of credit.
• Purchased Loan Quality -- 7.3% weighted average coupon, 69.8% weighted average combined loan-to-value ratio, and a 758 average credit score for assets acquired during the period.
• Target Assets -- $2.8 billion at quarter end, driven by increases in residential mortgage loans and securities held in trusts.
• AOMT 2026-3 Securitization -- $280 million unpaid principal balance, featuring AAA-rated senior bonds that priced at a 130-basis-point spread over the treasury yield curve.
• HELOC Securitization (AOMT 2026-HB1) -- $71 million contribution from the company to a $221 million co-mingled pool with a 9.8% weighted average coupon.
• AOMT 2026-6 Securitization -- $250 million transaction completed in October 2026 with AAA-rated bonds pricing at a 160-basis-point spread.
• Financing Capacity -- $1 billion in undrawn loan financing capacity across four lending partners at the end of the quarter.
• Recourse Debt-to-Equity Ratio -- 2x as of Sept. 30, 2026, which management reported declined to 1.2x following the execution of the October securitization.
• Credit Performance -- 2.1% 90+ day delinquency rate across the portfolio, which remained flat compared to the end of the second quarter.
• Prepayment Speeds -- 11.2% for the three-month period, representing a decrease from 15.2% in the second quarter.
• Cash Position -- $49.1 million at quarter end, providing liquidity for operations and future loan acquisitions.
• Common Dividend -- $0.32 per share, declared on Nov. 3, 2026, and payable on Nov. 30, 2026.
• Realized and Unrealized Losses -- $20.9 million total net loss on mortgage loans and derivatives, driven by upward shifts in the yield curve and wider market spreads.
• Operating Expenses -- $2.1 million, which increased marginally due to higher loan diligence and valuation costs associated with the larger asset portfolio.
• Mortgage Whole Loans -- $303.7 million in residential loans held at fair value awaiting securitization as of Sept. 30, 2026.
• Current Mortgage Locks -- 7.9% to 8% average coupon, reflecting the upward adjustment in mortgage rates flowing through the origination process.

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RISKS

• Prabhu stated, "non-QM and the fixed income market became more challenging as higher rate and a shift upward in the yield curve pressured asset valuations and compressed financing spreads across mortgage credit markets," impacting overall book values during the quarter.
• Filson warned that higher interest rates have "offset much of the immediate benefit" of lower financing spreads on the company's renewed debt facilities.
• Management noted that while asset values have been pressured, the current environment has led to a "short term squeeze on the potential returns on new investments" due to the lag in mortgage lock pricing.

SUMMARY

Angel Oak Mortgage REIT, Inc. (NYSE:AOMR) reported a GAAP net loss of $16.7 million for the third quarter, primarily due to non-cash mark-to-market valuation declines on its securitization portfolio. Management reported that while higher interest rates and a shift in the yield curve pressured book values, the underlying credit performance of the loans remained stable with delinquencies holding flat at 2.1%. The company executed three securitizations between the start of the quarter and late October 2026, which served to recycle capital and reduce recourse leverage to 1.2x. Distributable earnings reached $6.4 million, representing an increase over the prior-year period as the company continued to grow its target asset base to $2.8 billion.

• Management indicated that book value has seen an estimated 2-percentage-point recovery as of the call date due to more favorable market conditions in the fourth quarter.
• CFO Brandon Filson reported that new mortgage locks are entering at coupons around 8%, which is expected to return new investment yields to the target range of 15% to 20%.
• The company expects to maintain its established cadence of executing approximately one securitization per quarter, or four per year, to manage financing risk.
• The current hedging strategy focuses on managing base rate execution risk for securitizations but does not extend to hedging mortgage credit spreads or the fair value of retained bond positions.
• Sreeni Prabhu noted that widening spreads in the broader market are beginning to slow down weaker underwriting programs among competitors due to a lack of capital market exits.

INDUSTRY GLOSSARY

• Non-QM: Non-Qualified Mortgage loans that do not meet the standard criteria for traditional mortgage backing but are held to high credit standards.
• CLTV: Combined Loan-to-Value, a ratio representing all loans on a property against its total appraised value.
• HELOC: Home Equity Line of Credit, a revolving credit line secured by the equity in a borrower's home.
• RMBS: Residential Mortgage-Backed Securities, debt obligations that represent a claim on the cash flows from a pool of residential mortgage loans.
• TBA Securities: To-Be-Announced securities, representing a forward contract for the purchase or sale of mortgage-backed securities.

Full Conference Call Transcript

Operator: Good day, and welcome to the Angel Oak Mortgage REIT's third quarter 2026 earnings call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Randy Chrisman. Please go ahead.

Randy Chrisman: Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's third quarter 2026 earnings conference call. This morning, we filed our press release detailing these results, which is available in the Investor sections on 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. This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu, and Chief Financial Officer, Brandon Filson. 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.

Now, I will turn the call over to Sreeni.

Sreeni Prabhu: Thank you, Randy, and thank you all for joining us today. During the quarter, non-QM and the fixed income market became more challenging as higher rate and a shift upward in the yield curve pressured asset valuations and compressed financing spreads across mortgage credit markets. While this environment negatively impacted book values across the landscape as expected, Angel Oak's underlying credit performance of our portfolio remained stable and continued to perform in line with our expectations. We believe this distinction is important as the valuation pressure we experience reflects broader market environments rather than deterioration in credit quality or performance of our underlying loans.

Notably, we completed two securitizations early in the period ahead of the more pronounced increase in rates during August and September. Additionally, despite less favorable conditions, we completed a third securitization in October to mitigate potential further interest rate risk. This consistent access to securitization markets provides us with an important tool to manage financing risk, recycle capital, and support the long-term return profile of the portfolio across varying interest rate levels. We also renewed and extended several financing facilities at reduced spreads during the quarter, reflecting our continued focus on actively managing funding costs, although higher underlying interest rates have offset that near-term benefit.

While broader non-QM origination volumes have declined and the higher rate environment has temporarily compressed current returns on new investments, we continue to source and purchase loans that meet our credit and return criteria. Our structure and position within the Angel Oak organization will continue to be a competitive advantage in a competitive market. We remain deliberate in pacing of our capital deployment across loan vintages and disciplined in maintaining underwriting standards that are central to our strategy rather than extending risk and pursuing incremental returns at the expense of long-term credit performance.

We believe that this prudent approach will serve us and our shareholders well and will continue to provide its value through pockets of volatile and challenging interest rate environments. Looking ahead, our priorities remain consistent. We will continue to focus on disciplined credit underwriting, thoughtful capital deployment, and maintaining access to securitization markets while positioning the portfolio to perform across a range of market environments. We remain confident in the underlying credit performance of our investments and in the strength of the Angel Oak platform. With that, I'll turn it over to Brandon, who will walk us through our third quarter financial performance in greater detail.

Brandon Filson: Thank you, Sreeni. During the quarter, the upward pressure on shorter-term yields negatively impacted reported book value as expected. That being said, the underlying portfolio performed in line with our expectations, with low levels of delinquencies and continued growth in the target asset portfolio. For the third quarter, we reported a GAAP net loss of $16.7 million, or $0.72 per diluted common share, compared with GAAP net income of $11.4 million, or $0.46 per diluted common share in the third quarter of 2025. The primary driver of the loss was a $24.4 million net realized and unrealized net loss related to our securitization portfolio. This was largely attributable to the previously mentioned unrealized valuation declines during the last quarter.

Notably, Distributable Earnings for the quarter were $6.4 million, or $0.28 per diluted common share, compared with $0.5 million or $0.02 per diluted common share in the prior period. The primary drivers of the difference between Distributable Earnings and GAAP net income for the third quarter of 2026 were adjustments to exclude unrealized losses from our residential loans, the residential loans in securitization trusts, non-recourse securitization obligations, and derivative portfolios. During the quarter, we completed two securitizations with $1.8 million of securitization costs reflected in this Distributable Earnings metric. Interest income for the quarter was $42.5 million, while net interest income was $10.2 million.

This compares favorably with interest income of $36.7 million and net interest income of $10.2 million in the third quarter of 2025. Interest income increased 16%, while net interest income remained relatively flat. We generated $5.8 million greater interest income for Q3 compared to the comparable period of 2025, driven by increases in the amount of our target assets. Operating expenses for the third quarter were $2.1 million. Our operating expenses increased marginally compared to the comparative period due to increases in loan diligence fees and valuation costs associated with a larger overall balance in our target asset portfolio. Loan purchases during the quarter totaled $233.1 million.

The weighted average coupon of loans purchased during the quarter was 7.21%, with a weighted average CLTV of 71.8%, and a weighted average credit score of 758. These purchases continue to be well in line with the credit and return parameters we have discussed as our targets in prior quarters. Current mortgage locks averaged approximately a 7.9% coupon, reflecting the recent increase in rates as it flows through the mortgage origination process. At the beginning of Q3, we executed the AOMT 2026-3 securitization. We were the sole contributor to the deal, which had $280 million unpaid principal balance and a weighted average coupon of 6.9%, weighted average non-zero credit score of 757, and a weighted average CLTV of 69%.

The AAA-rated senior bonds priced at a 130 basis point spread over the treasury yield curve. Additionally, we participated in AOMT 2026-HB1, a $221 million co-mingled HELOC securitization, to which we contributed $71 million in loans. Loans underlying the deal had a weighted average coupon of 9.79%, weighted average non-zero credit score of 744, and a weighted average CLTV of 64.8%. Securitization markets have remained constructive amid market uncertainty, and we continue to expect to execute roughly one securitization per quarter or four per year.

We also closed AOMT 2026-6 in late October 2026, which had a $250 million unpaid principal balance, a weighted average coupon of 7.25%, weighted average non-zero credit score of 754, and a weighted average CLTV of 71.6%. Additionally, we remained active on the financing front during the period. We renewed and rolled several financing facilities during the quarter at lower spreads. While the higher underlying base rates offset much of the immediate benefit, the lower spreads have improved the economics of those facilities and reflect our continued focus on actively managing financing costs. This will remain particularly important as we manage the portfolio through the existing rate environment.

As of quarter end, GAAP book value per share was $8.97, down 11.5% from $10.13 at the end of the second quarter. Economic book value per share, which fair values all non-recourse securitization obligations, was $11.45 per share, down 6.5% from $12.24 at the end of Q2. The change in book value during the quarter was primarily driven by non-cash mark-to-market valuation declines across the portfolio as higher rates and the upward shift in the yield curve pressured asset values, partially offset by earnings generated during the quarter. As Sreeni noted, these valuation movements did not reflect a deterioration in the underlying credit performance of the portfolio.

Our balance sheet has remained well-positioned with $49 million in cash and a recourse debt-to-equity ratio of 2x. We ended the quarter with unsecuritized residential home loans at a fair value of $294 million, financed with $255 million of warehouse debt, $2.3 billion of residential loans in securitization trusts, and $203 million of RMBS. We also maintained approximately $1 billion of undrawn loan financing capacity across four lending partners. Credit performance remained solid during the quarter, with portfolio-wide 90+ day delinquency of approximately 2.1%, flat compared to the end of the second quarter.

Three-month prepayment speeds for our non-QM RMBS securitized loan portfolios were 11.2% at the end of the quarter, compared with 15.2% at the end of the second quarter. We continue to model our investments using historical average prepayment assumptions of approximately 20%-30%. Lastly, the company declared a $0.32 per share common dividend payable on November 30th, 2026, to common stockholders of record as of November 23rd, 2026. For additional detail on our financial results and portfolio composition, please refer to the earnings supplement available on our website.

Sreeni Prabhu: Thank you, Brandon. The proven, well-established Angel Oak origination, purchase, and securitization platform provides us with the confidence to perform well in a variety of macro environments. The fundamental backdrop for our business is positive, and while risk remains, we will continue to focus on what we can control, expansion of earnings, consistent securitization market activity, and disciplined credit selection and management. With that, we will open the call for your questions. Operator?

Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question comes from Doug Harter with BTIG. Please go ahead.

Doug Harter: Thanks, and good morning. In the press release, you talked about the near-term impact on returns from higher rates. Wondering if you could quantify that, and then how you think about what gets you back to the historical normalized level that you have talked about?

Brandon Filson: Hey, good morning, Doug. Right now, as rates rose and we're buying loans, locks take 30-60 days to run through the process. Current returns are not quite as good as we expect, that 15%-20% level. However, they're starting to recover with new locks coming in at around 8%. That's going to pull that back up a little bit lower than our target. I mean, I expect if this rate environment stays the way it is, then the next set of locks we get over the next month, that we'll be back to the 15%-20% level, provided that the interest rate environment stays similar to what it is today.

Doug Harter: That is helpful. Can you just talk about, as you go through periods of volatility, what is the hedging, what is the forward commitment, and ways that you look to protect yourself from this volatility?

Brandon Filson: Really, what we do, we're hedging the securitization execution on the base rate side. We're not hedging the spread. Over the last quarter, obviously, we had hedging making up some of the losses we would have had in terms of securitization proceeds. But we're not hedging our book value, the securitized product out there, or the retained bond positions once they're securitized.

Doug Harter: Got it. Just remind us, is there any mismatch in the fundamentals or the cash flows of those retained pieces? Or is that more mark-to-market risk versus actual change in expected cash flows?

Brandon Filson: Yeah, that's really mark-to-market risk. I mean, we would have to have some kind of credit problem to change our, outside of our expectation, to change our expected cash flows on our retained pieces.

Doug Harter: Great. Thank you, very helpful.

Operator: Thank you. The next question comes from Marissa Lobo with UBS. Please go ahead.

Marissa Lobo: Thanks, and good morning. Just to follow up on the book value question, how much of that was due to rate moves versus non-QM spread widening? And also on the retained interest, is that just mainly driven from rate mark-to-market, or is it also some spread widening in that?

Brandon Filson: Yeah, I would say this quarter is kind of everything. If you just look at what spreads did on our product, early in the quarter, AOMT 2026-3 priced at the AAA at 130 over. Then AOMT 2026-6, which closed just a few days ago, was 160 over on the AAA. Then, of course, the two-year and the five-year also moved up, shifted up. So, it is really kind of a bit of both driving it. It is probably almost equal share between the two.

Marissa Lobo: That is captured in Q3 book value as, opposed to?

Brandon Filson: Yes.

Marissa Lobo: Okay. Can you give us a sense of where book value is tracking so far in 4Q?

Brandon Filson: Yeah, I think book value has probably made a couple point recovery as of today. It has been a little bit more favorable environment, but I mean, I would say, again, about a 2-point recovery.

Marissa Lobo: Got it, that's helpful. On competition last quarter, you noted there's some weaker programs that AOMR was unwilling to pursue. How is that looking currently, and is it showing up more in pricing or on credit metrics?

Brandon Filson: Not sure I got that question, Marissa. I'm sorry.

Marissa Lobo: I just wanted to understand the competitive environment, if you're seeing that show up more in credit underwriting slipping or more competitive pricing.

Sreeni Prabhu: This is Sreeni here. I think if the spreads are widening out, what we're seeing is weaker underwriting is getting priced even wider. So there's been a little bit of weakness in that from a competitor's perspective. That will show up in whole loan tape selling at slight discounts to market, which we are seeing. We're not seeing that in big proportion, to be fair. We're seeing that in small waves, but we're definitely seeing that. What it'll show up in, if you continue to see spreads being wider, what it will show up in is that those weaker programs will eventually slow down because there will be no exit in the capital markets.

Yet to be seen from a competitor, but I would like to think that, or we are seeing that in terms of AAA spreads or other shelves. I hope I answered that question.

Marissa Lobo: Okay. Thank you.

Sreeni Prabhu: Yeah.

Operator: Thank you. Once again, if you have a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. The next question comes from Timothy D'Agostino with B. Riley Securities. Please go ahead.

Timothy D'Agostino: Hi. Thanks for taking the questions this morning. I guess just on liquidity and capital allocation, just trying to think through how you all are thinking about it. Does the board look at a share repurchase program? Is the dividend kind of the key return of capital to shareholders? Then obviously much longer dated, but the 2029 Notes became callable in July. So I just wanted to understand how you think about your liquidity position generally and capital allocation going forward.

Brandon Filson: Hey, Timothy. I think our liquidity position is pretty strong today. I mean, again, we have consistent access in securitization markets, freeing up. I mean, the last securitization we did gave us about $20, just over $20 million in proceeds, which provides a good amount of runway in terms of buying things back. I mean, you mentioned the 2029 Notes. Today, they are theoretically callable, but not really in the money. I would think from that perspective, we are hopeful over the next few years that the market gives us a better opportunity to call and refinance at lower rates or just to pay off.

Then, share repurchase programs, I mean, we have done kind of targeted repurchases here and there. Post-IPO, we had a program. Then we had a couple of targeted ones with Davidson Kempner buying back at what we thought at the time was opportunistic levels. Obviously, we are very sensitive on the overall size of the balance sheet, what we could do with the capital, and what the forecast is. Right now, like I mentioned before, the returns are a little bit compressed.

Not too far off from even our dividend yield at today's pricing, but there is an opportunity here with a wide bid-ask and be where we should keep the capital in the vehicle versus spending the money to repurchase shares and reduce the size, reduce the float of the stock.

Timothy D'Agostino: Okay, great. Thank you. I guess just a second question if I can ask here. Just on loan purchases in the quarter, I guess maybe I missed it, but could you break out or maybe just directionally kind of give us some color on non-QM versus HELOC? It would be great to hear maybe what the appetite of the market is. Are you seeing more HELOC volume now, or are you continuing to see more non-QM?

Brandon Filson: Yeah, I think from our perspective, the non-QM market is strong. I mean, we personally, Angel Oak Mortgage REIT, once we did HB1 or participated in HB1, we pulled back a little bit on the HELOC purchasing for the quarter, so we did not really purchase too many in the quarter. That is a switch and a valve that we can turn on and off very easily and source assets out there. I think as rates go up, there is a bit of more HELOC demand than when rates are going down, as people have much more propensity to take a little bit of incremental borrowing cost on top of their existing mortgage.

I would think that both volumes are consistent, even in a higher rate environment that we had at the beginning of the last quarter. I mean, our mortgage company is about the same size as it was before. There has been no real drop-off in demand nor any real increase.

Timothy D'Agostino: Okay. Thank you so much for taking the questions this morning.

Operator: Thank you. There are no further questions at this time. I will now transfer the conference over to Brandon Filson. Please go ahead, sir.

Brandon Filson: Good morning. Thank you, everybody, for joining us today. We look forward to connecting with you again next quarter. Have a great day.

Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, you may now disconnect your lines.

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