Angel Oak Mortgage REIT Q3 2026 Earnings Call Transcript

Angel Oak Mortgage REIT (NYSE:AOMR) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Angel Oak Mortgage REIT reported a GAAP net loss of $16.7 million for Q3 2026, primarily driven by a $24.4 million net loss related to its securitization portfolio due to valuation declines.

The company completed three securitizations during the quarter, maintaining access to securitization markets as a strategy to manage financing risk and recycle capital.

Interest income increased by 16% year-over-year; however, net interest income remained flat due to higher underlying interest rates.

Loan purchases totaled $233.1 million with strong credit metrics, but the higher rate environment has temporarily compressed returns on new investments.

Management emphasized disciplined credit underwriting and capital deployment, maintaining a focus on long-term credit performance despite market volatility.

A $0.32 per share common dividend was declared, and the company remains confident in its liquidity position and future securitization activity.

Book value per share decreased due to mark-to-market valuation declines, but the underlying portfolio credit performance remained solid.

Full 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 (Investor Relations)

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 section on our website at www.angeloakret.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 Srini 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 Srini.

Srini Prabhu (Chief Executive Officer)

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 rates and a shift upward in the yield curve pressured asset valuations and compressed financing spreads across the mortgage credit market. 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 experienced 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 a 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 comparative 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 (Chief Financial Officer)

Thank you, Srini. 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 a GAAP net loss of $11.4 million, or $0.46 per diluted common share, in the third quarter 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 held 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 average 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 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 commingled HELOC securitization to which we contributed $71 million to the 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 Srini 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 two times. We ended the quarter with unsecuritized residential 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-plus 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% to 30%.

Lastly, the Company declared a $0.32 per share common dividend payable on November 30, 2026 to common stockholders of record as of November 23, 2026. For additional detail on our financial results and portfolio composition, please refer to the earnings supplement available on our website.

Srini Prabhu (Chief Executive Officer)

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 a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 Harder with BTIG. Please go ahead.

Doug Harder (Analyst)

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

Brandon Filson (Chief Financial Officer)

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

Doug Harder (Analyst)

That is helpful. Yeah. And I guess, can you just talk about, you know, I guess as you go through periods of volatility, you know, kind of what, what is the hedging? What is the forward commitment and ways that you look to protect yourself from, you know, from, from this volatility?

Brandon Filson (Chief Financial Officer)

Really what we do, you know, our hedging, we’re hedging the securitization execution on the base rate side. We’re not hedging the spread. So 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 don’t, we’re not hedging our book value, you know, the securitized product out there or the retained bond positions once they’re securitized.

Doug Harder (Analyst)

Got it. And just remind us what, you know, you know, is there any mismatch, you know, in the fundamentals or the cash flows of those retained pieces, or is that more mark-to-market risk, you know, versus, you know, actual change in expected cash flows?

Brandon Filson (Chief Financial Officer)

Yeah, it’s really mark-to-market risk. I mean, we’d have to have some kind of credit problem to change our, you know, outside of our expectation, to change our expected cash flows on our retained pieces.

Doug Harder (Analyst)

Great, thank you. Very helpful.

OPERATOR

Thank you. The next question comes from Marisa Lobo with UBS. Please go ahead.

Marisa Lobo (Analyst)

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 (Chief Financial Officer)

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

Marisa Lobo (Analyst)

And that’s captured in third quarter book value as opposed to—okay, so how much—can you give us a sense of where book value is tracking so far in 4Q?

Brandon Filson (Chief Financial Officer)

Yeah, I think book value has probably made a couple point recovery as of today. Been a little bit more favorable environment but, you know, nothing—I mean I would say, you know, again, like about a two point recovery.

Marisa Lobo (Analyst)

Got it. That’s helpful. And on competition, last quarter you noted there are 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 (Chief Financial Officer)

Not sure I got that question, Marisa. I’m sorry.

Marisa Lobo (Analyst)

I just wanted to understand the competitive environment—if you’re seeing that show up more in credit underwriting slipping or more competitive pricing.

Srini Prabhu (Chief Executive Officer)

Yeah, so this is Srini here. So 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 our competitors’ perspective, and that will show up in whole loan tapes 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 will 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. So yet to be seen from a competitor, but I would like to think that we are seeing that in terms of AAA spreads on other shelves. I hope I answered that question.

Marisa Lobo (Analyst)

Okay, thank you.

OPERATOR

Thank you. Once again, if you have a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is next in the question queue. The next question comes from Timothy d’Agostino with B. Riley Securities. Please go ahead.

Timothy d’Agostino (Analyst)

Yeah, 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. You know, does the board look at a share repurchase program? Is the dividend kind of the key return of capital to shareholders? And then obviously much longer-dated, but the 2029 notes became callable in July. So I just wanted to understand how you think about liquidity position generally and capital allocation going forward.

Brandon Filson (Chief Financial Officer)

Yeah, hey, Timothy, I think our liquidity position is pretty strong today. I mean, again, we’ve got consistent access to the securitization markets, you know, freeing up—I mean, the last securitization we did gave us about just over $20 million in proceeds, which provides a good amount of runway in terms of buying things back. I mean, yeah, you mentioned the ’29 notes. Today, you know, they are theoretically callable, but not really in the money.

I would think from that perspective we’re 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. And then, you know, share repurchase programs—I mean, we’ve done kind of targeted repurchases here and there. You know, post-IPO we had a program, then we had, you know, a couple of targeted ones with David buying back at what we thought at the times were opportunistic levels. But obviously we’re very sensitive on, you know, the overall size of the balance sheet, what we could do with the capital, and what the forecast is. And right now, like mentioned before, the returns are a little bit compressed, not too far off from even our dividend yield at today’s pricing.

But there’s an opportunity here where if they don’t widen back out, it may be where we should keep the capital in the vehicle versus, you know, spending the money to repurchase shares and reduce the size, reduce the float of the stock.

Timothy d’Agostino (Analyst)

Okay, great. Thank you. And 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, you know, what the appetite of the market is. Are you seeing more HELOC volume now or do you continue to see more non-QM?

Brandon Filson (Chief Financial Officer)

Yeah, I think from our perspective, the non-QM market’s strong. I mean, we personally, AOMR—once we did HB1 or participated in HB1, we pulled back a little bit on the HELOC purchasing for the quarter, so we didn’t really purchase too many this quarter. But that’s a switch and a valve that we can turn on and off very easily and source assets out there. I think, you know, as rates go up, there’s a bit 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.

But I would think that both volumes are consistent even in a higher rate environment that we had at the end of last quarter. And our mortgage company is about the same size as it was before. You know, there’s been no real drop-off in demand nor any real increase.

Timothy d’Agostino (Analyst)

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 (Chief Financial Officer)

Well, 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.