Angel Oak Mortgage REIT, Inc.

This afternoon's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Robert Williams, Chief Financial Officer, Brandon Filson, and Angel Oak Capital's Co-CIO, Namit Sinha. Management will make some prepared comments, after which we will open up the call to your questions. Additionally, we recommend viewing our earnings supplement posted on our website at www.angeloakreit.com. Now I will turn the call over to Robert.

Thank you, Randy. And thank you everyone for joining us today. In the second quarter of 2022, Angel Oak Mortgage REIT demonstrated resilience against the continued volatile environment that saw further increases in interest rates and widespread dislocation across fixed income and securitization markets. In spite of these challenges, AOMR celebrated the one year anniversary of its IPO. We are proud of the growth of the company in our first year of being publicly traded. Some notable one year milestones include our target asset base more than doubled to $3.2 billion. The purchase of over $1.5 billion of high quality non-QM loans. And as of today, an increase in our loan financing capacity since IPO of over $1 billion to a total of $1.9 billion. Additionally, with today's dividend announcement, we have paid $1.83 per share in dividends, well covered by our distributable earnings. We remain fully aligned with the Angel Oak ecosystem, which continues to demonstrate its strategic advantages, and our strategy remains consistent. We deploy capital into our targeted high-quality non-QM mortgage loans, programmatically securitize these loans to lock in a fixed cost of funding and term structural leverage, and reinvest capital into our targeted assets. As I mentioned, we again observed an extremely volatile and uncertain fixed income market in the second quarter as the Fed continued to increase interest rates, exerting downward pricing pressure on our marked market assets. This impact was partially offset by our interest rate hedging strategy. As a reminder, we do not hedge credit spreads, which widened significantly during the quarter, putting material short-term pressure on book value. We faced an extremely limited securitization market and did not find it beneficial to execute a securitization during the quarter. However, we remained vigilant and were able to execute a securitization in July. and we'll continue to monitor the securitization market daily. Securitization of current loan production is generating attractive returns with potential upside. We expect book value will stabilize over the next few quarters. With that said, we continue to believe our non-agency asset portfolio, methodical growth, and sound liquidity management strategy position us well to withstand market volatility. As we stated last quarter, the Angelo ecosystem enables AOMR to effectively customize our desired loan characteristics as markets evolve, which includes the ability to adapt to and capitalize on higher mortgage rates. So far in 2022, non-QM loan volumes have retreated slightly but remain strong. Home price appreciation, while appearing to flatten slightly, has continued, and delinquency rates remain near historical lows. Angel Oak's growth continues to be driven by quality origination, as our recently originated loans have higher average FICO scores and lower average LTVs and DTIs than prior years. Looking forward, we believe we can continue to capitalize on our key differentiators, which I would like to highlight. First, origination of non-QM loans on a large scale requires unique capabilities that takes years to develop and refine. Extensive applicant underwriting and verification must be conducted for a non-QM loan, which creates a high barrier of entry. Angel Oak has invested substantial time and capital over 11 plus years to develop thorough and efficient systems of underwriting and origination, providing enormous amounts of data which we alone can utilize. Second, Angel Oak Mortgage Lending, as the loan originator, has the ability to adjust their credit, borrow and origination characteristics as circumstances evolve. As mentioned previously, this includes the ability to increase or decrease mortgage rates in a volatile rate environment. Due to our proprietary access to Angel Oak's ecosystem, we can similarly purchase loans with our desired characteristics. Importantly, members of the mortgage and portfolio management teams meet daily to discuss credit and current pricing metrics. enabling AOMR to quickly adjust to changing market conditions. Third, Angel Oak has unmatched experience in marketplace brand recognition in aggregating non-QM loans and executing on securitizations. Over the years, Angel Oak has completed over 30 securitizations, including four for AOMR in 2021 and 2022. These securitizations lock in long-term financing, and net interest margin while reducing our liquidity risk. As stated, because noncumular loans typically carry a meaningful spread to conventional mortgage rates, we can often achieve superior returns with lower leverage than many of our peers. We remain confident we can achieve strong portfolio growth over time, supporting robust and durable distributive earnings, cash flow, and dividends. As such, we are pleased to declare a second quarter 2022 dividend of 45 cents per common share payable on August 31st, 2022 to shareholders of record as of August 22nd, 2022. With that, I am pleased to turn it over to Brandon.

Thanks Robert. And thanks everyone for joining us. For the second quarter of 2022, we had a gap net loss of $52.1 million, or $2.13 per common share, and distributable earnings of $22.8 million, or $0.90 per common share. Q2 annualized distributable return on average equity was 23.1%. The difference between GAAP and distributable earnings is attributable to the growth of our income generating investment portfolio, the impact of realized gains from interest rate hedges, and the add-back of unrealized losses on our mark-to-market loan and securitized loan portfolios. In the current quarter, we saw our target asset portfolio increase from $2.7 billion to $3.2 billion, representing a 19% increase. Interest income for the quarter was $29.7 million, a 10% quarter-over-quarter increase. Net interest margin was $16.4 million, representing a slight quarter-over-quarter decrease due to the increased financing costs on our loan portfolio during Q2. Gap book value per share was $14.73 on June 30th, 2022, including the impact of our 45 cent per share common dividend paid in May, down from $16.80 as of March 31st, 2022. This 12.3% decrease was driven by unrealized mark-to-market losses on our whole loan, on balance sheet securitizations, and RMBS portfolios. This quarter, we introduced a new non-GAAP book value measurement, which we call Economic Book Value. Economic Book Value includes valuing all securitization obligations to their fair value. We believe this new metric will provide meaningful information to investors on the current value of the company. Economic Book Value was $16.05 per share on a diluted basis on June 30, 2022, down 8.8% from $17.61 per share as of March 31, 2022. During the second quarter, we purchased $257 million of non-agency mortgages. Increased coupons of your new loan purchases are beginning to have an impact on our loan portfolio. The weighted average coupon of loans in our portfolio increased from 4.52% to 4.68% from the end of Q1 to the end of Q2. The weighted average coupon of loans purchased in June and July were 6.46% and 6.93% respectively. The latest locks on our loans at our affiliated mortgage companies are over 7.5% weighted average coupon. Note that due to the loan origination process, our loan purchases in any given month will typically reflect loan locks from one to two months prior. Turning now to our securitization activity. As Robert previously stated, we did not find an accretive opportunity to execute a securitization during the second quarter. While our target is and continues to be to execute one securitization per quarter, and we do not attempt to time the securitization market. The illiquidity and dislocation of the securitization market during the second quarter prevented us from identifying an accretive securitization opportunity. However, July proved to be a bit more accommodative, and we completed our fourth securitization since our IPO, a $185 million securitization where we placed 86% of the capital structure at a 5.8% weighted average cost of funding. The deal included 407 loans with a weighted average coupon of 5.22%, an average credit score of 730, loan-to-value ratio of 75.1%, and a debt-to-income ratio of 32.1%. This transaction was also rated by Fitch with a senior tranche receiving a AAA rating. While the securitization will not have the absolute return generation of some of our previous securitizations, it is still an important step in fixing liquidity and funding costs through the life of the loans. The securitization deal freed up additional cash, reduced loan financing facilities by over $150 million, and helped to clear out lower coupon loans to be replaced with loans over 7% and weighted average coupons. Going forward, we will continue to target at least one securitization each quarter. However, we could have a quarter with more than one securitization or in this securitization market may decide to co-mingle our loans with loans from other Angel Oak affiliates to ensure that we are taking advantage of the securitization market in a focused and diligent way. Turning to expenses, our operating expenses for the second quarter were $7.3 million. Overall operating expenses decreased by approximately $2.9 million in the current quarter compared to Q1 2022. The key driver of this decrease in operating expenses is that there were no securitization costs in the quarter and a reduction in due diligence and transaction expenses as the loan purchase volume decreased in the quarter. With regard to our balance sheet, at June 30th, we had $16.1 million of cash and cash equivalents. Our recourse debt to equity ratio was 3.4 times. We have a total of $1.3 billion in residential hold loans, $983 million of residential mortgages and securitization trusts, and $923 million of RMBS, including $74.7 million in retained AOMT securities from the pre-IPO securitizations. Unencumbered assets total over $160 million, an undrawn loan financing capacity of over $540 million. Additionally, note that as of July 31st, We held $39.8 million in cash and crash equivalents and reduced our borrowings after the July securitization. As of June 30th, we had loan financing facilities with seven financial institutions. We increased our total loan financing capacity by $340 million to $1.64 billion in the second quarter. This was done by closing an additional line with a new counterparty. Subsequent to quarter end, this line was increased an additional $240 million, bringing our total loan financing capacity to 1.9 billion. This combined with our unencumbered asset balance as of the end of the quarter demonstrates our commitment to a sound liquidity management strategy during this period of rising rates. Given the strong income generating foundation of our portfolio and significant distributable earnings coverage, who declared a 45 cent per share common dividend paid on August 31st, 2022 to shareholders of record as of August 22nd, 2022. This implies an annual dividend rate of over $1.80 per share or yield over 12% as of the closing price on August 8th, 2022. Lastly, in the second quarter, we repurchased approximately 190,000 common shares for approximately $3 million through our 10B51 stock repurchase plan. This plan expired on July 18th and was not renewed. For additional color on our financial results, please review the earnings supplement available on our website. I will now turn it back to Robert for closing remarks.