Angel Oak Mortgage REIT, Inc.

Greetings and welcome to Angel Oak Mortgage Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Randy Chrisman, Chief Marketing and Corporate Investor Relations Officer. Thank you, and over to you, sir.

Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's third quarter 2022 earnings conference call. This morning, we filed our press release detailing our third quarter 2022 results, which is available in the investor section on our website, at www.angelokereet.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 conference call is hosted by Angel Oak Mortgage REITs Chief Executive Officer, Srini Prabhu, 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 reviewing our earnings supplement posted on our website at www.angeloakrete.com. Now we'll turn over the call to Srini.

Thank you, Randy. and thank you everyone for joining us today. Before I dive in, I would first like to express my sincere gratitude to Robert Williams, my predecessor as CEO, for his many contributions to both our launch as a publicly traded REIT, as well as his guidance to our first year post-IPO. Robert helped set a strong foundation for the company, and I'm excited to lead the team through this next phase of his growth. As such, I will turn to our Q3 results and outlook. As you all know, 2022 has presented unprecedented challenges across financial markets, and mortgage REITs in particular have felt the impact of many factors driving this instability. These challenges did not abate in Q3. Inflation remained elevated, forcing the Federal Reserve to persist with interest rate hikes, the pace and the magnitude of which continue to cause widespread disruption across fixed income assets. Spreads have widened substantially, contributing to less liquidity in capital markets, and conforming mortgage rates have more than doubled from about 3% a year ago to over 7% today. Consequently, mortgage originations have slowed during the third quarter as higher rates eliminated most of the benefit of refinancing, and home sales slowed amid affordability concerns. However, there remains a meaningful shortage in the supply of quality housing across the country, and unemployment remains low. Importantly, credit performance remains strong. Delinquencies are low, foreclosures are infrequent, and loss severity rates are near zero. Q3 and has trended downward each quarter since Q3 2020. It'll come as no surprise that interest rate and the spread volatility and the uncertainty had an impact on the AOMR portfolio in Q3. We faced downward pressure on our mark-to-market assets, which drove gap and economic book value declines of 27.8% and 19.4% respectively. These book value declines are driven substantially by fair value marks associated with a whole loan, on-balance sheet securitization, and RMBS portfolios. I do like to emphasize that these marks represent unrealized losses. As I've consistently stated previously, the credit performance of these assets remains strong, and they're expected to pay off at par, at which point the mark-to-market losses would be offset. Given the current market, AOMR shifted to a more defensive strategy in Q3, managing liquidity while protecting our capital structure so that we are in a position to grow once markets and economic activity stabilize. We purchased fewer loans than in the previous quarters, though it is worth noting that the average coupon rate for these mortgage purchases was over 7%. And the Angel Oak Mortgage Lending, which is the sister mortgage company of Angel Oak, the most recent mortgage locks are over 8.5%. Over the coming quarters, we plan to reposition our portfolio to be more reflective of these current rates and to resume a methodical process of purchasing and securitizing newly originated high coupon loans. As a part of the process, will evaluate loan sales and securitizations, as well as potential new non-mark-to-market credit facilities. Lastly, in order to reflect current market conditions and to right-size our dividend yield, we have made the decision to reduce our quarterly dividend to $0.32 per common share, payable on November 30, 2022, to common stockholders on record as of November 22, 2022. With that, I'll turn it over to Brandon.