Angel Oak Mortgage REIT, Inc.

Good morning and welcome to the Angel Oak Mortgage REIT first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you will press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I'll now turn the call to Randy Christman, Chief Marketing Officer. Please go ahead.

Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's first quarter 2023 earnings conference call. This morning, we filed a press release detailing these results, which is available in the Investors section on our website at www.angelokereit.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, Chief Financial Officer, Brandon Filson, and Angel Oak Capital's co-CIO, Namit Sinha. Management will make some prepared comments after we open up the call to your questions. Additionally, we recommend reviewing our earnings supplement posted on our website at www.angeloakrete.com. Now, I will turn over the call to Srini.

Thank you, Randy, and thank you, everyone, for joining us today. The first quarter of 2023 marked a solid start to the year for our business. as we continue to execute on our strategy to strengthen the holistic earnings power and the return profile of our portfolio, while also taking opportunities to mitigate risk over both short and long term. We have meaningfully decreased our amount of whole-loan warehouse debt, and our level of market-to-market exposure has come down significantly, both of which are key elements of our risk reduction strategy. Building upon these strategic actions, we believe our position was further improved by taking advantage of a strong securitization market in January with our AOMT 2023-1 deal, which produced positive economics while releasing additional capital. We saw gap and economic book value appreciation for the first quarter since Q3 2021, and are pleased to have resumed purchasing newly originated high-coupon loans, which Brandon and I will discuss in more detail shortly. With that said, we continue to battle heightened risk in the markets with volatility with yields and rates. The Federal Reserve has continued its rate actions, pushing through three rate hikes of 25 basis points this year. The Fed funds rate is now sitting at over 5%, roughly five times higher than where it sat just a year ago. As one would expect, this directly impacted all fixed income assets, and mortgage rates moved directionally in tandem with the Fed's decision. Despite this, we are beginning to see some promise for a potential pause to rate hike activity from the Fed with the added potential for rate compression. Given where the market was this quarter, our primary focus was to build our portfolio for long term by prudently managing risks as seen through the market and rate exposures, but also with an enhanced focus on our internal expenses and costs. Thus far through the first quarter, we have progressed our operating expense reduction efforts as seen through lower G&A and management cost savings. Though managing liquidity and expenses remained the key focus last quarter, thanks to our unique business model and progress we have already made with regard to our liquidity position, we were able to take some selective actions this quarter. First, we have resumed purchasing newly originated loans. notably at an attractive higher coupons in the mid-8% range. Our strong liquidity profile has positioned us to make meaningful loan acquisitions over the next quarter while providing us the flexibility to purchase these loans while being concerted in our effort to actively manage risk. While new loan origination has been suppressed over the recent months, the Angel Oak ecosystem provides us the confidence to adjust to market conditions given our ability to customize loan characteristics and prudent underwriting standards of our affiliated entities. I would also like to point out an important action that we have not taken. Despite market turmoil over the last 18 months, we have not been forced to raise capital or to refinance existing debt with high-cost debt. The protective actions we have taken created the optionality that has allowed us to ride out the storm thus far without incurring long-term liabilities that will dampen our future earnings potential. The expense mitigation efforts that began in 2022 have started to materialize. We have taken aggressive action on our expense management side, including renegotiating with key vendors and right-sizing our levels of service for the current macro backdrop. we expect that this quarter's operating expense will be representative of the go-forward run rate with some potential for upside. We are proud of the growth we have achieved from a book value perspective, and we believe there is a meaningful upside to be captured as we execute our strategy. As we enter the second quarter and look at the balance of the year, we look forward to delivering greater returns to our shareholders.