Angel Oak Mortgage REIT, Inc.

Good day and welcome to the Angel Oak Mortgage-Free Second Quarter 2023 Conference Call. All participants will be in a 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 may press star then one on a touch-tone phone. To withdraw your question, please press dog and two. Please note this event is being recorded. I would like now to turn the conference over to Randy Christman, Chief Marketing and Corporate Investor Relations. Please go ahead.

Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's second quarter 2023 earnings conference call. This morning, we filed our press release detailing these results which is available in the investors section on our website at www.angelocrete.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. 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 first lead off the call by making 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.angelokereit.com. Now, I will turn the call over to Srini.

Thank you, Randy, and thank you everyone for joining us today. We were proud to see the work we have done over the previous quarters we demonstrated in our second quarter results. In the second quarter, we began purchasing newly originated loans, securitized a pool of low coupon loans, and built upon the work we have done to reduce expenses. Since quarter end, we have increased the pace of our loan purchases, are actively working towards our next securitization, and have taken additional expense savings actions. In a period of time marked by continued uncertainty in the broader economy and rising rates, we believe we have demonstrated the strength and resilience of our business model and its unique competitive advances. During the second quarter, interest rates and spreads continued to widen, which negatively impacted market-to-market valuations of our portfolio and drove down earnings and book value. However, market volatility dampened compared to prior several quarters, and expectations are that the Fed is at or near the end of interest rate hike cycle. While mortgage originations and applications are suppressed, we are experiencing some modest but encouraging recovery to demand, supporting our view that our business is well positioned to capitalize and drive growth. We continue to progress through the year with optimism and with a number of key strategic successes under our belt. We have returned our focus towards our execution of our growth strategy. We captured additional value by executing our second securitization of the year during the quarter. AOMT 2023-4 enhanced our liquidity position and supported our ability to purchase newly originated, higher-yielding loans from our affiliated loan originator, which allows us to tailor the credit quality and the characteristics of the loans we purchase. The securitization also strengthened our balance sheet by reducing our warehouse debt and converting it to non-recourse term structural leverage. Additionally, the loans contributed to AOMT 2023-4 were previously carried on our most expensive warehouse facility, while the new loan purchases will be placed on lower cost facilities. To that end, our current whole loan portfolio is equivalent to the size of roughly one securitization transaction, and although our warehouse debt is expected to increase as we continue purchasing newly originated loans, we don't expect to reach a whole loan position more than one and a half to two times the estimated value of a single securitization. On the debt side, we are proud to have reduced our warehouse debt by over 63% since the beginning of the year, though the positive impact of this reduction was partially offset by the effect of continued interest rate increases that compressed net interest margins. With that said, we are proud to have accelerated purchases of newly originated high-coupon loans this quarter. These loans carry significantly higher coupons than our current whole-loan portfolio, and we believe we can continue purchasing loans in an attractive mid-8% range. As a result, we expect net interest margin to expand in the coming quarters, especially as we continue to execute securitizations consisting of loans from the legacy portfolio. In addition, to the immediate impact of net interest income expansion, a higher coupon loan portfolio will improve future securitization execution as well. Going into the second half of the year, we expect continued rotation of our portfolio into newly originated higher coupon loans to be increasingly demonstrated in our results. We plan to continue with quarterly secularization, which will support both our growth and our liquidity goals. While the risk continues to remain in the market, we are focused on truly assuming those risks where we feel that we have competitive and comparative advantages. We believe that our ability to tailor the credit characteristics of our loans is and will continue to be a differentiator. We are proud of the flexibility we have achieved with our capital structure, and we are confident in our ability to adapt and capitalize on opportunities in the second half of the year. I will now turn the call over to Brandon.