Angel Oak Mortgage REIT, Inc.

Good day and welcome to the Angel Oak Mortgage Read fourth quarter 2025 earnings conference call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Casey Kelleher. Please go ahead.

Good morning and thank you for joining us today for Angel Oak Mortgage Read's fourth quarter and full year 2025 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.angelokereads.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 violence. 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, www.angelokereit.com. Now, I'll turn the call over to Srini.

Thank you, Casey, and thank you all for joining us today. Our fourth quarter and full year results were encouraging, serving as a testament to the strength of our earnings engine and our dedication to our process. We delivered our second consecutive year of double-digit net interest income percentage growth alongside our third consecutive year of operating expense reduction, emphasizing the stability of our platform and the strength of our operations. We executed our proven strategy, demonstrating its value in an evolving and a constructive market environment as we navigate a shifting rate backdrop. GAAP book value per share increased year over year due to improving valuations in our legacy securizations as rates moved lower, as well as higher net interest income supported by our deployment of capital into high-yielding investments. Credit performance remains strong, both in aggregate and relative to the overall market, and we believe our portfolio remains well positioned to perform comparatively well over a range of macroeconomic outcomes. We continue to see the benefits of our deliberate early decision to step up in credit quality and focus our balance sheet on assets that we believe are resilient across a range of economic outcomes. The broader interest rate environment in 2025 was characterized in general by decreasing rates across the curve and over the course of the year, amid shifting of the expectations around the pace and the path of short-term rates. While uncertainty remains, we are optimistic that short-term rates will continue to decline and we will see further steepening in the yield curve. Securitization markets were healthy throughout 2025 with tightening spreads and healthy investor demand supporting attractive term financing for our investment portfolio. We participated in four securitizations and caught two of our legacy deals from 2019, enabling us to redeploy the delevered capital into higher yielding assets. Notably, We also completed our first HELOC securitization. We believe HELOCs are an attractive and growing asset class, and we expect to continue to invest in them, though we remain focused on our core strategy of acquiring and securitizing high-quality non-QM loans. We had a new warehouse credit facility in 2025, diversifying our lender base and continuing to optimize our funding mix to support high-quality loan purchases. Additionally, we completed our second issuance of senior unsecured notes, the capital from which was quickly deployed into accretive target asset purchases that generated incremental earnings within a quarter of the debt issuance. These actions position us to sustain and further enhance net interest income increases as we move forward while maintaining a prudent approach to leverage and liquidity. Looking ahead, our addressable market remains significant and continues to grow, driven by a structural demand for non-QM solutions and ongoing need for specialized mortgage credit. Within this market, AngelLock has established itself as a leading non-QM platform with differentiated sourcing, underwriting, and financing capabilities. Our consistent security and execution combined with strong collateral performance and a growing track record of the AOMT shelf positions us to capture attractive risk-adjusted opportunities. We'll continue to manage recourse leverage prudently, emphasize debt interest margin and earnings growth, and focus on the segments of the market where we see the most compelling long-term risk reward. We believe our results and momentum prove that AOMR is well-positioned to operate through a range of economic environments to continue strong performance within existing rate landscape and to deliver risk-adjusted returns and long-term value for our shareholders across cycles. With that, I'll turn it over to Brandon, who will walk us through our fourth quarter and full year 2025 financial performance in greater detail.

Thank you, Srini. Fourth quarter results tracked in line with our expectation, and as Srini mentioned, capped the second consecutive year of expanding net interest income alongside continued operating expense reduction. Interest income increased 30%, and net interest income increased over 11% year-over-year versus 2024, from $110.4 million to $143.7 million, and from $36.9 million to $41.1 million, respectively. This growth was supported by a 15.4% reduction versus 2024 of operating expenses, including securitization cost and stock compensation, as we continue to push hard on cost rationalization and key expense savings initiatives. Valuations were supportive during 2025 and in the fourth quarter, driving increases in valuations across the portfolio. As of today, we expect that our book value moderately increased compared to the end of 2025, as the rate curve continues to steepen. For the fourth quarter of 2025, we had gap net income of $11.3 million, or 45 cents per diluted common share, compared to a gap net loss of $15.1 million, or 65 cents per common share in the fourth quarter of 2024. For the full year, we had gap net income of $44 million, or $1.80 per fully diluted common share, representing a 53% growth versus $28.8 million or $1.17 per diluted common share for the full year of 2024. Distributable earnings in Q4 2025 were $7.3 million. The primary driver of the difference between this and our GAAP net income of $11.3 million in distributable earnings was a removal of $8.4 million of net unrealized gains from our securitized loan portfolio, offset by $4 million of unrealized losses from our residential loans and hedge portfolios. For the full year, distributable earnings were $14.6 million. The primary driver of the difference between this and our $44 million gap net income is a removal of $28.6 million of unrealized net gains on our securitized loan portfolio. Interest income for the fourth quarter was $39 million, and net interest income was $10.9 million, marking a 22% improvement in interest income and a 10% improvement in net interest income compared to the fourth quarter of 2024. Compared sequentially to the third quarter of 2025, interest income increased by 6.5% and net interest income increased by 7%. For the full year, interest income was $143.7 million and net interest income was $41.1 million, which translates to increases of 30% and 11% respectively compared to the prior year. This increase in net income was driven primarily by steady purchases of securitizations of newly originated loans higher weighted average coupons on our overall investment portfolio and decreases in funding costs as a percentage of borrowings associated with our residential whole loan portfolio, as well as the consistent securitization market. We expect our net interest income to continue its growth trend with earnings generated from accretive loans purchased throughout the year and ongoing securitization activity. Our $861.8 million of loan purchases in the year carried a weighted average coupon of 7.79%, with a weighted average combined loan-to-value ratio of 65.4%, and a weighted average credit score of 756. Our total residential whole loan portfolio had a weighted average coupon of 7.38% as of the end of the quarter. The non-QM portion of our whole loan portfolio carried a weighted average coupon of 7.09%, and Helox and Closed in Seconds carried a 9.75% weighted average coupon. As of the end of the quarter, loans and securitization trust portfolio carried a weighted average coupon rate of 5.97%, with a weighted average funding cost of approximately 4%. As mentioned, the securitization market remains active, and we intend to continue leveraging the current strength through our disciplined, methodical securitization strategy. We executed four securitizations over the course of the year, in addition to calling two of our legacy deals from 2019. keeping in line with our stated goal of four securitizations per year. In total, we securitized $704 million in unpaid principal balance across these four securitizations. In the fourth quarter, we completed AOMT 2025-10 as the sole contributor, contributing a balance of $274.3 million in loans. Additionally, we participated in AOMT 2025-HV2, AOMR's HELOC securitization, which was a $281.4 million securitization, of which we contributed $58.6 million of HELOCs alongside other Angel Oak strategies. Operating expenses for the fourth quarter were $5.2 million. Excluding non-cash stock compensation and securitization costs, fourth quarter operating expenses were $3 million. For the full year, operating expenses were $16.4 million, representing a decrease of 15.5% compared to 2024. Excluding non-cash stock compensation expenses and securitization costs, operating expenses for the full year were $11.5 million, representing a decrease of 15.4% compared to 2024. Going forward, we expect to maintain similar operating expense levels and will continue to be as efficient as possible with our expense structure. Looking at our balance sheet, as of the end of the quarter, we had over $41 million of cash and our recourse debt to equity ratio is 1.4 times. We expect to continue to prudently manage our recourse debt-to-equity ratio going forward. GATT book value per share increased 1.3% to $10.74 as of December 31, 2025, from $10.60 as of September 30, 2025. Economic book value, which fair values all non-recourse securitization obligations, was $12.70 per share as of December 31, 2025, down 0.2%, from $12.72 per share as of September 30, 2025. The growth in GAAP book value was driven by improving valuations in our legacy securitizations and higher operating income, while economic book value decreased slightly, as expected with the normalization in those legacy valuations. We ended the quarter with an unsecuritized residential hold loans, a fair value of $294.1 million, financed with $218.8 million of warehouse debt, $2.1 billion of residential mortgage loans and securitization trust, and $305.5 million of RMBS, including $25.5 million of investments in commingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with an undrawn loan financing capacity of approximately $1 billion. Now looking at credit, we ended the quarter with the total portfolio weighted average percentage of loans 90-plus days delinquent at 2.18%, inclusive of our residential loan, securitized loan, and RMBS portfolio. A decrease of two basis points from the third quarter of 2025 and a decrease of 25 basis points compared to year-end 2024. Performance across the Angel Oak Shelf has remained strong, and we believe the continued outperformance of our collateral relative to the broader market further differentiates our platforms. This not only serves as a competitive advantage in terms of financing stability, but also strengthens confidence in our earnings profile. Our Shell's performance divergence, combined with consistent deal execution, reinforces our view that we are well-positioned as a leader in the non-QM market and that our securitization program remains a reliable and repeatable tool for earnings growth. We expect our differentiated credit performance to translate it to lower losses than comparable non-QM platforms across a full credit cycle. This view is supported by a proactive migration up the credit spectrum, conservative LTVs, and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. Three-month prepayment speeds for RMBS securitized loan portfolio were 11.2% to end the quarter. reflecting an increase from 9.4% in the third quarter of 2025. As we've mentioned in previous quarters, prepay speeds are expected to increase as rates decrease and homeowners are incentivized to refinance. With that said, as a reminder, we model our returns based on the historical average prepayment speeds of 20 to 30%. Prepayment speeds are likely to tick upwards if newly originated coupon rates continue to decrease. However, the majority of our portfolio still has coupon rates that are well below newly originated coupon rates. And we expect that mortgage rates would need to fall meaningfully in order to produce a significant impact to the returns of our portfolio. Finally, the company declared a $0.32 per share common dividend, which will be paid on February 27, 2026, to common shareholders of record as of February 20, 2026. For additional color on our financial results, please review the earnings supplement available on our website. I will now turn it back to Sridhar for closing remarks.

Thank you, Brandon. We are optimistic about the future performance of AOMR and are excited to demonstrate the strength of our model in a steepening yield environment. The team has worked tirelessly to establish what we believe is the best non-QM loan origination, purchase, and synchronization platform, which provides us with confidence for the future. We'll maintain our focus on diligent trend selection, consistent securitization execution, and value-driven decision making. And we look forward to continuing to build long-term value for our shareholders in the coming quarters and years. With that, we'll open up the call to your questions. Operator.

Thank you very much. We will now begin with the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matthew Gardner with Jones Trading. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. You know, where are you guys seeing the best kind of risk reward opportunities right now? You mentioned, you know, kind of that whole loan portfolio purchases, or I guess what you currently have is at 709 basis points, call it, and then the HELOCs are about give or take 250 points higher. Where are you guys favoring your capital allocation right now for purchases?

Thanks, Matt. This is Srini. I think we have a healthy mix. Obviously, there's more relative value in terms of buying HELOCs for sure because the IRAs are better, but obviously the provide healthy returns for us. And I think you should see us continue to keep that mix. You know, HELOCs can, you know, the more you scale, you want to be very careful of the credit you're underwriting. So we're extremely careful about what we underwrite in HELOCs, which is just growing the volumes and securitizing it. So the cleanup credit obviously has always been non-QM for us. We like the returns we get over there, and then we just are using selectively using HELOCs for that. A little bit more alpha.

Got it. That's helpful. And then, you know, where are you seeing the ROEs on each of those types of securitizations today?

Yeah, on the, you know, from the non-2M securitization front, we're still in that, you know, mid to high teens level. You know, it kind of has been bouncing around a little bit. with rates coming down on the mortgages, but then spreads and the base rates on the securitizations have come in. So, we're still in that mid-teens level. The HELOCs are going to be, you know, five, six, seven points higher than that on a fully securitized basis. So, you know, low 20 ROE perspectives.

Got it. That's helpful. And then last one from me. Did you guys provide a book value update? Yeah.

But, yeah, our book value today we think is modestly increased from where we were at December 31st.

Got it. Thank you, guys. Thank you.

Thank you. Your next question comes from Doug Harter with UBS. Please go ahead.

Thanks, and good morning. Can you talk about your ability to continue to recycle capital either through calling deals or just, you know, optimizing financing? You know, how much more capacity you have to grow with the existing capital basis?

Yeah, we have a pretty good amount of power that we can still recycle and use. I mean, we've got lots of unlevered loans in our book right now that we could choose to lever to continue to buy new loans. A lot of our recourse debt to equity ratio leverage is very low. You know, our actual... total amount borrowed on repo facilities is lower than it has been over the course of time, even though our RMBS portfolio has grown dramatically through securitizations. And then as we do these securitizations, obviously we usually are releasing $20, $30 million in cash off of each one. So we have kind of enough capacity for sure to take us through a similar buying clip into 2026. I appreciate that. Thank you.

Thank you. The next question comes from Timothy D'Agostino with B Riley Securities. Please go ahead.

Yeah. Hi. Thank you. Good morning. Thanks for taking the question. I guess my question is a little bit more general. Just I'd like to get your sense on kind of how the market feels and the activity level. whether that be a non-QM key lock or as well as securitization market, and how it feels different at the start of 26 compared to 25? Thank you.

Yeah, that's a good question. So, you know, we have just the 25 was a solid year across the board in mortgage market, you know, whether you take any part of a residue market was doing well. So that, that, that continued in 2026. We had seen, you know, take the last two weeks of volatility out. We had seen spreads tightening in the securitization market. I think we printed a deal close to close to 100 basis points. It was like 105, 110 basis points. They have widened out since as the volatility has gotten into the entire market. So the mortgage market itself seems to be solid. The non-QM market continues to grow. I think we're going to have more issues this year than last year. And there are more players coming in, so it's getting competitive for sure. So, you know, what we try to tell people, whether it's our private funds or AOMR, what we try and tell people is that we'll originate what we can originate. We're not looking for scale per se. We're looking for quality and And the relationships we have with those brokers, we've been in the market for so many years, you know, we're able to, we don't have to compete on price. So right now the market is competing extremely on price because there are more entrants, people want to get bigger in this space. So that's the, so the growth is good. It is competing, it is coming with competitive pressures. There are going to be balance sheets which will have lower IRRs for sure because scale pretty much brings lower IRR if you try to raise more loans. So that's the backdrop that we have. But the non-QM market by itself just continues to grow as there's more and more people looking for and they really don't fit the guidelines as more and more people get self-employed, entrepreneurs, non-permanent employees. They need non-QM loans. How do I see this unfolding in 2026? You know, we feel that there will be pockets of volatility. You know, 2025 was, except April, was just a phenomenal place. You cannot expect that. That's one of the reasons why we hit the signalization market as fast as we can. Rates are continuing to drop. You've seen the mortgage rates have dropped. So, you know, we think generally the market's going to be solid with some pockets of volatility.

Okay, great. Thanks so much. And then just a quick follow-up. Regarding HELOC securitizations, I believe, and correct me if I'm wrong, Earl McCall said you're contributing to the second one. I guess, you know, in terms of HELOC securitizations per year, would you say the pace is probably one to two, or just any kind of color there? Thanks.

Yeah, I mean, so when we said two securitizations last year, that was to our entire franchise. You probably will see more from our entire franchise. I would speculate the AOMR would be involved in one to two of them. Is that right, Brent?

Yeah, I think that's probably right. I would cheat up to two for that because we just started buying HELOCs in back half of 25. We contributed to 25 HB2 in December. So if you kind of follow that same pace, that puts us on the course of about two participations a year in the HELOC space.

Okay, great. Thank you so much for taking the questions today.

Male Speaker 1 Thank you. Again, if you have a question, please press star and then 1. Our next question comes from Eric Hagan with BTIG. Please go ahead.

Eric Hagan Hey, thanks. Good morning. How are you guys thinking about this attention across the market right now on private credit? right, and the impact on other asset managers, and then the knock-on effects that it could have on the resi and commercial mortgage markets. I mean, do you think this raises attention on the underwriting, or could it kind of, like, affect the demand that we typically see from asset managers to buy whole loans and securitize products?

Yeah, I mean, you know, we... So the way to answer this question, Eric, is, you know, we see this across... what we at Angelo Partners see, right? So we have ETFs, mutual funds, private credit in the mortgage space. So we are traveling to raise money, traditional money, and obviously we have AOMI as a public REIT. So we see across the board what investors are thinking. So the way I would say it is that a lot of money that went into so-called private credit went into corporate credit, right? And it was institutional probably three, four years ago, and then retail followed last couple of years. And so that's where all the money went. So let's discount the fact that whether private credit underwriting is good or bad, but that's where a lot of money went. And that's what happens when new money comes into a space and then gets worried. You know, you see the momentum shift. But in terms of other types of private credit, whether it's asset-backed or mortgage credit, Generally, I would say institutions are under-invested, and retail definitely is under-invested. So they may invest through ETFs and mutual fund and buying bonds, but in terms of private credit in the mortgage space, they're under-allocated. And retail is definitely under-allocated. So from that perspective, I don't like you to really see this. Commercial is a little different because, you know, there are two delinquencies and defaults happening in commercial. Really, it's a sector that you have to dissect the good, the bad, the ugly. Very different. But in terms of Asset back and resi, I would say that, and that's why you're not seeing any of the private credit side. You're not seeing any ABS or mortgage funds in the crosshairs right now. So can it bleed into mortgage sector? Yeah, it could. But like I said, in terms of unwinding or what had happened to a couple of funds in the private credit space, we haven't seen that in the mortgage or ABS space.

Okay, that's really helpful commentary. Good perspective there. I mean, how sensitive do you guys think the origination volume in the primary market for non-QM could be if there is a backup in spreads in the secondary market, right? Like which one is responding to the other? I mean, do you think that spreads can stay this stable if we do get a steeper yield curve and we do get higher longer-term interest rates?

Eric, do you mind repeating that question? We're having some issues on our side, so we missed some of that question. If you don't mind, please. Oh, yeah. Sorry.

It's probably on my end. I'm asking about how sensitive you think the origination volume in the primary market could be if there's a backup in spreads in the secondary market, like which ones are kind of responding to the other. And do you feel like spreads for non-QM can stay as stable as they've been if we get a steeper yield curve?

Yeah. Yeah, so to answer your first point, I mean, you know, we've been, we've gone through a high rate environment, right? So if you just go back to 23, you know, we saw high spread in the secondary, and then we had to combine that with high rates. So as long as rates, I mean, the way to think about it is, you know, mortgage volumes, when you're in a range-bound environment, plus or minus 50 basis points, I believe volumes will continue to grow as people need more and more of these loans. So it wouldn't affect that much. You know, it's driven by IRRs, obviously, right? So we got to make IRRs for AOMR. We got to make IRRs for private funds. And so our volumes won't be affected as much by that. A steeper yield curve, which brings tenure rates much higher, two things could happen. One is you could see the origination move towards a hybrid, more of a... fixed-deploying kind of mortgages that will be out there. You've seen that happen a little bit more in the prime jumbo space, and I know you talked to other REITs about it that have more recessions. We haven't seen that in our space yet. The curve isn't steep enough to do that, so you could see that trend. You told a question about the stability of spreads. You know, we're not expecting spreads to be, you know, just for example, last two weeks, spreads have widened out again, and so As long as the spreads are in the range of 25 to 30 to 40 basis points, you know, segurization markets will be healthy and polarization activity will be healthy, I believe.

Great commentary. Appreciate you guys very much.

Thank you. Thank you. Thank you.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Brandon Ferguson for any closing remarks.

Thank you, everyone, for your time and interest in Angel Oak Mortgage REIT. We look forward to connecting with you again next quarter. In the meantime, if you have any questions, please feel free to reach out to us and have a great day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.