Angel Oak Mortgage, Inc. — 2021 Form 10-K Summary
Business and reporting period. This annual report covers the fiscal year ended December 31, 2021. Angel Oak Mortgage is an externally managed REIT focused primarily on acquiring first-lien non-QM residential mortgage loans, chiefly sourced from affiliated Angel Oak Mortgage Lending, and financing them through warehouse facilities and securitizations. The company completed its IPO on June 21, 2021.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Interest income | $60.6 million | $40.8 million |
| Net interest income | $49.1 million | $33.3 million |
| Net realized and unrealized losses | $(7.3) million | $(22.9) million |
| Net income attributable to common stockholders | $21.1 million | $0.7 million |
| Basic / diluted earnings per share | $1.02 / $1.01 | $0.05 / $0.05 |
| Distributable Earnings (non-GAAP) | $34.2 million | $2.9 million |
| Distributable Earnings return on average equity (non-GAAP) | 9.24% | 1.68% |
| Book value per share | $19.47 | $15.79 |
At year-end, total assets were $2.58 billion, total stockholders’ equity was $491.4 million, and cash and cash equivalents were $40.8 million; restricted cash was an additional $11.5 million. Notes payable were $853.4 million, repurchase borrowings were $609.3 million, and non-recourse securitization obligations were $616.6 million. The filing describes approximately $1.5 billion of recourse debt outstanding; substantially all recourse debt bore floating rates. The six whole-loan financing lines had aggregate stated limits of $1.25 billion, with $853.4 million drawn at year-end; borrowing availability depends on facility terms and collateral.
Cash flows were $(1.57) billion from operating activities, $(460.5) million from investing activities, and $2.03 billion from financing activities. The operating outflow primarily reflected purchases of residential loans classified as operating activity; financing inflows included securitizations, borrowings, and IPO/private-placement proceeds. The filing does not report a conventional operating-margin measure.
Changes, outlook, and key risks
- Expansion and funding: Assets increased from $509.7 million to $2.58 billion, while the target-asset portfolio grew from about $308 million to $2.24 billion. The company purchased $1.4 billion of residential whole loans after the IPO and completed two sole-participant securitizations totaling $703.5 million of loan UPB.
- Year-over-year results: Net interest income rose with a larger average loan portfolio. Net income improved substantially as total realized and unrealized losses narrowed from $22.9 million to $7.3 million. 2021 included RMBS realized losses associated with faster prepayments on interest-only bonds; interest-rate futures gains partly offset loan valuation losses.
- Market outlook: Management cited a more favorable 2021 environment than 2020 and anticipated near-term Federal Reserve rate increases. It said higher rates and wider spreads could reduce whole-loan fair values, while higher yields on new loans and slower prepayments on existing securitizations could support net interest income. No quantitative earnings or dividend guidance is provided.
- Distributions and capital: The company declared common dividends of $0.12 per share in August and $0.36 in November 2021. A $0.45-per-share dividend was declared in March 2022 for payment on March 31, 2022. The board retains discretion over future distributions. The company repurchased 272,613 shares during 2021 for $4.7 million.
- Key risks and unusual items: Exposure includes non-QM borrower credit and prepayment risk, fair-value estimation, floating-rate borrowing costs, short-term funding and margin calls, and the ability to execute securitizations. The company also depends on its external manager and affiliated loan originator, creating sourcing and related-party conflicts. REIT qualification and investment-company-law exclusions constrain operations. The 2021 securitizations were consolidated as VIEs, so their loans and non-recourse obligations appear on the balance sheet. The auditor issued an unqualified opinion and identified residential-loan fair-value assessment as a critical audit matter. No material legal claims or unfunded commitments were reported at year-end.
Important facts for investors to verify
- Portfolio credit performance, delinquency trends, prepayments, and collateral concentrations, including exposure to lower-rated or first-loss securitization tranches.
- Current borrowing availability, facility covenants and maturities, margin requirements, and the effect of the transition from LIBOR to SOFR.
- Valuation assumptions for residential loans and securitization interests, and the sensitivity of book value and earnings to spread and rate changes.
- Terms and pricing of loans acquired from affiliates, allocation of loans among Angel Oak-managed vehicles, and related-party servicing or securitization arrangements.
- Dividend coverage and sustainability, given REIT distribution requirements, cash needs, and the difference between GAAP earnings, Distributable Earnings, and taxable income.