Angel Oak Mortgage REIT, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 20, 2023. This is an annual report, not a standalone fourth-quarter filing. Angel Oak is an externally managed mortgage REIT focused primarily on first-lien non-QM residential loans, many sourced from affiliated Angel Oak Mortgage Lending, and finances assets through warehouse facilities and securitizations.
Financial and operating performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Interest income | $115.5 million | $60.6 million |
| Interest expense | $63.0 million | $11.5 million |
| Net interest income | $52.5 million | $49.1 million |
| Net income (loss) attributable to common stockholders | $(187.8) million | $21.1 million |
| Basic and diluted EPS | $(7.65) | $1.02 basic; $1.01 diluted |
| Net realized and unrealized losses | $(210.5) million | $(7.3) million |
| Distributable Earnings, non-GAAP | $19.4 million | $34.2 million |
| Distributable Earnings return on average equity, non-GAAP | 5.46% | 9.24% |
Management said net interest margin compressed as asset coupons lagged rising floating-rate funding costs. Interest income increased with portfolio growth, but interest expense rose sharply. Wider spreads and higher rates drove substantial fair-value losses on residential loans and securitized loans; realized gains on futures and TBAs partly offset losses. The November bulk sale of lower-coupon residential loans contributed approximately $63.5 million of realized losses.
At year-end, total assets were $2.946 billion, total liabilities $2.710 billion, and stockholders’ equity $236.5 million. GAAP book value per common share fell to $9.49 from $19.47 a year earlier; economic book value per share, a non-GAAP measure that adjusts certain securitized debt to fair value, was $13.11 versus $19.52.
Cash and cash equivalents were $29.3 million and restricted cash was $10.6 million. Cash flows were $(331.1) million from operating activities, $664.3 million provided by investing activities, and $(345.7) million from financing activities; cash and restricted cash decreased $12.4 million. The filing attributes the flows principally to loan and securities activity, debt repayments, and securitizations.
Recourse debt was $692.4 million at year-end: $639.9 million of notes payable and $52.5 million of repurchase borrowings. In addition, non-recourse securitization obligations were $1.003 billion. Reported unused whole-loan facility capacity was $573.0 million, but much was uncommitted and subject to eligible collateral and other conditions. Minimum liquidity required under the facilities was $10 million.
Portfolio, changes, and distributions
- Total assets were approximately $2.9 billion, predominantly residential loans, loans in securitization trusts, and RMBS. The portfolio remained concentrated in non-QM mortgage credit.
- The company purchased $995.2 million of residential whole loans during 2022, with purchases completed by the third quarter; it paused purchases in the fourth quarter to preserve capital and flexibility.
- In November, it sold residential loans with a $315.6 million cost basis for $252.7 million and repaid $221.2 million of warehouse debt. Commercial loans with $11.2 million UPB were also sold for $11.0 million cash.
- Two sole-participant securitizations during 2022 securitized approximately $722.3 million UPB of seasoned non-QM loans. A January 2023 securitization included $241.3 million of company-contributed loans in a $580.5 million transaction.
- Direct residential loans had a 4.80% weighted-average coupon, 737 weighted-average origination FICO score, and 70% weighted-average origination LTV. Loans 90 or more days delinquent were 0.91% of UPB, versus 0.30% a year earlier. Loans in the company’s 2022 securitization trusts were reported as having no 90-plus-day delinquencies at year-end; delinquency levels differed materially across older retained securitization exposures.
- Common dividends declared for 2022 were $0.45 per share in each of the first three quarters and $0.32 in the fourth quarter. The company declared a further $0.32 per share in March 2023. Dividend decisions remain subject to board discretion, liquidity, covenants, and REIT requirements.
Outlook, risks, and unusual items
- Outlook: No specific earnings, margin, or dividend guidance is provided. Management stated it believed identified financing sources would meet short- and longer-term liquidity needs, while noting plans may change with market conditions. It cited the challenging 2022 environment and volatility in securitization markets.
- Rates and funding: The federal funds rate rose from 0.25% at year-end 2021 to 4.75% at year-end 2022. Floating-rate borrowings, collateral marks, margin calls, refinancing risk, and asset-spread volatility could pressure earnings and liquidity. Hedging may not fully offset these exposures.
- Credit and valuation: Non-QM loans and retained subordinate or first-loss securities carry borrower-default and collateral risks. Fair values rely partly on third-party pricing and models; the auditor identified residential-loan valuation as a critical audit matter because key assumptions are uncertain and judgmental.
- Concentration and related parties: The company depends on its external Manager and affiliated loan originator for personnel, sourcing, and other services. Affiliates have no obligation to sell loans to the company, and the relationships create allocation, pricing, servicing, and securitization conflicts.
- Quarter-end broker payable: The company recorded $1.006 billion due to a broker for whole-pool agency RMBS purchased on trade date at year-end. The trade settled on January 13, 2023, when the securities were simultaneously sold. The transaction was excluded from 2022 cash flows; its settlement and sale are important to understand when assessing year-end liquidity and balance-sheet presentation.
- Affiliate SEC matter: In August 2022, the SEC settled an administrative matter involving Angel Oak Capital, an affiliate of the Manager, and a former portfolio manager concerning delinquency disclosures for a 2018 fix-and-flip securitization. The SEC found inaccurate disclosures related to escrow funds used to cure delinquencies. The affiliate and former manager paid fines of $1.75 million and $75,000, respectively, and neither admitted nor denied the findings. The filing states Angel Oak Mortgage REIT did not participate in or invest in that securitization; the SEC order did not allege fraudulent intent.
- Management change: The former CEO and president departed September 28, 2022; Sreeniwas Prabhu became CEO and president. The company recorded $1.4 million of severance accrual and $2.6 million of accelerated stock-compensation expense associated with the departure.
- Other matters: The Series A preferred stock was redeemed in December 2022. The company reported no material legal proceedings or unfunded commitments at year-end. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.
Important facts for investors to verify
- Reconcile the $1.006 billion year-end broker payable with the RMBS purchase, January 2023 settlement, and simultaneous sale; assess any related liquidity or counterparty exposure.
- Review the composition and maturity, renewal, collateral, covenant, and margin-call terms of the $692.4 million recourse debt and $1.003 billion non-recourse securitization obligations; distinguish stated capacity from committed, usable liquidity.
- Assess the causes and sensitivity of the large 2022 fair-value losses, including the assumptions supporting residential-loan valuations, and compare GAAP book value with economic book value.
- Track loan delinquencies and credit performance across directly held loans and individual securitizations, especially higher-risk retained tranches and geographically concentrated exposures.
- Evaluate the sustainability of the reduced $0.32 quarterly dividend against Distributable Earnings, cash needs, REIT distribution requirements, and the company’s related-party sourcing and management arrangements.