Angel Oak Mortgage, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company is an externally managed REIT investing mainly in first-lien non-QM residential mortgage loans and related securities. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Key financial results and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / December 31, 2021 |
|---|---|---|
| Interest income | $27.1 million | $10.0 million in Q1 2021 |
| Interest expense | $10.2 million | $0.8 million in Q1 2021 |
| Net interest income | $16.9 million | $9.2 million in Q1 2021 |
| GAAP net income (loss) allocable to common stockholders | $(43.5) million; $(1.77) per share | $9.5 million; $0.60 per share in Q1 2021 |
| Total comprehensive income (loss) | $(56.5) million | $10.0 million in Q1 2021 |
| Distributable Earnings, non-GAAP | $37.3 million | $4.8 million in Q1 2021 |
| Distributable Earnings return on average equity, annualized, non-GAAP | 32.7% | 6.9% in Q1 2021 |
| Total assets / stockholders’ equity | $3,198.2 million / $421.4 million | $2,577.9 million / $491.4 million at December 31, 2021 |
| Book value per share | $16.80 | $19.47 at December 31, 2021 |
| Cash and cash equivalents / restricted cash | $90.4 million / $5.4 million | $40.8 million / $11.5 million at December 31, 2021 |
| Notes payable / securitization obligations / repurchase agreements | $956.2 million / $1,031.2 million / $477.4 million | $853.4 million / $616.6 million / $609.3 million at December 31, 2021 |
The filing does not provide a clear net interest margin figure. GAAP results included $53.8 million of net realized and unrealized losses, compared with $2.2 million of gains in Q1 2021. These results include substantial fair-value effects and should be distinguished from the company’s non-GAAP Distributable Earnings.
Cash flow, portfolio, and changes versus prior periods
- Operating cash flow was $(606.4) million, investing cash flow was $261.4 million, and financing cash flow was $388.6 million. Cash and restricted cash increased by $43.6 million to $95.9 million. Management attributed the operating cash outflow primarily to residential loan purchases; it is not presented as a measure of recurring operating profitability.
- The company purchased $675.6 million of residential whole loans during the quarter and completed the AOMT 2022-1 securitization, involving approximately $537.6 million of seasoned non-QM loan unpaid principal balance. Securitization proceeds were used in part to repay debt; the company reported retaining $60.9 million.
- Portfolio assets and financing expanded. Total residential loans, including loans in securitization trusts, were $2.18 billion at quarter end, compared with $1.73 billion at year end. RMBS fair value was $491.3 million, and Treasury securities were $350.0 million.
- Net interest income rose to $16.9 million from $9.2 million, mainly as larger average residential loan and RMBS balances increased interest income; higher related borrowing balances also increased interest expense.
- Widening interest-rate spreads reduced residential loan fair values. Management reported that gains on interest-rate futures and TBAs, and the mark-to-market effect on securitization debt, partially offset those losses. RMBS and CMBS fair-value losses were recorded in other comprehensive income.
- Book value per share declined to $16.80 from $19.47. Stockholders’ equity fell to $421.4 million, reflecting the net loss, other comprehensive losses, common dividends, and share repurchases.
Outlook, risks, and other notable items
- Management described higher interest rates, inflation, supply-chain and labor constraints, and the Russia-Ukraine conflict as challenging market conditions. The average 30-year mortgage rate exceeded 5% by March, versus about 3% in December 2021. The Federal Reserve raised rates in March and May and indicated further increases were planned.
- Management said wider spreads can reduce the value of loans originated at lower rates, while higher-rate loans and slower prepayments may support future net interest income and income from certain retained securitization tranches. These are directional comments, not quantified earnings guidance; the filing gives no specific forecast.
- Financing is materially exposed to collateral values, margin calls, counterparty decisions, floating-rate borrowing costs, and facility renewals. At March 31, six whole-loan facilities had $1.3 billion of stated aggregate capacity and $956.2 million drawn. Availability is subject to facility terms and eligible collateral. Short-term securities repos totaled $477.4 million, with an average remaining maturity of 11 days.
- After quarter end, the company entered into a $340 million repurchase facility with RBC, terminating October 13, 2022 unless extended or earlier terminated; RBC is not obligated to purchase assets offered. On May 12, the company declared a $0.45-per-share common dividend, payable May 31 to holders of record May 23.
- Residential loans 90 or more days delinquent represented 0.60% of directly held residential loan UPB, versus 0.30% at year end; the securitized residential loan pool reported 0.1%, versus 0.13%. The filing reported no material legal claims known to the company and no unfunded commitments as of March 31.
- The company elected fair-value accounting for the AOMT 2022-1 non-recourse securitization obligation. It also reported that management considered short- and long-term liquidity sources adequate, while noting that funding plans may change with market conditions. No material changes to previously disclosed principal risk factors were reported.
Important facts for investors to verify
- How much of the $37.3 million of non-GAAP Distributable Earnings is repeatable, and how it reconciles to GAAP’s $43.5 million common-stockholder loss.
- Current loan and securities valuations, spread sensitivity, and the assumptions used in fair-value estimates—particularly for Level 3 assets and consolidated securitizations.
- Actual availability, borrowing costs, collateral requirements, covenant headroom, and renewal status of financing facilities, including short-dated repos and the post-quarter RBC facility.
- Whether loan delinquency, foreclosure, credit performance, and prepayment trends are changing, including within retained subordinate and interest-only securities.
- The sustainability of the dividend and the effect of distributions and repurchases on book value and liquidity.