Angel Oak Mortgage Stock

Good morning, and welcome to the Angel Oak Mortgage REIT's Second Quarter 2026 Earnings Conference Call.

[Operator Instructions]

This event is being recorded Tuesday, August 4, 2026. I would now like to turn the conference call over to Mr. KC Kelleher. Please go ahead.

Good morning, and thank you for joining us today for Angel Oak Mortgage REIT's Second Quarter 2026 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section of our website at www.angeloakreit.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. 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, Sreeni 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. Now I will turn the call over to Sreeni.

Thank you, KC, and thank you all for joining us today. While the macroeconomic outlook remains unclear in the second quarter, AOMR responded with a balanced approach of strategic value-driven decision-making and operating excellence to strengthen the return profile and the long-term durability of our portfolio. We saw continued demand for well-structured non-QM credit, but the markets also moved through periods of caution as investors weighed the path of inflation, Federal Reserve policy and broader global uncertainty throughout the quarter.

Against that backdrop, our focus was on staying disciplined in capital deployment, preserving flexibility and executing on opportunities to expand upon the earnings and the operating improvements we have achieved over the past several quarters. Our platform demonstrated resilience with solid year-over-year growth in net interest income, stable book value and durable credit performance.

Notably, we took several strategic actions to strengthen the portfolio, including monetization of delevered legacy retained bonds, the repurchase of common stock from a pre-IPO investor at accretive return levels and successfully negotiated a significant spread reduction on our largest warehouse financing facility. These opportunistic prudent actions are designed to fortify the strength and the return profile of our portfolio over the short term and long term. We continue to source loans that fit our credit and return criteria. Though we did not have a securitization in the second quarter, we executed AOMT 2026-3 and AOMT 2026-HB1 following the end of the quarter. We expect to continue a pace of roughly one securitization per a quarter. Importantly, we are not simply focused on issuing transactions. We are focused on issuing transactions that strengthen the durability of our balance sheet, reduce financing uncertainty and support long-term earnings power.

As we move in the back half of the year, our priorities are clear. While we cannot control macroeconomic conditions or day-to-day valuation changes, we can continue to make thoughtful value-driven decisions to maintain a business that is both robust and flexible. We will continue to originate and purchase selectively, maintain a conservative approach to leverage and use securitization as a strategic funding tool rather than volume-driven objective.

We believe this approach positions AOMR to navigate uncertain markets while continuing to build value for shareholders over time. With that, I'll turn it over to Brandon, who will walk us through our second quarter financial performance in greater detail.

Thank you, Sreeni. Our second quarter results were reflective of the strong operating foundation that we built despite offsets stemming from unrealized mark-to-market valuation decreases in our unsecured securitized loan portfolio. Notably, as Sreeni mentioned, consistent with our focus on controlling what we can control, we took several strategic actions during the quarter to further strengthen our portfolio going forward. We sold our retained bonds from the AOMT 2020-3 securitization and have reinvested those proceeds into purchases of newly originated loans with higher modeled yields.

We repurchased $15 million of common equity from a pre-IPO investor at accretive return levels, and we reduced the interest rate spread on our largest warehouse financing provider by 35 basis points. We expect to realize the positive impacts of these actions in the coming quarters and years. In the second quarter, we had GAAP net income of $3.4 million or $0.14 per diluted common share. The result was driven by healthy net interest income and maintained operating expense levels, partially offset by unrealized mark-to-market losses.

Comparatively, in the second quarter of 2025, we had GAAP net income of $800,000 or $0.03 per diluted common share. Distributable earnings for the quarter were $9 million. Our securitized loan portfolio and our residential loan portfolio combined for $3.6 million of unrealized losses, and our derivative portfolio drove $2.4 million of unrealized loss, driving the difference between GAAP net income and distributable earnings. In the second quarter of 2025, distributable earnings were $2.6 million. Interest income for the quarter was $41.4 million and net interest income was $10.7 million. This compares to interest income of $35.1 million and net interest income of $9.9 million in Q2 '25, showcasing 18% and 8% growth, respectively. For the first 6 months of 2026, interest income and net interest income grew by 21% and 14%, respectively, versus the first 6 months of 2025.

The non-QM coupon rates have come down compared to the first half of 2025, performance has been supported by targeted asset purchases, decreased warehouse spreads and consistent access to securitization markets. Operating expenses for the second quarter were $3.6 million. Excluding non-cash stock compensation expenses, second quarter operating expenses were $3.2 million.

The small increase compared to a year ago was due to increased loan diligence fees associated with larger target asset balances. Going forward, we expect to maintain similar operating expense levels and we'll continue to be as efficient as possible with our expense structure. Loan purchases during the quarter totaled $204 million and continue to reflect conservative credit profiles, moderate loan-to-value ratios and current market coupons that we believe remain attractive on a risk-adjusted basis. The weighted average coupon of loans purchased during the quarter was 7.34%. The weighted average CLTV was 70.5% and the weighted average credit score was 759. Our credit underwriting metrics have continued to reflect our desired credit and return profile.

As of the end of the quarter, our loans in securitization trust portfolio carried a weighted average coupon of 6.04% with a weighted average funding cost of approximately 4.5%. We intend to continue to access securitization markets through our disciplined methodical securitization strategy. As mentioned, we executed the AOMT 2026-3 securitization just after the end of the quarter. We were the sole contributor to the deal, which had $280 million of unpaid principal balance and a weighted average coupon of 6.9%, weighted average non-zero credit score of 757 and a weighted average CLTV of 69%. The AAA-rated senior bonds priced at 130 basis point spread over the treasury yield curve. Additionally, we recently priced AOMT 2026-HB1, $221 million commingled HELOC securitization, to which we contributed $71 million of loans.

Loans underlying the deal had a weighted average coupon of 9.79%, weighted average non-zero credit score of 744 and a weighted average CLTV of 64.8%. Securitization markets have remained constructive amid market uncertainty, and we continue to expect to execute roughly 1 securitization per quarter or 4 per year. As of quarter end, GAAP book value per share was $10.13. Economic book value, which fair values all non-recourse securitization obligations, was $12.24. Compared to the end of first quarter 2026, GAAP book value per share decreased 1.7% and economic book value decreased 0.3%.

Changes in book value during the quarter were reflective of operating income, offset by a quarterly dividend payment and aforementioned market-driven unrealized valuation changes within the portfolio. While the market continues to display volatility tied to macroeconomic and geopolitical factors, we estimate that as of today, book value has remained relatively flat since the end of the second quarter.

Our balance sheet remains well positioned with cash of $48.6 million and recourse debt-to-equity ratio of 2.3x. This ratio is consistent with what we would expect immediately preceding the securitization. As such, following the AOMT 2026-3 and AOMT 2026-HB1 securitizations, recourse debt-to-equity decreased to approximately 1x. We aim to maintain liquidity and available financing capacity to provide flexibility to respond to changing market conditions. We ended the quarter with unsecuritized residential whole loans at a fair value of $439 million, financed with $365 million of warehouse debt. $2.1 billion of residential mortgage loans in securitization trust and $334 million of RMBS, including $26 million of investment in commingled securitization entities, which are included in other assets on our balance sheet.

We finished the quarter with undrawn loan financing capacity of approximately $900 million with 4 high-quality lending partners. Credit performance continued to be solid with portfolio-wide 90-day plus delinquencies at approximately 2.8%, which is inclusive of our residential loan, securitized loan and RMBS portfolios. This represents an increase of approximately 9 basis points from Q1 2026.

Performance across the Angel Oak shelf remains strong, and we believe that the performance of our collateral relative to the non-QM securitization market is a key differentiator for our platform. I'll reiterate our expectation that our differentiated credit performance will translate into lower losses and comparable non-QM platforms across the full credit cycle. This view is supported by our proactive migration of the credit spectrum, conservative LTVs and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. 3-month prepay speeds for our non-QM RMBS securitized loan portfolios were 13.6% to end the quarter compared to 12.5% in the first quarter of 2026.

As we have mentioned in previous quarters, we expect prepayment speeds to continue to increase as rates decrease and homeowners are incentivized to refinance. With that said, we model our returns based on historical average prepayment speeds of 20% to 30%. While prepay speeds are likely to tick upward and newly originated coupon rates continue to decrease, the majority of our portfolio still has coupon rates that are 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 to our portfolio.

Lastly, the company declared a $0.32 per share common dividend payable on August 28, 2026, to common shareholders of record as of August 21, 2026. For additional detail on our financial results and portfolio composition, please refer to the earnings supplement available on our website.

Thank you, Brandon. To close, we remain confident in the advantages of the Angel Oak platform. Our access to differentiated origination, our experience in securitization and our emphasis on credit discipline gives us multiple levers to manage through changing market conditions. We are focused on continuing to translate those trends into consistent earnings, thoughtful balance sheet growth and long-term shareholder value. With that, we'll open up the call for your questions. Operator?

[Operator Instructions]

And your first question comes from Marissa Lobo from UBS.

Just thinking about the new securitization, how large do you see the HELOC opportunity for AOMR? And what's your target allocation relative to first lien non-QM?

Sreeni here. I'll answer that. So we like the HELOC opportunity. Obviously, it's all about the size and scale and the product -- the credit box that we want to play in. So we think of it as a 10% to 15% allocation of our overall allocation. So we'll still be predominantly non-QM and then selectively we'll look into HELOCs based on our credit boxes.

Got it. And just looking at non-QM composition, seeing that investor loans are largely about 50% of the market. And how does AOMR's collateral compared to that? And to what extent are you growing DSCR exposure?

I think our composition on investor cash flow loans is around that same amount. It's been a good source for growth for us over the past several years, but we still predominantly play in that space and the bank statement borrowing underwriting programs to like small business owners.

And your next question comes from Doug Harter from BTIG.

In your prepared remarks, you mentioned that one of the warehouse -- your warehouse financing facilities improved by 35 basis points. Can you talk about the returns you see sort of during the warehouse period versus the returns you see upon securitization?

Yes. I think during the warehouse period, it will change a little bit because of that spread depending on whatever how we mix our financing. But typically, right now, I think we're seeing about 13% to 14% return in the warehouse phase. And then in securitization, it's that 15% to 20% we often quote depending exactly on where securitizations execute.

Great. And then just a clarifying question. In your supplement, it looks like the cost of the warehouse debt has kind of bounced around the past couple of quarters. Is there any kind of noise in there that we should be thinking about as we calculate that number on a quarterly basis?

Yes. I think it just really depends exactly how levered we are throughout the quarter and exactly how we're financing because obviously, we just closed 2 securitizations. We'll close the HELOC securitization today (AOMT) 2026-3 already closed just after quarter end. We use now -- we have a lot of fresh capital. We'll go and buy loans unlevered and slowly add in the debt where I think last quarter, it was kind of the opposite situation where we had -- in Q2, we had more leverage throughout the quarter than we normally would have because there was no securitization, but you should see that kind of clean up and clean out a little bit into Q3.

[Operator Instructions]

And your next question comes from Jason Weaver from JonesTrading.

Just looking at the (AOMT) 2026-3 deal, it looks like we're seeing a fair amount of spread compression there versus the last securitization. With lower collateral WAC and higher spreads on the AAAs, can you talk a little bit about the forward assumptions here if it's still in that high teens range? And if there was anything deal specific that drove that net spread tighter.

Yes. I think that we're still expecting the 15% to 20%. Of course, that can bounce around from time to time. This last one was your portfolio composition was a little lower coupon than what we're currently buying. But now in response to the higher rates, our average mortgage coupons have gone up by 35, 40 basis points on average. And today, we're buying loans closer back to that mid-7s level from a non-QM perspective. And I mean the spreads in the securitization market have been relatively tight. The securitization market is healthy in the non-QM space, lots of buyers, lots of activity. So that is moving in the correct direction. Even in the face of the volatility in rates hasn't really translated into widening or volatile spreads.

Got it. And I wonder, just broadly, if you can talk a bit about what you're seeing on just broad consumer credit trends and non-QM underwriting standards, any more tightness there?

Yes. So broadly, the market obviously is difficult from the origination side, right, because housing affordability slows down, obviously, as rates keep going up. That being said, the non-QM market, amazingly enough over the last 2 years continues to grow. Competitively, it's extremely competitive because you have a whole addition of insurance companies that are stepping in at these higher rates. So you definitely have to be disciplined. In terms of weaker underwriting competitively across the market, there are weak points that are starting to show up in certain programs that we generally don't do what some of our competitors are doing, whether they're in the REIT space or whether they're just across the board in the market.

And there's a chart that I think we have that we can send to you, and I don't want to talk about anything individually. But there are a couple of programs that we just don't do that we are starting to see in the marketplace. But that being said, across the board, generally, the underwriting has been prudent and disciplined still in the marketplace, not just Angel Oak, but just generally across the board.

On consumer credit, I mean, obviously, HELOCs gets closer to consumer credit from our side. You have to be careful there in terms of what you're underwriting. We're generally trying to underwrite LTV going to 65% combined loan-to-value. That's what we are trying to underwrite and depending on what type of consumer we're going through. So -- and that's what I was mentioning to you before, we don't want to scale that program for the sake of scaling it because obviously, the IRRs are good. You have to be thoughtful about the credit you're underwriting, especially in this peak of the housing price that we are seeing. The general consumer credit that I say consumer ex housing generally is the one that also probably has not gotten any benefit of the equity markets. I think that consumer continues to be weaker. We are in that space through our mutual funds, ETFs and our other funds. So that's where we are being very cautious. But obviously, we don't play that in AOMR.

And your last question comes from Timothy D'Agostino from (B. Riley) Securities.

I guess just on securitizations, obviously, you closed 2 post quarter. And it sounds kind of like the language is changing a little bit so you're not really going towards quantity of securitization. So I was just wondering, how do you think about the 4 non-QM securitizations per quarter and the 2 HELOC securitizations? And does the pipeline for non-QM potentially support a second securitization in the third quarter or no?

Yes. I think our projection is still to have 4 non-QM or on average of 4 a year securitizations in the non-QM space. I think the second HELOC securitization is also pretty likely this year, and there's a decent chance with the pipeline coming that we'll see a second non-QM within Q3.

But certainly, if it doesn't squeak into September, it'd probably be October, much like happened now. Of course, all depending on what's happening in the market and things like that, we'll be ready to go by then.

Okay. Great. And then are you -- I guess, staying on the non-QM side, are you still seeing good demand there in terms of what you're able to invest in? Just any color there would be great.

Yes. No, I think there's plenty of non-QM demand. I mean that space is continuing. Our mortgage company continues to put out a good amount of loans.

As Sreeni mentioned, there's plenty of buyers on the other side, which drives capital formation in the space. So we think there's plenty of appetite and demand there and should continue throughout the rest of the year.

And there are no further questions at this time. You may proceed with your conference. Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day.

Good day, and welcome to Angel Oak Mortgage REIT First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Mr. KC Kelleher Please go ahead.

Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's First Quarter 2026 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.angeloakreit.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.

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, Sreeni 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.

Now I will turn the call over to Sreeni.

Thank you, KC, and thank you all for joining us today. First quarter unfolded in a global environment that was largely supportive to uneven economic growth and geopolitical tensions, including renewed conflict in the Middle East weighed on investors towards the end of the quarter. Inflation showed gradual improvement, while labor markets cooled modestly, and the Federal Reserve maintained a measured data-driven approach to policy decisions. Uncertainty weighed on risk sentiment at times, but also reinforced the values of discipline, liquidity and steady execution. Within this setting, our platform performed well, supported by our focus on credit quality, funding discipline and repeatable processes. Despite broader macro pressures, securitization markets remained open through the quarter. Investor demand continued to favor high-quality collateral and experienced issues even as spreads reflected global headlines, rate volatility and a period of reduced risk appetite.

We were pleased to complete the AOMT 2026-2 securitization shortly before the onset of the conflict in the Middle East, taking advantage of favorable market conditions and underscoring the benefits of our methodical, repeatable securitization approach. We remain selective in our use of these markets, staying focused on sound structures, conservative leverage and economics that meet our return thresholds. Our first quarter results reflected our established operating growth trend with another consecutive quarter of net interest income expansion and prudent expense management. The positive earnings trend helped offset unfavorable valuation impacts during the quarter, which were driven by rates and spreads increasing and becoming more volatile.

Looking forward, the need for non-QM lending solutions remains durable, and we see value in maintaining a cautious but active posture. Our priorities remain consistent, growing earnings, executing reliably in capital markets and positioning the portfolio to perform across a wide range of economic outcomes. With that, I'll turn it over to Brandon, who will walk us through our first quarter financial performance in greater detail.

Thank you, Sreeni. First quarter results from an interest income and expense perspective were in line with expectations and reflected contributions from assets added in the quarter and in prior periods, along with a continued focus on cost control. To that end, as Sreeni mentioned, we continued our earnings growth trajectory established in 2025 with another consecutive quarter of net interest income growth. Interest rates were generally stable throughout the quarter, supporting consistent mortgage market activity and enabling continued purchases of accretive non-QM loans. Execution of the AOMT 2026-2 securitization in early March, which I will detail shortly, was strong and well timed, and we expect to continue our trend of 4 securitizations per year or roughly 1 per quarter.

While spread widening and rate increases associated with global pension drove a decrease in book value of our portfolio, underlying fundamentals remain supportive and strong operating earnings mitigated the impact of valuation decreases, which we believe are temporary due to the ongoing conflict in Iran. In the first quarter, we had a GAAP net loss of $7.4 million or a loss of $0.30 per common diluted share. Loss was driven by unrealized valuation changes on our securitized and unsecuritized loan portfolios, largely tied to macroeconomic market volatility towards the end of the quarter, which offset positive operating growth.

Comparatively, in the first quarter of 2025, we had GAAP net income of $20.5 million or $0.87 per diluted common share. That income was attributable to unrealized valuation gains of our securitized and unsecuritized loan portfolios as well as operating income. Distributable earnings for the quarter were $4.6 million. Differences versus GAAP results were primarily driven by the removal of the unrealized fair value movements just described. Our securitized loan portfolio and residential loan portfolio combined for $13.1 million of unrealized losses, which were offset by $1.6 million of net unrealized gains in our trading securities and hedge portfolios. In the first quarter of 2025, distributable earnings were $4.1 million. Interest income for the quarter was $40.7 million and net interest income was $12.1 million. This compares to interest income of $32.9 million and net interest income of $10.1 million in Q1 2025, showcasing 24% and 20% growth, respectively.

Compared to the fourth quarter of 2025, interest income and net interest income grew by 4% and 11%, respectively. Performance has been supported by targeted asset purchases, growing net interest margin and consistent securitization market access during all of 2025 and specifically Q4 '25 and Q1 '26. Operating expenses for the quarter were $5.2 million. Excluding noncash stock compensation expenses and securitization costs, first quarter operating expenses were $3.4 million. The increase compared to a year ago and prior quarter is due to increases in professional service fees and loan diligence fees associated with a larger overall balance and consistent purchases of target assets.

Going forward, we expect to maintain similar operating expense levels, and we'll continue to be as efficient as possible with our expense structure. Loan purchases during the quarter totaled $246.2 million and continue to reflect conservative credit profiles, moderate loan-to-value ratios and current market coupons that we believe remain attractive on a risk-adjusted basis. The weighted average coupon of loans purchased during the quarter was 7.3%, the weighted average CLTV was 67% and the weighted average credit score was 759. Our credit underwriting metrics have continued to improve over time as we target our desired credit and return profile. As of the end of the quarter, our loans and securitization trust portfolio carried a weighted average coupon of 6.1% with a weighted average funding cost of approximately 4.5%. We intend to continue to access securitization markets through our disciplined, methodical securitization strategy.

As mentioned, we are able to take advantage of favorable market conditions with our AOMT 2026-2 securitization in March just before the onset of the renewed conflict in the Middle East. We were the sole contributor to AOMT 2026-2, which had a $272 million unpaid principal balance and a weighted average coupon of 7.1%, a weighted average non-zero credit score of 757 and a weighted average CLTV of 70.7%. The AAA rated senior bonds priced favorably at 113 basis point spread over the treasury yield curve. As of quarter end, GAAP book value per share was $10.31.

Economic book value, which fair values all nonrecourse securitization obligations was $12.28. Compared to the end of 2025, GAAP book value per share decreased 4% and economic book value decreased 3.3%. Changes in book value during the quarter were reflective of operating income, offset by our quarterly dividend payment and the previously discussed market-driven valuation decrease within the portfolio. While the market continues to display volatility tied to geopolitical tension, we estimate that as of today, book value has increased slightly since the end of the first quarter due to continued accretive asset purchases and incremental earnings generation. Balance sheet remained well positioned with cash of $42 million and recourse debt to equity of 1.3x.

We aim to maintain liquidity and available financing capacity to provide flexibility to respond to changing market conditions. We ended the quarter with unsecuritized residential whole loans at a fair value of $245.5 million financed with $192.2 million of warehouse debt, $2.2 billion of residential mortgage loans and securitization trust and $238.3 million of RMBS, including $25.7 million of investments in co-mingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with undrawn loan financing capacity of approximately $1.1 billion with 4 high-quality lending partners. Credit performance continued to be solid with portfolio-wide 90+ day delinquency at approximately 2.7%, which is inclusive of our residential loan, securitized loan and RMBS portfolios. This is materially flat compared to Q1 of 2025 and represents an increase of approximately 50 basis points from Q4 '25.

Despite the increase compared to the prior quarter, performance across the Angel Oak shelf remains strong, and we believe that the performance of our collateral relative to the non-QM securitization market is a key differentiator of our platform. We expect our differentiated credit performance to translate into lower losses than comparable non-QM platforms across the full credit cycle. This view is supported by our proactive migration of credit spectrum, conservative LTVs and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. 3-month prepay speeds on our non-QM RMBS and securitized loan portfolios were 12% as of the end of the quarter compared to 11.2% in the fourth quarter of 2025.

As we have mentioned in previous quarters, we expect prepay speeds to increase as rates decrease and homeowners are incentivized to refinance. With that said, we model our returns based on historical prepayment speeds of approximately 20% to 30%. While prepay speeds are likely to tick upward if newly originated coupon rates continue to decrease, the majority of our portfolio still has coupon rates that are 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 on our portfolio.

Lastly, the company declared a $0.32 per share common dividend payable on May 29, 2026, to common shareholders of record as of May 22, 2026. For additional details on our financial results and portfolio composition, please refer to the earnings supplement available on our website. Sreeni?

Thank you, Brandon. The proven well-established Angel origination, purchase and securitization platform provides us with confidence to perform well in a variety of macro environments. The fundamental backdrop of our business is positive. And while risk remains, we will continue to focus on what we can control, expansion of earnings, consistent securitization market activity and disciplined credit selection and management. With that, we will open the call for your questions. Operator?

[Operator Instructions] Your first question comes from the line of Marissa Lobo from UBS.

On HELOCs, you participated in one securitization in 2025 and you guided to about two a year. So how is the HELOC pipeline building relative to non-QM?

We are building our current HELOC pipeline right now. After the securitization '26-2, we went bought some HELOCs as well. We kind of have enough to co-mingle with some other Angel Oak entities. So we're looking forward to another HELOC securitization in the coming months. But I think that the pacing is still about correct.

Okay. Great. And then just looking at the loans and securitization trust, noticed the 2024 vintages picking up in speeds about '23, up a bit from last quarter. Delinquency a little bit up. So how should we think about that? And how is that impacting the valuation of the retained tranches on those deals?

I think the -- yes, I think the speed increase is a little bit expected as rates started to come down. So the '24 deals had a lot of loans that were generated with much higher coupons. So the increase isn't necessarily a surprise to us. We expect to model the 25 to 30 CPR kind of over the life of the securitizations and like a normal kind of rate environment. The return profile seems about the same during that period from certainly what we model. The delinquencies are something we're monitoring, but nothing that's sticking out to us. And if you remember, some of the retained tranches we have, we have a little bit of a hedging effect on our retained positions because we have the interest-only bond and then we have the junior unrated equity piece. And as speeds increase, obviously, the valuations or anticipated returns of the IO would start to decrease, but the B3 or unrated bond and the bonds directly above it start to -- the valuation increases as it's expected, they'll get paid off soon.

Your next question comes from the line of Matthew Erdner from JonesTrading.

In prior quarters, you've talked a little bit about calling legacy securitizations, kind of the '21s, '22s. As of last quarter, you guys kind of intended to call two of those throughout the year. Is that still the plan? And then what are you guys seeing there in terms of resecuritization that you could achieve?

Yes. That's something we're literally monitoring every day. As you probably have good visibility to that decision based a lot on what the funding cost of the deal you're calling, what -- how they are levered, what's left in the stack and current funding cost, which over -- if we're talking in the middle or late February, that answer is a little different than it is today, but it's something we're monitoring. So what we probably have to see is a little cessation or dramatic reduction in some of the volatility in the rate markets for that go/no-go decision to effectively be accretive to call the deals.

Got it. Yes, that's helpful. And then as a follow-up to that, what kind of ROEs are you guys seeing in the market? I think it was mid-teens last quarter, trending a little bit lower. Is that still kind of the expectation and then low 20s on HELOCs?

Yes. I mean I think that's our long-term expectation. If we were to do a deal today with the increase in treasuries and increase in the spreads, we'll be looking maybe lower teens to high 12s. So it has taken a little bit off, but we're not necessarily in the market right now with the securitization. We hope that when things come back into play for us to securitize, we're back up to that 15% to 20% number.

Your next question comes from the line of Timothy D'Agostino from B. Riley Securities.

Regarding operating expenses, it seems like this quarter, it was elevated a little bit at about $1.7 million. I was wondering if there's anything in particular in that line item that increased it.

Yes. Mainly, that's going to be professional service fees and loan diligence fees as we continue to buy loans. Our professional service fees in this instance are really related to our ATM program that we have out there that we didn't issue any shares on this quarter. So we had -- we expensed those costs versus putting it through like a contra equity account.

Okay. Great. And then I just want to touch on the securitization costs as well. If you do one securitization a quarter for the non-QM space, is the pricing on that generally going to be around $1.5 million? Or would it be less? And then the price for a non-QM or the cost for non-QM securitization, how does that differ to HELOC securitization? Just trying to understand that expense line item better as well.

Yes. I mean securitization expense, there's a decent amount of fixed costs that go into that, and then there's obviously some variable costs. So it's kind of sensitive on how big the deal is, especially on the HELOC securitization, how much of the HELOC securitization we are participating in because we'll take our pro rata share of the deal cost. But really, you can kind of back into like a basis point percentage on securitization based on the amount that we securitized in the quarter, which typically is somewhere around 50 basis points. It could be a little less, could be a little more. But certainly, if we got a larger deal out, it would be a little less than that and about as small as we've been doing lately, $300 million or so it's about 50 basis points.

[Operator Instructions] Your next question comes from the line of Doug Harter from BTIG.

This is Brendan Greaney on for Doug. How did whole loan pricing of non-QM loans hold up in March versus securitization spreads?

Yes. I mean the whole loan pricing decreased quite a bit. That's really where most of that valuation decrease we have and the losses we had on the unrealized during the quarter. We lost about 1 point off of our whole loan pricing in Q1, and that's really just a reflection of where the current spreads are and the current treasury base rates.

Okay. And where are spreads today on AAAs and securitization?

It'd probably be about $135 million to $145 million depending on the exact timing and exact collateral that was out there.

Thank you. There are no further questions at this time. I would like to turn the call back to Mr. Brandon Filson for closing comments. Sir, please go ahead.

I would like to thank everybody for your time and interest in Angel Oak Mortgage REIT. As always, if you have any further questions or comments, please feel free to give us a call and reach out. Otherwise, we look forward to connecting again with you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good day, and welcome to the Angel Oak Mortgage REIT Fourth Quarter 2025 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Mr. KC Kelleher. Please go ahead.

Good morning, and thank you for joining us today for Angel Oak Mortgage REIT'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 Investors section on our website at www.angeloakreit.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.

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, Sreeni 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.angeloakreit.com.

Now I'll turn the call over to Sreeni.

Thank you, KC, 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 securitizations 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 comparably 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 4 securitizations and called 2 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 add a new warehouse credit facility in 2025, diversifying our lender base and continue 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 our 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 structural demand for non-QM solutions and ongoing need for specialized mortgage credit. Within this market, Angel Oak has established itself as a leading non-QM platform with differentiated sourcing, underwriting and financing capabilities. Our consistent securitization 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 net 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, Sreeni. Fourth quarter results tracked in line with our expectation, and as Sreeni 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, excluding securitization costs 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 GAAP net income of $11.3 million or $0.45 per diluted common share compared to a GAAP net loss of $15.1 million or $0.65 per common share in the fourth quarter of 2024. For the full year, we had GAAP 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 was $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. Primary driver of the difference between this and our $44 million of GAAP 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 the 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 HELOCs and Closed End 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 4 securitizations over the course of the year in addition to calling 2 of our legacy deals from 2019, keeping in line with our stated goal of 4 securitizations per year. In total, we securitized $704 million in unpaid principal balance across these 4 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-HB2, 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 noncash 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 noncash 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 we 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 1.4x. We expect to continue to prudently manage our recourse debt-to-equity ratio going forward. GAAP 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 nonrecourse 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 whole loans at 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 2 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 platform. This not only serves as a competitive advantage in terms of financing stability, but also strengthens confidence in our earnings profile. Our shelf 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 into lower losses than comparable non-QM platforms across a full credit cycle. This view is supported by our proactive migration of the credit spectrum, conservative LTVs and disciplined underwriting approach, which we believe position the portfolio to perform consistently even in more challenging environments. 3-month prepayment speeds for our RMBS and securitized loan portfolio were 11.2% to end the quarter, reflecting an increase from 9.4% in the third quarter of 2025. As we have 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 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 Sreeni 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 securitization platform, which provides us with confidence for the future. We'll maintain our focus on diligent credit 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?

[Operator Instructions] The first question comes from Matthew Erdner with JonesTrading.

Where are you guys seeing the best kind of risk/reward opportunities right now? You mentioned 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 Sreeni. So I think we have a healthy mix of -- obviously, there's more relative value in terms of buying HELOCs for sure because the IRRs are better. But obviously, the long term, it's more focused on non-QM. So they both provide healthy returns for us. And I think you should see us continue to keep that mix. HELOCs can -- the more you scale, you want to be very careful of the credit underwriting. So we're extremely careful about what we underwrite in HELOCs versus just growing the volumes and securitizing it. So the cleaner credit 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 where are you seeing the ROEs on each of those types of securitizations today?

Yes. On -- from the non-QM securitization front, we're still in that mid- to high teens level. It kind of 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 5, 6, 7 points higher than that on a fully securitized basis, so low 20 ROE perspective.

Got it. That's helpful. And then last one for me. Did you guys provide a book value update quarter-to-date?

Yes. Our book value today, we think, has modestly increased from where we were at December 31.

Your next question comes from Doug Harter with UBS.

Can you talk about your ability to continue to recycle capital either through calling deals or just optimizing financing? How much more capacity you have to grow with the existing capital base?

Yes. We have a pretty good amount of power that we could 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. 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 million, $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.

The next question comes from Timothy D'Agostino with B. Riley Securities.

I guess my question is a little bit more general. Just would like to get your sense on kind of how the market feels and the activity level, whether that be in non-QM HELOC or as well as the securitization market. And how it feels different at the start of '26 compared to '25?

Yes, it's a good question. So we have just -- the '25 was a solid year across the board in mortgage market, whether you take any part of resi market was doing well. So that's continued into 2026. We had seen -- take the last 2 weeks of volatility out, we had seen spreads tightening in the securitization market. I think we printed the deal close to 100 basis points, 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 issuance this year than last year. And there are more players coming in. So it's getting competitive for sure.

So what we try to tell people, whether it's our private funds or AOMR, what we try to tell people is that we originate what we can originate. We're not looking for scale per se. We're looking for quality and the relationships we have with those brokers, we've been in the market for so many years. 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 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 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, nonpermanent employees, they need non-QM loans. How do I see this unfolding in '26? We feel that there will be pockets of volatility. 2025 was, except April, was just a phenomenal place. You cannot expect that. That's one of the reasons why we hit the securitization market as fast as we can. Rates are continuing to drop. You've seen the mortgage rates have dropped. So we think generally, the market is going to be solid with some pockets of volatility.

Okay. Great. And then just a quick follow-up. Regarding HELOC securitizations, I believe and correct me if I'm wrong, earlier in the call, you said you're contributing to the second one. I guess in terms of HELOC securitizations per year, would you say the pace is probably 1 to 2? Or just any kind of color there?

Yes. I mean so when we said 2 securitizations last year, that was to our entire franchise. You probably will see more from our entire franchise. I would speculate that AOMR will be involved in 1 to 2 of them.

Yes, I think that's probably right. I would cheat up the 2 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 2 participations a year in the HELOC space.

[Operator Instructions] Our next question comes from Eric Hagen with BTIG.

How are you guys thinking about the 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 securitized products?

Yes. I mean so the way to answer this question, Eric, is, we see this across what we at Angel Oak Partners see. We have ETFs, mutual funds, private credit in the mortgage space. So we are traveling to raise money institutional money. And obviously, we have AOMR as a public REIT. So we see it across the board what investors are thinking. So the way I would say it is that a lot of the money that went into so-called private credit went into corporate credit, right? And it was institutional probably 3, 4 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, 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 underinvested and retail definitely is underinvested. So they may invest through ETFs and mutual fund and buying bonds. But in terms of private credit in the mortgage space, they're underallocated. And retail is definitely underallocated. So from that perspective, I don't -- like you really see this. Commercial is a little different because there are true delinquencies and defaults happening in commercial real estate sector that you have to dissect the good, the bad, the ugly, very different. But in terms of asset-backed 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 cross sales right now.

So can it bleed into mortgage sector? Yes, it could. But like I said, in terms of unwinding of what has happened to a couple of funds in the private credit space, I don't -- 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've been having some issues on our side. So we missed some of that question, if you don't mind?

Yes. Sorry, it's probably on my end. I'm asking about how sensitive do 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?

Yes. So to answer your first point, I mean, we've been -- we have gone through a high rate environment, right, and high -- so if you just go back to '23, we saw high spread in the secondary and then we have to combine that with high rates. So as long as rates -- I mean, the way to think about it is 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. 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 10-year rates much higher, 2 things could happen. One is you could see the origination move towards hybrid, more of fixed floating 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, more origination. We haven't seen that in our space yet. The curve isn't steep enough to do that. So you could see that trend.

Your third question about the stability of spreads, we're not expecting spreads to be -- just for example, last few 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, securitization markets will be healthy and origination activity will be healthy, I believe.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brandon Filson 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.

Good day, and welcome to the Angel Oak Mortgage REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. KC Kelleher. Please go ahead.

Good morning, and thank you for joining us today for Angel Oak Mortgage REIT's Third Quarter 2025 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.angeloakreit.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.

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, Sreeni 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.angeloakreit.com.

Now I will turn the call over to Sreeni.

Thank you, KC, and thank you all for joining us today. Our third quarter performance reflected another period of disciplined execution and strategic progress for AOMR. We continue to execute both operationally and strategically in a constructive market environment. We capitalized on a couple of strategic opportunities to reallocate capital into high-yielding assets, improve our loan financing funding costs and diversify our lender base. And as always, our team continued to focus on deploying capital into high-quality income-accretive opportunities, supporting both portfolio growth and underlying earnings quality while maintaining vigilance on credit.

Our results this quarter were in line with our expectations. This was highlighted by our 13% growth in net interest income compared to third quarter of 2024 and a 2% increase compared to second quarter of the year. GAAP book value per share increased by over 2% compared to the second quarter, driven by increases in valuations across our portfolio. Cash flow dividend coverage increased and is expected to continue its growth trend as demonstrated over the last 2 years. This is driven by earnings from assets purchased during and post quarter end as well as the resecuritization of some pre-IPO deals, which will rotate capital into high-yield uses.

Credit continues to perform well, both in aggregate and relative to our peers, and our earnings generation engine continues to strengthen. As I mentioned, we executed on several key initiatives during the quarter. First, we successfully called and retired 2 legacy vintage deals, which is something we have been opportunistically monitoring for the last several quarters. Retiring these deals allowed us to release and reinvest capital into new attractive opportunities and further optimize the yield on our investment portfolio.

Second, we added new warehouse credit facility and extended another facility at attractive funding rates, which combined with decreases in SOFR are expected to improve margins while also diversifying our lender base. These actions, along with our continued focus on efficient capital recycling and securitization, emphasize the reliability and the repeatability of our strategy.

We are encouraged by the strength and stability in the securitization market as well as the constructive environment for portfolio growth. Securitization spreads continue to tighten and the market continues to function efficiently with new and traditional participants active in the marketplace. The market backdrop has become more positive as the year has progressed and the interest rate trajectory and the efficient securitization execution have supported valuation and earnings growth for AOMR.

While the competition in the space has increased, we see this as an indication of solid demand in an area where we have demonstrated expertise. Further, our differentiated platform and dynamic approach to capital deployment and portfolio management positions us to capitalize on opportunities. As we look ahead, we remain committed to continued execution of our strategies, delivering strong results for shareholders and building on our solid historical track record.

With that, I'll turn it over to Brandon, who will walk us through our third quarter financial performance in greater detail.

Thank you, Sreeni. Third quarter operating results were in line with our expectations with 13% net interest income growth versus the third quarter of 2024, an expansion versus the second quarter of this year, demonstrating a positive return on May's senior unsecured debt issuance within 1 quarter. Year-to-date, net interest income increased 11% compared to 2024. Operating expenses, excluding securitization costs and stock compensation expense were 13% lower than in the third quarter of 2024 and 5% lower than the second quarter of 2025.

Year-to-date, operating expenses, excluding securitization costs and stock compensation were 19% lower than in 2024 as we continue to push hard on cost rationalization and key expense saving initiatives. Valuations were a tailwind during the third quarter as we observed increases in valuations across the portfolio. As of today, we expect that our book value has grown moderately compared to the end of the third quarter alongside the recent rate rally.

For the third quarter of 2025, we had GAAP net income of $11.4 million or $0.46 per diluted common share. Distributable earnings for the second quarter were $529,000. The primary driver of the difference between GAAP net income and distributable earnings were the impacts of $4.3 million of unrealized gains on our residential loan portfolios and $5 million of unrealized gains on hedge contracts.

Interest income for the third quarter was $36.7 million and net interest income was $10.2 million, marking a 34% improvement in interest income and a 13% improvement in net interest income compared to the third quarter of 2024.

Compared sequentially to the second quarter of 2025, interest income increased by 4% and net interest income increased by 2%. For the first 9 months of the year, interest income was $104.6 million and net interest income was $30.2 million, which translates to increases of 33% and 12%, respectively, compared to the first 9 months of 2024. As we previously noted, we expect our net interest income to continue its growth trend with earnings generated from accretive loans purchased throughout the year and our securitization activity in Q4.

Our $238 million of loan purchases in the quarter carried a weighted average coupon of 7.74% with a weighted average combined loan-to-value ratio of 69.4% and a weighted average FICO score of 759. Our total residential whole loan portfolio had a weighted average coupon of 7.98% as of the end of the quarter.

The non-QM portion of our whole loan portfolio carried a weighted average coupon of 7.37% and HELOCs carried 11.03% weighted average coupon. As of today, our current weighted average coupon is approximately 8.7%, reflecting the 2025-10 securitization, which closed in October. As of the end of the quarter, our loans in the securitization trust portfolio carried a weighted average coupon rate of 5.8% with a weighted average funding cost of approximately 4.2%.

As Sreeni mentioned, the securitization market remains active, and we intend to continue leveraging this strength through our disciplined methodical securitization strategy. As mentioned earlier, we called and retired our retained bonds from AOMT 2019-2 and AOMT 2019-4 securitizations in the third quarter. These deals have become delevered over time, and the [ call ] released $19 million of capital to be reinvested into higher-yielding new loan purchases and other earnings accretive uses.

Additionally, in October, we executed the AOMT 2025-10 securitization. This securitization was a $274 million deal that enabled us to pay down $237 million of warehouse financing and released $22 million of cash for redeployment. The execution of this deal was strong with the senior bonds issued at a spread of 125 basis points over treasuries.

Operating expenses for the third quarter were $3.2 million. Excluding noncash stock compensation expenses and securitization costs, third quarter operating expenses were $2.8 million. This represents a 13% decrease compared to the same metric in the third quarter of 2024. For the first 9 months of the year, operating expenses were $11.3 million. Excluding noncash stock compensation expenses and securitization costs, operating expenses for the first 9 months of the year were $8.5 million, representing a decrease of 19% compared to the first 9 months of 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 $51.6 million of cash and our recourse debt-to-equity ratio was 1.9x. As of today's date and factoring in the October securitization, we estimate our recourse debt-to-equity ratio to be approximately 1x. GAAP book value per share increased 2.2% to $10.60 per share as of September 30, 2025, from $10.37 as of June 30, 2025.

Economic book value, which fair values all nonrecourse securitization obligations was $12.72 per share as of September 30, 2025, down 1.9% from $12.97 per share as of June 30, 2025. The increase in GAAP book value was driven primarily by the aforementioned valuation increases across our portfolio and valuations of the sold bonds from our 2021-4 and 2021-7 securitizations are included as a liability in our economic book value calculation and the markup of these bonds drove the directional difference between GAAP and economic book value.

We ended the quarter with unsecuritized residential whole loans at fair value of $425.8 million financed with $342.6 million of warehouse debt, $1.9 billion of residential mortgage loans and securitization trust and $256.2 million of RMBS, including $21.2 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 $707.4 million.

Now looking at credit. We ended the quarter with a total portfolio weighted average percentage of loans 90-plus days delinquent at 2.2%, inclusive of our residential loan, securitized loan and RMBS portfolios, which represents a decrease of 15 basis points from the second quarter of 2025. The AOMT securitization shelf continues to demonstrate outperformance relative to other non-QM shelves in terms of delinquency. We expect that throughout the credit cycle, this outperformance will lead to fewer defaults and lower credit losses than comparable non-QM securitization platforms.

This expectation is borne out of our intentional effort to move up in credit for our loan originations and purchases over the past couple of years, which continues to provide us with the confidence that we will deliver consistently amid periods of potential volatility. Additionally, we expect our portfolio-wide low LTV, diligent underwriting standards and inherent credit selection to mitigate losses throughout a cycle if credit becomes an issue.

3-month prepayment speeds for our RMBS and securitized loan portfolios were 9.4% to end the quarter, reflecting a marginal decrease compared to the second quarter of 2025. As a reminder, we model our returns on historical average prepayment speed of 20% to 30%. We continue to expect that mortgage rates would need to fall meaningfully in order to drive a significant uptick in refinances and prepayment speeds in our portfolio.

Finally, the company declared a $0.32 per share common dividend, which will be paid on November 26, 2025 to common shareholders of record as of November 18, 2025. For additional color on our financial results, please review the earnings supplement available on our website.

I will now turn it back to Sreeni for closing remarks.

Thank you, Brandon. I would like to thank the entire Angel Oak team for their hard work towards building what we believe is the best non-QM loan origination, purchase and securitization platform. 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?

[Operator Instructions] First question comes from Matthew Erdner with JonesTrading.

I'd like to touch on kind of the calling of the old securitizations there. One, get your thoughts going forward? And two, how much incrementally were you guys able to pick up on the margin there in terms of cost of funds kind of coming in as a result of calling the securitizations? And then expectation going forward as to what other calls would do to that cost of funds.

Yes. Thanks, Matt. Yes, 19-2,19-4, those were our very first securitizations that we did even before this vehicle was a public REIT. They're very delevered, the point, I mean, the factors were down to very, very low levels where effectively our retained interest was earning, the weighted average coupon of the deals are in some cases even a bit less. So 6%, 7% kind of retained yields on those bond positions.

The $19 million in cash would be then immediately reinvested into whole loans that would at least lever -- earn that unlevered yield today with leverage 12% to 14%. And then once we securitize a 15% to 20% kind of return. So you can think of 8% of our capital over the next couple of quarters going from earning a 6% to a 14% at a base case level.

As we look at other deals, I mean, we do have 19-6 securitization and 2020-3 securitization out there that we're evaluating what to do with them as they delever. It all depends on what the execution price and where we are in terms of the cycle, but I'd expect us to be looking hard at that over the next year.

Yes. Got it. That's helpful there. And then you guys mentioned competition earlier on the call. I'd like to touch on this given the amount of people that have entered the space are starting to come in. How are you guys able to go out there and kind of source the loans that you find attractive, opportunistic and whatnot and kind of beat out that competition, so to speak?

Yes. I think we -- with our affiliation with Angel Oak Mortgage Solutions and the Angel Oak platform in general, we've had a very consistent non-QM program over the past many years. Our rate sheets are similar. We're always buying. We're a surety of closing deals. So when we go out, we think we are able to pull in good demand versus maybe the new guys entering the space that may not be there tomorrow, that may change their mind and they're just coming in and out based on a trade item.

Again, we said many times, this is a business for us, not a trade. So we have great relationships, again, with our affiliated originators and other third-party originators where they will show us the loans that we want with the rates we want and the prices we want because they know that we'll be able to execute and close those loans.

The next question comes from Doug Harter with UBS.

Hoping you could touch on your outlook for growth in the investment portfolio, I guess, given a combination of the resecuritization opportunities plus maybe adding some more leverage to the balance sheet.

Yes. No, I think we have -- we did our senior unsecured notes offering, second one this last summer. That -- those proceeds have effectively been deployed, maybe not fully. I mean it takes several cycles of securitization to get 100% deployed in terms of capital. We released the securitization from the 19-2, 19-4 deals. You'll also see in the filings and whatnot that we also took back at interest in a vehicle that holds some of the nonperforming loans from those deals. It would be about $7 million that -- those proceeds should also be coming in today, literally. Then 25-10 released over $20 million in capital. So we have kind of a very good runway for growth in terms of what we're looking at in terms of purchasing volume. We like to be consistent in the space. We've been buying $200 million to $300 million a quarter really over the past year of loans. We're also looking at -- we have about $75 million worth of HELOCs in our portfolio.

We're looking at doing a securitization in that regard here in the coming quarter that should release additional capital and continuing to grow. So we -- and then as you mentioned, we're going to be looking at the 19-2 and then the 2020-3 securitizations to resecuritize and call if and when that time and opportunity comes up. 19-6, sorry, if I said 19-2.

Great. I appreciate that. And then I know in the prepared remarks, you did walk through some of the difference between GAAP and economic book value in the quarter. But if you could just kind of give a little more detail on just how we might think about the drivers of change as we go forward on those metrics?

Yes. So the genesis of economic book value was the 21-4 and 21-6 (sic) [ 21-7 ] securitizations that we did immediately post IPO. Those were the deals that were in the Goldilocks phase of the market when interest rates were 0 and the securitization market was incredibly accretive. So they had one of them, 21-4, the coupon on the senior bond was just over 1%. So literally very little funding cost.

We made the election at that time, if you recall, to hold those liabilities for those sold bonds at amortized cost, meaning that as obviously, rates sold off over the next couple of years, they stayed at par when in reality, the fair value of those bonds or the fair value of the liability would have been significantly below par. As we're in this cycle now where real rates are starting to decline, securitization market getting better, things are getting tighter.

There's a lot of demand for these products. And again, real rates are declining. Those bonds are starting to mark back up, which doesn't happen under GAAP book value. And that's why you see the divergence or the decrease in economic book value quarter versus the increase in GAAP book value because from a GAAP book value perspective, if you think about those 2 securitizations, we effectively have an unhedged asset with several hundred million dollars in loans in it. And then from an economic book value, then we effectively then hedge that back down as that liability is starting to increase in value. And that liability value is based on the value of those sold bonds.

[Operator Instructions] The next question comes from Timothy D'Agostino with B. Riley Securities.

Just one for me. Regarding the size of securitizations, just looking back to prior quarters, it seems like in 2024, securitizations were slightly above $300 million. So far in '25, they've kind of hovered around $280 million. I was just kind of wondering if we could see future securitizations kind of get back to that $300 million level or if you guys are comfortable with kind of the size you're doing now?

Yes. We've made the conscious decision to be hitting the securitization market very programmatically and consistently, right, and not waiting in this rate environment to get to a $300 million, $400 million level. That was something we did use to do. And now we found it better, especially with all the supply coming on the market to be a very consistent issuer. That's why this year, we're already up to 10, 11 real non-QM securitizations. We've done the resecuritization. And then earlier in the year, we had our first HELOC securitization. I say we here as AOMT or Angel Oak itself.

So we're consistently in the market, and we find that has helped tighten up our spreads and keep our risk low on our balance sheets as we move to term out that funding cost.

Okay. Great. And just a quick follow-up. Could we see you investing more in HELOCs going forward? Or are you going to continue to just like majority focus on non-QM?

We're majority focused on non-QM, and we consider our HELOCs non-QM adjacent. A lot of times, they look a lot and they feel a lot like a non-QM loan from what we're doing. They're just -- especially in today's environment, they're very attractive in terms of their yield profile. Like you can see from some of the disclosures, the weighted average coupon on those are just north of 11% currently versus new originated non-QM loans, 7.25% to 7.5%. The funding cost is similar between the two, so you can get a lot of extra margin on those. I would imagine that over the coming quarters, we'll keep it kind of where we are today, which is, call it, $75 million to $150 million worth of HELOCs in the portfolio, and then we'll securitize them off.

This concludes our question-and-answer session. I would like to turn the conference back over to Brandon Filson for any closing remarks.

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

Thank you. The conference has now concluded. You may now disconnect your lines. Thank you.