Angel Oak Mortgage REIT reported that it is improving its capital position and financial results with moves aimed at putting itself in a better position to prudently acquire more new loans.
The real estate investment trust, which is primarily a securitization vehicle for other Angel Oak lending units, recovered from
Despite this, the company's results were "modestly better than the peer average of residential credit mREITs that have reported 2Q so far," according to a report by Douglas Harter and Will Nasta, equity researchers at BTIG.
The company attributed the gains to a 8% increase in net interest income over a year earlier, supported by the capital repositioning. Market conditions that broadly challenged mortgage REITs, drove the miss on consensus estimates.
"We saw continued demand for well-structured non-QM credit, but the markets also moved through periods of caution," Sreeni Prabhu, president and CEO at Angel Oak Mortgage REIT, said in an earnings call.
"Against that backdrop, our focus was on staying disciplined in capital deployment, preserving flexibility and executing on opportunities," he added.
To do this, Angel Oak reallocated funds from legacy securitization to buy fresh originations, repurchased around $15 million in common stock from an investor holding shares from before the company went public, and obtained improved terms for its biggest loan-funding line.
The efforts to shore up its funding resources could make the larger organization more competitive when it comes to its efforts to buy higher-quality loans in the popular
Cautious underwriting
Angel Oak purchased $204 million in newly originated, current-coupon non-QM loans and home equity lines during the second quarter.
The weighted averages for these were as follows: coupon, 7.34%; combined loan-to-value ratio, 70.5%; and non-zero credit score, 759.
Analysts have been watching underwriting and performance carefully given the competition in the market, particular in the
Angel Oak's participation in the DSCR market is similar to the overall market's allocation of 50% and has been "a good source of growth," Chief Financial Officer Robert Filson said during the call, while noting that the company is keeping an eye on performance.
Overall, the company had a "solid" 90-plus day delinquency rate of 2.8% that was up 9 basis points on the quarter, he said.
"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," Filson said.
Underwriting concerns have grown in the broader market as higher rates have created more competition by attracting more insurers, Prabhu said.
"There are weak points that are starting to show up in certain programs," he added.
Prabhu also said the company also has been particularly cautious with home equity underwriting by limiting combined LTV ratios in a housing market that may be peaking.
Angel Oak Mortgage REIT's stock price was up 1.47% on the day shortly before 1 p.m. when it was trading at $8.96 per share.
