Greetings. Welcome to the Angel Oak Mortgage REIT Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Randy Chrisman, Chief Marketing Officer. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Angel Oak Mortgage REIT’s fourth quarter 2021 earnings conference call. This afternoon, we filed our press release detailing our fourth quarter and full year 2021 results, which is available in the Investor 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 afternoon’s conference call is hosted by Angel Oak Mortgage REIT’s Chief Executive Officer, Robert Williams; Chief Financial Officer, Brandon Filson; and Angel Oak Capital’s Co- CIO, Namit Sinha. 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 at www.angeloakreit.com. Now, I’ll turn the call over to Robert.

Thank you, Randy. And thank you everyone for joining us today. 2021 was a foundational year for AOMR. After completing our IPO in June, we came out of the gates and were able to quickly scale our portfolio and demonstrate the strength of the AOMR business model. From our IPO through the end of the year, we purchased $1.4 billion of high quality non-QM loans, doubled our available loan financing capacity, and closed two securitizations. Our quick deployment of capital into our targeted assets, our consistent securitization strategy, and our leadership position in the non-QM mortgage industry all serve as a testament to infrastructure, scale and expertise of the Angel Oak franchise, or as we refer to it, the Angel Oak ecosystem. Angel Oak Mortgage Lending’s national platform has originated approximately $13 billion in non-QM mortgages since its founding. The Angel Oak ecosystem provides access to a vast range of investment opportunities, enables AOMR to tailor our desired loan characteristics. The current non-QM market is supported by strong, sustained demand for housing. Despite rising interest rates, we continue to see growing non-QM volumes through our proprietary origination channels thus far in 2022. Home price appreciation has accelerated across markets and delinquency rates are at near historical lows. The growth has not come at the expense of quality, as our recently originated loans have higher average FICO scores, and a lower average LTV and DTIs than prior years. As the Fed continues to increase target interest rates and tapers agency MBS purchases in the coming months, we believe that our target non-agency assets are well positioned. And 2021 was a pivotal year for Angel Oak Mortgage REIT. I will highlight a few of our accomplishments. We completed our IPO in June, which was the largest residential mortgage REIT IPO by proceeds…

Thanks, Robert, and thanks to everyone for joining us. For the fourth quarter 2021, we had GAAP net income of $3.1 million or $0.12 per common share, distributable earnings of $22.3 million or $0.89 per common share. Q4 annualized distributable return on average equity was 18.1%. The increase quarter-over-quarter in distributable earnings is attributable to the scaled investment portfolio as of December 31, 2021. The impact of realized gains on our hedging strategy on our loan portfolio and the add-back of unrealized losses on our loan portfolio incurred during the fourth quarter. Interest income for the full year increased 49% over the prior year, while maintaining net interest margin of over 80%, underscoring our ability to not only quickly, but profitably scale the business. We’re pleased to have achieved these results, improving the business model amid headwinds from a rising rate environment and accelerated prepayment fees on older higher coupon securities. GAAP book value per share was $19.47 on December 31, 2021, including the impact of our $0.36 per common share dividend paid in November, down from $19.72 on September 30th. The decrease in book value was primarily due to a decrease in loan valuations as rates rose in Q4 2021, partially offset by gains from our hedging strategy. Since our IPO, we have grown book value per share from $19.26 to $19.47, while distributing $0.48 in dividends. During the fourth quarter, we purchased $773 million of non-agency mortgages. Also, as of March 10, 2022, we purchased an additional $540 million in mortgage loans. Beginning in November of 2021, in response to rising rates, we began raising the rates -- the loans we purchased. These higher coupon loans are beginning to work their way into our portfolio. Turning now to our securitization activity. Our strategy for securitization begins with loan…

Thank you, Brandon. In conclusion, we are very pleased with our results, benefited from the power of the secure Angel Oak platform. We came out of the gate strong driving record portfolio growth and accretive securitization execution. As a result, we produced excellent results in 2021, supporting strong growth and distributable earnings, cash flow and our dividend. To summarize, I want to reemphasize the opportunity we have as we look to 2022 and beyond with the following points. First, this is a business not a trade. This is an investment in an operating business that has been built for over a decade. That gives shareholders access to scarce proprietary assets with strong returns to support an attractive dividend yield. Investing in Angel Oak ecosystem is an investment in a high-quality asset that has prudent credit and risk-adjusted pricing metrics. Our primary focus on non-QM origination is unique among the 24 mortgage REITs in the residential REIT index and offer significant diversification benefits, with less leverage, less liquidity risk, and less interest rate risk than any of our competitors. As a result, we were pleased to raise our quarterly dividend by 25% to $0.45 per common share, which implies an annualized dividend yield of 12%. Second, we have unparalleled access to high quality loans to Angel Oak Mortgage Lending, which is the single largest nonbank originator of non-QM loans. The Angel Oak ecosystem is unique and provides significant competitive advantages. Alongside the Angel Oak franchise, we have an 11-year-plus history, pioneering many of the tactics we utilize, reinforcing the significant barrier to entry for others to replicate this proprietary experience and knowledge. Third, AOMR is a focused non-QM credit-driven investment that is unique in the public mortgage REIT sector. Strong historical performance of our loans is driven by our in-house independent underwriting process. Angel Oak Mortgage underwrites every loan we fund, resulting in access to a pipeline of high-quality, non-QM loans for AOMR. Fourth, we have programmatic execution in capital markets through Angel Oak Capital’s securitization platform, with a strong investor following and a low cost of funding. Finally, we believe our non-QM products are more insulated from interest rate changes than the agency mortgage loans, with wider spreads and less competition, providing a long runway of growth. We’re excited for opportunities ahead and want to thank all Angel Oak’s 900 plus employees for their hard work and contributions to drive successes. With that we’ll open up the call to your questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Don Fandetti of Wells Fargo. Please proceed with your question.

Hi. Good to see the dividend increase. A couple of quick questions. One, spreads widened in Q1. Can you give us a sense on where book value is tracking, currently?

Yes. So, book value, after quarter end, I mean, I think what we’ll have in Q1 is a book value that will go down slightly, but nothing too drastic, considering our hedging strategy we have in place, much like what happened in Q4.

Okay. And then, as we think about next quarter, in terms of sort of the other income line items and their impact on distributable income, would it look kind of similar where you have kind of a negative, because you’ve got some widening on the loan mark, and not all of it’s offset by the hedges, because some of those are realized?

I think, the things that go in that other income line, like you mentioned, the big driver right now is unrealized gains and losses on the loan portfolio. That is partially -- or mostly offset by our hedging strategy. And then, the other side of that equation is when the legacy IO bonds are paying down their -- the notional decrease goes through that line on there as well. So again, I think, in a perfect world, what you would see there is just -- with a perfectly hedged world, you’ll see just the notion of bleed off of the IO bonds.

Okay. But, given spread widening, you’re obviously just hedging your interest rate risk. So, there would be some negative impact, I would imagine in Q1 from mark-to-market?

Yes.

You kind of clarified that. I guess, there was also some tax expense in the quarter, what’s the story there?

Yes. That’s -- what that is, is the benefit of our, I’ll call it success of our hedging strategy. So, in Q4, we had a large amount of realized gains in our taxable REIT subsidiary, and that’s representing the tax expense for that.

Okay. I mean, why is that? It’s good that you were hedge, but what is that good if you had to pay taxes on it?

Well, I’m saying because if we didn’t have the tax, we wouldn’t have made income in the TRS because we’d be unhedged and...

Got it. Just to clarify, someone asked me this. But, I think I know the answer. The mark-to-market on the loans, it doesn’t matter if they’re loans in securitization or if they’re waiting securitization, right? The loans are marked regardless. Is that correct?

Yes. There’s no difference in the financials.

Okay, great. And then, just one last one, just since there are a lot of moving parts. You still have a fair amount of loans that are not securitized, even though you did your deal on February, but you had good production in Q1. I mean, are you going to just wait out the securitization market, because things are wiped out or do you have risk there? Are you going to slow down loan growth because of what’s going on?

Yes. For that question, I’m going to turn it over to Namit Sinha, our co-CIO who’s in the room with us as well.

Yes. Hi. So, from a securitization standpoint, we generally believe in managing the financing risk in a prudent way, so effectively build up the loan portfolio to critical mass and then be sort of programmatic in taking it to securitization and not picking and choosing the spread at which to securitize somewhat. The market where we are right now is definitely wide to where we were earlier. But as Brandon had mentioned, we’ve also raised loan coupons to reflect that widening. So, over a cycle, you’re going to see that effect kind be mitigated away by the higher loan rates that we’re going to produce, starting within 30 to 45 days.

But, are you going to -- some companies, when this happens where it’s a little less certain securitization market, they slow down because you’re not a bank, you don’t have deposits. Are you making a conscious decision to be a little more careful right now?

I think what we’ll do is we’ll still go out to the securitization market. What we might choose to do is potentially sell down deeper to the -- in the capital structure and effectively utilize the cash release, post-securitization to invest in higher yielding securities or loans down the line.

Got it. Okay. Thanks.

[Operator Instructions] There are no more questions at this time. This completes our question-and-answer session. And I will now turn the call back over to management for closing remarks.

This is Robert. I want to thank everyone for your time and interest in Angel Oak Mortgage REIT. As you can tell, we are excited about the opportunities we have in front of us. We look forward to connecting with you the next quarter. In the meantime, if you have any questions, please reach out to us, and everyone have a great evening.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.