Good morning. Thank you for joining us today for Angel Oak Mortgage REIT's third 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'll 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, Randy, and thank you all for joining us today. During the quarter, non-QM and the fixed income market became more challenging as higher rates and a shift upward in the yield curve pressured asset valuations and compressed financing spreads across mortgage credit market.

While this environment negatively impacted book values across the landscape, as expected, Angel Oak's underlying credit performance of our portfolio remained stable and continued to perform in line with our expectations. We believe this distinction is important as the valuation pressure we experienced reflects broader market environments rather than deterioration in credit quality or performance of our underlying loans.

Notably, we completed two securitizations early in the period ahead of the more pronounced increase in rates during August and September. Additionally, despite less favorable conditions, we completed a third securitization in October to mitigate potential further interest rate risk.

This consistent access to securitization markets provides us with an important tool to manage financing risk, recycle capital, and support the long-term return profile of the portfolio across varying interest rate levels. We also renewed and extended several financing facilities at reduced spreads during the quarter, reflecting our continued focus on actively managing funding costs, although higher underlying interest rates have offset that near-term benefit.

While broader non-QM origination volumes have declined and a higher-rate environment has temporarily compressed current returns on new investments, we continue to source and purchase loans that meet our credit and return criteria. Our structure and position within the Angel Oak organization will continue to be a comparative advantage in a competitive market.

We remain deliberate in pacing of our capital deployment across loan vintages and disciplined in maintaining underwriting standards that are central to our strategy, rather than extending risk and pursuing incremental returns at the expense of long-term credit performance. We believe that this prudent approach will serve us and our shareholders well and will continue to provide its value through pockets of volatile and challenging interest rate environments.

Looking ahead, our priorities remain consistent. We will continue to focus on disciplined credit underwriting, thoughtful capital deployment, and maintaining access to securitization markets while positioning the portfolio to perform across a range of market environments.

We remain confident in the underlying credit performance of our investments and in the strength of the Angel Oak platform. 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. During the quarter, the upward pressure on shorter-term yields negatively impacted reported book value as expected.

That being said, the underlying portfolio performed in line with our expectations, with low levels of delinquencies and continued growth in the target asset portfolio. For the third quarter, we reported a GAAP net loss of $16.7 million, or 72 cents per diluted common share, compared with GAAP net income of $11.4 million, or 46 cents per diluted common share in the third quarter of 2025.

The primary driver of the loss was a $24.4 million net realized and unrealized net loss related to our securitization portfolio. This was largely attributable to the previously mentioned unrealized valuation declines during the last quarter.

Notably, distributable earnings for the quarter were $6.4 million, or 28 cents per diluted common share, compared with half a million, or 2 cents per diluted common share in the prior period. The primary drivers of the difference between distributable earnings and GAAP net income for the third quarter of 2026 were adjustments to exclude unrealized losses from our residential loans, the residential loans held in securitization trust, non-recourse securitization obligations, and derivative portfolios.

During the quarter, we completed two securitizations with $1.8 million of securitization costs reflected in this distributable earnings metric. Interest income for the quarter was $42.5 million, while net interest income was $10.2 million.

This compares favorably with interest income of $36.7 million and net interest income of $10.2 million in the third quarter of 2025. Interest income increased 16%, while net interest income remained relatively flat.

We generated $5.8 million greater interest income for Q3 compared to the comparable period of 2025, driven by increases in the amount of our target assets. Operating expenses for the third quarter were $2.1 million.

Our operating expenses increased marginally compared to the comparable period due to increases in loan diligence fees and valuation costs associated with a larger overall balance in our target asset portfolio. Loan purchases during the quarter totaled $233.1 million.

The weighted average coupon on loans purchased during the quarter was 7.21%, with a weighted average CLTV of 71.8% and a weighted average credit score of 758. These purchases continued to be well in line with the credit and return parameters we have discussed as our targets in prior quarters.

Current mortgage locks average approximately a 7.9% coupon, reflecting the recent increase in rates as it flows through the mortgage origination process. At the beginning of Q3, we executed the AOMT 2026-3 securitization.

We were the sole contributor to the deal, which had $280 million 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 participated in AOMT 2026-HB1, a $221 million co-mingled HELOC securitization, to which we contributed $71 million in 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 one securitization per quarter, or four per year. We also closed AOMT 2026-6 in late October 2026, which had a $250 million unpaid principal balance, a weighted average coupon of 7.25%, weighted average non-zero credit score of 754, and a weighted average CLTV of 71.6%.

Additionally, we remained active on the financing front during the period. We renewed and rolled several financing facilities during the quarter at lower spreads.

While the higher underlying base rates offset much of the immediate benefit, the lower spreads have improved the economics of those facilities and reflect our continued focus on actively managing financing cost. This will remain particularly important as we manage the portfolio through the existing rate environment.

As of quarter end, GAAP book value per share was $8.97, down 11.5% from $10.13 at the end of the second quarter. Economic book value per share, which fair values all non-recourse securitization obligations, was $11.45 per share, down 6.5% from $12.24 at the end of Q2.

The change in book value during the quarter was primarily driven by non-cash mark-to-market valuation declines across the portfolio, as higher rates and the upward shift in the yield curve pressured asset values, partially offset by earnings generated during the quarter. As Sreeni noted, these valuation movements did not reflect a deterioration in the underlying credit performance of the portfolio.

Our balance sheet has remained well-positioned, with $49 million in cash and a recourse debt-to-equity ratio of two times. We ended the quarter with unsecuritized residential whole loans at a fair value of $294 million, financed with $255 million of warehouse debt, $2.3 billion of residential loans in securitization trust, and $203 million of RMBS.

We also maintained approximately $1 billion of undrawn loan financing capacity across four lending partners. Credit performance remained solid during the quarter, with portfolio-wide 90-day plus delinquency of approximately 2.1%, flat compared to the end of the second quarter.

Three-month prepay speeds for our non-QM RMBS securitized loan portfolios were 11.2% at the end of the quarter, compared with 15.2% at the end of the second quarter. We continue to model our investments using historical average prepay assumptions of approximately 20% to 30%.

Lastly, the company declared a 32 cent per share common dividend payable on November 30th, 2026 to common stockholders of record as of November 23rd, 2026. For additional detail on our financial results and portfolio composition, please refer to the earnings supplement available on our website.

Thank you, Brandon. The proven, well-established Angel Oak origination purchase and securitization platform provides us with the confidence to perform well in variety of macro environments.

The fundamental backdrop for 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?

Thanks, and good morning. In the press release, you talked about kind of the near-term impact on returns from higher rates.

Wondering if you could quantify that and then kind of how you think about what gets you back to kind of the historical normalized level that you have talked about? Yes.

Hey, good morning, Doug. Right now as rates rose and we're buying loans, locks take 30, 60 days to run through the process.

Current returns are not quite as good as we expect, that 15% to 20% level. However, they're starting to recover with new locks coming in at around 8%.

That's going to pull that back up a little bit lower than our target, but I expect if this rate environment stays the way it is in the next set of locks we get over the next month that we'll be back to the 15% to 20% level, provided that the interest rate environment stays similar to what it is today.

That is helpful. I guess can you just talk about, I guess as you go through periods of volatility, kind of what is the hedging, what is the forward commitment, and ways that you look to protect yourself from this volatility?

We're hedging the securitization execution on the base rate side. We're not hedging the spread.

Over the last quarter, we had hedging making up some of the losses we would have had in terms of securitization proceeds. We're not hedging our book value, the securitized product out there or the retained bond positions once they're securitized.

Got it. Just remind us, is there any mismatch in the fundamentals or the cash flows of those retained pieces, or is that more mark-to-market risk versus actual change in expected cash flows?

That's really mark-to-market risk. We'd have to have some kind of credit problem outside of our expectation to change our expected cash flows on our retained pieces.

Great. Thank you.

Very helpful.

Thanks, and good morning. Just to follow up on the book value question.

How much of that was due to rate moves versus non-QM spread widening, and also on the retained interest, is that just mainly driven from rate mark-to-market or is it also some spread widening in that?

I would say this quarter it's kind of everything. If you just look at what spreads did on our product, early in the quarter, 26-3 priced the AAA at 130 over, then 26-6, which closed just a few days ago, was 160 over on the AAA.

Then of course, the two- and the five-year also shifted up. It's really kind of a bit of both driving it.

It's probably almost equal share between the two.

That's captured in third quarter book value. Okay.

Can you give us the sense of where book value is tracking so far in 4Q?

I think book value has probably made a couple point recovery as of today. Been a little bit more favorable environment, but I would say, again, about a two point recovery.

Got it. That's helpful.

On competition last quarter, you noted there's some weaker programs that AOMR was unwilling to pursue. How is that looking currently, and is it showing up more in pricing or on credit metrics?

Not sure I got that question, Marissa. I'm sorry.

I just wanted to understand the competitive environment, if you're seeing that show up more in credit underwriting slipping or more competitive pricing.

This is Sreeni here. I think if the spreads are widening out, what we're seeing is weaker underwriting is getting priced even wider.

There's been a little bit of weakness in that from our competitors' perspective, and that will show up in whole loan tapes selling at slight discounts to market, which we are seeing. We're not seeing that in big proportion, to be fair.

We're seeing that in small waves, but we're definitely seeing that. If we continue to see spreads being wider, what it will show up in is that those weaker programs will essentially slow down because there will be no exit in the capital markets.

Yet to be seen from our competitors, but I would like to think that, or we are seeing that in terms of AAA spreads or other shelves. I hope I answered that question.

Thank you.

Yeah.

Hi. Thanks for taking the questions this morning.

I guess just on liquidity and capital allocation, just trying to think through how you all are thinking about it. Does the board look at a share repurchase program?

Is the dividend kind of the key return of capital to shareholders? Then obviously much longer dated, but the 2029 notes became callable in July.

I just wanted to understand how you think about your liquidity position generally and capital allocation going forward. Yeah.

Hey, Timothy. I think our liquidity position is pretty strong today.

Again, we've got consistent access to securitization markets, the last securitization we did gave us about 20 just over $20 million in proceeds, which provides a good amount of runway in terms of buying things back. You mentioned the '29 notes.

Today, they are theoretically callable, but not really in the money, I would think, from that perspective. We're hopeful over the next few years that the market gives us a better opportunity to call and refinance at lower rates, or just to pay off.

Then share repurchase programs, we've done kind of targeted repurchases here and there. Post-IPO we had a program, then we had a couple targeted ones with Davidson Kempner buying back at what we thought at the time was opportunistic levels.

Obviously, we're very sensitive on the overall size of the balance sheet, what we could do with the capital, and what the forecast is. Right now, like mentioned before, the returns are a little bit compressed, not too far off from even our dividend yield at today's pricing.

There's an opportunity here where that'll widen back out and be where we should keep the capital in the vehicle versus spending the money to repurchase shares and reduce the float of the stock.

Great. Thank you.

I guess just a second question if I can ask here. Just on loan purchases in the quarter, I guess maybe I missed it, could you break out or maybe just directionally kind of give us some color on non-QM versus HELOC?

Just it would be great to hear maybe what the appetite of the market is. Are you seeing more HELOC volume now, or are you continuing to see more non-QM?

I think from our perspective, the non-QM market is strong. We personally, this AOMR, once we did HB1 or participated in HB1, we pulled back a little bit on the HELOC purchasing for the quarter, we didn't purchase too many in the quarter.

That's a switch and a valve that we can turn on and off very easily. Then source assets out there.

I think, as rates go up, there's a bit of more HELOC demand than when rates are going down, as people have much more propensities to take a little bit of incremental borrowing cost on top of their existing mortgage. I would think that both volumes are consistent, even in a higher rate environment that we had at the end of last quarter.

Our mortgage company is about the same size as it was before. There's been no real drop-off in demand, nor any real increase.

Okay. Thank you so much for taking the questions this morning.

Good morning. Thank you everybody for joining us today.

We look forward to connecting with you again next quarter. Have a great day.