Angel Oak Mortgage Posts Consecutive Quarterly Loss Amid Challenging Economic Environment
Angel Oak Mortgage Inc. (NYSE: AOMR) delivered a second consecutive quarterly loss. Like others in the business, Angel Oak Mortgage, Inc cites a “challenging economic environment” as a leading cause for the company’s repeated quarterly losses, Like other real estate finance companies, the company is contending with elevated inflationary pressures that have triggered extreme and continued volatility. Interest rate spreads widened following the Federal Reserve interest rate hike leading to significant losses in the company’s performance.
Challenging Business Environment
The Federal Reserve’s aggressive monetary tightening policy triggered extreme volatility in the real estate sector, which drove unrealized losses on the company’s portfolio of target assets. The volatility has markedly impacted interest-rate spreads, which have widened, and additional pressures in nominal interest rates.
Angel Oak Mortgage, Inc is one of the mortgage companies that has felt the full brunt of the volatility in the real estate industry. Elevated inflation levels have seen many investors shun the industry in favor of safe havens. Additionally, climbing interest rates have led mortgages to skyrocket from lows at the height of the pandemic, making it extremely difficult for people to refinance their mortgages.
However, the stock has started bottoming out after coming under immense pressure in the year’s first half, going down by more than 20%. While the stock has bounced back, recouping some of the losses since the start of the year’s second half. A disappointing second-quarter report with management raising doubts about the macro environment could take a toll on the company’s sentiments in the market.
Second-Consecutive Quarterly Loss
The real estate finance company plunged into a net loss of $52.1 million or $2.13 per diluted share in the second quarter of this year, owing to the challenging business environment. This reported loss comes on the heels of a net loss of $43.5 million or $1.77 per diluted share delivered in the first quarter. GAAP book value declined to $14.73 a share at the end of the quarter, down from $16.80 at the end of the first quarter and $19.47 in the fourth and final quarter of the previous year.
Despite its core business being hurt by the twice in a row 75 basis point rate hike by the Federal Reserve, Angel Oak Mortgage generated distributable earnings of $0.90 a share. The income affirmed the portfolio’s income-generating capabilities.
Company Investments and Second Quarter Assets
In the second quarter, Angel Oak Mortgage purchased $257 million worth of non-QM residential mortgage loans. This reflects a 62% decline from the company’s reported $676 million purchases in the first quarter. It also sold $7 million in commercial loans, a move reportedly executed for the purposes of increasing its liquidity to direct toward residential loan purchases. As previously discussed (FGMC fallout post), the non-QM markets have been under significant pressure recently and this appears to be a continuance of that trend.
In addition, Angel Oak Mortgage added a new warehouse facility with $340 million in additional financing capacity during the second quarter. The company exited the quarter with $1.64 billion across seven financing lines. Since then, the company has further added warehouse facility and is seeing an aggregate capacity of $1.9 billion.
As of the end of the second quarter, Angel Oak Mortgage, Inc’s balance sheets reports $3.2 billion in target assets, as well as residential mortgage loans totaling a $1.3 billion in fair market value. The company’s target assets reportedly totaled an estimated $160, while the company’s recourse debt to equity ratio came in at 3.4X.
By the end of the second quarter, Angel Oak Mortgage, Inc reported a $0.45 dividend per share, which will be payable on August 31, 2022 to common stockholders of record as of August 22, 2022.