Angel Oak’s HELOC Pricing, Pipeline Timing, and Allocation Guidance Clash in 2026 Q2 Call

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $41.4M interest income, up 18% YOY; net interest income $10.7M, up 8% YOY
• EPS: 14 cents per diluted common share (GAAP net income), compared to $0.03 per diluted common share in Q2 2025

Guidance:

• Expect to continue a pace of roughly one securitization per quarter, totaling four per year, with a second HELOC securitization likely this year.
• Target HELOC allocation of 10% to 15% of overall portfolio, with a predominant focus on non-QM loans.
• Maintain similar operating expense levels going forward.
• Model returns based on historical average prepayment speeds of 20% to 30%.
• Recourse debt-to-equity ratio expected to decrease to approximately one times following recent securitizations.
• Continue to access securitization markets with a disciplined strategy.

Business Commentary:

Strategic Financial Actions:

• Angel Oak Mortgage REIT sold its retained bonds from the AOMT 2020-3 securitization and reinvested proceeds into new loans with higher model yields. They also repurchased $15 million of common equity at accretive return levels and reduced the interest rate spread on their largest warehouse financing facility by 35 basis points.
• These actions were taken to strengthen the portfolio's return profile and durability, reflecting a focus on strategic value-driven decisions amid macroeconomic uncertainty.

Consistent Earnings and Expense Management:

• The company reported gap net income of $3.4 billion, or 14 cents per diluted common share, with distributable earnings of $9 million. Interest income was $41.4 million, and net interest income was $10.7 million, showing growth compared to the previous year.
• The growth in earnings was supported by healthy debt interest income and controlled operating expenses, despite some unrealized losses.

Loan Purchase and Underwriting Metrics:

• Loan purchases during the quarter totaled $204 million, with a weighted average coupon of 7.34%, CLTV of 17.5%, and credit score of 759%. The weighted average coupon for the entire loan and securitization trust portfolio was 6.04%.
• The company maintained conservative credit profiles and moderate loan-to-value ratios, aligning with their desired credit and return criteria.

Securitization Activity and Market Conditions:

• Angel Oak executed two securitizations post-quarter end, contributing to a total of four expected per year. The AAA-rated senior bonds for AOMT 2026-3 priced at 130 basis points over the Treasury yield curve.
• Securitization markets remained constructive despite market uncertainty, allowing the company to maintain its disciplined securitization strategy.

Balance Sheet and Liquidity Management:

• The company ended the quarter with a recourse debt-to-equity ratio of 2.3x, cash of $48.6 million, and undrawn loan financing capacity of approximately $900 million.
• This positioning ensures flexibility to respond to changing market conditions, with plans to reduce the debt-to-equity ratio following recent securitizations.

Sentiment Analysis:

Overall Tone: Positive

• We saw continued demand for well-structured non-QM credit... Our platform demonstrated resilience with solid year-over-year growth in net interest income, stable book value, and durable credit performance. We are confident in the advantages of the Angel Oak platform... gives us multiple levers to manage through changing market conditions.

Q&A:

• Question from Marissa Lobo (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-line non-QMs?
  Response: HELOCs are viewed as a 10% to 15% allocation; the portfolio will remain predominantly non-QM.

• Question from Marissa Lobo (UBS): Seeing that investor loans are largely about 50% of the market, and how does AOMR's collateral compare to that? And to what extent are you growing DSCR exposure?
  Response: AOMR's composition on investor cash flow loans is around the same as the market (~50%); the focus remains predominantly in that space, with some growth in bank statement borrowing programs.

• Question from Doug Harder (BTIG): In your prepared remarks, you mentioned that one of 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?
  Response: Returns during warehouse period are typically 13% to 14%; returns upon securitization are 15% to 20%, varying with market conditions.

• Question from Doug Harder (BTIG): In your supplement, it looks like the cost of the warehouse debt has kind of bounced around the past couple quarters. Is there any kind of noise in there that we should be thinking about as we calculate that number on a quarterly basis?
  Response: Variation depends on leverage levels and financing mix throughout the quarter, with costs expected to normalize in Q3 after recent securitizations.

• Question from Jason Weaver (Jones Trading): Just looking at the 2026-3 deal, it looks like we're seeing a fair amount of spread compression there versus the last securitization. With lower collateral lack 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?
  Response: The spread compression was due to the deal's lower coupon portfolio composition; current loans are bought at higher mid-7% coupons, and securitization spreads remain healthy and tight.

• Question from Jason Weaver (Jones Trading): Can you talk a bit about what you're seeing on broad consumer credit trends and non-QM underwriting standards any more tightness there?
  Response: The non-QM market continues to grow despite competitive challenges; underwriting remains disciplined, though some weaker programs are emerging that AOMR avoids. Consumer credit is weaker, but AOMR focuses on cautious, conservative underwriting (40-65% LTV).

• Question from Timothy Arcuri (UBS): How do you think about the four non-QM securitizations per quarter and the two DLOC securitizations? And does the pipeline for non-QM potentially support a second securitization in the third quarter or no?
  Response: The target is four non-QM securitizations per year, with a second HELOC likely; a second non-QM in Q3 is possible, but timing depends on the market.

• Question from Timothy Arcuri (UBS): Are you still seeing good demand there in terms of what you're able to invest in?
  Response: Yes, there is plenty of non-QM demand, with a robust pipeline and multiple buyers in the market.

Contradiction Point 1

HELOC Securitization Pricing and Returns

Inconsistent guidance on pricing and returns for HELOC securitizations.

Doug Harder (BTIG) - Doug Harder (BTIG)

2026Q2: Returns during the warehouse period are typically 13% to 14%. Upon securitization, returns are in the range of 15% to 20%. - Brandon Filson(CFO)

How do returns during the warehouse period compare to those upon securitization, given the 35 basis point improvement in warehouse financing facilities? - Matthew Erdner (JonesTrading Institutional Services, LLC)

2026Q1: The target is a 15% to 20% ROE when market conditions improve and the company is ready to securitize again. HELOC securitizations are not currently being priced. - Brandon Filson(CFO)

Contradiction Point 2

HELOC Securitization Pipeline and Timing

Contradiction on the expected timing and volume of HELOC securitizations.

What is Timothy's role in the securities division? - Timothy (Securities)

2026Q2: The projection remains for four non-QM securitizations per year on average, with a second HELOC securitization also likely this year. - Brandon Filson(CFO)

What is your strategy regarding the four non-QM and two DLOC securitizations per quarter, and does the non-QM pipeline support a second securitization in Q3? - Ameeta Lobo Nelson (UBS Investment Bank)

2026Q1: The pacing is still about correct, and another HELOC securitization is expected in the coming months. - Brandon Filson(CFO)

Contradiction Point 3

HELOC Securitization Allocation and Pace

Contradictory guidance on HELOC portfolio target size and expected annual securitizations.

Marissa Lobo (UBS) - Marissa Lobo (UBS)

2026Q2: The HELOC opportunity is seen as a 10% to 15% allocation of the overall portfolio. - Srini Prabhu(CEO)

How large is the HELOC opportunity for AOMR under the new securitization, and what is the target allocation relative to first-line non-QMs? - Timothy D’Agostino (B. Riley Securities)

20260225-2025 Q4: AOMR expects to participate in 1 to 2 HELOC securitizations per year. - Sreeniwas Prabhu(CEO)

Contradiction Point 4

Non-QM Securitization Returns and Outlook

Inconsistent characterization of non-QM securitization return stability and market spread expectations.

What were the earnings results for the quarter? - Jason Weaver (Jones Trading)

2026Q2: The company still expects spreads in the 15 to 20 basis points range, though they can bounce around. - Srini Prabhu(CEO)

Given the spread compression in the 2026-3 deal compared to the last securitization, can you discuss the forward assumptions, whether the spread remains in the high teens range, and any deal-specific factors that contributed to the tighter net spread? - Eric Hagen (BTIG)

20260225-2025 Q4: Securitization spreads are expected to remain stable within a 25–40 bps range. - Sreeniwas Prabhu(CEO)

Contradiction Point 5

HELOC Allocation and Portfolio Strategy

The strategic focus on HELOC portfolio size appears to have shifted.

Marissa Lobo (UBS) - Marissa Lobo (UBS)

2026Q2: The HELOC opportunity is seen as a 10% to 15% allocation of the overall portfolio. The company will remain predominantly focused on non-QM loans... - Srini Prabhu(CEO)

What is the potential size of the HELOC opportunity for AOMR and how does its target allocation compare to first-line non-QMs? - Timothy D'Agostino (B. Riley Securities, Inc.)

2025Q3: The company plans to maintain its HELOC portfolio size in the range of $75-$150 million... - Brandon Filson(CFO)