10-Q: Angel Oak Mortgage REIT Q2 2025 Earnings Surge

Angel Oak Mortgage REIT, Inc. reports a significant turnaround in Q2 2025 net income and distributable earnings, driven by increased interest income and strategic capital management.

Summary

• Net income allocable to common stockholders was $767 thousand for Q2 2025, a substantial improvement from a net loss of $(273) thousand in Q2 2024.
• For the six months ended June 30, 2025, net income was $21,298 thousand, up from $12,601 thousand in the prior year period.
• Basic and diluted earnings per common share for Q2 2025 were $0.03, compared to $(0.01) in Q2 2024.
• Net interest income increased by 5% to $9,940 thousand in Q2 2025, up from $9,463 thousand in Q2 2024, primarily due to higher interest income from target assets.
• Distributable Earnings, a non-GAAP measure, showed a gain of $2,639 thousand for Q2 2025, a significant improvement from a loss of $(2,301) thousand in Q2 2024.
• Distributable Earnings Return on Average Equity turned positive at 4.2% for Q2 2025, compared to (3.5)% for Q2 2024.
• Total assets increased to $2,554,488 thousand as of June 30, 2025, from $2,269,769 thousand at December 31, 2024.
• Book value per share increased to $10.37 as of June 30, 2025, from $10.17 at December 31, 2024.
• Economic book value per share slightly decreased to $12.97 as of June 30, 2025, from $13.10 at December 31, 2024.
• The company purchased $146.6 million of newly-originated non-QM residential mortgage loans, second lien mortgage loans, and HELOCs during Q2 2025, with a weighted average coupon of 8.68%.
• Two securitization transactions were completed in Q2 2025: AOMT 2025-4 ($284.3 million) and AOMT 2025-6 (approximately $349.7 million), which helped repay outstanding debt and release cash for new loan purchases.
• Issued $42.5 million in aggregate principal amount of 9.750% Senior Notes due 2030 in May 2025, generating net proceeds of approximately $40.6 million for general corporate purposes and asset acquisition.
• Sold 215,622 shares of common stock through an at-the-market (ATM) equity offering program for net proceeds of $2.2 million during Q2 2025, with approximately $71 million remaining available under the program.

Sentiment

Score: 7

Explanation: The company demonstrated a strong financial turnaround in Q2 2025 with positive net income and distributable earnings, coupled with active and successful capital management through securitizations and debt offerings. While economic book value per share saw a slight dip and market conditions remain uncertain, the operational improvements and strategic financing efforts indicate a positive trajectory.

Positives

• Net income and distributable earnings significantly improved, turning positive in Q2 2025 compared to losses in the prior year period.
• Net interest income increased by 5% in Q2 2025, indicating effective management of interest-earning assets and liabilities.
• Successful execution of two securitization transactions (AOMT 2025-4 and AOMT 2025-6) in Q2 2025, providing long-term financing and liquidity for new loan purchases.
• Successfully raised $40.6 million in net proceeds from the issuance of 9.750% Senior Notes due 2030, enhancing capital resources.
• Operating expenses decreased due to cost savings initiatives, including in-sourcing accounting functions, vendor contract negotiations, and reduced servicing fees.
• Stock compensation expense decreased, contributing to lower overall expenses.
• Maintained stable securitization markets and constructive conditions throughout the quarter despite macroeconomic uncertainties.

Negatives

• Net realized and unrealized losses on mortgage loans, derivative contracts, RMBS, and CMBS totaled $(4,075) thousand in Q2 2025.
• Economic book value per share slightly decreased to $12.97 from $13.10.
• The weighted average price of the residential whole loans portfolio (excluding HELOCs) decreased by approximately 53 basis points in Q2 2025.
• Inflation increased from 2.4% in May to 2.7% in June 2025, potentially reflecting the impact of announced tariffs.
• 30-year fixed residential conforming mortgage rates increased by 12 basis points to 6.77% by the end of Q2 2025, which is expected to negatively impact newly originated asset pricing.

Risks

• Adverse conditions or developments in financial markets and the economy affecting the ability to acquire target assets.
• Volatility of prevailing interest rates and credit spreads.
• Changes in industry, inflation, interest rates, business strategies, or real estate markets.
• General volatility of the markets in which investments are made.
• Changes in the availability of attractive loans and other investment opportunities.
• The Manager's ability to locate suitable investments, manage the portfolio, and implement strategy.
• Ability to profitably execute securitization transactions.
• Ability to obtain and maintain financing arrangements on favorable terms.
• Adequacy of collateral securing investments and a decline in their fair value.
• Timing of cash flows from investments.
• Operating performance, liquidity, and financial condition of borrowers.
• Increased rates of default and/or decreased recovery rates on investments.
• Changes in prepayment rates on investments.
• Departure of any members of senior management of the Company, Manager, or Angel Oak.
• Availability of qualified personnel.
• Acts of God, including natural disasters, pandemics, acts of war or terrorism, or military conflicts causing unanticipated performance declines, disruptions, and/or losses.
• Occurrence of certain geo-political events, including global trade disputes related to tariffs.
• Impact of and changes in governmental regulations, tax laws and rates, and accounting principles and policies.
• Level of governmental involvement in the U.S. mortgage market.
• Future changes with respect to Fannie Mae or Freddie Mac (GSEs) in the mortgage market, including uncertainty of their future roles.
• Effects of hedging instruments on target assets and returns, and the degree to which hedging strategies may or may not protect from interest rate volatility.
• Ability to make distributions to stockholders at the contemplated level.
• Ability to continue to qualify as a real estate investment trust (REIT) for U.S. federal income tax purposes.
• Ability to maintain exclusion from regulation as an investment company under the Investment Company Act of 1940.

Future Outlook

The company expects to continue purchasing newly originated loans and HELOCs to support overall portfolio valuations and securitization execution. The deployment of new capital from the 2030 Notes issuance is anticipated to drive further net interest income expansion in future quarters. Current projections are for the Federal Reserve to begin cutting interest rates in 2025, though the timing and extent remain uncertain. The strategic transaction involving Brookfield Asset Management Ltd. acquiring a majority stake in Angel Oak Companies (the Manager's affiliate) is expected to close in Q3 2025, with no material changes to the company's investment objectives, strategies, or personnel expected initially, though Brookfield will have a right to acquire additional beneficial ownership from 2027.

Management Comments

• We generated a 5% increase in net interest income in the second quarter of 2025 as compared to the second quarter of 2024, supported by the continued acquisition of accretive assets.
• Interest income grew due to the continued acquisition and securitization of current market non-QM loans.
• The addition of our 2029 Notes and 2030 Notes issued in July 2024 and May 2025, respectively, were key components of the increase to interest expense, and, although there can be no assurances, we expect the deployment of new capital from our 2030 Notes issuance to drive further net interest income expansion in future quarters.
• Our net realized loss for the quarter ended June 30, 2025 was primarily due to realized losses associated with the write-off of unamortized premium of loans that paid off in our residential loans in securitization trust portfolio and in loans underlying our RMBS portfolio.
• Our net unrealized loss for the quarter ended June 30, 2025 was primarily due to the reversal of prior unrealized gains on residential loans that were contributed to securitizations during the quarter.
• We expect to continue to purchase newly originated loans and HELOCs, which should continue to support overall portfolio valuations and securitization execution going forward.
• We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized.
• We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur.

Industry Context

The second quarter of 2025 was marked by initial market volatility due to announced tariff increases, which later moderated. Inflation showed a mixed trend, slowing in April and May before increasing in June. The Federal Reserve maintained a steady interest rate, with future cuts projected but uncertain. Treasury yields saw mixed movements, while 30-year fixed residential mortgage rates increased. Despite these uncertainties, securitization markets remained stable and constructive, which is favorable for the company's strategy of securitizing whole mortgage loans.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or global benchmarks for direct comparison of results.

Management Changes

Corporate Governance

Legal Proceedings

• No legal claims that could materially impact the company's financial condition were reported as of June 30, 2025.

Related Party Transactions

• Residential mortgage loan purchases from affiliates (Angel Oak Mortgage Lending), totaling $82,757 thousand for the six months ended June 30, 2025.
• Participation in securitization transactions with other affiliates of Angel Oak Capital (e.g., AOMT 2025-6).
• Payment of a fixed management fee to Falcons I, LLC (the Manager), an affiliate, equal to 1.5% per annum of the company's Equity.
• Operating expense reimbursements paid to the Manager, substantially comprised of payroll reimbursements.

Stakeholder Impact

• Shareholders: Potential for increased cash distributions due to improved distributable earnings, impact from common stock issuance via ATM program, and potential influence from the Brookfield transaction.
• Employees: Payroll reimbursements to the Manager indicate continued operational support, with resource efficiencies achieved.
• Customers (Borrowers): Continued focus on acquiring and investing in non-qualified residential mortgage (non-QM) loans, supporting the non-QM loan market.
• Creditors: Debt obligations from notes payable, non-recourse securitization obligations, and senior unsecured notes are being actively managed and financed through securitizations and new debt issuances.
• Suppliers/Vendors: Cost savings actions, including vendor contract negotiations, may impact relationships with certain service providers.

Next Steps

• Continue to purchase newly originated loans and HELOCs to support overall portfolio valuations and securitization execution.
• Deploy new capital from the 2030 Notes issuance to drive further net interest income expansion.
• Monitor the timing and extent of potential Federal Reserve interest rate cuts in 2025.
• Close the strategic transaction with Brookfield Asset Management Ltd. in Q3 2025, subject to customary closing conditions.
• Continue to evaluate and manage the lender base for whole loan financing facilities.

Key Dates

Recommendation

The company demonstrated a strong financial rebound in Q2 2025, with net income and distributable earnings turning positive and showing significant year-over-year growth. Net interest income also increased, indicating improved core business performance. Strategic capital raises through senior notes and ATM program, coupled with successful securitization activities, highlight effective liquidity and portfolio management. While economic book value per share saw a minor decrease and macroeconomic uncertainties persist, the overall trend of improved profitability, active asset acquisition, and prudent financing suggests a positive outlook for seasoned investors.

Keywords

Mortgage REIT, Non-QM loans, Residential mortgage-backed securities, RMBS, Securitization, Real estate finance, Interest rates, Credit spreads, Capital raise, Debt offering, Financial performance, Earnings, Dividends, Asset management