Angel Oak Mortgage Reit, Inc. · NYSE:AOMR
Angel Oak Mortgage Reit — Investor Day (April 2022)
55 slides from Angel Oak Mortgage Reit's investor day presentation, Apr 1, 2022
Slide 1: Angel Oak Mortgage, Inc. Analyst Day March 2022
Slide 2: Agenda
Agenda 9:00 - 9:30 | Opening Remarks & Overview of the Angel Oak Ecosystem — Robert Williams, Mike Fierman, and Sreeni Prabhu 9:30 - 10:45 | Mortgage Lending Overview - Tom Hutchens, Mark Lively, and Steven Schwalb 10:45 - 11:00 | Break 11:00 - 12:00 | Opportunities in Non-QM and Securitization Mark
Slide 3: Important Notices
Important Notices References in this presentation to “we,” “us,” “our,” “AOMR” and the “Company” refer to Angel Oak Mortgage, Inc., a Maryland corporation, its operating partnership and their respective subsidiaries; the term “Manager” refers to Falcons I, LLC, our external manager; the term “Angel
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Slide 5: The Angel Oak Ecosystem
Slide 6: Angel Oak: A Vertically Integrated Credit Manager
Angel Oak: A Vertically Integrated Credit Manager Aunique, vertically integrated credit manager with experience in specialized asset classes. Vertically Integrated Credit Manager iy Data Driven N 7 Angel Oak Investment SN ig” CAPITAL ADVISORS Process Established, Scalable Platform $26.9B* Assets Und
Slide 7: Asset Manager with Origination Edge
Asset Manager with Origination Edge Sourcing advantage through captive origination channels. Asset Management i Public ch Private Capital deployed across the liquidity spectrum from daily to long-term private vehicles Distinct portfolio management platform that has the ability to buy up/down the cap
Slide 8: A Business Born from a Relative Value Trade
A Business Born from a Relative Value Trade Angel Oak established its leading position by capitalizing on opportunities in dislocated markets. %, 8 S Angel Oak Mortgage, Inc. Ne 2008 2011 2014 2016 2019 2021 Angel Oak launched as an Launch of Multi-Strategy Non-QM private First draw-down funds Launc
Slide 9: Angel Oak Products
Angel Oak Products $26.9 BILLION* PERMANENT CAPITAL (CLOSED-END FUNDS, REIT, PRIVATE SEPARATELY MANAGED STRATEGIES ACCOUNTS $5.5B $860M PUBLIC STRATEGIES $10.5B AND SERVICING) $10B PRIVATE 5 HORTEAGE Real Estate Investment Real Estate Investment. mized Solutions acetone pt unig édaaee Fund I, I Fund
Slide 10: About Angel Oak Mortgage Lending
About Angel Oak Mortgage Lending Angel Oak Mortgage, Inc. 10
Slide 11: Angel Oak Mortgage Lending
Angel Oak Mortgage Lending Best-in-class Asset Origination platform focused on residential mortgage credit, enables Angel Oak's vertically integrated business model. Channel Overview Source: Company Information and Inside Mortgag through Q3 2020; does not include investor cash flows for securitizati
Slide 12: Multi-Faceted Origination Platform Well-Suited for Driving Volume Growth
Multi-Faceted Origination Platform Well-Suited for Driving Volume Growth Multi-channel origination network together with a full mortgage product suite positions Angel Oak strongly for capturing incremental market share, 46 Wholesale States Licenses ck) Retail States Licenses + Angel Oak's retail bus
Slide 13: Non-QM Lenders Benefit from Barriers to Entry
Non-QM Lenders Benefit from Barriers to Entry The experience and skillset required to effectively underwrite and originate non-QM loans, as well as the unique relationship dynamics within the sector, create barriers to entry that benefit the largest, most experienced lenders. a7, w Regulatory Banks
Slide 14: Angel Oak Mortgage Lending Production & Performance
Angel Oak Mortgage Lending Production & Performance Angel Oak's origination platform has continuously increased its market share since inception and is very well-positioned for driving volume growth in near-to mid-term. Production . High Non-QM Brand Awareness o Leader in Non-QM securitizations . Na
Slide 15: Angel Oak Monthly Closing Trend
Angel Oak Monthly Closing Trend Monthly Closing Trend by Year (2014 to current) Non-QM ONLY $600MM $500MM $400MM $300MM $200MM $100MM Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 mn 2015 2016 = 2017 9 2018 2019 2020 ——2021 ——2022 Source: Company Information as of 12/31/21 & ‘Angel Oak Mortga
Slide 16: Targeted Non-QM Borrowers
Targeted Non-QM Borrowers Non-QM loans fill an essential gap in the mortgage market and have strong credit characteristics. Angel Oak’s origination is primarily focused on high-quality Bank Statement and Debt-Service Coverage Ratio underwritten product with low competition from banks and other lende
Slide 17: 2021 Borrower Type Overview
2021 Borrower Type Overview Angel Oak Mortgage Solutions 2021 Loan Production by Borrower Type ™Bank Statement MlInvestorCashFlow Agency just Missed Prime vy, N J 4 ‘Angel Oak Mortgage, Inc. 7
Slide 18: Prudent Underwriting Guidelines Further Balanced Risk Origination Approach
Prudent Underwriting Guidelines Further Balanced Risk Origination Approach Angel Oak's risk-adjusted returns focused origination strategy is reflected in strong credit metrics for overall origination volume. + More than 80% of Angel Oak’s originated loans in 2021 were for borrowers with FICO score o
Slide 19: Q&A and Key Discussion Points
Q&A and Key Discussion Points 7, N Angel Oak has built a proprietary platform that enables the origination of high-quality, non-QM loans ona scale that is difficult to duplicate. The non-QM loan market appears poised for continued and significant growth. Historic Angel Oak credit performance is stro
Slide 20: Opportunities in the non-QM and Securitization Markets
TN >.< Opportunities in the non- QM and Securitization Markets ‘Angel Oak Mortgage, Inc. 20
Slide 21: Non-QM Differs Materially from Pre-Crisis Subprime
Non-QM Differs Materially from Pre-Crisis Subprime Today’s non-QM loans are differentiated from pre-crisis subprime loans because of (i) ATR rules, (ii) tighter underwriting standards, (' independent appraisal processes, (iv) ABS market requirements and (v) structure. + Loose underwriting standards
Slide 22: Exceptional Capital Markets & Structuring Experience
Exceptional Capital Markets & Structuring Experience AOMT is one of the longest standing issuers in the Non-QM securitization market. Cumulative AOMT Securitizations / Issuances 14.0 11.9 12.0 10.8 10.0 8.9 79 Be 80 76 a & m1 74 64 6.0 53 49 4.0 4.0 3a 3.4 36 wy 38 38 on - = “: = = | il i oo — om BB
Slide 23: Recent Rate Trends
Recent Rate Trends After residing under 50bps for most of 2021, the 2 year swap rate has grown substantially in recent months. 2y Swap Rate Trend 2.5 % 15 0.5 0) PP PD SP PP SP DP SD DP SD SM SH ASH SY ASM SM SV SH SY SV SW SV SVT SW SW OS SARA CAIIN CARIN COMIN COMIN COMER COMIN CHIEN COMIN COMIER
Slide 24: AOMT Update
AOMT Update AOMR priced two deals since the beginning of Q4 2021 - AOMT 2021-7 and AOMT 2022-1, totaling $924 million in size. . In total, Angel Oak Mortgage Trust securitized $2.9 billion in collateral in 2021 over 8 deals. . As deal supply has overall increased, the market has shifted more in buye
Slide 25: Macro Housing Update
Macro Housing Update The housing market remains very strong and home sales activity are still well above pre-pandemic levels. . Home prices have increased 18.8% in 2021, though the pace has decelerated in Q4. Nevertheless, we expect supply-demand dynamics to remain favorable in 2022. . Buyers contin
Slide 26: Macro Housing Update
Macro Housing Update On the supply side, inventory levels remain at historic lows, which should continue to be a strong tailwind for home prices. . While home building activity has increased, years of underbuilding since the GFC suggest we may still be years away from catching up to household format
Slide 27: House Views
Slide 28: U.S. Unemployment Rate
U.S. Unemployment Rate % 2 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 Feb-20 — Aug-20 Feb-21 ‘Aug-21 Feb-22 + Expectations for an even tighter labor market amid the “Great Resignation” will further enhance an incredibly robust U.S. consumer, as it should result in more wage growth. + Th
Slide 29: Wages and Salaries are Higher than Pre-Pandemic Level
Wages and Salaries are Higher than Pre-Pandemic Level 12,000 11,000 10,000 9,000 8,000 7,000 Total U.S. Wages & Salaries ($ Billions) 6,000 5,000 4,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Bloomberg as of 1/31/22.
Slide 30: U.S. Federal Reserve Balance Sheet
U.S. Federal Reserve Balance Sheet 200 30 180 25 160 140 20 120 a e 100 15 2 80 10 60 40 5 20 ° o Feb-19 © May-19 — Aug-19.—sNov-19. = Feb-20.© May-20.- Aug-20. ss Nov-20.— Feb-21. = May-21. «= Aug-21. «Nov-21-22 ICE BofA MOVE Index (LA) mm U.S. Federal Reserve Balance Sheet (RA) + QT is bullish for
Slide 31: Corelogic YOY HPI Growth Over Time
Corelogic YOY HPI Growth Over Time 25 Possible inflection point? 20 = Disinflation policies, Global Financial U.S. double-dip Crisis recession 15 Northeast and California bust 10 % HPA Growth 10 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 * Even during the most aggressive Fed tighten
Slide 32: Historic Housing Supply and Demand Mismatch
Historic Housing Supply and Demand Mismatch MONTHS’ SUPPLY OF INVENTORY HISTORICALLY LOW POTENTIAL BUYERS IF OWNERSHIP RATES REBOUND TO 2000 LEVELS 14.0 25.0 60,000 20.0 55,000 12.0 ‘6% 15.0 50,000 ' 10.0 % 45,000 i 8.0 r 5.0 40,000 H 6.0 A 0.0 35,000 f 4.0 H 5.0 = 30, t 20 10.0 ~ 25,000 4 0.0 “15.0
Slide 33: Home Equity is at Historic Highs
Home Equity is at Historic Highs 30,000 25,000 20,000 15,000 Billions 10,000 5,000 i) 1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015 2021 Households; Owners' Equity in Real Estate Source: FRED as of 12/31/21. Shaded gray bars represent periods of recession. & ‘Angel Oak Mortgage, Inc. 3
Slide 34: LTV of Housing Market at Lowest Point in at Least the Past 6 Years
LTV of Housing Market at Lowest Point in at Least the Past 26 Years 60 55 50 % LTV & 4) 4 3! 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1Q21 2Q21 ro) a Source: Morgan Stanley Research as of 6/30/21. & ‘Angel Oak Mortga
Slide 35: Sources of U.S. Mortgage Finance Through History
Sources of U.S. Mortgage Finance Through History 2004 THROUGH 2007 2009 THROUGH 2012 2018 THROUGH TODAY FHA/VA 4% NA RMBS. 1% + Today’s residential mortgage market is dominated by banks and GSE’s, and while the non-QM market pales in comparison to its previous size, it also adheres to the much more
Slide 36: Mortgage Credit Availability Index
Mortgage Credit Availability Index 1,000 900 800 700 600 500 Index Value 400 300 200 100 oO Jan-O5 Jan-06 Jan-O7 Jan-O8 Jan-O9 Jan-10 Jan-11 Jan-12 Jan-13° Jan-14 Jan-15 Jan-16 Jan-17_—Jan-18Jan-19 Jan-20_Jan-21_—Jan-22 + Unlike with the prior housing crisis, where 38% of residential lending was com
Slide 37: Housing Affordability Composite Index
Index Value Housing Affordability Composite Index 220 200 180 160 140 120 100 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 + HPA shattered expectations in 2021, and our expectation is there is more room to run in 2022 due to the supply and demand shortage
Slide 38: Millennials Entering Their Prime Leverage Years
Millennials Entering Their Prime Leverage Years INFLATION TRACKS POPULATION IN PRIME LEVERAGE AGE 5 Yr. % Change moll © Hloia o Ho aieme 4 omIons SSSARSESESSRSsSaags HFSFFSRTFSAASSSSRES === Adults 30-48 (LA) Source: FundStrat as of 12/31/20. & ‘Angel Oak Mortgage, Inc. NF 10 Yr. MAVG % TOTAL U.S, PO
Slide 39: Homeownership by Age Demographic
Homeownership by Age Demographic 80 75 70 65 60 55 % Homeownership 50 45 40 ES} 30 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 ——35 and Under Ownership —— 35-44 Ownership. Source: Bloomberg as of 12/31/21 & ‘Angel Oak Mortgage, Inc. 39 NF
Slide 40: Gross Issuance
Gross Issuance 200 180 160 140 120 100 80 60 40 20 ll -— 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD m= NA RMBS + In addition to a brisk recovery of growth and inflation, 2021 bought a historic supply of new issuance in credit markets, particularly in U.S. structured credit. Sour
Slide 41: % Distressed Transactions
% Distressed Transactions Distressed Transactions Reach Lowest Share Since 2005 60% 50% 40% 30% 20% 10% 0% Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12 Aug-14 ‘Aug-16 Aug-18 ‘Aug-20 Midwest r= Northeast mr South, —— West === National Source: Morgan Stanley Research as of 8/31/20. & ‘Angel Oak Mortgage,
Slide 42: AOMR Fundamentals & Economics
AOMR Fundamentals & Economics Angel Oak Mortgage, Inc. 42
Slide 43: The AOMR Model
The AOMR Model AOMR is committed to generating attractive risk-adjusted returns while driving long-term capital appreciation to seek to deliver attractive total economic return to our shareholders. toon Source and purchase high-quality, non-QM Acquisition Quarterly loans leveraging the infrastructur
Slide 44: AOMR Investment Strategy
AOMR Investment Strategy Our acquisition, securitization, and reinvestment processes enable us to consistently deliver on our business model. ACQUISITION AOMRs relationship with Angel Oak Companies enables it to purchase high- quality loans tailored to its desired profile Non-QM loans offer an attra
Slide 45: Funding Strategy
Funding Strategy The AOMR funding strategy is supported by established loan financing lines, a consistent securitization shelf, and repurchase agreements for retained securities. LOAN AGGREGATION Loans pending securitization financed via loan financing facilities ST PERMANENT FINANCING VIA SECURITIZ
Slide 46: Illustrative Securitization Structure
Illustrative Securitization Structure KEY CHARACTERISTICS * Senior and mezzanine bonds receive a fixed coupon. * Junior bonds receive the net WAC of collateral. + Interest only tranches receive remaining excess spread between the collateral pool and the coupon on the senior, mezzanine, and junior bo
Slide 47: AOMR Financing Lines
AOMR Financing Lines We actively manage the liability side of the balance sheet to optimize our capital structure. Loan Financing Facilities + We utilize a variety of financing facilities to appropriately finance our loans while attempting to minimize risks associated with leverage + Acombination of
Slide 48: Legacy Securities vs. AOMR Securitizations
Legacy Securities vs. AOMR Securitizations ILLUSTRATIVE The accounting treatment differs for securitizations that occurred prior to AOMR becoming a public company versus those that have taken place since IPO. Legacy Securitizations (Pre-IPO) Description: * Bonds from Angel Oak securitizations that t
Slide 49: Illustrative Securitization Economics Assumptions
Assumptions: Principal Balance of Loans 100$ Market Value of Loans as % of UPB 103% Weighted Average Coupon 5.0% Residential Loan Purchase Leverage Rate 86% Residential Loan Warehouse Financing Cost 3.0% Percentage of Principal Balance Sold in Securitization 95% Securitization Cost of Capital 2.5% P
Slide 50: Illustrative Income Statement Overview
Illustrative Income Statement Overview ILLUSTRATIVE Realized and unrealized gains and losses are classified on the Income Statement according to the type of asset. Components of Realized and Unrealized Gain / (Loss) Interest income $20,000 Realized Gain / (Loss): Interest expense 10,000 NET INTEREST
Slide 51: Key AOMR Results
Slide 52: Q4 and FY21 Highlights
Q4 and FY21 Highlights WZ % Y) Angel Oak MORTGAGE REIT ‘Angel Oak Mortgage, Inc. Q4 GAAP Net Income $0.12/share with Distributable Earnings of $0.89/share; FY21 GAAP Net Income of $1.01/share with FY21 Distributable Earnings of $1.64/share Declared a 25% increase in quarterly dividend to $0.45/share
Slide 53: Target Asset Growth
Target Asset Growth Target Asset Balance Trend* ($ millions) 2,244 + Target Asset Balance growth of 77% post-IPO underscores AOMR’s post-IPO ramp. + Portfolio continues to shift toward Residential Loans and Loans in Securitization Trust, reflecting AOMR loan procurement and securitization strategy.
Slide 54: Interest Income / Expense and Net Interest Margin
$000s Interest Income / Expense Average Balance Interest Income / Expense Average Balance Interest Income Residential Loans 25,705 544,440 13,013 232,075 Residential Loans in Securitization Trust 7,709 153,158 - - Commercial Loans 641 9,284 1,940 28,979 RMBS 24,221 264,095 25,415 118,174 CMBS 2,266
Slide 55: Residential & RMBS Consolidated Portfolio Trends
Residential & RMBS Consolidated Portfolio Trends 90+ Day Delinquency Trend LTV Trend 35% 77% 30% 76% 25% 75% 74% 20% 73% 15% 9 10% 71% 5% 70% 0% 69% Sep 20 Dec 20 Mar 21 Jun 21 Sep 21 Dec 21 Sep 20 Dec 20 Mar 21 dun 21 Sep 21 Dec 21 Whole Portfolio Deling = ====Whole Loan Deling ~===RMBS Deling Whol