Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net interest income increased for the third consecutive quarter, signaling sustained growth and profitability.
- GAAP net income was $12.9 million, with distributable earnings of $2.8 million, reflecting strong financial performance.
- Successful execution of AOMT 2024-4 securitization, a $300 million deal, which is expected to drive further net interest income expansion.
- Credit performance improved with a decrease in the 90-plus day delinquency rate from 2.2% to 1.8%.
- GAAP and economic book values per share increased, indicating a positive trend in asset valuation.
Negative Points
- Despite net interest income growth, the company's operating expenses increased modestly due to year-end legal and audit fees.
- Interest rates on warehouse financing lines remained high, impacting the cost of capital.
- The company's net interest income minus expenses is currently below the dividend payout, indicating potential pressure on dividend sustainability.
- Reliance on securitization and loan purchases to drive growth could be risky if market conditions change unfavorably.
- The company is considering engaging with capital markets, which could introduce new risks or dilute current shareholders.
Q & A Highlights
Q: Can you discuss how you think about your cost of capital and what is considered accretive to shareholders? What type of instruments are you looking at for raising capital?
A: (Brandon Filson - CFO, Treasurer) We're primarily financed with common equity, and any capital raise would likely be in the debt space. Our securitization execution targets returns in the high-teens to low 20s percentage range. Current market conditions suggest a potential for deals around a 9% coupon. Any capital raise would aim to be accretive, meaning it would enhance shareholder value rather than just refinancing existing debt at a higher cost.
Q: How do you match the maturity or duration of any debt you could raise with the duration of the assets you're financing?
A: (Brandon Filson - CFO, Treasurer) The duration of the debt we might issue, such as a five-to-seven-year instrument, would closely match the average life of the senior bonds or bonds we hold from our securitizations. This alignment ensures that the maturity profiles are well-matched.
Q: Can you provide more details on your loan acquisition targets for Q2, especially considering the light acquisitions in Q1 and the recent $300 million securitization?
A: (Brandon Filson - CFO, Treasurer) Post-securitization, we've already utilized the capital to buy loans or reduce repo debt. We're targeting $150 million to $200 million in acquisitions this quarter, with about half to two-thirds from our affiliated originators. We're also seeing good opportunities in third-party originated loans with similar credit profiles.
Q: With net interest income minus expenses currently below the dividend payout, do you anticipate growing into the dividend?
A: (Brandon Filson - CFO, Treasurer) Yes, we expect to grow into the dividend. This quarter's growth was slower due to the timing of the securitization and higher year-end expenses. We anticipate expense moderation and continued growth in net interest margin, which should align better with our dividend payouts in future quarters.
Q: Regarding the potential for raising debt, how do you ensure that it remains accretive to shareholders?
A: (Brandon Filson - CFO, Treasurer) We are cautious about our capital raising activities, ensuring that any debt raised would contribute positively to our financial structure and ultimately benefit shareholders. Our focus is on securing terms that align with our strategic financial goals and maintaining a prudent approach to leverage and cost management.
Q: What are your strategies for managing the duration of your assets and liabilities, especially in light of potential new debt issuances?
A: (Brandon Filson - CFO, Treasurer) We aim to closely align the duration of our assets and liabilities. The potential new debt would likely have a duration that matches the average life of our securitized assets, ensuring that our balance sheet remains balanced in terms of maturity profiles and interest rate exposures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
