What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 346 added, 294 removed, 606 unchanged (51% of the section changed)

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Our objective is to generate attractive risk-adjusted returns for our stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles.

We are externally managed and advised by the Manager, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets.

Angel Oak Capital was established in 2009 and had approximately $11.4 billion in assets under management as of June 30, 2022 across its private credit strategies, public funds, and separately managed accounts, including approximately $7.8 billion of mortgage‑related assets.

Angel Oak Mortgage Lending is a market leader in non‑QM loan production and, as of June 30, 2022, had originated over $15.7 billion in total non‑QM loan volume since its inception in 2011.

Angel Oak is headquartered in Atlanta and has over 900 employees across its enterprise.

Through our relationship with the Manager, we benefit from Angel Oak’s vertically integrated platform and in‑house expertise, providing us with the resources that we believe are necessary to generate attractive risk‑adjusted returns for our stockholders.

We are externally managed and advised by our Manager, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital.

Angel Oak Capital is a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets.

Angel Oak Capital was established in 2009 and had approximately $9.8 billion in assets under management as of September 30, 2022 across its private credit strategies, public funds, and separately managed accounts, including approximately $7.5 billion of mortgage‑related assets.

Angel Oak Mortgage Lending is a market leader in non‑QM loan production and, as of September 30, 2022, had originated over $16.7 billion in total non‑QM loan volume since its inception in 2011.

Angel Oak is headquartered in Atlanta and had approximately 800 employees across its enterprise as of September 30, 2022.

Through our relationship with our Manager, we benefit from Angel Oak’s vertically integrated platform and in‑house expertise, providing us with the resources that we believe are necessary to generate attractive risk‑adjusted returns for our stockholders.

Angel Oak Mortgage Lending provides us with proprietary access to non‑QM loans, as well as transparency over the underwriting process and the ability to acquire loans with our desired credit and return profile.

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We expect to derive our returns primarily from the difference between the interest we earn on loans we make and our cost of capital, as well as the returns from bonds, including risk retention securities, that are retained after securitizing the underlying loan collateral.

SEC Order Regarding an Affiliate of Our Manager

On August 10, 2022, the SEC accepted offers of settlement from Angel Oak Capital, an affiliate of our Manager, and Ashish Negandhi, a former portfolio manager at Angel Oak Capital, and entered an administrative order against both Angel Oak Capital and Mr.

The settlement and administrative order relate to AOMT 2018-PB1, a securitization issued in 2018.

AOMT 2018-PB1 was a one-off, first-of-its-kind, $90 million securitization with fix-and-flip loans as the underlying collateral.

Fix-and-flip loans are loans made to borrowers for the purpose of purchasing, renovating, and selling residential properties.

These loans were originated by an affiliate of Angel Oak Capital, Angel Oak Prime Bridge, which ceased originating loans in 2019.

Angel Oak Capital and its affiliates have not issued another securitization solely backed by this type of collateral.

The SEC’s order concluded that Angel Oak Capital and Mr.

Negandhi made inaccurate disclosure of mortgage delinquency rates when reporting on the performance of AOMT 2018-PB1 in violation of the Securities Act and the Advisers Act.

The inaccuracies related to the use of funds held in escrow accounts (funds held to reimburse borrowers for renovations to the properties) to cure loan delinquencies.

Angel Oak Capital and Mr.

Negandhi did not admit or deny these findings.

The order does not allege that Angel Oak Capital or Mr.

Negandhi acted with fraudulent intent.

The SEC accepted Angel Oak Capital’s and Mr.

Negandhi’s offers to settle the case.

Angel Oak Capital and Mr.

Negandhi paid fines of $1,750,000 and $75,000, respectively, were censured, and agreed to cease and desist from future violations.

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

The 2022 macroeconomic environment for the three and six months ended June 30, 2022 was significantly more challenging than that of the 2021 comparative period.

Major challenges to the U.S.

economy in the first half of 2022 included heightened recessionary risks, with economic activity simultaneously impacted by both a sharp increase in interest rates discussed further below, along with a 40-year record high year-over-year increase in inflation of 9.1% in June 2022.

Sharply rising interest rates have resulted in a slowdown of mortgage origination and refinancing activity, as the average conforming 30-year mortgage rate average exceeded 5% by the end of March 2022 (remaining relatively stable through June 2022), up from approximately 3% in December 2021.

The availability of housing inventory in many areas of the U.S.

has remained low, and supply chain issues continued to constrain home building in many areas of the U.S., as raw materials are, in some regions, unavailable for extended periods of time.

The combination of sustained high mortgage rates and low housing supply has created a troublesome situation for homebuyers, now facing constraints in both affordability and availability, while high interest rates alone have curtailed refinancing and some purchase activity.

Additionally, ongoing and worsening worldwide supply chain issues, exacerbated by the protracted military conflict between Ukraine and Russia, and domestic labor shortages, continued to drag on the overall U.S.

economic environment.

The 2022 macroeconomic environment for the three and nine months ended September 30, 2022 was significantly more challenging than that of the 2021 comparative periods, and has been defined by volatility and uncertainty in the financial markets.

Heightened recessionary risks continued to challenge the U.S.

economy throughout the third quarter of 2022, with economic activity simultaneously beset by both a sharp increase in interest rates along with persistent inflation, both further discussed below.

The inflationary environment decreased slightly over the third quarter of 2022 from its 40-year record high mark of 9.1% year-over-year in June 2022;

however, inflation remains elevated from a historical standpoint at 8.2% year-over-year as of September 30, 2022.

The Federal Reserve Bank of the U.S.

(the “Fed”) has approved several increases to the federal funds rate over 2022, including on March 16, 2022 a 25 basis point increase as the first increase to the rate in nearly three years, a 50 basis point increase on May 5, 2022, a 75 basis point increase on June 15, 2022, and a 75 basis point increase on July 27, 2022.

The June 2022 rate increase represented the largest interest rate increase by the Fed since 1994, and the July 2022 rate increase represents the first time in modern history that the Fed has raised interest rates by 75 basis points twice in a row.

(the “Fed”) has indicated that it remains committed to increasing interest rates over the coming months in an effort to promote price stability and decrease inflation.

The Fed has approved historic increases to the federal funds rate over 2022, comprised of six interest rate increases to date, beginning on March 16, 2022, with a 25 basis point increase as the first increase to the rate in nearly three years, a 50 basis point increase on May 5, 2022, a 75 basis point increase on June 15, 2022, a 75 basis point increase on July 27, 2022, a 75 basis point increase on September 21, 2022, and a 75 basis point increase on November 2, 2022.

The November 2022 rate increase represented the first time in modern history that the Fed has raised interest rates by 75 basis points four times in a row.

An increase in the federal funds rate generally has the effect of increasing borrowing rates for all types of consumer credit, including mortgages.

The Fed has also indicated that it plans to continue to increase interest rates in the near term.

The Fed has indicated that it plans to continue to increase interest rates in the near term.

We believe that a further increase in interest rates from the previous historically low levels is unlikely to significantly affect demand for non-QM mortgages;

however, the current increase in interest rates over the past six months has generally caused interest rate spreads to widen, which has negatively impacted the valuation of our whole loan portfolio.

Our whole loan portfolio was affected in this manner during the first and second quarters of 2022, with unrealized losses incurred on our whole loan portfolio, with the unrealized loss effect magnified by the size of the whole loan portfolio.

Additionally, a sharp increase in interest rates over a short period of time has resulted in a challenging environment for securitizing loans originated at lower interest rates, and our securitization volume may be lower than usual until interest rates and securitization markets stabilize.

however, the increase in interest rates over the past nine months has generally caused interest rate spreads to widen, which has negatively affected the valuation of our whole loan portfolio.

Our whole loan portfolio incurred unrealized losses in 2022, with the unrealized loss effect magnified by the size of the portfolio.

Additionally, the sharp increase in interest rates over a short period of time has resulted in a challenging environment for securitizing loans originated at lower interest rates, and our securitization volume may be lower than usual until interest rates and securitization markets stabilize.

Sharply rising interest rates have resulted in a slowdown of mortgage origination and refinancing activity, as the average conforming 30-year mortgage rate with no points averaged approximately 7% by the end of September 2022, more than double that same metric as of December 2021.

The availability of housing inventory in many areas of the U.S.

has remained low, limiting the original purchase mortgage market.

Previously in 2022, housing inventories were depressed as supply chain and labor availability issues resulting from the economic effects of the COVID-19 pandemic constrained home building in many areas of the U.S., with raw materials unavailable for extended periods of time and labor shortages causing construction delays.

The constraint on housing inventory has shifted from that of supply chains and labor availability affecting home builders to that of a lack of existing homes being placed on the market, as homeowners paying mortgage debt originated at low rates are hesitant to sell and incur mortgage debt originated at significantly higher rates.

The combination of sustained high mortgage rates and low housing inventory has created a troublesome situation for homebuyers, who continue to face constraints in both affordability and availability, while high interest rates alone have curtailed refinancing activity.

A slowdown in homeowner prepayment activities (including a slowdown in refinancing existing mortgages, as referred to above) has had a positive impact on some of the bonds that we hold from older securitization transactions, as we typically hold the lower junior and XS (interest only) tranches of bonds from a securitization transaction, and the lack of prepayment activity within a securitization transaction results in more interest income available to be allocated to the XS bonds;

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Although we currently have unrealized losses in our whole loan portfolio, which may continue in an elevated interest rate environment, given the Fed’s planned further interest rate increases, holding whole loans originated in the future at higher interest rates (or “coupon”) generally has the effect of increasing our net interest income, resulting in prepayment speeds likely slowing for existing securitization transactions, which will also increase our net interest income as we primarily hold junior and interest only tranches of the securitized bonds that we have issued.

There is a time lag of approximately three months between the origination of a loan and our purchase of that loan;

therefore, we currently have a limited number of higher coupon loans in our portfolio.

Our investment performance

Our non-QM whole loan portfolio experienced unrealized losses on the portfolio during the three and six months ended June 30, 2022, which were driven by mark-to-market losses due to interest rate spreads widening.

Our non-QM whole loan portfolio experienced unrealized losses on the portfolio during the three and nine months ended September 30, 2022, which were driven by mark-to-market losses due to interest rate spreads widening and market volatility.

The residential mortgage-backed securities (“RMBS”) portfolio and commercial mortgage-backed securities (“CMBS”) portfolio results also included mark-to-market losses on the valuation of this asset class.

Realized gains on our TBA investments and interest rate futures partially offset the aforementioned unrealized losses on whole loans for the year to date period, though for the quarter to date period, we experienced a realized loss in TBA investments and

a realized gain on interest rate futures.

Realized losses on our RMBS and CMBS XS and interest only bonds decreased for the three and six months ended June 30, 2022 as prepayment activities slowed.

Realized losses on our RMBS and CMBS XS and interest only bonds decreased for the three and nine months ended September 30, 2022 as prepayment activities slowed.

The non-QM whole loan portfolio unrealized losses are reflected in net income, while the RMBS and CMBS portfolios’ unrealized losses are reflected in other comprehensive income.

All realized losses are reflected in net income.

Purchases of whole loans in the three and six months ended June 30, 2022 and our 2022 securitizations to date

During the three and six months ended June 30, 2022, we purchased $257.2 million and $932.8 million, respectively, in residential whole loans.

All realized losses are reflected in net income (loss).

Purchases of whole loans in the three and nine months ended September 30, 2022 and our 2022 securitizations to date

During the three and nine months ended September 30, 2022, we purchased $62.4 million and $995.2 million, respectively, in residential whole loans.

On February 11, 2022, we issued AOMT 2022-1, securitizing a total of $537.6 million of unpaid principal balance of seasoned residential non-QM mortgage loans.

Subsequent to June 30, 2022, on July 13, 2022, we issued AOMT 2022-4, securitizing a total of $184.7 million of unpaid principal balance of seasoned residential non-QM mortgage loans.

On July 13, 2022, we issued AOMT 2022-4, securitizing a total of $184.7 million of unpaid principal balance of seasoned residential non-QM mortgage loans.

The issuance of AOMT 2022-1 and AOMT 2022-4, along with our 2021 issuances of AOMT 2021-4 and AOMT 2021-7, securitized a total of approximately $1.4 billion of unpaid principal balance of seasoned residential non-QM mortgage loans.

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Given the accounting rules surrounding these types of transactions, we have consolidated these securitizations, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of the applicable balance sheet dates.

Our securitizations prior to 2021 were securitization transactions entered into with other Angel Oak entities, for which we did not meet the accounting rules to be considered a “primary beneficiary” of the applicable securitization vehicle, and therefore, for these prior securitizations, the bonds retained in the securitization are held on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

We may strategically enter into similar securitizations in the future.

New and extended whole loan financing facilities

On April 13, 2022, we entered into a new financing facility with Royal Bank of Canada (“RBC”), which afforded us $340.0 million of additional borrowing capacity.

On July 21, 2022, the RBC financing facility was extended as per the terms of the original agreement through January 20, 2023.

On August 4, 2022, the facility limit under the RBC master repurchase agreement was increased by $260.0 million to $600.0 million, bringing our total maximum financing facility availability to $1.9 billion subsequent to June 30, 2022, with which to execute our core strategy of purchasing whole loans and retaining them until securitized.

On August 8, 2022, the Nomura facility was extended through October 5, 2022.

Whole loan financing facilities activity

Our lender base is fluid and we intend to enter into new agreements and / or exit agreements as we deem prudent, and in accordance with our core financial strategy of purchasing whole loans and retaining them until securitized.

Our whole loan financing activity during the third quarter of 2022 and subsequent to September 30, 2022 was as follows:

• On August 4, 2022, the facility limit under a master repurchase agreement with a multinational bank (“Multinational Bank 1”) was increased by $260.0 million to $600.0 million.

• On August 23, 2022, we extended a $400.0 million line of credit with a multinational bank (“Multinational Bank 2”) from September 26, 2022 to September 30, 2022, which on September 27, 2022, was further extended to October 14, 2022, at which

time, the line of credit expired by its terms.

Loans that had been financed with this line of credit were subsequently financed with other lines of credit.

• On October 4, 2022, we entered into short-term master repurchase agreements with two affiliated institutional investors (“Institutional Investors A and B”) for a pool of loans with financing of approximately $168.7 million.

• On October 5, 2022, a $300.0 million line of credit with a global investment bank (“Global Investment Bank 1”) expired by its terms.

This line of credit had not been substantially utilized in 2022.

Key Financial Metrics

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Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings may not be comparable to similar measures presented by other REITs.

We also will use Distributable Earnings to determine the incentive fee payable to the Manager pursuant to the management agreement (the “Management Agreement”) that we and Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”) entered into with the Manager upon the completion of our initial public offering (“IPO”) on June 21, 2021.

For information on the fees that are payable to the Manager under the Management Agreement, see “Note 10 – Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Distributable Earnings were approximately $22.8 million and $2.0 million for the three months ended June 30, 2022 and 2021, respectively, and $60.1 million and $6.9 million for the six months ended June 30, 2022 and 2021, respectively.

The table below sets forth a reconciliation of net (loss) income allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and six months ended June 30, 2022 and 2021:

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

We also will use Distributable Earnings to determine the incentive fee payable to our Manager pursuant to the management agreement (the “Management Agreement”) that we and Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”) entered into with our Manager upon the completion of our initial public offering (“IPO”) on June 21, 2021.

For information on the fees that are payable to our Manager under the Management Agreement, see “Note 11 – Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Distributable Earnings were approximately $20.8 million and $4.9 million for the three months ended September 30, 2022 and 2021, respectively, and approximately $80.9 million and $11.8 million for the nine months ended September 30, 2022 and 2021, respectively.

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(in thousands)

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Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs.

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and six months ended June 30, 2022 and 2021:

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

($ in thousands)

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Distributable Earnings Return on Average Equity 26.38 % 3.93 % 27.94 % 4.34 %

Book Value per Common Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of June 30, 2022, March 31, 2022, and December 31, 2021:

June 30, 2022 March 31, 2022 December 31, 2021

Book Value per Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of September 30, 2022, June 30, 2022, March 31, 2022, and December 31, 2021:

September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

(in thousands except for share and per share data)

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Book value per share of common stock $ 10.63 $ 14.73 $ 16.80 $ 19.47

Economic Book Value per Common Share

Economic Book Value per Share of Common Stock

“Economic book value” is a non-GAAP financial measure of our financial position.

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Management considers economic book value to provide investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for our legally held retained bonds, irrespective of the accounting model applied for GAAP reporting purposes.

Economic book value does not represent and should not be considered as a substitute for book value per common share or Stockholders’ Equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a reconciliation from GAAP stockholders equity and Book Value per Share of Common Stock to Economic Book Value and Economic Book Value per Share of Common Stock as of June 30, 2022, March 31, 2022, and December 31, 2021:

June 30, 2022 March 31, 2022 December 31, 2021

Economic book value does not represent and should not be considered as a substitute for book value per share of common stock or stockholders’ equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a reconciliation from GAAP total stockholders’ equity and book value per share of common stock to economic book value and economic book value per share of common stock as of September 30, 2022, June 30, 2022, March 31, 2022, and December 31, 2021:

September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

(in thousands except for share and per share amounts presented)

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Results of Operations

Our results of operations presented herein for the three and six months ended June 30, 2021 do not reflect the expenses typically associated with being a public company for the reporting period, including increased insurance, legal, and accounting fees, full periods of equity compensation expense, expenses incurred in complying with the reporting and other requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), and increased expense of the base management fee to our Manager as a result of differences in the way fees and expense reimbursements are calculated under the Management Agreement as compared to the pre-IPO management agreement (the “pre-IPO management agreement”) as among us, our Manager and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), our sole common stockholder prior the IPO.

Additionally, pursuant to the Management Agreement, we are required to reimburse our Manager for its operating expenses, including third‑party expenses, incurred on our behalf;

and our Manager is entitled to reimbursement for costs of the wages, salaries, and benefits incurred by our Manager for our dedicated Chief Financial Officer and Treasurer and a proportionate amount of the costs of the wages, salaries, and benefits of our Chief Executive Officer and President (who, after the completion of the IPO, has dedicated a substantial majority of his business time to us) based on the percentage of his business time spent on our matters, and any other dedicated or partially dedicated employees based on the percentage of each such person’s working time spent on matters related to us.

Three Months Ended June 30, 2022 and 2021

The following table sets forth a summary of our results of operations for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 and 2021

The following table sets forth a summary of our results of operations for the three months ended September 30, 2022 and 2021:

Three Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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Total operating expenses 11,524 6,321

INCOME BEFORE INCOME TAXES (52,144) 2,227

Income tax provision — —

NET INCOME (LOSS) (83,349) 6,344

Preferred dividends (4) (4)

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDER(S) $ (52,148) $ 2,223

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ (83,353) $ 6,340

Other comprehensive income (10,227) 1,818

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Net Interest Income

The following table sets forth the components of net interest income for the three months ended June 30, 2022 and 2021:

The following table sets forth the components of net interest income for the three months ended September 30, 2022 and 2021:

Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(in thousands)

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Net interest income $ 11,740 $ 12,988

Net interest income for the three months ended June 30, 2022 and 2021 was $16.4 million and $10.3 million, respectively.

Net interest income increased due to the additional average portfolio balance in the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during June 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, along with a higher RMBS average balance, which increased net interest income.

These average asset balances were partially offset by higher average balances in notes payable and non-recourse securitization obligation, collateralized by residential mortgage loans, in the three months ended June 30, 2022 as compared to the same period in 2021, which resulted in increased interest expense during the comparative period.

Net interest income for the three months ended September 30, 2022 and 2021 was $11.7 million and $13.0 million, respectively.

Net interest income increased due to the additional average portfolio balance in the three months ended September 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during September 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, along with a higher RMBS average balance, which increased net interest income.

These average asset balances were partially offset by higher average balances in notes payable and non-recourse securitization obligation, collateralized by residential mortgage loans, in the three months ended September 30, 2022 as compared to the same period in 2021, which resulted in a commensurately increased interest expense during the comparative period.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the three months ended June 30, 2022 and 2021 are set forth as follows:

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

The components of total realized and unrealized gains (losses), net for the three months ended September 30, 2022 and 2021 are set forth as follows:

Three Months Ended

September 30, 2022 September 30, 2021

(in thousands)

Unrealized loss on securitization, net of unrealized gain on non-recourse securitization obligation $ (39,567) $ —

Realized loss on RMBS, net (22,811) (4,834)

Realized loss on CMBS (205) (153)

Realized gain (loss) on RMBS, net 10,972 353

Realized gain (loss) on CMBS 280 (250)

Realized gain (loss) on interest rate futures 17,692 39

Realized and unrealized gain (loss) on TBAs 3,937 (2,187)

Realized and unrealized loss on TBAs (5,229) (4,074)

Realized and unrealized (loss) gain on residential mortgage loans (73,526) 3,454

Realized and unrealized (loss) gain on commercial mortgage loans (204) (43)

Unrealized (depreciation) appreciation on interest rate futures (12,686) 746

Unrealized appreciation on interest rate futures 6,017 198

Total realized and unrealized gains (losses), net $ (83,565) $ (323)

For the three months ended June 30, 2022 and 2021, total realized and unrealized gains (losses), net were $(61.3) million and $(5.4) million, respectively.

During the three months ended June 30, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of all of our mortgage loans to decrease, which resulted in an unrealized loss.

Additionally, we experienced

unrealized losses on our interest rate futures, as this economic hedge became less effective during the three months ended June 30, 2022.

All of our unrealized losses were partially offset by realized gains on interest rate futures and TBAs.

During the three months ended June 30, 2021, the realized loss on RMBS, which was primarily due to prepayment speeds on the junior and interest only bonds that we held, along with realized losses on interest rate futures and unrealized and realized losses on TBAs was partially offset by realized and unrealized gains on residential mortgage loans.

For the three months ended September 30, 2022 and 2021, total realized and unrealized gains and (losses), net resulted in a net loss of $83.6 million and $0.3 million, respectively.

During the three months ended September 30, 2022, market volatility resulting in widening

interest rate spreads caused the valuation of our portfolio of mortgage loans to decrease, which resulted in an unrealized loss.

This net unrealized loss was partially offset by realized and unrealized gains on interest rate futures and RMBS (primarily in our whole pool loan portfolio).

During the three months ended September 30, 2021, the unrealized and realized losses on TBAs was partially offset by realized and unrealized gains on residential mortgage loans.

Operating Expenses

For the three months ended June 30, 2022 and 2021, our operating expenses were $3.0 million and $0.6 million, respectively.

The increase in operating expenses in the three month period ended June 30, 2022 was due to an increase in costs due to being a public company, including increased insurance, audit, and legal fees.

We also experienced an increase in loan administration costs, commensurate with an increase in the number of loans in our portfolio during the comparative period.

For the three months ended September 30, 2022 and 2021, our operating expenses increased overall at $2.8 million and $2.5 million, respectively, primarily due to legal expense, audit, and administration fees.

Operating Expenses Incurred with Affiliate

For the three months ended June 30, 2022 and 2021, our operating expenses incurred with affiliate were $0.8 million and $0.5 million, respectively.

These expenses were primarily due to the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

For the three months ended September 30, 2022 and 2021, our operating expenses incurred with affiliate were $2.1 million and $0.6 million, respectively.

These expenses increased during the three months ended September 30, 2022 primarily due to a $1.4 million severance accrual in accordance with the Angel Oak Mortgage, Inc.

Executive Severance and Change in Control Plan (the “Executive Severance Agreement”) relating to the separation of our former Chief Executive Officer and President.

This accrued severance is expected to be paid in 2023.

These expenses also include the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

Due Diligence and Transaction Costs

For the three months ended June 30, 2022 and 2021, our due diligence and transaction costs were $0.5 million and $0.2 million, respectively.

The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased more whole loans during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

For the three months ended September 30, 2022 and 2021, our due diligence and transaction costs were $0.2 million and $0.5 million, respectively.

The decrease in these costs was due to whole loan acquisition diligence costs, which decreased over the comparative period as we purchased fewer whole loans during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Stock Compensation

For the three months ended June 30, 2022, our stock compensation expense was $1.0 million.

In connection with the IPO in June 2021, we issued restricted stock awards to key employees of Angel Oak, including our Manager, as well as the independent directors on our Board of Directors.

Our stock compensation expense for the three months ended June 30, 2021 was de minimis, as expense was incurred during a nine day period as the grant date of the restricted stock was June 21, 2021.

We issued additional restricted stock awards on January 1, 2022, March 10 and March 11, 2022, and May 18, 2022.

Restricted stock awards vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

For the three months ended September 30, 2022 and 2021, our stock compensation expense was $3.3 million and $0.8 million, respectively.

Our stock compensation expense increased for the three months ended September 30, 2022 primarily due to a $2.6 million one-time expense resulting from the expected accelerated vesting of stock awards for our former Chief Executive Officer and President, as per the Executive Severance Agreement.

Other restricted stock awards vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

Securitization Costs

We incurred no securitization expense for the three months ended June 30, 2022 and 2021 as we did not enter into any securitizations during those periods.

We incurred $1.1 million of securitization expense for the three months ended September 30, 2022 due to the AOMT 2022-4 transaction.

There were no securitization costs incurred in the three months ended September 30, 2021 as the non-recourse securitization debt of the AOMT 2021-4 and AOMT 2021-7 securitizations is held at amortized cost, and thus, the debt issuance costs involved in those securitizations were capitalized and amortize to interest expense over time.

Management Fee Incurred with Affiliate

Prior to the completion of the IPO, we were required to pay the Manager, in cash, a management fee pursuant to a pre-IPO management agreement among us, the Manager and Angel Oak Mortgage Fund, our sole common stockholder prior the IPO.

The management fee payable under the pre-IPO management agreement was calculated based on the Actively Invested Capital (as defined in the pre-IPO management agreement) of the limited partners in Angel Oak Mortgage Fund, which we believe is reflective of a typical management fee payable by a private investment vehicle.

The pre-IPO management agreement terminated on the completion of the IPO, and we and the Operating Partnership subsequently entered into the Management Agreement with the Manager effective as of the completion of the IPO.

Pursuant to the Management Agreement, the Manager is entitled to a base management fee, which is calculated based on our Equity (as defined in the Management Agreement), and an incentive fee based on certain performance criteria, as well as a termination fee in certain cases and reimbursement of certain expenses as described in the Management Agreement.

For the three months ended June 30, 2022 and 2021, our management fee incurred with affiliate was $2.0 million and $1.3 million, respectively.

The increase is due to the increase in our average equity for the three months ended June 30, 2022 as compared to the same period in 2021.

Six Months Ended June 30, 2022 and 2021

The following table sets forth a summary of our results of operations for the six months ended June 30, 2022 and 2021:

Six Months Ended

June 30, 2022 Six Months Ended June 30, 2021

For the three months ended September 30, 2022 and 2021, our management fee incurred with affiliate was $2.0 million and $1.8 million, respectively.

The increase is due to the increase in our average Equity as defined in the Management Agreement for the three months ended September 30, 2022 as compared to the same period in 2021.

The Management Agreement includes an addition of Distributable Earnings to “Equity” as defined in the agreement, which is the primary departure from equity as calculated in accordance with GAAP, which has caused Equity as defined per the Management Agreement to increase despite a decrease in our equity calculated in accordance with GAAP.

Nine Months Ended September 30, 2022 and 2021

Our results of operations presented herein for the nine months ended September 30, 2021 do not reflect the expenses typically associated with being a public company for the reporting period, including increased insurance, legal, and accounting fees, full periods of equity compensation expense, expenses incurred in complying with the reporting and other requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), and increased expense of the base management fee to our Manager as a result of differences in the way fees and expense reimbursements are calculated under the Management Agreement as compared to the pre-IPO management agreement (the “pre-IPO management agreement”) as among us, our Manager and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), our sole common stockholder prior the IPO.

Additionally, pursuant to the Management Agreement, we are required to reimburse our Manager for its operating expenses, including third‑party expenses, incurred on our behalf;

and our Manager is entitled to reimbursement for costs of the wages, salaries, and benefits incurred by our Manager for our dedicated Chief Financial Officer and Treasurer and a proportionate amount of the costs of the wages, salaries, and benefits of our former Chief Executive Officer and President (who dedicated a substantial majority of his business time to us after the completion of the IPO and through his separation date of September 28, 2022) based on the percentage of his business time spent on our matters, and any other dedicated or partially dedicated employees based on the percentage of each such person’s working time spent on matters related to us.

The following table sets forth a summary of our results of operations for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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Total operating expenses 29,004 10,925

INCOME BEFORE INCOME TAXES (99,143) 11,714

INCOME (LOSS) BEFORE INCOME TAXES (182,492) 18,056

Income tax benefit (3,457) —

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Preferred dividends (11) (11)

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDER(S) $ (95,694) $ 11,706

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ (179,046) $ 18,045

Other comprehensive income (loss) (11,979) 5,433

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Net Interest Income

The following table sets forth the components of net interest income for the six months ended June 30, 2022 and 2021:

Six Months Ended

June 30, 2022 June 30, 2021

The following table sets forth the components of net interest income for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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Net interest income $ 45,255 $ 32,486

Net interest income for the six months ended June 30, 2022 and 2021 was $33.4 million and $19.5 million, respectively.

Net interest income increased due to the additional average portfolio balance in the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during June 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, along with a higher RMBS average balance, which increased net interest income.

Net interest income for the nine months ended September 30, 2022 and 2021 was $45.3 million and $32.5 million, respectively.

Net interest income increased due to the additional average portfolio balance in the nine months ended September 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during September 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, which increased net interest income.

These average asset balances were partially offset by higher average balances in notes payable;

notes payable, non-recourse securitization obligation, collateralized by residential mortgage loans;

and repurchase facilities during the six months ended June 30, 2022 as compared to the same period in 2021, which resulted in increased interest expense during the comparative period.

and repurchase facilities during the nine months ended September 30, 2022 as compared to the same period in 2021, which resulted in commensurately increased interest expense during the comparative period.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the six months ended June 30, 2022 and 2021 are set forth as follows:

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

The components of total realized and unrealized gains (losses), net for the nine months ended September 30, 2022 and 2021 are set forth as follows:

Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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Realized loss on RMBS, net (16,884) (8,455)

Realized loss on CMBS (246) (380)

Realized gain (loss) on CMBS 34 (630)

Realized gain (loss) on interest rate futures 60,745 (431)

Realized and unrealized gain on TBAs 19,399 (2,620)

Realized and unrealized gain (loss) on TBAs 14,171 (6,693)

Realized and unrealized (loss) gain on residential mortgage loans (180,152) 9,780

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Total realized and unrealized gains (losses), net $ (198,598) $ (3,505)

For the six months ended June 30, 2022 and 2021, total realized and unrealized gains (losses), net were $(115.0) million and $(3.2) million, respectively.

During the six months ended June 30, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of all of our mortgage loans to decrease, which resulted in an unrealized loss.

All of our unrealized losses were partially offset by realized gains on interest rate futures and TBAs.

In the six months ended June 30, 2021, realized and unrealized gains on residential mortgage loans and unrealized gains on interest rate futures were partially offset by realized loss on RMBS, which was primarily due to prepayment speeds on the junior and interest only bonds that we held.

For the nine months ended September 30, 2022 and 2021, total realized and unrealized gains (losses), net resulted in a net loss position of $198.6 million and $3.5 million, respectively.

During the nine months ended September 30, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of mortgage loans to decrease significantly, which resulted in an unrealized loss.

All of our unrealized losses were partially offset by realized and unrealized .gains on interest rate futures and TBAs.

In the nine months ended September 30, 2021, the net realized loss was primarily due to realized loss on RMBS, which was primarily due to prepayment speeds on the junior and interest only bonds that we held, and realized and unrealized loss on TBAs, partially offset by realized and unrealized gains on residential mortgage loans.

Operating Expenses

For the six months ended June 30, 2022 and 2021, our operating expenses were $6.7 million and $1.1 million, respectively.

The increase in operating expenses in the six month period ended June 30, 2022 was due to an increase in costs due to being a public company, including increased insurance, audit, and legal fees.

For the nine months ended September 30, 2022 and 2021, our operating expenses were $9.5 million and $3.4 million, respectively.

The increase in operating expenses in the nine month period ended September 30, 2022 was due to an increase in costs due to being a public company, including increased insurance, audit, and legal fees.

We also experienced an increase in loan administration costs, commensurate with an increase in the number of loans in our portfolio during the comparative period.

Operating Expenses Incurred with Affiliate

For the six months ended June 30, 2022 and 2021, our operating expenses incurred with affiliate were $1.8 million and $1.0 million, respectively.

These expenses were primarily due to the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

For the nine months ended September 30, 2022 and 2021, our operating expenses incurred with affiliate were $3.8 million and $1.6 million, respectively.

These expenses increased during the nine months ended September 30, 2022 primarily due to a $1.4 million severance accrual in accordance with the Executive Severance Agreement relating to the separation of our former Chief Executive Officer and President.

This accrued severance is expected to be paid in 2023.

These expenses also include the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

Due Diligence and Transaction Costs

For the six months ended June 30, 2022 and 2021, our due diligence and transaction costs were $1.2 million and $0.2 million, respectively.

The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased more whole loans during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

For the nine months ended September 30, 2022 and 2021, our due diligence and transaction costs were $1.5 million and $0.9 million, respectively.

The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased more whole loans during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Stock Compensation

For the six months ended June 30, 2022, our stock compensation expense was $1.8 million.

In connection with the IPO in June 2021, we issued restricted stock awards to key employees of Angel Oak, including our Manager, as well as the independent directors on our Board of Directors.

Our stock compensation expense for the three months ended June 30, 2021 was de minimis, as expense was incurred during a nine day period as the grant date of the restricted stock was June 21, 2021.

For the nine months ended September 30, 2022, our stock compensation expense was $5.2 million.

Our stock compensation expense increased for the nine months ended September 30, 2022 due to a $2.6 million one-time expense resulting from the expected accelerated vesting of stock awards for our former Chief Executive Officer and President, as per the Executive Severance Agreement.

Our stock compensation expense of $0.9 million for the nine months ended September 30, 2021 was substantially incurred in connection with our IPO in June 2021.

We issued additional restricted stock awards on January 1, 2022, March 10 and March 11, 2022, and May 18, 2022.

Restricted stock awards vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

Restricted stock awards other than those accelerated by the Executive Severance Agreement vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

Securitization Costs

Securitization costs of $2.0 million were incurred for the six months ended June 30, 2022 in the securitization of AOMT 2022-1.

During the comparative period of the six months ended June 30, 2021, we incurred no securitization expense as we did not enter into any securitizations during that period.

Securitization costs of $3.1 million were incurred for the nine months ended September 30, 2022 in the securitizations of AOMT 2022-1 and AOMT 2022-4.

Management Fee Incurred with Affiliate

For the six months ended June 30, 2022 and 2021, our management fee incurred with affiliate was $3.9 million and $2.2 million, respectively.

The increase is due to the increase in our average equity for the six months ended June 30, 2022 as compared to the same period in 2021.

Prior to the completion of the IPO, we were required to pay our Manager, in cash, a management fee pursuant to a pre-IPO management agreement among us, our Manager and Angel Oak Mortgage Fund, our sole common stockholder prior the IPO.

The pre-IPO management agreement terminated on the completion of the IPO, and we and the Operating Partnership subsequently entered into the Management Agreement with our Manager effective as of the completion of the IPO.

Pursuant to the Management Agreement, our Manager is entitled to a base management fee, which is calculated based on our Equity (as defined in the Management Agreement), and an incentive fee based on certain performance criteria, as well as a termination fee in certain cases and reimbursement of certain expenses as described in the Management Agreement.

For the nine months ended September 30, 2022 and 2021, our management fee incurred with affiliate was $5.8 million and $4.0 million, respectively.

The increase is due to the increase in our average Equity as defined by the Management Agreement for the nine months ended September 30, 2022 as compared to the same period in 2021.

Our Portfolio

As of June 30, 2022, our portfolio consisted of approximately $3.2 billion of residential mortgage loans, RMBS, and other target assets.

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of June 30, 2022:

As of September 30, 2022, our portfolio consisted of approximately $3.2 billion of residential mortgage loans, RMBS, and other target assets.

Certain of these portfolio assets are located in the state of Florida, which was affected by Hurricane Ian in the third quarter of 2022.

We require all of our collateral to be adequately insured.

The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans, including Florida.

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of September 30, 2022:

Fair Value Collateralized Debt Allocated Capital % of Total Capital

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(1) “Target assets” as presented above comprises the total investment portfolio, as there were no U.S.

Treasury Bills held as of June 30, 2022.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $720.4 million due to broker for our quarter-end purchase of certain whole pool RMBS.

Treasury Bills held as of September 30, 2022.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $1.0 billion due to broker for our quarter-end purchase of certain whole pool RMBS.

As of December 31, 2021, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets.

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Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of June 30, 2022:

The following table sets forth additional information on the residential mortgage loans in our portfolio as of September 30, 2022:

Portfolio Range Portfolio Weighted Average

19 unchanged sentences

Percentage of loans 90+ days delinquent (based on UPB) N/A 0.30%

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2022:

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2022:

($ in thousands)

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(1) CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year.

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2022 .

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2022 .

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2021:

9 unchanged sentences

(1) No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2021 .

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of June 30, 2022:

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of September 30, 2022:

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2021:

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of June 30, 2022, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of June 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of June 30, 2022 .

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of September 30, 2022, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of September 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of September 30, 2022 .

The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2021, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

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Commercial Mortgage Loans

The following table provides additional information on the commercial mortgage loans in our portfolio as of June 30, 2022:

The following table provides additional information on the commercial mortgage loans in our portfolio as of September 30, 2022:

Portfolio Range Portfolio Weighted Average

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LTV at loan origination 46.7% - 75.0% 59.8%

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of June 30, 2022 and December 31, 2021 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Our Commercial Mortgage Loans as of June 30, 2022:

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of September 30, 2022 and December 31, 2021 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Our Commercial Mortgage Loans as of September 30, 2022:

Geographic Diversification of Our Commercial Mortgage Loans as of December 31, 2021:

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We received bonds from AOMT 2020‑3 with a fair value of approximately $66.5 million, including approximately $23.0 million in horizontal risk retention securities (representing 5% of the fair value of the securities and other interests issued as part of the transaction).

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in Angel Oak Mortgage Trust I (“AOMT”) securitization transactions is set forth below as of June 30, 2022, unless otherwise stated:

AOMT 2019-2 AOMT 2019-4 AOMT 2019-6 AOMT 2020-3

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Investment thickness 18.95 % 8.61 % 6.20 % 11.82 %

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of June 30, 2022:

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of September 30, 2022:

RMBS Repurchase Debt Allocated Capital

17 unchanged sentences

Total $ 100,364 $ 385,270 $ 485,634 $ 5,720 $ 354,781 $ 360,501 $ 94,644 $ 30,489 $ 125,133

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of June 30, 2022:

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of September 30, 2022:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

19 unchanged sentences

Ending fair value $ 3,076 $ 2,178 $ 90,350 $ 17,975 $ 372,055 $ 485,634

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2022 (percentages are based on the aggregate unpaid principal balance of such loans):

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of September 30, 2022 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of June 30, 2022)

(1) No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2022.

(as of September 30, 2022)

(1) No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of September 30, 2022.

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2021 (percentages are based on the aggregate unpaid principal balance of such loans):

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In November 2020, we participated in a securitization transaction of a pool of small balance commercial mortgage loans consisting of mortgage loans secured by commercial properties pursuant to which we contributed to AOMT 2020-SBC1 commercial mortgage loans with a carrying value of approximately $31.2 million that we had accumulated and held on our balance sheet, and we received bonds from AOMT 2020-SBC1 with a fair value of approximately $8.9 million.

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

($ in thousands)

4 unchanged sentences

Weighted average LTV at loan origination and deal date 61.6 % 58.4 %

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital

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Description of Existing Financing Arrangements

As of June 30, 2022, we were a party to seven loan financing lines, which permitted borrowings in an aggregate amount of up to $1.6 billion, which availability increased to $1.9 billion subsequent to June 30, 2022 with the $260.0 million increase to the RBC financing line.

Borrowings under these agreements may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.

A description of each loan financing line is set forth as follows:

RBC Loan Financing Line.

On April 13, 2022, we and two of our subsidiaries entered into a master repurchase agreement with RBC.

As of September 30, 2022, we were a party to seven warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.9 billion.

Subsequent to September 30, 2022, two warehouse loan financing lines expired in accordance with their terms,

and we placed certain asset financings on other warehouse financing lines.

Borrowings under warehouse loan financing lines or placed with institutional investors (in general, each a “loan financing facility”) may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.

A description of each loan financing facility in place as of September 30, 2022 is set forth as follows:

Multinational Bank 1 Loan Financing Facility.

On April 13, 2022, we and two of our subsidiaries entered into a master repurchase agreement with a multinational bank (“Multinational Bank 1”).

Our subsidiaries are each considered a “Seller” under this agreement.

From time to time and pursuant to the initial agreement, either of our subsidiaries may sell to RBC, and later repurchase, up to $340.0 million aggregate borrowings on mortgage loans, which was increased to $600.0 million subsequent to June 30, 2022.

From time to time and pursuant to the initial agreement, either of our subsidiaries may sell to Multinational Bank 1, and later repurchase, up to $340.0 million aggregate borrowings on mortgage loans, which was increased to $600.0 million in the third quarter of 2022.

The master repurchase agreement was initially set to terminate on October 13, 2022, and on July 21, 2022, was extended as per the terms of the original agreement through January 20, 2023, unless terminated earlier pursuant to the terms of the master repurchase agreement.

The principal amount expected to be paid by RBC for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan (generally ranging from 80% to 90%, depending on the type of loan), whichever is less.

Pursuant to the agreement, RBC retains the right to determine the market value of the mortgage loan collateral in its sole commercially reasonable discretion.

The principal amount expected to be paid by Multinational Bank 1 for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan (generally ranging from 80% to 90%, depending on the type of loan), whichever is less.

Pursuant to the agreement, Multinational Bank 1 retains the right to determine the market value of the mortgage loan collateral in its sole commercially reasonable discretion.

The loan financing line is marked‑to‑market.

Additionally, RBC is under no obligation to purchase the eligible mortgage loans we offer to sell to them.

The interest rate on any outstanding balance under the master repurchase agreement that the applicable Subsidiary is required to pay RBC is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread of 1.95% and (2) the average SOFR for each U.S.

Additionally, Multinational Bank 1 is under no obligation to purchase the eligible mortgage loans we offer to sell to them.

The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread of 1.95% and (2) the average SOFR for each U.S.

Government Securities Business Day (as defined in the master repurchase agreement) beginning on April 11, 2022 and ending on the day that is two U.S.

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and (3) minimum liquidity.

The agreement contains margin call provisions that provide RBC with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, RBC may require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement contains margin call provisions that provide Multinational Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Multinational Bank 1 may require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and RBC’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiaries are also required to pay certain customary fees to RBC and to reimburse RBC for certain costs and expenses incurred in connection with RBC’s structuring, management, and ongoing administration of the master repurchase agreement.

Nomura Loan Financing Line.

On December 6, 2018, we and one of our subsidiaries entered into a master repurchase agreement with Nomura.

We are considered the “Seller” under this agreement.

From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Nomura.

Pursuant to the agreement, we and our subsidiary may sell to Nomura, and later repurchase, up to $300.0 million aggregate borrowings on mortgage loans.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Multinational Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiaries are also required to pay certain customary fees to Multinational Bank 1 and to reimburse Multinational Bank 1 for certain costs and expenses incurred in connection with Multinational Bank 1’s structuring, management, and ongoing administration of the master repurchase agreement.

Global Investment Bank 1 Loan Financing Facility.

On December 6, 2018, we and one of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 1”).

We were considered the “Seller” under this agreement.

From time to time, we and one of our subsidiaries amended such master repurchase agreement with Global Investment Bank 1.

Pursuant to the agreement, we and our subsidiary could sell to Global Investment Bank 1, and later repurchase, up to $300.0 million aggregate borrowings on mortgage loans.

This agreement was set to terminate on August 5, 2022.

On August 8, 2022, this agreement was extended through October 5, 2022, and interest will accrue on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

The principal amount paid by Nomura for each eligible mortgage loan is based on a percentage of both the market value, unpaid principal balance and acquisition price of the mortgage loan (generally ranging from 65% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments).

Pursuant to the agreement, Nomura retains the right to determine the market value of the mortgage loan collateral for certain mortgage loans in its sole and absolute discretion.

Additionally, Nomura is under no obligation to purchase the eligible mortgage loans we offer to sell to them.

Prior to the amendment effective August 5, 2022, upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Nomura the adjusted principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) the greater of (a) one-month LIBOR or three‑month LIBOR (depending on the type of mortgage loan) and (b) the applicable LIBOR floor, and (2) a spread generally ranging from 1.70% to 3.50% depending on the type of loan.

After the August 5, 2022 amendment, “LIBOR” has been replaced with “Term SOFR”.

The agreement requires us to maintain various financial and other covenants, such as that:

On August 8, 2022, this agreement was extended through October 5, 2022, and interest accrued on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

This agreement expired in accordance with its terms on October 5, 2022.

The principal amount paid by Global Investment Bank 1 for each eligible mortgage loan was based on a percentage of both the market value, unpaid principal balance, and acquisition price of the mortgage loan (generally ranging from 65% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments).

Pursuant to the agreement, Global Investment Bank 1 retained the right to determine the market value of the mortgage loan collateral for certain mortgage loans in its sole and absolute discretion.

Additionally, Global Investment Bank 1 was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Prior to the amendment effective August 5, 2022, upon our or our subsidiary’s repurchase of the mortgage loan, we were, or our subsidiary was, required to repay Global Investment Bank 1 the adjusted principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) the greater of (a) one-month LIBOR or three‑month LIBOR (depending on the type of mortgage loan) and (b) the applicable LIBOR floor, and (2) a spread generally ranging from 1.70% to 3.50% depending on the type of loan.

After the August 5, 2022 amendment, “LIBOR” was replaced with “Term SOFR”.

The agreement required us to maintain various financial and other covenants, such as that:

(1) adjusted tangible net worth on an aggregate basis must not be less than the sum of 50% of our adjusted tangible net worth as of the date of the agreement plus 50% of any future capital raised by us;

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and (4) liquidity, on an aggregate basis, must exceed the greater of 5% of the aggregate purchase price and $2.0 million.

The agreement contains margin call provisions that provide Nomura with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Nomura may require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, material adverse effects, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Nomura’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Nomura and to reimburse Nomura for certain costs and expenses incurred in connection with Nomura’s structuring, management and ongoing administration of the agreement.

Banc of California Loan Financing Line.

On December 21, 2018, we and our subsidiary entered into a master repurchase agreement with Banc of California, National Association (“Banc of California”).

The agreement contained margin call provisions that provided Global Investment Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Global Investment Bank 1 could require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contained events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, material adverse effects, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

The remedies for such events of default were also customary for this type of transaction and included the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary were also required to pay certain customary fees to Global Investment Bank 1 and to reimburse Global Investment Bank 1 for certain costs and expenses incurred in connection with Global Investment Bank 1’s structuring, management and administration of the agreement while the agreement was in place.

Regional Bank 1 Loan Financing Facility.

On December 21, 2018, we and our subsidiary entered into a master repurchase agreement with a regional bank (“Regional Bank 1”).

We are considered a “Seller” under this agreement.

From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Banc of California.

Pursuant to the agreement, we or our subsidiary may sell to Banc of California, and later repurchase, up to $50.0 million aggregate borrowings on mortgage loans.

From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Regional Bank 1.

Pursuant to the agreement, we or our subsidiary may sell to Regional Bank 1, and later repurchase, up to $50.0 million aggregate borrowings on mortgage loans.

The agreement was amended on March 7, 2022 to extend the term to March 16, 2023, unless terminated earlier pursuant to the terms of the agreement.

Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and beginning March 8, 2022, provided that interest will accrue on any new transactions under the loan financing line at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus an additional spread.

The principal amount paid by Banc of California for each mortgage loan is based on the lesser of (1) a percentage of the original principal amount of the mortgage loan (ranging from 75% to 97%) and (2) a percentage of its take‑out commitment (97%) or $4.0 million, depending on the loan type.

Pursuant to the agreement, Banc of California retains the right to determine the market value of the mortgage loan collateral in its sole discretion.

Upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Banc of California the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) a specified minimum rate (ranging from 3.50% to 4.13%) and (B) one‑month LIBOR plus a spread ranging from 2.50% to 3.13%, and (2) in the case of loans with maturities over 364 days, the seasoned spread of 1.0%.

The principal amount paid by Regional Bank 1 for each mortgage loan is based on the lesser of (1) a percentage of the original principal amount of the mortgage loan (ranging from 75% to 97%) and (2) a percentage of its take‑out commitment (97%) or $4.0 million, depending on the loan type.

Pursuant to the agreement, Regional Bank 1 retains the right to determine the market value of the mortgage loan collateral in its sole discretion.

Upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Regional Bank 1 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) a specified minimum rate (ranging from 3.50% to 4.13%) and (B) one‑month LIBOR plus a spread ranging from 2.50% to 3.13%, and (2) in the case of loans with maturities over 364 days, the seasoned spread of 1.0%.

As discussed above, the LIBOR reference rate was changed to SOFR beginning March 8, 2022 and going forward.

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and (4) we must attain positive net income, determined in accordance with GAAP, as of the last day of each calendar quarter, commencing with the quarter ended June 30, 2021, for the prior four (4) consecutive fiscal quarters then ending.

The agreement contains margin call provisions that provide Banc of California with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Banc of California may require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

The agreement contains margin call provisions that provide Regional Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Regional Bank 1 may require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, material adverse effects, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Banc of California’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Banc of California and to reimburse Banc of California for certain costs and expenses incurred in connection with Banc of California’s structuring, management and ongoing administration of the agreement.

Deutsche Bank Loan Financing Line.

On February 13, 2020, we and our subsidiary entered into a master repurchase agreement with Deutsche Bank, AG (“Deutsche Bank”).

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Regional Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Regional Bank 1 and to reimburse Regional Bank 1 for certain costs and expenses incurred in connection with Regional Bank 1’s structuring, management and ongoing administration of the agreement.

Global Investment Bank 2 Loan Financing Facility.

On February 13, 2020, we and our subsidiary entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 2”).

We are considered a “Seller” under this agreement.

From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Deutsche Bank.

Pursuant to the agreement, we or our subsidiary may sell to Deutsche Bank, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans.

From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Global Investment Bank 2.

Pursuant to the agreement, we or our subsidiary may sell to Global Investment Bank 2, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans.

The agreement, as amended previously, was set to terminate on February 11, 2022.

On February 4, 2022, the agreement was amended to terminate on February 2, 2024, unless terminated earlier pursuant to the terms of the agreement.

Prior to the amendment executed on February 4, 2022, the principal amount paid by Deutsche Bank for each mortgage loan was based on a percentage of the market value, cost‑basis value or unpaid principal balance of the mortgage loan (generally ranging from 60% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments).

Pursuant to the agreement, Deutsche Bank retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion.

Additionally, Deutsche Bank was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Prior to the February 4, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we or our subsidiary were required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) 0.00% and (B) one‑month LIBOR and (2) a spread generally ranging from 2.00% to 3.25%.

Prior to the amendment executed on February 4, 2022, the principal amount paid by Global Investment Bank 2 for each mortgage loan was based on a percentage of the market value, cost‑basis value or unpaid principal balance of the mortgage loan (generally ranging from 60% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments).

Pursuant to the agreement, Global Investment Bank 2 retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion.

Additionally, Global Investment Bank 2 was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Prior to the February 4, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we or our subsidiary were required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on

the type of loan) equal to the sum of (1) the greater of (A) 0.00% and (B) one‑month LIBOR and (2) a spread generally ranging from 2.00% to 3.25%.

Pursuant to the amendment executed on February 4, 2022, interest will now accrue on any outstanding balance under the master repurchase agreement at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month).

Previously, interest accrued at a rate based on one-month LIBOR.

Additionally, the agreement was also amended to remove any draw fees;

and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a spread generally ranging from 2.20% to 3.45%.

Additionally, the agreement was also amended to remove any draw fees and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a spread generally ranging from 2.20% to 3.45%.

The agreement requires us to maintain various financial and other covenants, which include:

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(2) our adjusted tangible net worth on the last day of any calendar quarter shall not decline by (A) 20% or more from the adjusted tangible net worth as of the last day of the immediately prior calendar quarter or (B) 40% or more from the adjusted tangible net worth as of the last day of the calendar quarter that is twelve months prior to such calendar quarter;

(3) our liquidity must at least equal the greater of (A) $5.0 million and (B) 3.0% of the outstanding purchase price for such mortgage loans transferred to Deutsche Bank;

(3) our liquidity must at least equal the greater of (A) $5.0 million and (B) 3.0% of the outstanding purchase price for such mortgage loans transferred to Global Investment Bank 2;

and (4) our indebtedness to our adjusted tangible net worth must not exceed 5.5:1.

The agreement contains margin call provisions that provide Deutsche Bank with certain rights in the event of a decline in the market value or cost‑basis value of the purchased mortgage loans.

Under these provisions, Deutsche Bank may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement contains margin call provisions that provide Global Investment Bank 2 with certain rights in the event of a decline in the market value or cost‑basis value of the purchased mortgage loans.

Under these provisions, Global Investment Bank 2 may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Deutsche Bank’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Deutsche Bank and to reimburse Deutsche Bank for certain costs and expenses incurred in connection with Deutsche Bank’s structuring, management and ongoing administration of the agreement.

Goldman Loan Financing Line.

On March 5, 2021, we and our subsidiary entered into a master repurchase agreement with Goldman Sachs Bank USA (“Goldman”).

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 2’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Global Investment Bank 2 and to reimburse Global Investment Bank 2 for certain costs and expenses incurred in connection with Global Investment Bank 2’s structuring, management and ongoing administration of the agreement.

Global Investment Bank 3 Loan Financing Facility.

On March 5, 2021, we and our subsidiary entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”).

We are considered a “Seller” under this agreement.

Pursuant to the agreement, we or our subsidiary may sell to Goldman, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans.

Pursuant to the agreement, we or our subsidiary may sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans.

The agreement was extended on March 2, 2022 to terminate on March 5, 2023, unless terminated earlier pursuant to the terms of the agreement.

The principal amount paid by Goldman for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan (generally ranging from 75% to 85%, depending on the type of loan), whichever is less.

Pursuant to the agreement, Goldman retains the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and in a commercially reasonable manner.

The principal amount paid by Global Investment Bank 3 for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan (generally ranging from 75% to 85%, depending on the type of loan), whichever is less.

Pursuant to the agreement, Global Investment Bank 3 retains the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and in a commercially reasonable manner.

The loan financing line is marked‑to‑market at fair value.

Additionally, Goldman is under no obligation to purchase the eligible mortgage loans we offer to sell to them.

Prior to the January 1, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we were, or our subsidiary was, required to repay Goldman the principal amount related to such mortgage loan plus accrued interest generally at a rate based on three‑month LIBOR plus 2.25%.

Additionally, Global Investment Bank 3 is under no obligation to purchase the eligible mortgage loans we offer to sell to them.

Prior to the January 1, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we were, or our subsidiary was, required to repay Global Investment Bank 3 the principal amount related to such mortgage loan plus accrued interest generally at a rate based on three‑month LIBOR plus 2.25%.

On January 1, 2022, the LIBOR-based index was replaced by reference to the sum of Compounded SOFR and a SOFR adjustment of 20 basis points.

Compounded SOFR is determined on a one-month basis and is defined as a daily rate as determined by Goldman to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc.

Compounded SOFR is determined on a one-month basis and is defined as a daily rate as determined by Global Investment Bank 3 to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc.

The agreement requires us to maintain various financial and other covenants, such as that:

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and (3) the maximum ratio of our and our subsidiaries’ total indebtedness to tangible net worth must not be greater than 5:1.

The agreement contains margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Goldman may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement contains margin call provisions that provide Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under these provisions, Global Investment Bank 3 may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Goldman’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Goldman and to reimburse Goldman for certain costs and expenses incurred in connection with Goldman’s structuring, management and ongoing administration of the agreement.

Veritex Financing Line.

On August 16, 2021, we and our subsidiaries entered into a non-mark-to-market $50.0 million committed financing facility with Veritex Community Bank (“Veritex”) through the execution of a Loan and Security Agreement (the “Loan and Security Agreement”) and a Promissory Note (the “Promissory Note” and together with the Loan and Security Agreement, the “Facility Documents”) among those subsidiaries and Veritex.

Pursuant to the Facility Documents, Veritex agreed to make one or more advances to one or more of the subsidiaries of the Company (together, the “Borrowers”) secured by mortgage loans, notes and related collateral (the “Veritex Financing Line”).

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 3’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Global Investment Bank 3 and to reimburse Global Investment Bank 3 for certain costs and expenses incurred in connection with Global Investment Bank 3’s structuring, management and ongoing administration of the agreement.

Regional Bank 2 Loan Financing Facility.

On August 16, 2021, we and our subsidiaries entered into a non-mark-to-market $50.0 million committed financing facility with a regional bank (“Regional Bank 2”) through the execution of a Loan and Security Agreement (the “Loan and Security Agreement”) and a Promissory Note (the “Promissory Note” and together with the Loan and Security Agreement, the “Facility Documents”) among those subsidiaries and Regional Bank 2.

Pursuant to the Facility Documents, Regional Bank 2 agreed to make one or more advances to one or more of the subsidiaries of the Company (together, the “Borrowers”) secured by mortgage loans, notes and related collateral (the “Regional Bank 2 Financing Line”).

On February 11, 2022, we amended the financing facility to increase the size of the financing facility to $75.0 million from $50.0 million.

The Veritex Financing Line terminates, and amounts outstanding under the Veritex Financing Line will mature, on August 16, 2023, subject to certain exceptions.

The amount advanced by Veritex for each eligible loan is based on the unpaid principal balance of the loan, the loan-to-value ratio of the loan and the FICO score of the borrower and ranges from 80.00% to 92.50% depending on the type of loan and the aforementioned criteria.

The Regional Bank 2 Financing Line terminates, and amounts outstanding under the Regional Bank 2 Financing Line will mature, on August 16, 2023, subject to certain exceptions.

The amount advanced by Regional Bank 2 for each eligible loan is based on the unpaid principal balance of the loan, the loan-to-value ratio of the loan and the FICO score of the borrower and ranges from 80.00% to 92.50% depending on the type of loan and the aforementioned criteria.

Prior to the February 11, 2022 amendment, the interest rate on any outstanding balance under the Facility Documents is the greater of (1) the sum of (A) one-month LIBOR and (B) 2.30%, and (2) 3.13%.

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In addition, the Facility Documents contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

The remedies for such events of default are also customary for this type of transaction and include acceleration of the principal amount outstanding under the Facility Documents and Veritex’s right to liquidate the collateral then subject to the Facility Documents.

The Borrowers are also required to pay certain customary fees to Veritex and to reimburse Veritex for certain costs and expenses incurred in connection with Veritex’s management and ongoing administration of the Veritex Financing Line.

Barclays Financing Line.

On September 20, 2021, we and one of our subsidiaries (the “Subsidiary”) entered into a $400.0 million repurchase facility (the “Barclays Financing Line”) with Barclays Bank PLC (“Barclays”) through the execution of a Master Repurchase Agreement (the “Master Repurchase Agreement”) between the Subsidiary and Barclays.

Pursuant to the Master Repurchase Agreement, the Subsidiary may sell certain securities to Barclays representing whole loan assets and later repurchase such securities from Barclays.

The Master Repurchase Agreement terminates on September 20, 2022, unless terminated earlier pursuant to the terms of the Master Repurchase Agreement.

On January 27, 2022, this repurchase facility was amended to to state that interest will accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and increase the maximum purchase price permitted under the Master Repurchase Agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the Master Repurchase Agreement which occurred on February 7, 2022.

The amount expected to be advanced by Barclays is generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, which is a percentage of the unpaid principal balance or market value of the asset depending on the type of underlying asset.

Prior to the January 27, 2022 amendment, the interest rate on any outstanding balance under the Master Repurchase Agreement that the Subsidiary was required to pay Barclays was generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, where the interest rate was equal to the sum of (1) a spread ranging from 1.70% to 3.50%, determined based on the type of underlying asset, and (2) one-month LIBOR.

Additionally, Barclays is under no obligation to purchase the securities we offer to sell to them.

As stated above, the interest rate is now calculated as a rate based on Term SOFR instead of one-month LIBOR.

The obligations of the Subsidiary under the Master Repurchase Agreement are guaranteed by the Company pursuant to a Guaranty (the “Guaranty”) executed contemporaneously with the Master Repurchase Agreement.

In addition, and similar to other repurchase agreements that the Company has entered into, the Company is subject to various financial and other covenants, including those relating to (1) declines in tangible net worth;

The remedies for such events of default are also customary for this type of transaction and include acceleration of the principal amount outstanding under the Facility Documents and Regional Bank 2’s right to liquidate the collateral then subject to the Facility Documents.

The Borrowers are also required to pay certain customary fees to Regional Bank 2 and to reimburse Regional Bank 2 for certain costs and expenses incurred in connection with Regional Bank 2’s management and ongoing administration of the Regional Bank 2 Financing Line.

Multinational Bank 2 Loan Financing Facility.

On September 20, 2021, we and one of our subsidiaries (the “Subsidiary”) entered into a $400.0 million repurchase facility with a multinational bank (“Multinational Bank 2”) through the execution of a Master Repurchase Agreement (the “Master Repurchase Agreement”) between the Subsidiary and Multinational Bank 2.

Pursuant to the Master Repurchase Agreement, the Subsidiary may sell certain securities to Multinational Bank 2 representing whole loan assets and later repurchase such securities from Multinational Bank 2.

This agreement was set to expire on September 20, 2022.

On August 23, 2022, this agreement was extended to September 30, 2022, and on September 27, 2022, this agreement was extended to October 14, 2022, on which date it expired by its terms.

The amount that was advanced by Multinational Bank 2 was generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, which was a percentage of the unpaid principal balance or market value of the asset depending on the type of underlying asset.

The interest rate on any outstanding balance under the Master Repurchase Agreement that the Subsidiary was required to pay Multinational Bank 2 was generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, where the interest rate was equal to the sum of (1) a spread ranging from 1.70% to 3.50%, determined based on the type of underlying asset, and (2) one-month LIBOR.

Additionally, Multinational Bank 2 was under no obligation to purchase the securities we offered to sell to them.

On January 27, 2022, this repurchase facility was amended to state that interest would subsequently accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and increase the maximum purchase price permitted under the Master Repurchase Agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the Master Repurchase Agreement which occurred on February 7, 2022.

The obligations of the Subsidiary under the Master Repurchase Agreement were guaranteed by the Company pursuant to a Guaranty (the “Guaranty”) executed contemporaneously with the Master Repurchase Agreement.

In addition, and similar to other repurchase

agreements that the Company has entered into, the Company was subject to various financial and other covenants, including those relating to (1) declines in tangible net worth;

(2) a maximum ratio of indebtedness to tangible net worth;

and (3) minimum liquidity.

In addition, the Master Repurchase Agreement and Guaranty contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, insolvency and other events of default customary for this type of transaction.

The remedies for such events of default are also customary for this type of transaction and include the acceleration of the amounts outstanding under the Master Repurchase Agreement and Barclays’ right to liquidate the purchased securities then subject to the Master Repurchase Agreement.

The Subsidiary is also required to pay certain customary fees to Barclays and to reimburse Barclays for certain costs and expenses incurred in connection with Barclays’ management and ongoing administration of the Master Repurchase Agreement.

The following table sets forth the details of our financing lines as of each of June 30, 2022 and December 31, 2021:

In addition, the Master Repurchase Agreement and Guaranty contained events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, insolvency and other events of default customary for this type of transaction.

The remedies for such events of default were also customary for this type of transaction and included the acceleration of the amounts outstanding under the Master Repurchase Agreement and Multinational Bank 2’s right to liquidate the purchased securities then subject to the Master Repurchase Agreement.

The Subsidiary was also required to pay certain customary fees to Multinational Bank 2 and to reimburse Multinational Bank 2 for certain costs and expenses incurred in connection with Multinational Bank 2’s management and ongoing administration of the Master Repurchase Agreement.

The following table sets forth the details of our financing lines as of each of September 30, 2022 and December 31, 2021:

Line of Credit Facility Limit Base Interest Rate (A)

Interest Rate Spread (A)

June 30, 2022 December 31, 2021

September 30,

2022 December 31,

($ in thousands)

Barclays Bank PLC (1)

$ 400,000 1 month SOFR 1.95% - 2.00% $ 370,572 $ 362,899

Royal Bank of Canada (2)

Multinational Bank 1 (1)

$ 600,000 Average Daily SOFR 1.95% $ 464,695 N/A

Nomura Corporate Funding Americas, LLC (3)

Multinational Bank 2 (2)

$ 400,000 1 month SOFR 1.95% - 2.00%

$ 147,261 $ 362,899

Global Investment Bank 1 (3)

$ 300,000 1 month or 3 month LIBOR 1.70% - 3.50%

Deutsche Bank, AG (4)

Global Investment Bank 2 (4)

$ 250,000 1 month SOFR 2.20% - 3.45%

Goldman Sachs Bank USA (5)

$ 98,335 231,981

Global Investment Bank 3 (5)

$ 200,000 Compound SOFR 2.45% $ 117,082 109,283

Banc of California, National Association (6)

Regional Bank 1 (6)

$ 75,000 1 month SOFR 2.50% - 3.50%

Veritex Community Bank (7)

$ 50,834 34,838

Regional Bank 2 (7)

$ 75,000 1 month SOFR 2.41% $ 28,114 11,258

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(A) See below for timing of applicable transitions from LIBOR to the Secured Overnight Financing Rate (“SOFR”) as base interest rate and corresponding applicable definitions of “Term” and “Average” SOFR, and “SOFR base”.

(1) This agreement terminates on September 20, 2022.

On January 27, 2022, this repurchase facility was amended to state that (a) interest will accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus a spread and (b) increase the maximum purchase price permitted under the master repurchase agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the master repurchase agreement.

This securitization occurred on February 7, 2022.

Prior to January 27, 2022, interest was based on 1-month LIBOR plus a spread generally in line with similar agreements that the Company or its subsidiaries have entered into, which is a range of 1.70% - 3.50%.

(2) On April 13, 2022, the Company and two of its subsidiaries entered into a $340.0 million repurchase facility with Royal Bank of Canada (“RBC”) through the execution of a master repurchase agreement between the Company as guarantor, and two of its subsidiaries, as sellers, and RBC as buyer.

The master repurchase agreement was initially set to terminate on October 13, 2022, and on July 21, 2022, was extended as per the terms of the original agreement through January 20, 2023 (see Note 14 - Subsequent Events ), unless such term is extended or terminated earlier pursuant to the terms of the master repurchase agreement.

On August 4, 2022, the RBC maximum line of credit was increased by $260.0 million to a maximum facility limit of $600.0 million.

See Note 14 - Subsequent Events to our unaudited condensed consolidated financial statements include elsewhere in this Quarterly Report on Form 10-Q.

(1) On April 13, 2022, the Company and two of its subsidiaries entered into a $340.0 million repurchase facility with a multinational bank (“Multinational Bank 1”) through the execution of a master repurchase agreement between the Company as guarantor, and two of its subsidiaries, as sellers, and Multinational Bank 1 as buyer.

The master repurchase agreement was initially set to terminate on October 13, 2022, and on July 21, 2022, was extended as per the terms of the original agreement through January 20, 2023, unless such term is extended or terminated earlier pursuant to the terms of the master repurchase agreement.

On August 4, 2022, the maximum line of credit under the facility with Multinational Bank 1 was increased by $260.0 million to a maximum facility limit of $600.0 million.

(2) This agreement was set to expire on September 20, 2022.

On August 23, 2022, this agreement was extended to September 30, 2022, and on September 26, 2022, this agreement was extended to October 14, 2022, on which date it expired by its terms after being paid in full.

(3) This agreement was set to terminate on August 5, 2022.

On August 8, 2022, this agreement was extended through October 5, 2022, and interest will accrue on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

See Note 14 - Subsequent Events to our unaudited condensed consolidated financial statements include elsewhere in this Quarterly Report on Form 10-Q.

On August 8, 2022, this agreement was extended through October 5, 2022, and amended to provide for interest accruing on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

On October 5, 2022, this agreement expired in accordance with its terms after being paid in full.

(4) On February 4, 2022, this facility was amended to extend the initial termination date of the master repurchase agreement from February 11, 2022 to February 2, 2024;

remove any draw fees;

and adjust the pricing rate whereby upon the Company’s or its subsidiary’s repurchase of a mortgage loan, the Company or such subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR and (B) a spread generally ranging from 2.20% to 3.45%.

Prior to February 4, 2022, interest was based on 1-month LIBOR plus a spread of 2.00% - 3.25%.

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(6) On March 7, 2022, the agreement was amended to terminate on March 16, 2023, unless terminated earlier pursuant to the terms of the agreement.

Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and

beginning March 8, 2022, provided that interest will accrue on any new transactions under the loan financing line at a rate based on Term SOFR plus an additional spread.

Prior to March 7, 2022, interest was based on 1-month LIBOR plus a spread of 2.50% - 3.13%.

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Treasury securities, securities issued by AOMT, Angel Oak’s securitization platform, and other securities we may acquire in accordance with our investment guidelines.

The following table sets forth certain characteristics of our short-term repurchase facilities as of June 30, 2022 and December 31, 2021:

June 30, 2022

The following table sets forth certain characteristics of our short-term repurchase facilities as of September 30, 2022 and December 31, 2021:

September 30, 2022

Repurchase Agreements Amount Outstanding Weighted Average Interest Rate Weighted Average Remaining Maturity (Days)

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Securitization Transactions

In July 2022, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 48% of which were mortgage loans originated by third parties and the remainder of which were originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2022-4 issued approximately $177.6 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $152.2 million and retained cash of $2.3 million, which was used for operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds.

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-4 securitization on our condensed consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of September 30, 2022.

In February 2022, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 56% of which were mortgage loans originated by third parties and the remainder of which were originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2022-1 issued approximately $551.8 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of

approximately $458.3 million and retained cash of $60.9 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $458.3 million and retained cash of $60.9 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds.

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-1 securitization on our condensed consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of March 31, 2022.

In November 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

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We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds.

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2021-7 securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

In August 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

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We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds.

Given the accounting rules surrounding this type of transaction, we have consolidated the securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

Leverage and Hedging Strategies

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Subject to qualifying and maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks.

For example, we may opportunistically enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.

For example, we may advantageously enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.

Any such hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap contracts, index swap contracts, interest rate cap or floor contracts, futures or forward contracts, and options.

Six Months Ended

June 30, 2022 June 30, 2021

Cash Availability

Cash and cash equivalents

As of September 30, 2022, we held an historically lower-than-usual balance of unrestricted cash and cash equivalents.

Although the net borrowings on our financing facilities were a net increase during the nine months ended September 30, 2022, our available cash balance decreased as of September 30, 2022 primarily due to margin calls on our financing facilities.

Our cash balance as of September 30, 2022 was sufficient to meet our liquidity covenants under our financing facilities.

We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur.

Due to market volatility, some of our cash was restricted, as further described below, by margin maintenance requirements by a whole loan financing counterparty, which restrictions were released subsequent to September 30, 2022 with the expiration of the facility by its terms.

We sold certain commercial loans in the third quarter, as we deemed the market for our commercial loans to be advantageous.

Our largest commercial loan is expected to be paid in full during the fourth quarter of 2022, which, if repaid as expected, would generate additional cash.

We may also participate in upcoming securitizations either solely or with other Angel Oak entities.

We also have the ability to leverage currently unleveraged securities or whole loan assets, if we deem those actions advisable.

Restricted Cash

Restricted cash of approximately $9.0 million as of September 30, 2022 was comprised of:

$7.6 million in margin collateral required by a lender (as referred to above), all of which cash margin required was fully released subsequent to September 30, 2022;

$0.3 million in interest rate futures margin collateral;

and margin collateral for securities sold under agreements to repurchase of $1.1 million.

Restricted cash had historically previously been solely comprised of interest rate futures margin collateral and margin collateral for securities sold under agreements to repurchase.

Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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Cash flow provided by (used in) investing activities $ 655,093 $ (408,479)

Cash flows provided by financing activities $ 102,856 $ 1,075,043

Net decrease in cash and restricted cash $ (30,433) $ (12,945)

Operating cash flows of $(635.8) million for the six months ended June 30, 2022 as compared to $(382.1) million for the six months ended June 30, 2021 were primarily due to the purchase of additional residential mortgage loans during the six months ended June 30, 2022.

Investing cash flows of $502.5 million for the six months ended June 30, 2022 as compared to $(705.9) million for the six months ended June 30, 2021 were primarily due to the net sales of RMBS during the quarter, partially offset by the timing of purchase and maturity activity of U.S.

Cash flows provided by (used in) financing activities $ (33,620) $ 1,298,498

Net increase (decrease) in cash and restricted cash $ (22,805) $ 6,297

The decrease in cash flows used in operating activities of $(644.3) million for the nine months ended September 30, 2022 as compared to $(883.7) million for the nine months ended September 30, 2021 was primarily due to the adjustments to reconcile net income to cash for unrealized losses, partially offset by purchase of additional residential mortgage loans during the nine months ended September 30, 2022.

Investing cash flows of $655.1 million for the nine months ended September 30, 2022 as compared to $(408.5) million for the nine months ended September 30, 2021 were primarily due to sales of RMBS and less purchase activity involving RMBS and CMBS during the nine months ended September 30, 2022, as well as the timing of purchase and maturity activity of U.S.

Treasury securities.

Financing cash flows used of $102.9 million for the six months ended June 30, 2022 as compared to $1.1 billion provided for the six months ended June 30, 2021 were due primarily due to net repayments on repurchase facilities in the six months ended June 30, 2022 as compared to net borrowings on repurchase facilities during the 2021 comparative period.

The net repayments on repurchase facilities for the six months ended June 30, 2022 were partially offset by proceeds from the AOMT 2022-1 securitization.

Financing cash flows used of $(33.6) million for the nine months ended September 30, 2022 as compared to $1.3 billion provided for the nine months ended September 30, 2021 were primarily due to net repayments on repurchase facilities in the nine months ended September 30, 2022 as compared to net borrowings on repurchase facilities during the 2021 comparative period.

The net repayments on repurchase facilities for the nine months ended September 30, 2022 were partially offset by proceeds from the AOMT 2022-1 and AOMT 2022-4 securitizations.

Cash Flows - Residential and Commercial Loan Classification

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Commercial mortgage loan activity is recognized in the statement of cash flows as an investing activity, as our commercial mortgage loan portfolio is generally deemed to be held for investing purposes.

Cash Availability

As of June 30, 2022, we held a lower than usual balance of unrestricted cash and cash equivalents.

Although borrowings on our financing facilities were a net increase during the six months ended June 30, 2022, our available cash balance decreased in the month of June 2022 due to margin calls on our financing facilities.

Subsequent to June 30, 2022, and through August 12, 2022, our available unrestricted cash balance increased to more normalized levels due to receipt of interest income on our RMBS, CMBS, and mortgage loan portfolios, as well as a sale of certain of our commercial loans, and the AOMT 2022-4 securitization.

Our cash balance as of June 30, 2022 was sufficient to meet our liquidity covenants under our financing facilities.

We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur.

Due to market volatility, we exited certain of our economic hedge positions subsequent to June 30, 2022, and therefore would not have any margin requirements to such hedging counterparties unless we were to resume that particular economic hedging, which we may do in the future, should we deem economic conditions to be less volatile or more favorable to us.

We anticipate that our largest commercial loan will be paid in full within the third quarter of 2022, and we may sell additional commercial loans if we deem the market to be advantageous.

We may also participate in an upcoming securitization with other Angel Oak entities.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis