What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 230 added, 386 removed, 525 unchanged (54% of the section changed)

3 unchanged sentences

References herein to our “Company,” “we,” “us,” or “our” refer to Angel Oak Mortgage REIT, Inc.

and its subsidiaries unless the context requires otherwise.

Unless otherwise indicated, the term “Angel Oak” refers collectively to Angel Oak Capital Advisors, LLC (“Angel Oak Capital”) and its affiliates, including Falcons I, LLC, our external manager (our “Manager”), Angel Oak Companies, LP (“Angel Oak Companies”), and the proprietary mortgage lending platform of its affiliate, Angel Oak Mortgage Solutions LLC (together with other non-operational affiliated originators, “Angel Oak Mortgage Lending”).

and its subsidiaries including Angel Oak Mortgage Operating Partnership, LP (our “operating partnership”), through which we hold substantially all of our assets and conduct our operations.

Unless otherwise indicated, the term “Angel Oak” refers collectively to Angel Oak Capital Advisors, LLC (“Angel Oak Capital”) and its affiliates, including Falcons I, LLC, our external manager (our “Manager”), Angel Oak Companies, LP (“Angel Oak Companies”), and the proprietary mortgage lending platform of affiliates Angel Oak Mortgage Solutions LLC (together with other non-operational affiliated originators, “Angel Oak Mortgage Lending”).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

This Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve numerous risks and uncertainties.

8 unchanged sentences

• the level and volatility of prevailing interest rates and credit spreads;

• changes in our industry, inflation, interest rates, the debt or equity markets, the general economy (or in specific regions) or the residential real estate finance and real estate markets specifically;

• changes in our business strategies or target assets;

• changes in our industry, inflation, interest rates, business strategies, target assets, the debt or equity markets, the general economy (or in specific regions) or the residential real estate finance and real estate markets specifically;

• general volatility of the markets in which we invest;

• changes in the availability of attractive loan and other investment opportunities, including non-QM loans sourced from Angel Oak Mortgage Lending platforms;

• changes in the availability of attractive loan and other investment opportunities, including non-QM loans sourced from Angel Oak Mortgage Lending;

• the ability of our Manager to locate suitable investments for us, manage our portfolio, and implement our strategy;

• our ability to profitably execute securitization transactions;

• our ability to obtain and maintain financing arrangements on favorable terms, or at all;

1 unchanged sentence

• the timing of cash flows, if any, from our investments;

• our ability to profitably execute securitization transactions;

• the operating performance, liquidity, and financial condition of borrowers;

1 unchanged sentence

• changes in prepayment rates on our investments;

• the departure of any of the members of senior management of our Company, our Manager, or Angel Oak;

• the departure of any of the members of senior management of the Company, our Manager, or Angel Oak;

• the availability of qualified personnel;

• conflicts with Angel Oak, including our Manager and its personnel, including our officers, and entities managed by Angel Oak;

• events, contemplated or otherwise, such as acts of God, including hurricanes, earthquakes, and other natural disasters, including those resulting from global climate change, pandemics, acts of war or terrorism, escalation of military conflicts (such as the Russian invasion of Ukraine), and others that may cause unanticipated and uninsured performance declines, disruptions in markets, and/or losses to us or the owners and operators of the real estate securing our investments;

• events, contemplated or otherwise, such as acts of God, including hurricanes, earthquakes, and other natural disasters, including those resulting from global climate change, pandemics, acts of war or terrorism, the initiation or escalation of military conflicts (such as the Russian invasion of Ukraine), and others that may cause unanticipated and uninsured performance declines, disruptions in markets, and/or losses to us or the owners and operators of the real estate securing our investments;

• impact of and changes in governmental regulations, tax laws and rates, accounting principles and policies and similar matters;

1 unchanged sentence

mortgage market;

• future changes with respect to the Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac” and collectively with Fannie Mae, the “GSEs”) in the mortgage market and related events, including the lack of certainty as to the future roles of these entities and the U.S.

• future changes with respect to the Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the “GSEs”) in the mortgage market and related events, including the lack of certainty as to the future roles of these entities and the U.S.

Government in the mortgage market and changes to legislation and regulations affecting these entities;

9 unchanged sentences

New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us.

Important Information Regarding Our Disclosure to Investors

We may use our website (www.angeloakreit.com) to communicate with our investors and disclose company information.

The information disclosed through our website may be considered material, so investors should monitor our website in addition to press releases, SEC filings and public conference calls and webcasts.

The contents of our website referenced herein are not incorporated by reference into this report.

Angel Oak Mortgage REIT, Inc.

6 unchanged sentences

We are externally managed and advised by our Manager, Falcons I, LLC, 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 Mortgage Lending is a market leader in non‑QM loan production and, as of September 30, 2023, had originated over $18.2 billion in total non‑QM loan volume since its inception in 2011.

Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination platform, is a market leader in non‑QM loan production.

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.

2 unchanged sentences

In addition, we believe we have significant competitive advantages due to Angel Oak’s analytical investment tools, extensive relationships in the financial community, financing and capital structuring skills, investment surveillance capabilities, and operational expertise.

We elected to be taxed as a REIT for U.S.

We have elected to be taxed as a REIT for U.S.

federal income tax purposes commencing with our taxable year ended December 31, 2019.

1 unchanged sentence

Our qualification as a REIT, and maintenance of such qualification, depends on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels, and the concentration of ownership of our stock.

We also intend to operate our business in a manner that

will allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act.

We also intend to operate our business in a manner that will allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act.

Our common stock commenced trading on the New York Stock Exchange on June 17, 2021.

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.

We expect to derive our returns primarily from the difference between the interest we earn on loans we invest in 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.

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

Investors maintained a close watch on key inflation, employment, and housing data during the third quarter of 2023 while the Federal Reserve Bank (“Fed”) continued to work toward a potential “soft landing” following cumulative federal funds rate increases of 5.25% since March of 2022.

The Fed increased the federal funds rate by 25 basis points in July 2023 before skipping a rate increase at its September 2023 meeting;

despite this skip, the Fed signaled that rates are likely to stay at this level for longer, which drove an increase in medium-term and long-term treasury yields.

With that said, interest rate and spread volatility has generally lessened as we have progressed through 2023.

For now, the Fed and investors alike continue to monitor economic data for consistent and/or sustained signs that suggest federal funds rate movements in either direction.

Commensurate with federal funds rate increases, residential mortgage rates have increased to nearly 8% for a 30 year-fixed mortgage, marking their highest level since 2002.

Two years ago, the average 30-year fixed residential mortgage rate was roughly 3%.

Though current mortgage rates are below average rates in the decades leading up to 2002, suppressed home sales activity suggests that borrowers are still in the process of acclimating to the accelerated increase in rates.

The two-year and five-year Treasury yields experienced modest increases of approximately 17 basis points and 47 basis points, respectively, during the third quarter.

However, spreads were more stable in line with the aforementioned reductions in volatility, which mitigated the overall mark-to-market impact on the value of our portfolio.

These movements drove a net decrease of approximately 123 basis points in the weighted average price of our residential whole loans portfolio during the third quarter (excluding newly-originated loans purchased during the quarter).

Additionally, we have increased the weighted average coupon of our residential whole loans portfolio by 99 basis points since the end of the second quarter to 5.83% as of the third quarter of 2023.

Since the quarter ended September 30, 2023, additional loan purchases and purchase commitments have increased the weighted average coupon of our residential whole loans portfolio by an additional 54 basis points to 6.37% as of November 6,2023.

We expect to continue to purchase newly originated loans, which should continue to improve portfolio valuations and securitization execution.

2024 kicked off with optimism around federal funds rate cuts over the course of the year, with variability in analyst projections of the number and size of rate reductions.

However, in the first quarter, stubborn employment and inflation readings have delayed market expectations for when the Federal Reserve Bank (“Fed”) will begin to cut rates.

In its May 2024 meeting, the Fed indicated that it still expects to cut rates in 2024, but the timing has been pushed to later in the year versus the initial analyst consensus.

30 year fixed residential conforming mortgage rates increased over the course of the first quarter, ending just below 7% before increasing back above 7% after the end of the quarter.

Additionally, a new set of rules announced in conjunction with a landmark $418 million legal settlement by the National Association of Realtors will prohibit agent’s compensation from being included on multiple listing services (MLS), end a requirement that brokers subscribe to MLS, and introduce a requirement that MLS participants enter into written agreements with their buyers.

Taken together, the effect is expected to drive down broker commissions and increase home purchases when implemented in July 2024.

The two-year and five-year Treasury yields each experienced a modest increase of approximately 37 basis points during the first quarter, which, combined with relatively muted volatility, had a limited impact on the valuation of our portfolio.

Net of new loan purchases and securitizations, we observed an increase of approximately 124 basis points in the weighted average price of our residential whole loans portfolio during the first quarter.

Additionally, we have increased the weighted average coupon of our residential whole loans portfolio by 33 basis points since the end of 2023 to 7.11% as of the end of the first quarter of 2024.

The AOMT 2024-4 securitization executed subsequent to March 31, 2024 reduced the unpaid principal balance of our residential whole loans portfolio by over 75%.

Consistent with our loan acquisition and securitization process, we are refilling the balance of our residential whole loans portfolio with high-quality, current market coupon loans that we expect to contribute to future securitization transactions.

Our investment performance

Net Interest Margin (“NIM”).

We held fewer target assets in the first nine months of 2023 as compared to the comparable period of 2022, thereby generating less interest income.

Though our borrowings decreased as well, higher variable interest rates caused our interest expense to increase.

Despite holding fewer target assets in the first quarter of 2024 as compared to the first quarter of 2023, an increase in the yield of our target assets generated greater interest income than the first quarter of 2023.

Borrowings on our whole loan portfolio decreased as well, reducing our overall interest expense, despite continued high variable interest rates in the first quarter of 2024 compared to the first quarter of 2023.

Net realized loss .

Our net realized loss for the nine months ended September 30, 2023 was primarily due to realized losses on the sale of whole loans into the AOMT 2023-1 and AOMT 2023-5 securitizations during the first and third quarter of 2023, respectively.

Because these securitizations did not result in the consolidation of VIE entities, we recognized a loss on the sale of these loans;

however, the realized loss was less than the previous period’s unrealized loss for these loans, which drove overall positive economics for the securitizations.

Additionally, our net realized gains on the economic hedges of our interest rate futures and TBAs were lower in the first nine months of 2023 as compared to the first nine months of 2022, as the magnitude of the impact from rate and spread m

ovement has been lower in 2023 than it was in 2022.

Our net realized loss for the quarter ended March 31, 2024 was primarily due to a realized loss on the sale of whole loans contributed into the AOMT 2024-3 securitization in which we participated.

As this securitization did not result in consolidation of the AOMT 2024-3 VIE entity, we recognized a loss on the sale of these loans.

This was partially offset by realized gains on the economic hedges of our interest rate futures and To-Be-Announced (“TBA”) securities.

Net unrealized gain .

Our net unrealized gain in the first nine months of 2023 was primarily due to the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2023-1 and AOMT 2023-5 securitizations, offset by unrealized losses associated with valuations of securitized loans and whole pool loans.

The comparable period of 2022 saw unrealized losses related to valuation of residential and securitized loans.

Our net unrealized gain in the first quarter of 2024 was primarily due to an increase in the valuation of our residential whole loans and loans in securitization trust portfolios, as well as the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2024-3 securitization.

Whole loans and securitization activity

During the three month period ended September 30, 2023, we purchased $78.1 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 8.34%, weighted average loan-to-value of 71.65% and weighted average credit score of 753.

In January 2023, we participated in AOMT 2023-1, an approximately $580 million scheduled principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid balance of approximately $241.3 million.

On June 29, 2023, we issued AOMT 2023-4, securitizing a total of approximately $285 million on unpaid principal balance of seasoned non-QM Mortgage loans.

On August 22, 2023, we participated in AOMT 2023-5, an approximately $260.6 million scheduled

principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled principal balance of approximately $93.8 million.

During the quarter ended March 31, 2024, we purchased $43.2 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 8.14%, weighted average loan-to-value ratio (“LTV”)of 68.7% and weighted average credit score of 747.

In March 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $48.7 million.

We participated in this securitization alongside other Angel Oak entities, and may strategically enter into similar securitizations in the future.

Subsequent to March 31, 2024, we issued AOMT 2024-4, an approximately $300 million scheduled principal balance securitization backed by a pool of residential mortgage loans.

We issued AOMT 2024-4 as the sole participant in the securitization.

We own and hold the call rights on the XS tranche of bonds, which is the "controlling class" of the bonds, and are the sole member of the Depositor entity in the 2023-4 securitization.

Given the accounting rules surrounding these types of transactions, we have consolidated the AOMT 2023-4 securitization, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of the applicable balance sheet date.

AOMT 2023-1 and AOMT 2023-5 were securitization transactions entered into with other Angel Oak affiliates, for which we are not considered to be a "primary beneficiary" of the applicable securitization vehicle.

Therefore, the bonds retained from these securitizations, as well as from our securitizations prior to 2021, are held on our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2021.

We may strategically enter into similar securitization transactions in the future.

As the primary

beneficiary we have consolidated the AOMT 2024-4 securitization, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of the applicable balance sheet date.

Whole loan financing facilities activity

We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized.

Our whole loan financing activity during the nine months ended September 30, 2023 maintained our lender base as of December 31, 2022, with the exception of the expiration of an unused line of credit with a regional bank in the first quarter of 2023 and the repayment of Institutional Investors A and B in the first quarter of 2023.

This loan financing facility has been extended to January 25, 2024 and as of July 25, 2023, the interest rate pricing spread decreased to 2.10%.

Additionally, subsequent to September 30, 2023, the Company converted its loan financing facility with Global Investment Bank 3 from static pool financing to a revolving facility with mark to market features.

The interest rate spread on this facility decreased to 2.00% and the economic interest rate hedging account requirement was eliminated.

The advance rate for performing non-seasoned loans to 85%.

See Liquidity and Capital Resources, for a full description of our financing arrangements.

Our total borrowing capacity was $1.1 billion as of March 31, 2024 Highlights of whole loan financing facilities activity over the first quarter of 2024 are as follows:

• During the quarter ended March 31, 2024, we maintained the same whole loan financing facility lender base as of December 31, 2023.

• During the quarter ended March 31, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and (ii) replaced our existing $250 million loan financing facility with Global Investment Bank 2 with a new $250 million loan financing facility with Global Investment Bank 2.

Key Financial Metrics

10 unchanged sentences

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 use Distributable Earnings to determine the incentive fee, if any, 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 IPO on June 21, 2021.

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

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

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, 2023 and 2022:

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Distributable Earnings were approximately a gain of $2.8 million and a loss of $9.1 million for the three months ended March 31, 2024 and 2023, respectively.

The primary drivers of this quarter’s Distributable Earnings as compared to GAAP net income are the adjustments to remove unrealized gains associated with our residential loans and residential loans in securitization trusts and non-recourse securitization obligation portfolios.

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 months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

(in thousands)

Net income (loss) allocable to common stockholders $ 12,874 $ 530

Net unrealized (gains) losses on derivatives (4,563) (10,936) 7,794 (1,570)

Net unrealized (gains) losses on trading securities 1 (1,605)

Net unrealized (gains) losses on derivatives (445) 24,536

Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation (5,147) 6,327

10 unchanged sentences

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 nine months ended September 30, 2023 and 2022:

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

($ in thousands)

Annualized Distributable Earnings $ 11,280 $ (36,476)

Average total common stockholders' equity $ 232,575 $ 316,070 $ 236,629 $ 386,191

Average total stockholders’ equity 259,715 240,684

Distributable Earnings Return on Average Equity 4.3 % (15.2) %

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, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

The following table sets forth the calculation of our book value per share of common stock as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

(in thousands except for share and per share data)

6 unchanged sentences

These adjustments are also reflected in the table below in our end of period total stockholders’ equity.

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 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, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

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 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.

March 31, 2024 December 31, 2023

(in thousands except for share and per share data)

6 unchanged sentences

Results of Operations

Three Months Ended September 30, 2023 and 2022

The following table sets forth a summary of our results of operations for the three months ended September 30, 2023 and 2022:

Three Months Ended March 31, 2024 and 2023

The following table sets forth a summary of our results of operations for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

(in thousands)

15 unchanged sentences

INCOME (LOSS) BEFORE INCOME TAXES $ 13,161 $ 530

Income tax expense (benefit) — —

NET INCOME (LOSS) $ 8,273 $ (83,349)

Preferred dividends — (4)

Income tax expense 287 —

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ 12,874 $ 530

2 unchanged sentences

Net Interest Income

The following table sets forth the components of net interest income for the three months ended September 30, 2023 and 2022:

The following table sets forth the components of net interest income for the three months ended March 31, 2024 and 2023:

Three Months Ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

(in thousands)

14 unchanged sentences

Net interest income $ 8,579 $ 6,799

Net interest income for the three months ended September 30, 2023 and 2022 was $7.4 million and $11.7 million, respectively.

Net interest income decreased in the three months ended September 30, 2023 as compared to the same period in 2022, primarily due to the composition of the portfolio during September 30, 2023 having a lower average balance of residential mortgage loans and RMBS, which resulted in decreased interest income from these asset classes, partially offset by interest income generated from residential mortgage loans in securitization trusts.

Meanwhile, interest expense decreased in the three months ended September 30, 2023 as compared to the same period in 2022 due to a lower average balance of notes payable offset by increases in the floating interest rates associated with this debt.

Net interest income for the three months ended March 31, 2024 and 2023 was $8.6 million and $6.8 million, respectively.

Interest income increased in the three months ended March 31, 2024 as compared to the same period in 2023, primarily due higher interest income generated from a larger asset balance of residential mortgage loans in securitization trusts.

Meanwhile, interest expense was relatively flat, with less expense associated with notes payable offset by increased expense associated with non-recourse securitization obligation, collateralized by residential mortgage loans as compared to the same period in 2023.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the three months ended September 30, 2023 and 2022 are set forth as follows:

The components of total realized and unrealized gains (losses), net for the three months ended March 31, 2024 and 2023 are set forth as follows:

Three Months Ended

September 30, 2023 September 30, 2022

March 31, 2024 March 31, 2023

(in thousands)

Realized and unrealized gain (loss) on residential mortgage loans in securitization trust, net of non-recourse securitization obligation $ 4,352 $ (39,567)

Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation $ 4,389 $ (7,084)

Realized gain (loss) on RMBS (266) (91)

Realized and unrealized gain (loss) on Whole Pool Agency RMBS (12,367) —

Unrealized gain (loss) on Whole Pool Agency RMBS (289) 1,610

Realized gain (loss) on CMBS (45) (49)

6 unchanged sentences

Unrealized appreciation (depreciation) on interest rate futures 204 (10,484)

Total realized and unrealized gains (losses), net $ 5,255 $ (83,565)

For the three months ended September 30, 2023 and 2022, total realized and unrealized gains and (losses), net resulted in net gains of $5.3 million and net losses $83.6 million, respectively.

During the three months ended September 30, 2023, the key driver of the net gain was the valuation of our residential mortgage loans in securitization trust, net of non-recourse securitization obligation portfolio.

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 further resulted in total realized and unrealized losses that were only partially offset by net gains from TBAs and futures contracts.

Operating Expenses

For the three months ended September 30, 2023 and 2022, our operating expenses were $1.4 million and $2.8 million, respectively.

Our operating expenses decreased compared to the comparative period due to cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loans portfolios.

Operating Expenses Incurred with Affiliate

For the three months ended September 30, 2023 and 2022, our operating expenses incurred with affiliate were $0.6 million and $2.1 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased during the comparative period primarily due to the separation of our former chief executive officer in September 2022.

Due Diligence and Transaction Costs

For the three months ended September 30, 2023 and 2022, our due diligence and transaction costs were $115 thousand and $213 thousand, respectively.

Our due diligence and transaction expenses decreased over the comparative period as we purchased fewer whole loans during the three months ended September 30, 2023 than the three months ended September 30, 2022.

Stock Compensation

For the three months ended September 30, 2023 and 2022, our stock compensation expense was $0.4 million and $3.3 million, respectively.

Our stock compensation expense decreased for the three months ended September 30, 2023, due to stock forfeitures as well as a one-time severance expense in the comparative period of 2022 associated with the departure of our former chief executive officer.

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

For the three months ended September 30, 2023 and 2022, we incurred $0.4 million and $1.1 million of securitization expense, respectively.

The expense incurred during the three months ended September 30, 2023 is related to the AOMT 2023-5 securitization.

The securitization costs incurred for the comparable period in 2022 were associated with the AOMT 2022-4 securitization.

Management Fee Incurred with Affiliate

For the three months ended September 30, 2023 and 2022, our management fee incurred with affiliate was $1.4 million and $2.0 million, respectively.

The decrease is due to the decrease in our average Equity (as defined in the Management Agreement) for the three months ended September 30, 2023 as compared to the same period in 2022.

The Management Agreement includes an adjustment to “Equity” (as defined in the Management Agreement) for Distributable Earnings , which is the primary departure from equity as calculated in accordance with GAAP.

Nine Months Ended September 30, 2023 and 2022

The following table sets forth a summary of our results of operations for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands)

INTEREST INCOME, NET

Interest income $ 71,403 $ 86,959

Interest expense 50,742 41,849

NET INTEREST INCOME 20,661 45,110

REALIZED AND UNREALIZED GAINS (LOSSES), NET

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS (27,056) 56,423

Net unrealized gain (loss) on trading securities, mortgage loans, debt at fair value option (see Note 2), and derivative contracts 27,868 (255,021)

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET 812 (198,598)

Operating expenses 5,788 9,525

Operating expenses incurred with affiliate 1,672 3,834

Due diligence and transaction costs 136 1,502

Stock compensation 1,195 5,179

Securitization costs 2,326 3,134

Management fee incurred with affiliate 4,460 5,830

Total operating expenses 15,577 29,004

INCOME (LOSS) BEFORE INCOME TAXES 5,896 (182,492)

Income tax expense (benefit) 781 (3,457)

NET INCOME (LOSS) 5,115 (179,035)

Preferred dividends — (11)

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ 5,115 $ (179,046)

Other comprehensive income (loss) 12,955 (11,979)

TOTAL COMPREHENSIVE INCOME (LOSS) $ 18,070 $ (191,025)

Net Interest Income

The following table sets forth the components of net interest income for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands)

Interest income Interest income / expense Average balance Interest income / expense Average balance

Residential mortgage loans $ 18,457 $ 467,538 $ 39,171 $ 1,148,332

Residential mortgage loans in securitization trusts 39,753 1,106,621 33,599 995,000

Commercial mortgage loans 458 8,215 951 17,164

RMBS 9,225 164,244 12,692 381,085

CMBS 790 6,394 423 9,663

Treasury securities 1,201 45,506 8 59,999

Other interest income 1,519 37,482 115 46,157

Total interest income 71,403 86,959

Interest expense

Notes payable 21,222 366,032 23,022 975,913

Non-recourse securitization obligation, collateralized by residential mortgage loans 26,121 1,080,156 17,874 954,344

Repurchase facilities 3,399 89,726 953 185,685

Total interest expense 50,742 41,849

Net interest income $ 20,661 $ 45,110

Net interest income for the nine months ended September 30, 2023 and 2022 was $20.7 million and $45.1 million, respectively.

Net interest income decreased in the nine months ended September 30, 2023 as compared to the same period in 2022, primarily due to the composition of our portfolio during September 30, 2023 having a lower average balance of residential mortgage loans and RMBS, which resulted in decreased interest income from these asset classes, partially offset by interest income generated from residential mortgage loans in securitization trusts.

Meanwhile, interest expense on non-recourse securitization obligations, collateralized by residential mortgage loans increased due to an increase in the average balance and securitization spread associated with these assets in the nine months ended September 30, 2023 as compared to the same period in 2022, which resulted in an increased interest expense on lower interest income during the nine months ended September 30, 2023 as compared to the comparative period.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the nine months ended September 30, 2023 and 2022 are set forth as follows:

Nine Months Ended

September 30, 2023 September 30, 2022

(in thousands)

Realized and unrealized gain (loss) on residential mortgage loans in securitization trust, net of non-recourse securitization obligation $ (7,948) $ (82,642)

Realized loss on RMBS, net (1,545) (16,884)

Unrealized gain (loss) on Whole Pool Agency RMBS (12,627) —

Realized gain (loss) on CMBS (241) 34

Realized gain (loss) on interest rate futures 8,599 60,745

Realized and unrealized gain (loss) on TBAs (479) 14,171

Realized and unrealized (loss) gain on residential mortgage loans 17,268 (180,152)

Realized and unrealized (loss) gain on commercial mortgage loans 113 (1,209)

Realized and unrealized loss on U.S.

Treasury securities 88 —

Unrealized appreciation on interest rate futures (2,416) 7,339

Realized gain/(loss) on AOMT MOA (129) —

Total realized and unrealized gains (losses), net $ 9,262 $ (653)

For the nine months ended September 30, 2023 and 2022, total realized and unrealized gains (losses), net resulted in a net gain position of $0.8 million and net loss $198.6 million, respectively.

During the nine months ended September 30, 2023, continued market volatility resulting in widening interest rate spreads caused the valuation of our residential mortgage loans in securitization trust and whole pool agency RMBS to decrease, which was offset by gains in our residential mortgage loans portfolio and interest rate futures.

In the nine months ended September 30, 2022, the net realized and unrealized loss was primarily due to extreme interest rate and spread volatility as the Fed began its rate hike cycle, leading to large unrealized losses on residential mortgage loans and residential mortgage loans in securitization trust and realized losses on RMBS.

For the three months ended March 31, 2024 and 2023, total realized and unrealized gains and (losses), net resulted in a net gain of $9.3 million and losses of $0.7 million, respectively.

During the three months ended March 31, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation, interest rate futures, and residential mortgage loans drove the overall gain to our portfolio.

During the three months ended March 31, 2023, increased optimism and stability in interest rate markets drove gains in the valuation of our residential mortgage loans portfolio which were offset by losses associated with TBAs and interest rate futures.

Operating Expenses

For the nine months ended September 30, 2023 and 2022, our operating expenses were $5.8 million and $9.5 million, respectively.

Our operating expenses decreased during the comparative period due to cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loan portfolio.

For the three months ended March 31, 2024 and 2023, our operating expenses were $2.0 million and $2.2 million, respectively.

Operating Expenses Incurred with Affiliate

For the nine months ended September 30, 2023 and 2022, our operating expenses incurred with affiliate were $1.7 million and $3.8 million, respectively.

For the three months ended March 31, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.5 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat in the first three months of 2024 compared to the first three months of 2023.

Due Diligence and Transaction Costs

For the nine months ended September 30, 2023 and 2022, our due diligence and transaction costs were $136 thousand and $1.5 million, respectively.

Our due diligence and transaction expenses decreased over the comparative period as we purchased fewer whole loans during the nine months ended September 30, 2023 than the nine months ended September 30, 2022.

For the three months ended March 31, 2024 and 2023, our due diligence and transaction costs were $49.5 thousand and $0.0 thousand, respectively.

Our due diligence and transaction expenses increased slightly over the comparative period as we did not purchase any whole loans during the three months ended March 31, 2023.

Stock Compensation

For the nine months ended September 30, 2023 and 2022 our stock compensation expense was $1.2 million and $5.2 million, respectively.

Our stock compensation expense decreased for the nine months ended September 30, 2023, due to stock forfeitures as well as no 2023 stock compensation expense related to our former chief executive officer.

Additionally, the nine months ended September 30, 2023 did not include a one-time severance expense associated with the departure of our former chief executive officer 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.

For the three months ended March 31, 2024 and 2023, our stock compensation expense was $0.6 million and $0.5 million, respectively.

Our stock compensation expense increased for the three months ended March 31, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Securitization Costs

Securitization costs of $2.3 million were incurred for the nine months ended September 30, 2023 in connection with the AOMT 2023-1, AOMT 2023-4, and AOMT 2023-5 securitization transactions.

There were $3.1 million of securitization costs incurred for the comparable period in 2022, associated with the AOMT 2022-1 and AOMT 2022-4 securitizations.

For the three months ended March 31, 2024 and 2023, we incurred $0.2 million and $0.9 million of securitization costs, respectively.

The expense incurred in both periods was a proportional allocation of expenses in conjunction with our share of the loans contributed to the AOMT 2024-3 securitization in the first quarter of 2024 and AOMT 2023-1 securitization in the first quarter of 2023, respectively.

Management Fee Incurred with Affiliate

For the nine months ended September 30, 2023 and 2022, our management fee incurred with affiliate was $4.5 million and $5.8 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the nine months ended September 30, 2023 as compared to the same period in 2022.

The Management Agreement includes an adjustment to “Equity” as defined in the Management Agreement for Distributable Earnings, which is the primary departure from equity as calculated in accordance with GAAP.

For the three months ended March 31, 2024 and 2023, our management fee incurred with affiliate was $1.3 million and $1.5 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended March 31, 2024 as compared to the same period in 2023.

The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP, which has caused Equity (as defined in the Management Agreement) to decrease.

Our Portfolio

As of September 30, 2023, our portfolio consisted of approximately $2.1 billion of residential mortgage loans, RMBS, and other target assets.

As of March 31, 2024, our portfolio consisted of approximately $2.0 billion of residential mortgage loans, RMBS, and other target assets.

Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes and earthquakes may occasionally occur.

1 unchanged sentence

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.

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, 2023:

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 March 31, 2024:

Fair Value Collateralized Debt Allocated Capital % of Total Capital

2 unchanged sentences

Residential mortgage loans in securitization trust 1,201,210 1,146,641 $ 54,569 20.7 %

Commercial mortgage loans 5,219 — 5,219 2.3 %

Total whole loan portfolio $ 1,569,656 $ 1,430,643 $ 139,013 52.8 %

1 unchanged sentence

RMBS $ 445,136 $ 44,501 $ 400,635 152.1 %

CMBS 6,338 — 6,338 2.7 %

Treasury securities 149,805 148,992 813 0.3 %

Total investment securities $ 594,941 $ 193,493 $ 401,448 152.4 %

Investments in Majority-Owned Affiliates

$ 14,701 $ 14,701 6.3 %

Investment in Majority-Owned Affiliate $ 18,021 $ — $ 18,021 6.8 %

Total investment portfolio $ 2,182,618 $ 1,624,136 $ 558,482 212.1 %

6 unchanged sentences

(1) “Target assets” as defined by us excludes U.S.

Treasury securities, and includes our investment in a Majority-Owned Affiliate.

Treasury securities, and includes our investment in a Majority-Owned Affiliates.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $359.9 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”), and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliate, which is considered a target asset.

5 unchanged sentences

Residential mortgage loans in securitization trust 1,221,067 1,169,154 51,913 20.3 %

Commercial mortgage loans 9,458 — 9,458 4.0 %

Total whole loan portfolio $ 1,601,107 $ 1,459,764 $ 141,343 55.2 %

1 unchanged sentence

RMBS $ 472,058 44,643 $ 427,415 166.9 %

CMBS 6,111 — 6,111 2.6 %

Investment in Majority-Owned Affiliates 16,232 — 16,232 6.3 %

Treasury Securities 149,927 149,013 914 0.4 %

Total investment securities $ 638,217 $ 193,656 $ 444,561 173.6 %

6 unchanged sentences

Total $ 1,909,526 $ 1,653,420 $ 256,106 100.0 %

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

Treasury securities held as of December 31, 2022.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $1.01 billion due to broker for our quarter-end purchase of certain Whole Pool Agency RMBS.

(1) “Target assets” as defined by us excludes U.S.

Treasury securities, and includes our investment in a Majority-Owned Affiliates.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $392.0 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliates, which is considered a target asset.

Additionally, other assets includes $5.2 million of commercial loans and $6.6 million of CMBS.

Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of September 30, 2023:

The following table sets forth additional information on the residential mortgage loans in our portfolio as of March 31, 2024:

Portfolio Range Portfolio Weighted Average

3 unchanged sentences

Maturity date 9/27/2048 - 11/27/2063

September 2053

FICO score at loan origination 628 - 825

6 unchanged sentences

($ in thousands)

UPB $59 - $3,441 $496

Unpaid principal balance (“UPB”) $18 - $3,410 $492

Interest rate 2.99% - 12.50% 6.8%

Maturity date 9/21/2036 - 6/20/2062 February 2053

Maturity date 9/27/2048 - 11/27/2063 December 2053

FICO score at loan origination 624 - 825 748

3 unchanged sentences

Percentage of loans 90+ days delinquent (based on UPB) N/A 0.9%

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, 2023:

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 March 31, 2024:

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, 2023:

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of September 30, 2023, 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, 2023:

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, 2023 .

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of March 31, 2024, 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 March 31, 2024:

No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of March 31, 2024 .

Numbers presented may add to more than 100% due to rounding.

4 unchanged sentences

Residential Mortgage Loans Held in Securitization Trusts

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2023:

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2024:

($ in thousands)

8 unchanged sentences

(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 September 30, 2023 (percentages are based on the aggregate unpaid principal balance of such loans):

No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2023 .

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2024 (percentages based on the aggregate unpaid principal balance of such loans):

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 March 31, 2024 .

Numbers presented may add to more than 100% due to rounding.

9 unchanged sentences

Percentage of loans 90+ days delinquent (based on UPB) 1.0%

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2022 (percentages are based on the aggregate unpaid principal balance of such loans):

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023 (percentages based on the aggregate unpaid principal balance of such loans):

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, 2023 .

Numbers presented may add to more than 100% due to rounding.

Commercial Mortgage Loans

The following table provides additional information on the commercial mortgage loans in our portfolio as of September 30, 2023:

Portfolio Range Portfolio Weighted Average

($ in thousands)

UPB $241 - $3,162

Interest rate 5.50% - 8.38% 6.24%

Loan term 8.10 - 26.44 years

LTV at loan origination 50.0% - 75.0%

The following table provides additional information on the commercial mortgage loans in our portfolio as of December 31, 2022:

Portfolio Range Portfolio Weighted Average

($ in thousands)

UPB $242 - $4,300 $1,656

Interest rate 5.50% - 8.38% 7.03%

Loan term 0.42 - 27.18 years 7.68 years

LTV at loan origination 46.7% - 75.0% 50.90%

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of September 30, 2023 and December 31, 2022 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Our Commercial Mortgage Loans as of September 30, 2023:

Numbers presented may add to more than 100% due to rounding.

Geographic Diversification of Our Commercial Mortgage Loans as of December 31, 2022:

Numbers presented may add to more than 100% due to rounding.

We have participated in numerous securitization transactions pursuant to which we contributed to a securitization trust under the purview of AOMT I, LLC, non‑QM loans that we had accumulated and held on our balance sheet.

3 unchanged sentences

Risk retention securities represent at least 5% of a horizontal or vertical slice of the bonds issued as part of the transaction.

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of September 30, 2023, unless otherwise stated:

AOMT 2019-2 AOMT 2019-4 AOMT 2019-6 AOMT 2020-3 AOMT 2023-1 (5)

AOMT 2023-5 (5)

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of March 31, 2024, unless otherwise stated:

AOMT 2019 Securitizations

AOMT 2020 Securitizations

AOMT 2023 Securitizations

AOMT 2024 Securitizations

($ in thousands)

8 unchanged sentences

90+ day delinquency (as a % of UPB) 8.3 % 3.4 % 0.9 % 0.1 %

90+ Delinquency (as a % of Original Balance) 2.00 % 1.50 % 1.00 % 1.20 % 1.40 % 0.40 %

Weighted Average 90+ Delinquency (as a % of Original Balance) 1.4 % 1.3 % 0.9 % 0.1 %

Weighted Average LTV of 90+ Delinquent Loans (FHFA HPI Estimate) (2)

5 unchanged sentences

(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.

(2 AOMT 2020-3 does not have LTV or Federal Housing Finance Agency Home Price Index Estimates (“FHFA HPI Estimates”);

accordingly, original LTV is used.

(2) Represents the fair value of the securities we hold in the first loss tranche in each securitization.

(3) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization.

(5) The fair value of the first loss pieces presented for AOMT 2023-1 and AOMT 2023-5 is the total at risk for the Majority-Owned Affiliate.

(6) AOMT 2023-5 reflects one-month CPR

(4) The fair value of the first loss piece presented for AOMT 2023-1 is the total at risk for the Majority-Owned Affiliate.

(5) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, and AOMT 2024-3 is the total at risk for the Majority-Owned Affiliates.

(6) AOMT 2024-3 reflects the one-month CPR.

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in AOMT securitization transactions is set forth below as of December 31, 2023, unless otherwise stated:

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

AOMT 2019 Securitizations

AOMT 2020 Securitizations

AOMT 2023 Securitizations

($ in thousands)

8 unchanged sentences

90+ day delinquency (as a % of UPB) 9.0 % 3.0 % 1.6 %

90+ Delinquency (as a % of Original Balance) 2.30 % 2.30 % 1.00 % 1.90 %

Weighted Average 90+ Delinquency (as a % of Original Balance) 1.5 % 1.1 % 1.3 %

Weighted Average LTV of 90+ Delinquent Loans (FHFA HPI Estimate) (2)

5 unchanged sentences

(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.

(2) AOMT 2020-3 does not have LTV or FHFA HPI Estimates;

as such, original LTV is used.

(2) AOMT 2020-3 does not have LTV or Federal Housing Finance Agency Home Price Index Estimates (“FHFA HPI Estimates”);

accordingly, original LTV is used.

(3) Represents the fair value of the securities we hold in the first loss tranche in each securitization.

(4) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization.

The following table provides certain information with respect to our RMBS portfolio both received in AOMT securitization transactions and acquired from other third parties as of September 30, 2023:

(5) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, and AOMT 2023-7 is the total at risk for the Majority-Owned Affiliates.

(6) AOMT 2023-5 reflects one-month CPR.

The following table provides certain information with respect to our RMBS portfolio both received in AOMT securitization transactions and acquired from other third parties as of March 31, 2024:

RMBS Repurchase Debt (1)

9 unchanged sentences

— — — 22,243 — 22,243 (22,243) — (22,243)

$ 84,761 $ 360,375 $ 445,136 $ 44,501 $ — $ 44,501 $ 40,260 $ 360,375 $ 400,635

Investment in Majority Owned Affiliates

$ 18,021 $ — $ 18,021 $ — $ — $ — $ 18,021 $ — $ 18,021

Total $ 102,782 $ 360,375 $ 463,157 $ 44,501 $ — $ 44,501 $ 58,281 $ 360,375 $ 418,656

(1) Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(2) The whole pool RMBS presented as of September 30, 2023 were purchased from a broker to whom the Company owes approximately $512.0 million, payable upon the settlement date of the trade.

(2) The whole pool RMBS presented as of March 31, 2024 were purchased from a broker to whom the Company owes approximately $360.0 million, payable upon the settlement date of the trade.

See Note 6 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

13 unchanged sentences

— — — 22,116 — 22,116 (22,116) — (22,116)

$ 79,696 $ 392,362 $ 472,058 $ 44,643 $ — $ 44,643 $ 35,053 $ 392,362 $ 427,415

Investment in Majority Owned Affiliates

$ 16,232 $ — $ 16,232 $ — $ — $ — $ 16,232 $ — $ 16,232

Total $ 95,928 $ 392,362 $ 488,290 $ 44,643 $ — $ 44,643 $ 51,285 $ 392,362 $ 443,647

(1) Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(2) The whole pool RMBS presented as of December 31, 2022 were purchased from a broker to whom the Company owes approximately $1.0 billion, payable upon the settlement date of the trade.

(2) The whole pool RMBS presented as of December 31, 2023 were purchased from a broker to whom the Company owes approximately $392.0 million, payable upon the settlement date of the trade.

See Note 6 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

(3) A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

These bonds, with a fair value of $110.5 million, are not reflected in the condensed consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets.

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of September 30, 2023:

Mezzanine Subordinate Interest Only Whole Pool Total

These bonds, with a fair value of $124.1 million, are not reflected in the consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets.

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the period ended March 31, 2024:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

(in thousands)

Beginning fair value $ — $ 10,972 $ 55,665 $ 13,059 $ 392,362 $ 472,058

1 unchanged sentence

Retained bonds received in securitizations — 1,338 1,713 465 — 3,516

Secondary market purchases of AOMT securities — — — — —

Third party securities — — — — 359,892 359,892

3 unchanged sentences

Ending fair value $ — $ 11,824 $ 58,955 $ 13,981 $ 360,375 $ 445,135

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2022:

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the year ended December 31, 2023:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

2 unchanged sentences

Acquisitions:

Secondary market purchases of AOMT securities — — — — — —

Retained bonds received in securitizations — 9,831 4,880 3,530 — 18,241

Third party securities — — — — 1,741,864 1,741,864

3 unchanged sentences

Ending fair value $ — $ 10,972 $ 55,665 $ 13,059 $ 392,362 $ 472,058

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of September 30, 2023 (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 March 31, 2024 (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 September 30, 2023)

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, 2023.

(as of March 31, 2024)

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 March 31, 2024.

Numbers presented may add to more than 100% due to rounding.

6 unchanged sentences

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 September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

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 March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

($ in thousands)

4 unchanged sentences

Weighted average LTV at loan origination and deal date 56.2 % 56.2 %

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, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital

(in thousands)

Senior $ — $ — $ — $ — $ — $ —

Mezzanine — — — — — —

Subordinate 2,706 — 2,706 2,706 — 2,706

11 unchanged sentences

Securitizations may either take the form of the issuance of securitized bonds or the sale of “real estate mortgage investment conduit” securities backed by mortgage loans or other assets, with the securitization proceeds being used in part to repay pre-existing loan financing lines and repurchase facilities.

We have sponsored and participated in securitization transactions with other entities that are managed by Angel Oak, and may continue to do so in the future, along with sponsoring sole securitization transactions in which we are the sole participant and contributor.

We believe these identified sources of financing will be adequate for purposes of meeting our short‑term (within one year) and our longer‑term liquidity needs.

2 unchanged sentences

Description of Existing Financing Arrangements

As of September 30, 2023, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $0.9 billion.

During the nine months ended September 30, 2023, an unused loan financing facility with a regional bank

expired in accordance with its terms.

We also refinanced a static pool financing facility held with institutional investors into a different static pool financing with another lender, and terminated the initial static pool financing facility.

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.

As of March 31, 2024, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion.

During the quarter ended March 31, 2024, we renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and replaced our existing $250 million loan financing facility with Global Investment Bank 2 with a new $250 million loan financing facility with Global Investment Bank 2 Borrowings under warehouse loan financing lines (in general, each a “loan financing facility”) may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.

Our financing facilities are generally subject to limits on borrowings related to specific asset pools (“advance rates”) and other restrictive covenants, as is usual and customary.

As of September 30, 2023, the advance rates (when required) of our three active lenders ranged from 60% to 92%, depending on the asset type and loan delinquency status.

Our most restrictive covenants (when covenants are required by any of our three active lenders) included (1) our minimum tangible net worth must not (i) decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or, if shorter, in the period from September 30, 2022 to the applicable date of determination, or (ii) fall below $200.0 million of tangible net worth as of September 30, 2022 plus 50% of any capital contribution made or raised after September 30, 2022;

(2) our minimum liquidity must not fall below the greatest of (i) the product of 5% and the aggregate repurchase price as of such date of determination, (ii) $10.0 million and (iii) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds);

As of March 31, 2024, the advance rates (when required) of our three active lenders ranged from 65% to 92%, depending on the asset type and loan delinquency status.

Our most restrictive covenants (when covenants are required by any of our three active lenders) included (1) our minimum tangible net worth must not (i) decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or (ii) fall below $200.0 million of tangible net worth as of September 30, 2022 plus 50% of any capital contribution made or raised after September 30, 2022;

(2) our minimum liquidity must not fall below the greatest of (i) the product of 5% and the aggregate repurchase price for a specific loan financing facility as of such date of determination, (ii) $10.0 million and (iii) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds);

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

Our minimum liquidity requirement as of September 30, 2023 was $10.0 million.

Other restrictive covenants with which we were bound to comply during the first quarter of 2023 related to a regional bank financing facility which we allowed to expire by its terms, and included additional requirements around GAAP net income.

A description of each loan financing facility in place during the nine-months ended September 30, 2023 is set forth as follows:

Our minimum liquidity requirement as of March 31, 2024 was $10.0 million.

A description of each loan financing facility in place during the quarter ended March 31, 2024 is set forth as follows:

Multinational Bank 1 Loan Financing Facility.

3 unchanged sentences

Pursuant to the terms of the master repurchase agreement, the agreement may be renewed every three months for a maximum six-month term.

This loan financing facility has been extended to January 25, 2024, and as of July 25, 2023, the interest rate pricing spread decreased to 2.10%.

As of March 31, 2024, the termination date of the master repurchase agreement was September 25, 2024.

The amount expected to be paid by Multinational Bank 1 for each eligible mortgage loan is based on an advance rate as a percentage of either the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less.

2 unchanged sentences

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 interest rate pricing spread as described above, and (2) the average SOFR for each U.S.

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, as of March 25, 2024, 2.00% 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.

10 unchanged sentences

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 and our subsidiary are each considered a “Seller” under this agreement.

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 is set 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 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 (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 pricing spread generally ranging from 2.00% to 3.25%.

Effective as of February 4, 2022, interest accrues 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).

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 pricing spread generally ranging from 2.20% to 3.45%.

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

(1) adjusted tangible net worth;

(2) liquidity;

and (3) our indebtedness to our adjusted tangible net worth.

On March 28, 2024, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 2”), replacing the existing master repurchase agreement with Global Investment Bank 2 entered into on February 13, 2020.

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

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

The agreement is set to terminate on March 27, 2026, unless terminated earlier pursuant to the terms of the agreement.

The principal amount paid by Global Investment Bank 2 for each mortgage loan is based on a percentage of the market value, cost‑basis value, or unpaid principal balance of the mortgage loan (depending on the type of loan and certain other factors and subject to certain other adjustments).

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

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

Upon our or our subsidiary’s repurchase of the mortgage loan, our subsidiaries are required to repay Global Investment Bank 2 the 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) 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 pricing spread generally ranging from 2.10% to 3.35%.

he obligations of the subsidiaries under the master repurchase agreement are guaranteed by the Company pursuant to a 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) maintenance of a minimum tangible net worth;

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

and (3) minimum liquidity.

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.

3 unchanged sentences

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 its structuring, management and ongoing administration of the agreement.

Global Investment Bank 3 Static Loan Pool Financing.

On October 24, 2018, we and one of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”).

We, and our subsidiary, are considered a “Seller” under this agreement.

Pursuant to the initial agreement (prior to December 19, 2022, as further described below), we or our subsidiary could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans, although Global Investment Bank 3 was under no obligation to purchase the loans we offered to sell to them.

The term of the initial agreement was extended such that it terminates on December 19, 2023, as further described below.

Subsequent to September 30, 2023, the Company converted its loan financing facility with Global Investment Bank 3 from static pool financing to a revolving facility with mark to market features.

The amended facility has a maximum borrowing capacity of $200 million with a twelve month term and a termination date of November 7, 2024.

The base interest rate spread on this facility was reduced to 1.80%, plus a 0.20% basis points index spread adjustment, and the advance rate for performing non-seasoned loans was increased to 85%.

Additionally, the economic interest rate futures account (as defined below) requirement was eliminated.

On December 19, 2022, the facility was amended to increase the facility limit up to $286.0 million, finance a static pool of mortgage loans, and extend the termination date to December 19, 2023;

however, the amendment did not extend the revolving period, which ended on December 19, 2022.

Additionally, the amendment generally removed “mark to market” provisions and now requires an economic interest rate hedging account (“interest rate futures account”) which account is for the benefit of Global Investment Bank 3 and under its sole control, subject to recoupment to meet hedging margin calls.

As of September 30, 2023, the facility limit was $8.7 million.

During 2022, interest accrued at the sum of Compounded SOFR and a SOFR adjustment of 20 basis points (though the SOFR adjustment was later amended by the December 19, 2022 amendment, as further described below).

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 December 19, 2022 amendment changed the interest rate spread to 2.80% for the first three months following the amendment date, which increases by an additional 50 basis points every three months thereafter.

Prior to December 19, 2022, the agreement contained margin call provisions that provided Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans.

Under those provisions, Global Investment Bank 3 could have required us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

These margin call

provisions were largely removed pursuant to the amendment executed on December 19, 2022, as described above, and replaced with the interest rate futures account described above, maintained for the benefit of and under the sole control of Global Investment Bank 3.

At times, we may hold certain cash collateral resulting from the interest rate futures account as restricted cash under this agreement.

Global Investment Bank 3 Loan Financing Facility.

On October 24, 2018, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”) for which we serve as guarantor of our subsidiaries’ obligations .

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

Pursuant to the initial agreement, our subsidiaries could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans, although Global Investment Bank 3 was under no obligation to purchase the loans our subsidiaries offered to sell to them.

On January 1, 2022, the facility was amended to transition the reference rate from a LIBOR-based index to Compound SOFR.

Compound 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.

On November 7, 2023, the facility’s termination date was extended to November 7, 2024.

In addition, the base interest rate spread was reduced to 1.80% plus a 0.20% index spread adjustment.

The advance rate for performing non-seasoned loans was increased to 85%.

The loan financing line is marked-to-market at fair value, where Global Investment Bank 3 retains the right to determine the market value of the mortgage loan collateral in its sole and good faith discretion and in a commercially reasonable manner and is under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Further, 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, whichever is less.

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 those provisions, Global Investment Bank 3 could require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement requires us to maintain various financial and other customary covenants.

1 unchanged sentence

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 its structuring, management, and ongoing administration of the agreement.

We and our subsidiaries 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 its structuring, management, and ongoing administration of the agreement.

Institutional Investors A and B Static Loan Pool Financing.

On October 4, 2022, the Company and a subsidiary entered into two separate master repurchase facilities with two affiliates of an institutional investor (“Institutional Investors A and B”) regarding a specific pool of whole loans with financing of approximately $168.7 million on approximately $239.3 million of unpaid principal balance.

The master repurchase agreements were set to expire on January 4, 2023, with a one-time three month extension period option.

The Company subsequently repaid these financing facilities in full on January 4, 2023, at which time the facilities were terminated pursuant to their terms.

Pursuant to the agreements, interest accrued under the master repurchase agreements at a rate based on one-month Term SOFR (defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and a spread of 3.5%, with one-month Term SOFR subject to a floor of 2.0%.

We and our subsidiary were also required to pay certain customary fees to Institutional Investors A and B, and to reimburse Institutional Investors A and B for certain costs and expenses incurred in connection with the structuring, management, and administration of the agreements.

The agreements contained provisions for a cash collateral account subject to a margin percentage.

As of December 31, 2022, the Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” of approximately $3.8 million on the Company’s condensed consolidated balance sheet as of December 31, 2022, which was released on January 4, 2023 at which time the facilities were terminated pursuant to their terms.

The Company repaid these financing facilities in full on January 4, 2023, at which time the facilities were terminated pursuant to their terms.

Regional Bank 1 Loan Financing Facility.

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

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

We and our subsidiary were each considered a “Seller” under this agreement.

Pursuant to the agreement, we or our subsidiary could 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.

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 accrued 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 pricing spread.

The amount paid by Regional Bank 1 for each mortgage loan was based on the loan type.

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

The agreement contained margin call provisions that provided 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 could have required 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 required us to maintain various standard financial covenants similar to the financial covenants required by our active lenders, as described above, along with a GAAP net income-based covenant.

In addition, the agreement set forth 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 Regional 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 Regional Bank 1 and to reimburse Regional Bank 1 for certain costs and expenses incurred in connection with its structuring, management, and administration of the agreement.

This financing facility was substantially unused, and expired by its terms on March 16, 2023.

The following table sets forth the details of our financing lines as of each of September 30, 2023 and December 31, 2022:

The following table sets forth the details of our financing lines as of each of March 31, 2024 and December 31, 2023:

Spread Drawn Amount

Note Payable Base Interest Rate September 30, 2023 December 31, 2022

Note Payable Base Interest Rate March 31, 2024 December 31, 2023

($ in thousands)

1 unchanged sentence

Average Daily SOFR 2.00% - 2.10%

$ 188,918 $ 206,183

Global Investment Bank 2 (2)

1 month SOFR 2.20% - 3.45% — —

1 month Term SOFR 2.10% - 3.45% — —

Global Investment Bank 3 (3)

Compound SOFR 2.00% - 4.50%

95,084 84,427

Institutional Investors A and B (4)

3 unchanged sentences

Total $ 284,002 $ 290,610

(1) On January 25, 2023, this financing facility was extended through July 25, 2023 in accordance with the terms of the agreement, which contemplates six-month renewals.

On July 25, 2023, the Company extended this financing facility through January 25, 2024, with an interest rate pricing spread of 2.10%.

(2) This financing facility expires on February 2, 2024.

(3) This static pool financing facility expires on December 19, 2023.

The interest rate pricing spread per the agreement began at 2.80% for the first three months following December 19, 2022, exclusive of a 20 basis points index spread adjustment, and increases by an additional 50 basis points every three months thereafter;

however, the facility does not, in general, contain “mark to market” provisions.

The agreement requires an economic interest rate hedging account (“interest rate futures account”) to be maintained to the reasonable satisfaction of Global Investment Bank 3, as described above, which account is for its benefit and under its sole control.

On November 7, 2023, this facility was renewed for a twelve month term with a new expiration date of November 7, 2024 and was converted from static pool financing to a revolving facility with mark to market features.

The amended facility has a maximum borrowing capacity of $200 million with an interest rate pricing spread of 180 basis points plus a 20 basis points index spread adjustment (see Note 16 — Subsequent Events ).

(4) On October 4, 2022, the Company and a subsidiary entered into two separate master repurchase facilities with two affiliates of an institutional investor (“Institutional Investors A and B”) regarding a specific pool of whole loans with financing of approximately $168.7 million on approximately $239.3 million of unpaid principal balance.

The master repurchase agreements were set to expire on January 4, 2023, subject to a one-time option to extend for three months, which the Company did not utilize.

The Company repaid this financing facility in full on January 4, 2023.

The Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” on the Company’s condensed consolidated balance sheet as of December 31, 2022, as described above, which was released on January 4, 2023.

(1) On March 25, 2024, this financing facility was extended through September 25, 2024 in accordance with the terms of the agreement, which contemplates six-month renewals, with an interest rate pricing spread of 2.00%.

Prior to this extension the interest rate pricing spread was up to 2.10%.

(2) On March 28, 2024 the amended and restated Master Repurchase Agreement was terminated and replaced with a new $250 million Master Repurchase Agreement which has a termination date of March 27, 2026.

Further, the interest rate pricing margin will range from 2.10% to 3.35%, based on loan status, dwell time and other factors.

Prior to this extension the interest rate pricing spread was up to 3.45%.

(3) This financing facility has a termination date of November 7, 2024.

(4) These agreements expired by their terms on January 4, 2023.

(5) This agreement expired by its terms on March 16, 2023.

The following table sets forth the total unused borrowing capacity of each financing line as of September 30, 2023:

The following table sets forth the total unused borrowing capacity of each financing line as of March 31, 2024:

Note Payable Borrowing Capacity Balance Outstanding Available Financing

7 unchanged sentences

Total $ 1,050,000 $ 284,002 $ 765,998

(1) Although available financing is uncommitted, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

(2) As of September 30, 2023, this financing facility had no unused borrowing capacity as the outstanding borrowings were based on a static pool of mortgage loans.

Although available financing is uncommitted, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.March 31, 2024, this financing facility had no unused borrowing capacity as the outstanding borrowings were based on static pools of mortgage loans.

Short‑Term Repurchase Facilities.

1 unchanged sentence

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 September 30, 2023 and December 31, 2022:

September 30, 2023

The following table sets forth certain characteristics of our short-term repurchase facilities as of March 31, 2024 and December 31, 2023:

March 31, 2024

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

8 unchanged sentences

Total $ 193,656 5.91 % 11

(1) A portion of repurchase debt outstanding as of both September 30, 2023 and December 31, 2022 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(1) A portion of repurchase debt outstanding as of both March 31, 2024 and December 31, 2023 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

The repurchase debt against the U.S.

9 unchanged sentences

Q2 2023 340,701 101,731 340,701

Q1 2023 442,214 180,165 442,214

188,101 87,279 188,101

193,656 62,536 193,656

193,493 69,254 193,493

We utilize short‑term repurchase facilities on our RMBS portfolio and to finance assets for REIT asset test purposes.

3 unchanged sentences

Securitization Transactions

In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 60% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-3 issued approximately $439.6 million in face value of bonds.

Our proportionate share of 10.98% of the retained bonds and investments in majority owned affiliates (“MOAs”) was approximately $4.0 million, including a retained discount on issuance of approximately $0.9 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $35.9 million and retained cash of $4.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

In December 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 60% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2023-7 issued approximately $397.2 million in face value of bonds.

Our proportionate share of 10.36% of the retained bonds and investments in MOAs was approximately $3.5 million, including a retained discount on issuance of approximately $1.4 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $30.9 million and retained cash of $3.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2023-7 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

In August 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 36% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

2 unchanged sentences

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $63.4 million and retained cash of $10.7 million, which was used for operational purposes.

Given the accounting rules surrounding this type of transaction, we derecognized the mortgage loans sold in AOMT 2023-5 and recorded an investment in majority-owned affiliate located within “other assets” on our condensed consolidated balance sheet as of September 30, 2023.

We derecognized the mortgage loans sold in AOMT 2023-5 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

In June 2023, 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 exclusively by first liens on one‑to‑four family residential properties.

2 unchanged sentences

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 2023-4 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 sheets as of September 30, 2023 and December 31, 2022.

We have consolidated the AOMT 2023-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of March 31, 2024.

In January 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 59% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

2 unchanged sentences

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $190.1 million and retained cash of $15.9 million, which was used for operational purposes.

Given the accounting rules surrounding this type of transaction, we derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our condensed consolidated balance sheet as of September 30, 2023.

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 sheets as of September 30, 2023 and December 31, 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 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 sheets as of September 30, 2023 and December 31, 2022.

Leverage and Hedging Strategies

We derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our consolidated balance sheet as of March 31, 2024.

We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.

4 unchanged sentences

Cash and cash equivalents

Our cash balance as of September 30, 2023 was sufficient to meet our liquidity covenants under our financing facilities.

Our cash balance as of March 31, 2024 was sufficient to meet our liquidity covenants under our financing facilities.

We believe that we maintain sufficient cash to fund margin calls on our mark to market financing facilities or our economic hedge agreements, should such margin calls occur.

3 unchanged sentences

Restricted Cash

Restricted cash of approximately $1.1 million as of September 30, 2023 was comprised of:

Restricted cash of approximately $2.8 million as of March 31, 2024 was comprised of:

$0.1 million was held for the benefit of Global Investment Bank 3, the majority of which balance is in an economic interest rate hedging account under the control of Global Investment Bank 3, and may be drawn by Global Investment Bank 3 at its discretion, $2.4 million in interest rate futures margin collateral for the interest rate futures under our sole control;

and margin collateral for securities sold under agreements to repurchase of zero.

and margin collateral for securities sold under agreements to repurchase of $0.3 million.

Restricted cash of approximately $2.9 million as of December 31, 2023 was comprised of:

$5.6 million in margin collateral required by certain whole loan financing facility counterparties, the majority of which cash margin required was fully released subsequent to December 31, 2022;

$2.5 million in interest rate futures margin collateral;

1 unchanged sentence

Our counterparties did not require any margin collateral for TBAs as of December 31, 2023.

Nine Months Ended

September 30, 2023 September 30, 2022

Three Months Ended

March 31, 2024 March 31, 2023

(in thousands)

1 unchanged sentence

Cash flows provided by (used in) investing activities $ (4,819) $ (421,010)

Cash flows provided by (used in) financing activities

$ (171,318) $ (33,620)

Cash flows provided by financing activities $ (37,679) $ 162,160

Net increase in cash and restricted cash $ (2,276) $ 17,756

The cash provided by operating activities of $339.1 million for the nine months ended September 30, 2023 as compared to the use of cash of $635.8 million for the nine months ended September 30, 2022 was primarily due to the sale of residential mortgage loans into an affiliate’s securitization trust during the first three months of 2023, while in 2022, we purchased residential mortgage loans.

The use of investing cash flows of $164.7 million for the nine months ended September 30, 2023 as compared to cash provided by investing activities of $502.5 million for the nine months ended September 30, 2022 were primarily due to the timing of purchases and maturities of U.S.

Treasury securities in the comparative period.

The use of financing cash flows of $171.3 million for the nine months ended September 30, 2023 as compared to the use of $33.6 million for the nine months ended September 30, 2022 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods, and proceeds from non-recourse securitization transactions in the 2022 comparative period.

The cash provided by operating activities of $40.2 million for the three months ended March 31, 2024 as compared to the cash provided of $276.6 million for the three months ended March 31, 2023 was primarily due to the volume of residential mortgage loans sold into affiliate’s securitization trust during the first three months of 2023, as compared to 2024.

The use of investing cash flows of $(4.8) million for the three months ended March 31, 2024 as compared to cash provided by investing activities of $(421.0) million for the three months ended March 31, 2023 were primarily due to the timing of purchases and maturities of U.S.

Treasury securities in the comparative period of 2023.

Financing cash flows used of $(37.7) million for the three months ended March 31, 2024 as compared to $162.2 million provided for the three months ended March 31, 2023 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods.

Cash Flows - Residential and Commercial Loan Classification

15 unchanged sentences

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