What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-07 · 220 added, 361 removed, 550 unchanged (51% of the section changed)

19 unchanged sentences

• 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;

• changes in the availability of attractive loans 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;

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• 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, 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;

• events, contemplated or otherwise, such as acts of God, including hurricanes, wildfires, 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, 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;

• the occurrence of certain geo-political events (including global trade disputes related to tariffs) that affect the normal and peaceful course of international relations;

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

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mortgage market.

Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which currently operates primarily through a wholesale channel and has a national origination footprint.

We also may invest in other residential mortgage loans, residential mortgage-backed securities (“RMBS”), and other mortgage-related assets, which, collectively with non-QM loans, we refer to as our target assets.

Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and substantially sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which currently operates primarily through a wholesale channel and has a national origination footprint.

We also may invest in other residential mortgage loans, RMBS, and other mortgage-related assets, which, collectively with non-QM loans, we refer to as our target assets.

Further, we also may identify and acquire our target assets through the secondary market when market conditions and asset prices are conducive to making attractive purchases.

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

We are externally managed and advised by our Manager, Falcons I, LLC, a registered investment adviser under the Investment Advisers Act of 1940, as amended, 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.

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

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We believe our ability to identify and acquire target assets through the secondary market is bolstered by Angel Oak’s experience in the mortgage industry and expertise in structured credit investments.

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.

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.

Angel Oak Companies has advised us that they have agreed to enter into a strategic transaction (the “Strategic Transaction”) with Brookfield Asset Management Ltd.

(“Brookfield”).

Angel Oak Companies has advised us that the Strategic Transaction would result in the current beneficial owners of Angel Oak Companies selling approximately 51% of the outstanding beneficial ownership of Angel Oak Companies, and indirectly our Manager, to Brookfield at closing.

Angel Oak Companies has advised us that following the closing of the Strategic Transaction, the existing Angel Oak Companies management team will continue to independently manage the day-to-day business of Angel Oak Companies and our Manager, and will control the board of directors of Angel Oak Companies.

Angel Oak Companies has advised us that the Strategic Transaction is not intended to result in any material changes to the investment objectives or strategies of the Company, nor to adjust the investment decision-making processes or portfolio management with respect to the Company.

Angel Oak Companies has advised us that the personnel, officers and managers of our Manager are expected to remain the same.

Angel Oak Companies has advised us that, as part of the Strategic Transaction, Brookfield will have a right to acquire additional beneficial ownership in Angel Oak Companies beginning in 2027, which over time could result in Brookfield taking control of the board of directors of Angel Oak Companies.

Angel Oak Companies has advised us that the Strategic Transaction is expected to close in the second or third quarter of 2025, subject to the satisfaction of customary closing conditions, including the receipt of certain regulatory clearances and required client consents.

Under the Management Agreement, the Strategic Transaction would constitute an assignment of the Management Agreement pursuant to which the Management Agreement automatically terminates without payment of a termination fee unless the assignment is consented to in writing by the Company with the consent of a majority of the Company’s independent directors.

For a discussion of certain risks related to our relationship with our Manager, see the information under Item 1A.

“Risk Factors—Risks Related to Our Relationship with Our Manager and its Affiliates” in the Annual Report on Form 10-K.

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

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Overall macroeconomic environment and its effect on us

Over the course of the third quarter, signs of easing inflation and a stable employment sector that had emerged during the second quarter persisted, providing the Federal Reserve Bank of the United States (“the Fed”) with confidence to reduce interest rates at its September meeting for the first time since March of 2020.

At that meeting, the Fed elected to reduce rates by what was perceived to be an aggressive 50 basis points (“bps”).

Following the rate cut and now that an easing rate cycle has begun, analysts are split over the expected timing and extent of future rate cuts.

As of the end of September 2024, markets were pricing in an additional 1.5 cuts through the end of the year.

As of the end of September 2024, inflation was 2.4%, down from 2.9% as of the end of June but still above the Fed’s 2.0% target.

30 year fixed residential conforming mortgage rates also responded to the Fed rate cuts, with the average rate dropping 78bps, from from 6.86% at the end of June 2024 to 6.08% as of the end of September 2024.

According to the U.S.

Department of Housing and Urban Development, mortgage origination activity rose 9.6% in August 2024 on a month over month seasonally adjusted basis, driven by a 15.8% increase in single-family housing starts.

Rate cuts are expected to drive increased home purchase and mortgage origination activity going forward, but the extent of such activity remains uncertain.

On the heels of inflation data and the Fed rate cuts, the two-year and five-year Treasury yields decreased by 112bps and 82bps, respectively, in the third quarter of 2024 compared to the end of June 2024.

Net of new loan purchases and securitizations, we observed an increase of approximately 261 basis points in the weighted average price of our residential whole loans portfolio since the end of second quarter 2024.

The weighted average coupon of our residential whole loans portfolio held relatively flat at 7.73% as of the end of the third quarter of 2024 compared to 7.71% as of the end of the second quarter of 2024.

Subsequent to the end of the third quarter of 2024, in October, we executed the AOMT 2024-10 securitization as the sole contributor of loans, contributing approximately $316.8 million in scheduled unpaid principal balance of residential mortgage loans.

During the third quarter of 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average loan-to-value ratio (“LTV”) of 70.0% and weighted average credit score of 754.

Notes offering

On July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029 (the “Notes”).

The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024.

The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us.

We have deployed the majority of the net proceeds from the offering of the Notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines.

Additionally, we used a portion of the net proceeds from the offering of the Notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

The first quarter of 2025 continued with 2024’s trend of stability with decreases in expected rate and inflation paths, which created a constructive environment for our areas of business.

Federal Reserve Bank (the “Fed”) held the federal funds rate unchanged at 4.25 - 4.50% in the first quarter of 2025.

Securitization markets were resilient, contributing to a productive business backdrop.

However, toward the end of the first quarter, a new driver of uncertainty emerged in the form of new tariffs and resulting international trade disruption, which drove volatility across equity and fixed income markets.

The future outlook remains uncertain as market participants wait to see the new global and domestic economic outlook in light of real and potential tariff activity.

Treasury yields experienced decreases across two, five, and ten-year terms in the first quarter of 2025.

The two-year Treasury yield decreased by approximately 36 basis points since the end of 2024 to 3.95%, the five-year Treasury yield decreased by approximately 43 basis points since the end of 2024 to 3.96%, and the ten-year Treasury yield decreased by approximately 37 basis points since the end of 2024 to 4.21%.

Each of the two, five, and ten-year Treasury yields finished the first quarter near the minimum rate observed over the course of the quarter, with the maximums occurring toward the beginning of the first quarter.

30 year fixed residential conforming mortgage rates decreased by 20 basis points over the course of the first quarter to 6.65% as of the end of the first quarter from 6.85% as of the end of 2024.

These rates, alongside federal funds rate and Treasury yields, are key benchmarks for the valuation of our portfolio, and a decrease will generally drive a corresponding positive impact to our asset pricing, as we observed in the first quarter of 2025.

As such,we observed a 77 basis point increase in the weighted average price of our residential whole loans portfolio and a 94 basis point increase in the weighted average price of our loans in securitization trusts portfolio versus the prior quarter.

Continued purchases of high-quality non-QM loans are also expected to contribute to increases in the valuations of our portfolio, and we expect to continue to purchase newly originated loans, which should continue to support overall portfolio valuations and securitization execution going forward.

Our investment performance

Net Interest Margin (“NIM”).

An increase in both the balance and yield of our target assets generated greater interest income in the third quarter of 2024 as compared to the third quarter of 2023.

Interest income growth outpaced the growth in interest expense, leading to higher NIM in the third quarter of 2024 compared to the third quarter of 2023.

We generated $7.7 million greater interest income for the quarter ended March 31, 2025 than in the comparable period for 2024, driven by increases in both the amount and yields of our target assets.

Interest expense increased by $6.1 million for the quarter ended March 31, 2025 than in the comparable period for 2024, driven by increases in our total borrowings;

however, this increase in interest expense was mitigated by lower average borrowing costs.

Overall, the increase in our interest income outpaced the increase in interest expense and drove a $1.5 million, or 17.6%, increase in net interest income for the quarter ended March 31, 2025 than in the comparable period for 2024.

Net realized loss .

Our net realized loss for the quarter ended September 30, 2024 was primarily due to realized losses associated with rate hedge contracts, as well as paydowns on our residential loans and loans held in securitization trusts portfolios.

Our net realized loss for the quarter ended March 31, 2025 was primarily due to realized losses associated with the unamortized premium of loans that paid off in our residential loans in securitization trust portfolio as well as realized losses associated with hedging activity.

Net unrealized gain .

Our net unrealized gain for the quarter ended September 30, 2024 was driven by an increase in the valuation of our residential whole loans and the net valuation of loans in securitization trust and non-recourse securitization obligation portfolios.

Our net unrealized gain for the quarter ended March 31, 2025 was primarily due to an increase in the valuation of our residential whole loans and loans in securitization trust portfolios.

Whole loans and securitization activity

During the quarter ended September 30, 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average LTV of 70.0% and weighted average credit score of 754.

In March 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled unpaid 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.

In April 2024, we issued AOMT 2024-4, an approximately $299.8 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans.

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

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.

In June 2024, we participated in AOMT 2024-6, an approximately $479.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $22.9 million.

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

Subsequent to quarter end, in October 2024, we issued AOMT 2024-10, an approximately $316.8 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans.

During the quarter ended March 31, 2025, we purchased $259.0 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.67%, weighted average loan-to-value ratio (“LTV”) of 70.0% and weighted average credit score of 751.

Subsequent to quarter end, in April 2025, we issued AOMT 2025-4, a $284.3 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans.

We issued AOMT 2025-4 as the sole participant in the securitization.

As the primary beneficiary we will consolidate the AOMT 2024-10 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.

We used the proceeds to repay outstanding debt of approximately $242.4 million, and the $24.7 million of cash released was used for new loan purchases and operational purposes.

Whole loan financing facilities activity

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

Our total borrowing capacity was $1.1 billion as of September 30, 2024.

Highlights of whole loan financing facilities activity over the third quarter of 2024 are as follows:

• During the quarter ended September 30, 2024, we maintained the same whole loan financing facility lender base as of December 31, 2023.

• During the quarter ended September 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods.

• Subsequent to quarter end, we (i) in October 2024, amended our loan financing facility with Global Investment Bank 2 to, among other changes, reduce the interest rate pricing spread to a range from 1.75% to 3.35% and (ii) in November 2024 amended our loan financing facility with Global Investment Bank 3 to, among other changes, (a) extend the termination date to November 1, 2025;

(b) reduce the interest rate pricing spread to a range from1.90% to 4.75% based on collateral type, loan status, dwell time and other factors;

and (c) eliminate the 20 basis point index spread adjustment.

Our total borrowing capacity was $1.1 billion as of March 31, 2025 Highlights of whole loan financing facilities activity over the first quarter of 2025 are as follows:

• During the quarter ended March 31, 2025, we maintained the same whole loan financing facility lender base as of December 31, 2024.

• During the quarter ended March 31, 2025, 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 spread from 1.75% to 1.65%.

Key Financial Metrics

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Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, generally we intend to attempt to pay dividends to our stockholders in an amount equal to our REIT taxable income, if and to the extent authorized by our Board of Directors.

Distributable Earnings is one of a

number of factors considered by our Board of Directors in declaring dividends and, while not a direct measure of REIT taxable income, over time, the measure can be considered a useful indicator of our dividends.

Distributable Earnings is one of a number of factors considered by our Board of Directors in declaring dividends and, while not a direct measure of REIT taxable income, over time, the measure can be considered a useful indicator of our dividends.

Distributable Earnings should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP.

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 that we and the Operating Partnership entered into with our Manager upon the completion of our initial public offering of common stock (“IPO”) on June 21, 2021 and amended and restated on May 1, 2024 (as amended and restated, the “Management Agreement”).

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the management agreement that we and the Operating Partnership entered into with our Manager upon the completion of our IPO initial public offering of common stock (“IPO”) on June 21, 2021 and amended and restated on May 1, 2024 (as amended and restated, the “Management Agreement”).

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.

Distributable Earnings were a loss of $3.4 million and a loss of $8.6 million for the three months ended September 30, 2024 and 2023, respectively.

Distributable Earnings were approximately a gain of $4.1 million and a gain of $2.8 million for the three months ended March 31, 2025 and 2024, 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 and nine months ended September 30, 2024 and 2023:

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

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, 2025 and 2024:

Three Months Ended

March 31, 2025 March 31, 2024

(in thousands)

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

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three months ended March 31, 2025 and 2024:

Three Months Ended

March 31, 2025 March 31, 2024

($ in thousands)

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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, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

The following table sets forth the calculation of our book value per share of common stock as of March 31, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

(in thousands except for share and per share data)

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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, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

(in thousands except for share and per share data)

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Results of Operations

Three Months Ended September 30, 2024 and 2023

The following table sets forth a summary of our results of operations for the three months ended September 30, 2024 and 2023:

Three Months Ended March 31, 2025 and 2024

The following table sets forth a summary of our results of operations for the three months ended March 31, 2025 and 2024:

Three Months Ended

September 30, 2024 September 30, 2023

March 31, 2025 March 31, 2024

(in thousands)

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Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS $ (3,182) $ (1,422)

Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts

35,172 17,299

Net unrealized gain (loss) on trading securities, mortgage loans, debt at fair value option, and derivative contracts 16,625 10,684

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET $ 13,443 $ 9,262

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Operating expenses incurred with affiliate 416 515

Due diligence and transaction costs 254 115

Stock compensation 237 630

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Net Interest Income

The following table sets forth the components of net interest income for the three months ended September 30, 2024 and 2023:

The following table sets forth the components of net interest income for the three months ended March 31, 2025 and 2024:

Three Months Ended

September 30, 2024 September 30, 2023

March 31, 2025 March 31, 2024

(in thousands)

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Senior Unsecured Notes 1,312 47,803 — —

963 40,538 — —

Total interest expense 22,780 16,633

Net interest income $ 10,087 $ 8,579

Net interest income for the three months ended September 30, 2024 and 2023 was $9.0 million and $7.4 million, respectively.

Net interest income increased in the three months ended September 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loans portfolio (residential mortgage loan interest income less notes payable interest expense) during the three months ended September 30, 2024 .

We observed net interest income associated with our residential mortgage loan portfolio of $1.8 million in the three months ended September 30, 2024 compared to $0.1 million in the comparable period of 2023.

This was primarily driven by an increase in the weighted average coupon rate of our residential mortgage loans portfolio versus the comparative period, as well as holding more unlevered loans, resulting in a proportionally lower notes payable balance.

We generated $7.7 million greater interest income for the quarter ended March 31, 2025 than in the comparable period for 2024, driven by increases in both the amount and yields of our target assets.

Interest expense increased by $6.2 million for the quarter ended March 31, 2025 compared to the comparable period for 2024, driven by increases in our total borrowings;

however, this increase in interest expense was mitigated by lower average borrowing costs.

Overall, the increase in our interest income outpaced the increase in interest expense and drove a 17.6%, or $1.5 million, increase in net interest income for the quarter ended March 31, 2025 than in the comparable period for 2024.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the three months ended September 30, 2024 and 2023 are set forth as follows:

The components of total realized and unrealized gains (losses), net for the three months ended March 31, 2025 and 2024 are set forth as follows:

Three Months Ended

September 30, 2024 September 30, 2023

March 31, 2025 March 31, 2024

(in thousands)

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Realized gain (loss) on RMBS (319) (266)

Unrealized gain (loss) on Whole Pool Agency RMBS (2,138) (12,367)

Realized gain (loss) on CMBS (67) (101)

Realized and unrealized gain (loss) on Whole Pool Agency RMBS (2,190) (289)

Realized and unrealized gain (loss) on CMBS (56) (45)

Realized gain (loss) on interest rate futures (1,473) 3,549

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Unrealized appreciation (depreciation) on interest rate futures (1,934) 204

Total realized and unrealized gains (losses), net $ 28,837 $ 5,255

For the three months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in gains of $28.8 million and $5.3 million, respectively.

During the three months ended September 30, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as valuations increased during the quarter.

Similarly, during the three months ended September 30, 2023 gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as well.

Operating Expenses

For the three months ended September 30, 2024 and 2023, our operating expenses were $1.3 million and $1.4 million, respectively.

Our operating expenses decreased slightly compared to the comparative period due to continued 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.

Operating Expenses Incurred with Affiliate

For the three months ended September 30, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.6 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased slightly in the third quarter of 2024 compared to the same period of 2023 as a result of additional cost savings actions.

Due Diligence and Transaction Costs

For the three months ended September 30, 2024 and 2023, our due diligence and transaction costs were $254 thousand and $115 thousand, respectively.

Our due diligence and transaction expenses increased over the comparative period due to increased purchases of whole loans during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Stock Compensation

For the three months ended September 30, 2024 and 2023, our stock compensation expense was $0.6 million and $0.4 million, respectively.

Our stock compensation expense increased for the three months ended September 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Securitization Costs

For the three months ended September 30, 2024 and 2023, we incurred $0.0 million and $0.4 million of securitization costs, respectively.

There was no securitization activity in the third quarter of 2024, and the securitization costs in the comparative period in 2023 were driven by our participation in the AOMT 2023-5 securitization.

Management Fee Incurred with Affiliate

For the three months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $1.2 million and $1.4 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, 2024 as compared to the same period in 2023.

A key driver of the decrease in the three months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million shares of our common stock owned by Xylem Finance, LLC, an affiliate of Davidson Kempner Capital Management, LP, for an aggregate repurchase price of approximately $20 million.

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.

Nine Months Ended September 30, 2024 and 2023

The following table sets forth a summary of our results of operations for the nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30, 2024 September 30, 2023

(in thousands)

INTEREST INCOME, NET

Interest income $ 78,558 $ 71,403

Interest expense 51,495 50,742

NET INTEREST INCOME $ 27,063 $ 20,661

REALIZED AND UNREALIZED GAINS (LOSSES), NET

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS $ (14,527) $ (27,056)

Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts 48,514 27,868

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET $ 33,987 $ 812

Operating expenses $ 4,619 $ 5,788

Operating expenses incurred with affiliate 1,444 1,672

Due diligence and transaction costs 663 136

Stock compensation 1,864 1,195

Securitization costs 1,583 2,326

Management fee incurred with affiliate 3,810 4,460

Total operating expenses $ 13,983 $ 15,577

INCOME (LOSS) BEFORE INCOME TAXES $ 47,067 $ 5,896

Income tax expense (benefit) 3,261 781

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ 43,806 $ 5,115

Other comprehensive income (loss) 4,534 12,955

TOTAL COMPREHENSIVE INCOME (LOSS) $ 48,340 $ 18,070

Net Interest Income

The following table sets forth the components of net interest income for the nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30, 2024 September 30, 2023

(in thousands)

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

Residential mortgage loans $ 13,925 $ 284,211 $ 18,457 $ 467,538

Residential mortgage loans in securitization trusts 51,851 1,357,840 39,753 1,106,621

Commercial mortgage loans 258 5,231 458 8,215

RMBS and Majority Owned Affiliate

9,613 148,677 9,225 164,244

CMBS 1,097 6,428 790 6,394

Treasury securities 548 14,528 1,201 32,981

Other interest income 1,266 39,239 1,519 37,482

Total interest income 78,558 71,403

Interest expense

Notes payable 9,928 199,644 21,222 366,032

Non-recourse securitization obligation, collateralized by residential mortgage loans 37,624 1,285,118 26,121 1,080,156

Repurchase facilities 2,980 64,431 3,399 89,726

Senior unsecured notes

963 35,681 — —

Total interest expense 51,495 50,742

Net interest income $ 27,063 $ 20,661

Net interest income for the nine months ended September 30, 2024 and 2023 was $27.1 million and $20.7 million, respectively.

Net interest income increased in the nine months ended September 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loans portfolio (residential mortgage loan interest income less notes payable interest expense) during the nine months ended September 30, 2024.

We observed net interest income associated with our residential mortgage loan portfolio of $4 million in the nine months ended September 30, 2024 compared to a loss of $(2.8) million in the comparable period of 2023.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the nine months ended September 30, 2024 and 2023 are set forth as follows:

Nine Months Ended

September 30, 2024 September 30, 2023

(in thousands)

Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation

$ 25,607 $ (7,948)

Realized loss on RMBS

(2,469) (1,545)

Realized and unrealized gain (loss) on Whole Pool Agency RMBS

(6,355) (12,627)

Realized gain (loss) on CMBS (186) (241)

Realized gain (loss) on interest rate futures (622) 8,599

Realized and unrealized gain (loss) on TBAs 5,992 (479)

Realized and unrealized (loss) gain on residential mortgage loans 9,839 17,268

Realized and unrealized (loss) gain on commercial mortgage loans 48 113

Realized and unrealized loss on U.S.

Treasury securities (99) 88

Unrealized appreciation on interest rate futures 2,232 (2,416)

Realized gain/(loss) on AOMT MOA (105) (129)

Total realized and unrealized gains (losses), net $ 13,443 $ 9,262

For the nine months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in a net gain of $34 million and a loss of $0.8 million, respectively.

During the nine months ended September 30, 2024, gains on residential mortgage loans in securitization trust, net of unrealized gain (loss) on non-recourse securitization obligation, residential mortgage loans, TBAs, and interest rate futures were offset by losses on RMBS and whole pool agency RMBS.

In the nine months ended September 30, 2023, market volatility 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.

For the three months ended March 31, 2025 and 2024, total realized and unrealized gains and (losses), net resulted in net gains of $13.4 million and $9.3 million, respectively.

During the three months ended March 31, 2025, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation were the primary driver of the overall gain to our portfolio.

During the three months ended March 31, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation, and interest rate futures were the key drivers of the overall gain.

Operating Expenses

For the nine months ended September 30, 2024 and 2023, our operating expenses were $4.6 million and $5.8 million, respectively.

Our operating expenses decreased during the comparative period due to continued 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, 2025 and 2024, our operating expenses were $1.2 million and $2.0 million, respectively.

Our operating expenses decreased compared to the comparative period due to continued cost savings actions such as resource alignment initiatives, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loans portfolios.

Operating Expenses Incurred with Affiliate

For the nine months ended September 30, 2024 and 2023, our operating expenses incurred with affiliate were $1.44 million and $1.7 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased versus the comparative period as a result of additional cost savings actions.

Due Diligence and Transaction Costs

For the nine months ended September 30, 2024 and 2023, our due diligence and transaction costs were $663 thousand and $136 thousand, respectively.

Our due diligence and transaction expenses increased versus the comparative period as we purchased more whole loans during the nine months ended September 30, 2024 than the nine months ended September 30, 2023.

For the three months ended March 31, 2025 and 2024, our operating expenses incurred with affiliate were $0.4 million and $0.5 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased in the first three months of 2025 compared to the first three months of 2024 due to resource alignment initiatives.

Stock Compensation

For the nine months ended September 30, 2024 and 2023 our stock compensation expense was $1.9 million and $1.2 million, respectively.

Stock compensation expense increased for the nine months ended September 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

For the three months ended March 31, 2025 and 2024, our stock compensation expense was $0.2 million and $0.6 million, respectively.

Our stock compensation expense decreased for the three months ended March 31, 2025 due to the vesting of stock awards issued at our IPO.

Securitization Costs

Securitization costs of $1.6 million were incurred for the nine months ended September 30, 2024 in connection with the AOMT 2024-3, AOMT 2024-4, and AOMT 2024-6 securitization transactions.

There were $2.3 million of securitization costs incurred for the comparable period in 2023, representing costs incurred in connection with the AOMT 2023-1, AOMT 2023-4, and AOMT 2023-5 securitizations.

For the three months ended March 31, 2025 and 2024, we incurred no securitization costs and $0.2 million of securitization costs, respectively.

There was no securitization activity in the three months ended March 31, 2025, and the expense in the first three months of 2024 was a proportional allocation of expenses in conjunction with our share of the loans contributed to the AOMT 2024-3 securitization.

Management Fee Incurred with Affiliate

For the nine months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $3.8 million and $4.5 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, 2024 as compared to the same period in 2023.

A key driver of the decrease in the nine months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million shares of our common stock owned by Xylem Finance, LLC, an affiliate of Davidson Kempner Capital Management, LP, for an aggregate repurchase price of approximately $20 million.

For the three months ended March 31, 2025 and 2024, our management fee incurred with affiliate was $1.1 million and $1.3 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, 2025 as compared to the same period in 2024.

Our Portfolio

As of September 30, 2024, our portfolio consisted of approximately $2.2 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.

As of March 31, 2025, our portfolio consisted of approximately $2.5 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, wildfires and earthquakes may occasionally occur.

We require all of our collateral to be adequately insured.

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

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, 2024:

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, 2025:

Fair Value Collateralized Debt Allocated Capital % of Total Capital

7 unchanged sentences

Total investment securities $ 473,231 $ 148,467 $ 324,764 129.2 %

Investment in Majority-Owned Affiliate $ 18,720 $ — $ 18,720 7.1 %

Investments in Majority-Owned Affiliates (1)

$ 20,828 $ — $ 20,828 8.3 %

Total investment portfolio $ 2,605,708 $ 2,065,012 $ 540,696 215.0 %

5 unchanged sentences

Total $ 2,316,492 $ 2,065,012 $ 251,480 100.0 %

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

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

(1) "Investments in Majority-Owned Affiliates” is held at amortized cost.

(2) “Target assets” excludes U.S.

Treasury securities and includes investments in Majority-Owned Affiliates.

(3) Other assets and liabilities presented is calculated as a net liability substantially comprised of $302.6 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.

9 unchanged sentences

Investment in Majority-Owned Affiliates (1)

Treasury Securities 149,927 149,013 914 0.4 %

20,680 — 20,680 8.1 %

Total investment securities $ 320,923 $ 50,555 $ 270,368 105.9 %

6 unchanged sentences

Total $ 2,028,943 $ 1,773,626 $ 255,317 100.0 %

(1) "Investment in Majority-Owned Affiliate” is held at its amortized cost basis.

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

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Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of September 30, 2024:

The following table sets forth additional information on the residential mortgage loans in our portfolio as of March 31, 2025:

Portfolio Range Portfolio Weighted Average

2 unchanged sentences

Interest rate 3.87% - 11.88% 7.55%

Maturity date 6/27/2044 - 8/15/2064

Maturity date 1/26/2040 - 2/9/2065 January 2055

FICO score at loan origination 628 - 822 750

8 unchanged sentences

Interest rate 3.87%-11.88% 7.40%

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

Maturity date 8/8/2039 - 2/9/2064 November 2054

FICO score at loan origination 628-822 752

3 unchanged sentences

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

The following charts illustrate the distribution of the credit scores and coupon rates by the number of loans in our residential mortgage loan portfolio as of September 30, 2024:

The following charts illustrate the distribution of the credit scores and coupon 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, 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 September 30, 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 September 30, 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 March 31, 2025:

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, 2024:

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of March 31, 2025, 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, 2025:

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, 2025.

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

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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, 2024:

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2025:

($ in thousands)

UPB $1,738,099

Fair Value $1,672,189

Number of loans 4,107

6 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, 2024 (percentages are 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 September 30, 2024 .

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2025 (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, 2025.

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

2 unchanged sentences

UPB $1,781,311

Fair Value 1,696,995

Number of loans 4,183

5 unchanged sentences

Percentage of loans 90+ days delinquent (based on UPB) 2.0%

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023 (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, 2024 (percentages 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 December 31, 2024.

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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, 2024:

AOMT 2019 Securitizations

AOMT 2020 Securitizations

AOMT 2023 Securitizations

AOMT 2024 Securitizations

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of March 31, 2025, unless otherwise stated:

AOMT 2019 Securitizations AOMT 2020 Securitizations AOMT 2023 Securitizations AOMT 2024 Securitizations

($ in thousands)

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accordingly, original LTV is used.

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

(4) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, AOMT 2024-3, and AOMT 2024-6 is the total at risk for the Majority-Owned Affiliates.

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

(3) Represents the fair value of the securities we hold in the first loss tranche in each securitization including the total at risk for the Majority-Owned Affiliates.

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

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

AOMT 2019 Securitizations

AOMT 2020 Securitizations

AOMT 2023 Securitizations

As of December 31, 2024 AOMT 2019 Securitizations AOMT 2020 Securitizations AOMT 2023 Securitizations AOMT 2024 Securitizations

($ in thousands)

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(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.

(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 September 30, 2024:

(4) The fair value of the first loss pieces presented is the total at risk for the Majority-Owned Affiliates.

(5) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average current 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 March 31, 2025:

RMBS Repurchase Debt (1,3)

9 unchanged sentences

— — — 40,444 — 40,444 (40,444) — $ (40,444)

$ 88,741 $ 194,364 $ 283,105 $ 53,164 $ — $ 53,164 $ 35,577 $ 194,364 $ 229,941

Subtotal $ 97,210 $ 301,062 $ 398,272 $ 73,903 $ — $ 73,903 $ 23,307 $ 301,062 $ 324,369

Investment in Majority Owned Affiliates $ 20,828 $ — $ 20,828 $ — $ — $ — $ 20,828 $ — $ 20,828

$ 18,720 $ — $ 18,720 $ — $ — $ — $ 18,720 $ — $ 18,720

Total $ 118,038 $ 301,062 $ 419,100 $ 73,903 $ — $ 73,903 $ 44,135 $ 301,062 $ 345,197

(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, 2024 were purchased from a broker to whom the Company owes approximately $194.7 million, payable upon the settlement date of the trade.

(2) The whole pool RMBS presented as of March 31, 2025 were purchased from a broker to whom the Company owed approximately $302.6 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

— — — 25,286 — 25,286 (25,286) — $ (25,286)

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

Subtotal $ 98,791 $ 201,452 $ 300,243 $ 50,555 $ — $ 50,555 $ 48,236 $ 201,452 $ 249,688

Investment in Majority Owned Affiliates $ 20,680 $ — $ 20,680 $ — $ — $ — $ 20,680 $ — $ 20,680

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

Total $ 119,471 $ 201,452 $ 320,923 $ 50,555 $ — $ 50,555 $ 68,916 $ 201,452 $ 270,368

(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, 2023 were purchased from a broker to whom the Company owes approximately $392.0 million, payable upon the settlement date of the trade.

(2) The whole pool RMBS presented as of December 31, 2024 were purchased from a broker to whom the Company owed approximately $202 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 $124.1 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, for the period ended September 30, 2024:

These bonds, with a fair value of $163.9 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, 2025:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

(in thousands)

Beginning fair value as of June 30, 2024

$ — $ 13,100 $ 60,107 $ 13,027 $ 180,518 $ 266,752

Beginning fair value $ — $ 12,735 $ 73,549 $ 12,508 $ 201,451 $ 300,243

Acquisitions:

1 unchanged sentence

Third party securities — — — — 302,619 302,619

Effect of principal payments / sales

— (280) — (178,702) $ (178,982)

Effect of principal payments / called deals — (23) (229) — (201,994) (202,246)

IO and excess servicing prepayments — — — (414) — (424)

Changes in fair value, net — 167 (217) (866) (1,014) (1,920)

Ending fair value as of September 30, 2024

$ — $ 13,464 $ 62,222 $ 13,055 $ 194,364 $ 283,105

Ending fair value $ — $ 12,879 $ 73,103 $ 11,228 $ 301,062 $ 398,272

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

1 unchanged sentence

(in thousands)

Beginning fair value as of December 31, 2022

$ — $ 1,958 $ 49,578 $ 10,424 $ 993,378 $ 1,055,338

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

Acquisitions:

1 unchanged sentence

Third party securities — — — — 938,430 938,430

Effect of principal payments / sales — (869) — — (2,339,028) (2,339,897)

Effect of principal payments / called deals — (1,080) — — (1,125,653) (1,126,733)

IO and excess servicing prepayments — — — (1,974) — (1,974)

Changes in fair value, net — 423 3,127 (415) (3,688) (553)

Ending fair value as of December 31, 2023

$ — $ 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, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

Ending fair value $ — $ 12,735 $ 73,549 $ 12,508 $ 201,451 $ 300,243

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of March 31, 2025 (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, 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 September 30, 2024.

(as of March 31, 2025)

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, 2025.

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

5 unchanged sentences

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

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, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

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 March 31, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

($ 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, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

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, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital

(in thousands)

Senior $ — $ — $ — $ — $ — $ —

Mezzanine — — — — — —

Subordinate 2,666 — 2,666 2,540 — 2,540

5 unchanged sentences

Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029.

Additionally, we used the net proceeds from the offering of the Notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

See “—Trends and Recent Developments—Notes offering” in this report.

We have deployed the majority of the net proceeds from the offering of our senior unsecured notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets substantially sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines.

Additionally, we used the net proceeds from the offering of our senior unsecured notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

Our financing sources historically have included the foregoing, as well as capital contributions from our investors prior to our IPO, and the proceeds from our IPO and concurrent private placement (which capital has all been deployed).

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Upon accumulating an appropriate amount of assets, we have financed and expect to continue to finance a substantial portion of our mortgage loans utilizing fixed-rate term securitization funding that provides long‑term financing for our mortgage loans and locks in our cost of funding, regardless of future interest rate movements.

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.

Securitization transactions 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 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, 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 September 30, 2024, we renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods.

Subsequent to the end of the quarter, we (i) amended our loan financing facility with Global Investment Bank 2 to, among other changes, reduce the interest rate pricing spread to a range from 1.75% to 3.35% and (ii) amended our loan financing facility with Global Investment Bank 3 to, among other changes, extend the termination date to (a) November 1, 2025;

(b) reduce the interest rate pricing spread to a range from 1.90% to 4.75% based on collateral type, loan status, dwell time and other factors;

and (c) eliminate the 20 basis point index spread adjustment.

As of March 31, 2025, 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, 2025, 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.

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, 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.

As of March 31, 2025, 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 (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;

1 unchanged sentence

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, 2024 was $10.0 million.

A description of each loan financing facility in place during the quarter ended September 30, 2024 is set forth as follows:

Our minimum liquidity requirement as of March 31, 2025 was $10.0 million.

A description of each loan financing facility in place during the quarter ended March 31, 2025 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.

As of September 30, 2024, the termination date of the master repurchase agreement was March 25, 2025.

As of March 31, 2025, the termination date of the master repurchase agreement was September 25, 2025, unless terminated earlier pursuant to the terms of the master repurchase agreement.

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.

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

The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread generally ranging from 1.75% to 2.10% 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 from 1.65% - 2.10% and (2) the average SOFR for each U.S.

Government Securities Business Day (as defined in the master repurchase agreement) until two U.S.

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

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

The remedies for such events of default are also customary for this type of transaction

and include the acceleration of the principal amount outstanding under the agreement and Multinational Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

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

Global Investment Bank 2 Loan Financing Facility.

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.

The Company is guarantor under the current facility, one of the subsidiaries is seller and Global Investment Bank 2 is buyer.

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

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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, as of October 25, 2024, 1.75% to 3.35%.

The 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 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.

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.

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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%.

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.

On November 7, 2023, the facility was amended to set the base interest rate spread to 1.80% plus a 0.20% index spread adjustment for the first six (6) months of seasoning on this financing facility with an additional 0.25% increase following the first six (6) months.

On November 1, 2024, the facility’s termination date was extended to November 1, 2025.

In addition, the base interest rate spread was reduced to a range from 1.90% to 4.75% and the index spread adjustment of 0.20% was eliminated.

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.

In addition, the base interest rate spread was reduced to a range from 1.90% to 4.75% and the index spread adjustment of 20 basis points was eliminated.

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 good faith discretion and in a commercially reasonable manner and is under no obligation to purchase the eligible mortgage loans we offer 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.

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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 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”).

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

The following table sets forth the details of our loan financing facilities as of each of September 30, 2024 and December 31, 2023:

The following table sets forth the details of our financing lines as of each of March 31, 2025 and December 31, 2024:

Spread Drawn Amount

Note Payable Base Interest Rate September 30, 2024 December 31, 2023

Note Payable Base Interest Rate March 31, 2025 December 31, 2024

($ in thousands)

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89,385 13,637

Institutional Investors A and B (4)

1 month Term SOFR 3.50% N/A —

Regional Bank 1 (5)

1 month SOFR 2.50% - 3.50%

Total $ 360,470 $ 129,459

(1) On September 25, 2024, this financing facility was extended through March 25, 2025 in accordance with the terms of the agreement, which contemplates six-month renewals.

(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.

On October 25, 2024, this facility was amended, reducing the interest rate pricing spread to a range from 1.75% to 3.35%, based on loan status, dwell time and other factors.

Prior to this extension the interest rate pricing spread ranged from 2.10% to 3.35%.

(3) On November 1, 2024, this facility was amended to (i) reduce the interest rate pricing spread to a range from 1.90% to 4.75%, based on loan status, dwell time and other factors, (ii) eliminate the 20 basis point index spread adjustment, and (iii) extend the facility’s termination date to November 1, 2025.

(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 loan financing facility as of September 30, 2024:

(1) On March 25, 2025, this financing facility was extended through September 25, 2025 in accordance with the terms of the agreement, which contemplates six-month renewals, with an interest rate pricing spread of 1.65%.

Prior to this extension the interest rate pricing spread was up to 1.75%.

(2) On March 28, 2024, the Company and two of its subsidiaries terminated the existing facility with Global Investment Bank 2 and the Company and two different subsidiaries entered into a new facility with Global Investment Bank 2 wherein the Company is guarantor, one of the subsidiaries is seller and Global Investment Bank 2 is buyer.

This updated facility is extended through March 27, 2026.

In connection with the execution of the new facility the interest rate pricing spread was reduced to a range between 2.10% and 3.35%.

On October 25, 2024, the facility was amended to, among other changes, reduce the pricing spread to a range between 1.75% and 3.35%.

(3) On November 1, 2024, the facility’s termination date was extended to November 1, 2025.

In addition, the base interest rate spread was reduced to a range from 1.90%.

to 4.75% and the index spread adjustment of 0.20% was eliminated.

The following table sets forth the total unused borrowing capacity of each financing line as of March 31, 2025:

Note Payable Borrowing Capacity Balance Outstanding Available Financing

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Multinational Bank 1 $ 600,000 $ 232,431 $ 367,569

$ 600,000 $ 292,060 $ 307,940

Global Investment Bank 2 250,000 38,654 211,346

250,000 — 250,000

Global Investment Bank 3 200,000 89,385 110,615

200,000 40,982 159,018

Total $ 1,050,000 $ 360,470 $ 689,530

Although available financing is uncommitted for each of our financing facilities, 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.

Although available financing is uncommitted for each of these lines of credit, 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.

Short‑Term Repurchase Facilities.

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

The following table sets forth certain characteristics of our short-term repurchase facilities as of September 30, 2024 and December 31, 2023:

September 30, 2024

The following table sets forth certain characteristics of our short-term repurchase facilities as of March 31, 2025 and December 31, 2024:

March 31, 2025

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

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Treasury securities $ 74,564 4.60 % 3

AOMT RMBS (1)

$ 73,903 5.70 % 17

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($ in thousands)

Treasury securities $ 149,013 5.57 % 10

AOMT RMBS (1)

50,555 5.76 % 19

Total $ 50,555 5.76 % 19

(1) A portion of repurchase debt outstanding as of both September 30, 2024 and December 31, 2023 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, 2025 and December 31, 2024 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

The repurchase debt against the U.S.

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Q4 2023 193,656 62,536 193,656

188,101 87,279 188,101

193,656 62,536 193,656

193,493 69,254 193,493

201,051 66,804 201,051

102,876 57,842 102,876

Q1 2024 193,493 69,254 193,493

Q2 2024 201,051 66,804 201,051

Q3 2024 102,876 57,842 102,876

Q4 2024 50,555 53,412 51,843

Q1 2025 148,467 62,631 148,467

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

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Securitization Transactions

Subsequent to the end of the quarter, in October 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties.

Subsequent to the end of the quarter, in April 2025, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2025-4 issued approximately $284.3 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $242.4 million and retained cash of $24.7 million, which was used for new loan purchases and 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.

We will consolidate the AOMT 2024-10 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 in future reporting periods.

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties.

In December 2024, 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.

In the transaction, AOMT 2024-13 issued approximately $288.9 million in face value of bonds.

Our proportionate share of 4.51% of the retained bonds and investments in MOAs was approximately $2.5 million, including a retained discount on issuance of approximately $0.8 million.

Our proportionate share of 57.92% of the retained bonds and investments in MOAs was approximately $15.1 million, including a retained premium on issuance of approximately $4.4 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $141.5 million and retained cash of $15.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-6 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of September 30, 2024.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties.

We derecognized the mortgage loans sold in AOMT 2024-13 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of March 31, 2025.

In October 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 42% of which were mortgage loans originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-10 issued approximately $316.8 million in face value of bonds.

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

We have consolidated the AOMT 2024-4 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 September 30, 2024.

In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, 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 MOAs was approximately $4.8 million, including a retained discount on issuance of approximately $1.6 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 September 30, 2024.

In December 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, 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 September 30, 2024.

In August 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties.

We have consolidated the AOMT 2024-10 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, 2025.

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 62% 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 2024-6 issued approximately $479.6 million in face value of bonds.

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We used the proceeds of the securitization transaction to repay outstanding debt of approximately $15.8 million and retained cash of $1.8 million, which was used for operational purposes.

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 September 30, 2024.

In June 2023, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties.

We derecognized the mortgage loans sold in AOMT 2024-6 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of March 31, 2025.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 79% of which were mortgage loans originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-4 issued approximately $299.8 million in face value of bonds.

1 unchanged sentence

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.

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 September 30, 2024.

In January 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties.

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.

1 unchanged sentence

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 this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our consolidated balance sheet as of September 30, 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.

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

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

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

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of March 31, 2025.

Notes Offering

On July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029.

The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024.

The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Operating Partnership, including the due and punctual payment of principal of premium, if any, and interest on the Notes, whether at the stated maturity, upon, acceleration, call for redemption or otherwise.

The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year.

The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us.The Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Operating Partnership, including the due and punctual payment of principal of, premium, if any, and interest on the Notes, whether at the stated maturity, upon acceleration, call for redemption or otherwise.

We may redeem the Notes in whole or in part at any time or from time to time at our option on or after July 30, 2026 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Upon the occurrence of certain events relating to a change of control of us, we must make an offer to repurchase all outstanding Notes at a price in cash equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

On August 8, 2024, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) to sell shares of the Company’s common stock (“common stock”) from time to time having an aggregate gross sales price of up to $75 million, through an “at the market” equity offering program (the “ATM Program”).

The Company issued and sold 188,456 shares of common stock through the ATM Program during the three-months and nine-months ended September 30, 2024 for net proceeds of $2.3 million.

As of September 30, 2024, the Company had approximately $73 million of shares of common stock available for issuance under the ATM Program and Sales Agreement.

On August 8, 2024, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) to sell shares of the Company’s common stock from time to time having an aggregate gross sales price of up to $75 million, through an “at the market” equity offering program (the “ATM Program”).

The Company issued and sold 188,456 shares of common stock through the ATM Program during the year ended December 31, 2024 for gross proceeds of $2.3 million, receiving net proceeds of $2.3 million.

The Company paid $45 thousand in commissions to the agents under the ATM Program in connection with such sales during the year ended December 31, 2024.

of March 31, 2025, the Company had approximately $73 million of shares of common stock available for issuance under the ATM Program and Sales Agreement.

The Company did not issue any shares under the ATM program during the quarter ended March 31,2025.

Leverage and Hedging Strategies

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

Cash Availability

Cash and cash equivalents

Our cash balance as of September 30, 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.

Our cash balance as of March 31, 2025 was sufficient to meet our liquidity covenants under our financing facilities and the Notes.

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

There was no margin collateral required as of March 31,2025 or December 31,2024.

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

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Restricted Cash

Restricted cash of approximately $2.7 million as of September 30, 2024 was comprised of:

no margin collateral held in support of our whole pool assets;

Restricted cash of approximately $4.8 million as of March 31, 2025 was comprised of:

$3.6 million in interest rate futures margin collateral for the interest rate futures under our sole control;

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Our counterparties did not require any margin collateral for TBAs as of December 31, 2024.

Nine Months Ended

September 30, 2024 September 30, 2023

Three Months Ended

March 31, 2025 March 31, 2024

(in thousands)

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Cash flows provided by (used in)financing activities $ 278,192 $ (37,679)

$ 110,575 $ (171,318)

Net increase (decrease) in cash and restricted cash $ 577 $ (2,276)

$ 235 $ 3,101

The cash used in operating activities of $196.4 million for the nine months ended September 30, 2024 as compared to the cash provided by operating activities of $353.7 million for the nine months ended September 30, 2023 was primarily due to the volume of residential mortgage loans sold into an affiliate’s securitization trust during the first nine months of 2023, as compared to the first nine months of 2024.

The cash provided by investing activities of $86.0 million for the nine months ended September 30, 2024 as compared to cash used in investing activities of $179.3 million for the nine months ended September 30, 2023 were primarily due to the timing of purchases and maturities of U.S.

The cash used in operating activities of $201.7 million for the three months ended March 31, 2025 as compared to the cash provided of $40.2 million for the three months ended March 31, 2024 was primarily due to the volume of residential mortgage loans purchased during the first three months of 2025, as compared to the first three months of 2024.

The use of investing cash flows of $75.9 million for the three months ended March 31, 2025 as compared to cash used by investing activities of $4.8 million for the three months ended March 31, 2024 were primarily due to the timing of purchases and maturities of U.S.

Treasury securities in the comparative period of 2024.

Financing cash flows provided $110.6 million for the nine months ended September 30, 2024 as compared to cash used of $171.3 million for the nine months ended September 30, 2023 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods.

Financing cash flows provided $278.2 million for the three months ended March 31, 2025 as compared to $37.7 million used in financing activities for the three months ended March 31, 2024 were primarily due to the activity within net borrowings under repurchase agreements and notes payable during the first three months of 2025.

Cash Flows - Residential and Commercial Loan Classification

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis