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Item 7. Management’s Discussion and Analysis

2023-03-20 compared with 2022-03-28 · 489 added, 329 removed, 434 unchanged (65% of the section changed)

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Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

is a real estate finance company focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S.

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 operates through wholesale and retail channels and has a national origination footprint.

We also may invest in other residential mortgage loans, RMBS, and other mortgage-related assets, which, together with non-QM loans and investments other than U.S.

Treasury Bills, 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 primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which operates 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 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, 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.

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

Angel Oak Capital was established in 2009 and had approximately $17.4 billion in assets under management as of December 31, 2022 across its private credit strategies, public funds, and separately managed accounts, including approximately $9.2 billion of mortgage‑related assets.

Angel Oak Mortgage Lending is a market leader in non‑QM loan production and, as of December 31, 2022, had originated over $17.1 billion in total non‑QM loan volume since its inception in 2011.

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

Angel Oak is headquartered in Atlanta and has approximately 400 employees across its enterprise.

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

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

SEC Order Regarding an Affiliate of Our Manager

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

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

AOMT 2018-PB1 was issued before we commenced operations, and we were therefore not involved with and did not invest in AOMT 2018-PB1.

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

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

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

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

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

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

The inaccuracies related to

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

Angel Oak Capital and Mr.

Negandhi did not admit or deny these findings.

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

Negandhi acted with fraudulent intent.

The SEC accepted Angel Oak Capital’s and Mr.

Negandhi’s offers to settle the case.

Angel Oak Capital and Mr.

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

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

The 2021 macroeconomic environment was more favorable than that of the 2020 macroeconomic environment.

Although the U.S.

economy was still being affected by the COVID-19 pandemic in 2021, the impact of COVID-19 on the economy shifted from economic shutdowns and a lack of economic activity to a release of pent-up consumer demand, which included demand for housing and mortgages.

Interest rates decreased in 2021, resulting in many homeowners either refinancing existing mortgages or trading up in housing stock and obtaining a newly originated mortgage.

The effects of this overall interest rate decrease was somewhat offset by the lack of availability of housing stock in many areas of the U.S., and a dramatic increase in the cost of building materials, particularly lumber, which constrained home building activity to some extent, as well as resulted in an increase in home prices in many areas of the U.S.

Homeowner prepayment activities (which include refinancing an existing mortgage, as referred to above) may have had a negative impact on some of the bonds that we hold from older securitizations, as we typically hold the lower junior and XS (interest only) tranches of bonds from a securitization, and the payoff of a mortgage within a securitization results in less interest available to be allocated to the XS bonds.

This prepayment activity on the part of homeowners is not likely to affect our newer securitizations, as a homeowner in a more newly-originated mortgage is likely to have a mortgage rate closer to the current lower interest rates.

The Federal Reserve Bank of the U.S.

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

We believe that an increase in interest rates from the current historically low levels is unlikely to significantly affect demand for non-QM mortgages.

An increase in interest rates may cause interest rate spreads to widen, which may negatively impact the valuation of our whole loan portfolio, as wider interest rate spreads generally cause a decrease in the value of whole loans originated at lower interest rates.

However, holding whole loans originated at higher interest rates generally has the effect of increasing our net interest income, and prepayment speeds will generally slow for existing securitizations, which will also increase our net interest income as we primarily hold lower and interest only tranches of securitized bonds that we have issued.

Initial Public Offering

On June 21, 2021, we completed our initial public offering (“IPO”) of 7,200,000 shares of common stock, $0.01 par value per share (“common stock”), at a public offering price of $19.00 per share for total proceeds of approximately $136.8 million, excluding the underwriting discounts and commissions and offering expenses of the IPO, each of which was paid by Angel Oak Capital, pursuant to the Registration Statement filed with the SEC under the Securities Act.

Concurrently with the completion of the IPO, we sold an additional 2,105,263 shares of common stock to CPPIB Credit Investments Inc.

in a private placement at $19.00 per share, for total proceeds of approximately $40.0 million.

The 2022 macroeconomic environment was significantly more challenging than 2021, and was defined by volatility and uncertainty in the financial markets.

In an effort to combat historically high inflation, the U.S.

Federal Reserve Bank of the United States (the “Fed”) approved an unprecedented seven increases to the federal funds rate over the course of the year, commencing in March 2022.

These increases took the benchmark interest rate from 0.25% as of December 31, 2021, to 4.75% as of December 31, 2022, marking its highest level in 15 years (i.e., prior to the Great Financial Crisis of 2008).

The Fed has raised the federal funds rate by an additional 25 basis points to date in 2023, and has stated that it anticipates that “ongoing increases” in its target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to its goal of 2% per year.

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

Sharply rising interest rates over 2022 resulted in a slowdown of mortgage origination and refinancing activity, as the average conforming 30-year mortgage rate with no points averaged approximately 6.7% by the end of the third quarter of 2022, remaining stable through the fourth quarter of 2022 — more than double that same metric as of December 2021.

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

however, in 2022, the rapid increase in interest rates, the widening of interest rate spreads, and widespread market uncertainty negatively affected the valuation of our portfolio, which incurred significant unrealized losses for the year, offset partially by realized gains from our interest rate hedging activity.

Additionally, the sharp increase in interest rates over a short period of time resulted in a volatile and unpredictable environment for securitizing loans.

Our investment performance

We had strong performance from the most substantial asset classes of our target investments of both our non-QM whole loan portfolio, RMBS portfolio, and CMBS portfolio for the year ended December 31, 2021.

Our non-QM whole loan portfolio generated increased net interest income, partially offset by unrealized losses on the portfolio, which were driven by mark-to-market losses due to yield spread widening.

The RMBS portfolio and CMBS portfolio results were supported by year-over-year unrealized gains in this asset class.

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

Purchases of whole loans since IPO and our 2021 securitizations

Since the closing of the IPO, through December 31, 2021, we purchased $1.4 billion in residential whole loans.

In 2021, we issued two new securitizations, AOMT 2021-4 and AOMT 2021-7, securitizing a total of $703.5 million of unpaid principal balance of seasoned residential non-QM mortgage loans.

These securitizations were the first securitizations that we issued as the sole participant.

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

Given the accounting rules surrounding these types of transactions, we have consolidated these securitizations on our consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheet for the year ended December 31, 2021.

Subsequent to December 31, 2021, we issued a new securitization, AOMT 2022-1, securitizing a total of $537.6 million of unpaid principal balance of seasoned residential non-QM mortgage loans.

As of the closing of AOMT 2022-1, we have securitized over $1.2 billion of non-QM loans since the closing of the IPO.

Our securitizations prior to 2021 were securitization transactions for which we did not meet the accounting rules to be considered a “primary beneficiary” of the applicable securitization vehicle, and therefore, for these prior securitizations, the bonds retained in the securitization are held on our consolidated balance sheets as of December 31, 2021 and 2020.

New whole loan financing facilities

In 2021, we entered into three new financing facilities, one of which was a committed financing facility.

The new financing facilities afforded us $650.0 million of additional borrowing capacity, for a total capacity of $1.3 billion with which to execute our core strategy of purchasing whole loans and retaining them until securitized.

Net Interest Margin (“NIM”).

Our NIM compressed in 2022 as our portfolio of residential whole loans was primarily originated at lower coupons, while our interest expense increased due to floating rate increases based on the Secured Overnight Financing Rate (“SOFR”).

Net realized loss .

Our net realized loss for the year ended December 31, 2022 was primarily due to a bulk sale of certain residential mortgage loans during the fourth quarter of 2022, substantially offset by realized gains on interest rate futures and TBAs.

Net unrealized loss .

Our net unrealized loss resulted primarily from mark-to-market valuations on our residential mortgage loans - at fair value and residential mortgage loans in securitization trusts - at fair value.

Loan valuations decrease as interest rate spreads widen, and loans originated at lower coupons decrease in value as current interest rates increase.

Summary of Securitization Activity

Subsequent to December 31, 2022, on January 31, 2023, we participated in an approximately $580.5 million scheduled principal balance securitization transaction (AOMT 2023-1) backed by a pool of residential mortgage loans.

We contributed loans with a scheduled principal balance of $241.3 million, with other Angel Oak entities contributing the remaining balance.

We may strategically enter into similar securitizations with other Angel Oak entities in the future, and / or issue securitizations where we are the sole participant, as we did in 2022 and 2021, as further described below.

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

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

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

We issued these securitizations as the sole participant in the securitization.

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

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

The securitizations in which we participated in 2020 and 2019 were securitization transactions entered into with other Angel Oak entities, where we contributed residential mortgage loans to securitization vehicles along with the other Angel Oak entities.

For these securitizations, we did not meet the accounting rules to be considered a “primary beneficiary” of the applicable securitization vehicle, and

therefore, for these securitizations, the bonds retained in the securitization are held on our consolidated balance sheets as of December 31, 2022 and December 31, 2021.

Purchases and Sale of Whole Loans

During the year ended December 31, 2022, we purchased $995.2 million in residential whole loans.

These purchases were completed by the third quarter of 2022.

We paused purchases of residential whole loans in the fourth quarter of 2022 in order to preserve capital and increase flexibility.

On November 18, 2022, we sold, on a servicing released basis, residential mortgage loans with a gross weighted average coupon of approximately 4.5%, and a cost basis of approximately $315.6 million and a carrying value of $267.6 million.

The purchase price for the mortgage loans acquired by the buyer was $252.7 million, and in conjunction with the sale, we repaid $221.2 million of warehouse financing debt.

The sale of these lower-coupon loans reduced debt and released cash, mitigating risk to our capital structure.

Additionally, during the year ended December 31, 2022, we sold commercial loans with an unpaid principal balance of $11.2 million and market value of $10.5 million for cash proceeds of $11.0 million.

Whole loan financing arrangements

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

See Item 7, Liquidity and Capital Resources , for a full description of our financing arrangements.

Our total borrowing capacity was $1.2 billion as of December 31, 2022.

Highlights of whole loan financing facilities activity over 2022 is as follows:

• On April 13, 2022, we entered into a a master repurchase agreement with a multinational bank (“Multinational Bank 1”), the maximum borrowing base of which was increased on August 4, 2022 by $260.0 million to $600.0 million.

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

This short-term financing was paid in full in January 2023, and the master repurchase agreements were terminated simultaneously therewith.

• On December 19, 2022, the facility limit under a master repurchase agreement with a multinational bank (“Global Investment Bank 3”) was increased by $86.0 million to $286.0 million by adding a static pool of additional mortgage loans to the facility.

Furthermore, the termination date of the facility was extended to December 19, 2023;

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

Additionally, the amendment generally removed “mark to market” provisions from the previous agreement, and requires an economic interest rate hedging account to be maintained to the reasonable satisfaction of Global Investment Bank 3, which is for its benefit of and under its sole control.

• During 2022, various financing facilities were either allowed to expire by their terms or were terminated by us.

Key Financial Metrics

As a real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, Distributable Earnings Return on Average Equity and book value per share.

Distributable Earnings

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with GAAP, excluding (1) unrealized gains and losses on our aggregate portfolio, and realized gains (losses) on derivatives, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by our Manager, (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses.

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding (1) unrealized gains and losses on our aggregate portfolio, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by our Manager, (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses.

We believe that the presentation of Distributable Earnings provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations.

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As a REIT, we are generally required to distribute at least 90% of our annual REIT taxable income and to pay U.S.

federal income tax at the regular corporate rate to the extent that we annually distribute less than 100% of such taxable income.

federal income tax at the regular corporate rates to the extent that we annually distribute less than 100% of such taxable income.

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.

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

We also use Distributable Earnings to determine the management and incentive fees payable to our Manager pursuant to the Management Agreement.

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

For information on the fees that are payable to our Manager under the Management Agreement, see Part II, Item 8, Note 13 – Related Party Transactions .

Distributable Earnings were approximately $19.4 million and $34.2 million for the years ended December 31, 2022 and 2021, respectively.

The table below sets forth a reconciliation of net income allocable to common stockholder(s), calculated in accordance with GAAP, to Distributable Earnings for the years ended December 31, 2021 and 2020:

The table below sets forth a reconciliation of net income allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the years ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

(in thousands)

Net income allocable to common stockholder(s) $ 21,098 $ 721

Net income (loss) allocable to common stockholders $ (187,847) $ 21,098

Net other-than-temporary credit impairment losses — —

Net realized and unrealized (gains) losses on derivatives 7,688 257

Net unrealized (gains) losses on derivatives (13,054) 7,688

Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation 67,401 1,949

Net unrealized (gains) losses on residential loans 146,347 1,956

Net unrealized (gains) losses on residential loans in securitization trust 1,949 —

Net unrealized (gains) losses on commercial loans 844 (231)

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Non-cash equity compensation expense 5,753 1,715

Incentive fee earned by our Manager — —

Incentive fee earned by the Manager — —

Realized gains (losses) on terminations of interest rate swaps — —

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Distributable Earnings $ 19,444 $ 34,175

Average total common stockholder(s)’ equity $ 369,749 $ 171,485

Average total common stockholders’ equity $ 355,944 $ 369,749

Distributable Earnings Return on Average Equity 5.46 % 9.24 %

Book Value per Share

The following table sets forth the calculation of our book value per share as of December 31, 2021 and 2020:

December 31, 2021 December 31, 2020

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 each quarter-end date of 2022 and as of December 31, 2021:

December 31, 2022 September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

(in thousands except for share and per share data)

Total stockholder(s)’ equity $ 491,390 $ 248,309

Total stockholders’ equity $ 236,479 $ 264,957 $ 367,284 $ 421,436 $ 491,390

Preferred stock — (101) (101) (101) (101)

Stockholder(s)’ equity, net of preferred stock $ 491,289 $ 248,208

Number of shares outstanding at period end 25,227,328 15,724,050

Book value per share $ 19.47 $ 15.79

Common stockholders’ equity $ 236,479 $ 264,856 $ 367,183 $ 421,335 $ 491,289

Number of shares of common stock outstanding at period end 24,925,357 24,925,357 24,925,930 25,085,796 25,227,328

Book value per share of common stock $ 9.49 $ 10.63 $ 14.73 $ 16.80 $ 19.47

Economic Book Value per Share of Common Stock

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

To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to fair value.

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

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

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

The following table sets forth a reconciliation from GAAP total stockholders’ equity and book value per share of common stock to economic book value and economic book value per share of common stock as of each quarter-end date of 2022 and as of December 31, 2021:

December 31, 2022 September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

(in thousands except for share and per share data)

GAAP total stockholders’ equity $ 236,479 $ 264,957 $ 367,284 $ 421,436 $ 491,390

Preferred stock — (101) (101) (101) (101)

GAAP total common stockholders’ equity for book value per share of common stock $ 236,479 $ 264,856 $ 367,183 $ 421,335 $ 491,289

Fair value adjustment for securitized debt held at amortized cost 90,348 57,596 32,863 20,443 1,079

Stockholders’ equity including economic book value adjustments $ 326,827 $ 322,452 $ 400,046 $ 441,778 $ 492,368

Number of shares of common stock outstanding at period end 24,925,357 24,925,357 24,925,930 25,085,796 25,227,328

Book value per share of common stock $ 9.49 $ 10.63 $ 14.73 $ 16.80 $ 19.47

Economic book value per share of common stock $ 13.11 $ 12.94 $ 16.05 $ 17.61 $ 19.52

Results of Operations

Our results of operations presented herein for the year ended December 31, 2021 and the comparable year ended December 31, 2020 do not reflect the expenses typically associated with being a public company for full reporting periods, including increased insurance, legal, and accounting fees, full periods of equity compensation expense, expenses incurred in complying with the reporting and other requirements of the Securities Exchange Act of 1934, the payment of a base management fee to our Manager as a result of differences in the way fees and expense reimbursements are calculated under the Management Agreement compared to the pre-IPO management agreement as among us, our Manager and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), our sole common stockholder prior the IPO (the “pre-IPO management agreement”), and the payment of increased directors’ fees for our independent directors.

Our results of operations presented herein for the year ended December 31, 2021 do not reflect the expenses typically associated with being a public company for a full reporting period, including increased insurance, legal, and accounting fees, full periods of equity compensation expense, expenses incurred in complying with the reporting and other requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), the payment of a base management fee to our Manager as a result of differences in the way fees and expense reimbursements are calculated under the Management Agreement compared to the pre-IPO management agreement as among us, our Manager and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), our sole common stockholder prior the IPO (the “pre-IPO management agreement”), and the payment of increased directors’ fees for our independent directors.

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

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

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

Year Ended December 31, 2022, Compared to the Year Ended December 31, 2021

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Net realized loss on mortgage loans, derivative contracts, RMBS, and CMBS (8,717) (4,926)

Net unrealized loss on mortgage loans and derivative contracts (2,392) (2,144)

Net unrealized loss on mortgage loans, debt at fair value option, and derivative contracts (201,753) (2,392)

TOTAL REALIZED AND UNREALIZED LOSSES, NET (210,470) (7,318)

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Total operating expenses 33,340 19,048

INCOME BEFORE INCOME TAXES 22,713 736

Income tax expense 1,600 —

NET INCOME 21,113 736

INCOME (LOSS) BEFORE INCOME TAXES (191,290) 22,713

Income tax expense (benefit) (3,457) 1,600

NET INCOME (LOSS) (187,833) 21,113

Preferred dividends (14) (15)

NET INCOME ALLOCABLE TO COMMON STOCKHOLDER(S) $ 21,098 $ 721

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ (187,847) $ 21,098

Other comprehensive income (loss) (24,127) 4,039

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CMBS 778 8,886 2,266 11,142

Treasury Bills 7 58,076 110 118,069

Treasury Securities 8 46,153 7 58,076

Other interest income (1)

352 41,684 6 32,050

Total interest income 115,544 60,555

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Net interest income $ 52,520 $ 49,079

(1) Primarily comprised of interest received on cash deposits, including interest earned on margin cash collateral.

Net interest income for the years ended December 31, 2022 and 2021 was $52.5 million and $49.1 million, respectively.

Net interest income increased due to the increase in the average portfolio balance for the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to the composition of the portfolio during December 31, 2021 having a higher average balance of residential mortgage loans and residential mortgage loans held in securitization trusts, which increased the interest income in these portfolios.

Our RMBS portfolio’s average balance increased due to whole pool loan RMBS purchased at quarter-end dates which were sold in the months following the quarter end dates.

Accordingly, the increase in the average balance of our RMBS portfolio did not substantially affect the net interest income earned from RMBS.

Net interest income increased by approximately $3.4 million for the year ended December 31, 2022 as compared to 2021, primarily due to interest income generated from our target asset purchases, offset by increased borrowing rates on our warehouse loan facilities, which are based on a short-term SOFR plus a pricing spread, which borrowing rates increased during 2022.

Total Realized and Unrealized Gains (Losses)

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(in thousands)

Realized gain on securitization $ — $ 2,946

Unrealized loss on residential loans held in securitization trusts (3,427) —

Realized loss on RMBS, net (15,113) (9,629)

Realized loss on CMBS (971) —

Realized gain (loss) on interest rate futures 13,253 (14,076)

Realized and unrealized loss on TBAs (1,255) —

Realized and unrealized gain (loss) on residential mortgage loans $ (213,528) $ 378

Realized and unrealized loss on residential loans held in securitization trusts (71,526) $ (3,427)

Realized loss on RMBS (10,820) (15,113)

Realized loss on CMBS (1,520) (971)

Realized and unrealized gain (loss) on commercial mortgage loans (1,296) 355

Unrealized appreciation (depreciation) on interest rate futures 2,939 (530)

Realized and unrealized gain (loss) on TBAs 17,411 (1,255)

Realized gain on interest rate futures 67,870 13,253

Realized and unrealized loss on U.S.

Treasury Bills (8) (8)

Unrealized depreciation on interest rate futures (530) (257)

Treasury Securities — (8)

Total realized and unrealized gains (losses), net $ (210,470) $ (7,318)

For the years ended December 31, 2021 and 2020, total realized and unrealized gains (losses), net were $(7.3) million and $(22.9) million, respectively.

During the year ended December 31, 2020, we experienced market volatility in interest rate futures due to the COVID-19 pandemic.

The year ended December 31, 2021 presented a less volatile market environment as substantially all the credit and asset valuation issues related to the financial effects of the COVID-19 pandemic had lessened.

During the year ended December 31, 2021, we experienced increased realized losses on our RMBS portfolio due to prepayment speeds on IO bonds, which increased compared to 2020.

Our interest rate futures, as a partial economic hedge against residential loan valuations, performed as expected and more than offset the unrealized losses experienced in our portfolio of residential loans held in securitization trusts.

Also during the year ended December 31, 2021, our accounting treatment of securitization transactions changed as we became the primary beneficiary for the securitization transactions entered into during 2021 (AOMT 2021-4 and AOMT 2021-7), and thus, consolidated the VIEs of those securitization entities and recognized no realized gain or loss on those transactions.

We did recognize unrealized losses on these assets from mark-to-market activity, as the loans in these VIEs are still held on our balance sheet.

For comparative purposes, we were not considered the primary beneficiary of securitization transactions entered into in 2020 (AOMT 2020-3 and AOMT 2020-SBC1), and thus, recognized a gain in 2020 on those transactions as we did not consolidate those VIEs.

For the years ended December 31, 2022 and 2021, total realized and unrealized gains (losses), net, were losses of $210.5 million and $7.3 million, respectively.

For the year ended December 31, 2022, a decrease in mark-to-market valuations on our portfolios of residential mortgage loans and loans in securitization trust were the primary drivers of the total unrealized loss.

Additionally, the aforementioned sale of residential mortgage loans on November 18, 2022 contributed $63.5 million of realized losses to the total of realized losses, which were

partially offset by realized gains on interest rate hedging activity.

Comparatively, for the year ended December 31, 2021, residential mortgage loan valuations were generally stable or favorable, and realized gain (loss) activity on residential mortgage loans was generally immaterial, limited to losses on loan premiums on loans paid in full.

For the year ended December 31, 2021, the total realized and unrealized loss was primarily due to realized loss on RMBS due to increased prepayment speeds during 2021 on the IO and XS tranches that we typically hold from prior securitizations.

Our interest rate futures, as a partial economic hedge against residential loan valuations, performed as expected in 2021 and more than offset the unrealized losses experienced in our portfolio of residential loans held in securitization trusts.

Operating Expenses

For the years ended December 31, 2022 and 2021, our operating expenses were $12.2 million and $6.1 million, respectively.

The increase in operating expenses during the year ended December 31, 2021 was due to an increase in costs due to being a newly-public company, including increased insurance, audit, and legal fees.

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

The increase in operating expenses during the year ended December 31, 2022 was due to an increase in costs due to being a newly-public company for a full year, including increased insurance, audit, and legal fees.

We also experienced an increase in loan administration costs, commensurate with an increase in the number of loans in our overall portfolio during the comparative period, as our residential loans held in securitization trusts recorded on our balance sheets are administered by us.

Due Diligence and Transaction Costs

For the years ended December 31, 2022 and 2021, our due diligence and transaction costs were $1.4 million and $2.6 million, respectively.

The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased significantly more whole loans during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

We purchased both affiliate-originated and third party-originated whole loans during the year ended December 31, 2021, while during the year ended December 31, 2020, we purchased no third party-originated whole loans and our affiliated mortgage originators largely paused mortgage originations from mid-March 2020 to September 2020 as a result of uncertain economic conditions due to the economic effects of the COVID-19 pandemic.

The decrease in these costs was due to whole loan acquisition diligence costs, which decreased over the comparative period as we purchased fewer whole loans during the year ended December 31, 2022 as compared to the year ended December 31, 2021, as we paused loan purchases in the fourth quarter of 2022.

Stock Compensation

For the year ended December 31, 2021, our stock compensation expense was $1.7 million.

We did not have any stock compensation expense for the year ended December 31, 2020 as no grants were made in 2020.

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

All awards discussed further were issued with a grant date of June 21, 2021.

Restricted stock awards granted to our Board of Directors vest on the one year anniversary of the grant date, while restricted stock awards granted to key employees of Angel Oak, including our Manager, vest in three equal annual installments commencing on the one year anniversary of the grant date.

We believe our 2021 Equity Incentive Plan is designed to motivate and retain individuals who are responsible for the attainment of our core long-term performance goals.

We plan on issuing restricted stock or other similar awards, such as restricted stock units or performance shares, on an annual basis to continue to compensate these key individuals.

For the years ended December 31, 2022 and 2021, our stock compensation expense was $5.8 million and $1.7 million, respectively.

Our stock compensation expense for the year ended December 31, 2022 included a $2.6 million one-time expense resulting from the accelerated vesting of stock awards for our former Chief Executive Officer and President, due to his separation from the Company, in accordance with the Company’s Executive Severance and Change in Control Plan (the “Executive Severance Agreement”).

Our stock compensation expense for 2021 included approximately six months of expense, as the initial equity awards were granted on the IPO date of June 21, 2021.

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

Operating Expenses Incurred with Affiliate

For the years ended December 31, 2022 and 2021, our operating expenses incurred with affiliate were $3.1 million and $2.8 million, respectively.

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

These expenses increased due to both a severance accrual as further described below, and the allocated time of partially and fully dedicated employees’ compensation being reimbursed by us, which increased over the comparative period due to more partially and fully dedicated employees’ time being allocated to us.

On September 28, 2022, we recorded a $1.4 million severance accrual in accordance with the Executive Severance Agreement relating to the separation of our former Chief Executive Officer and President.

This accrued severance is expected to be paid in 2023.

Securitization expenses

During the year ended December 31, 2021, we did not incur any securitization expenses, as we were the sole participant in the securitizations of two consolidated VIEs (AOMT 2021-7 and AOMT 2021-4) which required capitalization of securitization costs, which are included as a contra-liability to the financing obligation recognized on our consolidated balance sheet as of December 31, 2021.

This contra-liability amortizes over a two-year period, and the amortization for the year ended December 31, 2021 was $0.3 million.

During the year ended December 31, 2020, we were not considered the primary beneficiary of securitization transactions entered into in 2020 (AOMT 2020-3 and AOMT 2020-SBC1), and thus, recognized securitization expenses of $2.5 million on those transactions as we did not consolidate those VIEs.

For the year ended December 31, 2022, our securitization expenses were $3.1 million.

There were no securitization expenses incurred during the year ended December 31, 2021 as the non-recourse securitization debt of the AOMT 2021-4 and AOMT 2021-7 securitizations is held at amortized cost, and thus, the debt issuance costs involved in those securitizations were capitalized against the securitization obligation and are amortized to interest expense over time.

Management Fee Incurred with Affiliate

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

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

Pursuant to the Management

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

For the years ended December 31, 2022 and 2021, our management fee incurred with affiliate was $7.8 million and $5.9 million, respectively.

The increase is due to the increase in our average equity for the year ended December 31, 2021 as compared to the same period in 2020.

Our income tax liability for the year ended December 31, 2021 reflects an income tax provision based on our expectation of current income taxes incurred on activities relating to income derived from our taxable REIT subsidiary (“TRS”).

We did not incur any tax liability for the year ended December 31, 2020.

The increase is due to the increase in our average Equity (as defined in the Management Agreement) for the year ended December 31, 2022 as compared to the same period in 2021.

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

During the year ended December 31, 2022, we recorded an income tax benefit of approximately $3.5 million based on our expectation of a recovery of income taxes arising from losses incurred relating to our taxable REIT subsidiary (“TRS”).

During the year ended December 31, 2021, we incurred an income tax expense of approximately $1.6 million based on an expectation of income taxes incurred on activities relating to income derived from our TRS.

Our Portfolio

As of December 31, 2022, our portfolio consisted of approximately $2.9 billion of residential mortgage loans, RMBS, and other target assets.

“Target assets” as presented below includes the total investment portfolio excluding U.S.

Treasury Bills.

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 December 31, 2022:

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CMBS 6,111 — 6,111 2.6 %

Treasury Bills 249,999 248,750 1,249 0.3 %

Total investment securities $ 1,061,449 $ 52,544 $ 1,008,905 426.7 %

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Target assets (1)

$ 2,869,331 $ 1,695,899 $ 1,173,432 496.2 %

Cash $ 29,272 $ — $ 29,272 12.4 %

Other assets and liabilities (2)

(966,225) — (966,225) (408.6) %

Total $ 1,932,378 $ 1,695,899 $ 236,479 100.0 %

As of December 31, 2020, our portfolio consisted of approximately $308.2 million of residential mortgage loans, RMBS, and other target assets.

“Target assets” as presented below includes the total investment portfolio excluding U.S.

Treasury Bills.

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

Treasury Securities held as of December 31, 2022.

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

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

The following table sets forth additional information regarding our portfolio including the manner in which our equity capital was allocated among investment types, as of December 31, 2021:

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Residential mortgage loans $ 1,061,912 $ 852,961 $ 208,951 42.5 %

Residential mortgage loans in securitization trust 667,365 616,557 50,808 10.3 %

Commercial mortgage loans 18,664 447 18,217 3.7 %

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CMBS 10,756 — 10,756 2.2 %

Treasury Bills 149,995 149,618 377 0.2 %

Treasury Securities 249,999 248,750 1,249 0.3 %

Total investment securities $ 746,389 $ 609,251 $ 137,138 28.0 %

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Target assets (1)

$ 2,244,331 $ 1,830,466 $ 413,865 84.2 %

Cash $ 40,801 $ — $ 40,801 8.3 %

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Total $ 2,570,606 $ 2,079,216 $ 491,390 100.0 %

(1) “Target assets” as presented above includes the total investment portfolio excluding U.S.

Treasury Securities.

Residential Mortgage Loans

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Interest rate 2.88% - 9.99% 4.80%

Maturity date 10/1/2036 - 12/1/2061 4/20/2053

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

FICO score at loan origination 575 - 823 737

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Interest rate 2.75% - 9.25% 4.49%

Maturity date 11/2048 - 1/2061 10/2050

Maturity date 10/1/2036 - 12/1/2061 April 2053

FICO score at loan origination 521 - 823 740

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($ in thousands)

UPB $1,151,332

Number of loans 2,664

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

(1) We did not have any residential loans held in securitization trusts as of December 31, 2020.

The following chart illustrates the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2022:

No state in “Other” represents more than a 3% concentration of the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2022.

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

($ in thousands)

Number of loans 1,494

Weighted average loan coupon 4.98%

Average loan amount 433

Weighted average LTV at loan origination and deal date 72%

Weighted average credit score at loan origination and deal date 741

Current 3-month CPR 35.1

Percentage of loans 90+ days delinquent (based on UPB) 0.13

The following chart illustrates the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2021:

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2022:

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No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2021.

Amounts in the charts above may not sum due to rounding.

Commercial Mortgage Loans

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

Amount in the charts above may not sum due to rounding.

In March 2019, we participated in our first securitization transaction pursuant to which we contributed to AOMT 2019‑2 non‑QM loans with a carrying value of approximately $255.7 million that we had accumulated and held on our balance sheet.

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The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of December 31, 2022:

RMBS Repurchase Debt Allocated Capital

RMBS Repurchase Debt (1)

Allocated Capital

AOMT Third Party RMBS Total AOMT Third Party RMBS Total AOMT Third Party RMBS Total

(in thousands)

Senior $ 3,076 $ — $ 3,076 $ 4,089 $ — $ 4,089 $ (1,013) $ — $ (1,013)

Mezzanine $ 1,958 $ — $ 1,958 $ 1,470 $ — $ 1,470 $ 488 $ — $ 488

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Whole pool (2)

— 993,378 993,378 — 0 24,586 — 968,792 $ 968,792

Retained RMBS in VIEs — — — — 24,586 — — — —

Total $ 61,960 $ 993,378 $ 1,055,338 $ 27,958 $ 24,586 $ 52,544 $ 34,002 $ 968,792 $ 1,002,794

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

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

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

(2) The whole pool RMBS presented as of December 31, 2022 were purchased from a broker to whom the Company owes approximately $1.01 billion, payable upon the settlement date of the trade.

See Item 8, Financial Statements and Supplementary Data , Note 8 - Due to Broker .

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of December 31, 2021:

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The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2021:

Senior Mezzanine Subordinate Interest Only Total

Senior Mezzanine Subordinate Interest Only Whole Pool Total

(in thousands)

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Acquisitions:

Retained from AOMT securitizations — — 40,380 26,140 66,520

Secondary market purchases of AOMT securities — — 2,209 — — 2,209

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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 December 31, 2021.

Amounts in the charts above may not sum due to rounding.

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.

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Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs.

Our financing sources currently include capital contributions from our investors prior to the IPO, the proceeds from the IPO and concurrent private placement, payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, and securitizations of our whole loans.

Our financing sources historically have included capital contributions from our investors prior to the IPO, the proceeds from the IPO and concurrent private placement (which aforementioned capital sources have all been deployed), payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, and securitizations of our whole loans.

Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others.

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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.

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

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.

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Description of Existing Financing Arrangements

As of December 31, 2021, we were a party to six loan financing lines, which permitted borrowings in an aggregate amount of up to $1.3 billion.

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

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

Nomura Loan Financing Line.

On December 6, 2018, we and one of our subsidiaries entered into a master repurchase agreement with Nomura Corporate Funding Americas, LLC (“Nomura”).

We are considered the “Seller” under this agreement.

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

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

The agreement expires on August 5, 2022, unless terminated earlier pursuant to the terms of the agreement.

However, we are permitted to extend the expiration date by up to 364 additional days, subject to certain conditions being satisfied.

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

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

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

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

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

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

(2) adjusted tangible net worth must not decline more than 25% in any rolling three month period or 35% in any rolling twelve month period;

(3) the ratio of indebtedness to adjusted tangible net worth must not exceed 7:1;

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

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

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

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

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

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

Banc of California Loan Financing Line.

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

We are considered a “Seller” under this agreement.

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

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

The agreement was set to expire on March 16, 2022, unless terminated earlier pursuant to the terms of the agreement;

however, the agreement was amended on March 7, 2022 to expire on March 16, 2023, unless terminated earlier pursuant to the terms of the agreement.

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

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

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

During the year ended December 31, 2021, upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Banc of California the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) a specified minimum rate (ranging from 3.50% to 4.13%) and (B) one‑month LIBOR plus a spread ranging from 2.50% to 3.13%, and (2) in the case of loans with maturities over 364 days, the seasoned spread of 1.0%.

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

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

(1) a minimum tangible net worth of $40.0 million consolidated;

(2) minimum liquidity of $5.0 million;

(3) a maximum ratio of total liabilities to tangible net worth of 10:1;

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

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

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

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

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

Deutsche Bank Loan Financing Line.

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

We are considered a “Seller” under this agreement.

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

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

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

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

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

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

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

Prior to the February 2, 2024 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we or our subsidiary were required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) 0.00% and (B) one‑month LIBOR and (2) a spread generally ranging from 2.00% to 3.25%.

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

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

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

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

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

(1) our adjusted tangible net worth must be an amount at least equal to the greater of (A) $100.0 million and (B) 20% of the maximum aggregate purchase price limit;

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

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

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

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

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

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 Deutsche Bank’s right to liquidate the mortgage loans then subject to the agreement.

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

Goldman Loan Financing Line.

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

We are considered a “Seller” under this agreement.

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

The agreement was set to expire on March 5, 2022, unless terminated earlier pursuant to the terms of the agreement;

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

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

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

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

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

During the years ended December 31, 2021 and 2020, upon our or our subsidiary’s repurchase of the mortgage loan, we were, or our subsidiary was, required to repay Goldman the principal amount related to such mortgage loan plus accrued interest generally at a rate based on three‑month LIBOR plus 2.25%.

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

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

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

(1) our minimum tangible net worth of must not 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 fall below 50% of our tangible net worth as of September 30, 2018 plus 50% of any capital contributions made after that date;

As of December 31, 2022, we were a party to five loan financing lines, consisting of three uncommitted loan financing lines and two static pool borrowings, for a total borrowing capacity in an aggregate amount of up to $1.21 billion.

Borrowings under uncommitted loan financing lines may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes, while borrowings under static pool arrangements are used to hold loans for the short term, awaiting imminent securitization or other advantageous disposition.

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

As of December 31, 2022, the advance rates (when required) of our five 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 five active lenders) included (1) (i) our minimum tangible net worth of must not decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or, if shorter, in the period from September 30, 2022 to the applicable date of determination or;

(ii) fall below $200.0 million of tangible net worth as of September 30, 2022 plus 50% of any capital contribution made or raised after September 30, 2022.

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

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

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

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

Our minimum liquidity requirement as of December 31, 2022 was $10.0 million.

Other restrictive covenants with which we were bound to comply during 2022 related to financing facilities which are were terminated by us, and included additional requirements around GAAP net income and EBITDA.

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

Multinational Bank 1 Loan Financing Facility.

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

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

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

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

The master repurchase agreement was initially set to terminate on October 13, 2022, which was extended on July 21, 2022 as per the terms of the original agreement through January 20, 2023, and was further extended on January 25, 2023 through July 25, 2023, 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.

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

The loan financing line is marked‑to‑market.

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

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

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

Government Securities Business Days prior to the date the applicable loan is repurchased by the applicable subsidiary.

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

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

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

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

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

Veritex Financing Line.

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

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

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

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

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

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

After the February 11, 2022 amendment, interest will accrue on any outstanding balance at a rate based on Term SOFR plus a margin equal to 2.41% per annum;

provided that the interest rate may not be less than 3.125% per annum.

The obligations of the Borrowers under the Facility Documents are guaranteed by the Company pursuant to a Guaranty Agreement (the “Guaranty”) executed contemporaneously with the Facility Documents.

In addition, the Company is subject to various financial and other covenants, including, as of the last day of any fiscal quarter:

(1) the Company’s tangible net worth must be at least equal to $150.0 million;

(2) the Company’s ratio of (A) EBITDA to (B) debt service shall be at least equal to 1.25 to 1.0 for such quarter;

(3) the Company’s ratio of total liabilities to total tangible net worth must not exceed 5.5 to 1.0;

and (4) the Company’s liquidity must at least equal $5.0 million.

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

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

transaction and include acceleration of the principal amount outstanding under the Facility Documents and Veritex’s right to liquidate the collateral then subject to the Facility Documents.

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

Barclays Financing Line.

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

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

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

On January 27, 2022, this repurchase facility was amended to to state that interest will accrue on any outstanding balance at a rate based on Term SOFR and increase the maximum purchase price permitted under the Master Repurchase Agreement to $550.0 million from $400.0 million, which is subject to reduction to $400.0 million upon the earlier to occur of (1) the issuance of securities pursuant to a securitization of the assets underlying the Master Repurchase Agreement and (2) March 30, 2022.

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

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

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

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

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.

Multinational Bank 2 Loan Financing Facility.

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

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

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

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

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

The interest rate on any outstanding balance under the Master Repurchase Agreement that the Subsidiary was required to pay Multinational Bank 2 was generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, where the interest rate was equal to the sum of (1) a pricing spread ranging from 1.70% to 3.50%, determined based on the type of underlying asset and similar to those of other repurchase agreements we have entered into, and (2) 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 (which was changed from one-month LIBOR on January 7, 2022).

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

On January 27, 2022, this repurchase facility was amended increase the maximum purchase price permitted under the Master Repurchase Agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the Master Repurchase Agreement which occurred on February 7, 2022.

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

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

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

and (3) minimum liquidity.

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

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

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

The Guaranty expired by its terms in conjunction with the expiration of the Master Repurchase Agreement.

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

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

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

Global Investment Bank 1 Loan Financing Facility.

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

We were considered the “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

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

The agreement, similar to other repurchase agreements that the Company has entered into, required us to maintain various financial and other covenants, relating to:

(1) adjusted tangible net worth;

(2) the ratio of indebtedness to adjusted tangible net worth, and (4) liquidity, on an aggregate basis.

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

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

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

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

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

Global Investment Bank 2 Loan Financing Facility.

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

We are considered a “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

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

Additionally, the agreement was also amended to remove any draw fees and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i)

0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a pricing spread generally ranging from 2.20% to 3.45%.

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

(1) adjusted tangible net worth;

(2) liquidity;

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

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

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

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 Global Investment Bank 2’s right to liquidate the mortgage loans then subject to the agreement.

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

Global Investment Bank 3 Static Loan Pool Financing.

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

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

Pursuant to the initial agreement (prior to December 19, 2022, as further described below), we or our subsidiary could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans.

The initial agreement was extended on March 2, 2022 to terminate on March 5, 2023, which date was also modified on December 19, 2022 to December 19, 2023, as further described below.

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

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

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

The Company held restricted cash pertaining to this Global Investment Bank 3’s interest rate futures account included in “restricted cash” of approximately $1.7 million on the Company’s consolidated balance sheet as of December 31, 2022.

Prior to December 19, 2022, the loan financing line was marked‑to‑market at fair value, where Global Investment Bank 3 retained 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 was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan prior to the December 19, 2022 amendment was based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever was less.

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

On January 1, 2022, the LIBOR-based index was replaced by reference to the sum of Compounded SOFR and a SOFR adjustment of 20 basis points (though the SOFR adjustment was later amended by the December 19, 2022 amendment, as further described below).

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

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

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

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

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

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

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

The agreement also sets forth 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 Global Investment Bank 3’s right to liquidate the mortgage loans then subject to the agreement.

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

Institutional Investors A and B Static Loan Pool Financing.

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

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

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

Pursuant to the agreement, interest accrued under the master repurchase agreement at a rate based on 1-month 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 a spread of 3.5%, with 1-month Term SOFR subject to a floor of 2.0%.

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

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

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

Regional Bank 1 Loan Financing Facility.

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

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

We were considered a “Seller” under this agreement.

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

The agreement was amended on March 7, 2022 to extend the term to March 16, 2023.

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

We have not utilized this financing facility in some time, and intend to allow it to expire by its terms on March 16, 2023.

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

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

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

On March 8, 2022, the LIBOR reference rate was changed to SOFR.

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

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

The agreement required us to maintain various financial and other covenants, which included:

(1) a minimum tangible net worth requirement;

(2) minimum liquidity;

(3) a maximum ratio of total liabilities to tangible net worth;

and (4) a net income-based covenant.

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

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

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

Regional Bank 2 Loan Financing Facility.

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

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

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

The Regional Bank 2 Financing Line was set to terminate, with amounts outstanding

under the Regional Bank 2 Financing Line due to mature, on August 16, 2023, subject to certain exceptions.

This agreement was paid in full on December 15, 2022 and voluntarily terminated by the Company on that date.

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

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

After the February 11, 2022 amendment, interest accrued on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus a pricing margin equal to 2.41% per annum;

provided that the interest rate may not be less than 3.125% per annum.

The obligations of the Borrowers under the Facility Documents were guaranteed by the Company pursuant to a Guaranty Agreement (the “Guaranty”) executed contemporaneously with the Facility Documents.

In addition, the Company was subject to various financial and other covenants, including, as of the last day of any fiscal quarter, requirements surrounding the Company’s:

(1) tangible net worth;

(2) ratio of (A) EBITDA to (B) debt service;

(3) ratio of total liabilities to total tangible net worth;

and (4) liquidity.

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

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

The Borrowers were also required to pay certain customary fees to Regional Bank 2 and to reimburse Regional Bank 2 for certain costs and expenses incurred in connection with its management and administration of this financing line.

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

Line of Credit Facility Limit Base Interest Rate Interest Rate Spread December 31, 2021 December 31, 2020

Line of Credit (Note Payable) Base Interest Rate December 31, 2022 December 31, 2021

($ in thousands)

Barclays Bank PLC (1)

$ 400,000 1 month LIBOR 1.70% - 3.50% $ 362,899 N/A

Nomura Corporate Funding Americas, LLC (2)

300,000 1 month or 3 month LIBOR 1.70% - 3.50% 103,149 $ 8,011

Deutsche Bank, AG (3)

250,000 1 month LIBOR 2.00% - 3.25% 231,981 34,905

Goldman Sachs Bank USA (4)

200,000 3 month LIBOR 2.25% 109,283 N/A

Banc of California, National Association (5)

50,000 1 month LIBOR 2.50% - 3.13% 34,838 38,989

Veritex Community Bank (6)

50,000 1 month LIBOR 2.30% 11,258 N/A

Multinational Bank 1 (1)

Average Daily SOFR 1.95% $ 352,038 N/A

Multinational Bank 2 (2)

1 month SOFR 1.95% - 2.00% N/A $ 362,899

Global Investment Bank 1 (3)

1 month or 3 month SOFR 1.70% - 3.50% N/A 103,149

Global Investment Bank 2 (4)

1 month SOFR 2.20% - 3.45% — 231,981

Global Investment Bank 3 (5)

Compound SOFR 2.80% (5)

119,137 109,283

Institutional Investors A and B (6)

1 month Term SOFR 3.50% 168,695 N/A

Regional Bank 1 (7)

1 month SOFR 2.50% - 3.50% — 34,838

Regional Bank 2 (8)

1 month SOFR 2.41% N/A 11,258

Total $ 639,870 $ 853,408

(1) On September 20, 2021, the Company entered into a $400.0 million repurchase facility with Barclays Bank PLC which expires on September 20, 2022.

(2) On August 6, 2021, this facility was amended to extend the expiration date from December 3, 2021 to August 5, 2022, add the one-month LIBOR as a base interest rate for certain loans, and change the interest rate spread to 1.70% (from 1.75%) to 3.50%.

(3) On June 21, 2021, this facility was amended to increase the facility limit from $150.0 million to $250.0 million.

This facility expires on February 11, 2022.

On February 4, 2022, this facility was amended to state that interest will accrue on any outstanding balance at a rate based on Term SOFR.

Additionally, the agreement was amended to (1) adjust the initial termination date of the Master Repurchase Agreement from February 11, 2022 to February 2, 2024;

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

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

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

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

As of December 31, 2022, the loan financing facility had been set to expire on January 26, 2023;

however, on January 25, 2023, it was extended through July 25, 2023 in accordance with the original terms of the agreement (see Note 17 - Subsequent Events ).

(2) This agreement expired by its terms on October 14, 2022, after being paid in full.

(3) This agreement expired by its terms on October 5, 2022, after being paid in full.

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

remove any draw fees;

and (3) adjust the pricing rate whereby upon the Company’s or the Subsidiary’s repurchase of a mortgage loan, the Company or the Subsidiary is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR and (B) a spread generally ranging from 2.20% to 3.45%.

(4) This agreement was entered into on March 5, 2021, and was set to expire on March 5, 2022.

On January 1, 2022, the agreement was amended to replace a LIBOR-based index rate with a SOFR-based index rate.

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

(5) This agreement was set to expire on March 16, 2022.

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

(6) On August 16, 2021, the Company entered into a financing facility with Veritex Community Bank, which expires on August 16, 2023.

On February 11, 2022, the Company amended the financing facility to (1) increase the size of the financing facility to $75.0 million from $50.0 million, and (2) interest will accrue on any outstanding balance at a rate based on Term SOFR plus a margin equal to 2.41% per annum;

provided that the interest rate may not be less than 3.125% per annum.

and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or such subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i)

0.00% and (ii) Term SOFR and (B) a pricing spread generally ranging from 2.20% to 3.45%.

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

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

On January 1, 2022, the agreement was amended to replace a LIBOR-based index rate with a SOFR-based index rate plus a pricing spread equal to 20 basis points, plus the prior pricing spread.

Prior to January 1, 2022, interest was based on 3-month LIBOR plus a pricing spread of 2.25%.

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

The interest rate pricing spread was also amended to 2.80% for the first three months following the amendment date, which will increase by an additional 50 basis points every three months thereafter.

Additionally, the amendment generally removed “mark to market” provisions from the previous agreement, and requires an economic interest rate hedging account (“interest rate futures account”) to be maintained to the reasonable satisfaction of the Global Investment Bank 3, which account is for its benefit and under its sole control.

The Company held restricted cash pertaining to Global Investment Bank 3’s interest rate futures account included in “restricted cash” of approximately $1.7 million on the Company’s consolidated balance sheet as of December 31, 2022.

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

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

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

The Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” of approximately $3.8 million on the Company’s consolidated balance sheet as of December 31, 2022, which was released on January 4, 2023.

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

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

We intend to allow this financing facility to expire in accordance with the terms of the agreement.

(8) This agreement was paid in full on December 15, 2022 and voluntarily terminated by the Company.

The following table sets forth the total unused borrowing capacity of each financing line as of December 31, 2022:

Line of Credit (Note Payable) Borrowing Capacity Balance Outstanding Available Financing

(in thousands)

Multinational Bank 1 (1)

$ 600,000 $ 352,038 $ 247,962

Global Investment Bank 2 (1)

250,000 — 250,000

Global Investment Bank 3 (2)

119,137 119,137 —

Institutional Investors A and B (2)

168,695 168,695 —

Regional Bank 1 (1)

75,000 — 75,000

Total $ 1,212,832 $ 639,870 $ 572,962

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

(2) As of December 31, 2022, these financing facilities had no unused borrowing capacity as the outstanding borrowings were based on static pools of mortgage loans.

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.

As of December 31, 2021, there was approximately $609.3 million outstanding under these repurchase facilities, with a weighted average interest rate of 0.15%.

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

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($ in thousands)

U.S Treasury Bills $ 248,750 0.12 % 6

RMBS 360,501 0.16 % 18

$ 52,544 6.07 % 13

Total $ 52,544 6.07 % 13

2 unchanged sentences

($ in thousands)

U.S Treasury Bills $ 149,618 0.25 % 19

U.S Treasury Securities $ 248,750 0.12 % 6

RMBS 360,501 0.16 % 18

Total $ 609,251 0.15 % 13

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

See Item 8, Note 6 - Investment Securities .

The following table presents the amounts of collateralized borrowings outstanding under repurchase facilities as of the end of each quarter, the average amount of collateralized borrowings outstanding under repurchase facilities during the quarter and the highest balance of any month end during the quarter:

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We will continue to use repurchase facilities on our RMBS portfolio to add additional leverage which increases the yield on those assets.

Our use of repurchase facilities is generally highest at the end of any particular quarter, as shown in the table above, where the quarter-end balance and the highest month-end balance in each quarter are equivalent.

We may continue to purchase securities for REIT asset test purposes, although it is expected that, in the future, we may need to purchase fewer (or no) securities as we participate in additional securitizations and retain our pro rata share of securities issued in securitization transactions or acquire assets directly into the Operating Partnership.

Securitization Transactions

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

Subsequent to December 31, 2022, on January 31, 2023, we and other Angel Oak Capital-managed entities contributed loans into an approximately $580.5 million scheduled principal balance securitization transaction (AOMT 2023-1) backed by a pool of residential mortgage loans.

Our contributed mortgage loans had a scheduled principal balance of approximately $241.3 million.

We may strategically enter into similar securitizations with other Angel Oak Capital-managed entities in the future, and / or issue securitizations where we are the sole participant, as we did in 2022 and 2021, as further described below.

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

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

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

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

accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-4 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 sheet as of December 31, 2022.

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

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

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

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

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

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

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

In the transaction, AOMT 2021-7 issued approximately $386.9 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $331.8 million and retained cash of $39.8 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

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

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2021-4 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 sheet as of December 31, 2021.

In June 2020, we participated in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans, secured primarily by first or second liens on one‑to‑four family residential properties.

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

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

In the transaction, AOMT 2021-4 issued approximately $316.6 million in face value of bonds.

We served as the “sponsor” (as defined in the U.S.

Risk Retention Rules) of the transaction, contributing non‑QM loans with a carrying value of approximately $482.9 million that we had accumulated and held on our balance sheet to AOMT 2020‑3.

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

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $249.0 million and retained cash of $55.8 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We, along with other Angel Oak managed entities, have also participated together in a commercial mortgage loan securitization.

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.

In the transaction, AOMT 2020-SBC1 issued approximately $164.3 million in face value of bonds.

We contributed commercial mortgage loans with a carrying value of approximately $31.2 million that we had accumulated and held on our balance sheet to AOMT 2020-SBC1, and we received bonds from AOMT 2020-SBC1 with a fair value of approximately $8.9 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $16.6 million and retained cash of $8.2 million, which was used to acquire additional non-QM loans and other target assets.

An affiliate of Wells Fargo Securities, LLC, one of the underwriters in this offering, serves as the securities administrator for AOMT 2020-SBC1 and is responsible for, among other things, calculating and making distributions to the securitization’s certificate holders.

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

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

Leverage and Hedging Strategies

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.

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 continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks.

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

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.

Cash Availability

Cash and cash equivalents

Our cash balance as of December 31, 2022 was sufficient to meet our liquidity covenants under our financing facilities.

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

Due to market volatility, some of our cash was restricted, as further described below, by margin maintenance requirements by certain whole loan financing facility counterparties, along with cash collateral held by counterparties for interest rate futures and repurchase obligations.

We sold certain residential mortgage loans in a bulk sale in the fourth quarter of 2022, as part of our strategic initiative to reduce the more seasoned loans in our portfolio, reduce debt, and generate liquidity to protect our capital structure.

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

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

Restricted Cash

Restricted cash of approximately $10.6 million as of December 31, 2022 was comprised of:

$5.6 million in margin collateral required by certain whole loan financing facility counterparties (as referred to above), the majority of which cash margin required was fully

released subsequent to December 31, 2022;

$1.1 million in interest rate futures margin collateral;

and margin collateral for securities sold under agreements to repurchase of $3.9 million.

Our counterparties did not require any margin collateral for TBAs as of December 31, 2022.

Restricted cash of approximately $11.5 million as of December 31, 2021 was comprised of:

$4.3 million in interest rate futures margin collateral, $2.3 million in TBA margin collateral, and $4.9 million in margin collateral for securities sold under agreements to repurchase.

Our whole loan financing facility counterparties did not require any margin collateral as of December 31, 2021.

For the Years Ended

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(in thousands)

Cash flows provided by (used in) operating activities $ (1,567,946) $ 34,409

Cash flow used in investing activities $ (460,484) $ (52,436)

Cash flows provided by financing activities $ 2,034,766 $ 54,798

Cash flows used in operating activities $ (331,127) $ (1,567,946)

Cash flow provided by (used in) investing activities $ 664,333 $ (460,484)

Cash flows provided by (used in) financing activities $ (345,654) $ 2,034,766

Net increase (decrease) in cash and restricted cash $ (12,448) $ 6,336

Operating cash flows of $(1.6) billion for the year ended December 31, 2021 as compared to $34.4 million for the year ended December 31, 2020 were primarily due to the purchase of additional residential mortgage loans during the year ended December 31, 2021.

Investing cash flows of $(460.5) million for the year ended December 31, 2021 as compared to $(52.4) million for the year ended December 31, 2020 were primarily due to the purchase of AOMT and other non-Agency RMBS during the year ended December 31, 2021, along with certain quarter-end purchases of whole pool Agency RMBS and U.S.

Treasury securities, which was partially offset by sales of the whole pool Agency RMBS and U.S.

Treasury securities subsequent to quarter-end.

Financing cash flows of $2.0 billion for the year ended December 31, 2021 as compared to $54.8 million for the year ended December 31, 2020.

This increase was due to proceeds from securitization activities (AOMT 2021-4 and AOMT 2021-7), and borrowings on notes payable and repurchase facilities, as well as proceeds received from the IPO, contributions received from our former sole stockholder, and proceeds received from our private placement concurrent with the IPO.

Cash flows used in operating activities of $331.1 million for the year ended December 31, 2022 as compared to $1.6 billion in outflows for the year ended December 31, 2021 were primarily due to a net loss for the year ended December 31, 2022, compared to net income for 2021, along with the purchase of residential mortgage loans during the year ended December 31, 2022 (though fewer than in 2021), partially offset by the sale of residential mortgage loans in 2022.

Investing cash net inflows of $664.3 million for the year ended December 31, 2022 as compared to net outflows of $460.5 million for the year ended December 31, 2021 were primarily due to fewer purchases of RMBS during the year ended December 31, 2022 as compared to 2021.

Financing cash outflows of $345.7 million for the year ended December 31, 2022 as compared to inflows of $2.0 billion for the year ended December 31, 2021 was primarily due to the net payments nature of financing activities during 2022 including net repayment activities on both securities sold under agreements to repurchase and net payments on notes payable, while the net inflows of 2021 were primarily due to proceeds received from the IPO, contributions received from our former sole stockholder, and proceeds received from our private placement concurrent with the IPO.

Cash Flows - Residential and Commercial Loan Classification

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Actual results could differ from those estimates.

We expect quarter-to-quarter GAAP earnings volatility

from our business activities.

We expect quarter-to-quarter GAAP earnings volatility from our business activities.

This volatility can occur for a variety of reasons, particularly changes in the fair values of consolidated assets and liabilities.

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This definition of fair value focuses on exit price and prioritizes the use of market-based inputs over entity-specific inputs when determining fair value.

Inputs may be observable or unobservable.

• Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity.

• Unobservable inputs are inputs that reflect the reporting entity’s own assumptions.

Inputs may be observable (reflecting assumptions that market participants would use in

pricing the asset or liability based on market data obtained from sources independent of the reporting entity) or unobservable (the entity’s own assumptions).

A fair value hierarchy for inputs is implemented in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are used when available.

The availability of valuation techniques and the ability to attain observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is newly issued and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.

The fair value hierarchy is categorized into three broad levels based on the inputs as follows:

Level 1 — Valuations based on unadjusted, quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations based on quoted prices in an inactive market, or whose values are based on models — but the inputs to those models are observable either directly or indirectly for substantially the full term of the assets and liabilities.

Level 2 inputs include the following:

a) Quoted prices for similar assets and liabilities in active markets (e.g., restricted stock);

b) Quoted prices for identical or similar assets and liabilities in non-active markets (e.g., corporate and municipal bonds);

c) Pricing models whose inputs are observable for substantially the full term of the assets and liabilities (e.g., OTC derivatives);

d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (e.g., residential and commercial mortgage-related assets, including whole loans, securities, and derivatives).

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Valuation of these assets is typically based on our Manager's own assumptions or expectations based on the best information available.

The degree of judgment exercised in determining fair value is greatest for investments categorized in Level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the actual level is determined based on the level of inputs that is most significant to the fair value measurement in its entirety.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

The fair value hierarchy is categorized into three broad levels (Levels 1, 2, and 3) based on the inputs as described in Part II, Item 8, Note 11 – Fair Value Measurements .

The degree of judgment exercised in determining fair value is significant for investments categorized in Level 2, and greatest for investments categorized in Level 3, as the inputs to these levels are less observable or unobservable in the market, and therefore the determination of fair value requires more judgment.

Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed.

Accordingly, the degree of judgment exercised in determining fair value is greatest for investments categorized in Level 3.

Transfers, if any, between levels are determined by us on the first day of the reporting period.

Valuation estimates are subject to uncertainty due to inherently subjective valuation inputs.

The most significant valuation estimates to us are those for residential mortgage loans and Non-Agency RMBS, as those two categories of assets are the largest assets on our balance sheet subject to Level 2 or Level 3 valuation estimates.

The assumptions regarding valuations for the asset categories are described as follows:

• Residential Mortgage Loans - The Company recognizes residential mortgage loans at fair value.

The most significant valuation estimates to us regarding assets are those for residential mortgage loans (including residential mortgage loans in securitization trusts) and Non-Agency RMBS, as those two categories of assets are the largest asset classes on our balance sheet subject to Level 2 or Level 3 valuation estimates.

The most significant valuation estimates to us regarding liabilities relates to the portion of the non-recourse securitization obligations, collateralized by residential mortgage loans, for which the fair value option was elected, which is subject to Level 2 valuation estimates.

The assumptions regarding valuations for these asset and liability categories are described as follows:

• Residential Mortgage Loans (including Residential Mortgage Loans in Securitization Trusts) - Our company recognizes residential mortgage loans at fair value.

The fair value of the residential mortgage loans is predominantly based on trading activity observed in the marketplace, provided by a third‑party pricing service.

The third‑party pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own

brokerage business.

The third‑party pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own brokerage business.

The third‑party pricing service also maintains a spread matrix created from trading levels observed in the secondary market and from indications of holding values in client investments.

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• Non‑Agency RMBS (“Non‑Agency”) - Non‑Agencies consist of investments in collateralized mortgage obligations.

The Company utilizes Price Serve , Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments.

Price Serve obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline DM/Yield, recovery assumptions, tranche type, collateral coupon, age and loan size and other inputs specific to each security.

Our company utilizes Price Serve , Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments.

Price Serve obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline Discount Margin/Yield, recovery assumptions, tranche type, collateral coupon, age and loan size and other inputs specific to each security.

These quotes are most reflective of the price that would be achieved if the security was sold to an independent third party on the date of the consolidated financial statements.

Non‑Agencies are categorized in Level 2 of the fair value hierarchy.

• Non-recourse securitization obligations, collateralized by residential mortgage loans - The portion of this obligation for which we have elected the fair value option uses the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts.

Our company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for these bonds.

PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline discount margin/yield, recovery assumptions, tranche type, collateral coupon, age and loan size, and other inputs specific to each security.

We believe that these quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the date of the consolidated financial statements.

The portion of this liability for which we have elected the fair value option is categorized as Level 2 in the fair value hierarchy.

Variable Interest Entities

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The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity.

Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when the we act as either the sponsor and/or depositor of and the seller, directly or indirectly to, the securitization entities.

Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller, directly or indirectly to, the securitization entities.

Our interest in the assets held by consolidated securitization vehicles, which are consolidated on our consolidated balance sheets, is restricted by the structural provisions of these trusts, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions.

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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-K

Item 7. Management’s Discussion and Analysis