What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-20 compared with 2022-03-28 · 446 added, 271 removed, 707 unchanged (50% of the section changed)

6 unchanged sentences

Notes to the Consolidated Financial Statements

Summary of Significant Accounting Policies

Variable Interest Entities

Residential Mortgage Loans

Commercial Mortgage Loans

Investment Securities

Notes Payable

Due to Broker

Securities Sold Under Agreements to Repurchase

Derivative Financial Instruments

Fair Value Measurements

Related Party Transactions

Commitments and Contingencies

Equity and Earnings per Share

Equity Compensation Plans

Subsequent Events

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Angel Oak Mortgage, Inc.:

Angel Oak Mortgage REIT, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Angel Oak Mortgage, Inc.

We have audited the accompanying consolidated balance sheets of Angel Oak Mortgage REIT, Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income (loss), changes in stockholder(s)’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements).

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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March 20, 2023

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Consolidated Balance Sheets

10 unchanged sentences

Principal and interest receivable 17,497 25,984

Receivable from affiliate — 14

Deferred tax asset 3,457 —

Unrealized appreciation on TBAs and interest rate futures contracts - at fair value 14,756 2,428

Other assets 1,310 2,878

Total assets $ 2,946,212 $ 2,577,929

LIABILITIES AND STOCKHOLDER(S)’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Notes payable $ 639,870 $ 853,408

Non-recourse securitization obligations, collateralized by residential mortgage loans, net 616,557 —

Non-recourse securitization obligations, collateralized by residential mortgage loans in securitization trusts (see Note 3) 1,003,485 616,557

Securities sold under agreements to repurchase 52,544 609,251

Unrealized depreciation on futures contracts - at fair value 728 198

Unrealized depreciation on TBAs and interest rate futures contracts - at fair value — 728

Due to broker 1,006,022 —

Accrued expenses 1,288 442

5 unchanged sentences

Commitments and contingencies

STOCKHOLDER(S)’ EQUITY

Series A preferred stock, $ 0.01 par value, 12 % cumulative, non-voting, 125 shares issued and outstanding as of December 31, 2021 and 2020

STOCKHOLDERS’ EQUITY

Series A preferred stock, $ 0.01 par value.

As of December 31, 2022:

no shares issued and outstanding.

As of December 31, 2021:

12 % cumulative, non-voting, 125 shares issued and outstanding.

Common stock, $ 0.01 par value.

5 unchanged sentences

Accumulated other comprehensive income (loss) ( 21,127 ) 3,000

Retained earnings 11,527 2,601

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

Total liabilities and stockholder(s)’ equity $ 2,577,929 $ 509,656

Retained earnings (deficit) ( 218,022 ) 11,527

Total stockholders’ equity $ 236,479 $ 491,390

Total liabilities and stockholders’ equity $ 2,946,212 $ 2,577,929

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

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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 (see Note 3), and derivative contracts ( 201,753 ) ( 2,392 )

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

6 unchanged sentences

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

TOTAL COMPREHENSIVE INCOME (LOSS) $ ( 211,974 ) $ 25,137

Basic earnings per common share $ 1.02 $ 0.05

Diluted earnings per common share $ 1.01 $ 0.05

Basic earnings (loss) per common share $ ( 7.65 ) $ 1.02

Diluted earnings (loss) per common share $ ( 7.65 ) $ 1.01

Weighted average number of common shares outstanding:

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The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Consolidated Statements of Changes in Stockholder(s)’ Equity

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Stockholder’s equity as of December 31, 2020 $ 101 $ 157 $ 246,489 $ ( 1,039 ) $ 2,601 $ 248,309

Distributions to common stockholder — — ( 75,000 ) — ( 1,700 ) ( 76,700 )

Contributions from common stockholder — — 234,018 — — 234,018

Dividends declared - preferred — — — — ( 15 ) ( 15 )

Unrealized loss on RMBS and CMBS — — — ( 4,593 ) — ( 4,593 )

Net income — — — — 736 736

Stockholder’s equity as of December 31, 2020 $ 101 $ 157 $ 246,489 $ ( 1,039 ) $ 2,601 $ 248,309

Contributions from common stockholder prior to IPO — — 56,261 — — 56,261

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Dividends paid on common stock (1)

— — — — ( 12,172 ) ( 12,172 )

Net income — — — — 21,113 21,113

Stockholders’ equity as of December 31, 2021 $ 101 $ 252 $ 476,510 $ 3,000 $ 11,527 $ 491,390

Redemption of preferred stock ( 101 ) — ( 24 ) — — ( 125 )

Dividends declared - preferred — — — — ( 14 ) ( 14 )

Repurchase of common stock — ( 3 ) ( 6,860 ) — — ( 6,863 )

Non-cash equity compensation — — 5,753 — — 5,753

Unrealized loss on RMBS and CMBS — — — ( 24,127 ) — ( 24,127 )

Dividends paid on common stock (2)

— — — — ( 41,702 ) ( 41,702 )

Net loss — — — — ( 187,833 ) ( 187,833 )

Stockholders’ equity as of December 31, 2022 $ — $ 249 $ 475,379 $ ( 21,127 ) $ ( 218,022 ) $ 236,479

(1) Dividends paid on common stock for the year ended December 31, 2021 at $ 0.12 per share of common stock on August 31, 2021, and $ 0.36 per share of common stock on November 30, 2021.

(2) Dividends paid on common stock for the year ended December 31, 2022 at $ 0.45 per share of common stock on March 31, 2022, May 31, 2022, August 31, 2022, and $ 0.32 per share of common stock on November 30, 2022.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Consolidated Statements of Cash Flows

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CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 21,113 $ 736

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Net income (loss) $ ( 187,833 ) $ 21,113

Adjustments to reconcile net income to net cash used in operating activities:

Net realized losses 8,717 4,926

Net unrealized loss on mortgage loans and derivative contracts 201,753 2,392

Accretion of securities — ( 110 )

Amortization of debt issuance costs 1,053 458

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Purchases of residential mortgage loans from non-affiliates ( 427,940 ) ( 820,141 )

Sales of residential mortgage loans into affiliate’s securitization trust — 504,731

Sale of residential mortgage loans 252,709 —

Principal payments on residential mortgage loans 285,797 138,587

Margin posted on interest rate futures contracts 13,253 ( 14,135 )

Margin received from interest rate futures contracts 75,432 13,253

Principal and interest receivable 12,156 ( 20,926 )

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Accrued expenses payable to affiliate 581 693

Income taxes payable 1,600

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

Interest payable 1,268 1,183

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ ( 1,567,946 ) $ 34,409

Angel Oak Mortgage, Inc.

NET CASH USED IN OPERATING ACTIVITIES $ ( 331,127 ) $ ( 1,567,946 )

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

Angel Oak Mortgage REIT, Inc.

Consolidated Statements of Cash Flows

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Purchases of investments in U.S.

Treasury Bills ( 604,995 ) —

Treasury Securities ( 349,992 ) ( 604,995 )

Sale of investments in RMBS and CMBS 812,107 1,120,071

Sale of investments in U.S.

Treasury Bills 504,984 —

Maturities of U.S.

Treasury Securities 600,000 504,984

Principal payments on RMBS and CMBS securities 14,067 11,234

Purchases of commercial mortgage loans from affiliate — ( 12,328 )

Sale of commercial mortgage loans into affiliate’s securitization trust — 34,041

Origination of commercial mortgage ( 3,180 ) —

Sale of commercial mortgage loans to third parties 11,026 1,540

Principal payments on commercial mortgage loans 53 21

NET CASH USED IN INVESTING ACTIVITIES $ ( 460,484 ) $ ( 52,436 )

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 664,333 $ ( 460,484 )

CASH FLOWS FROM FINANCING ACTIVITIES

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Proceeds from private placement concurrent with IPO — 40,000

Shares of stock repurchased ( 4,660 ) —

Distributions to prior common stockholder — ( 76,700 )

Repurchase of common stock ( 6,863 ) ( 4,660 )

Redemption of preferred stock ( 125 ) —

Dividends paid to common stockholders ( 41,702 ) ( 12,172 )

4 unchanged sentences

Net proceeds from (purchases of) securities sold under agreements to repurchase ( 556,707 ) 430,960

Net proceeds from the sale of residential loans ( 221,229 ) —

Net proceeds from (payments on) notes payable 7,691 771,503

NET CASH PROVIDED BY FINANCING ACTIVITIES $ 2,034,766 $ 54,798

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ ( 345,654 ) $ 2,034,766

CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH $ ( 12,448 ) $ 6,336

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period 45,973 9,202

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period $ 52,309 $ 45,973

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year 52,309 45,973

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year $ 39,861 $ 52,309

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for interest $ 61,611 $ 10,293

(1) Cash, cash equivalents, and restricted cash as of December 31, 2021 included cash and cash equivalents of $ 40.8 million and restricted cash of $ 11.5 million, and at December 31, 2020 included cash and cash equivalents of $ 43.6 million and restricted cash of $ 2.4 million.

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

(together with its subsidiaries the “Company”), is a real estate finance company focused on acquiring and investing in first lien non-qualified residential mortgage (“non-QM”) loans and other mortgage‑related assets in the U.S.

mortgage market.

The Company’s strategy is to make investments in first lien non‑QM loans that are primarily made to higher‑quality non‑QM loan borrowers and primarily sourced from the proprietary mortgage lending platform of affiliates, Angel Oak Mortgage Solutions LLC and Angel Oak Home Loans LLC (together, “Angel Oak Mortgage Lending”), which operates through wholesale and retail channels and has a national origination footprint.

The Company’s strategy is to make investments in first lien non‑QM loans that are primarily made to higher‑quality non‑QM loan borrowers and primarily sourced from the proprietary mortgage lending platform of affiliates, Angel Oak Mortgage Solutions LLC and Angel Oak Home Loans LLC (together, “Angel Oak Mortgage Lending”), which currently operates primarily through a wholesale channel operated by Angel Oak Mortgage Solutions, LLC, and has a national origination footprint.

During the third quarter of 2022, a majority of the assets of Angel Oak Home Loans, LLC were sold to a third party.

The Company may also invest in other residential mortgage loans, residential mortgage‑backed securities (“RMBS”), and other mortgage‑related assets.

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The Company is a Maryland corporation incorporated on March 20, 2018.

On September 18, 2018 (commencement of operations), the Board of Directors of the Company (the “Board of Directors”) authorized the Company to commence operations and on October 19, 2018 the Company began its investing activities.

For the period prior to September 18, 2018, the Company had no operating activity.

On September 18, 2018, the Board of Directors of the Company (the “Board of Directors”) authorized the Company to commence operations and on October 19, 2018 the Company began its investing activities.

The Company achieves certain of its investment objectives by investing a portion of its assets in its wholly‑owned subsidiary, Angel Oak Mortgage REIT TRS, LLC (“AOMR TRS”), a Delaware limited liability company formed on March 21, 2018, which invests its assets in Angel Oak Mortgage Fund TRS, a Delaware statutory trust formed on June 15, 2018.

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Such underwriting discounts and commissions were $ 8.2 million.

Angel Oak Capital Advisors, LLC also agreed to pay all of the Company’s expenses incurred in connection with the IPO.

Angel Oak Capital also agreed to pay all of the Company’s expenses incurred in connection with the IPO.

Such expenses were $ 4.4 million.

The common stock of the Company trades on the New York Stock Exchange under the ticker symbol “AOMR”.

Concurrently with the completion of the IPO, the Company 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.

Concurrently with the completion of the IPO, the Company sold an additional 2,105,263 shares of common stock to an institutional investor in a private placement at $ 19.00 per share, for total proceeds of approximately $ 40.0 million.

The Operating Partnership

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The Company is externally managed and advised by Falcons I, LLC (the “Manager”), a registered investment adviser with the SEC.

The Company has elected to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2019 and will operate in conformity with the requirements for qualification as a REIT under the Code.

Summary of Significant Accounting Policies

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The Company’s estimates are inherently subjective in nature and actual results could differ from the Company’s estimates and the differences could be material.

Angel Oak Mortgage, Inc.

Reclassifications

Certain amounts reported in prior periods in the financial statements have been reclassified to conform to the current year’s presentation.

For comparative purposes, and to enhance transparency of the Company’s balance sheet, “other assets” on the consolidated

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

balance sheet as of December 31, 2021 in the amount of $ 2.4 million have been reclassified to unrealized appreciation on TBAs and interest rate futures contracts - at fair value, leaving a remaining balance of $ 2.9 million of other assets.

Recent Accounting Standards - Recently Issued

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Recent Accounting Standards - Recently Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

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In January 2021, the FASB amended the standard to clarify option expedients and exceptions for contract modifications and hedge accounting.

The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur.

The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and was adopted over time as reference rate reform activities occurred.

During 2022, the Company amended all of its contracts that had referenced a U.S.

Dollar LIBOR tenor to the Secured Overnight Financing Rate (“SOFR”).

The Company has determined that the impact of this accounting standard is immaterial to its financial statements.

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The Company determined that for the securitizations it consolidates, its ownership provides the Company with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE.

In addition, the Company has the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to replace the servicer without cause or the Company was determined to have power in connection with its involvement with the structure and design of the VIE.

As of December 31, 2021, the Company’s interest in the assets held by consolidated securitization vehicles, which are consolidated on the Company’s consolidated balance sheet is restricted by the structural provisions of these trusts, and a recovery of the Company’s investment in the vehicles will be limited by each entity’s distribution provisions.

The liabilities of the securitization vehicles, which are also consolidated on the Company’s consolidated balance sheet as of December 31, 2021, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

As of and for the year ended December 31, 2020, the Company was not a primary beneficiary in the VIEs in which it had an interest, which are comprised of the securitizations in which the Company participated within the purview of Angel Oak Mortgage Trust I (“AOMT”).

In addition, the Company has the power to direct the activities of the VIE’s economic performance, or power, such as rights to replace the servicer without cause and call the collateral after the expiration of the call period.

As of December 31, 2022 and 2021, the Company was considered to be a primary beneficiary in certain VIEs which held certain interests in the assets held by consolidated securitization vehicles which were created under the purview of its wholly-owned securitization shelf, Angel Oak Mortgage Trust (“AOMT”) II, LLC.

These securitization vehicles are consolidated on the Company’s consolidated balance sheet, and are restricted by the structural provisions of the associated securitization trusts.

The recovery of the Company’s investment in the securitization vehicles, if any, will be limited by each securitization vehicle’s distribution provisions.

The liabilities of the securitization vehicles, which are also consolidated on the Company’s consolidated balance sheets as of December 31, 2022 and 2021, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

The Company was not a primary beneficiary in the VIEs in which it participated prior to December 31, 2021.

These VIEs are comprised of the securitizations in which the Company participated within the purview of Angel Oak Mortgage Trust I.

The assets of securitization entities are comprised of RMBS or residential mortgage loans.

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The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Cash and Cash Equivalents

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The Company does not anticipate nonperformance by these financial institutions.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

Restricted Cash

Restricted cash represents cash held at financial institutions for both margin on futures trading activity and short-term collateral for repurchase agreements.

If margin were to be due to the Company from either of these financial institutions as a counterparty, it would represent cash posted with the Company by its counterparties as collateral under the Company’s interest rate derivative financial instruments and repurchase agreements, and be reflected as a liability of “due to counterparties” on the consolidated balance sheets.

Restricted cash represents cash held at financial institutions for margin on whole loans required by certain counterparties, margin on futures trading activity, and short-term cash collateral for repurchase agreements.

Fair Value Measurements

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RMBS, CMBS, and U.S.

Treasury Bills (“Investment Securities”), at Fair Value;

Treasury Securities (“Investment Securities”), at Fair Value;

and Purchase and Sale of Investment Securities

The Company classifies its investments in RMBS, CMBS, and U.S.

Treasury Bills as available for sale and accordingly records them at fair value in the consolidated balance sheets.

Treasury Securities as available for sale and accordingly records them at fair value in the consolidated balance sheets.

Changes in fair value for these Investment Securities are reported in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss).

Residential Mortgage Loans, Residential Mortgage Loans in Securitization Trusts, and Commercial Mortgage Loans, at Fair Value

Residential mortgage loans, residential mortgage loans in securitization trusts, and commercial loans are recorded using the fair value option in ASC Topic 825 - Financial Instruments , and therefore recorded at fair value in the consolidated balance sheets.

Changes in fair value are reported in current earnings in “net unrealized loss on mortgage loans and derivative contracts” in the consolidated statements of operations and comprehensive income (loss).

The Company’s investments in residential mortgage loans, including those held in securitization trusts, and commercial loans are recorded using the fair value option in ASC Topic 825 - Financial Instruments , and therefore recorded at fair value in the consolidated balance sheets.

Changes in fair value are reported in current earnings in “net unrealized loss on mortgage loans, debt at fair value option, and derivative contracts” in the consolidated statements of operations and comprehensive income (loss).

Residential and commercial mortgage loans include loans that the Company may be marketing for sale to third parties, including transfers to securitization entities with either solely contributed loans or with loans contributed to securitization entities along with other Angel Oak entities.

When the Company obtains possession of real property in connection with a foreclosure or similar action, the Company de-recognizes the associated mortgage loan according to ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (“ASU 2014-04”).

Under the provisions of ASU 2014-04, the Company is deemed to have received physical possession of real estate property collateralizing a mortgage loan when it obtains legal title to the property upon completion of a foreclosure or when the borrower conveys all interest in the property to it through a deed in lieu of foreclosure or similar legal agreement.

The Company’s cost basis in REO is equal to the lower of cost or fair value of the real estate associated with the foreclosed mortgage loan, less expected costs to sell.

The fair value of such REO is typically based on management’s estimates which generally use information including general economic data, broker opinions of value, recent sales, property appraisals, and bids, and takes into account the expected costs to sell the property.

REO recorded at fair value on a non-recurring basis are classified as Level 3.

Non-recourse securitization obligations, collateralized by residential mortgage loans (a portion of which is at Fair Value)

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 to determine fair value.

The Company also discloses fair value for the portion of this obligation for which we have elected to hold at amortized cost.

See Note 11, Fair Value Measurements.

Derivative Financial Instruments, at Fair Value

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Derivatives are accounted for in accordance with ASC 815, Derivatives and Hedging , which requires recognition of all derivatives as either assets or liabilities at fair value on the consolidated balance sheets.

These derivative financial instrument contracts are not designated as hedges for U.S.

These derivative financial

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

instrument contracts are not designated as hedges for U.S.

GAAP purposes;

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Generally, residential mortgage loans are placed on non-accrual status when delinquent for more than 90 days or when determined not to be probable of full collection.

Interest accrued, but not collected, at the date residential mortgage loans are placed on nonaccrual status is reversed and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status.

Interest accrued, but not collected, at the date residential mortgage loans are placed on nonaccrual status is reversed against interest income and subsequently recognized only to the extent it is received in cash or until it qualifies for return to accrual status.

Interest received after the loan becomes past due or impaired is used to reduce the outstanding loan principal balance.

Commercial Mortgage Loans

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Interest income recognition is suspended when the commercial mortgage loan becomes more than 90 days past due.

Interest received after the loan becomes past due or impaired is used to

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

reduce the outstanding loan principal balance.

Interest received after the loan becomes past due or impaired is used to reduce the outstanding loan principal balance.

A delinquent loan previously placed on non-accrual status is placed back on accrual status when all delinquent principal and interest has been remitted by the borrower.

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Repurchase Agreements

The Company finances purchases of residential and commercial mortgage loans and Investment Securities through the use of repurchase agreements.

At times, the Company finances purchases of residential and commercial mortgage loans and Investment Securities through the use of repurchase agreements.

The repurchase agreements are treated as collateralized financing transactions, which expire within approximately one year or less and are carried at their contractual amounts, including accrued interest as specified in the respective agreements.

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The Company recognizes adjustments for forfeitures as forfeitures occur.

The Company has elected to be taxed as a REIT under the Code starting with its taxable year ended December 31, 2019 and will operate in conformity with the requirements for qualification as a REIT under the Code.

The Company has elected to be taxed as a REIT under the Code starting with its taxable year ended December 31, 2019.

Accordingly, the Company will generally not be subject to corporate U.S.

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Taxable income will generally differ from net income reported in the consolidated statements of operations and comprehensive income (loss) because the determination of taxable income is based on tax regulations and not U.S.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The Company has created and elected to treat AOMR TRS as a taxable REIT subsidiary (“TRS”).

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Conversely, if the Company retains earnings at the TRS level, no distribution is required.

Effective for tax years beginning after December 31, 2022, the Inflation Reduction Act, which was signed into law on August 16, 2022, imposes a 15% alternative minimum tax (“AMT”) on the adjusted financial statement income (“AFSI”) of “Applicable Corporations”.

The term “Applicable Corporations” does not include REITs but does include TRSs whose three-year average AFSI exceeds $1 billion.

Current and deferred taxes are recorded on earnings (losses) recognized by AOMR TRS.

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Such an analysis is inherently subjective, as it is based on forecast earnings and business and economic activity.

See Note 12 — Income Taxes , for further details regarding the Company’s deferred tax assets.

As a REIT, if the Company fails to distribute in any calendar year (subject to specific timing rules for certain dividends paid in January) at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year, and (iii) any undistributed taxable income from the prior year, the Company would be subject to a nondeductible 4% excise tax on the excess of such required distribution over the sum of (i) the amounts actually distributed and (ii) the amounts of income retained and on which the Company has paid U.S.

federal corporate income tax.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

Risks and Uncertainties

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In addition, if the underlying properties have been overvalued by the originating appraiser or if the values subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related security, then the first‑loss securities may suffer a total loss of principal, followed by losses on the second‑loss and then third‑loss securities (or other residential and commercial securities that the Company owns).

In addition, with respect to residential securities the Company owns, the Company may be subject to risks associated with the determination by a loan servicer to discontinue servicing advances (advances of mortgage interest payments not made by a delinquent borrower) if they deem continued advances to be unrecoverable, which could reduce the value of these securities or impair the Company’s ability to project and realize future cash flows from these securities.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

deem continued advances to be unrecoverable, which could reduce the value of these securities or impair the Company’s ability to project and realize future cash flows from these securities.

Investments in subordinated RMBS and CMBS involve greater credit risk than the senior classes of the issue or series.

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Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control.

A significant portion of the Company’s financial assets and liabilities, including the Company’s whole loan investments, investment securities, loan financing facilities, and security repurchase facilities, are interest earning or interest bearing and, as a result, the Company is subject to risks arising from fluctuations in the prevailing levels of market interest rates.

A significant portion of the Company’s financial assets and liabilities, including the Company’s whole loan investments (which include residential mortgage loans, residential mortgage loans held in securitization trusts, and commercial loans), investment securities, loan financing facilities, and security repurchase facilities, are interest earning or interest bearing and, as a result, the Company is subject to risks arising from fluctuations in the prevailing levels of market interest rates.

In addition, all of the Company’s warehouse loan financing arrangements (notes payable) have a variable rate component or include rates which reset monthly and add additional risk due to fluctuations in market interest rates.

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Subject to maintaining its qualification as a REIT and maintaining its exclusion from regulation as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), the Company may utilize various derivative instruments and other hedging instruments to mitigate interest rate risk.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

Liquidity Risk

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A portion of the Company’s financial assets are considered to be illiquid and may be subject to high liquidity risk.

Furthermore, the Company’s use of financial leverage exposes the Company to increased liquidity risks from margin calls and potential breaches of the financial covenants under its borrowing facilities, which could result in the Company being required to immediately repay all outstanding amounts borrowed under these facilities and these facilities being unavailable to use for future financing needs, as well as triggering cross-defaults under other debt agreements.

Prepayment Risk

14 unchanged sentences

In extreme situations, the Company may be forced to sell assets to maintain adequate liquidity, which could cause the Company to incur losses.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

3 unchanged sentences

VIEs for Which the Company is the Primary Beneficiary

In the third and fourth quarters of 2021, the Company entered into securitization transactions where it was determined that the Company was the primary beneficiary, as it controls the class of securities with call rights, or “controlling class” of securities, the XS tranche.

The Company was the sole entity to contribute residential whole mortgage loans to the securitization vehicles, AOMT 2021-4 and AOMT 2021-7.

In 2021 and 2022, the Company entered into securitization transactions where it was determined that the Company was the primary beneficiary, as, with respect to each securitization vehicle, it controls the class of securities with call rights, or “controlling class” of securities, the XS tranche.

The Company was the sole entity to contribute residential whole mortgage loans to these securitization vehicles.

During the year ended December 31, 2022, in the AOMT 2022-4 and the AOMT 2022-1 transactions, the Company securitized and consolidated approximately $ 722.3 million unpaid principal balance of seasoned residential non-QM mortgage loans.

During the year ended December 31, 2021, in the AOMT 2021-4 and AOMT 2021-7 transactions, the Company securitized and consolidated approximately $ 703.5 million unpaid principal balance of seasoned residential non-QM mortgage loans.

The retained beneficial interest in VIEs for which the Company is the primary beneficiary (currently comprised of AOMT 2021-4 and AOMT 2021-7) is the subordinated tranches of the securitization and further interests in additional interest‑only tranches.

The table below sets forth the fair values of the assets and liabilities recorded in the consolidated balance sheet related to these consolidated VIEs as of December 31, 2021:

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The retained beneficial interest in VIEs for which the Company is the primary beneficiary is the subordinated tranches of the securitization and further interests in additional interest‑only tranches.

The table below sets forth the fair values of the assets and liabilities recorded in the consolidated balance sheet related to these consolidated VIEs as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

(in thousands)

Residential mortgage loans in securitization trusts - cost $ 1,193,879 $ 665,510

Fair value adjustment ( 166,437 ) 1,855

Residential mortgage loans in securitization trusts - at fair value $ 1,027,442 $ 667,365

Accrued interest receivable $ 1,995 $ 1,728

Non-recourse securitization obligations, collateralized by residential mortgage loans $ 619,108

Liabilities (1) :

Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, amortized cost $ 474,070 $ 619,108

debt issuance costs capitalized ( 1,145 ) ( 2,551 )

Non-recourse securitization obligations, collateralized by residential mortgage loans, net $ 616,557

Income and expense amounts related to the consolidated VIEs recorded in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2021 is set forth as follows:

Total Consolidated VIEs

Non-recourse securitization obligations, collateralized by residential mortgage loans, amortized cost, net $ 472,925 $ 616,557

Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, subject to fair value adjustment $ 611,114 $ —

Fair value adjustment ( 80,554 ) —

Non-recourse securitization obligations, collateralized by residential mortgage loans - at fair value, net $ 530,560 $ —

Total non-recourse securitization obligations, collateralized by residential mortgage loans, net $ 1,003,485 $ 616,557

(1) Debt issuance costs for non-recourse securitization obligations electing the fair value option are recorded to expense upon issuance of the securitization.

Debt issuance costs incurred with the issuances of non-recourse securitization obligations for which the fair value option was not elected are presented at amortized cost.

Income and expense amounts related to the consolidated VIEs recorded in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2022 and 2021 is set forth as follows:

December 31, 2022 December 31, 2021

(in thousands)

1 unchanged sentence

Interest expense, non-recourse liabilities (1)

( 26,223 ) ( 1,792 )

Net interest income $ 22,220 $ 6,141

Net unrealized loss on mortgage loans ( 1,308 )

Operating expenses ( 86 )

Income from consolidated VIEs $ 4,747

Net unrealized loss on mortgage loans in securitization trusts - at fair value ( 168,292 ) ( 1,308 )

Unrealized gain on mark-to-market of non-recourse securitization obligation - at fair value 80,554 —

Securitization expenses (2)

Realized losses and operating expenses ( 1,525 ) ( 86 )

Net income (loss) from consolidated VIEs $ ( 70,180 ) $ 4,747

(1) Includes amortization of debt issuance expenses for AOMT 2021-7 and AOMT 2021-4.

(2) Includes securitization expenses for AOMT 2022-4 and AOMT 2022-1.

VIEs for Which the Company is Not the Primary Beneficiary

1 unchanged sentence

These VIEs were formed to facilitate securitization issuances that were comprised of secured residential whole loans or small balance commercial loans contributed to securitization trusts.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

These securities were issued as a result of the unconsolidated securitizations where the Company retained bonds from the issuances of AOMT 2019-2, AOMT 2019-4, AOMT 2019-6, AOMT 2020-3, and AOMT 2020-SBC1.

1 unchanged sentence

The Company performs ongoing reassessments of all VIEs in which the Company has participated since its inception as to whether changes in the facts and circumstances regarding the Company’s involvement with a VIE would cause the Company’s consolidation conclusion to change, and the Company’s assessment of the VIEs in which the Company participated during the years 2019 and 2020 remains unchanged.

In the securitizations issued prior to 2021, the Company generally retained investments in subordinated or interest-only tranches of RMBS and CMBS, which involve greater credit risk than the senior classes of the securitizations’ issue or series.

Certain subordinated securities absorb all losses from any defaults before any other class of securities is at risk, particularly if such securities have been issued with little or no credit enhancement;

meaning that the ultimate risk relating to these retained investments would be the total amount of the bond.

The securities received in the aforementioned 2019 and 2020 securitization transactions are included in “RMBS - at fair value” and “CMBS - at fair value” on the consolidated balance sheets as of December 31, 2022 and 2021, and details on the accounting treatment and fair value methodology of the securities can be found in Note 11, Fair Value Measurements .

See Note 6, Investment Securities , for the fair value of AOMT securities held by the Company as of December 31, 2022 and 2021 that were retained by the Company as a result of the securitization transactions in 2020 and 2019.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

Residential Mortgage Loans

10 unchanged sentences

Weighted average remaining maturity (years) 30 30

During the year ended December 31, 2022, the Company 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.

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 following table sets forth data regarding the number of consumer mortgage loans secured by residential real property 90 or more days past due and also those in formal foreclosure proceedings, and the recorded investment and unpaid principal balance of such loans as of December 31, 2022 and 2021:

7 unchanged sentences

Unpaid principal balance of loans in foreclosure $ 849 $ 2,113

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Commercial Mortgage Loans

10 unchanged sentences

Weighted average remaining maturity (years) 8 8

There was one commercial mortgage loan in foreclosure as of both December 31, 2021 and 2020, respectively.

The recorded investment in these loans was $ 0.6 million and $ 0.6 million as of December 31, 2021 and 2020, respectively, with an unpaid principal balance of $ 0.6 million and $ 0.8 million as of December 31, 2021 and 2020, respectively.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

There were no commercial mortgage loans more than 90 days overdue as of December 31, 2022, and there was one commercial mortgage loan more than 90 days overdue as of December 31, 2021 which loan was also in foreclosure.

Subsequent to December 31, 2021, the commercial mortgage loan that had been more than 90 days overdue and in foreclosure as of December 31, 2021 was sold to a third party.

During the year ended December 31, 2022, the Company 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.

Investment Securities

As of December 31, 2021 Investment Securities were comprised of non‑agency RMBS and Freddie Mac and Fannie Mae “whole pool agency RMBS” (together, “RMBS”), CMBS, and U.S.

Treasury securities as presented in the consolidated balance sheet.

As of December 31, 2020, Investment Securities were comprised of non‑agency RMBS, CMBS, and U.S.

As of December 31, 2022 Investment Securities were comprised of non‑agency RMBS and Freddie Mac and Fannie Mae “whole pool agency RMBS” (together, “RMBS”), and CMBS as presented in the consolidated balance sheet.

As of December 31, 2021, Investment Securities were comprised of RMBS, CMBS, and U.S.

Treasury Securities in the consolidated balance sheet.

Treasury securities held by the Company as of December 31, 2021 and 2020 matured on January 6, 2022 and January 19, 2021, respectively.

The Company recognized a nominal amount of accretion during each of the years ended December 31, 2021 and 2020, respectively.

Treasury Securities held by the Company as of December 31, 2021 matured on January 6, 2022.

The Company recognized an immaterial amount of accretion from its holdings of U.S.

Treasury Securities during each of the years ended December 31, 2022 and 2021.

The following table sets forth a summary of RMBS and CMBS at cost as of December 31, 2022 and 2021:

3 unchanged sentences

CMBS $ 6,329 $ 10,875

The following table sets forth certain information about the Company’s investment in RMBS and CMBS as of December 31, 2021 and 2020, respectively:

December 31, 2021 Real Estate Securities at Fair Value Repurchase Debt Allocated Capital

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth certain information about the Company’s investment in RMBS and CMBS as of December 31, 2022:

December 31, 2022 Real Estate Securities at Fair Value Repurchase Debt (2)

Allocated Capital

(in thousands)

AOMT RMBS (1)

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

Mezzanine $ 1,958 $ ( 1,470 ) $ 488

1 unchanged sentence

Interest Only/Excess 10,424 ( 1,506 ) 8,918

Retained RMBS in VIEs (2)

— ( 24,586 ) ( 24,586 )

Total AOMT RMBS $ 61,960 $ ( 52,544 ) $ 9,416

Other Non-Agency RMBS

Subordinate $ 10,292 $ — $ 10,292

Interest Only/Excess 2,923 — 2,923

Total Other Non-Agency RMBS $ 13,215 $ — $ 13,215

Whole Pool Agency RMBS (3)

7 unchanged sentences

(1) AOMT RMBS held as of December 31, 2022 included both retained tranches of AOMT securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions.

Angel Oak Mortgage, Inc.

(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.

(3) 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 Note 8 - Due to Broker .

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth certain information about the Company’s investment in RMBS and CMBS as of December 31, 2021:

December 31, 2021 Real Estate Securities at Fair Value Repurchase Debt Allocated Capital

7 unchanged sentences

Other Non-Agency RMBS

Senior $ 6,820 $ — $ 6,820

Subordinate $ 10,292 $ — $ 10,292

Interest Only/Excess 2,923 — 2,923

Total Other Non-Agency RMBS $ 13,215 $ — $ 13,215

Whole Pool Agency RMBS

Fannie Mae $ 281,225 $ ( 267,286 ) $ 13,939

Freddie Mac 90,830 ( 87,495 ) 3,335

Whole Pool Total Agency RMBS $ 372,055 $ ( 354,781 ) $ 17,274

Total RMBS $ 485,634 $ ( 360,501 ) $ 125,133

3 unchanged sentences

(1) AOMT RMBS held as of December 31, 2021 included both retained tranches of AOMT securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions.

The Company did not hold any U.S.

Treasury Securities as of December 31, 2022.

The following table sets forth certain information about the Company’s investment in U.S.

Treasury Bills as of December 31, 2021 and 2020:

Treasury Securities as of December 31, 2021:

Date Face Value Unamortized Discount, net Amortized Cost (1)

2 unchanged sentences

December 31, 2021 $ 250,000 $ — $ 250,000 $ ( 1 ) $ 249,999 2.30 basis points

December 31, 2020 $ 150,000 $ ( 3 ) $ 149,997 $ ( 2 ) $ 149,995 6.25 basis points

(1) Cost and amortized cost of U.S.

Treasury Bills is substantially equal, due to the short length of time until maturity on these financial instruments.

Treasury Securities is substantially equal, due to the short length of time until maturity on these financial instruments.

Notes Payable

The Company has the ability to finance whole loans, utilizing lines of credit (notes payable) from various counterparties, as further described below.

The Company has the ability to finance residential and commercial whole loans, utilizing lines of credit (notes payable) from various counterparties, as further described below.

Outstanding borrowings bear interest at floating rates depending on the lending counterparty, the collateral pledged, and the rate in effect for each interest period, as the same may change from time to time at the end of each interest period.

Some loans include up‑front fees, fees on unused balances, covenants and concentration limits on types of collateral pledged;

Some loans include upfront fees, fees on unused balances, covenants and concentration limits on types of collateral pledged;

all vary based on the counterparty.

Angel Oak Mortgage, Inc.

Occasionally, a lender may require certain margin collateral to be posted on a warehouse line of credit.

Restricted cash as of December 31, 2022 included $ 5.6 million in margin collateral required by certain lenders, as further described below, the majority of which was released in full subsequent to December 31, 2022.

There was no such margin collateral required as of December 31, 2021.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth the details of all the lines of credit available to the Company for whole loan purchases during the years ended December 31, 2022 and 2021, and the drawn amounts as of December 31, 2022 and 2021:

Line of Credit (Note Payable) 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 %

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

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 %

Global Investment Bank 1 (3)

1 month or 3 month SOFR 1.70 % - 3.50 %

Global Investment Bank 2 (4)

1 month SOFR 2.20 % - 3.45 %

Global Investment Bank 3 (5)

Compound SOFR 2.80 % (5)

119,137 109,283

Veritex Community Bank (6)

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

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 %

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.

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 (See Note 16 - Subsequent Events ).

(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 was set to expire on February 11, 2022.

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

(1) 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 was extended through July 25, 2023 in accordance with the original terms of the agreement of six-month renewals (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 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 % (See Note 16 - Subsequent Events ).

(4) This agreement was entered into on March 5, 2021, and was set to expire on March 5, 2022, unless terminated earlier pursuant to the terms of the agreement;

however, on March 2, 2022 was extended to expire on March 5, 2023, unless terminated earlier pursuant to the terms of the agreement (See Note 16 - Subsequent Events ).

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

(5) This agreement expires 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.

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 (See Note 16 - Subsequent Events ).

(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 (See Note 16 - Subsequent Events ).

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) — % 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 %.

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.

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 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.

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

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

(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.

Due to Broker

The “Due to broker” account on the consolidated balance sheet as of December 31, 2022 in the amount of $ 1.01 billion relates to the purchase of whole pool RMBS at quarter-end in the fourth quarter of 2022.

Purchases are accounted for on a trade date basis;

and, at times, there may be a timing difference between the trade date and the settlement date of a trade.

The trade date of this purchase was prior to December 31, 2022.

For the year ended December 31, 2022, this transaction is excluded from the consolidated statement of cash flows as it is a noncash transaction.

The cash for these whole pool RMBS settled on January 13, 2023, at which time these assets were simultaneously sold.

There were no such amounts due as of December 31, 2021.

Securities Sold Under Agreements to Repurchase

2 unchanged sentences

As of December 31, 2022 and 2021, there was approximately $ 3.9 million and $ 4.9 million, respectively, held as margin cash collateral for repurchase agreements recorded in “restricted cash” on the consolidated balance sheets.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

3 unchanged sentences

($ 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 Note 6 - Investment Securities .

Although the transactions under repurchase agreements represent committed borrowings until maturity, the lenders retain the right to mark the underlying collateral at fair value.

3 unchanged sentences

The derivatives in which the Company invests, and the market risk that the economic hedge is intended to mitigate, are further discussed below.

Derivative instruments as of December 31, 2021 included both TBAs and interest rate futures, while the derivative investments as of December 31, 2020 were solely comprised of interest rate futures.

Restricted cash as of December 31, 2022 and 2021 included approximately $ 1.1 million and $ 4.3 million in interest rate futures margin collateral, respectively;

and zero and approximately $ 2.3 million in TBA margin collateral, respectively.

The Company uses interest rate futures as economic hedges to hedge a portion of its interest rate risk exposure.

5 unchanged sentences

Changes in the value of derivatives designed to protect against mortgage-backed securities fair value fluctuations, or economic hedging gains and losses, are reflected in the tables below.

All realized and unrealized gains and losses on derivative contracts are recognized in earnings, in “net realized loss on mortgage loans, derivative contracts, RMBS, and CMBS” for realized losses, and “net unrealized loss on mortgage loans and derivative contracts” for unrealized gains and losses.

Unrealized appreciation on futures contracts and unrealized appreciation on TBAs is included in “other assets” on the consolidated balance sheets when an unrealized appreciation position exists.

All realized and unrealized gains and losses on derivative contracts are recognized in earnings, in “net realized loss on mortgage loans, derivative contracts, RMBS, and CMBS” for realized losses, and “net unrealized loss on mortgage loans, debt at fair value option, and derivative contracts” for unrealized gains and losses.

The Company considers the notional amounts, categorized by primary underlying risk, to be representative of the volume of its derivative activities.

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

6 unchanged sentences

December 31, 2021 Interest rate futures 10,438 $ — $ ( 728 ) $ — $ 1,043,800

December 31, 2021 TBAs N/A $ 2,428 $ — $ — $ 523,938

The gains and losses arising from these derivative instruments in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2022, and 2021 are set forth as follows:

4 unchanged sentences

December 31, 2021 Interest rate futures $ 13,253 $ ( 530 )

December 31, 2021 TBAs $ ( 3,691 ) $ 2,428

Fair Value Measurements

19 unchanged sentences

residential and commercial mortgage‑related assets, including whole loans securities and derivatives).

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

1 unchanged sentence

The degree of judgment exercised by the Company’s Manager in determining fair value is greatest for investments categorized in Level 3.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

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

8 unchanged sentences

Government and Agency Securities (“U.S.

Treasury Bills”) are valued based on unadjusted, quoted prices for identical assets or liabilities in an active market.

Treasury Securities” and “Agency whole pool loan securities”) are valued based on unadjusted, quoted prices for identical assets or liabilities in an active market.

These securities are generally categorized as Level 1 securities.

3 unchanged sentences

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.

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.

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The performing commercial mortgage loans are generally categorized as Level 2 securities in the fair value hierarchy, while non-performing loans are categorized as Level 3 given their limited marketability and availability of observable valuation inputs.

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

Residential Mortgage Loans (including Residential Mortgage Loans in Securitization Trusts) - The 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.

6 unchanged sentences

Both Level 2 and Level 3 loans matrix inputs include collateral behavioral models including prepayment rates, default rates, loss severity, and discount rates.

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 to determine fair value.

The 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.

Other assets and liabilities - The fair value of cash, restricted cash, principal and interest receivable, deferred tax assets and liabilities, other assets (principally consisting of prepaid assets), notes payable, securities sold under obligation to repurchase, amounts due to

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

broker and accrued expenses (including those payable to an affiliate and management fees payable to an affiliate), and interest payable approximate their carrying values due to the nature of these assets and liabilities.

Valuation Processes

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Valuations determined by the Company’s Manager are required to be supported by market data, third‑party pricing sources, and industry accepted pricing models.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth information about the Company’s financial assets measured at fair value as of December 31, 2022:

11 unchanged sentences

— 6,111 — 6,111

Treasury Bills 249,999 — — 249,999

Unrealized appreciation on futures contracts 2,211 — — 2,211

Unrealized appreciation on TBAs 12,545 — — 12,545

2,428 — — 2,428

Total assets $ 252,427 $ 2,237,212 $ 7,119 $ 2,496,758

Total assets, at fair value $ 14,756 $ 2,853,379 $ 15,952 $ 2,884,087

Liabilities, at fair value

Unrealized depreciation on futures contracts $ 728 $ — $ — $ 728

Total liabilities $ 728 $ — $ — $ 728

Non-recourse securitization obligation, collateralized by residential mortgage loans (2)

$ — $ 530,560 $ — $ 530,560

Total liabilities, at fair value $ — $ 530,560 $ — $ 530,560

(1) Non‑Agency RMBS held as of December 31, 2022 included both retained tranches of AOMT securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions.

All AOMT CMBS held as of December 31, 2021 was comprised of retained tranches of AOMT securitizations.

(2) “Unrealized appreciation on TBAs” is included in “other assets” on the consolidated balance sheet.

All AOMT CMBS held as of December 31, 2022 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(2) Only the portion subject to fair value measurement, as adjusted for fair value, is presented above.

See below for the disclosure of the full debt at fair value.

All unrealized gains and losses arising from valuation changes in residential and commercial mortgage loans, TBAs, and futures contracts are recognized in net income for the periods presented.

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The following table sets forth information regarding the Company’s significant Level 3 inputs as of December 31, 2022:

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

8 unchanged sentences

Expected remaining life 1.42 - 3.72 years

Commercial mortgage loans, at fair value $ 519 Loss severity ( 25.00 )% ( 25.00 )%

Sale or Liquidation timeline 39 - 50 months

39 - 50 months

Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure

Portion of Non-Recourse Securitization Obligations, Collateralized by Residential Mortgage Loans - Held at Amortized Cost

To determine the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, net, held at amortized cost, the Company uses the same method of valuation as described previously in the discussion of Valuation Techniques and Inputs for both the portion of the obligation measured at fair value and the portion of the obligation held at amortized cost, for which fair value is disclosed, as below.

As of December 31, 2022, the total amortized cost basis and fair value of our non-recourse securitization obligations was $ 1.1 billion and $ 914.3 million, respectively, a difference of approximately $ 170.9 million (which includes AOMT 2022-1 and AOMT 2022-4, which are marked to fair value;

and AOMT 2021-7, and AOMT 2021-4, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations).

The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $ 90.3 million.

The difference between the amortized cost basis value and the fair value is derived from the difference between the period-end market pricing of the underlying bonds, as referred to above, and the amortized cost of the obligation.

The fair value of the non-recourse securitization debt is not indicative of the amounts at which we could settle this debt.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2021 (1) :

3 unchanged sentences

Residential mortgage loans $ — $ 1,056,875 $ 5,037 $ 1,061,912

Residential mortgage loans in securitization trusts — 665,802 1,563 667,365

Commercial mortgage loans — 18,145 519 18,664

2 unchanged sentences

— 113,579 — 113,579

Agency whole pool loan securities — 372,055 — 372,055

AOMT CMBS (1)

— 10,756 — 10,756

Treasury Bills 149,995 — — 149,995

Treasury Securities 249,999 — — 249,999

Unrealized appreciation on TBAs 2,428 — — 2,428

Total assets, at fair value $ 252,427 $ 2,237,212 $ 7,119 $ 2,496,758

3 unchanged sentences

(1) Non‑Agency RMBS held as of December 31, 2021 included both retained tranches of AOMT securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions.

All AOMT CMBS held as of December 31, 2020 was comprised of retained tranches of AOMT securitizations.

All unrealized gains and losses arising from valuation changes in residential and commercial mortgage loans and futures contracts are recognized in net income for the periods presented.

All AOMT CMBS held as of December 31, 2021 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

All unrealized gains and losses arising from valuation changes in residential and commercial mortgage loans, TBAs, and futures contracts are recognized in net income for the periods presented.

Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure) and commercial mortgage loans in special servicing or otherwise considered “non‑performing” by the Company’s third‑party valuation providers.

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The following table sets forth information regarding the Company’s significant Level 3 inputs as of December 31, 2021:

Angel Oak Mortgage, Inc.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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Expected remaining life 0.04 - 2.75 years

Residential mortgage loans in securitization trust, at fair value $ 1,563 Prepayment rate (annual CPR) — % - 20.85 %

Default rate — % - 37.32 %

Loss severity ( 20.31 )% - 36.35 %

Expected remaining life 0.04 - 2.75 years

Commercial mortgage loans, at fair value $ 519 Loss severity ( 25.00 )% ( 25.00 )%

1 unchanged sentence

39 - 50 months

Income tax expense for the year ended December 31, 2021 consists of the following:

The Company has elected to be taxed as a REIT commencing with its taxable year ended December 31, 2019.

As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S.

federal income taxes on its taxable income to the extent it annually distributes its REIT taxable income to stockholders and does not engage in prohibited transactions (as further described below).

Income tax (benefit) items arise at the Company’s TRS level.

Certain sales by the group consisting of the Company and its subsidiaries may give rise to gain that could be treated as derived from “prohibited transactions” if carried out by the Company directly.

Such transactions involve the purchase of residential mortgage loans and the subsequent sale of those mortgage loans or interests therein through the secondary whole loan market or the securitization markets.

The Company has designated AOMR TRS to conduct such transactions rather than Angel Oak Mortgage REIT, Inc.

The Company files separate U.S.

federal and state corporate income tax returns for Angel Oak Mortgage REIT, Inc.

and AOMR TRS.

AOMR TRS is taxed as a standalone U.S.

C‑corporation on all of its separately computed taxable income.

The Company’s federal income tax returns for 2019 and forward are subject to examination.

The Company’s state income tax returns are generally subject to examination for 2019 and forward.

The following table sets forth the income tax provision (benefit) as recorded in the Company’s consolidated statements of comprehensive income (loss) for the years ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

(in thousands)

1 unchanged sentence

Total current income tax expense — 1,600

Total deferred income tax expense —

Total income tax expense $ 1,600

Federal ( 2,691 ) —

State ( 766 ) —

Total deferred income tax expense (benefit) ( 3,457 ) —

Total income tax expense (benefit) $ ( 3,457 ) $ 1,600

Deferred Tax Assets (“DTAs”) and Assessing the Realizability of the Company’s DTAs

Realization of the Company’s DTAs as of December 31, 2022, is dependent on many factors, including generating sufficient taxable income prior to the expiration of net operating loss (“NOL”) carryforwards (where applicable).

The Company determines the extent to which realization of its deferred assets is not assured and establishes a valuation allowance accordingly.

As the Company’s TRS incurred a NOL during the year ended December 31, 2022, the Company closely analyzed its estimate of the realizability of its net DTAs in whole and in part.

The Company evaluates its DTAs each period to determine if a valuation allowance is required based on whether it is “more likely than not” that some portion of the DTAs would not be realized.

This evaluation requires significant judgment, and changes to the Company’s

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

assumptions could result in a material change in the valuation allowance.

The ultimate realization of these DTAs is dependent upon the generation of sufficient taxable income during future periods.

The Company conducts its evaluation by considering, among other things, all available positive and negative evidence, historical operating results and cumulative earnings analysis, forecasts of future profitability, and the duration of statutory carryforward periods.

Based on this analysis, the Company continues to believe it is more likely than not that it will not fully realize its federal and state DTAs in future periods.

Therefore, the Company has recorded a valuation allowance against the majority of its DTAs, as set forth in the table, below.

The Company’s estimate of net DTAs could change in future periods to the extent that actual or revised estimates of future taxable income during the carryforward periods change from current expectations.

The Company assessed its tax positions for all open tax years and concluded that it had no uncertain tax positions that resulted in material unrecognized tax benefits.

The tax effects of temporary differences that give rise to significant portions of the net DTA recorded at the TRS entity as of December 31, 2022 are set forth in the following table (1) :

December 31, 2022

(in thousands)

Net operating loss $ 41,583

Valuation allowance ( 38,126 )

Total DTA 3,457

(1) There was no DTA as of December 31, 2021.

Reconciliation of Statutory Tax Rate to Effective Tax Rate

The difference between the Company’s reported provision for income taxes and the U.S.

federal statutory rate of 21% is as follows for the year ended December 31, 2021:

federal statutory rate of 21% is set forth as follows for the years ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

Federal statutory rate ( 21.00 ) % 21.00 %

State statutory rate, net of federal tax effect ( 5.98 ) % 4.49 %

Change in valuation allowance 21.58 % — %

Non-taxable REIT income 3.44 % ( 19.45 ) %

Total provision ( 1.96 ) % 6.04 %

The Company has elected to be taxed as a REIT commencing with its taxable year ended December 31, 2019, and met the qualifications to be taxed as a REIT under the Code for U.S.

federal income tax purposes for that year.

As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S.

federal income taxes on its taxable income to the extent it annually distributes its REIT taxable income to stockholders and does not engage in prohibited transactions.

The Company has designated AOMR TRS to conduct such transactions rather than Angel Oak Mortgage, Inc.

AOMR TRS files separate corporate income tax returns and is taxed as a standalone U.S.

C‑corporation on all of its separately computed taxable income, including any gain derived in the aforementioned sales.

All the income tax expense presented above was incurred on AOMR TRS.

The Company files U.S.

federal and state income tax returns for Angel Oak Mortgage, Inc.

and AOMR TRS.

These federal income tax returns for 2018 (commencement of operations) and forward are subject to examination.

The Company’s state income tax returns are generally subject to examination for 2018 (commencement of operations) and forward.

There were no accrued taxes nor was there any material tax expense as of and for the year ended December 31, 2020.

Related Party Transactions

Residential Mortgage Loan Purchases

The Company purchases residential mortgage loans under loan purchase agreements with various affiliates of the Company.

The purchase price of the loans is generally equal to the outstanding principal of the mortgage, adjusted by a premium or discount, depending on

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

market conditions.

The Company has residential mortgage loan purchase agreements with various affiliates of the Company.

The purchase price of the loans is generally equal to the outstanding principal of the mortgage, adjusted by a premium or discount, depending on market conditions.

The Company purchases the mortgage loans on a servicing retained basis.

2 unchanged sentences

As of and for the Year Ended:

Amount of Loans Purchased from Affiliates during the Year Number of Loans Purchased from Affiliates during the Year Number of Loans Purchased from Affiliates Held at December 31:

Amount of Loans Purchased from Affiliates during the Year Number of Loans Purchased from Affiliates during the Year Number of Loans Purchased from Affiliates, Owned and Held at December 31 (1) :

($ in thousands)

1 unchanged sentence

2021 $ 909,442 1,959 754

(1) Excludes loans held in consolidated securitizations.

Commercial Mortgage Loan Purchases

The Company purchases commercial mortgage loans under loan purchase agreements with various affiliates of the Company.

The Company has commercial loan purchase agreements with various affiliates of the Company.

The purchase price of the loans is generally equal to the outstanding principal of the mortgage, adjusted by a premium or discount, depending on market conditions.

The commercial mortgage loans are on commercial properties, primarily multifamily and retail properties, located in various states with concentrations in California, New York, and Maine.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

commercial mortgage loans are mortgage loans on commercial properties, primarily multifamily and retail properties, located in various states with concentrations in Georgia, California, and Tennessee.

The following table sets forth certain financial information pertaining to whole loan activity purchased from affiliates during the years ended and as of December 31, 2022 and 2021:

2 unchanged sentences

($ in thousands)

2020 $ 26,334 30 12

Pre-IPO Management Fee

6 unchanged sentences

Post-IPO Incentive Fee

Under the Management Agreement, our Manager is also entitled to an incentive fee, which is calculated and payable in cash with respect to each calendar quarter (or part thereof that the Management Agreement is in effect) in arrears in an amount, not less than zero , equal to the excess of (1) the product of (a) 15 % and (b) the excess of (i) the Company’s Distributable Earnings (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) the Company’s Equity in the previous 12-month period, and (B) 8 % per annum, over (2) the sum of any incentive fee earned by our Manager with respect to the first three calendar quarters of such previous 12-month period.

Under the Management Agreement, the Manager is also entitled to an incentive fee, which is calculated and payable in cash with respect to each calendar quarter (or part thereof that the Management Agreement is in effect) in arrears in an amount, not less than zero , equal to the excess of (1) the product of (a) 15 % and (b) the excess of (i) the Company’s Distributable Earnings (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) the Company’s Equity in the previous 12-month period, and (B) 8 % per annum, over (2) the sum of any incentive fee earned by the Manager with respect to the first three calendar quarters of such previous 12-month period.

To date, the incentive fee has not been earned.

Operating Expense Reimbursements

The Company is also required to pay its Manager reimbursements for certain general and administrative expenses pursuant to the Management Agreement.

Accrued expenses payable to affiliate and operating expenses incurred with affiliate are substantially comprised of payroll reimbursements to an affiliate of its Manager.

The Company is also required to pay the Manager reimbursements for certain general and administrative expenses pursuant to the Management Agreement.

Accrued expenses payable to affiliate and operating expenses incurred with affiliate are substantially comprised of payroll reimbursements, which includes an executive severance expense accrual, as described below, to an affiliate of the Manager.

On September 28, 2022, the Company’s Board of Directors appointed Mr.

Sreeniwas Prabhu as the Company’s new Chief Executive Officer and President effective as of September 28, 2022.

The Company does not expect to reimburse the Manager for compensation paid to Mr.

Prabhu for his service with the Company.

Prabhu is an equity owner of the Manager.

Simultaneously with the appointment of Mr.

Prabhu as the Company’s Chief Executive Officer and President, the Company’s previous Chief Executive Officer and President, Mr.

Robert Williams, ceased serving as the Company’s Chief Executive Officer and President, effective September 28, 2022.

Accordingly, the Company recorded a severance charge of approximately $ 1.4 million in connection with this event, in accordance with the Company’s Executive Severance and Change in Control Plan.

This severance is expected to be paid in 2023.

Contribution from Common Stockholder Prior to IPO

1 unchanged sentence

This recallable return of capital was fully repaid to the Company in 2021 prior to the Company’s IPO.

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

Transactions by Affiliates Regarding the Company’s IPO

5 unchanged sentences

Such expenses were $ 4.4 million.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Commitments and Contingencies

On March 11, 2020, the World Health Organization declared a disease (COVID‑19) caused by a novel strain of coronavirus (SARS CoV‑2) a global pandemic and recommended containment and mitigation measures worldwide.

Since that time, numerous coronavirus variants have arisen.

In the immediate response to the pandemic, various state and local governments within the United States took preventive and protective actions, such as restricting travel and business operations, and the United States government undertook historic actions to avoid a severe recession, including unprecedented levels of financial support to households in the United States.

As a result of these immediate actions, capital, credit, and labor markets experienced extreme volatility and disruptions.

As the pandemic continued, supply chains have become strained, labor shortages and inflationary pressures have arisen, and civil unrest has increased.

This ongoing volatility has affected and could continue to affect the Company’s consolidated financial position, consolidated results of operations, and consolidated cash flows.

None of the developments of the ongoing pandemic or their possible effects on financial and labor markets are certain or predictable.

The Company, from time to time, may be party to litigation relating to claims arising in the normal course of business.

2 unchanged sentences

Equity and Earnings per Share (“EPS”)

In the calculations of basic and diluted earnings per common share for the year ended December 31, 2021, the Company included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights, as it was determined that the two-class method was more dilutive than the alternative treasury stock method for these shares.

Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances.

For the year ended December 31, 2021, no outstanding equity awards were antidilutive.

The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2021:

December 31, 2021

(in thousands, except share data)

In the calculations of basic and diluted earnings per common share for the years ended December 31, 2022 and 2021, the Company included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights.

For the year ended December 31, 2022, there were 269,524 outstanding restricted stock awards and 56,978 performance share units that were antidilutive and thus not included in the diluted weighted average common shares outstanding.

For the year ended December 31, 2021, no equity awards were antidilutive.

The following table sets forth the calculation of basic and diluted earnings per share for the year ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

(in thousands, except share and per share data)

Basic Earnings per Common Share:

7 unchanged sentences

Diluted earnings per common share $ ( 7.65 ) $ 1.01

Basic and Diluted EPS for the year ended December 31, 2020

For the year ended December 31, 2020, basic and diluted earnings per share were equivalent as there were no potentially dilutive securities outstanding.

For the year ended December 31, 2020, 1,000 shares of common stock were outstanding (both outstanding and weighted average outstanding), all of which were held by Angel Oak Mortgage Fund, LP, the Company’s sole common stockholder prior to the IPO.

These shares have been retroactively restated accordingly for the calculations of earnings per share for the year ended December 31, 2020 as described below.

In conjunction with its IPO, the Company’s sole common shareholder declared a stock split and subsequent stock dividend that resulted in the issuance of 15,723,050 shares of common stock being owned by that sole common stockholder, who then distributed all of its stock in the Company (representing 15,724,050 shares) to its investors.

As a result of the stock split and stock dividend, 15,724,050 shares of common stock were outstanding as of June 21, 2021 (both outstanding and weighted average outstanding) immediately prior to the completion of the IPO, and the related share data and earnings per share calculations include the share amounts that have been retroactively restated accordingly for the calculations of earnings per share for the year ended December 31, 2020.

Angel Oak Mortgage, Inc.

Preferred Stock

On December 9, 2022, the Company redeemed its Series A preferred stock and cancelled the previously outstanding shares.

The Company paid a redemption price to the preferred shareholders equivalent to the original purchase price per share (with no premium or discount) plus accrued dividends payable through the redemption date.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

1 unchanged sentence

On June 21, 2021, the Company established its sole equity compensation plan, the 2021 Equity Incentive Plan (the “Plan”), with 2,125,000 shares initially available for grant.

As of December 31, 2021, 1,654,372 shares of common stock were available for grant under the Plan.

Compensation expense for the year ended December 31, 2021 related to these awards was approximately $ 1.8 million.

As of December 31, 2022, 1,465,967 shares of common stock were available for grant under the Plan, which shares available are reduced by a maximum of 56,978 shares of common stock that may be issued upon the achievement of certain performance conditions under outstanding performance share awards (as further described below) and 269,524 of time-based restricted stock awards that will vest upon the participants’ meeting the contractual service-related terms.

Compensation expense for the years ended December 31, 2022 and 2021 related to these awards was approximately $ 5.8 million and $ 1.8 million, respectively.

The unamortized compensation expense of the restricted stock awards issued under the Plan totaled approximately $ 3.3 million as of December 31, 2022.

This cost will be recognized over a weighted average period of 1.7 years.

Restrictions on the restricted stock awards outstanding lapse through June 21, 2024, as service conditions are completed and the awards vest accordingly.

The following table summarizes activity for our restricted stock awards during the year ended December 31, 2021:

Restrictions on the restricted stock awards outstanding lapse through July 1, 2026, as service conditions are completed and the awards vest accordingly.

Holders of unvested restricted stock awards receive non-forfeitable dividends along with other common stockholders.

Restricted Stock Awards

The following table summarizes activity for our restricted stock awards during the years ended December 31, 2022 and 2021:

Number of awards Weighted average grant date fair market value

3 unchanged sentences

Outstanding as of December 31, 2021 469,473 19.00

As of December 30, 2020, and prior to the establishment of the Plan, there were no equity compensation plans in existence, and therefore, no such compensation costs were incurred during the year ended December 31, 2020.

Granted 142,820 14.08

( 331,376 ) 18.54

Forfeited ( 11,393 ) 15.80

Outstanding as of December 31, 2022 269,524 $ 17.09

(1) Includes the accelerated vesting of 155,937 shares in accordance with an executive severance event described in Note 13 - Related Party Transactions — Operating Expense Reimbursements.

The expense associated with the accelerated stock vesting was approximately $ 2.6 million, and is included in stock compensation in the Company’s consolidated statements of operations and comprehensive income (loss).

Performance Share Units Awarded

On July 1, 2022, the Board of Directors awarded a total of 101,716 Performance Share Units (“PSUs”), at a grant date fair value of $ 13.41 per share, to certain employees of the Manager and its affiliates, of which 56,978 PSUs remained outstanding as of December 31, 2022, due to a forfeiture of 44,738 PSUs.

To date, the performance criteria has not been deemed “more likely than not” to be met, and so no expense or charge to stockholders’ equity has been recorded in conjunction with either the Performance Share Units or the associated dividend equivalents further described below.

If the performance criteria are met, the PSUs shall vest 50 % on June 30, 2025 and 50 % on June 30, 2026, in each case, with the number of shares vested to be based on the achievement of the performance goals set forth in the applicable award agreement over the July 1, 2022 through June 30, 2025 performance period.

Dividend Equivalents Relating to Performance Share Units

A dividend equivalent is a right to receive a distribution equal to the dividend distributions that would be paid on a share of the Company’s common stock.

Dividend equivalents may be granted as a separate instrument or may be a right associated with the grant of another award (e.g., a PSU) under the Plan.

The Company’s sole dividend equivalents granted relate to the PSUs which were awarded on July 1, 2022, as described above.

Should the performance criteria for these shares be met and the shares vest, the number of shares subject to the PSU awards shall increase by (i) the product of the total number of shares subject to the PSU award immediately prior to such dividend date multiplied by the dollar amount of the cash dividend paid per share of stock by the Company on such dividend date, divided by (ii) the fair market value of a share of stock on such dividend date (i.e., would be subject to dividend equivalents for any dividends paid between the grant date and the vesting date of the PSUs).

Any such additional shares issued by virtue of the vesting of dividend equivalents are subject to the same vesting conditions and payment terms set forth as to the PSU shares to which they relate.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Subsequent Events

Subsequent events of significance for disclosure purposes only (i.e., subsequent events that are not recognized in the financial statements as of and for the year ended December 31, 2022) are as follows:

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

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

On January 27, 2022, the Company and Barclays Bank PLC (“Barclays”) entered into Amendment No.

1 (“Amendment No.

1”) to the Master Repurchase Agreement.

Pursuant to the terms of Amendment No.

1, the maximum purchase price permitted under the Master Repurchase Agreement increased 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.

Additionally, pursuant to Amendment No.

1, 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.

On February 4, 2022, the Company and one of its subsidiaries entered into Amendment No.

1 (the “MRA Amendment”) to the Amended and Restated Master Repurchase Agreement (the “Master Repurchase Agreement”) with Deutsche Bank AG, New York Branch (“Deutsche Bank”).

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

(2) 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 %.

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

On February 11, 2022, the Company entered into the First Modification Agreement (the “Modification Agreement”) with Veritex Community Bank (“Veritex”) relating to the its financing facility with Veritex.

Pursuant to the Modification Agreement, (1) the size of the committed non-mark-to-market financing facility with Veritex was increased to $ 75.0 million from $ 50.0 million, and (2) interest will now accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus a margin equal to 2.41 % per annum;

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

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

On March 7, 2022, the Company entered into an Amended and Restated Variable Terms Letter (the “Variable Terms Letter”) with Banc of California, National Association (“Banc of California”) relating to the Company’s loan financing line with Banc of California (the “Loan Financing Line”).

Pursuant to the Variable Terms Letter, the Company and Banc of California agreed:

(1) to increase the aggregate

Angel Oak Mortgage, Inc.

Notes to the Consolidated Financial Statements

purchase price limit to $ 75.0 million from $ 50.0 million;

(2) to adjust the purchase contract expiration date of the Loan Financing Line from March 16, 2022 to March 16, 2023;

and (3) that beginning March 8, 2022, 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.

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

On January 25, 2023, the Company renewed its loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods as provided for in the original Master Repurchase Agreement with Multinational Bank 1, dated April 13, 2022.

The loan financing facility had previously been set to expire on January 26, 2023, and has been extended through July 25, 2023.

On January 31, 2023, the Company contributed loans with a scheduled principal balance of approximately $ 241.3 million into an approximately $ 580.5 million scheduled principal balance securitization transaction backed by a pool of residential mortgage loans along with other affiliates of Angel Oak Capital, an affiliate of the Manager.

On March 9, 2023, the Company declared a dividend of $ 0.32 per share of common stock, to be paid on March 31, 2023 to common stockholders of record as of March 22, 2023.

1 unchanged sentence

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What changed 10-K

Item 8. Financial Statements and Supplementary Data