What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-14 · 332 added, 499 removed, 453 unchanged (65% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of Angel Oak Mortgage, Inc.

The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto.

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

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

and its subsidiaries unless the context requires otherwise.

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

Cautionary Note Regarding Forward-Looking Statements

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Factors that could have a material adverse effect on future results and performance relative to those set forth in or implied by the related forward-looking statements, as well as on our business, financial condition, liquidity, results of operations and prospects, include, but are not limited to:

• the impact of the ongoing COVID-19 pandemic;

• the effects of adverse conditions or developments in the financial markets and the economy upon our ability to acquire non-qualified residential mortgage (“non-QM”) loans sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, and other target assets;

• the effects of adverse conditions or developments in the financial markets and the economy upon our ability to acquire target assets such as non-qualified residential mortgage (“non-QM”) loans, particularly those sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending;

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

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

Angel Oak Mortgage, Inc.

is a publicly-traded REIT focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S.

Angel Oak Mortgage REIT, Inc.

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

mortgage market.

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

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

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

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

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

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

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

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

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

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

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

Angel Oak Capital was established in 2009 and had approximately $17.5 billion in assets under management as of March 31, 2023 across its private credit strategies, public funds, and separately managed accounts, including approximately $10.6 billion of mortgage‑related assets.

Angel Oak Mortgage Lending is a market leader in non‑QM loan production and, as of March 31, 2023, had originated over $17.3 billion in total non‑QM loan volume since its inception in 2011.

Angel Oak is headquartered in Atlanta and has approximately 300 employees across its enterprise.

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

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

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

federal income tax purposes.

We believe that we have been organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).

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

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

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

Commencing with our taxable year ended December 31, 2019, we believe that we have been organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986

(the “Code”).

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

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

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

SEC Order Regarding an Affiliate of Our Manager

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

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

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

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

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

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

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

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

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

Angel Oak Capital and Mr.

Negandhi did not admit or deny these findings.

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

Negandhi acted with fraudulent intent.

The SEC accepted Angel Oak Capital’s and Mr.

Negandhi’s offers to settle the case.

Angel Oak Capital and Mr.

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

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

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

Heightened recessionary risks continued to challenge the U.S.

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

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

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

The Federal Reserve Bank of the U.S.

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

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

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

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

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

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

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

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

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

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

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

has remained low, limiting the original purchase mortgage market.

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

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

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

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

however, the positive impact of increased interest income and lowered realized losses as a result of slower prepayment speeds only partially offsets the unrealized losses reflected in other comprehensive income (loss) on bond valuation.

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

The macroeconomic environment in the first quarter of 2023 showed some signs of stabilization compared to 2022.

However, while the magnitude of interest rate and spread volatility lessened, questions regarding forthcoming policy decisions of the Federal Reserve Bank of the United States (the “Fed”), as well as unemployment and recession concerns, persist.

Additionally, the failure of several prominent regional banks fueled investor apprehension, which created volatility in interest rates and securitization markets.

In the first quarter of 2023, the Fed raised the federal funds rate by 50 basis points, bringing the current federal funds rate to 4.75% - 5.00%.

An increase in the federal funds rate and a more restrictive lending environment generally has the effect of raising borrowing rates for all types of consumer credit, including mortgages.

Interest rates remained at peak or near-peak levels into the first quarter of 2023, continuing to suppress mortgage origination and refinancing activity.

While the average 30-year fixed mortgage rate as of March 31, 2023 of approximately 6.5% is not historically high, American borrowers had acclimated to historically low rates over the prior decade, decreasing their appetite for elevated interest rates, which, combined with “sticky” high home prices, may continue to challenge many borrowers.

Despite sustained high interest rates during the first quarter of 2023, the two-year and five-year Treasury yields rallied by approximately 35 basis points and 40 basis points, respectively, driving a positive impact to the value of our portfolio.

Though spreads remained wide, which is a limiting factor on the positive impact of the rate rally, we observed an increase of approximately 50-100 basis points in the weighted average price of our residential whole loans and loans in securitization trusts portfolios.

The securitization market was more active compared to late 2022, but remained choppy, which dampens our ability to recycle our portfolio into newly-originated, high-coupon loans.

We continue to believe that further increases in interest rates are unlikely to have a significant incremental impact on demand for non-QM mortgages.

Our investment performance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Interest Margin (“NIM”).

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

Though our borrowings decreased as well, higher variable interest rates caused our interest expense to increase in the first quarter of 2023 compared to the first quarter of 2022.

Net realized loss .

Our net realized loss for the quarter ended March 31, 2023 was primarily due to a realized loss on the sale of whole loans into the AOMT 2023-1 securitization.

As this securitization did not result in consolidation of the AOMT 2023-1 VIE entity, unlike our other post-initial public offering (“IPO”) securitizations, we recognized a loss on the sale of these loans;

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

Additionally, our net realized gains on the economic hedges of our interest rate futures and TBAs were lower in the first quarter of 2023 as compared to the first quarter of 2022.

Net unrealized gain .

Our net unrealized gain in the first quarter of 2023 was primarily due to an increase in the valuation of our residential whole loans and loans in securitization trust portfolios, as well as the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2023-1 securitization.

Whole loans and securitization activity

We did not purchase any whole loans during the first quarter of 2023;

however, subsequent to the end of the first quarter of 2023, we resumed sourcing and purchasing newly-originated higher-coupon loans.

In January 2023, we participated in AOMT 2023-1, an approximately $580.5 million scheduled principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $241.3 million.

This was our first securitization in which we participated alongside other Angel Oak entities since our IPO.

We may strategically enter into similar securitizations in the future.

Whole loan financing facilities activity

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

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

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

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

time, the line of credit expired by its terms.

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

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

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

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

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

Our whole loan financing activity

during the period ended March 31, 2023 maintained our lender base in existence as of December 31, 2022, with the exception of the expiration of an unused line of credit with a regional bank and the repayment of Institutional Investors A and B.

Subsequent to March 31, 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.

This loan financing facility has been extended to October 25, 2023, and the interest rate pricing spread decreased to 2.15%.

Key Financial Metrics

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We believe Distributable Earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income.

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

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

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

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

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

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

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

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

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

Three Months Ended Nine Months Ended

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

Distributable Earnings were approximately a loss of $9.1 million and earnings $37.3 million for the three months ended March 31, 2023 and 2022, respectively.

The primary drivers of this quarter’s Distributable Earnings loss are the adjustments to GAAP net income of the $28.6 million unrealized gain associated with the AOMT 2023-1 securitization and a $6.0 million unrealized gain from our residential loans and residential loans in trust portfolios, offset by the adjustment to GAAP net income of $24.5 million of net unrealized losses associated with our economic hedge (interest rate futures and TBA derivatives) portfolio.

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three months ended March 31, 2023 and 2022:

Three Months Ended

March 31, 2023 March 31, 2022

(in thousands)

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Net unrealized (gains) losses on derivatives 24,536 (15,326)

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

Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation 6,327 30,210

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

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

Three Months Ended Nine Months Ended

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

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three months ended March 31, 2023 and 2022:

Three Months Ended

March 31, 2023 March 31, 2022

($ in thousands)

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Book Value per Share of Common Stock

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

September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

The following table sets forth the calculation of our book value per share of common stock as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

(in thousands except for share and per share data)

Total stockholders’ equity $ 244,378 $ 236,479

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

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

Number of shares of common stock outstanding at period end 24,925,357 24,925,357

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

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

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

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

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

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

September 30, 2022 June 30,

2022 March 31,

2022 December 31, 2021

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

March 31, 2023 December 31, 2022

(in thousands except for share and per share data)

GAAP total stockholders’ equity $ 244,378 $ 236,479

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

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

Fair value adjustment for securitized debt held at amortized cost 89,284 90,348

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Results of Operations

Three Months Ended September 30, 2022 and 2021

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

Three Months Ended

September 30, 2022 September 30, 2021

(in thousands)

INTEREST INCOME, NET

Interest income $ 30,148 $ 15,587

Interest expense 18,408 2,599

NET INTEREST INCOME 11,740 12,988

REALIZED AND UNREALIZED GAINS (LOSSES), NET

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS 17,290 (7,144)

Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 2), and derivative contracts (100,855) 6,821

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET (83,565) (323)

Operating expenses 2,764 2,545

Operating expenses incurred with affiliate 2,141 645

Due diligence and transaction costs 213 452

Stock compensation 3,340 833

Securitization costs 1,115 —

Management fee incurred with affiliate 1,951 1,846

Total operating expenses 11,524 6,321

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

Preferred dividends (4) (4)

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

Other comprehensive income (10,227) 1,818

TOTAL COMPREHENSIVE INCOME (LOSS) $ (93,580) $ 8,158

Net Interest Income

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

Three Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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

Residential mortgage loans $ 13,162 $ 1,106,402 $ 6,601 $ 764,209

Residential mortgage loans in securitization trusts 12,759 1,123,361 2,592 106,604

Commercial mortgage loans 309 11,412 112 6,930

RMBS 3,418 402,899 5,684 289,975

CMBS 423 9,051 595 11,589

Treasury Bills — — — 26,667

Other interest income 77 27,636 3 37,418

Total interest income 30,148 15,587

Interest expense

Notes payable 10,364 948,845 1,873 396,357

Non-recourse securitization obligation, collateralized by residential mortgage loans 7,467 1,082,841 642 96,843

Repurchase facilities 577 50,988 84 272,840

Total interest expense 18,408 2,599

Net interest income $ 11,740 $ 12,988

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

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

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

Total Realized and Unrealized Gains (Losses)

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

Three Months Ended March 31, 2023 and 2022

The following table sets forth a summary of our results of operations for the three months ended March 31, 2023 and 2022:

Three Months Ended

September 30, 2022 September 30, 2021

(in thousands)

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

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

Realized gain (loss) on CMBS 280 (250)

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

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

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

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

Unrealized appreciation on interest rate futures 6,017 198

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

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

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

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

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

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

Operating Expenses

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

Operating Expenses Incurred with Affiliate

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

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

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

This accrued severance is expected to be paid in 2023.

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

Due Diligence and Transaction Costs

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

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

Stock Compensation

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

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

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

Securitization Costs

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

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

Management Fee Incurred with Affiliate

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

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

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

Nine Months Ended September 30, 2022 and 2021

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

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

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

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

Nine Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

(in thousands)

5 unchanged sentences

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS $ (10,843) $ 26,416

Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 2), and derivative contracts (255,021) 16,151

Net unrealized gain (loss) on trading securities, mortgage loans, debt at fair value option (see Financial Statements — Note 2), and derivative contracts 10,190 (80,181)

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET $ (653) $ (53,765)

14 unchanged sentences

Net Interest Income

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

Nine Months Ended

September 30, 2022 September 30, 2021

The following table sets forth the components of net interest income for the three months ended March 31, 2023 and 2022:

Three Months Ended

March 31, 2023 March 31, 2022

(in thousands)

3 unchanged sentences

Commercial mortgage loans 122 9,460 302 19,061

RMBS 12,692 381,085 18,941 271,458

RMBS and Majority-Owned Affiliate 2,930 285,009 4,108 350,236

CMBS 317 6,193 300 10,499

Treasury Bills 8 59,999 7 50,499

Treasury securities 181 22,202 — 149,998

Other interest income 278 35,870 — 57,955

6 unchanged sentences

Net interest income $ 6,799 $ 16,939

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

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

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

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

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

Net interest income for the three months ended March 31, 2023 and 2022 was $6.8 million and $16.9 million, respectively.

Net interest income decreased in the three months ended March 31, 2023 as compared to the same period in 2022, primarily due to the composition of the portfolio during March 31, 2023 having a lower average balance of residential mortgage loans and RMBS, which resulted in decreased interest income from these asset classes, partially offset by interest income generated from residential mortgage loans in securitization trusts, which asset balance increased during the first quarter of 2023.

Meanwhile, interest expense on notes payable increased due to an increase in the associated floating interest rates on our debt in the three months ended March 31, 2023 as compared to the same period in 2022, which resulted in an increased interest expense on lower interest income during the comparative period.

Total Realized and Unrealized Gains (Losses)

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

Nine Months Ended

September 30, 2022 September 30, 2021

The components of total realized and unrealized gains (losses), net for the three months ended March 31, 2023 and 2022 are set forth as follows:

Three Months Ended

March 31, 2023 March 31, 2022

(in thousands)

Unrealized loss on securitization, net of unrealized gain on non-recourse securitization obligation $ (82,642) $ —

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

Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation $ (7,084) $ (30,240)

Realized gain (loss) on RMBS (91) (5,042)

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

Realized gain (loss) on CMBS (49) (42)

1 unchanged sentence

Realized and unrealized gain (loss) on TBAs (14,402) 15,462

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

Realized and unrealized (loss) gain on commercial mortgage loans (1,209) 315

Realized and unrealized gain (loss) on residential mortgage loans 21,467 (67,112)

Realized and unrealized gain (loss) on commercial mortgage loans 11 (482)

Realized and unrealized loss on U.S.

Treasury bills — (8)

Unrealized appreciation on interest rate futures 7,339 2,617

Treasury securities (5) —

Unrealized appreciation (depreciation) on interest rate futures (10,484) 14,007

Total realized and unrealized gains (losses), net $ (653) $ (53,765)

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

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

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

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

For the three months ended March 31, 2023 and 2022, total realized and unrealized gains and (losses), net resulted in net losses of $0.7 million and loss of $53.8 million, respectively.

During the three months ended March 31, 2023, the valuation of our portfolio of portfolio of residential and commercial mortgage loans began to recover, which was partially offset by an unrealized loss in TBAs.

During the three months ended March 31, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of mortgage loans to decrease, which resulted in an unrealized loss.

This net unrealized loss was partially offset by realized and unrealized gains on interest rate futures and TBAs.

Operating Expenses

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

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

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

For the three months ended March 31, 2023 and 2022, our operating expenses of $2.2 million and $3.8 million, respectively, decreased due to cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loans.

Operating Expenses Incurred with Affiliate

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

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

This accrued severance is expected to be paid in 2023.

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

For the three months ended March 31, 2023 and 2022, our operating expenses incurred with affiliate were $0.5 million and $0.9 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased during the comparative period as we did not incur any payroll expense for our former chief executive officer for the period ended March 31, 2023.

Due Diligence and Transaction Costs

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

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

For the three months ended March 31, 2023 and 2022, our due diligence and transaction costs were zero and $0.8 million, respectively.

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

Stock Compensation

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

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

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

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

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

For the three months ended March 31, 2023 and 2022, our stock compensation expense was $0.5 million and $0.9 million, respectively.

Our stock compensation expense decreased for the three months ended March 31, 2023, as stock compensation expense for our former chief executive officer was not incurred during the three months ended March 31, 2023.

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

Securitization Costs

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

For the three months ended March 31, 2023 and 2022, we incurred $0.9 million and $2.0 million of securitization expense, respectively.

The expense incurred in 2023 in connection with the AOMT 2023-1 transaction was a proportional allocation of expense in connection with our share of the expenses in a securitization in which we participated with other affiliated entities, while the expense incurred in 2022 resulted from a sole securitization transaction in which we incurred all the expense.

Management Fee Incurred with Affiliate

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

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

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

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

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

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

For the three months ended March 31, 2023 and 2022, our management fee incurred with affiliate was $1.5 million and $1.9 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended March 31, 2023 as compared to the same period in 2022.

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

Our Portfolio

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

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

As of March 31, 2023, our portfolio consisted of approximately $2.1 billion of residential mortgage loans, RMBS, and other target assets.

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

We require all of our collateral to be adequately insured.

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

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

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of March 31, 2023:

Fair Value Collateralized Debt Allocated Capital % of Total Capital

7 unchanged sentences

CMBS 6,480 — 6,480 2.7 %

Treasury securities 399,632 397,503 2,129 0.9 %

Total investment securities $ 928,999 $ 442,214 $ 486,785 199.3 %

Investment in Majority-Owned Affiliate $ 11,464 $ — $ 11,464 4.7 %

Total investment portfolio $ 2,523,127 $ 1,894,170 $ 628,957 257.4 %

5 unchanged sentences

Total $ 2,138,547 $ 1,894,170 $ 244,377 100.0 %

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

Treasury Bills held as of September 30, 2022.

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

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

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

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $447.6 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”), and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliate, which is considered a target asset.

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

9 unchanged sentences

CMBS 6,111 — 6,111 2.6 %

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

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

4 unchanged sentences

Other assets and liabilities (2)

(966,225) — (966,225) (408.6) %

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

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

Treasury Bills.

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

Treasury securities held as of December 31, 2022.

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

Residential Mortgage Loans

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

The following table sets forth additional information on the residential mortgage loans in our portfolio as of March 31, 2023:

Portfolio Range Portfolio Weighted Average

2 unchanged sentences

Interest rate 2.99% - 9.99% 4.63%

Maturity date 7/8/2036 - 12/10/2061 8/07/2052

Maturity date 1/25/2037 - 5/31/2062 March 2053

FICO score at loan origination 597 - 818 736

8 unchanged sentences

Interest rate 2.88% - 9.99% 4.80%

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

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

FICO score at loan origination 575 - 823 737

3 unchanged sentences

Percentage of loans 90+ days delinquent (based on UPB) N/A 0.91%

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

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2023:

($ in thousands)

8 unchanged sentences

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

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

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

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2023:

(1) No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2023 .

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

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2022:

($ in thousands)

UPB $1,151,332

Number of loans 2,664

7 unchanged sentences

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

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

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

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of March 31, 2023:

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

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

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

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

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of March 31, 2023, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of March 31, 2023:

(1) No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of March 31, 2023 .

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

The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2022, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

1 unchanged sentence

(1) No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2022.

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

Commercial Mortgage Loans

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

The following table provides additional information on the commercial mortgage loans in our portfolio as of March 31, 2023:

Portfolio Range Portfolio Weighted Average

11 unchanged sentences

LTV at loan origination 46.7% - 75.0% 50.9%

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

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

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

Geographic Diversification of Our Commercial Mortgage Loans as of March 31, 2023:

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

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

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

The remaining non‑QM loans that we contributed to AOMT 2019‑2 were purchased from affiliated and unaffiliated entities.

We received bonds from AOMT 2019‑2 with a fair value of approximately $55.8 million, including approximately $33.0 million in risk retention securities (representing 5% of each class of the bonds issued as part of the transaction).

Additionally, in July 2019, we participated in a second securitization transaction pursuant to which we contributed to AOMT 2019‑4 non‑QM loans with a carrying value of approximately $147.4 million that we had accumulated and held on our balance sheet, and we received bonds from AOMT 2019‑4 with a fair value of approximately $16.8 million.

Furthermore, in November 2019, we participated in a third securitization transaction pursuant to which we contributed to AOMT 2019‑6 non‑QM loans with a carrying value of approximately $104.3 million that we had accumulated and held on our balance sheet, and we received bonds from AOMT 2019‑6 with a fair value of approximately $10.7 million.

In June 2020, we participated in a fourth securitization transaction pursuant to which we contributed to AOMT 2020‑3 non‑QM loans with a carrying value of approximately $482.9 million that we had accumulated and held on our balance sheet.

The remaining non‑QM loans that we contributed to AOMT 2020‑3 were purchased from an affiliated entity.

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

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

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

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

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

These loans were purchased from affiliated and unaffiliated entities.

In return, we received bonds from these securitization trusts, and cash.

At times, we were allocated certain risk retention securities as part of these transactions.

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

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

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

($ in thousands)

6 unchanged sentences

Current 3-month CPR (1)

5.1 % 10.9 % 7.7 % 11.5 % 5.6 %

90+ day delinquency (as a % of UPB) 11.9 % 11.2 % 4.0 % 4.3 % 0.7 %

3 unchanged sentences

29.67 % 13.68 % 8.84 % 16.92 % 3.39 %

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

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

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

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

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in AOMT securitization transactions is set forth below as of December 31, 2022, unless otherwise stated:

8 unchanged sentences

Current 3-month CPR (1)

12.14 % 18.30 % 12.32 % 5.56 %

90+ day delinquency (as a % of UPB) 11.79 % 11.54 % 3.06 % 4.37 %

Fair value of first loss piece (2)

$12,708 $3,669 $1,984 $20,106

Investment thickness (3)

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

RMBS Repurchase Debt Allocated Capital

29.17 % 13.24 % 13.78 % 16.35 %

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

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

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

The following table provides certain information with respect to our RMBS portfolio both received in AOMT securitization transactions and acquired from other third parties as of March 31, 2023:

RMBS Repurchase Debt (1)

Allocated Capital

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

(in thousands)

Senior $ 47 $ — $ 47 $ 180 $ — 180 $ (133) $ — $ (133)

Mezzanine $ 9,965 $ — $ 9,965 $ 1,372 $ — 1,372 $ 8,593 $ — $ 8,593

2 unchanged sentences

Whole pool (2)

— $ 449,178 449,178 — — — — 449,178 $ 449,178

Retained RMBS in VIEs (3)

— — — 12,979 — 12,979 (12,979) — $ (12,979)

Total $ 73,709 $ 449,178 $ 522,887 $ 44,711 $ — $ 44,711 $ 28,998 $ 449,178 $ 478,176

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

RMBS Repurchase Debt Allocated Capital

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

(2) The whole pool RMBS presented as of March 31, 2023 were purchased from a broker to whom the Company owes approximately $447.6 million, payable upon the settlement date of the trade.

See Note 7 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

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

These bonds, with a fair value of $116.7 million, are not reflected in the condensed consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets.

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

RMBS Repurchase Debt (1)

Allocated Capital

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

(in thousands)

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

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

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Whole pool (2)

— 993,378 993,378 — — — — 993,378 $ 993,378

Retained RMBS in VIEs (3)

— — — 24,586 — 24,586 (24,586) — (24,586)

Total $ 61,960 $ 993,378 $ 1,055,338 $ 52,544 $ — $ 52,544 $ 9,416 $ 993,378 $ 1,002,794

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

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

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

See Note 7 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

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

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

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of March 31, 2023:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

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Acquisitions:

Retained bonds received in securitizations — 7,781 541 2,071 — 10,393

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

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

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

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of March 31, 2023 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of September 30, 2022)

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

(as of March 31, 2023)

(1) No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of March 31, 2023.

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

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2022 (percentages are based on the aggregate unpaid principal balance of such loans):

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(1) No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2022.

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

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

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

September 30, 2022 December 31, 2021

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

($ in thousands)

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Weighted average LTV at loan origination and deal date 56.2 % 58.4 %

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

September 30, 2022 December 31, 2021

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital

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Our financing sources currently include payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, and securitizations of our whole loans.

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

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

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

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Description of Existing Financing Arrangements

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

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

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

As of March 31, 2023, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion.

During the quarter ended March 31, 2023, an unused loan financing facility with a regional bank expired in accordance with its terms.

We also refinanced a static pool financing facility held with institutional investors into a different static pool

financing with another lender, and terminated the initial static pool financing facility.

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

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

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

As of March 31, 2023, the advance rates (when required) of our three active lenders ranged from 60% to 92%, depending on the asset type and loan delinquency status.

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

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

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

Our minimum liquidity requirement as of March 31, 2023 was $10.0 million.

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

A description of each loan financing facility in place during the quarter ended March 31, 2023 is set forth as follows:

Multinational Bank 1 Loan Financing Facility.

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

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

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

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

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

From time to time and pursuant to the agreement, either of our subsidiaries may sell to Multinational Bank 1, and later repurchase, up to $600.0 million aggregate borrowings on mortgage loans.

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

As of March 31, 2023, the termination date of the master repurchase agreement was July 25, 2023;

however, subsequent to March 31, 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.

This loan financing facility has been extended to October 25, 2023, and the interest rate pricing spread decreased to 2.15%.

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

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

The loan financing line is marked‑to‑market.

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

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

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

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

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

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

Global Investment Bank 1 Loan Financing Facility.

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

We were considered the “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regional Bank 1 Loan Financing Facility.

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

We are considered a “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

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

(2) minimum liquidity of $5.0 million;

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

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

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

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

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

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

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

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

Global Investment Bank 2 Loan Financing Facility.

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

We are considered a “Seller” under this agreement.

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

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

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

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

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

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

Pursuant to the agreement, we or our subsidiary may sell to Global Investment Bank 2, and later repurchase, up to

$250.0 million aggregate borrowings on mortgage loans.

The agreement is set to terminate on February 2, 2024, unless terminated earlier pursuant to the terms of the agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) adjusted tangible net worth;

(2) liquidity;

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

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

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

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

Global Investment Bank 3 Loan Financing Facility.

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

We are considered a “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

Global Investment Bank 3 Static Loan Pool Financing.

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

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

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

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

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

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

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

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

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

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

(1) our minimum tangible net worth of must not decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or fall below 50% of our tangible net worth as of September 30, 2018 plus 50% of any capital contributions made after that date;

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

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

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

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

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

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

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

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

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

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

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

The agreement also sets forth events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain

representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction.

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

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

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

Institutional Investors A and B Static Loan Pool Financing.

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

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

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

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

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

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

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

Regional Bank 1 Loan Financing Facility.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Multinational Bank 2 Loan Financing Facility.

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

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

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

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

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

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

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

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

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

In addition, and similar to other repurchase

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

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

and (3) minimum liquidity.

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

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

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

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

Line of Credit Facility Limit Base Interest Rate (A)

Interest Rate Spread (A)

September 30,

2022 December 31,

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

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

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

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

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

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

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

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

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

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

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

The agreement required us to maintain various standard financial covenants similar to the financial covenants required by our active lenders, as described above, along with a GAAP net income-based covenant.

In addition, the agreement set forth events of default customary for this type of transaction.

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

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

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

Spread Drawn Amount

Note Payable Base Interest Rate March 31, 2023 December 31, 2022

($ in thousands)

Multinational Bank 1 (1)

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

Multinational Bank 2 (2)

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

$ 147,261 $ 362,899

Global Investment Bank 1 (3)

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

Average Daily SOFR 2.25% $ 160,457 $ 352,038

Global Investment Bank 2 (2)

1 month SOFR 2.20% - 3.45% — —

$ 98,335 231,981

Global Investment Bank 3 (3)

Compound SOFR 2.80% 278,795 119,137

Institutional Investors A and B (4)

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

Regional Bank 1 (5)

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

1 month SOFR 2.50% - 3.50% N/A —

Total $ 439,252 $ 639,870

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

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

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

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

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

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

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

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

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

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

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

The following table sets forth the total unused borrowing capacity of each financing line as of March 31, 2023:

Note Payable Borrowing Capacity Balance Outstanding Available Financing

(in thousands)

Multinational Bank 1 (1)

$ 600,000 $ 160,457 $ 439,543

Regional Bank 2 (7)

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

Global Investment Bank 2 (1)

250,000 — 250,000

Global Investment Bank 3 (2)

278,795 278,795 —

Total $ 1,128,795 $ 439,252 $ 689,543

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

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

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

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

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

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

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

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

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

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

remove any draw fees;

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

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

(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 spread equal to 20 basis points, plus the prior spread.

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

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

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

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

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

(7) This agreement terminates 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) provide that 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.

Prior to February 11, 2022, interest was based on 1-month LIBOR plus a spread of 2.30%.

(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 March 31, 2023, this financing facility had no unused borrowing capacity as the outstanding borrowings were based on static pools of mortgage loans.

Short‑Term Repurchase Facilities.

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

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

September 30, 2022

The following table sets forth certain characteristics of our short-term repurchase facilities as of March 31, 2023 and December 31, 2022:

March 31, 2023

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

($ in thousands)

RMBS $ 67,454 4.50 % 15

Treasury securities $ 397,503 3.65 % 11

$ 44,711 6.55 % 12

Total $ 442,214 3.94 % 11

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($ in thousands)

Treasury Bills $ 248,750 0.12 % 6

RMBS 360,501 0.16 % 18

52,544 6.07 % 13

Total $ 52,544 6.07 % 13

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

The repurchase debt against the U.S.

Treasury securities was repaid in full upon the maturity of the U.S.

Treasury securities.

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

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Q3 2022 67,454 50,988 67,454

Q4 2022 52,544 56,426 63,357

Q1 2023 442,214 180,165 442,214

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

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Securitization Transactions

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

In the transaction, AOMT 2023-1 issued approximately $552.9 million in face value of bonds.

Our proportionate share of 41.21% of the retained bonds was approximately $21.8 million, including a retained discount on issuance of approximately $6.8 million.

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

Given the accounting rules surrounding this type of transaction, we derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our condensed consolidated balance sheet as of March 31, 2023.

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

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

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

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

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

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-1 securitization on our condensed consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of September 30, 2022.

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

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

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

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

Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2021-7 securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

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

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

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

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

Given the accounting rules surrounding this type of transaction, we have consolidated the securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.

Leverage and Hedging Strategies

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

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

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

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

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

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

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Cash and cash equivalents

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

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

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

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

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

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

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

Our cash balance as of March 31, 2023 was sufficient to meet our liquidity covenants under our financing facilities.

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

Due to the conversion of our financing facility with Global Investment Bank 3 to a static pool financing facility, which limited our mark-to-market exposure, some of our cash was restricted, as further described below, and held in an economic interest rate hedging account for the benefit of Global Investment Bank 3, for its benefit and under its control.

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

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Restricted Cash

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

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

Restricted cash of approximately $20.8 million as of March 31, 2023 was comprised of:

$15.4 million was held for the benefit of Global Investment Bank 3, the majority of which balance is in an economic interest rate hedging account under the control of Global Investment Bank 3, and may be drawn by Global Investment Bank 3 at its discretion, $0.4 million in interest rate futures margin collateral for the interest rate futures under our sole control;

and margin collateral for securities sold under agreements to repurchase of $5.0 million.

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

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

$1.1 million in interest rate futures margin collateral;

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

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

Nine Months Ended

September 30, 2022 September 30, 2021

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

Three Months Ended

March 31, 2023 March 31, 2022

(in thousands)

Cash flows used in operating activities $ (644,278) $ (883,722)

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

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

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

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

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

Treasury securities.

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

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

Cash flows provided by (used in) operating activities $ 265,140 $ (606,423)

Cash flows provided by (used in) investing activities $ (409,544) $ 261,363

Cash flows provided by financing activities $ 162,160 $ 388,644

Net increase in cash and restricted cash $ 17,756 $ 43,584

The cash provided by operating activities of $265.1 million for the three months ended March 31, 2023 as compared to the use of cash of $606.4 million for the three months ended March 31, 2022 was primarily due to the sale of residential mortgage loans into an affiliate’s securitization trust during the first three months of 2023, while in 2022, we purchased residential mortgage loans.

The use of investing cash flows of $409.5 million for the three months ended March 31, 2023 as compared to cash provided by investing activities of $261.4 million for the three months ended March 31, 2022 were primarily due to the timing of purchases and maturities of U.S.

Treasury securities in the comparative period.

Financing cash flows provided of $162.2 million for the three months ended March 31, 2023 as compared to $388.6 million provided for the three months ended March 31, 2022 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods, and proceeds from non-recourse securitization transactions in the 2022 comparative period.

Cash Flows - Residential and Commercial Loan Classification

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Recent Accounting Pronouncements

Refer to the notes to our consolidated financial statements included in this report for a discussion of recent accounting pronouncements and any expected impact on the Company.

Refer to the notes to our condensed consolidated financial statements included in this report for a discussion of recent accounting pronouncements and any expected impact on the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis