What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-20 · 288 added, 365 removed, 558 unchanged (54% of the section changed)

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mortgage market.

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

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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 (the “Advisers Act”) and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets.

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

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

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

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

Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination

platform, is a market leader in non‑QM loan production and, as of December 31, 2023, had originated over $18.6 billion in total non‑QM loan volume since its inception in 2011.

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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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.

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

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

SEC Order Regarding an Affiliate of Our Manager

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

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

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

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

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

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

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

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

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

The inaccuracies related to

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

Angel Oak Capital and Mr.

Negandhi did not admit or deny these findings.

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

Negandhi acted with fraudulent intent.

The SEC accepted Angel Oak Capital’s and Mr.

Negandhi’s offers to settle the case.

Angel Oak Capital and Mr.

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

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

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

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

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

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

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

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

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

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

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

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

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

2023 saw the continuation of the federal funds rate increase cycle that began in March 2022, pushing the federal funds rate to its highest level since 2001 and driving uncertainty and apprehension across capital markets throughout the year.

However, the Federal Reserve Bank (the “Fed”) has held the rate steady since raising it by 25 basis points in its July meeting, and the Fed has indicated that it is likely at the peak of the rate hike cycle, citing a decrease in inflation from 6.4% to 3.1% from the beginning to the end of 2023.

This generated positive momentum in fixed income markets in the fourth quarter of 2023, with expectations for a more constructive environment in 2024.

Analysts are currently working to determine the timing and extent to which the Fed will cut interest rates, with each release of updated key economic data impacting expectations.

Residential mortgage rates have begun to respond to expectations of potential rate cuts, and decreased by seventy (70) basis points in the fourth quarter of 2023 compared to the prior quarter.

From an annual perspective, the average conforming 30-year mortgage rate with no points averaged approximately 6.61% as of the end of 2023, representing a net increase of approximately 19 basis points when compared to the end of 2022.

Mortgage applications were suppressed over the course of the year, but appear to have begun to rebound in early 2024, suggesting that homebuyers are beginning to acclimate to a higher rate environment.

However, an expectation of near-term decreases in mortgage rates could cause potential homebuyers to delay their purchase in anticipation of more favorable terms.

Two-year and five-year Treasury yields capped off a volatile year with overall decreases of (17) basis points and (16) basis points, respectively, compared to the end of 2022.

Ending the year at 4.25%, the two-year Treasury saw a high of 5.22% and a low of 3.78% over the course of the year.

Similarly, the five-year Treasury ended the year at 3.85% while observing a high of 4.96% and a low of 3.31% over the course of the year.

These rates are key benchmarks for the valuation of our portfolio, and drove corresponding volatility in our asset pricing.

The weighted average price of our residential whole loans portfolio increased by 5.79 percentage points versus the third quarter to 98.23% of par (including newly-originated loan purchases during the quarter), and increased 9.02 percentage points over the course of the year.

Additionally, the weighted average coupon of our residential whole loans portfolio increased by 95 basis points versus the third quarter, and by 198 basis points versus the end of 2022, to 6.78% as of December 31, 2023.

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

Our investment performance

Net Interest Margin (“NIM”).

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

We held fewer target assets over the course of 2023 as compared to 2022, thereby generating less interest income.

Though our borrowings decreased as well, higher variable interest rates associated with our notes payable and repurchase financing facilities caused our interest expense to increase, compressing our NIM for 2023 as compared to 2022.

Net realized loss .

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

Net unrealized loss .

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

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

Summary of Securitization Activity

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

Our net realized loss for the year ended December 31, 2023 was primarily driven by our participation in co-mingled securitizations with other Angel Oak entities (AOMT 2023-1, AOMT 2023-5, and AOMT 2023-7).

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

however, the realized losses were less than the previous period’s unrealized losses for these loans, which drove overall positive GAAP net income for these securitizations.

Net unrealized gain .

Our net unrealized gain for the year ended December 31, 2023 was driven by a more positive macroeconomic backdrop in 2023 as compared to 2022 which drove increased valuations of our target assets, as well as the reversal of the unrealized loss (and thereby the recognition of net realized loss as discussed above) on the sale of residential mortgage loans into the AOMT 2023-1, AOMT 2023-5, and AOMT 2023-7 securitizations.

Additionally, we purchased $222.7 million of newly-originated, market coupon loans during 2023, which generally saw an appreciation in value as of the end of the year.

The comparable period of 2022 saw unrealized losses related to valuation of residential and securitized loans driven by historic interest rate increases and interest rate spread widening.

Whole loans and securitization activity

During the year ended December 31, 2023, we purchased $222.7 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 8.37%, weighted average loan-to-value of 70.1% and weighted average credit score of 754.

Subsequent to December 31, 2023, on March 12, 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled principal balance securitization transaction backed by a pool of residential mortgage loans.

We contributed loans with a scheduled principal balance of $48.7 million, with other Angel Oak entities contributing the remaining balance.

We may strategically enter into similar securitizations with other Angel Oak entities in the future, and / or issue securitizations where we are the sole participant, as we did in 2023, 2022 and 2021, as further described below.

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

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

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

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

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

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

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

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

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

Purchases and Sale of Whole Loans

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

These purchases were completed by the third quarter of 2022.

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

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

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

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

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

Whole loan financing arrangements

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

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

In January 2023, we participated in AOMT 2023-1, an approximately $580.0 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.

On June 29, 2023, we issued AOMT 2023-4, securitizing a total of approximately $285.0 million on unpaid principal balance of seasoned non-QM mortgage loans.

On August 22, 2023, we participated in AOMT 2023-5, an approximately $260.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled principal balance of approximately $93.8 million.

On December 19, 2023, we participated in AOMT 2023-7, an approximately $397 million unpaid 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 $42.0 million.

We issued AOMT 2023-4 as the sole participant in the securitization.

As the primary beneficiary we have consolidated the AOMT 2023-4 securitization, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheet as of the applicable balance sheet date.

AOMT 2023-1, AOMT 2023-5, and AOMT 2023-7 were securitization transactions entered into with other Angel Oak affiliates, for which we are not considered to be a "primary beneficiary" of the applicable securitization vehicle.

Therefore, the bonds retained from these securitizations, as well as from our securitizations prior to 2021, are held on our consolidated balance sheets as of December 31, 2023 and December 31, 2022.

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

Whole loan financing facilities activity

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

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

Our total borrowing capacity was $1.1 billion as of December 31, 2023.

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

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

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

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

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

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

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

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

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

Highlights of whole loan financing facilities activity over 2023 are as follows:

• During the year ended December 31, 2023, we maintained the same whole loan financing facility lender base as of December 31, 2022, with the exception of the expiration of an unused line of credit with a regional bank in the first quarter of 2023 and the repayment of Institutional Investors A and B in the first quarter of 2023

• In the fourth quarter of 2023, the Company extended its loan financing facility with Multinational Bank 1 through June 25, 2024.

• In the fourth quarter of 2023, the Company converted its loan financing facility with Global Investment Bank 3 from static pool financing to a revolving facility with mark to market features.

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

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

• Subsequent to December 31, 2023, the Company extended its loan financing facility with Global Investment Bank 2 through May 2, 2024.

Key Financial Metrics

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

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

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

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

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the Management Agreement that we and our 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 Part II, Item 8, Note 12 – Related Party Transactions in our audited consolidated financial statements included in this Annual Report on Form 10-K.

Distributable Earnings were approximately $(28.1) million and $19.4 million for the years ended December 31, 2023 and 2022, respectively.

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Net income (loss) allocable to common stockholders $ 33,714 $ (187,847)

Net other-than-temporary credit impairment losses — —

Net unrealized (gains) losses on trading securities (484) —

Net unrealized (gains) losses on derivatives 16,985 (13,054)

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Net unrealized (gains) losses on commercial loans (91) 844

Net unrealized (gains) losses on financial instruments at fair value — —

(Gains) losses on extinguishment of debt — —

Non-cash equity compensation expense 1,689 5,753

Incentive fee earned by the Manager — —

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

Total other non-recurring (gains) losses — —

Distributable Earnings $ (28,086) $ 19,444

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(in thousands except for share and per share data)

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

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

Common stockholders’ equity $ 256,106 $ 231,802 $ 232,676 $ 244,379 $ 236,479

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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.

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(in thousands except for share and per share data)

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

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

GAAP total common stockholders’ equity for book value per share of common stock $ 256,106 $ 231,802 $ 232,676 $ 244,379 $ 236,479

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Results of Operations

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

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

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

Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

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NET INTEREST INCOME 28,901 52,520

REALIZED AND UNREALIZED LOSSES, NET

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

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

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

REALIZED AND UNREALIZED GAINS (LOSSES), NET

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS (37,526) (8,717)

Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 3), and derivative contracts 63,489 (201,753)

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET 25,963 (210,470)

Operating expenses 7,474 12,179

Operating expenses incurred with affiliate 2,105 3,096

Due diligence and transaction costs 310 1,376

Stock compensation 1,689 5,753

Operating expenses incurred with affiliate 3,096 2,828

Securitization costs 2,484 3,137

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Commercial mortgage loans 541 7,525 1,137 15,392

RMBS 13,613 384,038 24,221 264,095

RMBS and Majority-Owned Affiliates

12,304 175,291 13,613 384,038

CMBS 1,315 6,434 778 8,886

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Net interest income for the years ended December 31, 2023 and 2022 was $28.9 million and $52.5 million, respectively.

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

Net interest income decreased by approximately $23.6 million for the year ended December 31, 2023 as compared to 2022, primarily due to lower residential mortgage loan and RMBS asset balances, partially offset by increased interest income from residential mortgage loans in securitization trusts and U.S.

Treasury Securities.

Additionally, interest expense increased for the year ended December 31, 2023 as compared to 2022 due to increases in the floating interest rates associated with this debt despite lower notes payable and repurchase facility borrowings.

Total Realized and Unrealized Gains (Losses)

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Realized and unrealized gain (loss) on residential mortgage loans $ 26,564 $ (213,528)

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

Realized and unrealized gain (loss) on residential loans held in securitization trusts, net of non-recourse securitization obligation

13,031 (71,526)

Realized loss on RMBS (2,152) (10,820)

Realized and unrealized gain (loss) on Whole Pool Agency RMBS (16,458) —

Realized loss on CMBS (260) (1,520)

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Total realized and unrealized gains (losses), net $ 25,963 $ (210,470)

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

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

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

partially offset by realized gains on interest rate hedging activity.

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

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

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

For the years ended December 31, 2023 and 2022, total realized and unrealized gains (losses), net, were a gain of $26.0 million and a loss of $210.5 million, respectively.

For the year ended December 31, 2023, an increase in mark-to-market valuations on our portfolios of residential mortgage loans and loans in securitization trust were the primary drivers of the total unrealized gain, offset by realized and unrealized losses on whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”).

Comparatively, for the year ended December 31, 2022, residential mortgage loan valuations decreased dramatically, driving the majority of the total realized and unrealized loss.

Operating Expenses

For the years ended December 31, 2023 and 2022, our operating expenses were $7.5 million and $12.2 million, respectively.

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

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

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

Due Diligence and Transaction Costs

For the years ended December 31, 2023 and 2022, our due diligence and transaction costs were $0.3 million and $1.4 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 year ended December 31, 2022 as compared to the year ended December 31, 2021, as we paused loan purchases in the fourth quarter of 2022.

Our due diligence and transaction expenses decreased over the comparative period as we negotiated improved pricing and purchased fewer whole loans in the year ended December 31, 2023 as compared to 2022.

Stock Compensation

For the years ended December 31, 2023 and 2022, our stock compensation expense was $1.7 million and $5.8 million, respectively.

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

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

The primary driver of this decrease is a one-time expense resulting from the accelerated vesting of stock awards for our former Chief Executive Officer and President, due to his separation from the Company, in accordance with the Company’s Executive Severance and Change in Control Plan (the “Executive Severance Agreement”).

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

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For the years ended December 31, 2023 and 2022, our operating expenses incurred with affiliate were $2.1 million and $3.1 million, respectively.

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

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

This accrued severance is expected to be paid in 2023.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased during the comparative period primarily due to the separation of our former Chief Executive Officer and President in 2022.

Securitization expenses

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

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

For the year ended December 31, 2023 and 2022, our securitization expenses were $2.5 million and $3.1 million, respectively.

The expenses incurred during the year ended December 31, 2023 are related to the AOMT 2023-1, AOMT 2023-4, AOMT 2023-5, and AOMT 2023-7 securitizations.

The securitization costs incurred for the comparable period in 2022 were associated with the AOMT 2022-1 and AOMT 2022-4 securitizations.

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 the pre-IPO management agreement.

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 years ended December 31, 2023 and 2022, our management fee incurred with affiliate was $5.8 million and $7.8 million, respectively.

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

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

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

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

The decrease is due to the decline in our average Equity (as defined in the Management Agreement) for the year ended December 31, 2023 as compared to the same period in 2022.

During the year ended December 31, 2023, we recorded an income tax expense of approximately $1.2 million based on our income taxes arising from income associated with assets held in our TRS.

During the year ended December 31, 2022, we incurred an income tax benefit of approximately $3.5 million based on an expectation of a potential recovery of income taxes arising from losses associated with assets held in our TRS.

Our Portfolio

As of December 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.

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

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

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

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

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

CMBS 6,111 — 6,111 2.6 %

Treasury Securities 149,927 149,013 914 0.4 %

Investment in Majority-Owned Affiliates

16,232 — 16,232 6.3 %

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

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

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

Treasury Securities held as of December 31, 2022.

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

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

Treasury securities.

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

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

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

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CMBS 6,111 — 6,111 2.6 %

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

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

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Total $ 1,941,836 $ 1,695,899 $ 236,479 100.0 %

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

Treasury Securities.

(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

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Interest rate 2.99% - 12.50%

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

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

December 2053

FICO score at loan origination 624 - 825

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Interest rate 2.88% - 9.99% 4.8%

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

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

FICO score at loan origination 575 - 823 737

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

The following table sets forth the information regarding the underlying collateral of our residential 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 December 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 December 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 December 31, 2023:

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

Numbers presented may not sum to 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):

Characteristics of Our Residential Mortgage Loans as of December 31, 2022:

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 not sum to 100% due to rounding

Residential Mortgage Loans Held in Securitization Trusts

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

($ in thousands)

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Weighted average credit score at loan origination and deal date 742

Current 3-month CPR 5%

Current 3-month constant prepayment rate (“CPR”) (1)

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

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

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

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

(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 December 31, 2023 (percentages are based on the aggregate unpaid principal balance of such loans):

No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023.

Numbers presented may not sum to 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

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

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

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

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, 2021:

The following charts illustrate additional characteristics of our 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):

Characteristics of Our Residential Mortgage Loans as of December 31, 2022:

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.

The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2021, 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 December 31, 2021:

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

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

Commercial Mortgage Loans

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

Portfolio Range Portfolio Weighted Average

($ in thousands)

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

Interest rate 5.50% - 8.38% 7.03%

Loan term 0.42 - 27.18 years 7.68 years

LTV at loan origination 46.7% - 75.0% 50.9%

The following table provides additional information on the commercial mortgage loans in our portfolio as of December 31, 2021:

Portfolio Range Portfolio Weighted Average

($ in thousands)

UPB $244 - $4,300 $1,700

Interest rate 5.75% - 8.38% 6.25%

Loan term 1.42 - 28.18 years 8.36 years

LTV at loan origination 46.7% - 75.0% 59.8%

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of December 31, 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 December 31, 2022:

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

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

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

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.

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 AOMT securitization transactions is set forth below as of December 31, 2022, unless otherwise stated:

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

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

No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2022.

Numbers presented may not sum 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 AOMT securitization transactions is set forth below as of December 31, 2023 and 2022 unless otherwise stated:

As of December 31, 2023

AOMT 2019 Securitizations

AOMT 2020 Securitizations

AOMT 2023 Securitizations

($ in thousands)

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

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

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

50.8 % 74.1 % 72.8 %

Fair value of first loss piece (3,5,6)

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

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

accordingly, original LTV is used.

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

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

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in AOMT securitization transactions is set forth below as of December 31, 2021, unless otherwise stated:

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

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

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

As of December 31, 2022

AOMT 2019 Securitizations

AOMT 2020 Securitizations

($ in thousands)

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90+ day delinquency (as a % of UPB) 8.40 % 4.40 %

Weighted Average 90+ Delinquency (as a % of Original Balance) 1.80 % 1.90 %

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

53.00 % 74.10 %

Fair value of first loss piece (3)

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

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

accordingly, original LTV is used.

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

11 unchanged sentences

Retained RMBS in VIEs (3)

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

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

$ 79,696 $ 392,362 $ 472,058 $ 44,643 $ — $ 44,643 $ 30,738 $ 392,362 $ 423,100

Investment in Majority Owned Affiliates

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

$ 95,928 $ 392,362 $ 488,290 $ 44,643 $ — $ 44,643 $ 46,970 $ 392,362 $ 439,332

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

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

See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

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

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

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

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

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

RMBS Repurchase Debt Allocated Capital

RMBS Repurchase Debt (1,3)

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

2 unchanged sentences

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 $ 27,958 $ 24,586 $ 52,544 $ 34,002 $ 968,792 $ 1,002,794

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

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

See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

(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 consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets.

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

3 unchanged sentences

Acquisitions:

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

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

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

8 unchanged sentences

Acquisitions:

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

Third party securities — — — — 3,151,406 3,151,406

8 unchanged sentences

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, 2023.

Numbers presented may not sum to 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):

3 unchanged sentences

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.

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

Numbers presented may not sum to 100% due to rounding.

Commercial Mortgage Loans

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

Portfolio Range Portfolio Weighted Average

($ in thousands)

UPB $239 - $3,161

Interest rate 5.50% - 8.38% 6.24%

Loan term 26.25 - 28.08 years

LTV at loan origination 50.00% - 75.00%

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

Portfolio Range Portfolio Weighted Average

($ in thousands)

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

Interest rate 5.50% - 8.38% 7.03%

Loan term 0.42 - 27.18 years 7.68 years

LTV at loan origination 46.70% - 75.00%

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of December 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 December 31, 2023:

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

Numbers presented may not sum to 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 commercial mortgage-backed securities “CMBS” issued in the AOMT 2020-SBC1 securitization transaction is shown below as of December 31, 2022 and 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 December 31, 2023 and December 31, 2022:

December 31, 2023 December 31, 2022

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

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

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 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.

3 unchanged sentences

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

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

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

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

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

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

We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due.

We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to

meet our obligations as they come due.

We will adjust our plans as appropriate in response to changes in our expectations and any potential changes in market conditions.

Description of Existing Financing Arrangements

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

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

As of December 31, 2023, we were a party to three uncommitted loan financing lines for a total borrowing capacity in an aggregate amount of up to $1.1 billion.

Borrowings under uncommitted loan financing lines may be used to purchase whole loans for eventual securitization or loans purchased for long‑term investment purposes.

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

As of December 31, 2022, the advance rates (when required) of our five active lenders ranged from 60% to 92%, depending on the asset type and loan delinquency status.

Our most restrictive covenants (when covenants are required by any of our five active lenders) included (1) (i) our minimum tangible net worth of must not decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or, if shorter, in the period from September 30, 2022 to the applicable date of determination or;

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

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

As of December 31, 2023, the advance rates (when required) of our three active lenders ranged from 75% 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 (x) the product of 5% and the aggregate repurchase price as it relates to Global Investment Bank 3 as of such date of determination, (y) $10.0 million and (z) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds);

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

Our minimum liquidity requirement as of December 31, 2023 was $10 million.

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

Other restrictive covenants with which we were bound to comply during 2023 related to financing facilities which were terminated by us, and included additional requirements around GAAP net income and EBITDA.

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

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

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

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 six months for a maximum six-month term.

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

On December 15, 2023, this master repurchase agreement was extended through June 25, 2024, unless terminated earlier pursuant to the terms of the master repurchase agreement.

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

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

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

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

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Multinational Bank 2 Loan Financing Facility.

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

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

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

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

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

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

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

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

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

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

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

and (3) minimum liquidity.

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

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

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

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

Global Investment Bank 1 Loan Financing Facility.

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

We were considered the “Seller” under this agreement.

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

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

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

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

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

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

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

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

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

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

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

(1) adjusted tangible net worth;

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

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

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

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

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

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

Global Investment Bank 2 Loan Financing Facility.

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

We are considered a “Seller” under this agreement.

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.

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The agreement, as amended previously, was set to terminate on February 2, 2024.

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

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

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

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

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

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

On January 19, 2023, the agreement was amended to terminate on May 2, 2024, unless terminated earlier pursuant to the terms of the agreement.

Effective as of the amendment executed on 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).

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

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

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

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

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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.

Global Investment Bank 3 Loan Financing Facility.

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

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

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

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

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

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

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

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

Prior to December 19, 2022, the loan financing line was marked‑to‑market at fair value, where Global Investment Bank 3 retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and in a commercially reasonable manner and was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

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

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

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

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

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

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

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

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

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

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

On November 7, 2023, the facility was amended converted from static pool financing to a revolving facility with “mark to market” features.

The amendment also reduced the maximum borrowing capacity to $200.0 million, extend the termination date to November 7, 2024 and eliminated the interest rate futures account requirements.

The base interest rate spread was reduced to 1.80% plus a 0.20% index spread adjustment for the first six (6) months of seasoning on this financing facility with an additional 0.25% increase following the first six (6) months.

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

Prior to December 19, 2022 and subsequent to November 7, 2023, the loan financing line was marked‑to‑market at fair value, where Global Investment Bank 3 retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and

in a commercially reasonable manner and was under no obligation to purchase the eligible mortgage loans we offered to sell to them.

Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan prior to the December 19, 2022 amendment and subsequent to the November 7, 2023 amendment is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less.

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

Prior to December 19, 2022 and subsequent to November 7, 2023, 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 require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

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

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

Pursuant to the agreement, interest accrued under the master repurchase agreement at a rate based on 1-month Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and a spread of 3.5%, with 1-month Term SOFR subject to a floor of 2.0%.

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

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

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

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

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

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

Prior to this facility’s expiration, from time to time, we and one of our subsidiaries amended such master repurchase agreement with Regional Bank 1.

We were considered a “Seller” under this agreement.

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

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

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

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

Pursuant to the agreement, we or our subsidiary could sell to Regional Bank 1, and later repurchase, up to $75.0 million, and beginning March 8, 2022, provided that interest accrued on any new transactions under the loan financing line at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus an additional pricing spread.

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

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

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

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

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

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

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

(1) a minimum tangible net worth requirement;

(2) minimum liquidity;

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

and (4) a net income-based covenant.

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

The agreement required us to maintain various financial and other covenants similar to the financial covenants required by our active lenders, as described above, along with a GAAP 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.

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Regional Bank 2 Loan Financing Facility.

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

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

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

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

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

The Regional Bank 2 Financing Line was set to terminate, with amounts outstanding under the Regional Bank 2 Financing Line due to mature, on August 16, 2023, subject to certain exceptions.

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

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

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

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

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

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

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

(1) tangible net worth;

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

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

and (4) liquidity.

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

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

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

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

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Multinational Bank 1 (1)

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

Average Daily SOFR 2.10% - 2.25%

$ 206,183 352,038

Multinational Bank 2 (2)

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

1 month SOFR 1.95% - 2.00%

Global Investment Bank 1 (3)

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

1 month or 3 month SOFR 1.70% - 3.50%

Global Investment Bank 2 (4)

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Institutional Investors A and B (6)

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

1 month Term SOFR 3.50% — 168,695

Regional Bank 1 (7)

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Regional Bank 2 (8)

1 month SOFR 2.41% N/A 11,258

1 month SOFR 2.41% — —

Total $ 290,610 $ 639,870

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

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

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

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

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

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

(1) This loan financing facility expires on June 25, 2024.

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

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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 such subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i)

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

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

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

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

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

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

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

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

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

On January 19, 2024, this financing facility was extended through May 2, 2024.

(5) On November 7, 2023, the agreement was extended to terminate on November 7, 2024 and was converted from static pool financing to a revolving facility with mark to market features.

The amended facility has a maximum borrowing capacity of $200 million with an interest rate spread of 180 basis points plus a 20 basis point index spread adjustment for the first six (6) months of dwell time.

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

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

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

Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and beginning March 8, 2022, provided that interest will accrue on any new transactions under the loan financing line at a rate based on Term SOFR plus an additional pricing spread.

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

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

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

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

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Multinational Bank 1 $ 600,000 $ 206,183 $ 393,817

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

Global Investment Bank 2

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Global Investment Bank 3 200,000 84,427 115,573

119,137 119,137 —

Institutional Investors A and B (2)

168,695 168,695 —

Regional Bank 1 (1)

75,000 — 75,000

Total $ 1,050,000 $ 290,610 $ 759,390

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

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

Although available financing is uncommitted for each of these lines of credit, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

Short‑Term Repurchase Facilities.

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($ in thousands)

Treasury Securities $ 149,013 5.57 % 10

$ 44,643 7.04 % 16

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($ in thousands)

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

RMBS 360,501 0.16 % 18

AOMT RMBS 52,544,000 6.07 % 13

Total $ 52,544,000 6.07 % 13

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

See Item 8, Note 6 - Investment Securities .

See Item 8, Note 5 — Investment Securities in our audited consolidated financial statements included in this Annual Report on Form 10-K.

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

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Q2 2023 340,701 101,731 340,701

Q3 2022 67,454 50,988 67,454

Q4 2022 52,544 56,426 63,357

188,101 87,279 188,101

193,656 62,536 193,656

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

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Securitization Transactions

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

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

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

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

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

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

Our proportionate share of 10.36% of the retained bonds and investments in majority owned affiliates (“MOAs”) was approximately $3.5 million, including a retained discount on issuance of approximately $1.4 million.

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

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

accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheet as of December 31, 2022.

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

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

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

In the transaction, AOMT 2023-5 issued approximately $260.6 million in face value of bonds.

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

Our proportionate share of 34.42% of the retained bonds and investments in MOAs was approximately $8.7 million, including a retained discount on issuance of approximately $2.7 million.

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

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

In June 2023, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 48% of which were mortgage loans originated by third parties and the remainder of which were originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2023-4 issued approximately $259.4 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $197.3 million and retained cash of $35.7 million, which was used for new loan purchases and operational purposes.

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

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

In 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.

We have consolidated the AOMT 2023-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2023 and December 31, 2022.

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.

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.

Our proportionate share of 41.21% of the retained bonds and investments in MOAs 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.

We derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our consolidated balance sheet as of December 31, 2023.

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

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

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

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

In 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.

We have consolidated the AOMT 2022-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2023 and December 31, 2022.

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

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

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

We have consolidated the AOMT 2022-1 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2023 and December 31, 2022.

Leverage and Hedging Strategies

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

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

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

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

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

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

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

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

released subsequent to December 31, 2022;

$2.5 million in interest rate futures margin collateral;

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

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

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

$5.6 million in margin collateral required by certain whole loan financing facility counterparties;

$1.1 million in interest rate futures margin collateral, and $3.9 million in

margin collateral for securities sold under agreements to repurchase.

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

For the Years Ended

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(in thousands)

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

Cash flows provided by (used in) operating activities

$ 306,404 $ (331,127)

Cash flow provided by (used in) investing activities $ (194,107) $ 664,333

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Net increase (decrease) in cash and restricted cash $ 4,635 $ (12,448)

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

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

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

Cash flows provided by operating activities of $306.4 million for the year ended December 31, 2023 as compared to $331.1 million in outflows for the year ended December 31, 2022 were primarily due to net income for the year ended December 31, 2023, compared to a net loss for 2022, along with activity related to the securitization of residential mortgage loans during the year ended December 31, 2023.

Investing cash net outflows of $(194.1) million for the year ended December 31, 2023 as compared to net inflows of $664.3 million for the year ended December 31, 2022 were primarily due to an increase in purchases of RMBS during the year ended December 31, 2023 as compared to 2022.

Financing cash outflows of $(107.7) million for the year ended December 31, 2023 as compared to outflows of $(345.7) million for the year ended December 31, 2022 was primarily due a reduction in loan financing driven by residential loan sale in 2022 and offset by loan purchases in 2023..

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 Part II, Item 8, Footnote 2, of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements and any expected impact on us.

Refer to the notes to our consolidated financial statements included in Part II, Item 8, Note 2 — Summary of Significant Accounting Policies , of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements and any expected impact on us.

Critical Accounting Policies and Estimates

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

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

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

Inputs may be observable (reflecting assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity) or unobservable (the entity’s own assumptions).

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

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

The availability of valuation techniques and the ability to attain observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the

type of investment, whether the investment is newly issued and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.

The fair value hierarchy is categorized into three broad levels (Levels 1, 2, and 3) based on the inputs as described in Part II, Item 8, Note 10 – Fair Value Measurements .

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

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

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

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

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

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

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Variable Interest Entities

A VIE is defined as an entity in which equity investors (1) do not have the characteristics of a controlling financial interest, and/or (2) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (a) the power to control the activities that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

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We determined that for the securitizations we consolidate, our ownership provides us with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE.

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

In addition, we have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, or we were determined to have power in connection with our involvement with the structure and design of the VIE.

The securitization trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis