What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-20 · 294 added, 338 removed, 815 unchanged (44% of the section changed)

9 unchanged sentences

Residential Mortgage Loans

Commercial Mortgage Loans

Investment Securities

6 unchanged sentences

Commitments and Contingencies

Accumulated Other Comprehensive Income /(Loss)

Equity and Earnings per Share

6 unchanged sentences

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

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

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

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

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

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

Accordingly, we express no such opinion.

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

9 unchanged sentences

As of December 31, 2023, the recorded balance of the Company’s residential mortgage loans was $1.6 billion.

The Company determines the fair value of its residential mortgage loans based on trading activity observed in the marketplace, provided by a third-party pricing service, using both market comparable information and discounted cash flow modeling techniques.

The Company estimates the fair value of its residential mortgage loans using price information provided by third-party pricing services.

These services determine price information predominately based on trading activity observed in the marketplace, using both market comparable information and discounted cash flow modeling techniques.

We identified the assessment of the valuation of residential mortgage loans as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, was involved in determining certain of the underlying assumptions, including prepayment, default, loss severity, and discount rates, which are not readily observable in the market and subject to significant measurement uncertainty.

The evaluation of these assumptions to determine the valuation of residential mortgage loans required subjective and complex auditor judgment since the assumptions used were sensitive to variation, such that changes in the assumptions could cause significant changes in the estimate.

A high degree of audit effort, including specialized skills and knowledge, was involved in evaluating the third-party pricing services’ valuation techniques and models as well as determining certain of the underlying valuation assumptions, including the prepayment rate, default rate, loss severity rate, and discount rate, which are subject to significant measurement uncertainty.

The evaluation of these assumptions to

determine the fair value of residential mortgage loans required subjective and complex auditor judgment since the assumptions used were sensitive to variation.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of certain internal controls related to valuation of residential mortgage loans at fair value and involved valuation professionals with specialized skills and knowledge who assisted in:

• assessment of the third-party developed valuation techniques and models through comparison to industry practices

• evaluating whether the underlying third-party assumptions which were used to determine the fair value reflect those which a market participant would use to determine an exit price in the current market environment

• evaluating the assumptions used to determine the fair value of residential mortgage loans by comparing the assumptions above for a selection of residential mortgage loans to market research and relevant industry practices

• independently recalculating the fair value of a selection of loans using the Company’s assumptions and comparing the results of our recalculation of fair value to the Company’s fair value estimate.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s residential mortgage loan valuation process, including controls related to the evaluation of pricing service information and assumptions used in residential mortgage loan valuations.

We involved valuation professionals with specialized skills and knowledge who assisted in:

◦ evaluating the design of the Company’s internal controls specific to the assessment of the third-party pricing services’ valuation techniques and models

◦ evaluating that the methodology used by the Company in determining residential mortgage loan fair value is in accordance with U.S.

◦ assessing the third-party pricing services’ valuation techniques and models through comparison to industry practices

◦ recalculating the fair value of a selection of residential mortgage loans using the Company’s assumptions and comparing the results of our recalculation to the Company’s fair value estimate

◦ developing an independent fair value estimate for a selection of residential mortgage loans at fair value based on independently developed valuation models and assumptions and comparing the results to the Company’s fair value estimate.

We have served as the Company’s auditor since 2018.

7 unchanged sentences

Residential mortgage loans in securitization trusts - at fair value 1,221,067 1,027,442

Commercial mortgage loans - at fair value 9,458 18,664

RMBS - at fair value 472,058 1,055,338

CMBS - at fair value 6,111 10,756

Treasury Securities - at fair value 149,927 —

2 unchanged sentences

Principal and interest receivable 7,501 17,497

Deferred tax asset 3,457 —

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

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STOCKHOLDERS’ EQUITY

Series A preferred stock, $ 0.01 par value.

As of December 31, 2022:

no shares issued and outstanding.

As of December 31, 2021:

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

Common stock, $ 0.01 par value.

17 unchanged sentences

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 (see Note 3), 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

17 unchanged sentences

(in thousands)

Preferred Stock Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholder(s)’ Equity

Preferred Stock Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity

Stockholder’s equity as of December 31, 2021

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

Private placement concurrent with IPO — 21 39,979 — — 40,000

Common stock issued in IPO — 72 136,728 — — 136,800

Shares repurchased — ( 3 ) ( 4,657 ) — — ( 4,660 )

Non-cash equity compensation — 5 1,710 — — 1,715

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

Unrealized gain on RMBS and CMBS — — — 4,039 — 4,039

Dividends paid on common stock (1)

$ 101 $ 252 $ 476,510 $ 3,000 $ 11,527 $ 491,390

Net income — — — — 21,113 21,113

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

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

5 unchanged sentences

— — — — ( 41,702 ) ( 41,702 )

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

Net income (loss)

— — — — ( 187,833 ) ( 187,833 )

Stockholders’ equity as of December 31, 2022

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

$ — $ 249 $ 475,379 $ ( 21,127 ) $ ( 218,022 ) $ 236,479

Non-cash equity compensation — — 1,689 — — 1,689

Unrealized gain (loss) on RMBS and CMBS

— — — 16,152 — 16,152

Dividends paid on common stock (2)

— — — — ( 31,928 ) ( 31,928 )

Net income (loss)

— — — — 33,714 33,714

Stockholders’ equity as of December 31, 2023

$ — $ 249 $ 477,068 $ ( 4,975 ) $ ( 216,236 ) $ 256,106

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

(2) Dividends paid on common stock for the year ended December 31, 2023 at $ 0.32 per share of common stock on March 31, 2023, May 31, 2023, August 31, 2023, and November 30, 2023.

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

5 unchanged sentences

Net income (loss) $ 33,714 $ ( 187,833 )

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

Net realized losses 8,717 4,926

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

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

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, and derivative contracts ( 63,489 ) 201,753

Amortization of debt issuance costs 1,145 1,053

Net amortization of premiums and discounts on mortgage loans 2,855 9,370

Accretion of non-recourse securitized obligation discount 2,469 —

Accretion of U.S.

Treasury securities discount ( 1,462 ) —

Non-cash stock compensation 1,689 5,753

3 unchanged sentences

Sale of residential mortgage loans 4,941 252,709

Sale of residential mortgage loans into affiliates securitization trusts 350,304 —

Principal payments on residential mortgage loans 34,731 84,190

Principal payments on mortgage loans in securitization trusts 100,904 201,607

Margin received from interest rate futures contracts 21,121 75,432

Principal and interest receivable 9,996 12,156

Receivable from affiliate — 14

Other assets ( 233 ) ( 130 )

2 unchanged sentences

Accrued expenses payable to affiliate ( 1,258 ) 581

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

Income tax payable 1,241 ( 3,457 )

Interest payable ( 1,731 ) 1,268

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

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 306,404 $ ( 331,127 )

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

3 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of investments in RMBS and CMBS ( 419,748 ) ( 1,481,011 )

Purchases of investments in RMBS, available for sale ( 1,022,010 ) ( 419,748 )

Purchases of investments in RMBS, trading ( 1,354,057 ) —

Sale of investments in RMBS, available for sale 1,006,196 812,107

Sale of investments in RMBS, trading 1,332,832 —

Purchases of investments in U.S.

Treasury Securities ( 998,380 ) ( 349,992 )

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

Maturities of U.S.

Treasury Securities 850,000 600,000

Purchases of investments in majority-owned affiliates ( 16,088 ) —

Principal payments on RMBS and CMBS securities 3,063 14,067

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

Origination of commercial mortgage — ( 3,180 )

3 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Contributions from prior common stockholder — 56,261

Proceeds from issuance of common stock in IPO — 136,800

Proceeds from private placement concurrent with IPO — 40,000

Repurchase of common stock — ( 6,863 )

20 unchanged sentences

mortgage market.

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

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

The Company’s 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 the proprietary mortgage lending platform of its affiliate, Angel Oak Mortgage Solutions LLC (together with other non-operational affiliated originators, “Angel Oak Mortgage Lending”), which currently operates primarily through a wholesale channel and has a national origination footprint.

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

1 unchanged sentence

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

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

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

On June 21, 2021, the Company completed its initial public offering (the “IPO”) of 7,200,000 shares of common stock, $ 0.01 par value per share (“common stock”), at an initial public offering price of $ 19.00 per share for total proceeds of approximately $ 136.8 million, excluding the underwriting discounts and commissions and offering expenses of the IPO, each of which was paid by Angel Oak Capital Advisors, LLC (“Angel Oak Capital”), pursuant to a registration statement on Form S-11, as amended (File No.

333-256301) (the “Registration Statement”), filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

Such underwriting discounts and commissions were $ 8.2 million.

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

Such expenses were $ 4.4 million.

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

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

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

The Company is traded on the New York Stock Exchange under the ticker symbol AOMR.

The Operating Partnership

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

Reclassifications

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

Recent Accounting Standards - Recently Issued

Recent Accounting Standards - Recently Adopted

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

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

The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate (“LIBOR”) and other reference rates.

The standard provides optional expedients and exceptions for applying GAAP to debt, derivatives, and other contracts affected by reference rate reform.

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

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

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

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

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

Reclassifications

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

These reclassifications had no effect on the reported results of operations of prior years.

For comparative purposes, and to simplify the presentation of the Company’s consolidated balance sheet, the Commercial mortgage loans - at fair value, CMBS - at fair value, and Deferred tax assets have been reclassified to “Other assets” on the consolidated balance sheet as of December 31, 2022.

See Note 15 — Other Assets .

Further, an adjustment has been made to the Consolidated Statements of Cash Flows for the year-ended December 31, 2022, to identify amortization of debt issuance costs, net amortization of premiums and discounts of mortgage loans, and principal payments on residential mortgage loans in securitization trusts.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).

There were no recent ASUs that are expected to have a significant impact on the Company's consolidated financial statements when adopted or had a significant impact on the Company's consolidated financial statements upon adoption.

Variable Interest Entities

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

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

In addition, the Company has the power to direct the activities that most significantly impact the VIE’s economic performance.

As of December 31, 2023 and 2022, the Company was considered to be a primary beneficiary in certain VIEs which held certain interests in the assets held by consolidated securitization vehicles which were created under the purview of its wholly-owned securitization shelf, Angel Oak Mortgage Trust (“AOMT”) II, LLC.

2 unchanged sentences

The liabilities of the securitization vehicles, which are also consolidated on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

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

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

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

17 unchanged sentences

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

A reconciliation of the amounts of cash and cash equivalents and restricted cash in the consolidated balance sheets to the amount in the consolidated statements of cash flows is as follows:

December 31, 2023 December 31, 2022

Cash and cash equivalents $ 41,625 $ 29,272

Restricted cash 2,871 10,589

Cash, cash equivalents and restricted cash as show in the statement of cash flows $ 44,496 $ 39,861

Fair Value Measurements

5 unchanged sentences

The Company accounts for any purchases or sales of Investment Securities on a trade date basis.

At the time of disposition, realized gains or losses on sales of Investment Securities are determined based on a specific identification basis and are a component of “net realized loss on mortgage loans, derivative contracts, RMBS, and CMBS” in the consolidated statements of operations and comprehensive income (loss).

At the time of disposition, realized gains or losses on sales of Investment Securities are determined based on a specific identification basis and are a component of “net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS” in the consolidated statements of operations and comprehensive income (loss).

RMBS, CMBS, and U.S.

2 unchanged sentences

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

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

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

Treasury Securities as either trading or available-for-sale (“AFS”).

Trading Investment Securities are carried at their estimated fair values and coupon interest is recognized as interest income when earned and deemed collectible.

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

Available-for-sale Investment Securities are carried at their estimated fair value with unrealized gains and losses reported in other comprehensive income (loss) in the consolidated statements of operations and comprehensive income (loss).

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

5 unchanged sentences

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

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

The fair value of such REO is typically based on management’s estimates which generally use information including

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

general economic data, broker opinions of value, recent sales, property appraisals, and bids, and takes into account the expected costs to sell the property.

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

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

These derivative financial

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

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

GAAP purposes;

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Premiums and discounts are generally amortized into interest income over the life of such securities using the effective yield method.

Adjustments to premium amortization are made for actual prepayments.

Residential Mortgage Loans

Interest income on residential mortgage loans is recognized using the effective interest method over the life of the loans.

Adjustments to premium amortization are made for actual prepayments and impact net realized gains (losses).

Residential and Commercial Mortgage Loans

Interest income on residential mortgage loans and commercial mortgage loans is recognized using the effective interest method over the life of the loans.

The amortization of any premiums and discounts is included in interest income.

Interest income recognition is suspended when residential mortgage loans are placed on non-accrual status.

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

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

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

Commercial Mortgage Loans

Interest income on commercial mortgage loans is recognized using the effective interest method over the life of the loans.

The amortization of any related premiums and discounts is included in interest income.

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

Interest income recognition is suspended when residential mortgage loans or commercial mortgage loans are placed on non-accrual status.

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

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

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

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

Alternatively, the delinquent or impaired loan may be placed back on accrual status if restructured and after the loan is considered re‑performing.

A restructured loan is considered re‑performing when the loan has been current for at least 12 months.

Repurchase Agreements

3 unchanged sentences

Earnings Per Share

The Company computes earnings per share (“EPS”) using the two-class method.

The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings.

Basic net income (loss) per share is computed by dividing net income (loss) allocable to common stockholders by the weighted‑average number of shares of common stock outstanding during the period.

Diluted EPS is calculated by dividing net income (loss) allocable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect of common stock equivalents during each period, unless anti-dilutive.

Share-Based Compensation

1 unchanged sentence

The initial cost of share-based awards is established at the Company’s closing share price on the grant date of the award.

The Company recognizes adjustments for forfeitures as forfeitures occur.

The Company recognizes adjustments for forfeitures as they occur.

The Company has made annual grants of performance share units (“PSUs”), which allow for a 50 % vest after a three-year period and 50 % vest after a four-year period, subject to both continued employment and the achievement of certain performance criteria.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

the performance criteria constitute a “market condition,” which may impact the amount of compensation expense recognized for these awards.

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

6 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

40 unchanged sentences

In addition, a portion of the loans the Company has pledged to secure loan financing lines have adjustable interest rates.

Accordingly, when short‑term interest rates rise, required monthly payments from homeowners will rise under the terms of these adjustable‑rate mortgages, and this may increase borrowers’ delinquencies and defaults.

Accordingly, when

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

short‑term interest rates rise, required monthly payments from homeowners will rise under the terms of these adjustable‑rate mortgages, and this may increase borrowers’ delinquencies and defaults.

Credit losses on commercial mortgage loans can occur for many of the reasons noted above for residential mortgage loans.

6 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

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

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

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First, particular investments may experience outright losses, as in the case of an interest‑only security in an environment of faster actual or anticipated prepayments.

Second, particular investments may underperform relative to the financial instruments that the Company’s Manager may have constructed to reduce specific financial risks for these investments, resulting in a loss to the Company.

Second, particular investments may underperform

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

relative to the financial instruments that the Company’s Manager may have constructed to reduce specific financial risks for these investments, resulting in a loss to the Company.

In particular, prepayments (at par) may limit the potential upside of many whole loans, RMBS, and CMBS to their principal or par amounts, whereas their corresponding hedges, if any, often have the potential for unlimited loss.

6 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Variable Interest Entities

2 unchanged sentences

VIEs for Which the Company is the Primary Beneficiary

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

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

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The Company entered into securitization transactions that resulted in the Company consolidating the VIEs used to facilitate these

transactions.

See Note 2 “Variable Interest Entities” for a discussion of the accounting policies applied to the consolidation of VIEs and transfers of financial assets in connection with financing transactions.

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

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

December 31, 2022 December 31, 2021

(in thousands)

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

Fair value adjustment ( 166,437 ) 1,855

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

Accrued interest receivable $ 1,995 $ 1,728

Liabilities (1) :

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

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

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

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

Fair value adjustment ( 80,554 ) —

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

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

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

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

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

The following table summarizes the key details of the Company’s loan securitization transactions currently outstanding as of December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

($ in thousands)

Interest income $ 48,443 $ 7,933

Interest expense, non-recourse liabilities (1)

( 26,223 ) ( 1,792 )

Net interest income $ 22,220 $ 6,141

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

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

Securitization expenses (2)

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

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

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

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

VIEs for Which the Company is Not the Primary Beneficiary

In 2019 and 2020, the Company co‑sponsored and participated in the formation of various entities that were considered to be VIEs.

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

Aggregate unpaid principal balance of residential whole loans sold $ 2,578,595 $ 2,236,515

Face amount of Non-recourse securitization obligation issued by the VIE and purchased by third-party investors 1,619,051 1,359,698

Outstanding amount of Non-recourse securitization obligation, at carrying value 1,220,067 1,084,039

Outstanding amount of Non-recourse securitization obligation, at fair value ( 50,912 ) ( 80,554 )

Outstanding amount of Non-recourse securitization obligation, total $ 1,169,154 $ 1,003,485

Weighted average fixed rate for Non-recourse securitization obligation issued 2.91 % 2.70 %

Face amount of Senior Support Certificates received by the Company (3) $ 91,330 $ 66,149

Cash received $ 194,746 $ 159,007

During the years ended December 31, 2023 and 2022, the Company and it’s affiliates issued and sold bonds with a current face value of $ 259 million and $ 680 million to third-party investors for proceeds of $ 233 million and $ 675 million, respectively, before offering costs and accrued interest.

The sold bonds issued during the years ended December 31, 2023 and 2022 are included in “Non-recourse securitization obligations, collateralized by residential mortgage loans in securitization trusts” on the Company’s consolidated balance sheets.

As of December 31, 2023 and 2022, as a result of the transactions described above, securitized loans of approximately $ 1.3 billion and $ 1.2 billion are included in “Residential mortgage loans in securitization trusts” on the Company’s consolidated balance sheets, respectively.

As of December 31, 2023 and 2022, the aggregate carrying value of sold bonds issued by consolidated VIEs was $ 1.2 billion and $ 1.1 billion, respectively.

These sold bonds are disclosed as “Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts” on the Company’s consolidated balance sheets.

The holders of the securitized debt have no recourse to

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

The Company determined that it was not then and is not now the primary beneficiary of any of these entities, as no primary beneficiary was identified in the assessment of primary beneficiary determination, and thus has not consolidated the operating results or statements of financial position of any of these entities.

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

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

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

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

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

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

the general credit of the Company, but the Company does have the obligation, under certain circumstances, to repurchase assets from the VIE upon the breach of certain representations and warranties with respect to the residential whole loans sold to the VIE.

In the absence of such a breach, the Company has no obligation to provide any other explicit or implicit support to any VIE.

The Company concluded that the entities created to facilitate the loan securitization transactions are VIEs.

The Company completed an analysis of whether each VIE created to facilitate the securitization transactions should be consolidated by the Company, based on consideration of its involvement in each VIE and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of each VIE.

In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:

• whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE;

• whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE.

Based on its evaluation of the factors discussed above, including its involvement in the purpose and design of the entity, the Company determined that it was required to consolidate each VIE created to facilitate the loan securitization transactions

VIEs for Which the Company is Not the Primary Beneficiary

The Company sponsored or participated along with other affiliates and entities managed by Angel Oak Capital in the formation of various entities that were considered to be VIEs.

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

These securities were issued as a result of the unconsolidated securitizations where the Company retained bonds from the issuances of securitizations issued by a depositor that the Company does not control.

The Company determined that it was not then and is not now the primary beneficiary of any of these securitization entities, and thus has not consolidated the operating results or statements of financial position of any of these entities.

The securities received in the securitization transactions were classified as “available for sale” upon receipt and are included in “RMBS - at fair value” and “Other Assets” on the consolidated balance sheets as of December 31, 2023 and December 31, 2022, and details on the accounting treatment and fair value methodology of the securities can be found in Note 10 — Fair Value Measurements .

See also Note 5 — Investment Securities , for the fair value of AOMT securities held by the Company, and Note 15 - Other Assets , for investments in MOAs, as of December 31, 2023 and December 31, 2022 that were retained by the Company as a result of these securitization transactions.

Residential Mortgage Loans

10 unchanged sentences

Weighted average remaining maturity (years) 29 30

During the year ended December 31, 2022, the Company sold, on a servicing released basis, residential mortgage loans with a gross weighted average coupon of approximately 4.5 %, and a cost basis of approximately $ 315.6 million.

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

The following table sets forth data regarding the number of consumer mortgage loans secured by residential real property 90 or more days past due and also those in formal foreclosure proceedings, and the recorded investment and unpaid principal balance of such loans as of December 31, 2023 and 2022:

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 December 31, 2022

6 unchanged sentences

Unpaid principal balance of loans in foreclosure $ 1,889 $ 849

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Commercial Mortgage Loans

Commercial mortgage loans are measured at fair value.

The following table sets forth the cost, fair value, weighted average interest rate, and weighted average remaining maturity of the Company’s commercial mortgage loan portfolio as of December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

($ in thousands)

Cost $ 9,928 $ 18,641

Unpaid principal balance $ 9,928 $ 18,698

Net discount on mortgage loans purchased — ( 51 )

Change in fair value ( 470 ) 17

Fair value $ 9,458 $ 18,664

Weighted average interest rate 7.03 % 6.25 %

Weighted average remaining maturity (years) 8 8

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

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

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

Investment Securities

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

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

Treasury Securities in the consolidated balance sheet.

As of December 31, 2023, Investment Securities were comprised of non‑agency RMBS and Freddie Mac and Fannie Mae “whole pool agency RMBS” (together, “RMBS”), and U.S.

Treasury securities.

As of December 31, 2022, Investment Securities were comprised of RMBS and CMBS.

Treasury Securities held by the Company as of December 31, 2023 matured on January 9, 2024.

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

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

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

The Company did not hold any U.S.

Treasury securities as of December 31, 2022.

The following table sets forth a summary of RMBS at cost as of December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

(in thousands)

RMBS $ 1,075,944 $ 482,824

CMBS $ 6,329 $ 10,875

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

AOMT RMBS $ 84,957 $ 69,922

Whole Pool Agency RMBS $ 391,964 $ 1,006,022

The following table sets forth certain information about the Company’s investment in RMBS as of December 31, 2023:

December 31, 2023 Real Estate Securities at Fair Value Repurchase Debt (2)

13 unchanged sentences

Total RMBS $ 472,058 $ ( 44,643 ) $ 427,415

Subordinate $ 2,901 $ — $ 2,901

Interest Only/Excess 3,210 — 3,210

Total AOMT CMBS $ 6,111 $ — $ 6,111

(1) AOMT RMBS held as of December 31, 2023 included both retained tranches of AOMT securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions.

1 unchanged sentence

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.

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

(3) The whole pool RMBS presented as of December 31, 2023 were purchased from a broker to whom the Company owes approximately $ 392 million, payable upon the settlement date of the trade.

See Note 8 - Due to Broker .

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

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

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

December 31, 2022

Real Estate Securities at Fair Value Repurchase Debt Allocated Capital

(in thousands)

4 unchanged sentences

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

Retained RMBS in VIEs

— ( 24,586 ) ( 24,586 )

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

8 unchanged sentences

Total RMBS $ 1,055,338 $ ( 52,544 ) $ 1,002,794

Subordinate $ 7,993 $ — $ 7,993

Interest Only/Excess 2,763 — 2,763

Total AOMT CMBS $ 10,756 $ — $ 10,756

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

The Company did not hold any U.S.

Treasury Securities as of December 31, 2022.

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

Treasury Securities as of December 31, 2023.

The Company did not hold any U.S.

Treasury Securities as of December 31, 2022.

Date Face Value Unamortized Discount, net Amortized Cost

1 unchanged sentence

($ in thousands)

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

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

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

December 31, 2023 $ 150,000 $ 159 $ 149,841 $ 86 $ 149,927 5.30 %

Notes Payable

4 unchanged sentences

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

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

There was no margin collateral required as of December 31, 2023.

Restricted cash as of December 31, 2022 included $ 5.6 million in margin collateral required by a certain lender.

The following table sets forth the details of all the lines of credit available to the Company for whole loan purchases during the years ended December 31, 2023 and 2022, and the drawn amounts as of December 31, 2023 and 2022:

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

Base Interest Rate December 31, 2023 December 31, 2022

($ in thousands)

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

Global Investment Bank 1 (3)

6 unchanged sentences

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)

1 unchanged sentence

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 the Secured Overnight Financing Rate (“SOFR”) as base interest rate and corresponding applicable definitions of “Term” and “Average” SOFR, and “SOFR base”.

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

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

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

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

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

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

On July 25, 2023 this facility was amended with an updated interest pricing spread of 2.10 % and extended until January 25, 2024.

On December 15, 2023, the loan financing facility was extended through June 25, 2024, in accordance with the mechanism for six-month renewal periods.

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

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

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

remove any draw fees;

(4) On February 4, 2022, this facility was amended 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 %.

On January 19, 2024, this facility was amended to extend the expiration date to May 2, 2024.

(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.

2 unchanged sentences

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

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

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

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

On November 7, 2023, this facility was renewed for a 12 month term through 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 a base interest rate pricing spread of 180 basis points plus a 20 basis points index spread adjustment, with an expiration date of November 7, 2024.

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

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

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

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

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

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

There was no restricted cash related to this facility on the Company’s consolidated balance sheet as of December 31, 2023.

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

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

The Company subsequently repaid this financing facility in full on January 4, 2023 and chose not to exercise the three months extension period option.

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.

There was no restricted cash related to this facility on the Company’s consolidated balance sheet as of December 31, 2023.

(7) On March 7, 2022, this 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 spread of 2.50 % - 3.13 %.

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.

8 unchanged sentences

200,000 84,427 115,573

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.

Due to Broker

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

The “Due to broker” account on the consolidated balance sheet as of December 31, 2023 and December 31, 2022 in the amount of $ 392 million and 1.0 billion, respectively, relates to the purchase of Whole Pool Agency RMBS.

Purchases are accounted for on a trade date basis;

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

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

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

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

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

The trade date of this purchase was prior to the applicable year-end dates.

These trades settled on January 16, 2024 and January 13, 2023, respectively, at which time these assets were simultaneously sold.

The purchase transactions for the unsettled Whole Pool Agency RMBS are excluded from the consolidated statements of cash flows as they are non-cash transactions.

Securities Sold Under Agreements to Repurchase

2 unchanged sentences

As of December 31, 2023 and 2022, there was approximately $ 0.3 million and $ 3.9 million, respectively, held as margin cash collateral for repurchase agreements recorded in “restricted cash” on the consolidated balance sheets.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table summarizes certain characteristics of the Company’s repurchase agreements as of December 31, 2023 and 2022:

2 unchanged sentences

($ in thousands)

Treasury Securities

$ 149,013 5.57 % 10

AOMT RMBS (1)

$ 44,643 7.04 % 16

Total $ 193,656 5.91 % 11

2 unchanged sentences

($ in thousands)

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

RMBS 360,501 0.16 % 18

AOMT RMBS $ 52,544 6.07 % 13

Total $ 52,544 6.07 % 13

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

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

See Note 5 - Investment Securities .

5 unchanged sentences

Restricted cash as of December 31, 2023 and 2022 included approximately $ 2.5 million and $ 1.1 million in interest rate futures margin collateral, respectively;

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

and zero and approximately zero in TBA margin collateral, respectively.

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

7 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

The following table sets forth the derivative instruments presented on the consolidated balance sheets and notional amounts as of December 31, 2023 and 2022:

34 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

11 unchanged sentences

Government and Agency Securities (“U.S.

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

These securities are generally categorized as Level 1 securities.

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

Treasury Securities are generally categorized as Level 1 securities while whole pool agency RMBS are generally classified as level 2 securities.

Futures Contracts - Futures contracts that are traded on an exchange are valued at their last reported sales price as of the valuation date.

5 unchanged sentences

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

Commercial Mortgage Loans - Commercial mortgage loans are recognized at fair value.

Commercial Mortgage Loans - Commercial mortgage loans, including in Other Assets, are recognized at fair value.

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

15 unchanged sentences

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

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

We believe that these quotes are most reflective of the price that would be achieved if the

bonds were sold to an independent third party on the date of the consolidated financial statements.

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

Other assets and liabilities - The fair value of cash, restricted cash, principal and interest receivable, deferred tax assets and liabilities, other assets (principally consisting of prepaid assets), notes payable, securities sold under obligation to repurchase, amounts due to broker and accrued expenses (including those payable to an affiliate and management fees payable to an affiliate), and interest payable approximate their carrying values due to the nature of these assets and liabilities.

Valuation Processes

6 unchanged sentences

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

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

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2023:

Level 1 Level 2 Level 3 Total

3 unchanged sentences

Residential mortgage loans in securitization trusts — 1,207,804 13,263 1,221,067

Commercial mortgage loans — 9,458 — 9,458

Investments in securities

Non-Agency RMBS (1)

AOMT RMBS (1)

— 79,696 — 79,696

Agency whole pool loan securities — 993,378 — 993,378

AOMT CMBS (1)

Whole Pool Agency RMBS — 392,362 — 392,362

Treasury Securities.

149,927 — — 149,927

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

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

Other Assets, at fair value (2)

— 32,923 — 32,923

Total assets, at fair value $ 149,927 $ 2,086,789 $ 19,299 $ 2,256,015

2 unchanged sentences

$ — $ 743,189 $ — $ 743,189

Unrealized depreciation on futures contracts

( 840 ) — — ( 840 )

Unrealized depreciation on TBAs

( 494 ) — — ( 494 )

Total liabilities, at fair value $ ( 1,334 ) $ 743,189 $ — $ 741,855

1 unchanged sentence

All AOMT CMBS held as of December 31, 2023 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(2) Includes Commercial Loans and AOMT CMBS assets.

All AOMT CMBS held as of December 31, 2023 was comprised of a small-balance commercial loan securitization issuance in which the Company participated.

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

5 unchanged sentences

We use third‑party valuation firms who utilize proprietary methodologies to value our residential and commercial loans.

These firms generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets.

These firms generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our assets.

Use of these techniques requires determination of relevant input and assumptions, some of which represent significant unobservable inputs such as anticipated credit losses, prepayment rates, default rates, or other valuation assumptions.

1 unchanged sentence

The following table sets forth information regarding the Company’s significant Level 3 inputs as of December 31, 2023:

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Asset Fair Value Unobservable Input Range Average

10 unchanged sentences

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

As of December 31, 2023, the total amortized cost basis and fair value of our non-recourse securitization obligations was $ 1.24 billion and $ 1.09 billion, respectively, a difference of approximately $ 247.8 million (which includes AOMT 2022-1, AOMT 2022-4, and AOMT 2023-4, which are marked to fair value;

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

The fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $ 81.9 million less than the amortized cost.

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

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

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

3 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Investments in Majority-Owned Affiliates

To determine the fair value of the Company’s investments in majority-owned affiliates, which are held at amortized cost and included in “other assets”, the Company uses the prices of the underlying bonds in the investments to determine fair value.

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

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

The amortized cost and fair value of these investments as of December 31, 2023 was approximately $ 16.2 million and $ 16.7 million, respectively.

The amortized cost and fair value of these investments as of December 31, 2022 was zero .

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2022 (1) :

4 unchanged sentences

Residential mortgage loans in securitization trusts — 1,018,686 8,756 1,027,442

Commercial mortgage loans — 18,145 519 18,664

Investments in securities

2 unchanged sentences

Agency whole pool loan securities — 993,378 — 993,378

AOMT CMBS (1)

— 10,756 — 10,756

Treasury Securities 249,999 — — 249,999

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

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

Other Assets, at fair value (2)

— 20,337 — 20,337

Total assets, at fair value $ 14,756 $ 2,858,147 $ 15,952 $ 2,888,855

Liabilities, at fair value

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

Non-recourse securitization obligation, collateralized by residential mortgage loans

$ — $ 530,560 $ — $ 530,560

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

1 unchanged sentence

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

(2) Includes Commercial Loans and AOMT CMBS assets.

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

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

7 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Asset Fair Value Unobservable Input Range Average

7 unchanged sentences

Expected remaining life 1.42 - 3.72 years

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

Sale or Liquidation timeline 39 - 50 months

39 - 50 months

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

16 unchanged sentences

Federal $ 4,774 $ —

State 1,312 —

Total current income tax expense 6,086 —

7 unchanged sentences

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

The NOLs incurred in 2022 can be carried forward indefinitely, until fully utilized.

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

This evaluation requires significant judgment, and changes to the Company’s assumptions could result in a material change in the valuation allowance.

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

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

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

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

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

1 unchanged sentence

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

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

December 31, 2022

The tax effects of temporary differences that give rise to significant portions of the net DTA recorded at the TRS entity as of December 31, 2023 and 2022 are set forth in the following table:

December 31, 2023 December 31, 2022

(in thousands)

Net operating loss $ 41,583

Net operating loss carryforward

$ 40,714 $ 41,583

Utilization of operating loss carryforwards

Valuation allowance ( 32,417 ) ( 38,126 )

Total DTA 3,457 3,457

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

Reconciliation of Statutory Tax Rate to Effective Tax Rate

20 unchanged sentences

(1) Excludes loans held in consolidated securitizations.

Commercial Mortgage Loan Purchases

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

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

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

As of and for the Year Ended:

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

($ in thousands)

Pre-IPO Management Fee

A pre-IPO management agreement (the “Pre-IPO management agreement”) existed among the Company, its Manager, and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), the Company’s sole common stockholder prior to the IPO.

Per the Pre-IPO management agreement, on a quarterly basis in advance, the Company paid its Manager an aggregate, fixed management fee equal to 1.5 % per annum of the total Actively Invested Capital (as defined in the Pre-IPO management agreement) of the limited partners in Angel Oak Mortgage Fund.

The Pre-IPO management agreement terminated on June 20, 2021 in connection with the IPO.

Post-IPO Management Fee

On and after June 21, 2021, the post-IPO management agreement (the “Management Agreement”) took effect among the Company, the Operating Partnership, and its Manager.

Management Fee

On and after June 21, 2021, management agreement (the “Management Agreement”) took effect among the Company, the Operating Partnership, and its Manager.

Per the Management Agreement, on a quarterly basis in arrears, the Company shall pay its Manager an aggregate, fixed management fee equal to 1.5 % per annum of the Company’s Equity (as defined in the Management Agreement).

Post-IPO Incentive Fee

Incentive Fee

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

5 unchanged sentences

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

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

Prabhu for his service with the Company.

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

Prabhu for his service with the Company in 2022 or 2023.

Prabhu is an equity owner of the Manager.

3 unchanged sentences

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

This severance is expected to be paid in 2023.

Contribution from Common Stockholder Prior to IPO

The Company issued a distribution from additional paid‑in capital as a short‑term recallable return of capital to its common stockholder during the third quarter of 2020.

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

Transactions by Affiliates Regarding the Company’s IPO

The Company’s IPO was completed on June 21, 2021.

The Company’s Manager purchased $ 6.0 million in stock at the IPO price of $ 19.00 per share, which was delivered on June 21, 2021.

Angel Oak Capital, an affiliate of the Company’s Manager, agreed to pay the underwriting discounts and commissions in connection with the IPO.

Such underwriting discounts and commissions were $ 8.2 million.

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

Such expenses were $ 4.4 million.

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

This severance was fully paid in 2023.

Commitments and Contingencies

2 unchanged sentences

As of December 31, 2023, the Company had no unfunded commitments.

The Company has entered into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties.

As of December 31, 2023, the Company has a total purchase commitments of $ 28 million related to both Angel Oak Mortgage Lending and third parties.

These commitments represent off-balance sheet risk where the Company may be required to extend credit.

Accumulated Other Comprehensive Income/(Loss)

The following table sets forth the net unrealized gain/(loss) on AFS securities for the fiscal year ended December 31, 2023 and 2022, which is the s ole component of the changes in the Company’s Accumulated Other Comprehensive Income/(Loss) (“AOCI”) for the fiscal year concluded on December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

(in thousands)

AOCI balance, beginning of period $ ( 21,127 ) $ 3,000

Net unrealized gain/(loss) on AFS securities 16,152 ( 24,127 )

AOCI balance, end of period $ ( 4,975 ) $ ( 21,127 )

The following table sets forth the detail of other assets included in the condensed consolidated balance sheets as of December 31, 2023 and December 31, 2022:

December 31, 2023 December 31, 2022

($ in thousands)

Investments in Majority-Owned Affiliates

Commercial Mortgage Loans

Deferred tax asset 3,457 3,457

Prepaid expenses 1,137 1,310

Protective advances and other assets 285 —

Total other assets $ 32,922 $ 20,336

Investments in Majority-Owned Affiliates (“MOA”)

In 2023, the Company participated in securitization transactions AOMT 2023-1, AOMT 2023-5, and AOMT 2023-7, which involved MOAs in which the Company received investments of 41.21 %, 34.42 %, and 10.35 %, respectively, in each case proportional to its share of the unpaid principal balance of the residential whole loans contributed to the securitizations.

The purpose of the MOAs is to retain and hold risk retention bonds issued by the securitization trust.

Each MOA is a limited liability company and is accounted for as an equity method investment and held at amortized cost.

The investment will be tested for impairment at least annually utilizing undiscounted cash flows of the underlying risk retention bonds.

See Note 10 — Fair Value Measurements .

Commercial Mortgage Loans

Commercial mortgage loans are measured at fair value.

As of December 31, 2023 and December 31, 2022, the cost and unpaid principal balance of the assets was $ 5.6 million and $ 9.9 million, with a fair value of $ 5.2 million and $ 9.5 million, respectively.

The weighted average interest rate was 6.24 % with a weighted average maturity of 12 years, as of December 31, 2023.

There were no commercial mortgage loans more than 90 days past due or in foreclosure as of December 31, 2023 or December 31, 2022.

Commercial Mortgage Backed Securities

CMBS are held at fair value.

As of December 31, 2023 and December 31, 2022, the cost of these assets were $ 6.3 million and $ 6.3 million, with a fair value of $ 6.6 million and $ 6.1 million, respectively.

There was no repurchased debt held against these assets at December 31, 2023 or December 31, 2022.

Equity and Earnings per Share (“EPS”)

1 unchanged sentence

Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances, and the Company determined that this difference was not material.

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

For the year ended December 31, 2023, there were 196,353 outstanding restricted stock awards included in the diluted weighted average common shares outstanding.

For the year ended December 31, 2022, no equity awards were antidilutive.

4 unchanged sentences

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

Dividends allocated to participating securities ( 89 ) —

Net income (loss) to common stockholders - basic 33,625 ( 187,847 )

Basic weighted average common shares outstanding 24,722,285 24,547,916

1 unchanged sentence

Diluted Earnings per Common Share:

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

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

Dividends allocated to participating securities ( 89 ) —

Net income (loss) to common stockholders - diluted 33,625 ( 187,847 )

Basic weighted average common shares outstanding 24,722,285 24,547,916

Net effect of dilutive equity awards 219,473 —

4 unchanged sentences

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Equity Compensation Plans

11 unchanged sentences

Granted 142,820 14.08

( 331,376 ) 18.54

Forfeited ( 11,393 ) 15.80

4 unchanged sentences

Outstanding as of December 31, 2023

196,353 $ 12.86

(1) Includes the accelerated vesting of 155,937 shares in accordance with an executive severance event described in Note 12 - Related Party Transactions — Operating Expense Reimbursements.

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

The expense associated with the accelerated stock vesting was approximately $ 2.6 million, and was included in stock compensation in the Company’s consolidated statements of operations and comprehensive income (loss) as of December 31, 2022.

Performance Share Units Awarded

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

The Board of Directors have awarded a total of 183,427 Performance Share Units (“PSUs”), at a weighted average grant date fair value of $ 11.11 per share, to certain employees of the Manager and its affiliates, of which 123,767 PSUs remained outstanding as of December 31, 2023, due to forfeitures of 59,660 PSUs.

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

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

If the performance criteria are met, the PSUs shall vest 50 % on the third anniversary of the awards and 50 % on the fourth anniversary of the awards.

The number of shares vested is based on the achievement of the performance goals set forth in the applicable award agreements over the relative performance periods.

Dividend Equivalents Relating to Performance Share Units

1 unchanged sentence

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

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

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

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

Angel Oak Mortgage REIT, Inc.

Notes to the Consolidated Financial Statements

Subsequent Events

Subsequent events of significance for disclosure purposes only (i.e., subsequent events that are not recognized in the financial statements as of and for the year ended December 31, 2023) are as follows:

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

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

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

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

On January 19, 2024, the Company extended its loan financing facility with Global Investment Bank 2.

The loan financing facility had previously been set to expire on February 2, 2024, and has been extended through May 2, 2024.

On February 7, 2024, the Company declared a dividend of $ 0.32 per share of common stock, that was paid on February 29, 2024 to common stockholders of record as of February 22, 2024.

On March 12, 2024, the Company contributed loans with a scheduled principal balance of approximately $ 48.7 million into an approximately $ 439.6 million scheduled principal balance securitization transaction backed by a pool of residential mortgage loans along with other affiliates of Angel Oak Capital, an affiliate of the Manager.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data