What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 257 added, 134 removed, 621 unchanged (39% of the section changed)

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

and its subsidiaries including Angel Oak Mortgage Operating Partnership, LP (our “operating partnership”), through which we hold substantially all of our assets and conduct our operations.

and its subsidiaries including Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”), through which we hold substantially all of our assets and conduct our operations.

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

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

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

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

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

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

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

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

Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination platform, is a market leader in non‑QM loan production.

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

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

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

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Overall macroeconomic environment and its effect on us

2024 kicked off with optimism around federal funds rate cuts over the course of the year, with variability in analyst projections of the number and size of rate reductions.

However, in the first quarter, stubborn employment and inflation readings have delayed market expectations for when the Federal Reserve Bank (“Fed”) will begin to cut rates.

In its May 2024 meeting, the Fed indicated that it still expects to cut rates in 2024, but the timing has been pushed to later in the year versus the initial analyst consensus.

30 year fixed residential conforming mortgage rates increased over the course of the first quarter, ending just below 7% before increasing back above 7% after the end of the quarter.

Additionally, a new set of rules announced in conjunction with a landmark $418 million legal settlement by the National Association of Realtors will prohibit agent’s compensation from being included on multiple listing services (MLS), end a requirement that brokers subscribe to MLS, and introduce a requirement that MLS participants enter into written agreements with their buyers.

Taken together, the effect is expected to drive down broker commissions and increase home purchases when implemented in July 2024.

The two-year and five-year Treasury yields each experienced a modest increase of approximately 37 basis points during the first quarter, which, combined with relatively muted volatility, had a limited impact on the valuation of our portfolio.

Net of new loan purchases and securitizations, we observed an increase of approximately 124 basis points in the weighted average price of our residential whole loans portfolio during the first quarter.

Additionally, we have increased the weighted average coupon of our residential whole loans portfolio by 33 basis points since the end of 2023 to 7.11% as of the end of the first quarter of 2024.

The AOMT 2024-4 securitization executed subsequent to March 31, 2024 reduced the unpaid principal balance of our residential whole loans portfolio by over 75%.

Consistent with our loan acquisition and securitization process, we are refilling the balance of our residential whole loans portfolio with high-quality, current market coupon loans that we expect to contribute to future securitization transactions.

Markets remained focused on the latest inflation readings and macroeconomic conditions during the second quarter of 2024 as investors tried to determine the timing and degree to which the Federal Reserve Bank (“Fed”) will begin to cut interest rates.

Contrary to the first quarter, during which data underscored stubborn inflation, data in the second quarter and subsequent to the second quarter have shown signs of easing inflation.

Despite the macroeconomic movement, and given the conflicting and inconsistent nature of recent data and the fact that inflation is still above its annualized 2% target, the Fed elected to hold interest rates steady through the second quarter.

It has indicated that it still expects to cut rates in 2024, though the timing and number of rate cuts remains uncertain.

30 year fixed residential conforming mortgage rates ended at similar levels in the second quarter compared to the first quarter, with the average rate at the end of June at 6.87% compared to 6.79% at the end of March.

However, we observed volatility within the second quarter as rates increased from the end of March to the end of April, then fell back down to March levels by the end of June.

Home purchase and mortgage origination activity have remained suppressed in line with maintained elevated interest rates, high home prices, and limited supply.

However, mortgage application activity accelerated in June, reflecting the highest level since January of this year.

Rate cuts are expected to drive increased home purchase and mortgage origination activity, but the extent of such activity remains uncertain.

The two-year and five-year Treasury yields were relatively flat in the second quarter, increasing by approximately six basis points and two basis points, respectively.

Net of new loan purchases and securitizations, we observed an increase of approximately 216 basis points in the weighted average price of our residential whole loans portfolio since the end of first quarter 2024.

Additionally, we have increased the weighted average coupon of our residential whole loans portfolio by 60 basis points since the end of the first quarter 2024 to 7.71% as of the end of the second quarter of 2024.

In April, we executed the AOMT 2024-4 securitization as the sole contributor of loans, contributing approximately $300 million in scheduled unpaid principal balance of residential mortgage loans.

Additionally, we participated in the AOMT 2024-6 securitization in June, contributing approximately $22.9 million in scheduled unpaid principal balance of residential mortgage loans.

During the second quarter of 2024, we purchased $114.4 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.93%, weighted average loan-to-value ratio (“LTV”) of 70.4% and weighted average credit score of 757.

Notes offering

Subsequent to the end of the second quarter, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029 (the “Notes”).

The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024.

The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us.

We intend to use the majority of the net proceeds from the offering for general corporate purposes, which may include the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform or other target assets through the secondary market in a manner consistent with our strategy and investment guidelines.

Additionally, we used the net proceeds from the offering to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

Our investment performance

Net Interest Margin (“NIM”).

Despite holding fewer target assets in the first quarter of 2024 as compared to the first quarter of 2023, an increase in the yield of our target assets generated greater interest income than the first quarter of 2023.

Borrowings on our whole loan portfolio decreased as well, reducing our overall interest expense, despite continued high variable interest rates in the first quarter of 2024 compared to the first quarter of 2023.

Despite holding fewer target assets in the second quarter of 2024 as compared to the second quarter of 2023, an increase in the yield of our target assets generated greater interest income in the second quarter of 2024.

Borrowings on our whole loan portfolio decreased as well, reducing our overall interest expense, despite continued high variable interest rates in the second quarter of 2024 compared to the second quarter of 2023.

Net realized loss .

Our net realized loss for the quarter ended March 31, 2024 was primarily due to a realized loss on the sale of whole loans contributed into the AOMT 2024-3 securitization in which we participated.

As this securitization did not result in consolidation of the AOMT 2024-3 VIE entity, we recognized a loss on the sale of these loans.

This was partially offset by realized gains on the economic hedges of our interest rate futures and To-Be-Announced (“TBA”) securities.

Our net realized loss for the quarter ended June 30, 2024 was primarily due to a realized loss on the sale of whole loans contributed into the AOMT 2024-6 securitization which was not consolidated into a VIE, as well as realized losses on loans held in securitization trusts associated with pay downs of underlying loans.

Net unrealized gain .

Our net unrealized gain in the first quarter of 2024 was primarily due to an increase in the valuation of our residential whole loans and loans in securitization trust portfolios, as well as the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2024-3 securitization.

Our net unrealized gain for the quarter ended June 30, 2024 was primarily due to an increase in the valuation of our residential whole loans and the net valuation of loans in securitization trust and non-recourse securitization obligation portfolios.

Additionally,

the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2024-6 securitization contributed to our unrealized gain.

Whole loans and securitization activity

During the quarter ended March 31, 2024, we purchased $43.2 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 8.14%, weighted average loan-to-value ratio (“LTV”)of 68.7% and weighted average credit score of 747.

In March 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $48.7 million.

During the quarter ended June 30, 2024, we purchased $114.4 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.93%, weighted average loan-to-value ratio (“LTV”) of 70.4% and weighted average credit score of 757.

In March 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $48.7 million.

We participated in this securitization alongside other Angel Oak entities, and may strategically enter into similar securitizations in the future.

Subsequent to March 31, 2024, we issued AOMT 2024-4, an approximately $300 million scheduled principal balance securitization backed by a pool of residential mortgage loans.

In April 2024, we issued AOMT 2024-4, an approximately $299.8 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans.

We issued AOMT 2024-4 as the sole participant in the securitization.

As the primary

beneficiary we have consolidated the AOMT 2024-4 securitization, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of the applicable balance sheet date.

As the primary beneficiary we have consolidated the AOMT 2024-4 securitization, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of the applicable balance sheet date.

In June 2024, we participated in AOMT 2024-6, an approximately $479.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $22.9 million.

We participated in this securitization alongside other Angel Oak entities, and may strategically enter into similar securitizations in the future.

Whole loan financing facilities activity

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

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

Our total borrowing capacity was $1.1 billion as of March 31, 2024 Highlights of whole loan financing facilities activity over the first quarter of 2024 are as follows:

• During the quarter ended March 31, 2024, we maintained the same whole loan financing facility lender base as of December 31, 2023.

• During the quarter ended March 31, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and (ii) replaced our existing $250 million loan financing facility with Global Investment Bank 2 with a new $250 million loan financing facility with Global Investment Bank 2.

See “Liquidity and Capital Resources” below for a full description of our financing arrangements.

Our total borrowing capacity was $1.1 billion as of June 30, 2024.

Highlights of whole loan financing facilities activity over the second quarter of 2024 are as follows:

• During the quarter ended June 30, 2024, we maintained the same whole loan financing facility lender base as of December 31, 2023.

• During the quarter ended June 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin to 1.75% from 2.00% and (ii) amended our loan financing facility with Global Investment Bank 3 to allow for the financing of closed-end second position residential mortgage loans.

Key Financial Metrics

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

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

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the management agreement that we and the Operating Partnership entered into with our Manager upon the completion of our IPO on June 21, 2021 and amended and restated on May 1, 2024 (as amended and restated, the “Management Agreement”).

For information on the fees that are payable to our Manager under the Management Agreement, see “Note 10 – Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Distributable Earnings were approximately a gain of $2.8 million and a loss of $9.1 million for the three months ended March 31, 2024 and 2023, respectively.

Distributable Earnings were a loss of $2.3 million and a loss of $3.9 million for the three months ended June 30, 2024 and 2023, respectively.

The primary drivers of this quarter’s Distributable Earnings as compared to GAAP net income are the adjustments to remove unrealized gains associated with our residential loans and residential loans in securitization trusts and non-recourse securitization obligation portfolios.

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and six months ended June 30, 2024 and 2023:

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

(in thousands)

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

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and six months ended June 30, 2024 and 2023:

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

($ in thousands)

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Book Value per Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The following table sets forth the calculation of our book value per share of common stock as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

(in thousands except for share and per share data)

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

Economic book value does not represent and should not be

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

The following table sets forth a reconciliation from GAAP total stockholders’ equity and book value per share of common stock to economic book value and economic book value per share of common stock as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

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

June 30, 2024 December 31, 2023

(in thousands except for share and per share data)

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Results of Operations

Three Months Ended March 31, 2024 and 2023

The following table sets forth a summary of our results of operations for the three months ended March 31, 2024 and 2023:

Three Months Ended June 30, 2024 and 2023

The following table sets forth a summary of our results of operations for the three months ended June 30, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(in thousands)

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Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS $ (6,770) $ (4,169)

Net unrealized gain (loss) on trading securities, mortgage loans, debt at fair value option (see Financial Statements — Note 2), and derivative contracts 10,684 10,190

Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET $ (4,112) $ (3,790)

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INCOME (LOSS) BEFORE INCOME TAXES $ (131) $ (2,907)

Income tax expense 287 —

Income tax expense (benefit) 142 781

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ (273) $ (3,688)

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Net Interest Income

The following table sets forth the components of net interest income for the three months ended March 31, 2024 and 2023:

The following table sets forth the components of net interest income for the three months ended June 30, 2024 and 2023:

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(in thousands)

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Net interest income $ 9,463 $ 6,452

Net interest income for the three months ended March 31, 2024 and 2023 was $8.6 million and $6.8 million, respectively.

Interest income increased in the three months ended March 31, 2024 as compared to the same period in 2023, primarily due higher interest income generated from a larger asset balance of residential mortgage loans in securitization trusts.

Meanwhile, interest expense was relatively flat, with less expense associated with notes payable offset by increased expense associated with non-recourse securitization obligation, collateralized by residential mortgage loans as compared to the same period in 2023.

Net interest income for the three months ended June 30, 2024 and 2023 was $9.5 million and $6.5 million, respectively.

Interest income increased in the three months ended June 30, 2024 as compared to the same period in 2023, primarily due to an increase in the yield of our assets in the second quarter of 2024 despite generally lower average balances.

Interest expense decreased as well, further contributing to the increase in net interest income, primarily due to lower balances and therefore less expense associated with notes payable as compared to the same period in 2023.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the three months ended March 31, 2024 and 2023 are set forth as follows:

The components of total realized and unrealized gains (losses), net for the three months ended June 30, 2024 and 2023 are set forth as follows:

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(in thousands)

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Unrealized appreciation (depreciation) on interest rate futures 844 8,432

Realized gain/(loss) on AOMT MOA (129) —

Total realized and unrealized gains (losses), net $ (4,112) $ (3,790)

For the three months ended March 31, 2024 and 2023, total realized and unrealized gains and (losses), net resulted in a net gain of $9.3 million and losses of $0.7 million, respectively.

During the three months ended March 31, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation, interest rate futures, and residential mortgage loans drove the overall gain to our portfolio.

During the three months ended March 31, 2023, increased optimism and stability in interest rate markets drove gains in the valuation of our residential mortgage loans portfolio which were offset by losses associated with TBAs and interest rate futures.

For the three months ended June 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in losses of $4.1 million and $3.8 million, respectively.

During the three months ended June 30, 2024, losses on securitization, net of unrealized gain (loss) on

non-recourse securitization obligation drove the overall loss to our portfolio.

During the three months ended June 30, 2023, losses were driven by declines in securitization, net of unrealized gain (loss) on non-recourse securitization obligation, whole pool agency RMBS, interest rate futures, and residential mortgage loans, and were partially offset by unrealized appreciation on interest rate futures.

Operating Expenses

For the three months ended March 31, 2024 and 2023, our operating expenses were $2.0 million and $2.2 million, respectively.

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

For the three months ended June 30, 2024 and 2023, our operating expenses were $1.3 million and $2.2 million, respectively.

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

Operating Expenses Incurred with Affiliate

For the three months ended March 31, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.5 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat in the first three months of 2024 compared to the first three months of 2023.

For the three months ended June 30, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.6 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat in the second quarter of 2024 compared to the same period of 2023.

Due Diligence and Transaction Costs

For the three months ended March 31, 2024 and 2023, our due diligence and transaction costs were $49.5 thousand and $0.0 thousand, respectively.

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

For the three months ended June 30, 2024 and 2023, our due diligence and transaction costs were $359 thousand and $21 thousand, respectively.

Our due diligence and transaction expenses increased over the comparative period due to accelerated purchases of whole loans during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Stock Compensation

For the three months ended March 31, 2024 and 2023, our stock compensation expense was $0.6 million and $0.5 million, respectively.

Our stock compensation expense increased for the three months ended March 31, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

For the three months ended June 30, 2024 and 2023, our stock compensation expense was $0.6 million and $0.2 million, respectively.

Our stock compensation expense increased for the three months ended June 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Securitization Costs

For the three months ended March 31, 2024 and 2023, we incurred $0.2 million and $0.9 million of securitization costs, respectively.

The expense incurred in both periods was a proportional allocation of expenses in conjunction with our share of the loans contributed to the AOMT 2024-3 securitization in the first quarter of 2024 and AOMT 2023-1 securitization in the first quarter of 2023, respectively.

For the three months ended June 30, 2024 and 2023, we incurred $1.4 million and $1.0 million of securitization costs, respectively.

The expense incurred in both periods was a proportional allocation of expenses in conjunction with our share of the loans contributed to the AOMT 2024-4 and AOMT 2024-6 securitizations in the second quarter of 2024 and the AOMT 2023-4 securitization in the second quarter of 2023, respectively.

Management Fee Incurred with Affiliate

For the three months ended March 31, 2024 and 2023, our management fee incurred with affiliate was $1.3 million and $1.5 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended March 31, 2024 as compared to the same period in 2023.

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

For the three months ended June 30, 2024 and 2023, our management fee incurred with affiliate was $1.3 million and $1.5 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended June 30, 2024 as compared to the same period in 2023.

Six Months Ended June 30, 2024 and 2023

The following table sets forth a summary of our results of operations for the six months ended June 30, 2024 and 2023:

Six Months Ended

June 30, 2024 June 30, 2023

(in thousands)

INTEREST INCOME, NET

Interest income $ 51,114 $ 47,503

Interest expense 33,072 34,252

NET INTEREST INCOME 18,042 13,251

REALIZED AND UNREALIZED GAINS (LOSSES), NET

Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS (8,192) (15,012)

Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts 13,342 10,569

TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET 5,150 (4,443)

Operating expenses 3,333 4,418

Operating expenses incurred with affiliate 971 1,073

Due diligence and transaction costs 409 21

Stock compensation 1,260 748

Securitization costs 1,583 1,910

Management fee incurred with affiliate 2,606 3,015

Total operating expenses 10,162 11,185

INCOME (LOSS) BEFORE INCOME TAXES 13,030 (2,377)

Income tax expense (benefit) 429 781

NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ 12,601 $ (3,158)

Other comprehensive income (loss) 1,828 14,562

TOTAL COMPREHENSIVE INCOME (LOSS) $ 14,429 $ 11,404

Net Interest Income

The following table sets forth the components of net interest income for the six months ended June 30, 2024 and 2023:

Six Months Ended

June 30, 2024 June 30, 2023

(in thousands)

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

Residential mortgage loans $ 9,266 $ 278,316 $ 14,185 $ 544,607

Residential mortgage loans in securitization trusts 33,271 1,315,336 24,545 1,056,558

Commercial mortgage loans 176 5,219 399 9,489

RMBS and Majority Owned Affiliate

6,363 161,912 6,158 232,980

CMBS 681 6,556 643 6,427

Treasury securities 483 18,587 659 34,360

Other interest income 874 38,952 914 37,613

Total interest income 51,114 47,503

Interest expense

Notes payable 7,097 199,000 17,105 438,661

Non-recourse securitization obligation, collateralized by residential mortgage loans 23,894 1,253,614 15,165 1,035,339

Repurchase facilities 2,081 68,205 1,982 84,332

Total interest expense 33,072 34,252

Net interest income $ 18,042 $ 13,251

Net interest income for the six months ended June 30, 2024 and 2023 was $18.0 million and $13.3 million, respectively.

Net interest income increased in the six months ended June 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loan portfolio (residential mortgage loan interest income less notes payable interest expense) during the six months ended June 30, 2024 .

The net interest income associated with our residential mortgage loan portfolio was $2.2 million in the six months ended June 30, 2024 as compared to a loss of $(2.9) million in the comparable period of 2023.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the six months ended June 30, 2024 and 2023 are set forth as follows:

Six Months Ended

June 30, 2024 June 30, 2023

(in thousands)

Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation

$ 379 $ (12,300)

Realized loss on RMBS

(1,698) (947)

Unrealized gain (loss) on Whole Pool Agency RMBS (4,425) (260)

Realized gain (loss) on CMBS (119) (139)

Realized gain (loss) on interest rate futures 3,839 5,770

Realized and unrealized gain (loss) on TBAs 4,112 (12,828)

Realized and unrealized (loss) gain on residential mortgage loans 2,051 18,124

Realized and unrealized (loss) gain on commercial mortgage loans 49 148

Realized and unrealized loss on U.S.

Treasury securities (86) 41

Unrealized appreciation on interest rate futures 1,048 (2,052)

Total realized and unrealized gains (losses), net $ 5,150 $ (4,443)

For the six months ended June 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in a net gain of $5.2 million and a loss of $(4.4) million, respectively.

During the six months ended June 30, 2024, gains on residential mortgage loans in securitization trust, net of non-recourse securitization obligation, residential mortgage loans, interest rate futures, and TBAs were offset by losses on RMBS and whole pool agency RMBS.

In the six months ended June 30, 2023, the net realized and unrealized loss was primarily due to losses on residential mortgage loans in securitization trust, net of non-recourse securitization obligation and TBAs offset by gains on residential mortgage loans.

Operating Expenses

For the six months ended June 30, 2024 and 2023, our operating expenses were $3.3 million and $4.4 million, respectively.

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

Operating Expenses Incurred with Affiliate

For the six months ended June 30, 2024 and 2023, our operating expenses incurred with affiliate were $1.0 million and $1.1 million, respectively.

These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat versus the comparative period.

Due Diligence and Transaction Costs

For the six months ended June 30, 2024 and 2023, our due diligence and transaction costs were $409 thousand and $21 thousand, respectively.

Our due diligence and transaction expenses increased versus the comparative period as we purchased more whole loans during the six months ended June 30, 2024 than the six months ended June 30, 2023.

Stock Compensation

For the six months ended June 30, 2024 and 2023 our stock compensation expense was $1.3 million and $0.7 million, respectively.

Stock compensation expense increased for the six months ended June 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Securitization Costs

Securitization costs of $1.6 million were incurred for the six months ended June 30, 2024 in connection with the AOMT 2024-3, AOMT 2024-4, and AOMT 2024-6 securitization transactions.

There were $1.9 million of securitization costs incurred for the comparable period in 2023, representing costs incurred in connection with the AOMT 2023-1 and AOMT 2023-4 securitizations.

Management Fee Incurred with Affiliate

For the six months ended June 30, 2024 and 2023, our management fee incurred with affiliate was $2.6 million and $3.0 million, respectively.

The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the six months ended June 30, 2024 as compared to the same period in 2023.

Our Portfolio

As of March 31, 2024, our portfolio consisted of approximately $2.0 billion of residential mortgage loans, RMBS, and other target assets.

As of June 30, 2024, our portfolio consisted of approximately $1.9 billion of residential mortgage loans, RMBS, and other target assets.

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

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

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of March 31, 2024:

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of June 30, 2024:

Fair Value Collateralized Debt Allocated Capital % of Total Capital

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Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of March 31, 2024:

The following table sets forth additional information on the residential mortgage loans in our portfolio as of June 30, 2024:

Portfolio Range Portfolio Weighted Average

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

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of March 31, 2024:

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

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of March 31, 2024, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of March 31, 2024:

No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of March 31, 2024 .

The following charts illustrate the distribution of the credit scores and coupon rates by the number of loans in our residential mortgage loan portfolio as of June 30, 2024:

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

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of June 30, 2024, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of June 30, 2024:

No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of June 30, 2024 .

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

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Residential Mortgage Loans Held in Securitization Trusts

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2024:

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2024:

($ in thousands)

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

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2024 (percentages based on the aggregate unpaid principal balance of such loans):

No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of March 31, 2024 .

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2024 .

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

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

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023 (percentages based on the aggregate unpaid principal balance of such loans):

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023 (percentages are based on the aggregate unpaid principal balance of such loans):

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

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

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of March 31, 2024, unless otherwise stated:

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of June 30, 2024, unless otherwise stated:

AOMT 2019 Securitizations

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

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

accordingly, original LTV is used.

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

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

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

(5) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, and AOMT 2024-3 is the total at risk for the Majority-Owned Affiliates.

(6) AOMT 2024-3 reflects the one-month CPR.

(5) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, AOMT 2024-3, and AOMT 2024-6 is the total at risk for the Majority-Owned Affiliates.

(6) AOMT 2024-6 has been excluded as these data points do not yet exist.

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

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

The following table provides certain information with respect to our RMBS portfolio both received in AOMT securitization transactions and acquired from other third parties as of March 31, 2024:

The following table provides certain information with respect to our RMBS portfolio both received in AOMT securitization transactions and acquired from other third parties as of June 30, 2024:

RMBS Repurchase Debt (1)

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

(2) The whole pool RMBS presented as of March 31, 2024 were purchased from a broker to whom the Company owes approximately $360.0 million, payable upon the settlement date of the trade.

(2) The whole pool RMBS presented as of June 30, 2024 were purchased from a broker to whom the Company owes approximately $181.8 million, payable upon the settlement date of the trade.

See Note 6 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

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

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

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the period ended March 31, 2024:

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

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of June 30, 2024:

Senior Mezzanine Subordinate Interest Only Whole Pool Total

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Ending fair value $ — $ 13,100 $ 60,107 $ 13,027 $ 180,518 $ 266,752

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the year ended December 31, 2023:

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

Senior Mezzanine Subordinate Interest Only Whole Pool Total

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Ending fair value $ — $ 10,972 $ 55,665 $ 13,059 $ 392,362 $ 472,058

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of March 31, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of March 31, 2024)

No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of March 31, 2024.

(as of June 30, 2024)

No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2024.

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

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

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

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

($ in thousands)

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

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital

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

Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029, the proceeds of which we intend to use for general corporate purposes and a portion of which was used to fund the repurchase of shares of our common stock as described in more detail under “—Trends and Recent Developments—Notes offering” in this report.

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

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Description of Existing Financing Arrangements

As of March 31, 2024, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion.

During the quarter ended March 31, 2024, we renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and replaced our existing $250 million loan financing facility with Global Investment Bank 2 with a new $250 million loan financing facility with Global Investment Bank 2 Borrowings under warehouse loan financing lines (in general, each a “loan financing facility”) may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.

As of June 30, 2024, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion.

During the quarter ended June 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in

accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and (ii) amended our loan financing facility with Global Investment Bank 3 to allow for the financing of closed-end second position residential mortgage loans.

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

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

As of March 31, 2024, the advance rates (when required) of our three active lenders ranged from 65% to 92%, depending on the asset type and loan delinquency status.

As of June 30, 2024, the advance rates (when required) of our three active lenders ranged from 65% to 92%, depending on the asset type and loan delinquency status.

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

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

Our minimum liquidity requirement as of March 31, 2024 was $10.0 million.

A description of each loan financing facility in place during the quarter ended March 31, 2024 is set forth as follows:

Our minimum liquidity requirement as of June 30, 2024 was $10.0 million.

A description of each loan financing facility in place during the quarter ended June 30, 2024 is set forth as follows:

Multinational Bank 1 Loan Financing Facility.

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

As of March 31, 2024, the termination date of the master repurchase agreement was September 25, 2024.

As of June 30, 2024, the termination date of the master repurchase agreement was December 26, 2024.

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

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

The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread, as of March 25, 2024, 2.00% and (2) the average SOFR for each U.S.

The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread, as of June 25, 2024, 1.75% and (2) the average SOFR for each U.S.

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

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

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

Pursuant to the agreement, Global Investment Bank 2 retains the right to determine the market value of the

mortgage loan collateral in its sole good faith discretion.

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

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

The following table sets forth the details of our financing lines as of each of March 31, 2024 and December 31, 2023:

The following table sets forth the details of our financing lines as of each of June 30, 2024 and December 31, 2023:

Spread Drawn Amount

Note Payable Base Interest Rate March 31, 2024 December 31, 2023

Note Payable Base Interest Rate June 30, 2024 December 31, 2023

($ in thousands)

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Total $ 101,200 $ 290,610

(1) On March 25, 2024, this financing facility was extended through September 25, 2024 in accordance with the terms of the agreement, which contemplates six-month renewals, with an interest rate pricing spread of 2.00%.

(1) On June 25, 2024, this financing facility was extended through December 26, 2024 in accordance with the terms of the agreement, which contemplates six-month renewals, with an interest rate pricing spread of 1.75%.

Prior to this extension the interest rate pricing spread was up to 2.00%.

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

The following table sets forth the total unused borrowing capacity of each financing line as of March 31, 2024:

The following table sets forth the total unused borrowing capacity of each financing line as of June 30, 2024:

Note Payable Borrowing Capacity Balance Outstanding Available Financing

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Total $ 1,050,000 $ 101,200 $ 948,800

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.March 31, 2024, this financing facility had no unused borrowing capacity as the outstanding borrowings were based on static pools of mortgage loans.

Short‑Term Repurchase Facilities.

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

The following table sets forth certain characteristics of our short-term repurchase facilities as of March 31, 2024 and December 31, 2023:

March 31, 2024

The following table sets forth certain characteristics of our short-term repurchase facilities as of June 30, 2024 and December 31, 2023:

June 30, 2024

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

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($ in thousands)

Treasury Bills $ 149,013 5.57 % 10

44,643 7.04 % 16

Total $ 193,656 5.91 % 11

(1) A portion of repurchase debt outstanding as of both March 31, 2024 and December 31, 2023 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(1) A portion of repurchase debt outstanding as of both June 30, 2024 and December 31, 2023 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

The repurchase debt against the U.S.

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Q2 2023 340,701 101,731 340,701

188,101 87,279 188,101

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193,493 69,254 193,493

201,051 66,804 201,051

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

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Securitization Transactions

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 62% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-6 issued approximately $479.6 million in face value of bonds.

Our proportionate share of 4.51% of the retained bonds and investments in MOAs was approximately $2.5 million, including a retained discount on issuance of approximately $0.8 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $15.8 million and retained cash of $1.8 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-6 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of June 30, 2024.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 79% of which were mortgage loans originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-4 issued approximately $299.8 million in face value of bonds.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $235.9 million and retained cash of $39.1 million, which was used for new loan purchases and operational purposes.

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

We have consolidated the AOMT 2024-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of June 30, 2024.

In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 60% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

In the transaction, AOMT 2024-3 issued approximately $439.6 million in face value of bonds.

Our proportionate share of 10.98% of the retained bonds and investments in majority owned affiliates (“MOAs”) was approximately $4.0 million, including a retained discount on issuance of approximately $0.9 million.

Our proportionate share of 10.98% of the retained bonds and investments in MOAs was approximately $4.8 million, including a retained discount on issuance of approximately $1.6 million.

We used the proceeds of the securitization transaction to repay outstanding debt of approximately $35.9 million and retained cash of $4.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of June 30, 2024.

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

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

We derecognized the mortgage loans sold in AOMT 2023-7 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

We derecognized the mortgage loans sold in AOMT 2023-7 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of June 30, 2024.

In August 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 55% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties.

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

We derecognized the mortgage loans sold in AOMT 2023-5 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of March 31, 2024.

We derecognized the mortgage loans sold in AOMT 2023-5 and recorded an investment in majority-owned affiliates located within “other assets” on our consolidated balance sheet as of June 30, 2024.

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

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

We have consolidated the AOMT 2023-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of March 31, 2024.

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

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

We derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our consolidated balance sheet as of March 31, 2024.

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

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

Notes Offering

The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024.

The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us.

The Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Operating Partnership, including the due and punctual payment of principal of, premium, if any, and interest on the Notes.

We may redeem the Notes in whole or in part at any time or from time to time at our option on or after July 30, 2026 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Upon the occurrence of certain events relating to a change of control of us, we must make an offer to repurchase all outstanding Notes at a price in cash equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

Cash Availability

Cash and cash equivalents

Our cash balance as of March 31, 2024 was sufficient to meet our liquidity covenants under our financing facilities.

Our cash balance as of June 30, 2024 was sufficient to meet our liquidity covenants under our financing facilities.

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

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

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

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Restricted Cash

Restricted cash of approximately $2.8 million as of March 31, 2024 was comprised of:

$0.1 million was held for the benefit of Global Investment Bank 3, the majority of which balance is in an economic interest rate hedging account under the control of Global Investment Bank 3, and may be drawn by Global Investment Bank 3 at its discretion, $2.4 million in interest rate futures margin collateral for the interest rate futures under our sole control;

Restricted cash of approximately $2.1 million as of June 30, 2024 was comprised of:

1.1 million of margin collateral held in support of our whole pool assets;

$0.7 million in interest rate futures margin collateral for the interest rate futures under our sole control;

and margin collateral for securities sold under agreements to repurchase of $0.3 million.

3 unchanged sentences

Our counterparties did not require any margin collateral for TBAs as of December 31, 2023.

Three Months Ended

March 31, 2024 March 31, 2023

Six Months Ended

June 30, 2024 June 30, 2023

(in thousands)

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Net increase in cash and restricted cash $ 1,606 $ 28,856

The cash provided by operating activities of $40.2 million for the three months ended March 31, 2024 as compared to the cash provided of $276.6 million for the three months ended March 31, 2023 was primarily due to the volume of residential mortgage loans sold into affiliate’s securitization trust during the first three months of 2023, as compared to 2024.

The use of investing cash flows of $(4.8) million for the three months ended March 31, 2024 as compared to cash provided by investing activities of $(421.0) million for the three months ended March 31, 2023 were primarily due to the timing of purchases and maturities of U.S.

The cash provided by operating activities of $16.0 million for the six months ended June 30, 2024 as compared to the cash provided of $292.0 million for the six months ended June 30, 2023 was primarily due to the volume of residential mortgage loans sold into affiliate’s securitization trust during the first six months of 2023, as compared to the first six months of 2024.

The use of investing cash flows of $(11.1) million for the six months ended June 30, 2024 as compared to cash provided by investing activities of $(318.1) million for the six months ended June 30, 2023 were primarily due to the timing of purchases and maturities of U.S.

Treasury securities in the comparative period of 2023.

Financing cash flows used of $(37.7) million for the three months ended March 31, 2024 as compared to $162.2 million provided for the three months ended March 31, 2023 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods.

Financing cash flows used of $(3.3) million for the six months ended June 30, 2024 as compared to $55.0 million provided for the six months ended June 30, 2023 were primarily due to the activity within net borrowings under repurchase agreements and notes payable for the comparative periods.

Cash Flows - Residential and Commercial Loan Classification

15 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis