Angel Oak Mortgage REIT, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Angel Oak Mortgage REIT, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except for share data) As of: September 30, 2024 December 31, 2023 ASSETS Residential mortgage loans - at fair value $ 428,909 $ 380,040 Residential mortgage loans in securitization trusts - at fair value 1,452,907 1,221,067 RMBS - at fair value 283,105 472,058 U.S. Treasury securities - at fair value 49,971 149,927 Cash and cash equivalents 42,052 41,625 Restricted cash 2,679 2,871 Principal and interest receivable 6,630 7,501 Unrealized appreciation on TBAs and interest rate futures contracts - at fair value 1,651 — Other assets 35,962 32,922 Total assets 2,303,866 2,308,011 LIABILITIES AND STOCKHOLDERS’ EQUITY Notes payable $ 333,042 $ 290,610 Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts (see Note 2) 1,353,758 1,169,154 Securities sold under agreements to repurchase 102,876 193,656 Senior unsecured notes 47,616 — Unrealized depreciation on TBAs and interest rate futures contracts - at fair value — 1,334 Due to broker 194,697 391,964 Accrued expenses 2,000 985 Accrued expenses payable to affiliate 657 748 Interest payable 1,312 820 Income taxes payable 2,785 1,241 Management fee payable to affiliate 25 1,393 Total liabilities 2,038,768 2,051,905 STOCKHOLDERS’ EQUITY Common stock, $ 0.01 par value. As of September 30, 2024: 350,000,000 shares authorized, 23,511,272 shares issued and outstanding. As of December 31, 2023: 350,000,000 shares authorized, 24,965,274 shares issued and outstanding. $ 234 $ 249 Additional paid-in capital 461,249 477,068 Accumulated other comprehensive income (loss) ( 441 ) ( 4,975 ) Retained earnings (deficit) ( 195,944 ) ( 216,236 ) Total stockholders' equity 265,098 256,106 Total liabilities and stockholders' equity $ 2,303,866 $ 2,308,011 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 2 Angel Oak Mortgage REIT, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (in thousands, except for share and per share data) Three Months Ended Nine Months Ended September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 INTEREST INCOME, NET Interest income $ 27,444 $ 23,900 $ 78,558 $ 71,403 Interest expense 18,424 16,490 51,495 50,742 NET INTEREST INCOME $ 9,020 $ 7,410 $ 27,063 $ 20,661 REALIZED AND UNREALIZED GAINS (LOSSES), NET Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS $ ( 6,335 ) $ ( 12,044 ) $ ( 14,527 ) $ ( 27,056 ) Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts 35,172 17,299 48,514 27,868 TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET $ 28,837 $ 5,255 $ 33,987 $ 812 EXPENSES Operating expenses $ 1,287 $ 1,370 $ 4,619 $ 5,788 Operating expenses incurred with affiliate 472 599 1,444 1,672 Due diligence and transaction costs 254 115 663 136 Stock compensation 604 447 1,864 1,195 Securitization costs — 416 1,583 2,326 Management fee incurred with affiliate 1,204 1,445 3,810 4,460 Total operating expenses $ 3,821 $ 4,392 $ 13,983 $ 15,577 INCOME (LOSS) BEFORE INCOME TAXES $ 34,036 $ 8,273 $ 47,067 $ 5,896 Income tax expense 2,832 — 3,261 781 NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS $ 31,204 $ 8,273 $ 43,806 $ 5,115 Other comprehensive income (loss) 2,706 ( 1,607 ) 4,534 12,955 TOTAL COMPREHENSIVE INCOME (LOSS) $ 33,910 $ 6,666 $ 48,340 $ 18,070 Basic earnings (loss) per common share $ 1.31 $ 0.33 $ 1.79 $ 0.20 Diluted earnings (loss) per common share $ 1.29 $ 0.33 $ 1.76 $ 0.20 Weighted average number of common shares outstanding: Basic 23,757,039 24,768,921 24,445,105 24,706,568 Diluted 24,079,247 24,957,668 24,778,465 24,933,833 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 3 Angel Oak Mortgage REIT, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) (in thousands) Three Months Ended September 30, 2024 Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings (Deficit) Total Stockholders’ Equity Stockholder's equity as of June 30, 2024 $ 249 $ 478,328 $ ( 3,147 ) $ ( 219,624 ) $ 255,806 Issuance of common stock, net of expenses $ 2 $ 2,250 $ — $ — 2,252 Repurchase of shares of common stock $ ( 17 ) $ ( 19,933 ) $ — $ — ( 19,950 ) Dividends paid on common stock $ — $ — $ — $ ( 7,524 ) ( 7,524 ) Stock compensation $ — $ 604 $ — $ — 604 Unrealized gain (loss) on RMBS and CMBS $ — $ — $ 2,706 $ — 2,706 Net income (loss) $ — $ — $ — $ 31,204 31,204 Stockholders' equity as of September 30, 2024 $ 234 $ 461,249 $ ( 441 ) $ ( 195,944 ) $ 265,098 Three Months Ended September 30, 2023 Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Deficit) Total Stockholders’ Equity Stockholders’ equity as of June 30, 2023 $ 249 $ 476,127 $ ( 6,565 ) $ ( 237,135 ) $ 232,676 Dividends paid on common stock $ — $ — $ — $ ( 7,987 ) $ ( 7,987 ) Stock compensation $ — $ 447 $ — $ — $ 447 Unrealized gain (loss) on RMBS and CMBS $ — $ — $ ( 1,607 ) $ — $ ( 1,607 ) Net income (loss) $ — $ — $ — $ 8,273 $ 8,273 Stockholders’ equity as of September 30, 2023 $ 249 $ 476,574 $ ( 8,172 ) $ ( 236,849 ) $ 231,802 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 4 Angel Oak Mortgage REIT, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) (in thousands) Nine Months Ended September 30, 2024 Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Deficit) Total Stockholders’ Equity Stockholders’ equity as of December 31, 2023 $ 249 $ 477,068 $ ( 4,975 ) $ ( 216,236 ) $ 256,106 Issuance of common stock, net of expenses $ 2 $ 2,250 $ — $ — $ 2,252 Repurchase of shares of common stock $ ( 17 ) $ ( 19,933 ) $ — $ — $ ( 19,950 ) Dividends paid on common stock $ — $ — $ — $ ( 23,514 ) $ ( 23,514 ) Non-cash equity compensation $ — $ 1,864 $ — $ — $ 1,864 Unrealized gain (loss) on RMBS and CMBS $ — $ — $ 4,534 $ — $ 4,534 Net income (loss) $ — $ — $ — $ 43,806 $ 43,806 Stockholders’ equity as of September 30, 2024 $ 234 $ 461,249 $ ( 441 ) $ ( 195,944 ) $ 265,098 Nine Months Ended September 30, 2023 Common Stock at Par Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Deficit) Total Stockholders’ Equity Stockholders’ equity as of December 31, 2022 $ 249 $ 475,379 $ ( 21,127 ) $ ( 218,022 ) 236,479 Dividends paid on common stock — — — ( 23,942 ) ( 23,942 ) Non-cash equity compensation — 1,195 — — $ 1,195 Unrealized gain (loss) on RMBS and CMBS — — 12,955 — 12,955 Net income (loss) — — — $ 5,115 5,115 Stockholders’ equity as of September 30, 2023 $ 249 $ 476,574 $ ( 8,172 ) $ ( 236,849 ) $ 231,802 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 5 Angel Oak Mortgage REIT, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2024 September 30, 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 43,806 $ 5,115 Adjustments to reconcile net (loss) income to net cash used in operating activities: Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS 14,527 27,056 Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts ( 48,514 ) ( 27,868 ) Amortization of debt issuance costs 246 1,040 Net amortization of premiums and discounts on mortgage loans 1,989 2,199 Accretion of non-recourse securitized obligation discount 3,455 1,251 Accretion of discount on U.S. Treasury securities ( 548 ) ( 1,201 ) Non-cash equity compensation 1,864 1,195 Net change in: Purchases of residential mortgage loans from affiliates ( 182,200 ) ( 89,673 ) Purchases of residential mortgage loans from non-affiliates ( 243,634 ) ( 5,469 ) Sale of residential mortgage loans 3,118 — Sale of residential mortgage loans into affiliate's securitization trust 66,107 313,438 Principal payments on residential mortgage loans 15,475 30,950 Principal payments on residential mortgage loans in securitization trusts 122,311 74,179 Margin received from interest rate futures contracts and TBAs 4,618 12,602 Principal and interest receivable on residential mortgage loans 868 12,806 Other assets ( 1,461 ) ( 716 ) Management fee payable to affiliate ( 1,367 ) ( 512 ) Accrued expenses 1,015 ( 528 ) Accrued expenses payable to affiliate ( 91 ) ( 1,021 ) Income tax payable 1,544 781 Interest payable 492 ( 1,880 ) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ( 196,380 ) 353,744 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 6 Angel Oak Mortgage REIT, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2024 September 30, 2023 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments in RMBS, available for sale ( 5,733 ) ( 1,006,023 ) Purchases of investments in RMBS, trading ( 935,573 ) ( 853,934 ) Sale of investments in RMBS, available for sale — 1,006,196 Sale of investments in RMBS, trading 927,047 832,542 Purchase of investments in U.S. Treasury securities ( 349,595 ) ( 848,617 ) Investments in majority-owned affiliates ( 2,253 ) ( 14,657 ) Principal payments on RMBS and CMBS securities 2,122 816 Maturity of U.S. Treasury securities 450,000 700,000 Sale of commercial mortgage loans to third parties — 4,326 Principal payments on commercial mortgage loans 25 26 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 86,040 ( 179,325 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to common stockholders ( 23,514 ) ( 23,942 ) Repurchase of common stock ( 19,950 ) — Proceeds from issuances of common stock, net of expenses 2,252 — Proceeds from securitization 274,793 — Principal payments on non-recourse securitization obligation ( 122,070 ) ( 74,179 ) Cash paid for debt issuance costs ( 1,013 ) — Proceeds from non-recourse securitization obligations — 233,319 Net proceeds from (repurchases of) securities sold under agreements to repurchase ( 90,780 ) 135,557 Net proceeds from issuance of senior notes 48,425 — Net proceeds from (payments on) notes payable 42,432 ( 442,073 ) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 110,575 ( 171,318 ) CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 235 3,101 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period 44,496 39,861 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period $ 44,731 $ 42,962 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 46,386 $ 48,862 The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of this statement. 7 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Basis of Presentation Angel Oak Mortgage REIT, Inc. (together with its subsidiaries the “Company”, “we” or “our”) is a real estate finance company focused on acquiring and investing in first lien non-qualified residential mortgage (“non-QM”) loans and other mortgage‑related assets in the U.S. mortgage market. The Company’s strategy is to make 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. The Company’s objective is to generate attractive risk‑adjusted returns for its stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles. The Company is a Maryland corporation incorporated on March 20, 2018. 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, 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 Operating Partnership On February 5, 2020, the Company formed Angel Oak Mortgage Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), through which substantially all of its assets are held and substantially all of its operations are conducted, either directly or through subsidiaries. The Company holds all of the limited partnership interests in the Operating Partnership and indirectly holds the sole general partnership interest in the Operating Partnership through the general partner, which is the Company’s wholly-owned subsidiary. The Company’s Manager and REIT status The Company is externally managed and advised by Falcons I, LLC (the “Manager”), a Securities and Exchange Commission-registered investment adviser and an affiliate of Angel Oak Capital Advisors, LLC (“Angel Oak Capital”). The Company has elected to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2019. Interim Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report on Form 10-K”). In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. The condensed consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., fair value changes due to inputs and underlying assumptions as described in Note 9 — Fair Value Measurements , credit performance, prepayments, interest rates, or other reasons) will occur in the near term. 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. 8 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) Reclassifications Certain comparative period amounts in the condensed consolidated financial statements have been reclassified for consistency with current period presentation. These reclassifications had no effect on the reported results of operations. Specifically, certain cash flows previously presented as cash flows from operating activities on the condensed consolidated statements of cash flows for the nine months-ended September 30, 2023, have been reclassified to cash flows from investing activities as Purchases of investments in majority-owned affiliates. 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 condensed consolidated financial statements when adopted or had a significant impact on the Company's condensed consolidated financial statements upon adoption. Summary of Significant Accounting Policies The Company’s summary of significant accounting policies as set forth in its Annual Report on Form 10-K remain unchanged. 2. Variable Interest Entities Since its inception, the Company has utilized variable interest entities (“VIEs”) for the purpose of securitizing whole mortgage loans to obtain long-term non-recourse financing. The Company evaluates its interest in each VIE to determine if it is the primary beneficiary. VIEs for Which the Company is the Primary Beneficiary The Company entered into securitization transactions where it was determined that the Company has the power to direct the activities that most significantly impact the VIE’s economic performance. The Company was the sole entity to contribute residential whole mortgage loans to these securitization vehicles. 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 following table summarizes the key details of the loan securitization transactions for which the Company is the primary beneficiary currently outstanding as of September 30, 2024 and December 31, 2023: As of: September 30, 2024 December 31, 2023 ($ in thousands) Aggregate unpaid principal balance of residential whole loans sold $ 1,512,722 $ 1,334,963 Fair value adjustment for residential mortgage loans in securitization trusts ( 59,815 ) ( 113,896 ) Residential mortgage loans in securitization trusts, at fair value $ 1,452,907 $ 1,221,067 Outstanding amount of Non-recourse securitization obligation, at amortized cost $ 1,376,244 $ 1,220,067 Fair value adjustment for the portion of Non-recourse securitization obligation, at fair value option ( 22,486 ) ( 50,912 ) Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts $ 1,353,758 $ 1,169,155 Weighted average fixed rate for Non-recourse securitization obligation issued 3.51 % 2.91 % For the period ended: September 30, 2024 December 31, 2023 ($ in thousands) Aggregate unpaid principal balance of residential whole loans sold, at deal date $ 2,010,214 $ 1,710,381 Face amount of Non-recourse securitization obligation issued by the VIE and purchased by third-party investors, at deal date 1,893,847 1,619,051 Face amount of Senior Support Certificates received by the Company, at deal date 116,367 91,330 Aggregate cash received, at deal date 233,835 194,746 9 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) During the three months ended September 30, 2024, the Company did not issue and retain bonds on our consolidated balance sheets for any securitization transaction for which the Company was the primary beneficiary. For the nine months ended September 30, 2024 the Company and its affiliates issued and sold bonds with a current face value of $ 274.8 million to third-party investors for proceeds of $ 274.8 million, before offering costs and accrued interest. The sold bonds are included in “Non-recourse securitization obligations, collateralized by residential mortgage loans in securitization trusts” on the Company’s condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, as a result of the transactions described above, securitized loans with outstanding principal balance of approximately $ 1.5 billion and $ 1.3 billion are included in “Residential mortgage loans in securitization trusts” on the Company’s condensed consolidated balance sheets, respectively. As of September 30, 2024 and December 31, 2023, the aggregate carrying value of sold bonds issued by consolidated VIEs was $ 1.4 billion and $ 1.2 billion, respectively. These sold bonds are disclosed as “Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts” on the Company’s condensed consolidated balance sheets. The holders of the securitized debt have no recourse to 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; and • 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 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 these VIEs remains unchanged. The securities received in the securitization transactions for which we are not the primary beneficiary were classified as “available for sale” upon receipt and are included in “RMBS - at fair value” and “Other Assets” on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, and details on the accounting treatment and fair value methodology of the securities can be found in Note 9 — Fair Value Measurements . See also Note 4 — Investment Securities , for the fair value of AOMT securities held by the Company, and Note 13 - Other Assets , for investments in majority-owned affiliates (“MOAs”), as of September 30, 2024 and December 31, 2023 that were retained by the Company as a result of these securitization transactions. 10 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 3. Residential Mortgage Loans Residential mortgage loans are measured at fair value. The following table sets forth the cost, unpaid principal balance, net premium on mortgage loans purchased, fair value, weighted average interest rate, and weighted average remaining contractual maturity of the Company’s residential mortgage loan portfolio as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 ($ in thousands) Cost $ 421,944 $ 393,443 Unpaid principal balance $ 411,468 $ 386,872 Net premium on mortgage loans purchased 10,476 6,571 Change in fair value 6,965 ( 13,403 ) Fair value $ 428,909 $ 380,040 Weighted average interest rate 7.73 % 6.78 % Weighted average remaining contractual maturity (years) 30 29 At times, various forms of margin maintenance may be required by certain financing facility counterparties. See Note 5 — Financing . The following table sets forth data regarding the number of consumer mortgage loans secured by residential real property ninety (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 September 30, 2024 and December 31, 2023: As of: September 30, 2024 December 31, 2023 ($ in thousands) Number of mortgage loans 90 or more days past due 5 7 Recorded investment in mortgage loans 90 or more days past due $ 2,174 $ 5,754 Unpaid principal balance of loans 90 or more days past due $ 2,142 $ 5,681 Number of mortgage loans in foreclosure 1 2 Recorded investment in mortgage loans in foreclosure $ 569 $ 1,956 Unpaid principal balance of loans in foreclosure $ 551 $ 1,889 4. Investment Securities As of September 30, 2024, investment securities were comprised of: (i) non‑agency RMBS (“AOMT RMBS”) and (ii) Freddie Mac and Fannie Mae whole pool agency RMBS (“Whole Pool Agency RMBS”, and together with AOMT RMBS, “RMBS”), and (iii) U.S. Treasury securities. The U.S. Treasury securities held by the Company as of September 30, 2024 subsequently matured on October 3, 2024. The following table sets forth a summary of RMBS at cost as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 (in thousands) AOMT RMBS $ 88,998 $ 84,957 Whole Pool Agency RMBS $ 194,697 $ 391,964 11 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following tables sets forth certain information about the Company’s investments in RMBS at fair value as of September 30, 2024 and December 31, 2023: Real Estate Securities at Fair Value Securities Sold Under Agreements to Repurchase Allocated Capital September 30, 2024: (in thousands) AOMT RMBS (1) Mezzanine $ 13,463 $ ( 5,292 ) $ 8,171 Subordinate 62,223 ( 20,175 ) 42,048 Interest Only/Excess 13,055 — 13,055 Retained RMBS in VIEs (2) — ( 27,697 ) ( 27,697 ) Total AOMT RMBS $ 88,741 $ ( 53,164 ) $ 35,577 Whole Pool Agency RMBS (3) Fannie Mae $ 158,040 $ — $ 158,040 Freddie Mac 36,324 — 36,324 Total Whole Pool Agency RMBS $ 194,364 $ — $ 194,364 Total RMBS $ 283,105 $ ( 53,164 ) $ 229,941 (1) AOMT RMBS held as of September 30, 2024 included both retained tranches of AOMT securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions. (2) A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $ 143.5 million, are not reflected in the condensed consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets. (3) The whole pool RMBS presented as of September 30, 2024 were purchased from a broker to whom the Company owes approximately $ 195 million, payable upon the settlement date of the trade. See Note 6 - Due to Broker . There was no margin collateral required as of September 30, 2024. December 31, 2023 Real Estate Securities at Fair Value Securities Sold Under Agreements to Repurchase Allocated Capital (in thousands) AOMT RMBS (1) Mezzanine $ 10,972 $ ( 844 ) $ 10,128 Subordinate 55,665 ( 19,812 ) 35,853 Interest Only/Excess 13,059 ( 1,871 ) 11,188 Retained RMBS in VIEs (2) — ( 22,116 ) ( 22,116 ) Total AOMT RMBS $ 79,696 $ ( 44,643 ) $ 35,053 Whole Pool Agency RMBS (3) Fannie Mae $ 278,510 $ — $ 278,510 Freddie Mac 113,852 — 113,852 Total Whole Pool Agency RMBS $ 392,362 $ — $ 392,362 Total RMBS $ 472,058 $ ( 44,643 ) $ 427,415 (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. 12 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) (2) A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $ 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 consolidated balance sheets. (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 6 - Due to Broker . The following table sets forth certain information about the Company’s investments in U.S. Treasury securities as of September 30, 2024 and December 31, 2023: Date Face Value Unamortized Discount, net Amortized Cost Unrealized Gain/(Loss) Fair Value Net Effective Yield ($ in thousands) September 30, 2024 $ 50,000 $ 16 $ 49,984 $ ( 13 ) $ 49,971 3.89 % December 31, 2023 $ 150,000 $ 159 $ 149,841 $ 86 $ 149,927 5.30 % 5. Financing Notes Payable The Company has the ability to finance residential and commercial whole loans, utilizing lines of credit (notes payable) from various counterparties, as further described below. Outstanding borrowings bear interest at floating rates depending on the lending counterparty, the collateral pledged, and the rate in effect for each interest period, as the same may change from time to time at the end of each interest period. Some agreements include upfront fees, fees on unused balances, covenants and concentration limits on types of collateral pledged which vary based on the counterparty. Occasionally, a lender may require certain margin collateral to be posted on a warehouse line of credit. There was no margin collateral required as of September 30, 2024 or December 31, 2023. The following table sets forth the details of the Company’s notes payable and drawn amounts for whole loan purchases as of September 30, 2024 and December 31, 2023: Interest Rate Pricing Spread Drawn Amount Note Payable Base Interest Rate September 30, 2024 December 31, 2023 ($ in thousands) Multinational Bank 1 (1) Average Daily SOFR 1.75 % - 2.10 % $ 292,060 $ 206,183 Global Investment Bank 2 (2) 1 month Term SOFR 2.10 % - 3.45 % — — Global Investment Bank 3 (3) Compound SOFR 2.00 % - 4.50 % 40,982 84,427 Institutional Investors A and B (4) 1 month Term SOFR 3.50 % N/A — Regional Bank 1 (5) 1 month SOFR 2.50 % - 3.50 % N/A — Total $ 333,042 $ 290,610 (1) On September 25, 2024, this financing facility was extended through March 25, 2025 in accordance with the terms of the agreement, which contemplates six-month renewals. (2) On March 28, 2024 the amended and restated Master Repurchase Agreement was terminated and replaced with a new $ 250 million Master Repurchase Agreement which has a termination date of March 27, 2026. On October 25, 2024, this facility was amended, reducing the interest rate pricing spread to a range from 1.75 % to 3.35 %, based on loan status, dwell time and other factors. Prior to this extension the interest rate pricing spread ranged from 2.10 % to 3.35 % (See Note 16 — Subsequent Events ). (3) On November 1, 2024, this facility was amended to (i) reduce the interest rate pricing spread to a range from 1.90 % to 4.75 %, based on loan status, dwell time and other factors, (ii) eliminate the 20 basis point index spread adjustment, and (iii) extend the facility’s termination date to November 1, 2025. (See note 16 — Subsequent Events ). (4) These master repurchase agreements expired by their terms on January 4, 2023. (5) This agreement expired by its terms on March 16, 2023. 13 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following table sets forth the total unused borrowing capacity of each financing line as of September 30, 2024: Note Payable Borrowing Capacity Balance Outstanding Available Financing (in thousands) Multinational Bank 1 $ 600,000 $ 292,060 $ 307,940 Global Investment Bank 2 250,000 — 250,000 Global Investment Bank 3 200,000 40,982 159,018 Total $ 1,050,000 $ 333,042 $ 716,958 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. Senior Unsecured Notes On July 25, 2024, the Company closed an underwritten public offering and sale of, and issued, $ 50 million in aggregate principal amount of its 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 the Company and are held at amortized cost. After deducting the underwriting discount and other debt issuance costs, the Company received net proceeds of approximately $ 47.5 million. The Company may redeem the Notes in whole or in part at any time or from time to time at its 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 the Company, the Company 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 . 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, whether at stated maturity, upon acceleration, call for redemption or otherwise. At September 30, 2024, the outstanding principal amount of these notes was $ 50 million and the accrued interest payable on the Notes was $ 0.9 million. At September 30, 2024, the unamortized deferred debt issuance cost was $ 1.5 million, and the net interest expense was $ 1.0 million. The unamortized deferred debt issuance costs will be amortized until maturity, which will be no later than July 30, 2029. 6. Due to Broker The “Due to broker” account on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively, in the amounts of $ 195 million and $ 392 million relates to the purchase of Whole Pool Agency RMBS at quarter-end in the third and fourth quarters of 2024 and 2023, respectively. Purchases are accounted for on a trade date basis, and, at times, there may be a timing difference between accounting periods for the trade date and the settlement date of a trade. The trade dates of these purchases were prior to the applicable quarter-end dates. These trades settled on October 15, 2024 and January 16, 2024, respectively, at which time these assets were simultaneously sold. The purchase transactions of these Whole Pool Agency RMBS are excluded from the condensed consolidated statements of cash flows until settled. 7. Securities Sold Under Agreements to Repurchase Transactions involving securities sold under agreements to repurchase are treated as collateralized financial transactions, and are recorded at their contracted repurchase amounts. Margin (if required) for securities sold under agreements to repurchase represents margin collateral amounts held to ensure that the Company has sufficient coverage for securities sold under agreements to repurchase in case of adverse price changes. Restricted cash of margin collateral for securities sold under agreements to repurchase was $ 0.3 million as of September 30, 2024 and December 31, 2023, respectively. 14 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following table summarizes certain characteristics of the Company’s repurchase agreements as of September 30, 2024 and December 31, 2023: September 30, 2024 Repurchase Agreements Amount Outstanding Weighted Average Interest Rate Weighted Average Remaining Maturity (Days) ($ in thousands) U.S. Treasury securities $ 49,712 4.90 % 3 AOMT RMBS (1) 53,164 6.35 % 18 Total $ 102,876 5.65 % 11 December 31, 2023 Repurchase Agreements Amount Outstanding Weighted Average Interest Rate Weighted Average Remaining Maturity (Days) U.S. Treasury securities $ 149,013 5.57 % 10 AOMT RMBS (1) 44,643 7.04 % 16 Total $ 193,656 5.91 % 11 (1) A portion of repurchase debt outstanding as of both September 30, 2024 and December 31, 2023 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). See Note 4 - Investment Securities. Although the transactions under repurchase agreements represent committed borrowings until maturity, the lenders retain the right to mark the underlying collateral at fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls. 8. Derivative Financial Instruments In the normal course of business, the Company enters into derivative financial instruments to manage its exposure to market risk, including interest rate risk and prepayment risk on its whole loan investments. The derivatives in which the Company invests, and the market risk that the economic hedge is intended to mitigate are further discussed below. Derivative instruments as of September 30, 2024 and December 31, 2023 included both To-Be-Announced (“TBA”) securities and interest rate futures contracts. Restricted cash relating to interest rate futures margin collateral in interest rate futures accounts under the Company’s sole control as of September 30, 2024 and December 31, 2023 included $ 2.3 million and $ 2.5 million, respectively. There was no TBA margin collateral required as of either September 30, 2024 or December 31, 2023. For the three and nine months ended September 30, 2024, we recognized income tax expense and a corresponding liability related to income from our TBAs. The Company uses interest rate futures as economic hedges to hedge a portion of its interest rate risk exposure. Interest rate risk is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, as well as other factors. The Company’s credit risk with respect to economic hedges is the risk of default on its investments that result from a borrower’s or counterparty’s inability or unwillingness to make contractually required payments. The Company may at times hold TBAs in order to mitigate its interest rate risk on certain specified mortgage-backed securities. Amounts or obligations owed by or to the Company are subject to the right of set-off with the TBA counterparty. As part of executing these trades, the Company may enter into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions. Changes in the value of derivatives designed to protect against mortgage-backed securities fair value fluctuations, or economic hedging gains and losses, are reflected in the tables below. All realized and unrealized gains and losses on derivative contracts are recognized in earnings, in “net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS” for realized gains and losses, and “net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts” for unrealized gains and losses. The Company considers the notional amounts, categorized by primary underlying risk, to be representative of the volume of its derivative activities. 15 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following table sets forth the derivative instruments presented on the condensed consolidated balance sheets and notional amounts as of September 30, 2024 and December 31, 2023: Notional Amounts As of: Derivatives Not Designated as Hedging Instruments Number of Contracts Assets Liabilities Long Exposure Short Exposure ($ in thousands) September 30, 2024 Interest rate futures 2,404 $ 1,392 $ — $ — $ 240,400 September 30, 2024 TBAs N/A $ 259 $ — $ — $ 203,400 December 31, 2023 Interest rate futures 1,489 $ — $ 840 $ — $ 148,900 December 31, 2023 TBAs N/A $ — $ 494 $ — $ 386,700 The gains and losses arising from these derivative instruments in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024 and September 30, 2023 are set forth as follows: Derivatives Not Designated as Hedging Instruments Net Realized Gains (Losses) on Derivative Instruments Net Change in Unrealized Appreciation (Depreciation) on Derivative Instruments (in thousands) Three Months Ended September 30, 2024 Interest rate futures $ ( 4,461 ) $ 1,184 Three Months Ended September 30, 2024 TBAs $ 3,115 $ ( 1,235 ) Three Months Ended September 30, 2023 Interest rate futures $ 2,828 $ ( 364 ) Three Months Ended September 30, 2023 TBAs $ 7,421 $ 4,927 Derivatives Not Designated as Hedging Instruments Net Realized Gains (Losses) on Derivative Instruments Net Change in Unrealized Appreciation (Depreciation) on Derivative Instruments (in thousands) Nine Months Ended September 30, 2024 Interest rate futures $ ( 622 ) $ 2,232 Nine Months Ended September 30, 2024 TBAs $ 5,238 $ 753 Nine Months Ended September 30, 2023 Interest rate futures $ 8,599 $ ( 2,416 ) Nine Months Ended September 30, 2023 TBAs $ 4,900 $ ( 5,379 ) 9. Fair Value Measurements For financial reporting purposes, we follow a fair value hierarchy established under GAAP that is used to determine the fair value of financial instruments. This hierarchy prioritizes relevant market inputs in order to determine an “exit price” at the measurement date, or the price at which an asset could be sold or a liability could be transferred in an orderly process that is not a forced liquidation or distressed sale. Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 inputs are observable inputs other than quoted prices for an asset or liability that are obtained through corroboration with observable market data. Level 3 inputs are unobservable inputs (e.g., our own data or assumptions) that are used when there is little, if any, relevant market activity for the asset or liability required to be measured at fair value. In certain cases, inputs used to measure fair value fall into different levels of the fair value hierarchy. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. As of September 30, 2024, our valuation policy and processes had not changed from those described in our consolidated financial statements for the year ended December 31, 2023 included in the Annual Report on Form 10-K. Included in Note 10 — Fair Value Measurements to the Consolidated Financial Statements for the year ended December 31, 2023 included in the Annual Report on Form 10-K is a detailed description of our other financial instruments measured at fair value and their significant inputs, as well as the general classification of such instruments pursuant to the Level 1, Level 2, and Level 3 valuation hierarchy. 16 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The fair value of cash, restricted cash, principal and interest receivable, other assets (excluding investments in MOAs), notes payable, securities sold under agreements 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. The Company’s “investments in majority-owned affiliates” included in other assets (see Note 13 — Other Assets ) and a portion of “non-recourse securitization obligations, collateralized by residential mortgage loans” are held at amortized cost. The fair value of these assets and liabilities is disclosed further below in the section titled “ Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure ”. The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of September 30, 2024: Level 1 Level 2 Level 3 Total (in thousands) Assets, at fair value Residential mortgage loans $ — $ 426,501 $ 2,408 $ 428,909 Residential mortgage loans in securitization trusts — 1,425,632 27,275 1,452,907 Investments in securities AOMT RMBS (1) — 88,741 — 88,741 Whole Pool Agency RMBS — 194,364 — 194,364 U.S. Treasury Securities 49,971 — — 49,971 Other Assets, at fair value (2) — 11,178 — 11,178 Unrealized appreciation on futures contracts 1,392 — — 1,392 Unrealized appreciation on TBAs 259 — — 259 Total assets, at fair value $ 51,622 $ 2,146,416 $ 29,683 $ 2,227,721 Liabilities, at fair value Non-recourse securitization obligation, collateralized by residential mortgage loans (3) $ — $ 1,289,236 $ — $ 1,289,236 Total liabilities, at fair value $ — $ 1,289,236 $ — $ 1,289,236 (1) AOMT RMBS held as of September 30, 2024 included both retained tranches of AOMT securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions. (2) Includes Commercial Loans and AOMT commercial mortgage backed securities (“CMBS)” assets. All AOMT CMBS held as of September 30, 2024 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. See below for the disclosure of the full debt at fair value. Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure). Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. These transfers were not material. 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. 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. Accordingly, a significant increase or decrease in any of these inputs in isolation may result in a significantly lower or higher fair value measurement. 17 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) The following table sets forth information regarding the Company’s significant Level 3 inputs as of September 30, 2024: Input Values Asset Fair Value Unobservable Input Range Average ($ in thousands) Residential mortgage loans, at fair value $ 2,408 Prepayment rate (annual CPR) 5.28 % - 19.36 % 12.27 % Default rate 7.62 % - 35.41 % 19.02 % Loss severity — % - 17.08 % 9.46 % Expected remaining life 0.67 - 4.28 years 2.44 years Residential mortgage loans in securitization trust, at fair value $ 27,275 Prepayment rate (annual CPR) 4.01 % - 15.67 % 10.63 % Default rate 6.98 % - 28.33 % 17.42 % Loss severity ( 22.22 )% - 60.81 % 1.37 % Expected remaining life 1.33 - 5.86 years 2.66 years Assets and Liabilities Held at Amortized Cost — Fair Value Disclosure Portion of Non-Recourse Securitization Obligations, Collateralized by Residential Mortgage Loans — Held at Amortized Cost To determine the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, net, held at amortized cost, the Company uses the same method of valuation as described in the Annual Report on Form 10-K, Note 10 — Fair Value Measurements 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 below. As of September 30, 2024, the total amortized cost basis and fair value of our non-recourse securitization obligations was $ 1.38 billion and $ 1.29 billion, respectively, a difference of approximately $ 87.0 million (which includes AOMT 2022-1, AOMT 2022-4, AOMT 2023-4, and AOMT 2024-4, which are marked to fair value; and AOMT 2021-4 and AOMT 2021-7, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations). The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $ 64.5 million. The difference between the amortized cost basis value and the fair value is derived from the difference between the period-end market pricing of the underlying bonds, as referred to above, and the amortized cost of the obligation. The fair value of the non-recourse securitization debt is not indicative of the amounts at which we could settle this debt. 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 $ 156.4 million (which includes AOMT 2022-1, AOMT 2022-4, and AOMT 2023-4, which are marked to fair value; and AOMT 2021-4 and AOMT 2021-7, 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. 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. 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 condensed consolidated financial statements. The amortized cost and fair value of this investment as of September 30, 2024 was approximately $ 18.7 million and $ 17.0 million, respectively. The amortized cost and fair value of these investments as of December 31, 2023 was approximately $ 16.2 million and $ 16.7 million, respectively. 18 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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 (in thousands) Assets, at fair value Residential mortgage loans $ — $ 374,004 $ 6,036 $ 380,040 Residential mortgage loans in securitization trusts — 1,207,804 13,263 1,221,067 Investments in securities AOMT RMBS (1) — 79,696 — 79,696 Whole Pool Agency RMBS — 392,362 — 392,362 U.S. Treasury Securities. 149,927 — — 149,927 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 Liabilities, at fair value Non-recourse securitization obligation, collateralized by residential mortgage loans (3) $ — $ 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) AOMT RMBS held as of December 31, 2023 included both retained tranches of AOMT securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions. (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. All unrealized gains and losses arising from valuation changes in residential and commercial mortgage loans, TBAs, and futures contracts are recognized in net income for the periods presented. Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure) and commercial mortgage loans in special servicing or otherwise considered “non‑performing” by the Company’s third‑party valuation providers. Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. Transfers between Level 2 and Level 3 were immaterial for the year ended December 31, 2023. 19 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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. 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. Accordingly, a significant increase or decrease in any of these inputs in isolation may result in a significantly lower or higher fair value measurement. The following table sets forth information regarding the Company’s significant Level 3 inputs as of December 31, 2023: Input Values Asset Fair Value Unobservable Input Range Average Residential mortgage loans, at fair value $ 6,036 Prepayment rate (annual CPR) 6.86 % - 19.93 % 13.40 % Default rate 12.69 % - 13.64 % 13.16 % Loss severity ( 25.00 )% - 40.13 % 4.12 % Expected remaining life 0.67 - 4.09 years 2.22 years Residential mortgage loans in securitization trust, at fair value $ 13,263 Prepayment rate (annual CPR) 5.97 % - 20.71 % 12.32 % Default rate 4.38 % - 28.66 % 16.92 % Loss severity ( 13.99 )% - 19.60 % 4.14 % Expected remaining life 0.67 - 5.67 years 2.72 years 10. Related Party Transactions Residential Mortgage Loan Purchases The Company has residential loan purchase agreements with various affiliates of the Company. The purchase price of the loans is generally equal to the outstanding principal of the mortgage, adjusted by a premium or discount, depending on market conditions. The Company purchases the mortgage loans on a servicing released basis. The following table sets forth certain financial information pertaining to whole loan activity purchased from affiliates during the period and year ended as of September 30, 2024 and December 31, 2023: As of and for the Year-to-Date/Year Ended: Amount of Loans Purchased from Affiliates during the Year-to-Date/Year Ended (in thousands) Number of Loans Purchased from Affiliates during the Year-to-Date/Year Ended Number of Loans Purchased from Affiliates, Owned and Held as of Year-to-Date/Year Ended (1) : September 30, 2024 $ 182,200 405 380 December 31, 2023 $ 199,793 475 589 (1) Excludes loans held in consolidated securitizations. Securitization Transactions and Majority-Owned Affiliate From time to time, the Company participates in securitization transactions with other affiliates of Angel Oak Capital. See Note 2 — Variable Interest Entities , “ VIEs for Which the Company is Not the Primary Beneficiary” and Note 13 — Other Assets . Management Fee The Company’s management agreement, effective as of June 21, 2021 and amended and restated on May 1, 2024, by and among the Company, the Operating Partnership, and the Manager (as amended and restated, the “Management Agreement”), provides that the Company will pay the Manager, in arrears, on a quarterly basis, an aggregate fixed management fee equal to 1.5 % per annum of the Company’s Equity (as is defined in the Management Agreement). 20 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 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 (as defined in the Management Agreement) in the previous 12-month period, and (B) 8 % per annum, over (2) the sum of any incentive fee earned by the Manager with respect to the first three calendar quarters of such previous 12-month period. To date, the incentive fee has not been earned and no expense has been recognized in the Company’s financial statements. Operating Expense Reimbursements The Company is also required to pay the Manager reimbursements for certain general and administrative expenses pursuant to the Management Agreement. Accrued expenses payable to affiliate and operating expenses incurred with affiliate are substantially comprised of payroll reimbursements to an affiliate of the Manager. 11. Commitments and Contingencies The Company, from time to time, may be party to litigation relating to claims arising in the normal course of business. As of September 30, 2024, the Company was not aware of any legal claims that could materially impact its financial condition. As of September 30, 2024, 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 September 30, 2024, the Company has a total purchase commitments of $ 93.3 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. 12. Accumulated Other Comprehensive Income/(Loss) The following table sets forth the net unrealized gain/(loss) on available-for-sale (“AFS”) securities for the three and nine months ended September 30, 2024 and 2023, which is the sole component of the changes in the Company’s Accumulated Other Comprehensive Income/(Loss) (“AOCI”) for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 (in thousands) AOCI balance, beginning of period $ ( 3,147 ) $ ( 6,565 ) Net unrealized gain/(loss) on AFS securities 2,706 ( 1,607 ) AOCI balance, end of period $ ( 441 ) $ ( 8,172 ) Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 (in thousands) AOCI balance, beginning of period $ ( 4,975 ) $ ( 21,127 ) Net unrealized gain/(loss) on AFS securities 4,534 12,955 AOCI balance, end of period $ ( 441 ) $ ( 8,172 ) 21 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 13. Other Assets The following table sets forth the detail of other assets included in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 ($ in thousands) Investments in Majority-Owned Affiliates $ 18,720 $ 16,232 Commercial Mortgage Loans, at fair value 5,242 5,219 CMBS, at fair value 5,936 6,592 Deferred tax asset 3,457 3,457 Prepaid expenses 1,570 1,137 Protective advances and other assets 1,037 285 Total other assets $ 35,962 $ 32,922 Investments in Majority-Owned Affiliates (“MOA”) In 2023 and the first three quarters of 2024, the Company participated in securitization transactions AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, AOMT 2024-3, and AOMT 2024-6, which involved MOAs in which the Company received investments of 41.21 %, 34.42 %, 10.35 %, 10.98 %, and 4.51 % 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 bonds. See Note 9 — Fair Value Measurements . Commercial Mortgage Loans Commercial mortgage loans are measured at fair value. As of September 30, 2024 and December 31, 2023, the cost and unpaid principal balance of the assets was $ 5.6 million and $ 5.6 million, with a fair value of $ 5.2 million and $ 5.2 million, respectively. The weighted average interest rate was 6.24 % with a weighted average maturity of 11 years, as of September 30, 2024. There were no commercial mortgage loans more than ninety (90) days past due or in foreclosure as of September 30, 2024 or December 31, 2023. Commercial Mortgage Backed Securities CMBS are held at fair value. As of September 30, 2024 and December 31, 2023, the cost of these assets were $ 6.1 million and $ 6.3 million, with a fair value of $ 5.9 million and $ 6.6 million, respectively. There was no repurchase debt held against these assets at September 30, 2024 or December 31, 2023. 14. Equity As of September 30, 2024, we had 6,973,959 shares of our common stock remaining available for sale from time to time in at-the-market equity offering program (the “ATM Program”). These shares are registered with the SEC under our shelf registration statement. During the three-months and nine-months ended September 30, 2024, the Company issued and sold 188,456 shares of common stock through the ATM Program for proceeds of $ 2.3 million, net of $ 45 thousand in commissions and fees. On July 25, 2024 the Company repurchased 1,707,922 shares of 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 following the issuance of $ 50 million in aggregate principal amount of the Notes. 15. Earnings per Share (“EPS”) In the calculations of basic and diluted earnings per common share for the three and nine months ended September 30, 2024 and 2023, the Company included participating securities, which are certain equity awards that have non-forfeitable dividend participation rights. Dividends and undistributed earnings allocated to participating securities under the basic and diluted earnings per share calculations require specific shares to be included that may differ in certain circumstances. For the three and nine month periods ended September 30, 2024, there were approximately 120,000 dilutive outstanding restricted stock awards and approximately 200,000 dilutive performance-based restricted stock units. To date we have expensed $ 0.7 million related to the performance-based restricted stock units based on current market conditions. 22 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) For the three and nine month periods ended September 30, 2023, there were 186,645 anti-dilutive outstanding restricted stock awards and 95,832 performance shares, although the market-based “total stockholder return” conditions for performance share units had not been achieved and thus these units were not included in the diluted weighted average common shares outstanding. The following table sets forth the calculation of basic and diluted earnings per share for the three months ended September 30, 2024 and 2023: September 30, 2024 September 30, 2023 (in thousands, except share and per share data) Basic Earnings (Loss) per Common Share: Net income (loss) to common stockholders $ 31,204 $ 8,273 Dividends allocated to participating securities ( 38 ) ( 60 ) Net income (loss) to common stockholders - basic $ 31,166 $ 8,213 Basic weighted average common shares outstanding 23,757,039 24,768,921 Basic earnings (loss) per common share $ 1.31 $ 0.33 Diluted Earnings (Loss) per Common Share: Net income (loss) to common stockholders - basic $ 31,204 $ 8,273 Dividends allocated to participating securities ( 38 ) ( 60 ) Net income (loss) to common stockholders - diluted $ 31,166 $ 8,213 Basic weighted average common shares outstanding 23,757,039 24,768,921 Net effect of dilutive equity awards 322,208 188,747 Diluted weighted average common shares outstanding 24,079,247 24,957,668 Diluted earnings (loss) per common share $ 1.29 $ 0.33 The following table sets forth the calculation of basic and diluted earnings per share for the nine months ended September 30, 2024 and 2023: September 30, 2024 September 30, 2023 (in thousands, except share and per share data) Basic Earnings (Loss) per Common Share: Net income (loss) to common stockholders $ 43,806 $ 5,115 Dividends allocated to participating securities ( 115 ) ( 123 ) Net income (loss) to common stockholders - basic $ 43,691 $ 4,992 Basic weighted average common shares outstanding 24,445,105 24,706,568 Basic earnings (loss) per common share $ 1.79 $ 0.20 Diluted Earnings (Loss) per Common Share: Net income (loss) to common stockholders - basic $ 43,806 $ 5,115 Dividends allocated to participating securities ( 115 ) ( 123 ) Net income (loss) to common stockholders - diluted $ 43,691 $ 4,992 Basic weighted average common shares outstanding 24,445,105 24,706,568 Net effect of dilutive equity awards 333,360 227,265 Diluted weighted average common shares outstanding 24,778,465 24,933,833 Diluted earnings (loss) per common share $ 1.76 $ 0.20 23 Angel Oak Mortgage REIT, Inc. Notes to the Condensed Consolidated Financial Statements (Unaudited) 16. Subsequent Events On October 16, 2024, the Company securitized residential mortgage loans with a scheduled unpaid principal balance of approximately $ 316.8 million in the issuance of AOMT 2024-10. Similar to certain previous securitization transactions, the Company will consolidate the VIE used to facilitate this transaction. 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. On October 25, 2024, the Company amended its loan financing facility with Global Investment Bank 2 to, among other changes, reduce the interest rate pricing spread to a range from 1.75 % to 3.35 %, based on collateral type, loan status, dwell time and other factors. See Note 5 — Financing for a further discussion related to this financing facility. On November 1, 2024, the Company amended its loan financing facility with Global Investment Bank 3 to, among other changes, (i) extend the termination date to November 1, 2025; (ii) reduce the interest rate pricing spread to a range from 1.90 % to 4.75 % based on collateral type, loan status, dwell time and other factors; and (iii) eliminate the 20 basis point index spread adjustment. See Note 5 — Financing for a further discussion related to this financing facility. On November 6, 2024, the Company declared a dividend of $ 0.32 per share of common stock, to be paid on November 27, 2024 to common stockholders of record as of November 19, 2024. 24