Angel Oak Mortgage 10Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-40495

Angel Oak Mortgage REIT, Inc.

(Exact name of registrant as specified in its charter)


Maryland									37-1892154
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

3344 Peachtree Road Northeast, Suite 1725, Atlanta, Georgia 30326

(Address of Principal Executive Offices and Zip Code)

404-953-4900

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	AOMR	New York Stock Exchange
9.500% Senior Notes due 2029	AOMN	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 23,511,272 shares of common stock, $0.01 par value per share, outstanding as of November 7, 2024.

ANGEL OAK MORTGAGE REIT, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			2
Condensed Consolidated Balance Sheets			2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)			3
Condensed Consolidated Statements of Changes in Stockholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to the Condensed Consolidated Financial Statements			8
Note 1. Organization and Basis of Presentation			8
Note 2. Variable Interest Entities			9
Note 3. Residential Mortgage Loans			11
Note 4. Investment Securities			11
Note 5. Financing			13
Note 6. Due to Broker			14
Note 7. Securities Sold Under Agreements to Repurchase			14
Note 8. Derivative Financial Instruments			15
Note 9. Fair Value Measurements			16
Note 10. Related Party Transactions			20
Note 11. Commitments and Contingencies			21
Note 12. Accumulated Other Comprehensive Income/(Loss)			21
Note 13. Other Assets			22
Note 14. Equity			22
Note 1 5 . Earnings per Share (“EPS”)			22
Note 1 6 . Subsequent Events			24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			59
Item 4. Controls and Procedures			60

Part II. Other Information
Item 1. Legal Proceedings			61
Item 1A. Risk Factors			61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			61
Item 3. Defaults Upon Senior Securities			61
Item 4. Mine Safety Disclosures			61
Item 5. Other Information			61
Item 6. Exhibits			62

Signatures			63

PART I. FINANCIAL INFORMATION

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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 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).

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)

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.

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

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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of Angel Oak Mortgage REIT, Inc. The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto. References herein to our “Company,” “we,” “us,” or “our” refer to Angel Oak Mortgage REIT, Inc. 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”).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report on Form 10-K”). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in other reports we file with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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

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

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

•changes in our industry, inflation, interest rates, business strategies, target assets, the debt or equity markets, the general economy (or in specific regions) or the residential real estate finance and real estate markets specifically;

•general volatility of the markets in which we invest;

•changes in the availability of attractive loan and other investment opportunities, including non-QM loans sourced from Angel Oak Mortgage Lending;

•the ability of our Manager to locate suitable investments for us, manage our portfolio, and implement our strategy;

•our ability to profitably execute securitization transactions;

•our ability to obtain and maintain financing arrangements on favorable terms, or at all;

•the adequacy of collateral securing our investments and a decline in the fair value of our investments;

•the timing of cash flows, if any, from our investments;

•the operating performance, liquidity, and financial condition of borrowers;

•increased rates of default and/or decreased recovery rates on our investments;

•changes in prepayment rates on our investments;

•the departure of any of the members of senior management of the Company, our Manager, or Angel Oak;

•the availability of qualified personnel;

•conflicts with Angel Oak, including our Manager and its personnel, including our officers, and entities managed by Angel Oak;

•events, contemplated or otherwise, such as acts of God, including hurricanes, earthquakes, and other natural disasters, including those resulting from global climate change, pandemics, acts of war or terrorism, the initiation or escalation of military conflicts (such as the Russian invasion of Ukraine), and others that may cause unanticipated and uninsured performance declines, disruptions in markets, and/or losses to us or the owners and operators of the real estate securing our investments;

•impact of and changes in governmental regulations, tax laws and rates, accounting principles and policies and similar matters;

•the level of governmental involvement in the U.S. mortgage market;

•future changes with respect to the Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the “GSEs”) in the mortgage market and related events, including the lack of certainty as to the future roles of these entities and the U.S. Government in the mortgage market and changes to legislation and regulations affecting these entities;

•effects of hedging instruments on our target assets and our returns, and the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•our ability to make distributions to our stockholders in the future at the level contemplated by our stockholders or the market generally, or at all;

•our ability to continue to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes; and

•our ability to maintain our exclusion from regulation as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and in the Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date such statements are made. The risks summarized under Item 1A. “Risk Factors” in the Annual Report on Form 10-K could cause actual results and performance to differ materially from those set forth in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us.

Important Information Regarding Our Disclosure to Investors

We may use our website (www.angeloakreit.com) to communicate with our investors and disclose company information. The information disclosed through our website may be considered material, so investors should monitor our website in addition to press releases, SEC filings and public conference calls and webcasts. The contents of our website referenced herein are not incorporated by reference into this report.

General

Angel Oak Mortgage REIT, Inc. is a real estate finance company focused on acquiring and investing in first lien non-QM loans and other mortgage-related assets in the U.S. mortgage market. Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which currently operates primarily through a wholesale channel and has a national origination footprint. 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, 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.

Through our relationship with our Manager, we benefit from Angel Oak’s vertically integrated platform and in‑house expertise, providing us with the resources that we believe are necessary to generate attractive risk‑adjusted returns for our stockholders. Angel Oak Mortgage Lending provides us with proprietary access to non‑QM loans, as well as transparency over the underwriting process and the ability to acquire loans with our desired credit and return profile. We believe our ability to identify and acquire target assets through the secondary market is bolstered by Angel Oak’s experience in the mortgage industry and expertise in structured credit investments. In addition, we believe we have significant competitive advantages due to Angel Oak’s analytical investment tools, extensive relationships in the financial community, financing and capital structuring skills, investment surveillance capabilities, and operational expertise.

We have elected to be taxed as a REIT for U.S. federal income tax purposes 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, as amended (the “Code”). Our qualification as a REIT, and maintenance of such qualification, depends on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels, and the concentration of ownership of our stock. We also intend to operate our business in a manner that will allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act. Our common stock commenced trading on the New York Stock Exchange on June 17, 2021.

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

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

Over the course of the third quarter, signs of easing inflation and a stable employment sector that had emerged during the second quarter persisted, providing the Federal Reserve Bank of the United States (“the Fed”) with confidence to reduce interest rates at its September meeting for the first time since March of 2020. At that meeting, the Fed elected to reduce rates by what was perceived to be an aggressive 50 basis points (“bps”). Following the rate cut and now that an easing rate cycle has begun, analysts are split over the expected timing and extent of future rate cuts. As of the end of September 2024, markets were pricing in an additional 1.5 cuts through the end of the year. As of the end of September 2024, inflation was 2.4%, down from 2.9% as of the end of June but still above the Fed’s 2.0% target.

30 year fixed residential conforming mortgage rates also responded to the Fed rate cuts, with the average rate dropping 78bps, from from 6.86% at the end of June 2024 to 6.08% as of the end of September 2024. According to the U.S. Department of Housing and Urban Development, mortgage origination activity rose 9.6% in August 2024 on a month over month seasonally adjusted basis, driven by a 15.8% increase in single-family housing starts. Rate cuts are expected to drive increased home purchase and mortgage origination activity going forward, but the extent of such activity remains uncertain.

On the heels of inflation data and the Fed rate cuts, the two-year and five-year Treasury yields decreased by 112bps and 82bps, respectively, in the third quarter of 2024 compared to the end of June 2024. Net of new loan purchases and securitizations, we observed an increase of approximately 261 basis points in the weighted average price of our residential whole loans portfolio since the end of second quarter 2024. The weighted average coupon of our residential whole loans portfolio held relatively flat at 7.73% as of the end of the third quarter of 2024 compared to 7.71% as of the end of the second quarter of 2024. Subsequent to the end of the third quarter of 2024, in October, we executed the AOMT 2024-10 securitization as the sole contributor of loans, contributing approximately $316.8 million in scheduled unpaid principal balance of residential mortgage loans. During the third quarter of 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average loan-to-value ratio (“LTV”) of 70.0% and weighted average credit score of 754.

Notes offering

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 have deployed the majority of the net proceeds from the offering of the Notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used a portion of the net proceeds from the offering of the Notes 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”). An increase in both the balance and yield of our target assets generated greater interest income in the third quarter of 2024 as compared to the third quarter of 2023. Interest income growth outpaced the growth in interest expense, leading to higher NIM in the third quarter of 2024 compared to the third quarter of 2023.

Net realized loss. Our net realized loss for the quarter ended September 30, 2024 was primarily due to realized losses associated with rate hedge contracts, as well as paydowns on our residential loans and loans held in securitization trusts portfolios.

Net unrealized gain. Our net unrealized gain for the quarter ended September 30, 2024 was driven by 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.

Whole loans and securitization activity

During the quarter ended September 30, 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average LTV of 70.0% and weighted average credit score of 754.

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.

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.

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.

Subsequent to quarter end, in October 2024, we issued AOMT 2024-10, an approximately $316.8 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans. We issued AOMT 2024-10 as the sole participant in the securitization. As the primary beneficiary we will consolidate the AOMT 2024-10 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.

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” below for a full description of our financing arrangements. Our total borrowing capacity was $1.1 billion as of September 30, 2024. Highlights of whole loan financing facilities activity over the third quarter of 2024 are as follows:

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

•During the quarter ended September 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods.

•Subsequent to quarter end, we (i) in October 2024, amended our 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% and (ii) in November 2024 amended our loan financing facility with Global Investment Bank 3 to, among other changes, (a) extend the termination date to November 1, 2025; (b) reduce the interest rate pricing spread to a range from1.90% to 4.75% based on collateral type, loan status, dwell time and other factors; and (c) eliminate the 20 basis point index spread adjustment.

Key Financial Metrics

As a real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, Distributable Earnings Return on Average Equity, Book Value per Share of Common Stock, and Economic Book Value per Share of Common Stock.

Distributable Earnings

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding (1) unrealized gains and losses on our aggregate portfolio, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by our Manager, (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses. We believe that the presentation of Distributable Earnings provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. We believe Distributable Earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. As a REIT, we are generally required to distribute at least 90% of our annual REIT taxable income and to pay U.S. federal income tax at the regular corporate rate to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, generally we intend to attempt to pay dividends to our stockholders in an amount equal to our REIT taxable income, if and to the extent authorized by our Board of Directors. Distributable Earnings is one of a

number of factors considered by our Board of Directors in declaring dividends and, while not a direct measure of REIT taxable income, over time, the measure can be considered a useful indicator of our dividends. Distributable Earnings should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. 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 that we and the Operating Partnership entered into with our Manager upon the completion of our initial public offering of common stock (“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 a loss of $3.4 million and a loss of $8.6 million for the three months ended September 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 and nine months ended September 30, 2024 and 2023:


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(in thousands)
Net income (loss) allocable to common stockholders	$	31,204	$	8,273	$	43,806	$	5,115
Adjustments:

Net unrealized (gains) losses on trading securities	(984)		4,857		829		7,134
Net unrealized (gains) losses on derivatives	51		(4,563)		(2,985)		7,794
Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation	(26,304)		(5,319)		(28,871)		5,784
Net unrealized (gains) losses on residential loans	(7,935)		(12,338)		(17,438)		(48,497)
Net unrealized (gains) losses on commercial loans	—		64		(49)		(83)


Non-cash equity compensation expense	604		447		1,864		1,195



Distributable Earnings	$	(3,364)	$	(8,579)	$	(2,844)	$	(21,558)

Distributable Earnings Return on Average Equity

Distributable Earnings Return on Average Equity is a non-GAAP measure and is defined as annual or annualized Distributable Earnings divided by average total stockholders’ equity. We believe that the presentation of Distributable Earnings Return on Average Equity provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. Additionally, we believe Distributable Earnings Return on Average Equity provides investors with additional detail on the Distributable Earnings generated by our invested equity capital. We believe Distributable Earnings Return on Average Equity as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings Return on Average Equity should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs. Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	($ in thousands)
Annualized Distributable Earnings	$	(13,460)	$	(34,315)	$	(3,793)	$	(28,747)
Average total stockholders’ equity	$	260,452	$	232,575	260,083		$	236,629
Distributable Earnings Return on Average Equity	(5.2)%		(14.8)%		(1.5)%		(12.1)%

Book Value per Share of Common Stock

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


	September 30, 2024		December 31, 2023
	(in thousands except for share and per share data)
Total stockholders’ equity	$	265,098	$	256,106


Number of shares of common stock outstanding at period end	23,511,272		24,965,274
Book value per share of common stock	$	11.28	$	10.26

Economic Book Value per Share of Common Stock

“Economic book value” is a non-GAAP financial measure of our financial position. To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to fair value. These adjustments are also reflected in the table below in our end of period total stockholders’ equity. Management considers economic book value to provide investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for our legally held retained bonds, irrespective of the accounting model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for book value per share of common stock or stockholders’ equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a reconciliation from GAAP total stockholders’ equity and book value per share of common stock to economic book value and economic book value per share of common stock as of September 30, 2024 and December 31, 2023:


	September 30, 2024		December 31, 2023
	(in thousands except for share and per share data)
GAAP total stockholders’ equity	$	265,098	$	256,106


Adjustments:
Fair value adjustment for securitized debt held at amortized cost	64,522		81,942
Stockholders’ equity including economic book value adjustments	$	329,620	$	338,048

Number of shares of common stock outstanding at period end	23,511,272		24,965,274
Book value per share of common stock	$	11.28	$	10.26
Economic book value per share of common stock	$	14.02	$	13.54

Results of Operations

Three Months Ended September 30, 2024 and 2023

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


	Three Months Ended
	September 30, 2024		September 30, 2023
	(in thousands)
INTEREST INCOME, NET
Interest income	$	27,444	$	23,900
Interest expense	18,424		16,490
NET INTEREST INCOME	$	9,020	$	7,410

REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	$	(6,335)	$	(12,044)
Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts	35,172		17,299
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	$	28,837	$	5,255

EXPENSES
Operating expenses	$	1,287	$	1,370
Operating expenses incurred with affiliate	472		599
Due diligence and transaction costs	254		115
Stock compensation	604		447
Securitization costs	—		416
Management fee incurred with affiliate	1,204		1,445
Total operating expenses	$	3,821	$	4,392

INCOME (LOSS) BEFORE INCOME TAXES	$	34,036	$	8,273
Income tax expense	2,832		—


NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS	$	31,204	$	8,273
Other comprehensive income (loss)	2,706		(1,607)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	33,910	$	6,666

Net Interest Income

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


	Three Months Ended
	September 30, 2024				September 30, 2023
	(in thousands)
Interest income	Interest income / expense		Average balance			Interest income / expense		Average balance
Residential mortgage loans	$	4,659	$	263,095		$	4,272	$	289,916
Residential mortgage loans in securitization trusts	18,580		1,454,736			15,208		1,228,074
Commercial mortgage loans	81		5,246			58		6,329
RMBS and Majority-Owned Affiliate	3,251		117,965			3,067		171,128
CMBS	417		6,239			147		6,453
U.S. Treasury securities	65		6,000			541		46,607
Other interest income	391		40,919			607		42,669
Total interest income	27,444					23,900
Interest expense
Notes payable	2,830		176,159			4,117		205,915
Non-recourse securitization obligation, collateralized by residential mortgage loans	13,731		1,362,039			10,956		1,191,406
Repurchase facilities	900		57,842			1,417		87,279
Senior unsecured notes	963		40,538			—		—
Total interest expense	18,424					16,490
Net interest income	$	9,020				$	7,410

Net interest income for the three months ended September 30, 2024 and 2023 was $9.0 million and $7.4 million, respectively. Net interest income increased in the three months ended September 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loans portfolio (residential mortgage loan interest income less notes payable interest expense) during the three months ended September 30, 2024 . We observed net interest income associated with our residential mortgage loan portfolio of $1.8 million in the three months ended September 30, 2024 compared to $0.1 million in the comparable period of 2023. This was primarily driven by an increase in the weighted average coupon rate of our residential mortgage loans portfolio versus the comparative period, as well as holding more unlevered loans, resulting in a proportionally lower notes payable balance.

Total Realized and Unrealized Gains (Losses)

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


	Three Months Ended
	September 30, 2024		September 30, 2023
	(in thousands)
Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation	$	25,228	$	4,352
Realized gain (loss) on RMBS	(565)		(598)
Unrealized gain (loss) on Whole Pool Agency RMBS	(2,138)		(12,367)
Realized gain (loss) on CMBS	(67)		(101)
Realized gain (loss) on interest rate futures	(4,461)		2,828
Realized and unrealized gain (loss) on TBAs	1,880		12,349
Realized and unrealized gain (loss) on residential mortgage loans	7,789		(856)
Realized and unrealized gain (loss) on commercial mortgage loans	—		(35)
Realized and unrealized loss on U.S. Treasury securities	(13)		47
Unrealized appreciation (depreciation) on interest rate futures	1,184		(364)
Total realized and unrealized gains (losses), net	$	28,837	$	5,255

For the three months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in gains of $28.8 million and $5.3 million, respectively. During the three months ended September 30, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as valuations increased during the quarter. Similarly, during the three months ended September 30, 2023 gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as well.

Expenses

Operating Expenses

For the three months ended September 30, 2024 and 2023, our operating expenses were $1.3 million and $1.4 million, respectively. Our operating expenses decreased slightly 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 September 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, decreased slightly in the third quarter of 2024 compared to the same period of 2023 as a result of additional cost savings actions.

Due Diligence and Transaction Costs

For the three months ended September 30, 2024 and 2023, our due diligence and transaction costs were $254 thousand and $115 thousand, respectively. Our due diligence and transaction expenses increased over the comparative period due to increased purchases of whole loans during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Stock Compensation

For the three months ended September 30, 2024 and 2023, our stock compensation expense was $0.6 million and $0.4 million, respectively. Our stock compensation expense increased for the three months ended September 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 September 30, 2024 and 2023, we incurred $0.0 million and $0.4 million of securitization costs, respectively. There was no securitization activity in the third quarter of 2024, and the securitization costs in the comparative period in 2023 were driven by our participation in the AOMT 2023-5 securitization.

Management Fee Incurred with Affiliate

For the three months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $1.2 million and $1.4 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended September 30, 2024 as compared to the same period in 2023. A key driver of the decrease in the three months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million 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 million. 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.

Nine Months Ended September 30, 2024 and 2023

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


	Nine Months Ended
	September 30, 2024		September 30, 2023
	(in thousands)
INTEREST INCOME, NET
Interest income	$	78,558	$	71,403
Interest expense	51,495		50,742
NET INTEREST INCOME	$	27,063	$	20,661

REALIZED AND UNREALIZED GAINS (LOSSES), NET
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
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	$	33,987	$	812

EXPENSES
Operating expenses	$	4,619	$	5,788
Operating expenses incurred with affiliate	1,444		1,672
Due diligence and transaction costs	663		136
Stock compensation	1,864		1,195
Securitization costs	1,583		2,326
Management fee incurred with affiliate	3,810		4,460
Total operating expenses	$	13,983	$	15,577

INCOME (LOSS) BEFORE INCOME TAXES	$	47,067	$	5,896
Income tax expense (benefit)	3,261		781


NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS	$	43,806	$	5,115
Other comprehensive income (loss)	4,534		12,955
TOTAL COMPREHENSIVE INCOME (LOSS)	$	48,340	$	18,070

Net Interest Income

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


	Nine Months Ended
	September 30, 2024				September 30, 2023
	(in thousands)
Interest income	Interest income / expense		Average balance			Interest income / expense		Average balance
Residential mortgage loans	$	13,925	$	284,211		$	18,457	$	467,538
Residential mortgage loans in securitization trusts	51,851		1,357,840			39,753		1,106,621
Commercial mortgage loans	258		5,231			458		8,215
RMBS and Majority Owned Affiliate	9,613		148,677			9,225		164,244
CMBS	1,097		6,428			790		6,394
U.S. Treasury securities	548		14,528			1,201		32,981
Other interest income	1,266		39,239			1,519		37,482
Total interest income	78,558					71,403
Interest expense
Notes payable	9,928		199,644			21,222		366,032
Non-recourse securitization obligation, collateralized by residential mortgage loans	37,624		1,285,118			26,121		1,080,156
Repurchase facilities	2,980		64,431			3,399		89,726
Senior unsecured notes	963		35,681			—		—
Total interest expense	51,495					50,742
Net interest income	$	27,063				$	20,661

Net interest income for the nine months ended September 30, 2024 and 2023 was $27.1 million and $20.7 million, respectively. Net interest income increased in the nine months ended September 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loans portfolio (residential mortgage loan interest income less notes payable interest expense) during the nine months ended September 30, 2024. We observed net interest income associated with our residential mortgage loan portfolio of $4 million in the nine months ended September 30, 2024 compared to a loss of $(2.8) million in the comparable period of 2023. This was primarily driven by an increase in the weighted average coupon rate of our residential mortgage loans portfolio versus the comparative period, as well as holding more unlevered loans, resulting in a proportionally lower notes payable balance.

Total Realized and Unrealized Gains (Losses)

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


	Nine Months Ended
	September 30, 2024		September 30, 2023
	(in thousands)

Realized and unrealized gain (loss) on securitization, net of unrealized gain (loss) on non-recourse securitization obligation	$	25,607	$	(7,948)
Realized loss on RMBS	(2,469)		(1,545)
Realized and unrealized gain (loss) on Whole Pool Agency RMBS	(6,355)		(12,627)
Realized gain (loss) on CMBS	(186)		(241)
Realized gain (loss) on interest rate futures	(622)		8,599
Realized and unrealized gain (loss) on TBAs	5,992		(479)
Realized and unrealized (loss) gain on residential mortgage loans	9,839		17,268
Realized and unrealized (loss) gain on commercial mortgage loans	48		113
Realized and unrealized loss on U.S. Treasury securities	(99)		88
Unrealized appreciation on interest rate futures	2,232		(2,416)
Total realized and unrealized gains (losses), net	$	33,987	$	812

For the nine months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in a net gain of $34 million and a loss of $0.8 million, respectively. During the nine months ended September 30, 2024, gains on residential mortgage loans in securitization trust, net of unrealized gain (loss) on non-recourse securitization obligation, residential mortgage loans, TBAs, and interest rate futures were offset by losses on RMBS and whole pool agency RMBS. In the nine months ended September 30, 2023, market volatility caused the valuation of our residential mortgage loans in securitization trust and whole pool agency RMBS to decrease, which was offset by gains in our residential mortgage loans portfolio and interest rate futures.

Expenses

Operating Expenses

For the nine months ended September 30, 2024 and 2023, our operating expenses were $4.6 million and $5.8 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 nine months ended September 30, 2024 and 2023, our operating expenses incurred with affiliate were $1.44 million and $1.7 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased versus the comparative period as a result of additional cost savings actions.

Due Diligence and Transaction Costs

For the nine months ended September 30, 2024 and 2023, our due diligence and transaction costs were $663 thousand and $136 thousand, respectively. Our due diligence and transaction expenses increased versus the comparative period as we purchased more whole loans during the nine months ended September 30, 2024 than the nine months ended September 30, 2023.

Stock Compensation

For the nine months ended September 30, 2024 and 2023 our stock compensation expense was $1.9 million and $1.2 million, respectively. Stock compensation expense increased for the nine months ended September 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 nine months ended September 30, 2024 in connection with the AOMT 2024-3, AOMT 2024-4, and AOMT 2024-6 securitization transactions. There were $2.3 million of securitization costs incurred for the comparable period in 2023, representing costs incurred in connection with the AOMT 2023-1, AOMT 2023-4, and AOMT 2023-5 securitizations.

Management Fee Incurred with Affiliate

For the nine months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $3.8 million and $4.5 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the nine months ended September 30, 2024 as compared to the same period in 2023. A key driver of the decrease in the nine months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million 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 million. 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.

Our Portfolio

As of September 30, 2024, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets. Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes and earthquakes may occasionally occur. We require all of our collateral to be adequately insured. The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans.

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


	Fair Value		Collateralized Debt		Allocated Capital		% of Total Capital
Portfolio:	($ in thousands)
Residential mortgage loans	$	428,909	$	333,042	$	95,867	36.2	%
Residential mortgage loans in securitization trust	1,452,907		1,353,758		$	99,149	37.4	%
Total whole loan portfolio	$	1,881,816	$	1,686,800	$	195,016	73.6	%

Investment securities
RMBS	$	283,105	$	53,164	$	229,941	86.7	%
U.S. Treasury securities	49,971		49,712		259		0.1	%
Total investment securities	$	333,076	$	102,876	$	230,200	86.8	%

Investment in Majority-Owned Affiliate	$	18,720	$	—	$	18,720	7.1	%

Total investment portfolio	$	2,233,612	$	1,789,676	$	443,936	167.5	%
Target assets (1)	$	2,183,641	$	1,739,964	$	443,677	167.4	%

Cash	$	42,052	$	—	$	42,052	15.8	%
Other assets and liabilities (2)	(220,889)		—		(220,889)		(83.3)	%
Total	$	2,054,775	$	1,789,676	$	265,099	100.0	%

(1) “Target assets” as defined by us excludes U.S. Treasury securities, and includes our investment in a Majority-Owned Affiliates.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $194.7 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”), and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliate, which is considered a target asset.

As of December 31, 2023, our portfolio consisted of approximately $2.1 billion of residential mortgage loans, RMBS, and other target assets. The following table sets forth additional information regarding our portfolio including the manner in which our equity capital was allocated among investment types, as of December 31, 2023:


	Fair Value		Collateralized Debt		Allocated Capital		% of Total Capital
Portfolio:	($ in thousands)
Residential mortgage loans	$	380,040	$	290,610	$	89,430	34.9	%
Residential mortgage loans in securitization trust	1,221,067		1,169,154		51,913		20.3	%
Total whole loan portfolio	$	1,601,107	$	1,459,764	$	141,343	55.2	%

Investment securities
RMBS	$	472,058	44,643		$	427,415	166.9	%
Investment in Majority-Owned Affiliates	16,232		—		16,232		6.3	%
U.S. Treasury Securities	149,927		149,013		914		0.4	%
Total investment securities	$	638,217	$	193,656	$	444,561	173.6	%

Total investment portfolio	$	2,239,324	$	1,653,420	$	585,904	228.8	%
Target assets (1)	$	2,089,397	$	1,504,407	$	585,904	228.8	%

Cash	$	41,625	$	—	$	41,625	16.2	%
Other assets and liabilities (2)	(371,423)		—		(371,423)		(145.0)	%
Total	$	1,909,526	$	1,653,420	$	256,106	100.0	%

(1) “Target assets” as defined by us excludes U.S. Treasury securities, and includes our investment in a Majority-Owned Affiliates.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $392.0 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliates, which is considered a target asset. Additionally, other assets includes $5.2 million of commercial loans and $6.6 million of CMBS.

Residential Mortgage Loans

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


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
Unpaid principal balance (“UPB”)	$75 - $3,403	$481
Interest rate	3.63% - 11.88%	7.73%
Maturity date	6/27/2044 - 8/15/2064	July 2054
FICO score at loan origination	628 - 823	754
LTV at loan origination	7.1% - 90.0%	70.6%
DTI at loan origination	1.94% - 52.0%	31.6%
Percentage of first lien loans	N/A	98.9%
Percentage of loans 90+ days delinquent (based on UPB)	N/A	0.7%

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


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
Unpaid principal balance (“UPB”)	$18 - $3,410	$492
Interest rate	2.99% - 12.50%	6.8%
Maturity date	9/27/2048 - 11/27/2063	December 2053
FICO score at loan origination	624 - 825	748
LTV at loan origination	9.00% - 90.00%	69.4%
DTI at loan origination	1.90% - 59.10%	30.9%
Percentage of first lien loans	N/A	100%
Percentage of loans 90+ days delinquent (based on UPB)	N/A	0.9%

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 September 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:

Resi Loans Credit Score Distribution.jpg

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of September 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 September 30, 2024:

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of September 30, 2024. Numbers presented may add to more than 100% due to rounding.

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

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

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2023. Numbers presented may add to more than 100% due to rounding.

Residential Mortgage Loans Held in Securitization Trusts

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


			($ in thousands)
UPB			$1,512,722
Fair Value			$1,452,907
Number of loans			3,594
Weighted average loan coupon			5.12%
Average loan amount			$422
Weighted average LTV at loan origination and deal date			67.0%
Weighted average credit score at loan origination and deal date			741
Current 3-month constant prepayment rate (“CPR”) (1)			7.8%
Percentage of loans 90+ days delinquent (based on UPB)			1.9%

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

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

Note: No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of September 30, 2024. Numbers presented may add to more than 100% due to rounding.

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


			($ in thousands)
UPB			$1,334,963
Fair Value			$1,221,067
Number of loans			3,112
Weighted average loan coupon			4.7%
Average loan amount			$429
Weighted average LTV at loan origination and deal date			68.0%
Weighted average credit score at loan origination and deal date			742
Current 3-month CPR			5.6%
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 are based on the aggregate unpaid principal balance of such loans):

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

RMBS

We have participated in numerous securitization transactions pursuant to which we contributed to a securitization trust under the purview of AOMT I, LLC, non‑QM loans that we had accumulated and held on our balance sheet. These loans were purchased from affiliated and unaffiliated entities. In return, we received bonds from these securitization trusts, and cash. At times, we were allocated certain risk retention securities as part of these transactions. Risk retention securities represent at least 5% of a horizontal or vertical slice of the bonds issued as part of the transaction.

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


	AOMT 2019 Securitizations		AOMT 2020 Securitizations		AOMT 2023 Securitizations		AOMT 2024 Securitizations
	($ in thousands)
UPB of loans	$295,926		$154,043		$1,119,064		$882,348
Number of loans	1,081		477		2,165		2,032
Weighted average loan coupon	7.21	%	5.81	%	5.25	%	5.28	%
Average loan amount	$274		$323		$517		$434
Weighted average LTV at loan origination and deal date	69.0	%	74.1	%	68.7	%	68.4	%
Weighted average credit score at loan origination and deal date	707		719		731		731
Current 3-month CPR (1)	13.4	%	8.7	%	7.0	%	8.3	%
90+ day delinquency (as a % of UPB)	8.1	%	2.9	%	1.4	%	1.2	%
Weighted Average 90+ Delinquency (as a % of Original Balance)	1.2	%	1.0	%	1.3	%	1.1	%
Weighted Average LTV of 90+ Delinquent Loans (FHFA HPI Estimate) (2)	49.5	%	—	%	68.8	%	68.0	%
Fair value of first loss piece (3,4)	19,383		23,676		11,500		3,109
Investment thickness (5)	21.45		20.14		7.60		10.05

(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) 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.

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

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


	AOMT 2019 Securitizations		AOMT 2020 Securitizations		AOMT 2023 Securitizations
	($ in thousands)
UPB of loans	$331,376		$167,028		$1,192,450
Number of loans	1197		512		2288
Weighted average loan coupon	6.90	%	5.80	%	5.30	%
Average loan amount	$277		$326		$521
Weighted average LTV at loan origination and deal date	70	%	74	%	70	%
Weighted average credit score at loan origination and deal date	707		720		733
Current 3-month CPR (1, 6)	14.3	%	5.4	%	4.3	%
90+ day delinquency (as a % of UPB)	9.0	%	3.0	%	1.6	%
Weighted Average 90+ Delinquency (as a % of Original Balance)	1.5	%	1.1	%	1.3	%
Weighted Average LTV of 90+ Delinquent Loans (FHFA HPI Estimate) (2)	50.8	%	74.1	%	72.8	%
Fair value of first loss piece (3,5)	$18,057		$21,389		$13,003
Investment thickness (4)	19.15	%	18.57	%	3.78	%

(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.

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

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

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 September 30, 2024:


	RMBS						Repurchase Debt (1)						Allocated Capital
	AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total
	(in thousands)
Mezzanine	$	13,463	$	—	$	13,463	$	5,292	$	—	$	5,292	$	8,171	$	—	$	8,171
Subordinate	62,223		—		$	62,223	20,175		—		$	20,175	$	42,048	$	—	$	42,048
Interest only / excess	13,055		—		$	13,055	—		—		$	—	$	13,055	$	—	$	13,055
Whole pool (2)	—		194,364		$	194,364	—		—		$	—	$	—	$	194,364	$	194,364
Retained RMBS in VIEs (3)	—		—		$	—	27,697		—		$	27,697	$	(27,697)	$	—	$	(27,697)
Subtotal	$	88,741	$	194,364	$	283,105	$	53,164	$	—	$	53,164	$	35,577	$	194,364	$	229,941
Investment in Majority Owned Affiliates	$	18,720	$	—	$	18,720	$	—	$	—	$	—	$	18,720	$	—	$	18,720
Total	$	107,461	$	194,364	$	301,825	$	53,164	$	—	$	53,164	$	54,297	$	194,364	$	248,661

(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 September 30, 2024 were purchased from a broker to whom the Company owes approximately $194.7 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.

(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 $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 condensed consolidated balance sheets.

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


	RMBS						Repurchase Debt (1,3)						Allocated Capital
	AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total
	(in thousands)
Mezzanine	$	10,972	$	—	$	10,972	$	844	$	—	$	844	$	10,128	$	—	$	10,128
Subordinate	55,665		—		55,665		19,812		—		19,812		35,853		—		$	35,853
Interest only / excess	13,059		—		13,059		1,871		—		1,871		11,188		—		$	11,188
Whole pool (2)	—		392,362		392,362		—		—		—		—		392,362		$	392,362
Retained RMBS in VIEs (3)	—		—		—		22,116		—		22,116		(22,116)		—		(22,116)
Subtotal	$	79,696	$	392,362	$	472,058	$	44,643	$	—	$	44,643	$	35,053	$	392,362	$	427,415
Investment in Majority Owned Affiliates	$	16,232	$	—	16,232		$	—	$	—	—		$	16,232	$	—	16,232
Total	$	95,928	$	392,362	$	488,290	$	44,643	$	—	$	44,643	$	51,285	$	392,362	$	443,647

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

(2) The whole pool RMBS presented as of December 31, 2023 were purchased from a broker to whom the Company owes approximately $392.0 million, payable upon the settlement date of the trade. See Note 6 — Due to Broker in our unaudited condensed consolidated financial statements included in this report.

(3) A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $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, for the period ended September 30, 2024:


	Senior		Mezzanine		Subordinate		Interest Only		Whole Pool		Total
	(in thousands)
Beginning fair value as of June 30, 2024	$	—	$	13,100	$	60,107	$	13,027	$	180,518	$	266,752
Acquisitions:
Retained bonds received in securitizations	—		—		—		—		—		$	—

Third party securities	—		—		—		—		194,697		$	194,697
Effect of principal payments / sales	—		(280)				—		(178,702)		$	(178,982)
IO and excess servicing prepayments	—		—		—		(565)		—		$	(565)
Changes in fair value, net	—		644		2,115		593		(2,149)		$	1,203
Ending fair value as of September 30, 2024	$	—	$	13,464	$	62,222	$	13,055	$	194,364	$	283,105

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


	Senior		Mezzanine		Subordinate		Interest Only		Whole Pool		Total
	(in thousands)
Beginning fair value as of December 31, 2022	$	—	$	1,958	$	49,578	$	10,424	$	993,378	$	1,055,338
Acquisitions:
Retained bonds received in securitizations	—		9,831		4,880		3,530		—		18,241

Third party securities	—		—		—		—		1,741,864		1,741,864
Effect of principal payments / sales	—		(869)		—		—		(2,339,028)		(2,339,897)
IO and excess servicing prepayments	—		—		—		(1,396)		—		(1,396)
Changes in fair value, net	—		52		1,207		501		(3,852)		(2,092)
Ending fair value as of December 31, 2023	$	—	$	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 September 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 September 30, 2024)

Note: No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of September 30, 2024. Numbers presented may add to more than 100% due to rounding.

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

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of December 31, 2023)

Note: No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2023. Numbers presented may add to more than 100% due to rounding.

CMBS

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


	September 30, 2024		December 31, 2023
	($ in thousands)
UPB of loans	$104,138		$112,302
Number of loans	134		145
Weighted average loan coupon	7.9	%	7.5	%
Average loan amount	$777		$774
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 September 30, 2024 and December 31, 2023:


	September 30, 2024						December 31, 2023
	CMBS		Repurchase Debt		Allocated Capital		CMBS		Repurchase Debt		Allocated Capital
	(in thousands)


Subordinate	2,674		—		2,674		2,706		—		2,706
Interest only / excess	3,262		—		3,262		3,886		—		3,886
Total	$	5,936	$	—	$	5,936	$	6,592	$	—	$	6,592

Liquidity and Capital Resources

Overview

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs. Our financing sources 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, securitizations of our whole loans, and our ATM Program (as defined below). 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. We have deployed the majority of the net proceeds from the offering of the Notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform and 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 of the Notes 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. See “—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). Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others. We may also seek to raise additional capital through public or private offerings of equity, equity-related, or debt securities, depending upon market conditions. The use of any particular source of capital and funds will depend on market conditions, availability of these sources, and the investment opportunities available to us.

We have used and expect to continue to use loan financing lines to finance the acquisition and accumulation of mortgage loans or other mortgage‑related assets pending their eventual securitization. Upon accumulating an appropriate amount of assets, we have financed and expect to continue to finance a substantial portion of our mortgage loans utilizing fixed-rate term securitization funding that provides long‑term financing for our mortgage loans and locks in our cost of funding, regardless of future interest rate movements.

Securitizations may either take the form of the issuance of securitized bonds or the sale of “real estate mortgage investment conduit” securities backed by mortgage loans or other assets, with the securitization proceeds being used in part to repay pre-existing loan financing lines and repurchase facilities. We have sponsored and participated in securitization transactions with other entities that are managed by Angel Oak, and may continue to do so in the future, along with sponsoring sole securitization transactions.

We believe these identified sources of financing will be adequate for purposes of meeting our short‑term (within one year) and our longer‑term liquidity needs. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and any potential changes in market conditions.

Description of Existing Financing Arrangements

As of September 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 September 30, 2024, we renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods. Subsequent to the end of the quarter, we (i) amended our 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% and (ii) amended our loan financing facility with Global Investment Bank 3 to, among other changes, extend the termination date to (a) November 1, 2025; (b) 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 (c) eliminate the 20 basis point index spread adjustment. 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 September 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; (2) our minimum liquidity must not fall below the greatest of (i) the product of 5% and the aggregate repurchase price for a specific loan financing facility as of such date of determination, (ii) $10.0 million and (iii) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds); and (3) the maximum ratio of our and our subsidiaries’ total indebtedness to tangible net worth must not be greater than 5:1. Our minimum liquidity requirement as of September 30, 2024 was $10.0 million.

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

Multinational Bank 1 Loan Financing Facility. On April 13, 2022, we and two of our subsidiaries entered into a master repurchase agreement with a multinational bank (“Multinational Bank 1”). Our subsidiaries are each considered a “Seller” under this agreement. From time to time and pursuant to the agreement, either of our subsidiaries may sell to Multinational Bank 1, and later repurchase, up to $600.0 million aggregate borrowings on mortgage loans.

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 September 30, 2024, the termination date of the master repurchase agreement was March 25, 2025.

The amount expected to be paid by Multinational Bank 1 for each eligible mortgage loan is based on an advance rate as a percentage of either the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less. Pursuant to the agreement, Multinational Bank 1 retains the right to determine the market value of the mortgage loans in its sole commercially reasonable discretion. The loan financing line is marked‑to‑market. Additionally, Multinational Bank 1 is under no obligation to purchase the eligible mortgage loans we offer to sell to them. The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread generally ranging from 1.75% to 2.10% and (2) the average SOFR for each U.S. Government Securities Business Day (as defined in the master repurchase agreement) until two U.S. Government Securities Business Days prior to the date the applicable loan is repurchased by the applicable subsidiary.

The obligations of the subsidiaries under the master repurchase agreement are guaranteed by the Company pursuant to a guaranty executed contemporaneously with the master repurchase agreement. In addition, and similar to other repurchase agreements that the Company has entered into, the Company is subject to various financial and other covenants, including those relating to (1) maintenance of a minimum tangible net worth; (2) a maximum ratio of indebtedness to tangible net worth; and (3) minimum liquidity.

The agreement contains margin call provisions that provide Multinational Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, Multinational Bank 1 may require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Multinational Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

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

Global Investment Bank 2 Loan Financing Facility. On March 28, 2024, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 2”), replacing the existing master repurchase agreement with Global

Investment Bank 2 entered into on February 13, 2020. Our two subsidiaries are each considered a “Seller” under this agreement. Pursuant to the agreement, one of our subsidiaries may sell to Global Investment Bank 2, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans. The agreement is set to terminate on March 27, 2026, unless terminated earlier pursuant to the terms of the agreement.

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. Additionally, Global Investment Bank 2 is under no obligation to purchase the eligible mortgage loans we offer to sell to them. Upon our or our subsidiary’s repurchase of the mortgage loan, our subsidiaries are required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) the greater of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a pricing spread generally ranging from, as of October 25, 2024, 1.75% to 3.35%.

The agreement contains margin call provisions that provide Global Investment Bank 2 with certain rights in the event of a decline in the market value or cost‑basis value of the purchased mortgage loans. Under these provisions, Global Investment Bank 2 may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 2’s right to liquidate the mortgage loans then subject to the agreement.

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

Global Investment Bank 3 Loan Financing Facility. On October 24, 2018, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”) for which we serve as guarantor of our subsidiaries’ obligations. Our subsidiaries are each considered a “Seller” under this agreement. Pursuant to the initial agreement, our subsidiaries could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans, although Global Investment Bank 3 was under no obligation to purchase the loans our subsidiaries offered to sell to them.

On January 1, 2022, the facility was amended to transition the reference rate from a LIBOR-based index to Compound SOFR. Compound SOFR is determined on a one-month basis and is defined as a daily rate as determined by Global Investment Bank 3 to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc. definitions.

On November 7, 2023, the facility’s termination date was extended to November 7, 2024. In addition, the base interest rate spread was reduced to 1.80% plus a 0.20% index spread adjustment. The advance rate for performing non-seasoned loans was increased to 85%.

On November 1, 2024, the facility’s termination date was extended to November 1, 2025. In addition, the base interest rate spread was reduced to a range from 1.90% to 4.75% and the index spread adjustment of 0.20% was eliminated.

The loan financing line is marked-to-market at fair value, where Global Investment Bank 3 retains the right to determine the market value of the mortgage loan collateral in its sole and good faith discretion and in a commercially reasonable manner and is under no obligation to purchase the eligible mortgage loans we offered to sell to them. Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less.

The Agreement contains margin call provisions that provide Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under those provisions, Global Investment Bank 3 could require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement requires us to maintain various financial and other customary covenants. The agreement also sets forth events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 3’s right to liquidate the mortgage loans then subject to the agreement.

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

Institutional Investors A and B Static Loan Pool Financing. On October 4, 2022, the Company and a subsidiary entered into two separate master repurchase facilities with two affiliates of an institutional investor (“Institutional Investors A and B”) regarding a specific pool of whole loans with financing of approximately $168.7 million on approximately $239.3 million of unpaid principal balance. The Company repaid these financing facilities in full on January 4, 2023, at which time the facilities were terminated pursuant to their terms.

Regional Bank 1 Loan Financing Facility. On December 21, 2018, we and one of our subsidiaries entered into a master repurchase agreement with a regional bank (“Regional Bank 1”). This financing facility was substantially unused, and expired by its terms on March 16, 2023.

The following table sets forth the details of our loan financing facilities as of each 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.

(4) These agreements expired by their terms on January 4, 2023.

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

The following table sets forth the total unused borrowing capacity of each loan financing facility 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 our financing facilities, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

Short‑Term Repurchase Facilities. In addition to our existing loan financing lines, we employ short‑term repurchase facilities to borrow against U.S. Treasury securities, securities issued by AOMT, Angel Oak’s securitization platform, and other securities we may acquire in accordance with our investment guidelines. The following table sets forth certain characteristics of our short-term repurchase facilities as of September 30, 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
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)
	($ in thousands)
U.S. Treasury securities	$	149,013	5.57	%	10
RMBS (1)	44,643		7.04	%	16
Total	$	193,656	5.91	%	11

The repurchase debt against the U.S. Treasury securities was repaid in full upon the maturity of the U.S. Treasury securities.

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


Quarter End	Quarter End Balance	Average Balance in Quarter	Highest Month-End Balance in Quarter
	(in thousands)



Q4 2022	52,544	56,426	63,357
Q1 2023	442,214	180,165	442,214
Q2 2023	340,701	101,731	340,701
Q3 2023	188,101	87,279	188,101
Q4 2023	193,656	62,536	193,656
Q1 2024	193,493	69,254	193,493
Q2 2024	201,051	66,804	201,051
Q3 2024	102,876	57,842	102,876

We utilize short‑term repurchase facilities on our RMBS portfolio and to finance assets for REIT asset test purposes. Over time, the need to purchase securities for REIT asset test purposes will be reduced as we obtain and participate in additional securitizations and acquire assets directly for investment purposes. We will continue to use repurchase facilities on our RMBS portfolio to add additional leverage which increases the yield on those assets. Our use of repurchase facilities is generally highest at the end of any particular quarter, as shown in the table above, where the quarter-end balance and the highest month-end balance in each quarter are generally equivalent.

Securitization Transactions

Subsequent to the end of the quarter, in October 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-10 issued approximately $316.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $260.4 million and retained cash of $39.4 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 will consolidate the AOMT 2024-10 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 in future reporting periods.

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, 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 September 30, 2024.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, 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 September 30, 2024.

In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, 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 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 September 30, 2024.

In December 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-7 issued approximately $397.2 million in face value of bonds. Our proportionate share of 10.36% of the retained bonds and investments in MOAs was approximately $3.5 million, including a retained discount on issuance of approximately $1.4 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $30.9 million and retained cash of $3.6 million, which was used for operational purposes.

We 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 September 30, 2024.

In August 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-5 issued approximately $260.6 million in face value of bonds. Our proportionate share of 34.42% of the retained bonds and investments in MOAs was approximately $7.7 million, including a retained discount on issuance of approximately $2.7 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $63.4 million and retained cash of $10.7 million, which was used for operational purposes.

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

In June 2023, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-4 issued approximately $259.4 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $197.3 million and retained cash of $35.7 million, which was used for new loan purchases and operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. 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 September 30, 2024.

In January 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-1 issued approximately $552.9 million in face value of bonds. Our proportionate share of 41.21% of the retained bonds and investments in MOAs was approximately $19.8 million, including a retained discount on issuance of approximately $6.8 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $190.1 million and retained cash of $15.9 million, which was used for operational purposes.

We derecognized the mortgage loans sold in this transaction and recorded an investment in majority-owned affiliate located within “other assets” on our consolidated balance sheet as of September 30, 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.

Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks. For example, we may enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities. Any such hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap contracts, index swap contracts, interest rate cap or floor contracts, futures or forward contracts, and options.

Notes Offering

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 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, whether at the stated maturity, upon, acceleration, call for redemption or otherwise. 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.

ATM Program

On August 8, 2024, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) to sell shares of the Company’s common stock (“common stock”) from time to time having an aggregate gross sales price of up to $75 million, through an “at the market” equity offering program (the “ATM Program”). The Company issued and sold 188,456 shares of common stock through the ATM Program during the three-months and nine-months ended September 30, 2024 for net proceeds of $2.3 million. As of September 30, 2024, the Company had approximately $73 million of shares of common stock available for issuance under the ATM Program and Sales Agreement.

Cash Availability

Cash and cash equivalents

Our cash balance as of September 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.

We may also participate in upcoming securitizations either solely or with other Angel Oak entities. We also have the ability to leverage currently unleveraged securities or whole loan assets, if we deem those actions advisable.

Restricted Cash

Restricted cash of approximately $2.7 million as of September 30, 2024 was comprised of: no margin collateral held in support of our whole pool assets; $2.3 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.

Restricted cash of approximately $2.9 million as of December 31, 2023 was comprised of: $2.5 million in interest rate futures margin collateral; and margin collateral for securities sold under agreements to repurchase of $0.3 million. Our counterparties did not require any margin collateral for TBAs as of December 31, 2023.

Cash Flows


		Nine Months Ended
		September 30, 2024		September 30, 2023
	(in thousands)
Cash flows provided by (used in) operating activities		$	(196,380)	$	353,744
Cash flows provided by (used in) investing activities		$	86,040	$	(179,325)
Cash flows provided by (used in) financing activities		$	110,575	$	(171,318)
Net increase (decrease) in cash and restricted cash		$	235	$	3,101

The cash used in operating activities of $196.4 million for the nine months ended September 30, 2024 as compared to the cash provided by operating activities of $353.7 million for the nine months ended September 30, 2023 was primarily due to the volume of residential mortgage loans sold into an affiliate’s securitization trust during the first nine months of 2023, as compared to the first nine months of 2024.

The cash provided by investing activities of $86.0 million for the nine months ended September 30, 2024 as compared to cash used in investing activities of $179.3 million for the nine months ended September 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 provided $110.6 million for the nine months ended September 30, 2024 as compared to cash used of $171.3 million for the nine months ended September 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

Residential loan activity is recognized in the statement of cash flows as an operating activity, as our residential mortgage loans are generally held for a short period of time with the intent to securitize these loans. Commercial mortgage loan activity is recognized in the statement of cash flows as an investing activity, as our commercial mortgage loan portfolio is generally deemed to be held for investing purposes.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. A discussion of critical accounting policies and estimates is included in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” section in the Annual Report on Form 10-K. Our critical accounting policies and estimates have not materially changed since December 31, 2023. Management discusses the ongoing development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.

We expect quarter-to-quarter GAAP earnings volatility from our business activities. This volatility can occur for a variety of reasons, particularly changes in the fair values of consolidated assets and liabilities. In addition, the amount or timing of our reported earnings may be impacted by technical accounting issues and estimates.

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized, and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

For a discussion of our potential risks and uncertainties, see the information under Item 1A. “Risk Factors” in the Annual Report on Form 10-K. There have been no material changes to our principal risks that we believe are material to our business, results of operations, and financial condition from the risk factors previously disclosed in the Annual Report on Form 10-K. The risks described in the Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table sets forth information with respect to shares of our common stock that we repurchased during the quarter ended September 30, 2024:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

July 1, 2024 - July 31, 2024	1,707,922	$	11.68	-	$	—
August 1, 2024 - August 31, 2024	-	$	—	-	$	—
September 1, 2024 - September 30, 2024	-	$	—	-	$	—
Total	1,707,922	$	11.68	-	$	—

(1)On July 18, 2024, we entered into a stock repurchase agreement(the “stock repurchase agreement”)with Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP. Pursuant to the stock repurchase agreement, on July 25, 2024,we repurchased 1,707,922 shares of common stock owned by Xylem Finance LLC for an aggregate repurchase price of approximately $20.0 million.

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities during the quarter ended September 30, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the quarter ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

ITEM 6. EXHIBITS


Exhibit Number		Description
3.1		Articles of Amendment and Restatement of the Company, dated June 17, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 23, 2021)
3.2		Articles of Amendment of the Company, effective as of March 10, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 2, 2023)
3.3		Third Amended and Restated Bylaws of the Company, effective as of March 10, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on March 2, 2023)
4.1		Indenture, dated as of July 25, 2024, among Angel Oak Mortgage REIT, Inc., as issuer, Angel Oak Mortgage Operating Partnership, LP, as guarantor, and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on July 25, 2024)
4.2		First Supplemental Indenture, dated as of July 25, 2024, among Angel Oak Mortgage REIT, Inc., as issuer, Angel Oak Mortgage Operating Partnership, LP, as guarantor, and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on July 25, 2024)
4.3		Form of 9.500% Senior Notes due 2029 (including the notation of guarantee) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on July 25, 2024)
10.1	+	Amendment No. 1 to the Master Repurchase Agreement by and among Angel Oak Mortgage REIT, Inc and Global Investment Bank 2 dated October 25, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 29, 2024)
10.2	+	Amendment No. 1 to the Pricing Side Letter by and among Angel Oak Mortgage REIT, Inc and Global Investment Bank 2 dated October 25, 2024 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 29, 2024)
10.3	+	Second Amend and Restated Master Repurchase Agreement among Angel Oak Mortgage Fund TRS, Angel Oak Mortgage Operating Partnership, LP and Global Investment Bank 3 dated November 1, 2024 (incorporated by reference to Exhibit 10.1 and 10.2 to the Company’s Current Report on Form 8-K filed on November 4 , 2024).
22.1		List of Guarantor Subsidiaries
31.1	†	Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	†	Certification of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.Def		Definition Linkbase Document
101.Pre		Presentation Linkbase Document
101.Lab		Labels Linkbase Document
101.Cal		Calculation Linkbase Document
101.Sch		Schema Document
101.Ins		Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
104		The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL

+ Portions of this exhibit are redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

† Filed herewith.

* Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

ANGEL OAK MORTGAGE REIT, INC.


Date: November 7, 2024	By:	/s/ Sreeniwas Prabhu
		Sreeniwas Prabhu
		Chief Executive Officer and President
		(Principal Executive Officer)

Date: November 7, 2024	By:	/s/ Brandon R. Filson
		Brandon R. Filson
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

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Angel Oak Mortgage (AOMR) 10-Q2024 Q3 Quarterly report

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