Angel Oak Mortgage REIT, Inc. - Quarter Report: 2022 June (Form 10-Q)

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 June 30, 2022

☐ 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, 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

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

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

Accelerated filer

☐

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 24,936,750 shares of common stock, $0.01 par value per share, outstanding as of August 12, 2022.

ANGEL OAK MORTGAGE, 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 Stockholder(s)’ Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to the Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			58
Item 4. Controls and Procedures			58

Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors			59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 3. Defaults Upon Senior Securities			59
Item 4. Mine Safety Disclosures			59
Item 5. Other Information			59
Item 6. Exhibits			60

Signatures			61

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Angel Oak Mortgage, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except for share data)


	As of:
	June 30, 2022		December 31, 2021
ASSETS
Residential mortgage loans - at fair value	$	1,279,341	$	1,061,912
Residential mortgage loans in securitization trusts - at fair value	982,579		667,365
Commercial mortgage loans - at fair value	20,196		18,664
RMBS - at fair value	922,859		485,634
CMBS - at fair value	8,982		10,756
U.S. Treasury securities - at fair value	—		249,999
Cash and cash equivalents	16,100		40,801
Restricted cash	5,776		11,508
Principal and interest receivable	43,030		25,984
Deferred tax asset	3,457		—
Unrealized appreciation on TBAs and interest rate futures contracts - at fair value	594		2,428
Other assets	1,732		2,878
Total assets	$	3,284,646	$	2,577,929

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Notes payable	$	1,102,101	$	853,408
Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts (see Note 2)	949,442		616,557
Securities sold under agreements to repurchase	128,365		609,251
Unrealized depreciation on TBAs and interest rate futures contracts - at fair value	8,258		728
Due to broker	720,405		—

Accrued expenses	2,584		442
Accrued expenses payable to affiliate	1,539		1,425
Interest payable	2,663		1,283
Income taxes payable	—		1,600
Management fee payable to affiliate	2,005		1,845
Total liabilities	$	2,917,362	$	2,086,539

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Series A preferred stock, $0.01 par value, 12% cumulative, non-voting, 125 shares issued and outstanding as of June 30, 2022 and December 31, 2021	101		101
Common stock, $0.01 par value. As of June 30, 2022: 350,000,000 shares authorized, 24,925,930 shares issued and outstanding. As of December 31, 2021: 350,000,000 shares authorized, 25,227,328 shares issued and outstanding.	249		252
Additional paid-in capital	472,356		476,510
Accumulated other comprehensive income	1,248		3,000
Retained (deficit) earnings	(106,670)		11,527
Total stockholders’ equity	$	367,284	$	491,390
Total liabilities and stockholders’ equity	$	3,284,646	$	2,577,929

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

Angel Oak Mortgage, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except for share and per share data)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
INTEREST INCOME, NET
Interest income	$	29,702	$	12,143	$	56,811	$	22,177
Interest expense	13,271		1,846		23,441		2,678
NET INTEREST INCOME	16,431		10,297		33,370		19,499

REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	12,718		(10,224)		39,133		(12,512)
Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 2), and derivative contracts	(73,985)		4,813		(154,166)		9,330
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	(61,267)		(5,411)		(115,033)		(3,182)

EXPENSES
Operating expenses	2,977		609		6,723		1,130
Operating expenses incurred with affiliate	838		533		1,838		972
Due diligence and transaction costs	519		177		1,182		242
Stock compensation	968		90		1,839		90
Securitization costs	—		—		2,019		—
Management fee incurred with affiliate	2,006		1,250		3,879		2,169
Total operating expenses	7,308		2,659		17,480		4,603

INCOME BEFORE INCOME TAXES	(52,144)		2,227		(99,143)		11,714
Income tax benefit	—		—		(3,457)		—
NET INCOME (LOSS)	$	(52,144)	$	2,227	$	(95,686)	$	11,714
Preferred dividends	(4)		(4)		(8)		(8)
NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDER(S)	$	(52,148)	$	2,223	$	(95,694)	$	11,706
Other comprehensive income (loss)	11,235		3,085		(1,752)		3,615
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(40,913)	$	5,308	$	(97,446)	$	15,321

Basic earnings (loss) per common share	$	(2.13)	$	0.13	$	(3.90)	$	0.72
Diluted earnings (loss) per common share	$	(2.13)	$	0.13	$	(3.90)	$	0.72

Weighted average number of common shares outstanding:
Basic	24,458,015		16,746,606		24,549,977		16,238,153
Diluted	24,458,015		16,798,660		24,549,977		16,264,323

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

Angel Oak Mortgage, Inc.

Condensed Consolidated Statements of Changes in Stockholder(s)’ Equity

(Unaudited)

(in thousands)


	Three Months Ended June 30, 2022
	Preferred Stock		Common Stock at Par		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Deficit		Total Stockholders’ Equity
Stockholders’ equity as of March 31, 2022	$	101	$	252	$	474,377	$	(9,987)	$	(43,306)	$	421,437
Repurchase of common stock	—		(3)		(2,989)		—		—		(2,992)
Non-cash equity compensation	—		—		968		—		—		968
Dividends declared - preferred	—		—		—		—		(4)		(4)
Unrealized gain on RMBS and CMBS	—		—		—		11,235		—		11,235
Dividends paid on common stock	—		—		—		—		(11,216)		(11,216)
Net loss	—		—		—		—		(52,144)		(52,144)
Stockholders’ equity as of June 30, 2022	$	101	$	249	$	472,356	$	1,248	$	(106,670)	$	367,284


	Three Months Ended June 30, 2021
	Preferred Stock		Common Stock at Par		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Total Stockholder(s)’ Equity
Stockholder’s equity as of March 31, 2021	$	101	$	157	$	302,750	$	(509)	$	12,084	$	314,583
Private placement concurrent with IPO	—		21		39,979		—		—		40,000
Common stock issued in IPO	—		72		136,728		—		—		136,800
Non-cash equity compensation	—		5		85		—		—		90
Dividends declared - preferred	—		—		—		—		(4)		(4)
Unrealized gain on RMBS and CMBS	—		—		—		3,085		—		3,085
Net income	—		—		—		—		2,227		2,227
Stockholders’ equity as of June 30, 2021	$	101	$	255	$	479,542	$	2,576	$	14,307	$	496,781

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

Angel Oak Mortgage, Inc.

Condensed Consolidated Statements of Changes in Stockholder(s)’ Equity

(Unaudited)

(in thousands)


	Six Months Ended June 30, 2022
	Preferred Stock		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, 2021	$	101	$	252	$	476,510	$	3,000	$	11,527	$	491,390
Repurchase of common stock	—		(3)		(5,993)		—		—		(5,996)
Non-cash equity compensation	—		—		1,839		—		—		1,839
Dividends declared - preferred	—		—		—		—		(8)		(8)
Unrealized loss on RMBS and CMBS	—		—		—		(1,752)		—		(1,752)
Dividends paid on common stock	—		—		—		—		(22,503)		(22,503)
Net loss	—		—		—		—		(95,686)		(95,686)
Stockholders’ equity as of June 30, 2022	$	101	$	249	$	472,356	$	1,248	$	(106,670)	$	367,284


	Six Months Ended June 30, 2021
	Preferred Stock		Common Stock at Par		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Retained Earnings		Total Stockholder(s)’ Equity
Stockholder’s equity as of December 31, 2020	$	101	$	157	$	246,489	$	(1,039)	$	2,601	$	248,309
Contributions from common stockholder prior to IPO	—		—		56,261		—		—		56,261
Private placement concurrent with IPO	—		21		39,979		—		—		40,000
Common stock issued in IPO	—		72		136,728		—		—		136,800
Non-cash equity compensation	—		5		85		—		—		90
Dividends declared - preferred	—		—		—		—		(8)		(8)
Unrealized gain on RMBS and CMBS	—		—		—		3,615		—		3,615
Net income	—		—		—		—		11,714		11,714
Stockholders’ equity as of June 30, 2021	$	101	$	255	$	479,542	$	2,576	$	14,307	$	496,781

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

Angel Oak Mortgage, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(95,686)	$	11,714
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Net realized loss (gain) on mortgage loans, derivative contracts, RMBS, and CMBS	(39,133)		12,512
Net unrealized loss (gain) on mortgage loans and derivative contracts	154,166		(9,330)
Accretion of and amortization	8,315		151


Non-cash equity compensation	1,839		90
Net change in:
Purchases of residential mortgage loans from non-affiliates	(390,956)		(73,546)
Purchases of residential mortgage loans from affiliates	(541,875)		(335,233)
Principal payments on residential mortgage loans	205,260		27,481

Margin received from interest rate futures contracts and TBAs	73,171		471
Principal and interest receivable on residential motgage loans	(10,975)		(13,387)
Income tax benefit	(3,457)		—
Other assets	(296)		(3,642)
Management fee payable to affiliate	160		—
Accrued expenses	2,143		519
Accrued expenses payable to affiliate	114		(158)
Interest payable	1,380		267
NET CASH USED IN OPERATING ACTIVITIES	(635,830)		(382,091)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in RMBS and CMBS	(419,748)		(881,011)
Purchases of investments in U.S. Treasury Bills	(349,992)		(1,000)
Maturity of U.S. Treasury Bills	600,000		149,993
Sale of RMBS	669,913		19,688
Principal payments on RMBS	4,936		5,178

Purchases of commercial mortgage loans	(3,180)		—
Sale of commercial mortgage loans	578		—
Principal payments on commercial mortgage loans	34		1,255
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	502,541		(705,897)

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

Angel Oak Mortgage, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to common stockholders	(22,503)		—
Dividends paid to preferred shareholders	(8)		—
Repurchase of common stock	(5,996)		—
Contributions from prior common stockholder	—		56,261
Proceeds from IPO	—		136,800
Proceeds from private placement concurrent with IPO	—		40,000
Principal payments on loans held in securitization trusts	(156,031)		—
Cash paid for debt issuance costs	(457)		(77)
Proceeds from securitization	520,044		—
Net proceeds from (payments on) securities sold under agreements to repurchase	(480,886)		608,885
Net proceeds from notes payable	248,693		233,174
NET CASH PROVIDED BY FINANCING ACTIVITIES	102,856		1,075,043

CHANGE IN CASH AND RESTRICTED CASH	(30,433)		(12,945)
CASH AND RESTRICTED CASH, beginning of period (1)	52,309		45,973
CASH AND RESTRICTED CASH, end of period (1)	$	21,876	$	33,028

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	22,061	$	647

(1) Cash, cash equivalents, and restricted cash as of June 30, 2022 included cash and cash equivalents of $16.1 million and restricted cash of $5.8 million, and as of June 30, 2021 included cash and cash equivalents of $28.9 million and restricted cash of $4.1 million.

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

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Basis of Presentation

Angel Oak Mortgage, Inc. (together with its subsidiaries the “Company”), 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 investments in first lien non‑QM loans that are primarily made to higher‑quality non‑QM loan borrowers and primarily sourced from the proprietary mortgage lending platform of affiliates, Angel Oak Mortgage Solutions LLC and Angel Oak Home Loans LLC (together, “Angel Oak Mortgage Lending”), which operates through wholesale and retail channels 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. On September 18, 2018 (commencement of operations), the Board of Directors of the Company (the “Board of Directors”) authorized the Company to commence operations and on October 19, 2018 the Company began its investing activities. For the period prior to September 18, 2018, the Company had no operating activity. The Company achieves certain of its investment objectives by investing a portion of its assets in its wholly‑owned taxable subsidiary, Angel Oak Mortgage REIT TRS, LLC (“AOMR TRS”), a Delaware limited liability company formed on March 21, 2018, which invests its assets in Angel Oak Mortgage Fund TRS, a Delaware statutory trust formed on June 15, 2018.

On June 21, 2021, the Company completed its initial public offering (the “IPO”) of 7,200,000 shares of common stock, $0.01 par value per share (“common stock”), at an initial public offering price of $19.00 per share for total proceeds of approximately $136.8 million, excluding the underwriting discounts and commissions and offering expenses of the IPO, each of which was paid by Angel Oak Capital Advisors, LLC (“Angel Oak Capital”), pursuant to a registration statement on Form S-11, as amended (File No. 333-256301) (the “Registration Statement”), filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended. The common stock of the Company trades on the New York Stock Exchange under the ticker symbol “AOMR”.

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

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 registered investment adviser with the SEC. 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 and will operate in conformity with the requirements for qualification as a REIT under the Code.

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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (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

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., valuation changes due to supply and demand, 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.

Reclassifications

Certain amounts reported in prior periods in the financial statements have been reclassified to conform to the current year’s presentation. “Other assets” on the condensed consolidated balance sheet as of December 31, 2021 in the amount of $5.3 million has been reclassified to $2.4 million of unrealized appreciation on “To be Announced” forward-settling of mortgage-backed securities trades (“TBAs”) and interest rate futures contracts - at fair value and $2.9 million of other assets, to enhance transparency of the Company’s balance sheet. The Company also reclassified the dividend paid in the first quarter of 2022 in the amount of $11.3 million from additional paid-in capital to retained earnings, as reflected in the balances of additional paid-in capital and retained earnings on the condensed consolidated balance sheet as of June 30, 2022 and the statements of stockholders’ equity beginning balances of additional paid-in capital and retained earnings as of March 31, 2022. This reclassification was a result of a review of industry standards resulting from diversity in practice noted in interpretive accounting guidance regarding dividend classification.

Recent Accounting Standards - Recently Issued

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate (“LIBOR”) and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt, derivatives, and other contracts affected by reference rate reform. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur. The Company does not believe that this ASU will have a material impact upon its consolidated financial statements.

Amortized Cost and Fair Value for Certain Non-Recourse Securitization Obligations of Angel Oak Mortgage Trust (“AOMT”)

The Company had previously elected the fair value option for many of its assets and liabilities as provided for under Accounting Standards Codification 825, Financial Instruments, with certain exceptions. The Company has recorded the issuances of non-recourse securitization obligations of AOMT 2021-7 and 2021-4 at amortized cost, and the subsequent issuance of AOMT 2022-1 at fair value (See Note 2 - Variable Interest Entities and Note 10 - Fair Value Measurements).

The valuation methodology used to measure the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, uses the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts. 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 DM/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. This liability is categorized as Level 2 in the fair value hierarchy.

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

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 has entered into securitization transactions where it was determined that the Company was the primary beneficiary, as, with respect to each securitization vehicle, it controls the class of securities with call rights, or “controlling class” of securities, the XS tranche. The Company was the sole entity to contribute residential whole mortgage loans to each of these securitization vehicles, AOMT 2021-4, AOMT 2021-7 and AOMT 2022-1, respectively.

During the six months ended June 30, 2022, in the AOMT 2022-1 transaction, the Company securitized and consolidated approximately $537.6 million unpaid principal balance of seasoned residential non-QM mortgage loans.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The retained beneficial interest in VIEs for which the Company is the primary beneficiary is the subordinated tranches of the securitization and further interests in additional interest‑only tranches. The table below sets forth the fair values of the assets and liabilities recorded in the consolidated balance sheet related to these consolidated VIEs as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Assets:	(in thousands)
Residential mortgage loans in securitization trusts - cost	$	1,061,973	$	665,510
Fair value adjustment	(79,394)		1,855
Residential mortgage loans in securitization trusts - at fair value	$	982,579	$	667,365

Accrued interest receivable	$	1,902	$	1,728


Liabilities (1):
Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, amortized cost	$	507,051	$	619,108
Less: debt issuance costs capitalized	(1,898)		(2,551)
Non-recourse securitization obligations, collateralized by residential mortgage loans, amortized cost, net	$	505,153	$	616,557

Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, subject to fair value adjustment	$	476,962	$	—
Fair value adjustment	(32,673)		—
Non-recourse securitization obligations, collateralized by residential mortgage loans - at fair value, net	$	444,289	$	—

Total non-recourse securitization obligations, collateralized by residential mortgage loans, net	$	949,442	$	616,557

(1) Debt issuance costs for non-recourse securitization obligations electing the fair value option are recorded to expense upon issuance of the securitization. Debt issuance costs incurred with the issuances of non-recourse securitization obligations for which the fair value option was not elected are presented at amortized cost.

Income and expense amounts related to the consolidated VIEs recorded in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 (1) is set forth as follows:


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
	(in thousands)
Interest income	$	11,469	$	21,887
Interest expense, non-recourse liabilities (2)	(5,679)		(10,262)
Net interest income	$	5,790	$	11,625
Net unrealized loss on mortgage loans in securitization trusts - at fair value	(24,578)		(79,752)
Unrealized gain on mark-to-market of non-recourse securitization obligation - at fair value	14,361		32,673
Securitization expenses incurred in issuance of AOMT 2022-1	—		(2,019)
Operating expenses	(252)		(448)
Net loss from consolidated VIEs	$	(4,679)	$	(37,921)

(1) The Company had no consolidated VIEs during the three and six months ended June 30, 2021.

(2) Includes amortization of debt issuance costs for AOMT 2021-7 and AOMT 2021-4.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

VIEs for Which the Company is Not the Primary Beneficiary

In 2019 and 2020, the Company co‑sponsored and participated in the formation of various entities that were considered to be VIEs. These VIEs were formed to facilitate securitization issuances that were comprised of secured residential whole loans 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 AOMT 2019-2, AOMT 2019-4, AOMT 2019-6, AOMT 2020-3, and AOMT 2020-SBC1. The Company determined that it was not then and is not now the primary beneficiary of any of these entities, and thus has not consolidated the operating results or statements of financial position of any of these entities. The Company performs ongoing reassessments of all VIEs in which the Company has participated since its inception as to whether changes in the facts and circumstances regarding the Company’s involvement with a VIE would cause the Company’s consolidation conclusion to change, and the Company’s assessment of the VIEs in which the Company participated during the years 2019 and 2020 remains unchanged.

The securities received in the aforementioned 2019 and 2020 securitization transactions are included in “RMBS - at fair value” and “CMBS - at fair value” on the consolidated balance sheets as of June 30, 2022 and December 31, 2021, and details on the accounting treatment and fair value methodology of the securities can be found in Note 9, Fair Value Measurements. See Note 5, Investment Securities, for the fair value of AOMT securities held by the Company as of June 30, 2022 and December 31, 2021 that were retained by the Company as a result of the securitization transactions in 2020 and 2019.

3. Residential Mortgage Loans

Residential mortgage loans are measured at fair value. The following table sets forth the cost, fair value, weighted average interest rate, and weighted average remaining maturity of the Company’s residential mortgage loan portfolio as of June 30, 2022 and December 31, 2021:


	June 30, 2022			December 31, 2021
	($ in thousands)
Cost	$	1,374,605		$	1,063,146

Unpaid principal balance	$	1,333,995		$	1,022,461
Net premium on mortgage loans purchased	40,610			40,685
Change in fair value	(95,264)			(1,234)
Fair value	$	1,279,341		$	1,061,912

Weighted average interest rate	4.68		%	4.49		%

Weighted average remaining maturity (years)	31			30

The following table sets forth data regarding the number of consumer mortgage loans secured by residential real property 90 or more days past due and also those in formal foreclosure proceedings, and the recorded investment and unpaid principal balance of such loans as of June 30, 2022 and December 31, 2021:


As of:	June 30, 2022		December 31, 2021
	($ in thousands)
Number of mortgage loans 90 or more days past due	4		8
Recorded investment in mortgage loans 90 or more days past due	$	1,530	$	3,241
Unpaid principal balance of loans 90 or more days past due	$	1,683	$	3,100

Number of mortgage loans in foreclosure	8		7
Recorded investment in mortgage loans in foreclosure	$	3,291	$	2,125
Unpaid principal balance of loans in foreclosure	$	3,232	$	2,113

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

4. Commercial Mortgage Loans

Commercial mortgage loans are measured at fair value. The following table sets forth the cost, fair value, weighted average interest rate, and weighted average remaining maturity of the Company’s commercial mortgage loan portfolio as of June 30, 2022 and December 31, 2021:


	June 30, 2022			December 31, 2021
	($ in thousands)
Cost	$	21,172		$	18,641

Unpaid principal balance	$	21,187		$	18,698
Net discount on commercial mortgage loans purchased	(15)			(51)
Change in fair value	(976)			17
Fair value	$	20,196		$	18,664

Weighted average interest rate	6.12		%	6.25		%

Weighted average remaining maturity (years)	8			8

There were no commercial mortgage loans more than 90 days overdue as of June 30, 2022, and there was one commercial mortgage loan more than 90 days overdue as of December 31, 2021 which loan was also in foreclosure. Subsequent to December 31, 2021, the commercial mortgage loan that had been more than 90 days overdue and in foreclosure as of December 31, 2021 was sold to a third party.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

5. Investment Securities

As of June 30, 2022, investment securities were comprised of non‑agency RMBS and Freddie Mac and Fannie Mae “whole pool agency RMBS,” and commercial mortgage backed securities (“CMBS”). As of December 31, 2021, investment securities also included U.S. Treasury securities. The U.S. Treasury securities held by the Company as of December 31, 2021 matured on January 6, 2022.The following table sets forth a summary of RMBS and CMBS at cost as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
	(in thousands)
RMBS	$	919,776	$	482,824
CMBS	$	10,637	$	10,875

The following table sets forth certain information about the Company’s investments in RMBS and CMBS as of June 30, 2022 and December 31, 2021:


	Real Estate Securities at Fair Value		Securities Sold Under Agreement to Repurchase		Allocated Capital
June 30, 2022:	(in thousands)
AOMT RMBS (1)
Senior	$	975	$	(1,049)	$	(74)
Mezzanine	2,145		(1,596)		549
Subordinate	55,414		(12,615)		42,799
Interest Only/Excess	10,133		—		10,133
Total AOMT RMBS	$	68,667	$	(15,260)	$	53,407
Other Non-Agency RMBS
Subordinate	$	3,354	$	—	$	3,354
Interest Only/Excess	2,634		—		2,634
Total Other Non-Agency RMBS	$	5,988	$	—	$	5,988
Whole Pool Agency RMBS
Fannie Mae	$	820,101	$	(113,105)	$	706,996
Freddie Mac	28,103		—		28,103
Whole Pool Total Agency RMBS	$	848,204	$	(113,105)	$	735,099
Total RMBS	$	922,859	$	(128,365)	$	794,494

AOMT CMBS
Subordinate	$	6,573	$	—	$	6,573
Interest Only/Excess	2,409		—		2,409
Total AOMT CMBS	$	8,982	$	—	$	8,982

(1) AOMT RMBS held as of June 30, 2022 included both retained tranches of securitizations in which the Company participated within the purview of AOMT, and additional AOMT securities purchased in secondary market transactions.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)


December 31, 2021:	Real Estate Securities at Fair Value		Repurchase Debt		Allocated Capital
	(in thousands)
AOMT RMBS (1)
Senior	$	3,076	$	(4,089)	$	(1,013)
Mezzanine	2,178		(1,631)		547
Subordinate	80,058		—		80,058
Interest Only/Excess	15,052		—		15,052
Total AOMT RMBS	$	100,364	$	(5,720)	$	94,644
Other Non-Agency RMBS
Subordinate	$	10,292	$	—	$	10,292
Interest Only/Excess	2,923		—		2,923
Total Other Non-Agency RMBS	$	13,215	$	—	$	13,215
Whole Pool Agency RMBS
Fannie Mae	$	281,225	$	(267,286)	$	13,939
Freddie Mac	90,830		(87,495)		3,335
Whole Pool Total Agency RMBS	$	372,055	$	(354,781)	$	17,274
Total RMBS	$	485,634	$	(360,501)	$	125,133

AOMT CMBS
Subordinate	$	7,993	$	—	$	7,993
Interest Only/Excess	2,763		—		2,763
Total AOMT CMBS	$	10,756	$	—	$	10,756

(1) AOMT RMBS held as of December 31, 2021 included both retained tranches of securitizations in which the Company participated within the purview of AOMT and additional AOMT securities purchased in secondary market transactions.

The following table sets forth certain information about the Company’s investments in U.S. Treasury Bills as of

December 31, 2021 (1):


Date	Face Value		Unamortized Discount, net		Amortized Cost (2)		Unrealized Loss		Fair Value		Net Effective Yield
	($ in thousands)



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

(1) There were no U.S. Treasury Bills held as of June 30, 2022.

(2) Cost and amortized cost of U.S. Treasury Bills is substantially equal, due to the short length of time until maturity on these financial instruments.

6. 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 loans include upfront fees, fees on unused balances, covenants and concentration limits on types of collateral pledged; all vary based on the counterparty.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth the details of all the lines of credit available to the Company and drawn amounts for whole loan purchases as of June 30, 2022 and December 31, 2021:


					Drawn Amount
Line of Credit	Facility Limit		Base Interest Rate (A)	Interest Rate Spread (A)	June 30, 2022		December 31, 2021
	($ in thousands)
Barclays Bank PLC (1)	$	400,000	1 month SOFR	1.95% - 2.00%	$	370,572	$	362,899
Royal Bank of Canada (2)	$	340,000	Average Daily SOFR	1.95%	$	191,677	N/A
Nomura Corporate Funding Americas, LLC (3)	$	300,000	1 month or 3 month LIBOR	1.70% - 3.50%	$	18,799	103,149
Deutsche Bank, AG (4)	$	250,000	1 month SOFR	2.20% - 3.45%	$	217,875	231,981
Goldman Sachs Bank USA (5)	$	200,000	Compound SOFR	2.45%	$	175,291	109,283
Banc of California, National Association (6)	$	75,000	1 month SOFR	2.50% - 3.50%	$	55,410	34,838
Veritex Community Bank (7)	$	75,000	1 month SOFR	2.41%	$	72,477	11,258
Total	$	1,640,000			$	1,102,101	$	853,408

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

(1) This agreement terminates on September 20, 2022. On January 27, 2022, this repurchase facility was amended to state that (a) interest will accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus a spread and (b) increase the maximum purchase price permitted under the master repurchase agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the master repurchase agreement. This securitization occurred on February 7, 2022. Prior to January 27, 2022, interest was based on 1-month LIBOR plus a spread generally in line with similar agreements that the Company or its subsidiaries have entered into, which is a range of 1.70% - 3.50%.

(2) On April 13, 2022, the Company and two of its subsidiaries entered into a $340.0 million repurchase facility with Royal Bank of Canada (“RBC”) through the execution of a master repurchase agreement between the Company as guarantor, and two of its subsidiaries, as sellers, and RBC as buyer. The master repurchase agreement was initially set to terminate on October 13, 2022, and on July 21, 2022, was extended as per the terms of the original agreement through January 20, 2023 (see Note 14 - Subsequent Events), unless such term is extended or terminated earlier pursuant to the terms of the master repurchase agreement. On August 4, 2022, the RBC maximum line of credit was increased by $260.0 million to a maximum facility limit of $600.0 million. See Note 14 - Subsequent Events.

(3) This agreement was set to terminate on August 5, 2022. On August 8, 2022, this agreement was extended through October 5, 2022, and interest will accrue on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%. See Note 14 - Subsequent Events.

(4) On February 4, 2022, this facility was amended to extend the initial termination date of the master repurchase agreement from February 11, 2022 to February 2, 2024; remove any draw fees; and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR and (B) a spread generally ranging from 2.20% to 3.45%. Prior to February 4, 2022, interest was based on 1-month LIBOR plus a spread of 2.00% - 3.25%.

(5) On March 2, 2022, the agreement was extended to terminate on March 5, 2023, unless terminated earlier pursuant to the terms of the agreement. On January 1, 2022, the agreement was amended to replace a LIBOR-based index rate with a SOFR-based index rate plus a spread equal to 20 basis points, plus the prior spread. Prior to January 1, 2022, interest was based on 3-month LIBOR plus a spread of 2.25%.

(6) On March 7, 2022, the agreement was amended to terminate on March 16, 2023, unless terminated earlier pursuant to the terms of the agreement. Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and beginning March 8, 2022, provided that interest will accrue on any new transactions under the loan financing line at a rate based on Term SOFR plus an additional spread. Prior to March 7, 2022, interest was based on 1-month LIBOR plus a spread of 2.50% - 3.13%.

(7) This agreement terminates on August 16, 2023. On February 11, 2022, the Company amended the financing facility to (1) increase the size of the financing facility to $75.0 million from $50.0 million, and (2) provide that interest will accrue on any outstanding balance at a rate based on Term SOFR plus a margin equal to 2.41% per annum; provided that the interest rate may not be less than 3.125% per annum. Prior to February 11, 2022, interest was based on 1-month LIBOR plus a spread of 2.30%.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

7. Due to Broker

The “Due to broker” account on the condensed consolidated balance sheets as of June 30, 2022 in the amount of $720.4 million relates to the purchase of whole pool RMBS at quarter-end in the second quarter of 2022. Purchases are accounted for on a trade date basis; and, at times, there may be a timing difference between the trade date and the settlement date of a trade. The trade date of this purchase was prior to June 30, 2022.

For the six months ended June 30, 2022, this transaction is excluded from the condensed consolidated statements of cash flows as it is a noncash transaction. The cash for these whole pool RMBS settled on July 14, 2022, at which time these assets were simultaneously sold.

8. 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 included margin collateral for securities sold under agreements to repurchase (along with margin collateral for TBAs and interest rate futures) as of each of June 30, 2022 and December 31, 2021.

The following table summarizes certain characteristics of the Company’s repurchase agreements as of June 30, 2022 and December 31, 2021:


June 30, 2022
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)

RMBS	$	128,365	1.51	%	15
Total	$	128,365	1.51	%	15

December 31, 2021
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)
U.S. Treasury Bills	$	248,750	0.12	%	6
RMBS	360,501		0.16	%	18
Total	$	609,251	0.15	%	13

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.

9. 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 June 30, 2022 and December 31, 2021 included both TBAs and interest rate futures contracts. Restricted cash included margin collateral for TBAs and interest rate futures (as well as for securities sold under agreements to repurchase) as of each of June 30, 2022 and December 31, 2021.

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.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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 losses, and “net unrealized (loss) gain on mortgage loans 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.

The following table sets forth the derivative instruments presented on the condensed consolidated balance sheets and notional amounts as of June 30, 2022 and December 31, 2021:


							Notional Amounts
As of:	Derivatives Not Designated as Hedging Instruments	Number of Contracts	Assets		Liabilities		Long Exposure		Short Exposure
			($ in thousands)
June 30, 2022	Interest rate futures	12,902	$	594	$	—	$	—	$	1,290,200
June 30, 2022	TBAs	N/A	$	—	$	(8,258)	$	—	$	876,000

December 31, 2021	Interest rate futures	10,438	$	—	$	(728)	$	—	$	1,043,800
December 31, 2021	TBAs	N/A	$	2,428	$	—	$	—	$	523,938

The gains and losses arising from these derivative instruments in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 and June 30, 2021 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 June 30, 2022	Interest rate futures	$	29,429	$	(13,413)
Three Months Ended June 30, 2022	TBAs	$	(964)	$	(9,577)

Three Months Ended June 30, 2021	Interest rate futures	$	(2,546)	$	746
Three Months Ended June 30, 2021	TBAs	$	(2,070)	$	(118)


	Derivatives Not Designated as Hedging Instruments	Net Realized Gains (Losses) on Derivative Instruments		Net Change in Unrealized Appreciation (Depreciation) on Derivative Instruments
		(in thousands)
Six Months Ended June 30, 2022	Interest rate futures	$	49,113	$	1,322
Six Months Ended June 30, 2022	TBAs	$	13,179	$	(10,686)

Six Months Ended June 30, 2021	Interest rate futures	$	(2,443)	$	2,481
Six Months Ended June 30, 2021	TBAs	$	(471)	$	(185)

10. 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.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

As of June 30, 2022, our valuation policy and processes had not changed from those described in our consolidated financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K, with the exception of electing the fair value option for a new non-recourse securitization obligation added in 2022, collateralized by residential mortgage loans, as described in Note 1. Included in Note 10 to the Consolidated Financial Statements for the year ended December 31, 2021 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.

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2022:


	Level 1		Level 2		Level 3		Total
Assets, at fair value	(in thousands)
Residential mortgage loans	$	—	$	1,274,520	$	4,821	$	1,279,341
Residential mortgage loans in securitization trust	—		975,680		6,899		982,579
Commercial mortgage loans	—		20,196		—		20,196
Investments in securities
Non-Agency RMBS (1)	—		74,655		—		74,655
Agency whole pool loan securities	—		848,204		—		848,204
AOMT CMBS (2)	—		8,982		—		8,982

Unrealized appreciation on futures contracts	594		—		—		594

Total assets at fair value	$	594	$	3,202,237	$	11,720	$	3,214,551

Liabilities, at fair value
Non-recourse securitization obligation, collateralized by residential mortgage loans (3)	$	—	$	444,289	$	—	$	444,289
Unrealized depreciation on TBAs	8,258		—		—		8,258
Total liabilities at fair value	$	8,258	$	444,289	$	—	$	452,547

(1) Non‑Agency RMBS held as of June 30, 2022 included both retained tranches of securitizations in which the Company participated, additional AOMT securities purchased in secondary market transactions, and other RMBS purchased in secondary market transactions.

(2) All AOMT CMBS held as of June 30, 2022 were 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.

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.

We use third‑party valuation firms who utilize proprietary methodologies to value our residential and commercial loans. These firms generally use both market comparable information and discounted cash flow modeling techniques to determine the fair value of our Level 3 assets. Use of these techniques requires determination of relevant input and assumptions, some of which represent significant unobservable inputs such as anticipated credit losses, prepayment rates, default rates, or other valuation assumptions. Accordingly, a significant increase or decrease in any of these inputs in isolation may result in a significantly lower or higher fair value measurement. The following table sets forth information regarding the Company’s significant Level 3 inputs as of June 30, 2022:

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)


				Input Values
Asset	Fair Value		Unobservable Input	Range	Average
($ in thousands)
Residential mortgage loans, at fair value	$	4,821	Prepayment rate (annual CPR)	—% - 16.60%	7.16%
			Default rate	3.19% - 31.56%	15.18%
			Loss severity	(20.10)% - 12.54%	(0.01)%
			Expected remaining life	1.17 - 3.59 years	2.04 years

Residential mortgage loans in securitization trust, at fair value	$	6,899	Prepayment rate (annual CPR)	—% - 16.60%	7.16%
			Default rate	3.19% - 31.56%	15.18%
			Loss severity	(20.10)% - 12.54%	(0.01)%
			Expected remaining life	1.17 - 3.59 years	2.04 years

Fair Value Disclosure - Non-Recourse Securitization Obligations, Collateralized by Residential Mortgage Loans - Fair Value for Disclosure Purposes Only

To determine the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, net, in full, the Company used the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts. 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 DM/Yield, recovery assumptions, tranche type, collateral coupon, age and loan size and other inputs specific to each security. These quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the date of the condensed consolidated financial statements. This liability is categorized as Level 2 in the fair value hierarchy, as the valuation model has inputs that are observable for substantially the full term of the liability.

As of June 30, 2022, the total amortized cost basis and fair value of our non-recourse securitization obligations was $981.2 million and $916.6 million, respectively, a difference of approximately $64.6 million (which includes AOMT 2022-1, which is marked to fair value; and AOMT 2021-7, and AOMT 2021-4, which are carried at amortized cost, as further described). The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $32.8 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.

Angel Oak Mortgage, 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, 2021:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets, at fair value
Residential mortgage loans	$	—	$	1,056,875	$	5,037	$	1,061,912
Residential mortgage loans in securitization trusts	—		665,802		1,563		667,365
Commercial mortgage loans	—		18,145		519		18,664
Investments in securities
Non-Agency RMBS (1)	—		113,579		—		113,579
Agency whole pool loan securities	—		372,055		—		372,055
AOMT CMBS (2)	—		10,756		—		10,756
U.S. Treasury Bills	249,999		—		—		249,999
Unrealized appreciation on TBAs	2,428		—		—		2,428
Total assets	$	252,427	$	2,237,212	$	7,119	$	2,496,758

Liabilities, at fair value
Unrealized depreciation on futures contracts	$	728	$	—	$	—	$	728
Total liabilities	$	728	$	—	$	—	$	728

(1) Non‑Agency RMBS held as of December 31, 2021 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) All AOMT CMBS held as of December 31, 2021 were comprised of a small-balance commercial loan securitization issuance in which the Company participated.

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. These transfers were not material.

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.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)


				Input Values
Asset	Fair Value		Unobservable Input	Range	Average
($ in thousands)
Residential mortgage loans, at fair value	$	5,037	Prepayment rate (annual CPR)	—% - 20.85%	6.89%
			Default rate	—% - 37.32%	13.05%
			Loss severity	(20.31)% - 36.35%	0.89%
			Expected remaining life	0.04 - 2.75 years	1.72 years

Residential mortgage loans in securitization trust, at fair value	$	1,563	Prepayment rate (annual CPR)	—% - 20.85%	6.89%
			Default rate	—% - 37.32%	13.05%
			Loss severity	(20.31)% - 36.35%	0.89%
			Expected remaining life	0.04 - 2.75 years	1.72 years

Commercial mortgage loans, at fair value	$	519	Loss severity	(25.00)%	(25.00)%
			Sale or Liquidation timeline	39 - 50 months	39 - 50 months

11. Related Party Transactions

Residential Mortgage Loan Purchases

The Company purchases residential mortgage loans under 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 retained basis. The residential mortgage loans are mortgage loans on residences located in various states with a concentration in California and Florida.

The following table sets forth certain financial information pertaining to whole loan activity purchased from affiliates during the period and year ended and as of June 30, 2022 and December 31, 2021:


As of and for the Year-to-Date/Year Ended:	Amount of Loans Purchased from Affiliates during the Year-to-Date/Year		Number of Loans Purchased from Affiliates during the Year-to-Date/Year	Number of Loans Purchased from Affiliates, Owned and Held as of Year-to-Date/Year End (1):
	($ in thousands)
June 30, 2022	$	541,875	1,088	1,304

December 31, 2021	$	909,442	1,959	754

(1) Excludes loans held in consolidated securitizations.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Commercial Mortgage Loan Purchases

The Company purchases commercial mortgage loans under 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 commercial mortgage loans are mortgage loans on commercial properties, primarily multifamily and retail properties, located in various states with concentrations in California and Maine. The following table sets forth certain financial information pertaining to whole loan activity purchased from affiliates during the period and year ended and as of June 30, 2022 and December 31, 2021:


As of and for the Year-to-Date/Year Ended:	Amount of Loans Purchased from Affiliates during the Year-to-Date/Year		Number of Loans Purchased from Affiliates during the Year-to-Date/Year	Number of Loans Purchased from Affiliates Held as of Year-to-Date/Year End:
	($ in thousands)
June 30, 2022	$	—	None	4

December 31, 2021	$	—	None	5

Pre-IPO Management Fee

A pre-IPO management agreement (the “Pre-IPO Management Agreement”) existed among the Company, the Manager, and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), the Company’s sole common stockholder prior to the IPO. Per the Pre-IPO Management Agreement, on a quarterly basis in advance, the Company paid the Manager an aggregate, fixed management fee equal to 1.5% per annum of the total Actively Invested Capital (as defined in the Pre-IPO Management Agreement) of the limited partners in Angel Oak Mortgage Fund. The Pre-IPO Management Agreement terminated on June 21, 2021, in connection with the IPO.

Post-IPO Management Fee

On and after June 21, 2021, the post-IPO management agreement (the “Management Agreement”) took effect among the Company, the Operating Partnership, and the Manager. Per the Management Agreement, on a quarterly basis in arrears, after the IPO, the Company paid the Manager an aggregate, fixed management fee equal to 1.5% per annum of the Company’s Equity (as defined in the Management Agreement).

Post-IPO Incentive Fee

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

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.

12. 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 June 30, 2022, the Company was not aware of any legal claims that could materially impact its financial condition. As of June 30, 2022, the Company had no unfunded commitments.

13. Equity and Earnings per Share (“EPS”)

Basic and Diluted EPS for the three and six months ended June 30, 2022

Basic and diluted earnings per share are equivalent for the three and six months ended June 30, 2022, due to net losses for the periods. Shares of unvested restricted stock totaling 362,536 shares are anti-dilutive and are not included in the calculation of diluted earnings per share.

Angel Oak Mortgage, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Basic and Diluted EPS for the three and six months ended June 30, 2021

The following table sets forth the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2021:


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
	(in thousands, except share data)
Basic Earnings per Common Share:
Net income allocable to common stockholders	$	2,223	$	11,706
Basic weighted average common shares outstanding	16,746,606		16,238,153
Basic earnings per common share	$	0.13	$	0.72
Diluted Earnings per Common Share:
Net income allocable to common stockholders	$	2,223	$	11,706
Net effect of dilutive equity awards	52,054		26,170
Diluted weighted average common shares outstanding	16,798,660		16,264,323
Diluted earnings per common share	$	0.13	$	0.72

14. Subsequent Events

On July 13, 2022, the Company securitized residential mortgage loans with an unpaid principal balance of $184.7 million in the issuance of AOMT 2022-4. The Company is the Depositor for this securitization and also owns and holds the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds.

On July 21, 2022, the RBC facility was extended as per the terms of the original agreement through January 20, 2023.

On August 4, 2022, the facility limit under the RBC master repurchase agreement was increased by $260.0 million to $600.0 million.

On August 8, 2022, the Nomura facility was extended through October 5, 2022, and interest will accrue on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

On August 9, 2022, the Company declared a dividend of $0.45 per share of common stock, to be paid on August 31, 2022 to common stockholders of record as of August 22, 2022.

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, 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, Inc. and its subsidiaries unless the context requires otherwise. 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 and Angel Oak Home Loans LLC (together, “Angel Oak Mortgage Lending”) and Angel Oak Commercial Lending, LLC.

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, 2021 (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 impact of the ongoing COVID-19 pandemic;

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

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

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

•changes in our business strategies or target assets;

•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 platforms;

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

•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;

•our ability to profitably execute securitization transactions;

•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 our 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, 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 collectively 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 2021 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.

General

Angel Oak Mortgage, Inc. is a publicly-traded REIT 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 operates through wholesale and retail channels and has a national origination footprint. 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 the Manager, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets. Angel Oak Capital was established in 2009 and had approximately $11.4 billion in assets under management as of June 30, 2022 across its private credit strategies, public funds, and separately managed accounts, including approximately $7.8 billion of mortgage‑related assets. Angel Oak Mortgage Lending is a market leader in non‑QM loan production and, as of June 30, 2022, had originated over $15.7 billion in total non‑QM loan volume since its inception in 2011. Angel Oak is headquartered in Atlanta and has over 900 employees across its enterprise.

Through our relationship with the 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. 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, will depend 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 make and our cost of capital, as well as the returns from bonds, including risk retention securities, that are retained after securitizing the underlying loan collateral.

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

The 2022 macroeconomic environment for the three and six months ended June 30, 2022 was significantly more challenging than that of the 2021 comparative period. Major challenges to the U.S. economy in the first half of 2022 included heightened recessionary risks, with economic activity simultaneously impacted by both a sharp increase in interest rates discussed further below, along with a 40-year record high year-over-year increase in inflation of 9.1% in June 2022. Sharply rising interest rates have resulted in a slowdown of mortgage origination and refinancing activity, as the average conforming 30-year mortgage rate average exceeded 5% by the end of March 2022 (remaining relatively stable through June 2022), up from approximately 3% in December 2021. The availability of housing inventory in many areas of the U.S. has remained low, and supply chain issues continued to constrain home building in many areas of the U.S., as raw materials are, in some regions, unavailable for extended periods of time. The combination of sustained high mortgage rates and low housing supply has created a troublesome situation for homebuyers, now facing constraints in both affordability and availability, while high interest rates alone have curtailed refinancing and some purchase activity. Additionally, ongoing and worsening worldwide supply chain issues, exacerbated by the protracted military conflict between Ukraine and Russia, and domestic labor shortages, continued to drag on the overall U.S. economic environment.

The Federal Reserve Bank of the U.S. (the “Fed”) has approved several increases to the federal funds rate over 2022, including on March 16, 2022 a 25 basis point increase as the first increase to the rate in nearly three years, a 50 basis point increase on May 5, 2022, a 75 basis point increase on June 15, 2022, and a 75 basis point increase on July 27, 2022. The June 2022 rate increase represented the largest interest rate increase by the Fed since 1994, and the July 2022 rate increase represents the first time in modern history that the Fed has raised interest rates by 75 basis points twice in a row. An increase in the federal funds rate generally has the effect of increasing borrowing rates for all types of consumer credit, including mortgages. The Fed has also indicated that it plans to continue to increase interest rates in the near term. We believe that a further increase in interest rates from the previous historically low levels is unlikely to significantly affect demand for non-QM mortgages; however, the current increase in interest rates over the past six months has generally caused interest rate spreads to widen, which has negatively impacted the valuation of our whole loan portfolio. Our whole loan portfolio was affected in this manner during the first and second quarters of 2022, with unrealized losses incurred on our whole loan portfolio, with the unrealized loss effect magnified by the size of the whole loan portfolio. Additionally, a sharp increase in interest rates over a short period of time has resulted in a challenging environment for securitizing loans originated at lower interest rates, and our securitization volume may be lower than usual until interest rates and securitization markets stabilize.

A slowdown in homeowner prepayment activities (including a slowdown in refinancing existing mortgages, as referred to above) has had a positive impact on some of the bonds that we hold from older securitization transactions, as we typically hold the lower junior and XS (interest only) tranches of bonds from a securitization transaction, and the lack of prepayment activity within a securitization transaction results in more interest income available to be allocated to the XS bonds; however, the positive impact of increased interest income and lowered realized losses as a result of slower prepayment speeds only partially offsets the unrealized losses reflected in other comprehensive income (loss) on bond valuation.

Although we currently have unrealized losses in our whole loan portfolio, which may continue in an elevated interest rate environment, given the Fed’s planned further interest rate increases, holding whole loans originated in the future at higher interest rates (or “coupon”) generally has the effect of increasing our net interest income, resulting in prepayment speeds likely slowing for existing securitization transactions, which will also increase our net interest income as we primarily hold junior and interest only tranches of the securitized bonds that we have issued. There is a time lag of approximately three months between the origination of a loan and our purchase of that loan; therefore, we currently have a limited number of higher coupon loans in our portfolio.

Our investment performance

Our non-QM whole loan portfolio experienced unrealized losses on the portfolio during the three and six months ended June 30, 2022, which were driven by mark-to-market losses due to interest rate spreads widening. The residential mortgage-backed securities (“RMBS”) portfolio and commercial mortgage-backed securities (“CMBS”) portfolio results also included mark-to-market losses on the valuation of this asset class. Realized gains on our TBA investments and interest rate futures partially offset the aforementioned unrealized losses on whole loans for the year to date period, though for the quarter to date period, we experienced a realized loss in TBA investments and

a realized gain on interest rate futures. Realized losses on our RMBS and CMBS XS and interest only bonds decreased for the three and six months ended June 30, 2022 as prepayment activities slowed.

The non-QM whole loan portfolio unrealized losses are reflected in net income, while the RMBS and CMBS portfolios’ unrealized losses are reflected in other comprehensive income. All realized losses are reflected in net income.

Purchases of whole loans in the three and six months ended June 30, 2022 and our 2022 securitizations to date

During the three and six months ended June 30, 2022, we purchased $257.2 million and $932.8 million, respectively, in residential whole loans. On February 11, 2022, we issued AOMT 2022-1, securitizing a total of $537.6 million of unpaid principal balance of seasoned residential non-QM mortgage loans. Subsequent to June 30, 2022, on July 13, 2022, we issued AOMT 2022-4, securitizing a total of $184.7 million of unpaid principal balance of seasoned residential non-QM mortgage loans. The issuance of AOMT 2022-1 and AOMT 2022-4, along with our 2021 issuances of AOMT 2021-4 and AOMT 2021-7, securitized a total of approximately $1.4 billion of unpaid principal balance of seasoned residential non-QM mortgage loans. We issued these securitizations as the sole participant in the securitization. We own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds, and are the sole member of the Depositor entity in these securitizations. Given the accounting rules surrounding these types of transactions, we have consolidated these securitizations, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of the applicable balance sheet dates.

Our securitizations prior to 2021 were securitization transactions entered into with other Angel Oak entities, for which we did not meet the accounting rules to be considered a “primary beneficiary” of the applicable securitization vehicle, and therefore, for these prior securitizations, the bonds retained in the securitization are held on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021. We may strategically enter into similar securitizations in the future.

New and extended whole loan financing facilities

On April 13, 2022, we entered into a new financing facility with Royal Bank of Canada (“RBC”), which afforded us $340.0 million of additional borrowing capacity. On July 21, 2022, the RBC financing facility was extended as per the terms of the original agreement through January 20, 2023. On August 4, 2022, the facility limit under the RBC master repurchase agreement was increased by $260.0 million to $600.0 million, bringing our total maximum financing facility availability to $1.9 billion subsequent to June 30, 2022, with which to execute our core strategy of purchasing whole loans and retaining them until securitized.

On August 8, 2022, the Nomura facility was extended through October 5, 2022.

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 required to distribute at least 90% of our annual REIT taxable income and to pay tax at regular corporate rates 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 will use Distributable Earnings to determine the incentive fee payable to the Manager pursuant to the management agreement (the “Management Agreement”) that we and Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”) entered into with the Manager upon the completion of our initial public offering (“IPO”) on June 21, 2021. For information on the fees that are payable to the Manager under the Management Agreement, see “Note 10 – Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Distributable Earnings were approximately $22.8 million and $2.0 million for the three months ended June 30, 2022 and 2021, respectively, and $60.1 million and $6.9 million for the six months ended June 30, 2022 and 2021, respectively.

The table below sets forth a reconciliation of net (loss) income allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
	(in thousands)
Net income (loss) allocable to common stockholders	$	(52,148)	$	2,223	$	(95,694)	$	11,706
Adjustments:
Net other-than-temporary credit impairment losses	—		—		—		—
Net unrealized (gains) losses on derivatives	24,692		3,903		9,366		2,294
Net unrealized (gains) losses on residential loans in securitization trusts and non-recourse securitization obligation	10,266		—		40,476		—
Net unrealized (gains) losses on residential loans	38,538		(4,062)		103,125		(6,954)
Net unrealized (gains) losses on commercial loans	489		(123)		985		(265)
Net unrealized (gains) losses on financial instruments at fair value	—		—		—		—
(Gains) losses on extinguishment of debt	—		—		—		—
Non-cash equity compensation expense	968		90		1,839		90
Incentive fee earned by the Manager	—		—		—		—
Realized gains (losses) on terminations of interest rate swaps	—		—		—		—
Total other non-recurring (gains) losses	—		—		—		—
Distributable Earnings	$	22,805	$	2,031	$	60,097	$	6,871

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 six months ended June 30, 2022 and 2021:


	Three Months Ended						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
	($ in thousands)
Annualized Distributable Earnings	$	91,220		$	8,124		$	120,194		$	13,742
Average total stockholders’ equity	$	394,362		$	334,503		$	426,703		$	289,130
Distributable Earnings Return on Average Equity	23.13		%	2.43		%	28.17		%	4.75		%

Book Value per Common Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of June 30, 2022, March 31, 2022, and December 31, 2021:


	June 30, 2022		March 31, 2022		December 31, 2021
	(in thousands except for share and per share data)
Total stockholders’ equity	$	367,284	$	421,436	$	491,390
Preferred stock	(101)		(101)		(101)
Common stockholders’ equity	$	367,183	$	421,335	$	491,289
Number of shares of common stock outstanding at period end	24,925,930		25,085,796		25,227,328
Book value per share of common stock	$	14.73	$	16.80	$	19.47

Economic Book Value per Common Share

“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 common 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 common share 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 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 June 30, 2022, March 31, 2022, and December 31, 2021:


	June 30, 2022		March 31, 2022		December 31, 2021
	(in thousands except for share and per share amounts presented)
GAAP total stockholders’ equity	$	367,284	$	421,436	$	491,390
Preferred stock	(101)		(101)		(101)
GAAP total common stockholders’ equity for book value per share of common stock	$	367,183	$	421,335	$	491,289
Adjustments:
Fair value adjustment for securitized debt held at amortized cost	32,863		20,443		1,079
Stockholders’ equity including economic book value adjustments	$	400,046	$	441,778	$	492,368

Number of shares of common stock outstanding at period end	24,925,930		25,085,796		25,227,328
Book value per share of common stock	$	14.73	$	16.80	$	19.47
Economic book value per share of common stock	$	16.05	$	17.61	$	19.52

Results of Operations

Our results of operations presented herein for the three and six months ended June 30, 2021 do not reflect the expenses typically associated with being a public company for the reporting period, including increased insurance, legal, and accounting fees, full periods of equity compensation expense, expenses incurred in complying with the reporting and other requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), and increased expense of the base management fee to our Manager as a result of differences in the way fees and expense reimbursements are calculated under the Management Agreement as compared to the pre-IPO management agreement (the “pre-IPO management agreement”) as among us, our Manager and Angel Oak Mortgage Fund, LP (“Angel Oak Mortgage Fund”), our sole common stockholder prior the IPO. Additionally, pursuant to the Management Agreement, we are required to reimburse our Manager for its operating expenses, including third‑party expenses, incurred on our behalf; and our Manager is entitled to reimbursement for costs of the wages, salaries, and benefits incurred by our Manager for our dedicated Chief Financial Officer and Treasurer and a proportionate amount of the costs of the wages, salaries, and benefits of our Chief Executive Officer and President (who, after the completion of the IPO, has dedicated a substantial majority of his business time to us) based on the percentage of his business time spent on our matters, and any other dedicated or partially dedicated employees based on the percentage of each such person’s working time spent on matters related to us.

Three Months Ended June 30, 2022 and 2021

The following table sets forth a summary of our results of operations for the three months ended June 30, 2022 and 2021:


	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021
	(in thousands)
INTEREST INCOME, NET
Interest income	$	29,702	$	12,143
Interest expense	13,271		1,846
NET INTEREST INCOME	16,431		10,297

REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	12,718		(10,224)
Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 2), and derivative contracts	(73,985)		4,813
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	(61,267)		(5,411)

EXPENSES
Operating expenses	2,977		609
Operating expenses incurred with affiliate	838		533
Due diligence and transaction costs	519		177
Stock compensation	968		90
Securitization costs	—		—
Management fee incurred with affiliate	2,006		1,250
Total operating expenses	7,308		2,659

INCOME BEFORE INCOME TAXES	(52,144)		2,227
Income tax provision	—		—
NET INCOME (LOSS)	(52,144)		2,227
Preferred dividends	(4)		(4)
NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDER(S)	$	(52,148)	$	2,223
Other comprehensive income	11,235		3,085
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(40,913)	$	5,308

Net Interest Income

The following table sets forth the components of net interest income for the three months ended June 30, 2022 and 2021:


	Three Months Ended
	June 30, 2022				June 30, 2021
	(in thousands)
Interest income	Interest income / expense		Average balance			Interest income / expense		Average balance
Residential mortgage loans	$	13,444	$	1,247,037		$	4,811	$	407,972
Residential mortgage loans in securitization trusts	11,469		1,020,948			—		—
Commercial mortgage loans	345		20,394			227		6,464
RMBS	4,191		400,403			6,461		394,017
CMBS	172		9,159			639		11,788
U.S. Treasury Bills	8		—			4		91,664
Other interest income	73		48,945			1		21,997
Total interest income	29,702					12,143
Interest expense
Notes payable	7,306		1,079,482			1,735		268,462
Non-recourse securitization obligation, collateralized by residential mortgage loans	5,679		978,903			—		—
Repurchase facilities	286		92,598			111		341,143
Total interest expense	13,271					1,846
Net interest income	$	16,431				$	10,297

Net interest income for the three months ended June 30, 2022 and 2021 was $16.4 million and $10.3 million, respectively. Net interest income increased due to the additional average portfolio balance in the three months ended June 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during June 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, along with a higher RMBS average balance, which increased net interest income. These average asset balances were partially offset by higher average balances in notes payable and non-recourse securitization obligation, collateralized by residential mortgage loans, in the three months ended June 30, 2022 as compared to the same period in 2021, which resulted in increased interest expense during the comparative period.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the three months ended June 30, 2022 and 2021 are set forth as follows:


	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021
	(in thousands)

Unrealized loss on securitization, net of unrealized gain on non-recourse securitization obligation	$	(12,834)	$	—
Realized loss on RMBS, net	(22,811)		(4,834)
Realized loss on CMBS	(205)		(153)
Realized gain (loss) on interest rate futures	23,368		(2,546)
Realized and unrealized gain (loss) on TBAs	3,937		(2,187)
Realized and unrealized (loss) gain on residential mortgage loans	(39,514)		3,489
Realized and unrealized (loss) gain on commercial mortgage loans	(522)		74

Unrealized (depreciation) appreciation on interest rate futures	(12,686)		746
Total realized and unrealized gains (losses), net	$	(61,267)	$	(5,411)

For the three months ended June 30, 2022 and 2021, total realized and unrealized gains (losses), net were $(61.3) million and $(5.4) million, respectively. During the three months ended June 30, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of all of our mortgage loans to decrease, which resulted in an unrealized loss. Additionally, we experienced

unrealized losses on our interest rate futures, as this economic hedge became less effective during the three months ended June 30, 2022. All of our unrealized losses were partially offset by realized gains on interest rate futures and TBAs. During the three months ended June 30, 2021, the realized loss on RMBS, which was primarily due to prepayment speeds on the junior and interest only bonds that we held, along with realized losses on interest rate futures and unrealized and realized losses on TBAs was partially offset by realized and unrealized gains on residential mortgage loans.

Expenses

Operating Expenses

For the three months ended June 30, 2022 and 2021, our operating expenses were $3.0 million and $0.6 million, respectively. The increase in operating expenses in the three month period ended June 30, 2022 was due to an increase in costs due to being a public company, including increased insurance, audit, and legal fees. We also experienced an increase in loan administration costs, commensurate with an increase in the number of loans in our portfolio during the comparative period.

Operating Expenses Incurred with Affiliate

For the three months ended June 30, 2022 and 2021, our operating expenses incurred with affiliate were $0.8 million and $0.5 million, respectively. These expenses were primarily due to the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

Due Diligence and Transaction Costs

For the three months ended June 30, 2022 and 2021, our due diligence and transaction costs were $0.5 million and $0.2 million, respectively. The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased more whole loans during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Stock Compensation

For the three months ended June 30, 2022, our stock compensation expense was $1.0 million. In connection with the IPO in June 2021, we issued restricted stock awards to key employees of Angel Oak, including our Manager, as well as the independent directors on our Board of Directors. Our stock compensation expense for the three months ended June 30, 2021 was de minimis, as expense was incurred during a nine day period as the grant date of the restricted stock was June 21, 2021. We issued additional restricted stock awards on January 1, 2022, March 10 and March 11, 2022, and May 18, 2022. Restricted stock awards vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

Securitization Costs

We incurred no securitization expense for the three months ended June 30, 2022 and 2021 as we did not enter into any securitizations during those periods.

Management Fee Incurred with Affiliate

Prior to the completion of the IPO, we were required to pay the Manager, in cash, a management fee pursuant to a pre-IPO management agreement among us, the Manager and Angel Oak Mortgage Fund, our sole common stockholder prior the IPO. The management fee payable under the pre-IPO management agreement was calculated based on the Actively Invested Capital (as defined in the pre-IPO management agreement) of the limited partners in Angel Oak Mortgage Fund, which we believe is reflective of a typical management fee payable by a private investment vehicle.

The pre-IPO management agreement terminated on the completion of the IPO, and we and the Operating Partnership subsequently entered into the Management Agreement with the Manager effective as of the completion of the IPO. Pursuant to the Management Agreement, the Manager is entitled to a base management fee, which is calculated based on our Equity (as defined in the Management Agreement), and an incentive fee based on certain performance criteria, as well as a termination fee in certain cases and reimbursement of certain expenses as described in the Management Agreement.

For the three months ended June 30, 2022 and 2021, our management fee incurred with affiliate was $2.0 million and $1.3 million, respectively. The increase is due to the increase in our average equity for the three months ended June 30, 2022 as compared to the same period in 2021.

Six Months Ended June 30, 2022 and 2021

The following table sets forth a summary of our results of operations for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
	(in thousands)
INTEREST INCOME, NET
Interest income	$	56,811	$	22,177
Interest expense	23,441		2,678
NET INTEREST INCOME	33,370		19,499

REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	39,133		(12,512)
Net unrealized gain (loss) on mortgage loans, debt at fair value option (see Note 2), and derivative contracts	(154,166)		9,330
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	(115,033)		(3,182)

EXPENSES
Operating expenses	6,723		1,130
Operating expenses incurred with affiliate	1,838		972
Due diligence and transaction costs	1,182		242
Stock compensation	1,839		90
Securitization costs	2,019		—
Management fee incurred with affiliate	3,879		2,169
Total operating expenses	17,480		4,603

INCOME BEFORE INCOME TAXES	(99,143)		11,714
Income tax (benefit)	(3,457)		—
NET INCOME (LOSS)	(95,686)		11,714
Preferred dividends	(8)		(8)
NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDER(S)	$	(95,694)	$	11,706
Other comprehensive income (loss)	(1,752)		3,615
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(97,446)	$	15,321

Net Interest Income

The following table sets forth the components of net interest income for the six months ended June 30, 2022 and 2021:


	Six Months Ended
	June 30, 2022				June 30, 2021
	(in thousands)
Interest income	Interest income / expense		Average balance			Interest income / expense		Average balance
Residential mortgage loans	$	25,424	$	1,167,990		$	7,361	$	297,218
Residential mortgage loans in securitization trusts	21,887		941,145			—		—
Commercial mortgage loans	648		19,632			357		7,081
RMBS	8,299		371,736			13,259		263,522
CMBS	472		9,925			1,189		10,989
U.S. Treasury Bills	8		85,713			7		60,712
Other interest income	73		54,094			4		25,105
Total interest income	56,811					22,177
Interest expense
Notes payable	12,803		987,513			2,460		180,014
Non-recourse securitization obligation, collateralized by residential mortgage loans	10,262		898,104			—		—
Repurchase facilities	376		243,413			218		183,473
Total interest expense	23,441					2,678
Net interest income	$	33,370				$	19,499

Net interest income for the six months ended June 30, 2022 and 2021 was $33.4 million and $19.5 million, respectively. Net interest income increased due to the additional average portfolio balance in the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to the composition of the portfolio during June 30, 2022 having a higher average balance of residential mortgage loans and residential mortgage loans in securitization trusts, along with a higher RMBS average balance, which increased net interest income. These average asset balances were partially offset by higher average balances in notes payable; notes payable, non-recourse securitization obligation, collateralized by residential mortgage loans; and repurchase facilities during the six months ended June 30, 2022 as compared to the same period in 2021, which resulted in increased interest expense during the comparative period.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the six months ended June 30, 2022 and 2021 are set forth as follows:


	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
	(in thousands)

Unrealized loss on securitization, net of unrealized gain on non-recourse securitization obligation	$	(43,074)	$	—
Realized loss on RMBS, net	(27,855)		(8,808)
Realized loss on CMBS	(246)		(380)
Realized gain (loss) on interest rate futures	43,052		(471)
Realized and unrealized gain on TBAs	19,399		(2,620)
Realized and unrealized (loss) gain on residential mortgage loans	(106,625)		6,326
Realized and unrealized (loss) gain on commercial mortgage loans	(1,006)		358
Realized and unrealized loss on U.S. Treasury bills	—		(8)
Unrealized appreciation on interest rate futures	1,322		2,421
Total realized and unrealized gains (losses), net	$	(115,033)	$	(3,182)

For the six months ended June 30, 2022 and 2021, total realized and unrealized gains (losses), net were $(115.0) million and $(3.2) million, respectively. During the six months ended June 30, 2022, market volatility resulting in widening interest rate spreads caused the valuation of our portfolio of all of our mortgage loans to decrease, which resulted in an unrealized loss. All of our unrealized losses were partially offset by realized gains on interest rate futures and TBAs. In the six months ended June 30, 2021, realized and unrealized gains on residential mortgage loans and unrealized gains on interest rate futures were partially offset by realized loss on RMBS, which was primarily due to prepayment speeds on the junior and interest only bonds that we held.

Expenses

Operating Expenses

For the six months ended June 30, 2022 and 2021, our operating expenses were $6.7 million and $1.1 million, respectively. The increase in operating expenses in the six month period ended June 30, 2022 was due to an increase in costs due to being a public company, including increased insurance, audit, and legal fees. We also experienced an increase in loan administration costs, commensurate with an increase in the number of loans in our portfolio during the comparative period.

Operating Expenses Incurred with Affiliate

For the six months ended June 30, 2022 and 2021, our operating expenses incurred with affiliate were $1.8 million and $1.0 million, respectively. These expenses were primarily due to the allocated time of partially dedicated employees’ compensation being reimbursed by us, which time allocated to us increased during the comparative period.

Due Diligence and Transaction Costs

For the six months ended June 30, 2022 and 2021, our due diligence and transaction costs were $1.2 million and $0.2 million, respectively. The increase in these costs was due to whole loan acquisition diligence costs, which increased over the comparative period as we purchased more whole loans during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Stock Compensation

For the six months ended June 30, 2022, our stock compensation expense was $1.8 million. In connection with the IPO in June 2021, we issued restricted stock awards to key employees of Angel Oak, including our Manager, as well as the independent directors on our Board of Directors. Our stock compensation expense for the three months ended June 30, 2021 was de minimis, as expense was incurred during a nine day period as the grant date of the restricted stock was June 21, 2021. We issued additional restricted stock awards on January 1, 2022, March 10 and March 11, 2022, and May 18, 2022. Restricted stock awards vest over one, three, or four years (depending on the tranche of award), commencing on the one year anniversary of the grant date.

Securitization Costs

Securitization costs of $2.0 million were incurred for the six months ended June 30, 2022 in the securitization of AOMT 2022-1. During the comparative period of the six months ended June 30, 2021, we incurred no securitization expense as we did not enter into any securitizations during that period.

Management Fee Incurred with Affiliate

Pursuant to the Management Agreement, the Manager is entitled to a base management fee, which is calculated based on our Equity (as defined in the Management Agreement), and an incentive fee based on certain performance criteria, as well as a termination fee in certain cases and reimbursement of certain expenses as described in the Management Agreement.

For the six months ended June 30, 2022 and 2021, our management fee incurred with affiliate was $3.9 million and $2.2 million, respectively. The increase is due to the increase in our average equity for the six months ended June 30, 2022 as compared to the same period in 2021.

Our Portfolio

As of June 30, 2022, our portfolio consisted of approximately $3.2 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 June 30, 2022:


	Fair Value		Collateralized Debt		Allocated Capital		% of Total Capital
Portfolio:	($ in thousands)
Residential mortgage loans	$	1,279,341	$	1,101,672	$	177,669	48.4	%
Residential mortgage loans in securitization trust	982,579		949,442		$	33,137	9.0	%
Commercial mortgage loans	20,196		429		19,767		5.4	%
Total whole loan portfolio	$	2,282,116	$	2,051,543	$	230,573	62.8	%

Investment securities
RMBS	$	922,859	$	128,365	$	794,494	216.3	%
CMBS	8,982		—		8,982		2.4	%

Total investment securities	$	931,841	$	128,365	$	803,476	218.7	%

Total investment portfolio	$	3,213,957	$	2,179,908	$	1,034,049	281.5	%
Target assets (1)	$	3,213,957	$	2,179,908	$	1,034,049	281.5	%

Cash	$	16,100	$	—	$	16,100	4.4	%
Other assets and liabilities (2)	(682,865)		—		(682,865)		(185.9)	%
Total	$	2,547,192	$	2,179,908	$	367,284	100.0	%

(1) “Target assets” as presented above comprises the total investment portfolio, as there were no U.S. Treasury Bills held as of June 30, 2022.

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $720.4 million due to broker for our quarter-end purchase of certain whole pool RMBS.

As of December 31, 2021, our portfolio consisted of approximately $2.2 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, 2021:


	Fair Value		Collateralized Debt		Allocated Capital		% of Total Capital
Portfolio:	($ in thousands)
Residential mortgage loans	$	1,061,912	$	852,961	$	208,951	42.5	%
Residential mortgage loans in securitization trust	667,365		616,557		50,808		10.3	%
Commercial mortgage loans	18,664		447		18,217		3.7	%
Total whole loan portfolio	$	1,747,941	$	1,469,965	$	277,976	56.5	%

Investment securities
RMBS	$	485,634	$	360,501	$	125,133	25.5	%
CMBS	10,756		—		10,756		2.2	%
U.S. Treasury Bills	249,999		248,750		1,249		0.3	%
Total investment securities	$	746,389	$	609,251	$	137,138	28.0	%

Total investment portfolio	$	2,494,330	$	2,079,216	$	415,114	84.5	%
Target assets (1)	$	2,244,331	$	1,830,466	$	413,865	84.2	%

Cash	$	40,801	$	—	$	40,801	8.3	%
Other assets and liabilities	35,475		—		35,475		7.2	%
Total	$	2,570,606	$	2,079,216	$	491,390	100.0	%

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

Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of June 30, 2022:


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
Unpaid principal balance (“UPB”)	$60 - $3,473	$508
Interest rate	2.88% - 9.25%	4.68%
Maturity date	10/1/2036 - 7/1/2062	12/29/2052
FICO score at loan origination	521 - 823	737
LTV at loan origination	8% - 95%	71%
DTI at loan origination	1.15% - 59.06%	24%
Percentage of first lien loans	N/A	100%
Percentage of loans 90+ days delinquent (based on UPB)	N/A	0.13%

The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2021:


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
UPB	$48 - $3,410	$506
Interest rate	2.75% - 9.25%	4.49%
Maturity date	10/1/2036 - 12/1/2061	4/20/2053
FICO score at loan origination	521 - 823	740
LTV at loan origination	12% - 95%	70%
DTI at loan origination	1.60% - 59.06%	27%
Percentage of first lien loans	N/A	100%
Percentage of loans 90+ days delinquent (based on UPB)	N/A	0.30%

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2022:


			($ in thousands)
UPB			$1,024,490
Number of loans			2,366
Weighted average loan coupon			4.66%
Average loan amount			435
Weighted average LTV at loan origination and deal date			69%
Weighted average credit score at loan origination and deal date			746
Current 3-month constant prepayment rate (“CPR”) (1)			21%
Percentage of loans 90+ days delinquent (based on UPB)			0.2%

(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 June 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of June 30, 2022.

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


			($ in thousands)
UPB			$642,951
Number of loans			1,494
Weighted average loan coupon			4.98%
Average loan amount			433
Weighted average LTV at loan origination and deal date			72%
Weighted average credit score at loan origination and deal date			741
Current 3-month CPR			35.1%
Percentage of loans 90+ days delinquent (based on UPB)			0.13%

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

(1) 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, 2021.

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of June 30, 2022:

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2021:

The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of June 30, 2022, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of June 30, 2022:

(1) No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of June 30, 2022.

The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2021, based on the product profile, borrower profile, and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of December 31, 2021:

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

Commercial Mortgage Loans

The following table provides additional information on the commercial mortgage loans in our portfolio as of June 30, 2022:


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
UPB	$243 - $4,300	$1,926
Interest rate	5.50% - 8.38%	6.12%
Loan term	1.17 - 27.94 years	7.81 years
LTV at loan origination	46.7% - 75.0%	57.6%

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


	Portfolio Range	Portfolio Weighted Average
	($ in thousands)
UPB	$244 - $4,300	$1,700
Interest rate	5.75% - 8.38%	6.25%
Loan term	1.42 - 28.18 years	8.36 years
LTV at loan origination	46.7% - 75.0%	59.8%

The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of June 30, 2022 and December 31, 2021 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Our Commercial Mortgage Loans as of June 30, 2022:

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

RMBS

In March 2019, we participated in our first securitization transaction pursuant to which we contributed to AOMT 2019‑2 non‑QM loans with a carrying value of approximately $255.7 million that we had accumulated and held on our balance sheet. The remaining non‑QM loans that we contributed to AOMT 2019‑2 were purchased from affiliated and unaffiliated entities. We received bonds from AOMT 2019‑2 with a fair value of approximately $55.8 million, including approximately $33.0 million in risk retention securities (representing 5% of each class of the bonds issued as part of the transaction). Additionally, in July 2019, we participated in a second securitization transaction pursuant to which we contributed to AOMT 2019‑4 non‑QM loans with a carrying value of approximately $147.4 million that we had accumulated and held on our balance sheet, and we received bonds from AOMT 2019‑4 with a fair value of approximately $16.8 million. Furthermore, in November 2019, we participated in a third securitization transaction pursuant to which we contributed to AOMT 2019‑6 non‑QM loans with a carrying value of approximately $104.3 million that we had accumulated and held on our balance sheet, and we received bonds from AOMT 2019‑6 with a fair value of approximately $10.7 million. In June 2020, we participated in a fourth securitization transaction pursuant to which we contributed to AOMT 2020‑3 non‑QM loans with a carrying value of approximately $482.9 million that we had accumulated and held on our balance sheet. The remaining non‑QM loans that we contributed to AOMT 2020‑3 were purchased from an affiliated entity. We received bonds from AOMT 2020‑3 with a fair value of approximately $66.5 million, including approximately $23.0 million in horizontal risk retention securities (representing 5% of the fair value of the securities and other interests issued as part of the transaction).

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in Angel Oak Mortgage Trust I (“AOMT”) securitization transactions is set forth below as of June 30, 2022, unless otherwise stated:


	AOMT 2019-2		AOMT 2019-4		AOMT 2019-6		AOMT 2020-3
	($ in thousands)
UPB of loans	$138,286		$137,761		$163,571		$203,885
Number of loans	456		471		611		609
Weighted average loan coupon	7.0	%	7.1	%	6.4	%	5.8	%
Average loan amount	$303		$292		$268		$335
Weighted average LTV at loan origination and deal date	74	%	72	%	70	%	74	%
Weighted average credit score at loan origination and deal date	695		701		715		719
Current 3-month CPR	42.5	%	38.5	%	30.9	%	35.1	%
90+ day delinquency (as a % of UPB)	12.3	%	11.3	%	5.0	%	4.5	%
Fair value of first loss piece (1)	$13,350		$3,883		$2,245		$23,965
Investment thickness (2)	25.15	%	11.55	%	7.82	%	15.22	%

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

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

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


	AOMT 2019-2		AOMT 2019-4		AOMT 2019-6		AOMT 2020-3
	($ in thousands)
UPB of loans	$183,489		$184,793		$206,392		$262,383
Number of loans	586		604		743		757
Weighted average loan coupon	7.082	%	7.066	%	6.441	%	5.905	%
Average loan amount	$313		$306		$278		$347
Weighted average LTV at loan origination and deal date	75	%	73	%	71	%	74	%
Weighted average credit score at loan origination and deal date	695		703		716		717
Current 3-month CPR	44.89	%	50.89	%	45.08	%	43.61	%
90+ day delinquency (as a % of UPB)	12.33	%	8.86	%	5.31	%	3.82	%
Fair value of first loss piece	$13,634		$4,019		$2,334		$26,447
Investment thickness	18.95	%	8.61	%	6.20	%	11.82	%

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of June 30, 2022:


	RMBS						Repurchase Debt						Allocated Capital
	AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total
	(in thousands)
Senior	$	975	$	—	$	975	$	1,049	$	—	1,049		$	(74)	$	—	$	(74)
Mezzanine	2,145		—		2,145		1,596		—		1,596		549		—		$	549
Subordinate	55,414		3,354		58,768		12,615		—		12,615		42,799		3,354		$	46,153
Interest only / excess	10,133		2,634		12,767		—		—		—		10,133		2,634		$	12,767
Whole pool	—		848,204		848,204		—		113,105		113,105		—		735,099		$	735,099
Total	$	68,667	$	854,192	$	922,859	$	15,260	$	113,105	$	128,365	$	53,407	$	741,087	$	794,494

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of December 31, 2021:


	RMBS						Repurchase Debt						Allocated Capital
	AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total		AOMT		Third Party RMBS		Total
	(in thousands)
Senior	$	3,076	$	—	$	3,076	$	4,089	$	—	$	4,089	$	(1,013)	$	—	$	(1,013)
Mezzanine	2,178		—		2,178		1,631		—		1,631		547		—		$	547
Subordinate	80,058		10,292		90,350		—		—		—		80,058		10,292		$	90,350
Interest only / excess	15,052		2,923		17,975		—		—		—		15,052		2,923		$	17,975
Whole pool	—		372,055		372,055		—		354,781		354,781		—		17,274		$	17,274
Total	$	100,364	$	385,270	$	485,634	$	5,720	$	354,781	$	360,501	$	94,644	$	30,489	$	125,133

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of June 30, 2022:


	Senior		Mezzanine		Subordinate		Interest Only		Whole Pool		Total
	(in thousands)
Beginning fair value	$	1,840	$	2,158	$	65,516	$	14,926	$	406,846	$	491,286
Acquisitions:
Secondary market purchases of AOMT securities	—		—		—		—		—		—
Third party securities	—		—		—		—		841,498		841,498
Effect of principal payments / called deals	(1,052)		—		(3,452)		—		(416,016)		(420,520)
IO and excess servicing prepayments	—		—		—		(2,102)		—		(2,102)
Changes in fair value, net	187		(13)		(3,296)		(57)		15,876		12,697
Ending fair value	$	975	$	2,145	$	58,768	$	12,767	$	848,204	$	922,859

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2021:


	Senior		Mezzanine		Subordinate		Interest Only		Whole Pool		Total
	(in thousands)
Beginning fair value	$	18,297	$	2,207	$	97,614	$	31,818	$	—	$	149,936
Acquisitions:
Secondary market purchases of AOMT securities	—		—		2,209		—		—		2,209
Third party securities	—		—		5,122		7,485		1,466,854		1,479,461
Effect of principal payments / called deals	(15,029)		—		(19,576)		(3,781)		(1,096,112)		(1,134,498)
IO and excess servicing prepayments	—		—		—		(17,355)		—		(17,355)
Changes in fair value, net	(192)		(29)		4,981		(192)		1,313		5,881
Ending fair value	$	3,076	$	2,178	$	90,350	$	17,975	$	372,055	$	485,634

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2022 (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 June 30, 2022)

(1) No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of June 30, 2022.

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2021 (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, 2021)

(1) 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, 2021.

CMBS

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

Certain information regarding the commercial mortgage loans underlying our portfolio of CMBS issued in the AOMT 2020-SBC1 securitization transaction is shown below as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
	($ in thousands)
UPB of loans	$130,534		$140,360
Number of loans	171		189
Weighted average loan coupon	7.4	%	7.4	%
Average loan amount	$763		$743
Weighted average LTV at loan origination and deal date	58.4	%	58.4	%

The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of June 30, 2022 and December 31, 2021:


	June 30, 2022						December 31, 2021
	CMBS		Repurchase Debt		Allocated Capital		CMBS		Repurchase Debt		Allocated Capital
	(in thousands)
Senior	$	—	$	—	$	—	$	—	$	—	$	—
Mezzanine	—		—		—		—		—		—
Subordinate	6,573		—		6,573		7,993		—		7,993
Interest only / excess	2,409		—		2,409		2,763		—		2,763
Total	$	8,982	$	—	$	8,982	$	10,756	$	—	$	10,756

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, and securitizations of our whole loans. Our financing sources historically have also included capital contributions from our investors prior to our IPO, the proceeds from our IPO and concurrent private placement (which capital has all been deployed), as well as payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, and securitizations of our whole loans. 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 June 30, 2022, we were a party to seven loan financing lines, which permitted borrowings in an aggregate amount of up to $1.6 billion, which availability increased to $1.9 billion subsequent to June 30, 2022 with the $260.0 million increase to the RBC financing line. Borrowings under these agreements may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes. A description of each loan financing line is set forth as follows:

RBC Loan Financing Line. On April 13, 2022, we and two of our subsidiaries entered into a master repurchase agreement with RBC. Our subsidiaries are each considered a “Seller” under this agreement. From time to time and pursuant to the initial agreement, either of our subsidiaries may sell to RBC, and later repurchase, up to $340.0 million aggregate borrowings on mortgage loans, which was increased to $600.0 million subsequent to June 30, 2022. The master repurchase agreement was initially set to terminate on October 13, 2022, and on July 21, 2022, was extended as per the terms of the original agreement through January 20, 2023, unless terminated earlier pursuant to the terms of the master repurchase agreement.

The principal amount expected to be paid by RBC 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 (generally ranging from 80% to 90%, depending on the type of loan), whichever is less. Pursuant to the agreement, RBC retains the right to determine the market value of the mortgage loan collateral in its sole commercially reasonable discretion. The loan financing line is marked‑to‑market. Additionally, RBC 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 RBC is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread of 1.95% and (2) the average SOFR for each U.S. Government Securities Business Day (as defined in the Master Repurchase Agreement) beginning on April 11, 2022 and ending on the day that is two U.S. 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 RBC with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, RBC 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 RBC’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 RBC and to reimburse RBC for certain costs and expenses incurred in connection with RBC’s structuring, management, and ongoing administration of the master repurchase agreement.

Nomura Loan Financing Line. On December 6, 2018, we and one of our subsidiaries entered into a master repurchase agreement with Nomura. We are considered the “Seller” under this agreement. From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Nomura. Pursuant to the agreement, we and our subsidiary may sell to Nomura, and later repurchase, up to $300.0 million aggregate borrowings on mortgage loans. This agreement was set to terminate on August 5, 2022. On August 8, 2022, this agreement was extended through October 5, 2022, and interest will accrue on any borrowings at a rate based on Term SOFR plus an additional spread of 1.70% - 3.50%.

The principal amount paid by Nomura for each eligible mortgage loan is based on a percentage of both the market value, unpaid principal balance and acquisition price of the mortgage loan (generally ranging from 65% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments). Pursuant to the agreement, Nomura retains the right to determine the market value of the mortgage loan collateral for certain mortgage loans in its sole and absolute discretion. Additionally, Nomura is under no obligation to purchase the eligible mortgage loans we offer to sell to them. Prior to the amendment effective August 5, 2022, upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Nomura the adjusted principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) the greater of (a) one-month LIBOR or three‑month LIBOR (depending on the type of mortgage loan) and (b) the applicable LIBOR floor, and (2) a spread generally ranging from 1.70% to 3.50% depending on the type of loan. After the August 5, 2022 amendment, “LIBOR” has been replaced with “Term SOFR”.

The agreement requires us to maintain various financial and other covenants, such as that: (1) adjusted tangible net worth on an aggregate basis must not be less than the sum of 50% of our adjusted tangible net worth as of the date of the agreement plus 50% of any future capital raised by us; (2) adjusted tangible net worth must not decline more than 25% in any rolling three month period or 35% in any rolling twelve month period; (3) the ratio of indebtedness to adjusted tangible net worth must not exceed 7:1; and (4) liquidity, on an aggregate basis, must exceed the greater of 5% of the aggregate purchase price and $2.0 million.

The agreement contains margin call provisions that provide Nomura with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, Nomura may require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement 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, material adverse effects, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Nomura’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 Nomura and to reimburse Nomura for certain costs and expenses incurred in connection with Nomura’s structuring, management and ongoing administration of the agreement.

Banc of California Loan Financing Line. On December 21, 2018, we and our subsidiary entered into a master repurchase agreement with Banc of California, National Association (“Banc of California”). We are considered a “Seller” under this agreement. From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Banc of California. Pursuant to the agreement, we or our subsidiary may sell to Banc of California, and later repurchase, up to $50.0 million aggregate borrowings on mortgage loans. The agreement was amended on March 7, 2022 to extend the term to March 16, 2023, unless terminated earlier pursuant to the terms of the agreement. Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and beginning March 8, 2022, provided that interest will accrue on any new transactions under the Loan Financing Line at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus an additional spread.

The principal amount paid by Banc of California for each mortgage loan is based on the lesser of (1) a percentage of the original principal amount of the mortgage loan (ranging from 75% to 97%) and (2) a percentage of its take‑out commitment (97%) or $4.0 million, depending on the loan type. Pursuant to the agreement, Banc of California retains the right to determine the market value of the mortgage loan collateral in its sole discretion. Upon our or our subsidiary’s repurchase of the mortgage loan, we are, or our subsidiary is, required to repay Banc of California the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) a specified minimum rate (ranging from 3.50% to 4.13%) and (B) one‑month LIBOR plus a spread ranging from 2.50% to 3.13%, and (2) in the case of loans with maturities over 364 days, the seasoned spread of 1.0%. As discussed above, the LIBOR reference rate was changed to SOFR beginning March 8, 2022 and going forward.

The agreement requires us to maintain various financial and other covenants, which include: (1) a minimum tangible net worth of $40.0 million consolidated; (2) minimum liquidity of $5.0 million; (3) a maximum ratio of total liabilities to tangible net worth of 10:1; and (4) we must attain positive net income, determined in accordance with GAAP, as of the last day of each calendar quarter, commencing with the quarter ended June 30, 2021, for the prior four (4) consecutive fiscal quarters then ending.

The agreement contains margin call provisions that provide Banc of California with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, Banc of California may require us or our subsidiary to transfer cash and/or additional eligible mortgage loans with an aggregate market value sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement 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, material adverse effects, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Banc of California’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 Banc of California and to reimburse Banc of California for certain costs and expenses incurred in connection with Banc of California’s structuring, management and ongoing administration of the agreement.

Deutsche Bank Loan Financing Line. On February 13, 2020, we and our subsidiary entered into a master repurchase agreement with Deutsche Bank, AG (“Deutsche Bank”). We are considered a “Seller” under this agreement. From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Deutsche Bank. Pursuant to the agreement, we or our subsidiary may sell to Deutsche Bank, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans. The agreement, as amended previously, was set to terminate on February 11, 2022. On February 4, 2022, the agreement was amended to terminate on February 2, 2024, unless terminated earlier pursuant to the terms of the agreement.

Prior to the amendment executed on February 4, 2022, the principal amount paid by Deutsche Bank for each mortgage loan was based on a percentage of the market value, cost‑basis value or unpaid principal balance of the mortgage loan (generally ranging from 60% to 92%, depending on the type of loan and certain other factors and subject to certain other adjustments). Pursuant to the agreement, Deutsche Bank retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion. Additionally, Deutsche Bank was under no obligation to purchase the eligible mortgage loans we offered to sell to them. Prior to the February 4, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we or our subsidiary were required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (1) the greater of (A) 0.00% and (B) one‑month LIBOR and (2) a spread generally ranging from 2.00% to 3.25%.

Pursuant to the amendment executed on February 4, 2022, interest will now accrue on any outstanding balance under the master repurchase agreement at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month). Previously, interest accrued at a rate based on one-month LIBOR. Additionally, the agreement was also amended to remove any draw fees; and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a spread generally ranging from 2.20% to 3.45%.

The agreement requires us to maintain various financial and other covenants, which include: (1) our adjusted tangible net worth must be an amount at least equal to the greater of (A) $100.0 million and (B) 20% of the maximum aggregate purchase price limit; (2) our adjusted tangible net worth on the last day of any calendar quarter shall not decline by (A) 20% or more from the adjusted tangible net worth as of the last day of the immediately prior calendar quarter or (B) 40% or more from the adjusted tangible net worth as of the last day of the calendar quarter that is twelve months prior to such calendar quarter; (3) our liquidity must at least equal the greater of (A) $5.0 million and (B) 3.0% of the outstanding purchase price for such mortgage loans transferred to Deutsche Bank; and (4) our indebtedness to our adjusted tangible net worth must not exceed 5.5:1.

The agreement contains margin call provisions that provide Deutsche Bank 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, Deutsche Bank 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 Deutsche Bank’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 Deutsche Bank and to reimburse Deutsche Bank for certain costs and expenses incurred in connection with Deutsche Bank’s structuring, management and ongoing administration of the agreement.

Goldman Loan Financing Line. On March 5, 2021, we and our subsidiary entered into a master repurchase agreement with Goldman Sachs Bank USA (“Goldman”). We are considered a “Seller” under this agreement. Pursuant to the agreement, we or our subsidiary may sell to Goldman, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans. The agreement was extended on March 2, 2022 to terminate on March 5, 2023, unless terminated earlier pursuant to the terms of the agreement.

The principal amount paid by Goldman 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 (generally ranging from 75% to 85%, depending on the type of loan), whichever is less. Pursuant to the agreement, Goldman retains the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and in a commercially reasonable manner. The loan financing line is marked‑to‑market at fair value. Additionally, Goldman is under no obligation to purchase the eligible mortgage loans we offer to sell to them. Prior to the January 1, 2022 amendment, upon our or our subsidiary’s repurchase of the mortgage loan, we were, or our subsidiary was, required to repay Goldman the principal amount related to such mortgage loan plus accrued interest generally at a rate based on three‑month LIBOR plus 2.25%. On January 1, 2022, the LIBOR-based index was replaced by reference to the sum of Compounded SOFR and a SOFR adjustment of 20 basis points. Compounded SOFR is determined on a one-month basis and is defined as a daily rate as determined by Goldman to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc. definitions.

The agreement requires us to maintain various financial and other covenants, such as that: (1) our minimum tangible net worth of must not decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or fall below 50% of our tangible net worth as of September 30, 2018 plus 50% of any capital contributions made after that date; (2) our minimum liquidity must not fall below the greatest of (x) the product of 5% and the aggregate repurchase price as of such date of determination, (y) $5 million and (z) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds); and (3) the maximum ratio of our and our subsidiaries’ total indebtedness to tangible net worth must not be greater than 5:1.

The agreement contains margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, Goldman 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 Goldman’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 Goldman and to reimburse Goldman for certain costs and expenses incurred in connection with Goldman’s structuring, management and ongoing administration of the agreement.

Veritex Financing Line. On August 16, 2021, we and our subsidiaries entered into a non-mark-to-market $50.0 million committed financing facility with Veritex Community Bank (“Veritex”) through the execution of a Loan and Security Agreement (the “Loan and Security Agreement”) and a Promissory Note (the “Promissory Note” and together with the Loan and Security Agreement, the “Facility Documents”) among those subsidiaries and Veritex. Pursuant to the Facility Documents, Veritex agreed to make one or more advances to one or more of the subsidiaries of the Company (together, the “Borrowers”) secured by mortgage loans, notes and related collateral (the “Veritex Financing Line”). On February 11, 2022, we amended the financing facility to increase the size of the financing facility to $75.0 million from $50.0 million. The Veritex Financing Line terminates, and amounts outstanding under the Veritex Financing Line will mature, on August 16, 2023, subject to certain exceptions.

The amount advanced by Veritex for each eligible loan is based on the unpaid principal balance of the loan, the loan-to-value ratio of the loan and the FICO score of the borrower and ranges from 80.00% to 92.50% depending on the type of loan and the aforementioned criteria. Prior to the February 11, 2022 amendment, the interest rate on any outstanding balance under the Facility Documents is the greater of (1) the sum of (A) one-month LIBOR and (B) 2.30%, and (2) 3.13%. After the February 11, 2022 amendment, interest will accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus a margin equal to 2.41% per annum; provided that the interest rate may not be less than 3.125% per annum.

The obligations of the Borrowers under the Facility Documents are guaranteed by the Company pursuant to a Guaranty Agreement (the “Guaranty”) executed contemporaneously with the Facility Documents. In addition, the Company is subject to various financial and other covenants, including, as of the last day of any fiscal quarter: (1) the Company’s tangible net worth must be at least equal to $150.0 million; (2) the Company’s ratio of (A) EBITDA to (B) debt service shall be at least equal to 1.25 to 1.0 for such quarter; (3) the Company’s ratio of total liabilities to total tangible net worth must not exceed 5.5 to 1.0; and (4) the Company’s liquidity must at least equal $5.0 million.

In addition, the Facility Documents contain 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 acceleration of the principal amount outstanding under the Facility Documents and Veritex’s right to liquidate the collateral then subject to the Facility Documents.

The Borrowers are also required to pay certain customary fees to Veritex and to reimburse Veritex for certain costs and expenses incurred in connection with Veritex’s management and ongoing administration of the Veritex Financing Line.

Barclays Financing Line. On September 20, 2021, we and one of our subsidiaries (the “Subsidiary”) entered into a $400.0 million repurchase facility (the “Barclays Financing Line”) with Barclays Bank PLC (“Barclays”) through the execution of a Master Repurchase Agreement (the “Master Repurchase Agreement”) between the Subsidiary and Barclays. Pursuant to the Master Repurchase Agreement, the Subsidiary may sell certain securities to Barclays representing whole loan assets and later repurchase such securities from Barclays. The Master Repurchase Agreement terminates on September 20, 2022, unless terminated earlier pursuant to the terms of the Master Repurchase Agreement. On January 27, 2022, this repurchase facility was amended to to state that interest will accrue on any outstanding balance at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and increase the maximum purchase price permitted under the Master Repurchase Agreement to $550.0 million from $400.0 million, which was subject to reduction to $400.0 million upon the issuance of securities pursuant to a securitization of the assets underlying the Master Repurchase Agreement which occurred on February 7, 2022.

The amount expected to be advanced by Barclays is generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, which is a percentage of the unpaid principal balance or market value of the asset depending on the type of underlying asset. Prior to the January 27, 2022 amendment, the interest rate on any outstanding balance under the Master Repurchase Agreement that the Subsidiary was required to pay Barclays was generally in line with other similar agreements that the Company or one of its subsidiaries has entered into, where the interest rate was equal to the sum of (1) a spread ranging from 1.70% to 3.50%, determined based on the type of underlying asset, and (2) one-month LIBOR. Additionally, Barclays is under no obligation to purchase the securities we offer to sell to them. As stated above, the interest rate is now calculated as a rate based on Term SOFR instead of one-month LIBOR.

The obligations of the Subsidiary under the Master Repurchase Agreement are guaranteed by the Company pursuant to a Guaranty (the “Guaranty”) executed contemporaneously with the Master Repurchase Agreement. In addition, and similar to other repurchase agreements that the Company has entered into, the Company is subject to various financial and other covenants, including those relating to (1) declines in tangible net worth; (2) a maximum ratio of indebtedness to tangible net worth; and (3) minimum liquidity.

In addition, the Master Repurchase Agreement and Guaranty contain events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, insolvency and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the amounts outstanding under the Master Repurchase Agreement and Barclays’ right to liquidate the purchased securities then subject to the Master Repurchase Agreement.

The Subsidiary is also required to pay certain customary fees to Barclays and to reimburse Barclays for certain costs and expenses incurred in connection with Barclays’ management and ongoing administration of the Master Repurchase Agreement.

The following table sets forth the details of our financing lines as of each of June 30, 2022 and December 31, 2021:


					Drawn Amount
Line of Credit	Facility Limit		Base Interest Rate (A)	Interest Rate Spread (A)	June 30, 2022		December 31, 2021
	($ in thousands)
Barclays Bank PLC (1)	$	400,000	1 month SOFR	1.95% - 2.00%	$	370,572	$	362,899
Royal Bank of Canada (2)	$	340,000	Average Daily SOFR	1.95%	$	191,677	N/A
Nomura Corporate Funding Americas, LLC (3)	$	300,000	1 month or 3 month LIBOR	1.70% - 3.50%	$	18,799	103,149
Deutsche Bank, AG (4)	$	250,000	1 month SOFR	2.20% - 3.45%	$	217,875	231,981
Goldman Sachs Bank USA (5)	$	200,000	Compound SOFR	2.45%	$	175,291	109,283
Banc of California, National Association (6)	$	75,000	1 month SOFR	2.50% - 3.50%	$	55,410	34,838
Veritex Community Bank (7)	$	75,000	1 month SOFR	2.41%	$	72,477	11,258
Total	$	1,640,000			$	1,102,101	$	853,408

(4) On February 4, 2022, this facility was amended to extend the initial termination date of the master repurchase agreement from February 11, 2022 to February 2, 2024; remove any draw fees; and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Deutsche Bank the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a spread generally ranging from 2.20% to 3.45%. Prior to February 4, 2022, interest was based on 1-month LIBOR plus a spread of 2.00% - 3.25%.

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 June 30, 2022 and December 31, 2021:


June 30, 2022
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)

RMBS	$	128,365	1.51	%	15
Total	$	128,365	1.51	%	15

December 31, 2021
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)
U.S. Treasury Bills	$	248,750	0.12	%	6
RMBS	360,501		0.16	%	18
Total	$	609,251	0.15	%	13

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)
Q2 2021	$	787,176	$	407,486	$	787,176
Q3 2021	489,287		173,265		489,287
Q4 2021	609,251		206,897		609,251
Q1 2022	477,422		272,282		477,422
Q2 2022	128,365		92,598		132,629

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

In February 2022, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 56% of which were mortgage loans originated by third parties and the remainder of which were originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2022-1 issued approximately $551.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of

approximately $458.3 million and retained cash of $60.9 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-1 securitization on our condensed consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheet as of March 31, 2022.

In November 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2021-7 issued approximately $386.9 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $331.8 million and retained cash of $39.8 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2021-7 securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

In August 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2021-4 issued approximately $316.6 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $249.0 million and retained cash of $55.8 million, which was used to acquire additional non‑QM loans, pay down repurchase facilities, and acquire other target assets.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. Given the accounting rules surrounding this type of transaction, we have consolidated the securitization on our condensed consolidated balance sheets, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

Leverage and Hedging Strategies

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

Subject to qualifying and 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 opportunistically 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.

Cash Flows


		Six Months Ended
		June 30, 2022		June 30, 2021
	(in thousands)
Cash flows used in operating activities		$	(635,830)	$	(382,091)
Cash flow provided by (used in) investing activities		$	502,541	$	(705,897)
Cash flows provided by financing activities		$	102,856	$	1,075,043
Net decrease in cash and restricted cash		$	(30,433)	$	(12,945)

Operating cash flows of $(635.8) million for the six months ended June 30, 2022 as compared to $(382.1) million for the six months ended June 30, 2021 were primarily due to the purchase of additional residential mortgage loans during the six months ended June 30, 2022.

Investing cash flows of $502.5 million for the six months ended June 30, 2022 as compared to $(705.9) million for the six months ended June 30, 2021 were primarily due to the net sales of RMBS during the quarter, partially offset by the timing of purchase and maturity activity of U.S. Treasury securities.

Financing cash flows used of $102.9 million for the six months ended June 30, 2022 as compared to $1.1 billion provided for the six months ended June 30, 2021 were due primarily due to net repayments on repurchase facilities in the six months ended June 30, 2022 as compared to net borrowings on repurchase facilities during the 2021 comparative period. The net repayments on repurchase facilities for the six months ended June 30, 2022 were partially offset by proceeds from the AOMT 2022-1 securitization.

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.

Cash Availability

As of June 30, 2022, we held a lower than usual balance of unrestricted cash and cash equivalents. Although borrowings on our financing facilities were a net increase during the six months ended June 30, 2022, our available cash balance decreased in the month of June 2022 due to margin calls on our financing facilities. Subsequent to June 30, 2022, and through August 12, 2022, our available unrestricted cash balance increased to more normalized levels due to receipt of interest income on our RMBS, CMBS, and mortgage loan portfolios, as well as a sale of certain of our commercial loans, and the AOMT 2022-4 securitization.

Our cash balance as of June 30, 2022 was sufficient to meet our liquidity covenants under our financing facilities. We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur. Due to market volatility, we exited certain of our economic hedge positions subsequent to June 30, 2022, and therefore would not have any margin requirements to such hedging counterparties unless we were to resume that particular economic hedging, which we may do in the future, should we deem economic conditions to be less volatile or more favorable to us. We anticipate that our largest commercial loan will be paid in full within the third quarter of 2022, and we may sell additional commercial loans if we deem the market to be advantageous. We may also participate in an upcoming securitization with other Angel Oak entities.

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 2021 Annual Report on Form 10-K. Our critical accounting policies and estimates have not materially changed since December 31, 2021. 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 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 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 2021 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 2021 Annual Report on Form 10-K. The risks described in the 2021 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 about common stock purchases by or on behalf of the Company pursuant to the 10b5-1 Plan (as defined below) during the three months ended June 30, 2022:


Month	Total number of shares purchased (1)	Average price paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2022 to April 30, 2022	113,905	$	16.40	113,905	$	15,459,503
May 1, 2022 to May 31, 2022	76,036	$	14.89	76,036	$	14,327,041
June 1, 2022 to June 30, 2022	—	$	—	—	$	14,327,041
Totals / Averages	189,941	$	15.79	—	$	14,327,041

(1) In June 2021, the Company entered into a 10b5-1 stock repurchase plan (the “10b5-1 Plan”) with Wells Fargo Securities LLC, pursuant to which Wells Fargo Securities, LLC, as our agent, committed to buy in the open market up to $25.0 million in shares of our common stock in the aggregate during the period beginning on the date that is four full calendar weeks from the closing of the IPO and ending 12 months thereafter (i.e., July 18, 2022), unless terminated sooner as specified in the 10b5-1 Plan, including if all the capital committed to the 10b5-1 Plan has been exhausted prior thereto, and otherwise on the terms set forth in the 10b5-1 Plan. All shares purchased were purchased as part of the publicly-announced 10b5-1 Plan described above.

As of July 18, 2022, 642,513 total shares had been purchased under the 10b-5-1 Plan during its existence. The 10b-5-1 Plan expired in accordance with its terms on July 18, 2022 and has not been renewed.

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities during the quarter ended June 30, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number		Description
3.1		Articles of Amendment and Restatement of Angel Oak Mortgage, Inc., 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		Second Amended and Restated Bylaws of Angel Oak Mortgage, Inc., effective as of June 17, 2021 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 23, 2021)
10.1		Master Repurchase Agreement among Royal Bank of Canada; Angel Oak Mortgage Operating Partnership, LP; Angel Oak Mortgage Fund TRS and Angel Oak Mortgage, Inc., dated April 13, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 14, 2022)
10.2		Guaranty Agreement by Angel Oak Mortgage, Inc. in favor of Royal Bank of Canada, dated April 13, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 14, 2022)
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 June 30, 2022, 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 Securities Exchange Act of 1934, as amended, 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, INC.


Date: August 12, 2022	By:	/s/ Robert J. Williams
		Robert J. Williams
		Chief Executive Officer and President
		(Principal Executive Officer)

Date: August 12, 2022	By:	/s/ Brandon R. Filson
		Brandon R. Filson
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)