Angel Oak Mortgage REIT, Inc. (AOMR) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our business strategies, our expectations regarding the future performance of our business, and the other non-historical statements contained herein, are forward-looking statements. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K.

General

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

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We are externally managed and advised by our Manager, Falcons I, LLC, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending, and capital markets. Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination platform, is a market leader in non‑QM loan production and, as of December 31, 2024, had originated over $20.0 billion in total non‑QM loan volume since its inception in 2011.

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

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2019. Commencing with our taxable year ended December 31, 2019, we believe that we have been organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Code. Our qualification as a REIT, and maintenance of such qualification, depends on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels, and the concentration of ownership of our stock. We also intend to operate our business in a manner that will allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act. Our common stock commenced trading on the New York Stock Exchange on June 17, 2021.

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

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

In 2024, the U.S. Federal Reserve Bank (the “Fed”) held the federal funds rate steady to begin the year before beginning to cut rates in September, marking a reversal of the historic federal funds rate increases that began in March of 2022. 2024 began with an effective federal funds rate of 5.25-5.50%, holding steady from the last increase in July of 2023. In September 2024, the Fed cut interest rates by 50 basis points, followed by decreases of 25 basis points each in November and December of 2024. In total the three rate cuts brought the federal funds rate from 5.25-5.50% as of the beginning of 2024 to 4.25-4.50% as of the end of 2024. This was welcome news for many investors, however continued uncertainty in inflation and employment data put a bit of a damper on the rate cut momentum and future rate expectations continue to demonstrate volatility. Additionally, expectations for the new U.S. presidential administration are mixed. Overall, 2024 was a much more constructive environment compared to 2023. Expectations for the extent and magnitude of continued rate cuts in 2025 are mixed, however capital markets seem to have gained momentum and the degree of uncertainty is of a lower magnitude than that of the previous two years.

The two-year Treasury yield capped off 2024 flat compared to the end of 2023 at 4.25%. The five-year Treasury yield, however, increased by approximately 54 basis points, from 3.85% as of the end of 2023 to 4.39% as of the end of 2024. The ten-year Treasury yield increased by approximately 70 basis points, from 3.88% as of the end of 2023 to 4.58% as of the end of 2024. Notably, the five and ten-year Treasury yields are no longer inverted, ending 14 and 33 basis points, respectively, higher than the two-year Treasury yield as of the end of 2024 after finishing 2023 40 and 37 basis points, respectively, below the two year Treasury yield as of the end of 2023. Over the course of 2024, the two-year Treasury saw yields ranging from a high of 5.05% and a low of 3.55%, the five-year Treasury observed yields ranging from a high of 4.73% and a low of 3.41%, and the ten-year saw yields ranging from a high of 4.71% and a low of 3.62%. Notably, all tenors of the Treasury yield saw their annual low rate in September 2024 before increasing again to end the year.

Residential mortgage rates have proven to be sticky in light of federal funds rate cuts, with the average conforming 30-year mortgage rate increasing by 24 basis points to 6.85% as of the end of 2024 compared to 6.61% as of the end of 2023. However, the path throughout the course of the year was not a steady increase, as rates fell alongside the September rate cut to an average of 6.08% as of the end of September 2024 before increasing by 77 basis points by the end of the year. These rates are key benchmarks for the valuation of our portfolio, and drove corresponding impacts to our asset pricing. Continued purchases and securitizations of recently originated loans contributed to an increase in the valuations of our residential whole loans and loans in securitization trusts portfolios over the course of 2024, along with an overall tightening in securitization spreads. We expect to continue to purchase newly originated loans, which should continue to support overall portfolio valuations and securitization execution going forward.

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Our investment performance

Net Interest Margin (“NIM”). We generated $8.0 million greater net interest income for the year ended December 31, 2024 as compared to the prior year, driven primarily by higher weighted average coupons on our investment portfolio, new loan purchases, and decreases in funding costs in notes payable associated with our residential whole loans portfolio. Our interest income for the year ended December 31, 2024 was $110.4 million compared to $96.0 million in the prior year, and our interest expense for the year ended December 31, 2024 was $73.5 million compared to $67.1 million in the prior year. Our net interest income for the year ended December 31, 2024 increased by 28% versus the prior year.

Net realized loss. Our net realized loss of $9.2 million for the year ended December 31, 2024 was primarily driven by our participation in co-mingled securitizations with other Angel Oak entities (AOMT 2024-3 and AOMT 2024-6). Because these securitizations did not result in the consolidation of VIE entities, we recognized a loss on the sale of these loans; however, the realized losses were less than the previous period’s unrealized losses for these loans, which drove overall positive GAAP net income for these securitizations.

Net unrealized gain. Our net unrealized gain for the year ended December 31, 2024 was largely driven by a more stable macroeconomic backdrop in 2024 as compared to 2023 which drove increased valuations of our target assets. Unrealized gains in our residential loan portfolio and loans held in securitization trusts, net of non-recourse securitization obligation increased by $21.9 million in 2024. The reversal of the unrealized loss (and thereby the recognition of net realized loss as discussed above) on the sale of residential mortgage loans into the AOMT 2024-3 and AOMT 2024-6 securitizations contributed to this unrealized gain. Additionally, we purchased $683.7 million of newly-originated, market coupon loans during 2024, which saw an appreciation in value over the course of the year.

Whole loans and securitization activity

During the year ended December 31, 2024, we purchased $683.7 million of newly-originated non-QM residential mortgage loans, with a weighted average coupon of 7.64%, weighted average LTV of 70.2% and weighted average credit score of 749. Comparatively, during the year ended December 31, 2023, we purchased $222.7 million of non-QM residential mortgage loans, with a weighted average coupon of 8.37%, weighted average LTV of 70.1% and weighted average credit score of 754.

We participated in five securitization transactions in 2024, contributing a total of $855 million of scheduled unpaid principal balance of residential mortgage loans to the securitizations. In March 2024, we participated in AOMT 2024-3, a $439.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $48.7 million. In April 2024, we issued AOMT 2024-4, securitizing a total of $299.8 million of scheduled unpaid principal balance of non-QM mortgage loans. In June 2024, we participated in AOMT 2024-6, an approximately $479.6 million scheduled unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $22.9 million. In October 2024, we issued AOMT 2024-10, securitizing a total of $316.8 million of scheduled unpaid principal balance of non-QM mortgage loans. Lastly, in December 2024, we participated in AOMT 2024-13, a $288.9 million scheduled unpaid scheduled principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with a scheduled unpaid principal balance of approximately $167.2 million.

We issued AOMT 2024-4 and 2024-10 as the sole participant in the securitizations. As the primary beneficiary we have consolidated these securitizations, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheet as of the applicable balance sheet date.

AOMT 2024-3, AOMT 2024-6, and AOMT 2024-13 were securitization transactions entered into with other Angel Oak affiliates, for which we are not considered to be a "primary beneficiary" of the applicable securitization vehicle. Therefore, the bonds retained from these securitizations, as well as from our securitizations prior to 2021, are held on our consolidated balance sheets as RMBS as of December 31, 2024 and December 31, 2023. The risk retention portion of the bonds retained from these securitizations is presented in other assets on our consolidated balance sheets as of the applicable dates. We may decide to enter into similar securitization transactions in the future.

Whole loan financing facilities activity

We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized. See “Liquidity and Capital Resources” below for a full description of our financing arrangements. Our total borrowing capacity was $1.1 billion as of December 31, 2024. Highlights of whole loan financing facilities activity over 2024 are as follows:

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

•In the fourth quarter of 2024, the Company renewed its loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods as provided for in the original Master Repurchase Agreement with Multinational Bank 1,

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dated April 13, 2022. The loan financing facility had previously been set to expire on March 25, 2025, and has been extended through June 25, 2025.

•In the fourth quarter of 2024, the Company amended its loan financing facility with Global Investment Bank 3 to extend the facility to November 1, 2025 and to update the interest rate pricing spread to a range of 1.90% to 4.75%, based on loan status, dwell time, and other factors. This resulted in an effective decrease in interest rate pricing spread of approximately 25 basis points. Additionally, the previous 20 basis point index pricing spread was eliminated.

•In the fourth quarter of 2024, the Company amended its loan financing facility with Global Investment Bank 2 to reduce the interest rate pricing spread from a range of 2.10% - 3.35% to a range of 1.75% to 3.35%, based on collateral type, loan status, dwell time, and other factors. This resulted in an effective decrease in interest rate pricing spread of approximately 25 basis points.

Key Financial Metrics

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

Distributable Earnings

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding (1) unrealized gains and losses on our aggregate portfolio, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by our Manager, (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses. We believe that the presentation of Distributable Earnings provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. We believe Distributable Earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. As a REIT, we are generally required to distribute at least 90% of our annual REIT taxable income and to pay U.S. federal income tax at the regular corporate rate to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, generally we intend to attempt to pay dividends to our stockholders in an amount equal to our REIT taxable income, if and to the extent authorized by our Board of Directors. Distributable Earnings is one of a number of factors considered by our Board of Directors in declaring dividends and, while not a direct measure of REIT taxable income, over time, the measure can be considered a useful indicator of our dividends. Distributable Earnings should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings may not be comparable to similar measures presented by other REITs.

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the Management Agreement. For information on the fees that are payable to our Manager under the Management Agreement, see Part II, Item 8, Note 12 – Related Party Transactions in our audited consolidated financial statements included in this Annual Report on Form 10-K.

Distributable Earnings were approximately $7.0 million and $(28.1) million for the years ended December 31, 2024 and 2023, respectively. The table below sets forth a reconciliation of net income allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the years ended December 31, 2024 and 2023:

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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 common 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 years ended December 31, 2024 and 2023:

Book Value per Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of each quarter-end date of 2024 and as of December 31, 2023:

Economic Book Value per Share of Common Stock

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

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

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Results of Operations

Year Ended December 31, 2024, Compared to the Year Ended December 31, 2023

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

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Net Interest Income

The following table sets forth the components of net interest income for the years ended December 31, 2024 and 2023:

(1)     Primarily comprised of interest received on cash deposits, including interest earned on margin cash collateral.

Net interest income for the years ended December 31, 2024 and 2023 was $36.9 million and $28.9 million, respectively. Net interest income increased by approximately $8.0 million for the year ended December 31, 2024 as compared to 2023, primarily due to a higher residential mortgage loans in securitization trusts balance, as well as a higher interest rate associated with those and other target assets. Interest expense increased for the year ended December 31, 2024 as compared to 2023 due to a higher average balance in our non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts as well as our senior unsecured notes issued in July 2024. Overall, the increase in interest income offset the increase in interest expense and drove the $8.0 million increase to net interest income.

Total Realized and Unrealized Gains (Losses)

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

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For the years ended December 31, 2024 and 2023, total realized and unrealized gains (losses), net, were a gain of $14.5 million and a gain of $26.0 million, respectively. For the year ended December 31, 2024, gains on our portfolios of residential mortgage loans, TBAs, and interest rate futures were the primary drivers of the total gain, offset by realized and unrealized losses on RMBS and whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”). Comparatively. for the year ended December 31, 2023, an increase in mark-to-market valuations on our portfolios of residential mortgage loans and loans held in securitization trusts were the primary drivers of the total unrealized gain, offset by realized and unrealized losses on Whole Pool Agency RMBS.

Expenses

Operating Expenses

For the years ended December 31, 2024 and 2023, our operating expenses were $6.0 million and $7.5 million, respectively. Our operating expenses decreased compared to the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loans portfolios.

Due Diligence and Transaction Costs

For the years ended December 31, 2024 and 2023, our due diligence and transaction costs were $0.8 million and $0.3 million, respectively. Our due diligence and transaction expenses increased over the comparative period as we purchased more whole loans in the year ended December 31, 2024 as compared to 2023.

Stock Compensation

For the years ended December 31, 2024 and 2023, our stock compensation expense was $2.0 million and $1.7 million, respectively. The primary driver of this increase is the recognition of stock compensation expense associated with restricted stock awards and market-contingent performance-based restricted stock unit awards (“PSUs”). Our restricted stock awards generally vest over four years and our PSUs generally vest over three or four years (depending on the tranche of award), subject to achievement of the applicable performance goals during the three-year performance period.

Operating Expenses Incurred with Affiliate

For the years ended December 31, 2024 and 2023, our operating expenses incurred with affiliate were $1.8 million and $2.1 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased versus the comparative period due to a rationalization of resources.

Securitization Expenses

For the year ended December 31, 2024 and 2023, our securitization expenses were $3.8 million and $2.5 million, respectively. The increase is due to a larger securitization volume in the year ended December 31, 2024 as compared to the prior year. Expenses incurred during the year ended December 31, 2024 are related to the AOMT 2024-3, AOMT 2024-4, AOMT 2024-6, AOMT 2024-10, and AOMT 2024-13 securitizations. The securitization costs incurred for the comparable period in 2023 were associated with the AOMT 2023-1, AOMT 2023-4, AOMT 2023-5, and AOMT 2023-7 securitizations.

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Management Fee Incurred with Affiliate

For the years ended December 31, 2024 and 2023, our management fee incurred with affiliate was $5.0 million and $5.8 million, respectively. The decrease is due to the decline in our average Equity (as defined in the Management Agreement) for the year ended December 31, 2024 as compared to the same period in 2023. The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP, which has caused Equity (as defined in the Management Agreement) to decrease.

Income Taxes

During the year ended December 31, 2024, we recorded an income tax expense of approximately $3.3 million based on our income taxes arising from income associated with assets held in our TRS. During the year ended December 31, 2023, we incurred an income tax expense of approximately $1.2 million based on our income taxes arising from income associated with assets held in our TRS.

Our Portfolio

As of December 31, 2024, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets. Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes, wildfires, and earthquakes may occasionally occur. We require all of our collateral to be adequately insured. The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans.

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

(1)     Our Investment in Majority-Owned Affiliates is held at its amortized cost basis.

(2)     Other assets and liabilities presented is calculated as a net liability substantially comprised of $202.0 million due to broker for our     quarter-end purchase of certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in Majority-Owned Affiliates, which is considered a target asset. Additionally, other assets includes $5.2 million of commercial loans and $5.6 million of CMBS.

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

(1)     Our Investment in Majority-Owned Affiliates is held at its amortized cost basis

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

(3) Other assets and liabilities presented is calculated as a net liability substantially comprised of $392 million due to broker for our quarter-end purchase of certain certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliates, which is considered a target asset. Additionally, other assets includes $5.2 million of commercial loans and $6.6 million of CMBS.

Residential Mortgage Loans

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

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

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, 2024:

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

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

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

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2024. Numbers presented may not sum to 100% due to rounding.

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

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

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2023. Numbers presented may not sum to 100% due to rounding

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Residential Mortgage Loans Held in Securitization Trusts

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

(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 December 31, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

Note: No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2024. Numbers presented may not sum to 100% due to rounding.

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

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

Note: No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2023. Numbers presented may not sum 100% due to rounding.

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RMBS

We have participated in numerous securitization transactions alongside other Angel Oak entities. In return, we received our pro rata share of bonds from these securitizations, and cash. At times, we were allocated certain risk retention securities as part of these transactions. Risk retention securities represent at least 5% of a horizontal or vertical slice of the bonds issued as part of the transaction.

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in AOMT securitization transactions is set forth below as of December 31, 2024 and 2023 unless otherwise stated:

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

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

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

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

(5) The fair value of the first loss pieces presented for AOMT 2023-1, AOMT 2023-5, AOMT 2023-7, AOMT 2024-3, AOMT 2024-6, and AOMT 2024-13 is the total at risk for the Majority-Owned Affiliates.

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

(2)    AOMT 2020-3 does not have LTV or FHFA HPI Estimates; accordingly, original LTV is used.

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

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

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

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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, 2024:

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

(2)     The whole pool RMBS presented as of December 31, 2024 were purchased from a broker to whom the Company owes approximately $202.0 million, payable upon the settlement date of the trade. See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

(3)     A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $163.9 million, are not reflected in the consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets.

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, 2023:

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

(2)     The whole pool RMBS presented as of December 31, 2023 were purchased from a broker to whom the Company owed approximately $392 million, payable upon the settlement date of the trade. See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

(3)     A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $124.1 million, are not reflected in the consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets.

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2024:

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

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

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of December 31, 2024)

No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2024. Numbers presented may not sum to 100% due to rounding.

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

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of December 31, 2023)

No state in “Other” represents more than a 4% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2023. Numbers presented may not sum to 100% due to rounding.

Commercial Mortgage Loans

The following table provides additional information on the commercial mortgage loans in our portfolio as of December 31, 2024:

The following table provides additional information on the commercial mortgage loans in our portfolio as of December 31, 2023:

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The following charts illustrate the geographic location of the commercial mortgage loans in our portfolio that we owned directly as of December 31, 2024 and December 31, 2023 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Our Commercial Mortgage Loans as of December 31, 2024:

Geographic Diversification of Our Commercial Mortgage Loans as of December 31, 2023:

Numbers presented may not sum to 100% due to rounding.

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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 December 31, 2024 and December 31, 2023:

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

Liquidity and Capital Resources

Overview

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs. Our financing sources currently include payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, securitizations of our whole loans, and our ATM Program (as defined below). Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029. We have deployed the majority of the net proceeds from the offering of our senior unsecured notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets substantially sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used the net proceeds from the offering of our senior unsecured notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately 20.0 million. Our financing sources historically have included the foregoing, as well as capital contributions from our investors prior to our IPO, and the proceeds from our IPO and concurrent private placement (which capital has all been deployed). Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others. We may also seek to raise additional capital through public or private offerings of equity, equity-related, or debt securities, depending upon market conditions. The use of any particular source of capital and funds will depend on market conditions, availability of these sources, and the investment opportunities available to us.

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

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Securitization transactions 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 in which we are the sole participant and contributor.

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 December 31, 2024, we were a party to three uncommitted loan financing lines for a total borrowing capacity in an aggregate amount of up to $1.1 billion. Borrowings under uncommitted loan financing lines may be used to purchase whole loans for eventual securitization or loans purchased for long‑term investment purposes.

Our financing facilities are generally subject to limits on borrowings related to specific asset pools (“advance rates”) and restrictive covenants, as is usual and customary. As of December 31, 2024, the advance rates (when required) of our three active lenders ranged from 75% to 92%, depending on the asset type and loan delinquency status. Our most restrictive covenants (when covenants are required by any of our three active lenders) included: (1) our minimum tangible net worth must not (i) decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or (ii) fall below $200.0 million of tangible net worth as of September 30, 2022 plus 50% of any capital contribution made or raised after September 30, 2022; (2) our minimum liquidity must not fall below the greatest of (x) the product of 5% and the aggregate repurchase price as it relates to Global Investment Bank 3 as of such date of determination, (y) $10.0 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. Our minimum liquidity requirement as of December 31, 2024 was $10.0 million.

A description of each loan financing line is set forth as follows:

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

Pursuant to the terms of the master repurchase agreement, the agreement may be renewed every six months for a maximum six-month term. On December 23, 2024, this master repurchase agreement was extended through June 25, 2025, unless terminated earlier pursuant to the terms of the master repurchase agreement.

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

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

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

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction

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and include the acceleration of the principal amount outstanding under the agreement and Multinational Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

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

Global Investment Bank 2 Loan Financing Facility. On February 13, 2020, we and our subsidiary entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 2”). We and our subsidiary are each considered a “Seller” under this agreement. From time to time, we and one of our subsidiaries have amended such master repurchase agreement with Global Investment Bank 2. Pursuant to the agreement, we or our subsidiary may sell to Global Investment Bank 2, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans. On March 28, 2024, the original facility with Global Investment Bank 2 was terminated and the Company and two different subsidiaries entered into a new facility with Global Investment Bank 2 wherein the Company is guarantor, one of the subsidiaries is seller and Global Investment Bank 2 is buyer. In connection with the execution of the new facility the interest rate pricing spread was reduced to a range between 2.10% and 3.35%. On October 25, 2024, the facility was amended to, among other changes, reduce the pricing spread to a range between 1.75% and 3.35%. The agreement has an initial termination date of March 27, 2026.

The agreement requires us to maintain various financial and other covenants, which include requirements surrounding: (1) adjusted tangible net worth; (2) liquidity; and (3) our indebtedness to our adjusted tangible net worth.

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

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

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

Global Investment Bank 3 Loan Financing Facility. On October 24, 2018, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”) for which we serve as guarantor of our subsidiaries’ obligations. Our subsidiaries, are each considered a “Seller” under this agreement. Pursuant to the initial agreement, we or our subsidiary could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans.

On November 7, 2023, the facility was amended to set the base interest rate spread to 1.80% plus a 0.20% index spread adjustment for the first six (6) months of seasoning on this financing facility with an additional 0.25% increase following the first six (6) months. On November 1, 2024, the facility’s termination date was extended to November 1, 2025. In addition, the base interest rate spread was reduced to a range from 1.90% to 4.75% and the index spread adjustment of 20 basis points was eliminated.

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

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

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

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

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

(1)     On June 24, 2024 this facility was amended with an updated interest pricing spread of 1.75% and extended until December 26, 2024. On December 23, 2024, the loan financing facility was extended through June 25, 2025, in accordance with the mechanism for six-month renewal periods.

(2)     On March 28, 2024, the Company and two of its subsidiaries terminated the existing facility with Global Investment Bank 2 and the Company and two different subsidiaries entered into a new facility with Global Investment Bank 2 wherein the Company is guarantor, one of the subsidiaries is seller and Global Investment Bank 2 is buyer. This updated facility is extended through March 27, 2026. In connection with the execution of the new facility the interest rate pricing spread was reduce to a range between 2.10% and 3.35%. On October 25, 2024, the facility was amended to, among other changes, reduce the pricing spread to a range between 1.75% and 3.35%.

(3)     On November 7, 2023, this facility was renewed for a 12 month term through November 7, 2024 with a maximum borrowing capacity of $200 million and a base interest rate pricing spread of 180 basis points plus a 20 basis points index spread adjustment, with an expiration date of November 7, 2024. On November 1, 2024, the facility’s termination date was extended to November 1, 2025. In addition, the base interest rate spread was reduced to a range from 1.90%. to 4.75% and the index spread adjustment of 0.20% was eliminated.

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

Although available financing is uncommitted for each of these lines of credit, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

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 December 31, 2024 and 2023:

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(1)     A portion of repurchase debt outstanding as of December 31, 2024 and Decmber 31, 2023 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). See Item 8, Note 5 — Investment Securities in our audited consolidated financial statements included in this Annual Report on Form 10-K.

The following table presents the amounts 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:

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 typically equivalent.

Securitization Transactions

In December 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 36% of which were mortgage loans originated by our affiliated mortgage origination companies,secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-13 issued approximately $288.9 million in face value of bonds. Our proportionate share of 57.92% of the retained bonds and investments in MOAs was approximately $15.1 million, including a retained premium on issuance of approximately $4.4 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $141.5 million and retained cash of $15.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-13 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2024.

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In October 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 42% of which were mortgage loans originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-10 issued approximately $316.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $260.4 million and retained cash of $39.4 million, which was used for new loan purchases and operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2024-10 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2024.

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 62% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-6 issued approximately $479.6 million in face value of bonds. Our proportionate share of 4.51% of the retained bonds and investments in MOAs was approximately $2.7 million, including a retained discount on issuance of approximately $0.8 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $15.8 million and retained cash of $1.8 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-6 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2024.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 79% of which were mortgage loans originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-4 issued approximately $299.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $235.9 million and retained cash of $39.1 million, which was used for new loan purchases and operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2024-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2024.

In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 60% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-3 issued approximately $439.6 million in face value of bonds. Our proportionate share of 10.98% of the retained bonds and investments in MOAs was approximately $5.3 million, including a retained discount on issuance of approximately $1.6 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $35.9 million and retained cash of $4.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2024.

In December 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 60% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-7 issued approximately $397.2 million in face value of bonds. Our proportionate share of 10.36% of the retained bonds and investments in MOAs was approximately $3.9 million, including a retained discount on issuance of approximately $1.4 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $30.9 million and retained cash of $3.6 million, which was used for operational purposes.

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

In August 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 49% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-5 issued approximately $260.6 million in face value of bonds. Our proportionate share of 34.42% of the retained bonds and investments in MOAs was approximately $8.7 million, including a retained discount on issuance of approximately $2.7 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $63.5 million and retained cash of $10.7 million, which was used for operational purposes.

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

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In June 2023, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, approximately 47% of which were mortgage loans originated by third parties and the remainder of which were originated by our affiliated mortgage origination companies, secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-4 issued approximately $284.5 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $197.3 million and retained cash of $35.7 million, which was used for new loan purchases and operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2023-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2024 and December 31, 2023.

In January 2023, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans, approximately 59% of which were mortgage loans originated by our affiliated mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2023-1 issued approximately $580.5 million in face value of bonds. Our proportionate share of 41.21% of the retained bonds and investments in MOAs was approximately $21.8 million, including a retained discount on issuance of approximately $6.8 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $190.1 million and retained cash of $15.9 million, which was used for operational purposes.

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

Notes Offering

On July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029. Our senior unsecured notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year. Our senior unsecured notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us. Our senior unsecured notes are fully and unconditionally guaranteed on a senior unsecured basis by our operating partnership, including the due and punctual payment of principal of, premium, if any, and interest on our senior unsecured notes, whether at the stated maturity, upon acceleration, call for redemption or otherwise. We may redeem our senior unsecured notes in whole or in part at any time or from time to time at our option on or after July 30, 2026 at a redemption price equal to 100% of the principal amount of our senior unsecured notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of certain events relating to a change of control of us, we must make an offer to repurchase all outstanding senior unsecured notes at a price in cash equal to 101% of the principal amount of the senior unsecured notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

ATM Program

On August 8, 2024, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) to sell shares of

the Company’s common stock from time to time having an aggregate gross sales price of up to $75 million, through an “at the market” equity offering program (the “ATM Program”). The Company issued and sold 188,456 shares of common stock through the ATM Program during the year ended December 31, 2024 for gross proceeds of $2.3 million, receiving net proceeds of $2.3 million. The Company paid $45 thousand in commissions to the agents under the ATM Program in connection with such sales during the year ended December 31, 2024. As of December 31, 2024, the Company had approximately $73 million of shares of common stock available for issuance under the ATM Program and Sales Agreement.

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

Cash Availability

Cash and cash equivalents

Our cash balance as of December 31, 2024 was sufficient to meet our liquidity covenants under our financing facilities and our senior unsecured notes. 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, some of our cash was restricted, as further described below, by margin maintenance requirements by certain whole loan financing facility counterparties, along with cash collateral held by counterparties for interest rate futures and

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

Restricted Cash

Restricted cash of approximately $2.1 million as of December 31, 2024 was comprised of: $0.8 million in interest rate futures margin collateral; and margin collateral for securities sold under agreements to repurchase of $1.2 million. Our counterparties did not require any margin collateral for TBAs as of December 31, 2024.

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

Cash Flows

Cash outflows used in operating activities of $221.4 million for the year ended December 31, 2024 as compared to $306.4 million in inflows for the year ended December 31, 2023 were primarily due to the significant increase in loans purchased for the year ended December 31, 2024, compared to a net gain for 2023, along with activity related to the securitization of residential mortgage loans during the year ended December 31, 2024.

Investing cash net inflows of $120.8 million for the year ended December 31, 2024 as compared to net outflows of $194.1 million for the year ended December 31, 2023 were primarily due to the timing of purchases and maturities of U.S. Treasury securities between the comparative periods.

Financing cash inflows of $99.0 million for the year ended December 31, 2024 as compared to outflows of $107.7 million for the year ended December 31, 2023 were primarily due funds received from increased securitization activity in the year ended December 31, 2024 compared to the year ended December 31, 2023.

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.

Recent Accounting Pronouncements

Refer to the notes to our consolidated financial statements included in Part II, Item 8, Note 2 — Summary of Significant Accounting Policies, of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements and any expected impact on us.

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. 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.

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Management discusses the ongoing development and selection of the critical accounting policies as set forth below with the Audit Committee of our Board of Directors:

Fair Value Measurements

We report various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. This definition of fair value focuses on exit price and prioritizes the use of market-based inputs over entity-specific inputs when determining fair value. Inputs may be observable (reflecting assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity) or unobservable (the entity’s own assumptions).

A fair value hierarchy for inputs is implemented in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are used when available. The availability of valuation techniques and the ability to attain observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is newly issued and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.

The fair value hierarchy is categorized into three broad levels (Levels 1, 2, and 3) based on the inputs as described in Part II, Item 8, Note 10 – Fair Value Measurements. The degree of judgment exercised in determining fair value is significant for investments categorized in Level 2, and greatest for investments categorized in Level 3, as the inputs to these levels are less observable or unobservable in the market, and therefore the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed.

Valuation estimates are subject to uncertainty due to inherently subjective valuation inputs. The most significant valuation estimates to us regarding assets are those for residential mortgage loans (including residential mortgage loans in securitization trusts) and Non-Agency RMBS, as those two categories of assets are the largest asset classes on our balance sheet subject to Level 2 or Level 3 valuation estimates. The most significant valuation estimates to us regarding liabilities relates to the portion of the non-recourse securitization obligations, collateralized by residential mortgage loans, for which the fair value option was elected, which is subject to Level 2 valuation estimates. The assumptions regarding valuations for these asset and liability categories are described as follows:

•Residential Mortgage Loans (including Residential Mortgage Loans in Securitization Trusts) - Our company recognizes residential mortgage loans at fair value. The fair value of the residential mortgage loans is predominantly based on trading activity observed in the marketplace, provided by a third‑party pricing service. The third‑party pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own brokerage business. The third‑party pricing service also maintains a spread matrix created from trading levels observed in the secondary market and from indications of holding values in client investments. The spreads are meant to depict the required spread demanded by investors in the current environment. The matrix is segregated by loan structure type (hybrid arm, fixed rate, home equity line of credit, second lien, pay option arm, etc.), delinquency status, and loan to value strata. Significant matrix inputs are analyzed at the loan level. The performing residential mortgage loans are categorized as Level 2 in the fair value hierarchy, while non‑performing loans are categorized as Level 3 given their limited marketability and availability of observable valuation inputs. Both Level 2 and Level 3 loans matrix inputs include collateral behavioral models including prepayment rates, default rates, loss severity, and discount rates.

•Non‑Agency RMBS (“Non‑Agency”) - Non‑Agencies consist of investments in collateralized mortgage obligations. Our company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline Discount Margin/Yield, recovery assumptions, tranche type, collateral coupon, age and loan size and other inputs specific to each security. These quotes are most reflective of the price that would be achieved if the security was sold to an independent third party on the date of the consolidated financial statements. Non‑Agencies are categorized in Level 2 of the fair value hierarchy.

•Non-recourse securitization obligations, collateralized by residential mortgage loans - The portion of this obligation for which we have elected the fair value option uses the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts. Our company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for these bonds. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline discount margin/yield, recovery assumptions, tranche type, collateral coupon, age and loan size, and other inputs specific to each security. We believe that these quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the

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

Variable Interest Entities

A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (a) the power to control the activities that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. For VIEs that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIE’s economic performance may be determined by an entity’s involvement with the design and structure of the VIE.

VIEs for which we are considered to be the primary beneficiary:

Determining the primary beneficiary of a VIE requires judgment. We determined that for the securitizations we consolidate, our ownership provides us with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, we have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, or we were determined to have power in connection with our involvement with the structure and design of the VIE.

The securitization trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller, directly or indirectly to, the securitization entities.

Our interest in the assets held by consolidated securitization vehicles, which are consolidated on our consolidated balance sheets, is restricted by the structural provisions of these trusts, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our consolidated balance sheets, are non-recourse to us, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

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

VIEs for which we are not considered to be the primary beneficiary:

We perform ongoing reassessments of whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion to change.