Angel Oak Mortgage REIT, Inc. [AOMR] Filings

10-Q 1 aomr-20230630.htm 10-Q aomr-20230630

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, 2023

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

For the transition period from __________ to __________

Commission file number 001-40495

Angel Oak Mortgage REIT, Inc.

(Exact name of registrant as specified in its charter)


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

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

(Address of Principal Executive Offices and Zip Code)

404-953-4900

Registrant’s telephone number, including area code

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	AOMR	New York Stock Exchange

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

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

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

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

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

The registrant had 24,955,566 shares of common stock, $0.01 par value per share, outstanding as of August 9, 2023.

ANGEL OAK MORTGAGE REIT, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			2
Condensed Consolidated Balance Sheets			2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)			3
Condensed Consolidated Statements of Changes in Stockholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to the Condensed Consolidated Financial Statements			8
Note 1. Organization and Basis of Presentation			8
Note 2. Variable Interest Entities			9
Note 3. Residential Mortgage Loans			12
Note 4. Commercial Mortgage Loans			13
Note 5. Investment Securities			14
Note 6. Notes Payable			15
Note 7. Due to Broker			17
Note 8. Securities Sold Under Agreements to Repurchase			17
Note 9. Derivative Financial Instruments			17
Note 10. Fair Value Measurements			19
Note 11. Related Party Transactions			23
Note 12. Commitments and Contingencies			24
Note 13. Accumulated Other Comprehensive Income/(Loss)			24
Note 14. Other Assets			25
Note 15. Equity and Earnings per Share (“EPS”)			25
Note 16. Subsequent Events			26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			63

Part II. Other Information
Item 1. Legal Proceedings			64
Item 1A. Risk Factors			64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			64
Item 3. Defaults Upon Senior Securities			64
Item 4. Mine Safety Disclosures			64
Item 5. Other Information			64
Item 6. Exhibits			65

Signatures			66

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except for share data)


	As of:
	June 30, 2023		December 31, 2022
ASSETS
Residential mortgage loans - at fair value	$	296,529	$	770,982
Residential mortgage loans in securitization trusts - at fair value	1,241,994		1,027,442
Commercial mortgage loans - at fair value	9,589		9,458
RMBS - at fair value	459,972		1,055,338
CMBS - at fair value	6,853		6,111
U.S. Treasury securities - at fair value	299,581		—
Cash and cash equivalents	59,140		29,272
Restricted cash	9,577		10,589
Principal and interest receivable	9,836		17,497
Unrealized appreciation on TBAs and interest rate futures contracts - at fair value	3,294		14,756
Other assets	17,418		4,767
Total assets	$	2,413,783	$	2,946,212

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Notes payable	$	233,970	$	639,870
Non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts (see Note 2)	1,211,441		1,003,485
Securities sold under agreements to repurchase	340,701		52,544
Due to broker	390,380		1,006,022


Accrued expenses	1,372		1,288
Accrued expenses payable to affiliate	1,055		2,006
Interest payable	705		2,551

Management fee payable to affiliate	1,483		1,967
Total liabilities	$	2,181,107	$	2,709,733

Commitments and contingencies

STOCKHOLDERS’ EQUITY

Common stock, $0.01 par value. As of June 30, 2023: 350,000,000 shares authorized, 24,924,886 shares issued and outstanding. As of December 31, 2022: 350,000,000 shares authorized, 24,925,357 shares issued and outstanding.	$	249	$	249
Additional paid-in capital	476,127		475,379
Accumulated other comprehensive loss	(6,565)		(21,127)
Retained earnings (deficit)	(237,135)		(218,022)
Total stockholders’ equity	$	232,676	$	236,479
Total liabilities and stockholders’ equity	$	2,413,783	$	2,946,212

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

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

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


	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
INTEREST INCOME, NET
Interest income	$	23,763	$	29,702	$	47,503	$	56,811
Interest expense	17,311		13,271		34,252		23,441
NET INTEREST INCOME	6,452		16,431		13,251		33,370

REALIZED AND UNREALIZED GAINS (LOSSES), NET
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	(4,169)		12,718		(15,012)		39,133
Net unrealized gain (loss) on trading securities, mortgage loans, debt at fair value option (see Note 2), and derivative contracts	379		(73,985)		10,569		(154,166)
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES), NET	(3,790)		(61,267)		(4,443)		(115,033)

EXPENSES
Operating expenses	2,214		2,977		4,418		6,723
Operating expenses incurred with affiliate	607		838		1,073		1,838
Due diligence and transaction costs	21		519		21		1,182
Stock compensation	207		968		748		1,839
Securitization costs	1,027		—		1,910		2,019
Management fee incurred with affiliate	1,493		2,006		3,015		3,879
Total operating expenses	5,569		7,308		11,185		17,480

INCOME (LOSS) BEFORE INCOME TAXES	(2,907)		(52,144)		(2,377)		(99,143)
Income tax expense (benefit)	781		—		781		(3,457)
NET INCOME (LOSS)	$	(3,688)	$	(52,144)	$	(3,158)	$	(95,686)
Preferred dividends	—		(4)		—		(8)
NET INCOME (LOSS) ALLOCABLE TO COMMON STOCKHOLDERS	$	(3,688)	$	(52,148)	$	(3,158)	$	(95,694)
Other comprehensive income (loss)	(242)		11,235		14,562		(1,752)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(3,930)	$	(40,913)	$	11,404	$	(97,446)

Basic earnings (loss) per common share	$	(0.15)	$	(2.13)	$	(0.13)	$	(3.90)
Diluted earnings (loss) per common share	$	(0.15)	$	(2.13)	$	(0.13)	$	(3.90)

Weighted average number of common shares outstanding:
Basic	24,686,881		24,458,015		24,674,875		24,549.977
Diluted	24,686,881		24,458,015		24,674,875		24,549.977

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

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands)


	Three Months Ended June 30, 2023
	Common Stock at Par		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income		Retained Earnings (Deficit)		Total Stockholders’ Equity
Stockholders’ equity as of March 31, 2023	$	249	$	475,920	$	(6,323)	$	(225,468)	$	244,378
Dividends paid on common stock ($0.32 per share)	—		—		—		(7,979)		(7,979)
Non-cash equity compensation	—		207		—		—		207
Unrealized gain on RMBS and CMBS	—		—		(242)		—		(242)
Net income (loss)	—		—		—		(3,688)		(3,688)
Stockholders’ equity as of June 30, 2023	$	249	$	476,127	$	(6,565)	$	(237,135)	$	232,676


	Three 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 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 income (loss)	—		—		—		—		(52,144)		(52,144)
Stockholders’ equity as of June 30, 2022	$	101	$	249	$	472,356	$	1,248	$	(106,670)	$	367,284

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

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(in thousands)


	Six Months Ended June 30, 2023
		Common Stock at Par		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Total Stockholders’ Equity
Stockholders’ equity as of December 31, 2022		$	249	$	475,379	$	(21,127)	$	(218,022)	236,479
Non-cash equity compensation		—		748		—		—		748
Unrealized gain on RMBS and CMBS		—		—		14,562		—		14,562
Dividends paid on common stock ($0.32 per share)		—		—		—		(15,955)		(15,955)
Net income (loss)		—		—		—		(3,158)		(3,158)
Stockholders’ equity as of June 30, 2023		$	249	$	476,127	$	(6,565)	$	(237,135)	$	232,676


	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
Repurchases 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 income (loss)	—		—		—		—		(95,686)		(95,686)
Stockholders’ equity as of June 30, 2022	$	101	$	249	$	472,356	$	1,248	$	(106,670)	$	367,284

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

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Six Months Ended
	June 30, 2023		June 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(3,158)	$	(95,686)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS	15,012		(39,133)
Net unrealized gain (loss) on trading securities, mortgage loans, portion of debt at fair value option, and derivative contracts	(10,569)		154,166
Accretion of discount on U.S. Treasury securities	(659)		—
Amortization of debt issuance costs	733		1,031
Net amortization of premiums and discounts on mortgage loans	1,635		7,284
Non-cash equity compensation	748		1,839
Net change in:
Purchases of residential mortgage loans from non-affiliates	(5,024)		(390,956)
Purchases of residential mortgage loans from affiliates	(11,515)		(541,875)
Principal payments on residential mortgage loans in securitization trusts	44,658		156,031
Principal payments on residential mortgage loans	24,963		49,229
Collateral due to counterparties	—		—
Margin received from interest rate futures contracts and TBAs	2,353		73,171
Sale of residential mortgage loans into affiliate’s securitization trust	229,569		—
Principal and interest receivable on residential mortgage loans	7,662		(10,975)

Other assets	(12,651)		(296)
Accrued expenses	(697)		2,143
Accrued expenses payable to affiliate	(951)		114
Interest payable	(1,846)		1,380
Management fee payable to affiliate	(484)		160
Income tax expense (benefit)	781		(3,457)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	280,560		(635,830)

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

Angel Oak Mortgage REIT, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in RMBS, available for sale	(1,006,023)		(419,748)
Purchases of investments in RMBS, trading	(458,068)		—
Sale of investments in RMBS, available for sale	1,006,196		669,913
Sale of investments in RMBS, trading	449,891		—
Purchase of investment in U.S. Treasury securities	(698,880)		(349,992)
Maturity of U.S. Treasury securities	400,000		600,000
Principal payments on RMBS	202		4,936

Purchases of commercial mortgage loans	—		(3,180)
Sale of commercial mortgage loans	—		578
Principal payments on commercial mortgage loans	17		34
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(306,666)		502,541

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to common stockholders	(15,955)		(22,503)
Dividends paid to preferred shareholders	—		(8)
Repurchases of common stock	—		(5,996)



Principal payments on non-recourse securitization obligation	(44,658)		(156,031)
Cash paid for debt issuance costs	—		(457)
Proceeds from securitization	233,318		520,044
Net proceeds from (payments on) securities sold under agreements to repurchase	288,157		(480,886)
Net proceeds from (payments on) notes payable	(405,900)		248,693
NET CASH PROVIDED BY FINANCING ACTIVITIES	54,962		102,856

CHANGE IN CASH AND RESTRICTED CASH	28,857		(30,433)
CASH AND RESTRICTED CASH, beginning of period (1)	39,861		52,309
CASH AND RESTRICTED CASH, end of period (1)	$	68,717	$	21,876

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	32,406	$	22,061

(1) Cash, cash equivalents, and restricted cash as of June 30, 2023 included cash and cash equivalents of $59.1 million and restricted cash of $9.6 million, and as of June 30, 2022 included cash and cash equivalents of $16.1 million and restricted cash of $5.8 million.

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

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Basis of Presentation

Angel Oak Mortgage REIT, Inc. (together with its subsidiaries the “Company”), is a real estate finance company focused on acquiring and investing in first lien non-qualified residential mortgage (“non-QM”) loans and other mortgage‑related assets in the U.S. mortgage market. The Company’s strategy is to make credit-sensitive investments primarily in newly-originated first lien non‑QM loans that are primarily made to higher‑quality non‑QM loan borrowers and primarily sourced from the proprietary mortgage lending platform of affiliates, Angel Oak Mortgage Solutions LLC and Angel Oak Home Loans LLC (together, “Angel Oak Mortgage Lending”), which currently operates primarily through a wholesale channel operated by Angel Oak Mortgage Solutions, LLC and has a national origination footprint. The Company may also invest in other residential mortgage loans, residential mortgage‑backed securities (“RMBS”), and other mortgage‑related assets. The Company’s objective is to generate attractive risk‑adjusted returns for its stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles.

The Company is a Maryland corporation incorporated on March 20, 2018. The Company achieves certain of its investment objectives by investing a portion of its assets in its wholly‑owned taxable REIT subsidiary, Angel Oak Mortgage REIT TRS, LLC (“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.

The Company is traded on the New York Stock Exchange under the ticker symbol AOMR.

The Operating Partnership

On February 5, 2020, the Company formed Angel Oak Mortgage Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”), through which substantially all of its assets are held and substantially all of its operations are conducted, either directly or through subsidiaries. The Company holds all of the limited partnership interests in the Operating Partnership and indirectly holds the sole general partnership interest in the Operating Partnership through the general partner, which is the Company’s wholly-owned subsidiary.

The Company’s Manager and REIT status

The Company is externally managed and advised by Falcons I, LLC (the “Manager”), a Securities and Exchange Commission-registered investment adviser and an affiliate of Angel Oak Capital Advisors, LLC (“Angel Oak Capital”). The Company has elected to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 2019.

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report on Form 10-K”).

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year. The condensed consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amounts and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported periods. It is likely that changes in these estimates (e.g., fair value changes due to inputs and underlying assumptions as described in Note 10 — Fair Value Measurements, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from the Company’s estimates and the differences could be material.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

New Accounting Standards and Interpretations

As of June 30, 2023, there were no new accounting standards or interpretations adopted by the Company that had a material effect on its condensed consolidated financial statements.

Reclassifications

Certain amounts reported in prior periods in the financial statements have been reclassified to conform to the current year’s presentation. For comparative purposes, and to simplify the presentation of the Company’s condensed consolidated balance sheet, the deferred tax asset has been reclassified to “other assets” on the condensed consolidated balance sheet as of December 31, 2022. See Note 14 — Other Assets.

Certain comparative period amounts have been reclassified for consistency with current period presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Condensed Consolidated Statements of Cash Flows for the six months-ended June 30, 2022, to identify amortization of debt issuance costs, net amortization of premiums and discounts of mortgage loans, and principal payments on residential mortgage loans in securitization trusts.

Summary of Significant Accounting Policies

The Company’s summary of significant accounting policies as set forth in its Annual Report on Form 10-K remain unchanged. During the six months ended June 30, 2023, the Company elected a new accounting classification regarding certain of its investments in debt securities, as further described below, as the Company classifies securities on a trade-by-trade basis upon purchase. The Company did not transfer any securities between classifications.

The Company classifies its investments in debt securities in accordance with Accounting Standards Codification 320 - Investments - Debt Securities (“ASC 320”) as “trading,” “available for sale,” or “held to maturity”. Historically, the Company had classified all of its investments in debt securities as available for sale (“AFS”). In the first quarter of 2023, the Company began designating its purchases of Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”) and purchases of U.S. Treasury securities as trading securities.

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. Below are descriptions of VIEs for which the Company is and is not the primary beneficiary.

VIEs for Which the Company is the Primary Beneficiary

In 2021, 2022 and 2023, the Company 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 these securitization vehicles.

The retained beneficial interest in VIEs for which the Company is the primary beneficiary is the subordinated tranches of the securitization and further interests in additional interest‑only tranches. The table below sets forth the fair values of the assets and liabilities recorded in the condensed consolidated balance sheets related to these consolidated VIEs as of June 30, 2023 and December 31, 2022:

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)


	June 30, 2023		December 31, 2022
Assets:	(in thousands)
Residential mortgage loans in securitization trusts - cost	$	1,440,100	$	1,193,879
Fair value adjustment	(198,106)		(166,437)
Residential mortgage loans in securitization trusts - at fair value	$	1,241,994	$	1,027,442

Accrued interest receivable	$	1,745	$	1,995


Liabilities (1):
Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, amortized cost	$	448,774	$	474,070
Less: debt issuance costs capitalized	(411)		(1,145)
Non-recourse securitization obligations, collateralized by residential mortgage loans, amortized cost, net	$	448,363	$	472,925

Non-recourse securitization obligations, collateralized by residential mortgage loans - principal balance, subject to fair value adjustment	$	851,103	$	611,114
Fair value adjustment	(88,025)		(80,554)
Non-recourse securitization obligations, collateralized by residential mortgage loans - at fair value, net	$	763,078	$	530,560

Total non-recourse securitization obligations, collateralized by residential mortgage loans, net	$	1,211,441	$	1,003,485

(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, 2023 and 2022 is set forth as follows:


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022		Six Months Ended June 30, 2023		Six Months Ended June 30, 2022
	(in thousands)
Interest income	$	12,819	$	11,469	$	25,480	$	21,887
Interest expense, non-recourse liabilities (1)	(7,518)		(5,679)		(15,165)		(10,262)
Net interest income	$	5,301	$	5,790	$	10,315	$	11,625
Net unrealized gain (loss) on mortgage loans in securitization trusts - at fair value	(13,982)		(24,578)		7,459		(79,752)
Unrealized gain (loss) on mark-to-market of non-recourse securitization obligation - at fair value	9,205		14,361		(18,563)		32,673
Securitization expenses	—		—		—		(2,019)
Realized losses and operating expenses	(439)		(252)		(1,196)		(448)
Net loss from consolidated VIEs	$	85	$	(4,679)	$	(1,985)	$	(37,921)

(1) Interest expense includes amortization of debt issuance expense.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

VIEs for Which the Company is Not the Primary Beneficiary

In 2019, 2020 and 2023, the Company sponsored or participated along with other affiliates of Angel Oak Capital in the formation of various entities that were considered to be VIEs. These VIEs were formed to facilitate securitization issuances that were comprised of secured residential whole loans and/or small balance commercial loans contributed to securitization trusts.

These securities were issued as a result of the unconsolidated securitizations where the Company retained bonds from the issuances of securitizations issued by a depositor that the Company does not control. The Company determined that it was not then and is not now the primary beneficiary of any of these securitization entities, and thus has not consolidated the operating results or statements of financial position of any of these entities. The Company performs ongoing reassessments of all VIEs in which the Company has participated since its inception as to whether changes in the facts and circumstances regarding the Company’s involvement with a VIE would cause the Company’s consolidation conclusion to change, and the Company’s assessment of these VIEs remains unchanged.

The securities received in the securitization transactions were classified as “available for sale” upon receipt and are included in “RMBS - at fair value” and “CMBS - at fair value” on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, and details on the accounting treatment and fair value methodology of the securities can be found in Note 10 — Fair Value Measurements. See also Note 5 — Investment Securities, for the fair value of AOMT securities held by the Company as of June 30, 2023 and December 31, 2022 that were retained by the Company as a result of these securitization transactions.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

3. Residential Mortgage Loans

Residential mortgage loans are mortgage loans on residences located in various states with concentrations in California, Florida, Texas, and Georgia. 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, 2023 and December 31, 2022:


	June 30, 2023			December 31, 2022
	($ in thousands)
Cost	$	337,756		$	886,661

Unpaid principal balance	$	330,403		$	864,171
Net premium on mortgage loans purchased	7,353			22,489
Change in fair value	(41,227)			(115,678)
Fair value	$	296,529		$	770,982

Weighted average interest rate	4.84		%	4.80		%

Weighted average remaining maturity (years)	30			30

At times, various forms of margin maintenance on residential mortgage loans may be required by certain financing facility counterparties. See Note 6 — Notes Payable.

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, 2023 and December 31, 2022:


As of:	June 30, 2023		December 31, 2022
	($ in thousands)
Number of mortgage loans 90 or more days past due	7		11
Recorded investment in mortgage loans 90 or more days past due	$	5,750	$	7,230
Unpaid principal balance of loans 90 or more days past due	$	5,600	$	7,043

Number of mortgage loans in foreclosure	4		2
Recorded investment in mortgage loans in foreclosure	$	1,798	$	820
Unpaid principal balance of loans in foreclosure	$	1,741	$	849

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

4. Commercial Mortgage Loans

Commercial mortgage loans are mortgage loans on commercial properties located in various states with concentrations in Georgia, California, and Tennessee. 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, 2023 and December 31, 2022:


	June 30, 2023			December 31, 2022
	($ in thousands)
Cost	$	9,911		$	9,928

Unpaid principal balance	$	9,911		$	9,928

Change in fair value	(322)			(470)
Fair value	$	9,589		$	9,458

Weighted average interest rate	9.17		%	7.03		%

Weighted average remaining maturity (years)	7			8

The net discount on commercial mortgage loans was fully amortized as of December 31, 2022. As of June 30, 2023, one commercial mortgage loan, representing $4.3 million in unpaid principal balance, was in foreclosure. On July 3, 2023, this loan was sold for $4.6 million representing the full outstanding principal balance and carrying amount, and accrued costs and fees (see Note 16 — Subsequent Events) . There were no commercial mortgage loans more than 90 days overdue or in foreclosure as of December 31, 2022.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

5. Investment Securities

As of June 30, 2023, investment securities were comprised of non‑agency RMBS (“AOMT RMBS”), Whole Pool Agency RMBS, commercial mortgage backed securities (“CMBS”), and U.S. Treasury securities. The U.S. Treasury securities held by the Company as of June 30, 2023 subsequently matured on July 13, 2023. The Company did not hold any U.S. Treasury securities as of December 31, 2022.

The following table sets forth a summary of AOMT RMBS, Whole Pool Agency RMBS, and CMBS at cost as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
	(in thousands)
AOMT RMBS	$	68,419	$	69,922
Whole Pool Agency RMBS	$	390,380	$	1,006,022
CMBS	$	6,419	$	6,329

The following table sets forth certain information about the Company’s investments in RMBS and CMBS at fair value as of June 30, 2023 and December 31, 2022:


	Real Estate Securities at Fair Value		Securities Sold Under Agreements to Repurchase		Allocated Capital
June 30, 2023:	(in thousands)
AOMT RMBS (1)

Mezzanine	$	9,533	$	(1,335)	$	8,198
Subordinate	49,938		(21,219)		28,719
Interest Only/Excess	12,438		(1,873)		10,565
Retained RMBS in VIEs (2)	—		(18,346)		(18,346)
Total AOMT RMBS	$	71,909	$	(42,773)	$	29,136




Whole Pool Agency RMBS
Fannie Mae	$	271,714	$	—	$	271,714
Freddie Mac	116,349		—		116,349
Whole Pool Total Agency RMBS	$	388,063	$	—	$	388,063
Total RMBS	$	459,972	$	(42,773)	$	417,199

AOMT CMBS
Subordinate	$	3,083	$	—	$	3,083
Interest Only/Excess	3,770		—		3,770
Total AOMT CMBS	$	6,853	$	—	$	6,853

(1) AOMT RMBS held as of June 30, 2023 included both retained tranches of securitizations in which the Company participated where the Company was not deemed to be the primary beneficiary, and additional securities issued by affiliates of Angel Oak Capital which were purchased in secondary market transactions.

(2) A portion of repurchase debt includes borrowings against retained bonds received from securitizations involving consolidated VIEs. These bonds have a fair value of $134.8 million. The Company reflects the underlying assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets rather than the bonds, due to the accounting rules around this type of securitization.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)


	Real Estate Securities at Fair Value		Securities Sold Under Agreements to Repurchase		Allocated Capital
December 31, 2022:	(in thousands)
AOMT RMBS (1)

Mezzanine	$	1,958	$	(1,470)	$	488
Subordinate	49,578		(24,982)		24,596
Interest Only/Excess	10,424		(1,506)		8,918
Retained RMBS in VIEs (2)	—		(24,586)		(24,586)
Total AOMT RMBS	$	61,960	$	(52,544)	$	9,416




Whole Pool Agency RMBS
Fannie Mae	$	501,458	$	—	$	501,458
Freddie Mac	491,920		—		491,920
Whole Pool Total Agency RMBS	$	993,378	$	—	$	993,378
Total RMBS	$	1,055,338	$	(52,544)	$	1,002,794

AOMT CMBS
Subordinate	$	2,901	$	—	$	2,901
Interest Only/Excess	3,210		—		3,210
Total AOMT CMBS	$	6,111	$	—	$	6,111

(1) AOMT RMBS held as of December 31, 2022 included both retained tranches of securitizations in which the Company participated where the Company was not deemed to be the primary beneficiary, and additional securities issued by affiliates of Angel Oak Capital which were purchased in secondary market transactions.

(2) A portion of repurchase debt includes borrowings against retained bonds received from securitizations involving consolidated VIEs. These bonds have a fair value of $110.5 million. The Company reflects the underlying assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets rather than the bonds, due to the accounting rules around this type of securitization.

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

June 30, 2023 (1):


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



June 30, 2023	$	300,000	$	460	$	299,540	$	41	$	299,581	5.01	%

(1) There were no U.S. Treasury securities held as of December 31, 2022.

6. Notes Payable

The Company has the ability to finance residential and commercial whole loans utilizing repurchase agreements with various counterparties (“notes payable”), as further described below. Outstanding borrowings bear interest at floating rates depending on the lending counterparty, the collateral pledged, and the rate in effect for each interest period, as the same may change from time to time at the end of each interest period. Some agreements include upfront fees, fees on unused balances, covenants and concentration limits on types of collateral pledged. Each of these vary based on the counterparty. One of these agreements, as noted below, is a “static pool” financing facility, where the lender has agreed to finance a certain pool of loans contributed to such financing facility, which does not allow for any revolving financing terms.

Occasionally, a lender may require cash collateral to be posted as margin collateral on such agreements. As of June 30, 2023, cash collateral for margin maintenance requirements of approximately $4.2 million was held for the benefit of Global Investment Bank 3 within “restricted cash” on the condensed consolidated balance sheet. The majority of this restricted cash balance is in an economic interest rate hedging account under the control of Global Investment Bank 3, and may be drawn by Global Investment Bank 3 at its discretion. As of December 31, 2022, cash collateral for margin maintenance requirements by whole loan financing counterparties was $5.6 million within “restricted cash” on the condensed consolidated balance sheet, of which $3.8 million was held in a segregated restricted cash account and

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

released to the Company by the applicable lender subsequent to December 31, 2022; the remainder of which was held in the economic interest rate hedging account referred to above.

The following table sets forth the details of the Company’s notes payable and drawn amounts for whole loan purchases as of June 30, 2023 and December 31, 2022:


		Interest Rate Pricing Spread	Drawn Amount
Note Payable	Base Interest Rate		June 30, 2023		December 31, 2022
			($ in thousands)
Multinational Bank 1 (1)	Average Daily SOFR	2.15%	$	154,779	$	352,038

Global Investment Bank 2 (2)	1 month SOFR	2.20% - 3.45%	—		—
Global Investment Bank 3 (3)	Compound SOFR	2.80% - 4.00%	79,191		119,137

Institutional Investors A and B (4)	1 month Term SOFR	3.50%	N/A		168,695

Regional Bank 1 (5)	1 month SOFR	2.50% - 3.50%	N/A		—
Total			$	233,970	$	639,870

(1) On January 25, 2023, this financing facility was extended through July 25, 2023 in accordance with the terms of the agreement, which contemplates six-month renewals. On April 26, 2023, the Company extended this financing facility through October 25, 2023, with an interest rate pricing spread of 2.15%. Subsequent to June 30, 2023, the Company extended this financing facility through January 25, 2024 with an interest rate pricing spread of 2.10% (see Note 16 — Subsequent Events).

(2) This financing facility expires on February 2, 2024.

(3) This static pool financing facility expires on December 19, 2023. The interest rate pricing spread per the agreement began at 2.80% for the first three months following December 19, 2022, exclusive of a 20 basis point index spread adjustment, and increases by an additional 50 basis points every three months thereafter; however, the facility does not, in general, contain “mark to market” provisions. The agreement requires an economic interest rate hedging account (“interest rate futures account”) to be maintained to the reasonable satisfaction of Global Investment Bank 3, as described above, which account is for its benefit and under its sole control.

(4) On October 4, 2022, the Company and a subsidiary entered into two separate master repurchase facilities with two affiliates of an institutional investor (“Institutional Investors A and B”) regarding a specific pool of whole loans with financing of approximately $168.7 million on approximately $239.3 million of unpaid principal balance. The master repurchase agreements were set to expire on January 4, 2023, subject to a one-time option to extend for three months, which the Company did not utilize. The Company repaid this financing facility in full on January 4, 2023. The Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” on the Company’s condensed consolidated balance sheet as of December 31, 2022, as described above, which was released on January 4, 2023.

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

The following table sets forth the total unused borrowing capacity of each financing line as of June 30, 2023:


Note Payable	Borrowing Capacity		Balance Outstanding		Available Financing
	(in thousands)
Multinational Bank 1 (1)	$	600,000	$	154,779	$	445,221

Global Investment Bank 2 (1)	250,000		—		250,000
Global Investment Bank 3 (2)	79,191		79,191		—

Total	$	929,191	$	233,970	$	695,221

(1) Although available financing is uncommitted, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

(2) As of June 30, 2023, this financing facility had no unused borrowing capacity as the outstanding borrowings were based on a static pool of mortgage loans.

Angel Oak Mortgage REIT, 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, 2023 and December 31, 2022, respective in the amounts of $390.4 million and $1.0 billion, relates to the purchase of Whole Pool Agency RMBS at quarter-end in the second and fourth quarters of 2023 and 2022, respectively. 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 dates of these purchases were prior to the applicable quarter-end dates. These trades settled on July 13, 2023 and January 13, 2023, respectively, at which time these assets were simultaneously sold.

The purchase transactions of these Whole Pool Agency RMBS are excluded from the condensed consolidated statements of cash flows as they are noncash transactions.

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 of margin collateral for securities sold under agreements to repurchase was $5.0 million and $3.9 million as of June 30, 2023 and December 31, 2022, respectively.

The following table summarizes certain characteristics of the Company’s repurchase agreements as of June 30, 2023 and December 31, 2022:


June 30, 2023
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)
U.S. Treasury securities	$	297,928	5.15	%	14
RMBS (1)	$	42,773	6.95	%	14
Total	$	340,701	5.38	%	14

December 31, 2022
Repurchase Agreements	Amount Outstanding		Weighted Average Interest Rate		Weighted Average Remaining Maturity (Days)
	($ in thousands)

RMBS (1)	52,544		6.07	%	13
Total	$	52,544	6.07	%	13

(1) A portion of repurchase debt outstanding as of both June 30, 2023 and December 31, 2022 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). See Note 5 — Investment Securities.

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

Although the transactions under repurchase agreements represent committed borrowings until maturity, the lenders retain the right to mark the underlying collateral at fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls.

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, 2023 and December 31, 2022 included both To-Be-Announced (“TBA”) securities and interest rate futures contracts. Restricted cash relating to interest rate futures margin collateral in interest rate futures accounts under the Company’s sole control as of June 30, 2023 and December 31, 2022 included $0.4 million and $1.1 million, respectively. There was no TBA margin collateral required as of either June 30, 2023 or December 31, 2022.

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.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The Company may at times hold TBAs in order to mitigate its interest rate risk on certain specified mortgage-backed securities. Amounts or obligations owed by or to the Company are subject to the right of set-off with the TBA counterparty. As part of executing these trades, the Company may enter into agreements with its TBA counterparties that govern the transactions for the TBA purchases or sales made, including margin maintenance, payment and transfer, events of default, settlements, and various other provisions.

Changes in the value of derivatives designed to protect against mortgage-backed securities fair value fluctuations, or economic hedging gains and losses, are reflected in the tables below. All realized and unrealized gains and losses on derivative contracts are recognized in earnings, in “net realized gain (loss) on mortgage loans, derivative contracts, RMBS, and CMBS” for realized gains and losses, and “net unrealized gain (loss) gain on trading securities, mortgage loans, debt at fair value option, and derivative contracts” for unrealized gains and losses.

The Company considers the notional amounts, categorized by primary underlying risk, to be representative of the volume of its derivative activities.

The following table sets forth the derivative instruments presented on the condensed consolidated balance sheets and notional amounts as of June 30, 2023 and December 31, 2022:


							Notional Amounts
As of:	Derivatives Not Designated as Hedging Instruments	Number of Contracts	Assets		Liabilities		Long Exposure		Short Exposure
			($ in thousands)
June 30, 2023	Interest rate futures	1,462	$	1,055	$	—	$	—	$	146,200
June 30, 2023	TBAs	N/A	$	2,239	$	—	$	—	$	402,400

December 31, 2022	Interest rate futures	4,928	$	2,211	$	—	$	—	$	492,800
December 31, 2022	TBAs	N/A	$	12,545	$	—	$	—	$	1,041,700

The gains and losses arising from these derivative instruments in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 and June 30, 2022 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, 2023	Interest rate futures	$	(2,604)	$	8,432
Three Months Ended June 30, 2023	TBAs	$	(2,172)	$	3,746

Three Months Ended June 30, 2022	Interest rate futures	$	29,429	$	(13,413)
Three Months Ended June 30, 2022	TBAs	$	(964)	$	(9,577)


	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, 2023	Interest rate futures	$	5,770	$	(2,052)
Six Months Ended June 30, 2023	TBAs	$	(2,522)	$	(10,306)

Six Months Ended June 30, 2022	Interest rate futures	$	49,113	$	1,322
Six Months Ended June 30, 2022	TBAs	$	13,179	$	(10,686)

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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.

As of June 30, 2023, our valuation policy and processes had not changed from those described in our consolidated financial statements for the year ended December 31, 2022 included in the Annual Report on Form 10-K. Included in Note 11 — Fair Value Measurements to the Consolidated Financial Statements for the year ended December 31, 2022 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 fair value of cash, restricted cash, principal and interest receivable, other assets (excluding investment in majority-owned affiliate), notes payable, securities sold under agreements to repurchase, amounts due to broker and accrued expenses (including those payable to an affiliate and management fees payable to an affiliate), and interest payable approximate their carrying values due to the nature of these assets and liabilities.

The Company’s “investment in majority-owned affiliate” included in other assets (see Note 14 — Other Assets) and a portion of “non-recourse securitization obligations, collateralized by residential mortgage loans” are held at amortized cost. The fair value of these assets and liabilities is disclosed further below in the section titled “Assets and Liabilities Held at Amortized Cost - Fair Value Disclosure”.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2023:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets, at fair value
Residential mortgage loans	$	—	$	290,240	$	6,289	$	296,529
Residential mortgage loans in securitization trusts	—		1,236,836		5,158		1,241,994
Commercial mortgage loans	—		9,589		—		9,589

Investments in securities
Non-Agency RMBS (1)	—		71,909		—		71,909
Whole Pool Agency RMBS	—		388,063		—		388,063
AOMT CMBS (1)	—		6,853		—		6,853
U.S Treasury Securities	299,581		—		—		299,581
Unrealized appreciation on futures contracts	1,055		—		—		1,055
Unrealized appreciation on TBAs	2,239		—		—		2,239
Total assets, at fair value	$	302,875	$	2,003,490	$	11,447	$	2,317,812

Liabilities, at fair value


Non-recourse securitization obligation, collateralized by residential mortgage loans (2)	—		763,078		—		763,078
Total liabilities, at fair value	$	—	$	763,078	$	—	$	763,078

(1) Non‑Agency RMBS held as of June 30, 2023 included both retained tranches of securitizations in which the Company participated and additional AOMT securities purchased in secondary market transactions. All AOMT CMBS held as of June 30, 2023 were comprised of a small-balance commercial loan securitization issuance in which the Company participated.

(2) Only the portion subject to fair value measurement, as adjusted for fair value, is presented above. See below for the disclosure of the full debt at fair value.

Transfers from Level 2 to Level 3 were comprised of residential loans more than 90 days overdue (including those in foreclosure). Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. These transfers were not material.

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

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth information regarding the Company’s significant Level 3 inputs as of June 30, 2023:


				Input Values
Asset	Fair Value		Unobservable Input	Range	Average
	($ in thousands)
Residential mortgage loans, at fair value	$	6,289	Prepayment rate (annual CPR)	4.23% - 11.54%	8.15%
			Default rate	7.17% - 32.15%	19.00%
			Loss severity	5.21% - 30.40%	12.60%
			Expected remaining life	1.76 - 3.39 years	2.33 years

Residential mortgage loans in securitization trust, at fair value	$	5,158	Prepayment rate (annual CPR)	3.06% - 12.60%	7.72%
			Default rate	0.04% - 38.03%	21.58%
			Loss severity	0.00%- 10.00%	9.33%
			Expected remaining life	1.30 - 4.37 years	2.22 years

Assets and Liabilities Held at Amortized Cost — Fair Value Disclosure

Portion of Non-Recourse Securitization Obligations, Collateralized by Residential Mortgage Loans — Held at Amortized Cost

To determine the fair value of the Company’s non-recourse securitization obligations, collateralized by residential mortgage loans, net, held at amortized cost, the Company uses the same method of valuation as described in the Annual Report on Form 10-K, Note 11 — Fair Value for both the portion of the obligation measured at fair value and the portion of the obligation held at amortized cost, for which fair value is disclosed below.

As of June 30, 2023, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.4 billion and $1.1 billion, respectively, a difference of approximately $274.7 million (which includes AOMT 2022-1, AOMT 2022-4, and AOMT 2023-4, which are marked to fair value; and AOMT 2021-7 and AOMT 2021-4, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations). The fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $119.2 million less than the amortized cost. The difference between the amortized cost basis value and the fair value is derived from the difference between the period-end market pricing of the underlying bonds, as referred to above, and the amortized cost of the obligation. The fair value of the non-recourse securitization debt is not indicative of the amounts at which we could settle this debt.

As of December 31, 2022, the total amortized cost basis and fair value of our non-recourse securitization obligations was $1.1 billion and $914.3 million, respectively, a difference of approximately $170.9 million (which includes AOMT 2022-1 and AOMT 2022-4, which are marked to fair value; and AOMT 2021-7, and AOMT 2021-4, which are carried at amortized cost, as the fair value option was not elected at the time of the creation of these obligations). The difference between the amortized cost and fair value solely attributable to AOMT 2021-4 and 2021-7 is approximately $90.3 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.

Investment in Majority-Owned Affiliate

To determine the fair value of the Company’s investment in majority-owned affiliate, which is held at amortized cost and is included in “other assets”, the Company uses the prices of the underlying bonds in the investment to determine fair value. The Company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for these bonds. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline discount margin/yield, recovery assumptions, tranche type, collateral coupon, age and loan size, and other inputs specific to each security. We believe that these quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the date of the condensed consolidated financial statements.

The amortized cost and fair value of this investment as of June 30, 2023 was approximately $11.5 million and $11.0 million, respectively.

Angel Oak Mortgage REIT, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

The following table sets forth information about the Company’s financial assets and liabilities measured at fair value as of December 31, 2022:


	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets, at fair value
Residential mortgage loans	$	—	$	763,786	$	7,196	$	770,982
Residential mortgage loans in securitization trusts	—		1,018,686		8,756		1,027,442
Commercial mortgage loans	—		9,458		—		9,458
Investments in securities
Non-Agency RMBS (1)	—		61,960		—		61,960
Whole Pool Agency RMBS	—		993,378		—		993,378
AOMT CMBS (1)	—		6,111		—		6,111
Unrealized appreciation on futures contracts	2,211		—		—		2,211
Unrealized appreciation on TBAs	12,545		—		—		12,545
Total assets, at fair value	$	14,756	$	2,853,379	$	15,952	$	2,884,087