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What changed in Angel Oak Mortgage REIT, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Angel Oak Mortgage REIT, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+475 added−556 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-20)

Top changes in Angel Oak Mortgage REIT, Inc.'s 2023 10-K

475 paragraphs added · 556 removed · 377 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAngel Oak is a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending, and capital markets. Angel Oak Capital was established in 2009 and is a market leader in non-QM loan production via its Angel Oak Mortgage Lending affiliates.
Biggest changeOur Manager 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.
Our Investment Strategy Our investment strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak Mortgage Lending, which operates through a wholesale channel and has a national origination footprint. We also may invest in other target assets as described below.
Our Investment Strategy Our investment strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak Mortgage Lending, which primarily operates through a wholesale channel and has a national origination footprint. We also may invest in other target assets as described below.
Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which operates through a wholesale channel and has a national origination footprint.
Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which currently operates primarily through a wholesale channel and has a national origination footprint.
All of our executive officers, and our dedicated or partially dedicated personnel, which include our Chief Executive Officer, Chief Financial Officer, accounting staff, in-house legal counsel, and other personnel providing services to us were employees of our Manager or one or more of our Manager’s affiliates as of December 31, 2022. Available Information Our website address is www.angeloakreit.com.
All of our executive officers, and our dedicated or partially dedicated personnel, which include our Chief Executive Officer, Chief Financial Officer, accounting staff, in-house legal counsel, and other personnel providing services to us were employees of our Manager or one or more of our Manager’s affiliates as of December 31, 2023. Available Information Our website address is www.angeloakreit.com.
Our use of leverage, especially in order to increase the amount of assets supported by our capital base, may have the effect of increasing losses when these assets underperform.
Our use of leverage, especially in order to increase the quantity of assets supported by our capital base, may have the effect of increasing losses when these assets underperform.
Further, we may identify and acquire our target assets through the secondary market when market conditions and asset prices are conducive to making attractive purchases. We finance these loans through various financing lines on a short-term basis and ultimately seek to secure long-term securitization funding for substantially all of our target assets.
Further, we may identify and acquire our target assets through the secondary market when market conditions and asset prices are conducive to making attractive purchases. We often finance these target assets through various financing lines on, primarily, a short-term basis and ultimately seek to secure long-term securitization funding for substantially all of our non-QM loans.
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.
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, and other securities we may acquire in accordance with our investment guidelines.
Our Portfolio and Securitizations Since the commencement of our operations in September 2018 through December 31, 2022, we have focused on the acquisition of our target assets, including residential mortgage loans, a substantial portion of which were sourced by Angel Oak Mortgage Lending.
Our Portfolio and Securitizations Since the commencement of our operations in September 2018 through December 31, 2023, we have focused on the acquisition of our target assets, including residential mortgage loans, a substantial portion of which were sourced by Angel Oak Mortgage Lending. As of 8 December 31, 2023, we have participated in thirteen rated securitization transactions.
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 Manager We are externally managed and advised by our Manager, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital.
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.
As of December 31, 2022, our portfolio of target assets consisted predominantly of residential mortgage loans owned directly, residential mortgage loans held in securitization trusts, and RMBS. For additional information regarding our portfolio as of December 31, 2022, see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Our Portfolio ”.
For additional information regarding our portfolio as of December 31, 2023, see Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Portfolio ”.
Angel Oak Mortgage Trust (“AOMT”), Angel Oak’s securitization platform, is a leading programmatic issuer of non-QM securities, and is among the largest issuers of such securities. Angel Oak is headquartered in Atlanta and has approximately 400 employees across its enterprise.
Angel Oak Capital was established in 2009 and is a market leader in non-QM loan production via its Angel Oak Mortgage Lending affiliates. Angel Oak Mortgage Trust (“AOMT”), Angel Oak’s securitization platform, is a leading programmatic issuer of non-QM securities, and is among the largest issuers of such securities.
Removed
We expect to derive our returns primarily from the difference between the interest we earn on loans we acquire and our cost of capital, as well as the returns from bonds that are retained after securitizing the underlying loan collateral, which we believe will lead to an attractive risk-adjusted return profile across interest rate and credit cycles.
Added
Our objective is to generate attractive risk-adjusted returns for our stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles.
Removed
As of 8 December 31, 2022, we have participated in nine rated securitization transactions and we had total assets of approximately $2.9 billion, which was substantially comprised of our portfolio of non-QM loans and other target assets.
Added
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.
Added
As of December 31, 2023, our approximately $2.3 billion portfolio of total assets consisted predominantly of residential mortgage loans owned directly, residential mortgage loans held in securitization trusts, and RMBS.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSee “— Risks Related to Our Relationship with Our Manager — There are conflicts of interest in our relationship with Angel Oak, including our Manager, and we may compete with existing and future managed entities of Angel Oak, which may present various conflicts of interest that restrict our ability to pursue certain investment opportunities or take other actions that are beneficial to our business and result in decisions that are not in the best interests of our stockholders.” In connection with our securitizations of mortgage loans into “real estate mortgage investment conduit” (“REMIC”) securities backed by mortgage loans or other assets (“REMIC Certificates”), (1) our taxable REIT subsidiary (“TRS”) will sell a substantial portion of the loans it purchases from Angel Oak Mortgage Lending or unaffiliated third parties to an AOMT securitization vehicle; (2) we or another affiliate will be expected to purchase one or more tranches of the REMIC Certificates issued by such AOMT securitization vehicle, including any securities required to be retained pursuant to the U.S.
Biggest changeIn connection with our securitizations of mortgage loans into “real estate mortgage investment conduit” (“REMIC”) securities backed by mortgage loans or other assets (“REMIC Certificates”), (1) our TRS will sell a substantial portion of the loans it purchases from Angel Oak Mortgage Lending or unaffiliated third parties to an AOMT securitization vehicle; (2) we or another affiliate will be expected to purchase one or more tranches of the REMIC Certificates issued by such AOMT securitization vehicle, including any securities required to be retained pursuant to the U.S.
A reduction in the volume of mortgage loans originated may affect the volume of target assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives.
A reduction in the volume of mortgage loans originated may affect the volume of target assets available to us, which could adversely affect our ability to acquire assets that may satisfy our investment objectives.
In periods of declining interest rates, prepayments on investments generally increase and the proceeds of prepayments received during these periods may generally be reinvested by us in comparable assets at reduced yields. In addition, the market value of investments subject to prepayment may, because of the risk of prepayment, benefit less than other fixed-income securities from declining interest rates.
In periods of declining interest rates, prepayments on investments generally increase and the proceeds of prepayments received during these periods may be reinvested by us in comparable assets at reduced yields. In addition, the market value of investments subject to prepayment may, because of the risk of prepayment, benefit less than other fixed-income securities from declining interest rates.
In periods following home price declines, “strategic defaults” (decisions by borrowers to default on their mortgage loans despite having the ability to pay) also may become more prevalent.
In periods following home price declines, “strategic defaults” (decisions by borrowers to default on their mortgage loans despite having the ability to pay) also may become more prevalent.
In certain circumstances, a lender may choose not to foreclose on contaminated property rather than risk incurring liability for remedial actions.
In certain circumstances, a lender may choose not to foreclose on contaminated property rather than risk incurring a liability for remedial actions.
Future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and liquidity, and disputes between us and our joint venture partners. We may in the future make investments through joint ventures.
Future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and liquidity, and disputes between us and our joint venture partners. In the future, we may make investments through joint ventures.
For example, we may opportunistically enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.
For example, we may opportunistically enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities.
These requirements further increase the overall costs for OTC derivative dealers, which costs may be passed along to market participants as market changes continue to be implemented.
These requirements further increase the overall costs for OTC derivative dealers, which may be passed along to market participants as market changes continue to be implemented.
A liquid secondary market may not exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.
A liquid secondary market may not exist for hedging instruments to be purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.
Due to limitations on the concentration of ownership of REIT stock imposed by the Code, and subject to certain exceptions, our charter provides that no person may beneficially or constructively own (1) shares of common stock in excess of 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock or (2) shares of stock in excess of 9.8% in value of the outstanding shares of our stock.
Due to limitations on the concentration of ownership of REIT stock imposed by the Code, and subject to certain exceptions, our charter provides that no person may beneficially or constructively own (1) shares of common stock in excess of 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock or (2) shares of stock in excess of 9.8% in value of the outstanding shares of our stock.
Hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related assets or liabilities being hedged; • most hedges are structured as OTC contracts with private counterparties, raising the possibility that the hedging counterparty may default on its obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty to another counterparty; • to the extent hedging transactions do not satisfy certain provisions of the Code and are not made through a TRS, the amount of income that a REIT may earn from hedging transactions to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value (i.e., our operating results may suffer because losses, if any, on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction or item).
Hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedge may not match the duration of the related assets or liabilities being hedged; • most hedges are structured as OTC contracts with private counterparties, raising the possibility that the hedging counterparty may default on its obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty to another counterparty; 39 • to the extent hedging transactions do not satisfy certain provisions of the Code and are not made through a TRS, the amount of income that a REIT may earn from hedging transactions to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; • the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value (i.e., our operating results may suffer because losses, if any, on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction or item).
Our charter obligates us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding without requiring a preliminary determination of the director’s or officer’s ultimate entitlement to indemnification to: • any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or • any individual who, while a director or officer of ours and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, partnership, limited liability company, joint venture, real estate investment trust, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity.
Our charter obligates us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding without requiring a preliminary determination of the director’s or officer’s ultimate entitlement to indemnification to: • any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or 42 • any individual who, while a director or officer of ours and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, partnership, limited liability company, joint venture, real estate investment trust, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity.
Most of our investments are, and we expect the will continue to be, held by our operating partnership's wholly-owned or majority-owned subsidiaries and that most of these subsidiaries will rely on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in [the business of] . . . purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion, as interpreted by the SEC staff, generally requires that at least 55% of a subsidiary's portfolio must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).
Most of our investments are, and we expect they will continue to be, held by our operating partnership's wholly-owned or majority-owned subsidiaries and that most of these subsidiaries will rely on the exclusion from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in [the business of] . . . purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion, as interpreted by the SEC staff, generally requires that at least 55% of a subsidiary's portfolio must be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).
If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, without limitation: (1) a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; (2) a borrower claim against us for failure to perform under the loan documents; (3) increased costs to the borrower that the borrower is 24 unable to pay; (4) a bankruptcy filing by the borrower; and (5) abandonment by the borrower of the collateral for the loan.
If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, without limitation: (1) a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; (2) a borrower claim against us for failure to perform under the loan documents; (3) increased costs to the borrower that the borrower is unable to pay; (4) a bankruptcy filing by the borrower; and (5) abandonment by the borrower of the collateral for the loan.
In addition, a majority of our entire Board of Directors may, without stockholder approval, approve amendments to our charter to increase the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that we have authority to issue and may 43 classify or reclassify unissued shares of our common stock or preferred stock and may set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms and conditions of redemption of the classified or reclassified shares.
In addition, a majority of our entire Board of Directors may, without stockholder approval, approve amendments to our charter to increase the aggregate number of our authorized shares of stock or the number of shares of stock of any class or series that we have authority to issue and may classify or reclassify unissued shares of our common stock or preferred stock and may set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms and conditions of redemption of the classified or reclassified shares.
As our Manager directs our investment activities, there are conflicts of interest related to the fact that Angel Oak Mortgage Lending consists of affiliates of our Manager, including the following: 12 ◦ Our Manager has an incentive to favor the acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending over third-party sellers because purchasing non-QM loans or other target assets from Angel Oak Mortgage Lending generates fees for Angel Oak Mortgage Lending (including fees payable by us and origination fees payable by the borrowers of the loans originated by Angel Oak Mortgage Lending), which benefit Angel Oak.
As our Manager directs our investment activities, there are conflicts of interest related to the fact that Angel Oak Mortgage Lending consists of affiliates of our Manager, including the following: ◦ Our Manager has an incentive to favor the acquisition of non-QM loans or other target assets from Angel Oak Mortgage Lending over third-party sellers because purchasing non-QM loans or other target assets from Angel Oak Mortgage Lending generates fees for Angel Oak Mortgage Lending (including fees payable by us and origination fees payable by the borrowers of the loans originated by Angel Oak Mortgage Lending), which benefit Angel Oak.
In that event, such income less the expenses associated with the business that produced it would be subject to U.S. federal income tax at the regular corporate rate. 47 REIT distribution requirements could adversely affect our ability to execute on our strategies and may require us to incur debt, sell assets or take other actions to make such distributions.
In that event, such income less the expenses associated with the business that produced it would be subject to U.S. federal income tax at the regular corporate rate. REIT distribution requirements could adversely affect our ability to execute on our strategies and may require us to incur debt, sell assets or take other actions to make such distributions.
There can be no assurance that the valuation of any of the assets that we have contributed or may contribute to any securitization vehicles were not or will not be understated or, that the assets contributed by other Angel Oak-managed entities have not been or will not be overstated, resulting in less cash proceeds or securities issued by the securitization vehicle to us or more cash proceeds or securities issued by the securitization vehicle to such managed entities than would otherwise be the case.
There can be no assurance that the valuation of any of the assets that we have contributed or may contribute to any securitization vehicles were not or will not be understated or, that the assets contributed by other Angel Oak-managed entities have 13 not been or will not be overstated, resulting in less cash proceeds or securities issued by the securitization vehicle to us or more cash proceeds or securities issued by the securitization vehicle to such managed entities than would otherwise be the case.
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 continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or that we will be able to enter into or maintain such hedges.
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 continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, but there can be no assurances that our hedges will be successful, or 19 that we will be able to enter into or maintain such hedges.
In acquiring non-QM loans and other target assets from unaffiliated third parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. Additionally, we may also compete with the U.S. Federal Reserve and the U.S.
In acquiring non-QM loans and other target assets from unaffiliated third 30 parties, we compete with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. Additionally, we may also compete with the U.S. Federal Reserve and the U.S.
If third-party pricing is obtained, validating such pricing may be more subjective than it would be for more liquid assets due to the uncertainties inherent in valuing assets for which reliable market quotations are not available. Any illiquidity of our assets may make it difficult for us to sell such assets on favorable terms or at all.
If third-party pricing is obtained, validating such pricing may be more subjective than it would be for more liquid assets due to the 27 uncertainties inherent in valuing assets for which reliable market quotations are not available. Any illiquidity of our assets may make it difficult for us to sell such assets on favorable terms or at all.
Further, rating agencies could alter their ratings processes or criteria after we have accumulated loans for securitization in a manner that reduces the value of previously acquired loans or that requires us to incur additional costs to comply with those processes and criteria. 38 Our securitization transactions may result in litigation, which could materially and adversely affect us.
Further, rating agencies could alter their ratings processes or criteria after we have accumulated loans for securitization in a manner that reduces the value of previously acquired loans or that requires us to incur additional costs to comply with those processes and criteria. Our securitization transactions may result in litigation, which could materially and adversely affect us.
For example, by relying on incorrect models and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, to overestimate or underestimate the timing or amount of cash flows expected to be 27 collected, or to miss favorable opportunities altogether.
For example, by relying on incorrect models and data, especially valuation or cash flow models, we may be induced to buy certain assets at prices that are too high, to sell certain other assets at prices that are too low, to overestimate or underestimate the timing or amount of cash flows expected to be collected, or to miss favorable opportunities altogether.
Upon accumulating an appropriate amount of assets, we expect 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, but also exposes us to the risk of first loss.
Upon accumulating an appropriate amount of assets, we 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, but also exposes us to the risk of first loss.
Although the Dodd-Frank Act required many OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, not all of our derivative transactions will be subject to the clearing requirements. 41 The “bid-ask” spreads may be unusually wide in these heretofore substantially unregulated markets.
Although the Dodd-Frank Act required many OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, not all of our derivative transactions will be subject to the clearing requirements. The “bid-ask” spreads may be unusually wide in these heretofore substantially unregulated markets.
While we do not intend to distribute EII to our stockholders, and instead to hold any REMIC residual interests that give rise to EII through a TRS and to retain, and to pay corporate income tax on, EII from TMPs, there can be no assurance that we will be able to do so in all situations and that our stockholders will not receive distributions of EII.
While we do not intend to distribute EII to our stockholders, and intend to hold any REMIC residual interests that give rise to EII through a TRS and to retain, and to pay corporate income tax on, EII from TMPs, there can be no assurance that we will be able to do so in all situations and that our stockholders will not receive distributions of EII.
These factors include, without limitation: (1) extended foreclosure timelines in states that require judicial foreclosure, including states where we may hold high concentrations of residential mortgage loans; (2) significant collateral documentation deficiencies; (3) U.S. federal, state or local laws that are borrower friendly, including legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures and that serve to delay the foreclosure process; (4) programs that require specific procedures to be followed to explore the refinancing of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and (5) declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems.
These factors include, without limitation: (1) extended foreclosure timelines in states that require judicial foreclosure, including states where we may hold high concentrations of residential mortgage loans; (2) significant collateral documentation deficiencies; (3) U.S. federal, state or local laws that are borrower friendly, including legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures and that serve to delay the foreclosure process; (4) programs that require specific procedures to be followed to explore the refinancing of a residential mortgage loan prior to the commencement of a foreclosure proceeding; and (5) declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the judicial and administrative systems.
Treasury to the extent they purchase assets meeting our objectives pursuant to various purchase programs. Many of our competitors are significantly larger than us, have greater access to capital and other resources and may have other advantages over us. Our competitors may include other entities managed by Angel Oak, including with respect to loans originated by Angel Oak Mortgage Lending.
Treasury to the extent they purchase assets meeting our objectives pursuant to various purchase programs. Many of our competitors are larger than us, have greater access to capital and other resources and may have other advantages over us. Our competitors may include other entities managed by Angel Oak, including with respect to loans originated by Angel Oak Mortgage Lending.
As a result, we cannot provide any assurances regarding the amount of time our Manager will dedicate to the management of our business, and Angel Oak, including our Manager, may have conflicts in allocating employees’ time, resources, and services among our business and any other entities they manage, and such conflicts may not be resolved in our favor.
As a result, we cannot provide any assurances regarding the amount of time our Manager will dedicate to the management of our business, and Angel Oak, including our 11 Manager, may have conflicts in allocating employees’ time, resources, and services among our business and any other entities they manage, and such conflicts may not be resolved in our favor.
Such changes in the market value of our real estate-related securities portfolio may affect our net equity, net income, comprehensive income, or cash flow directly through their impact on unrealized gains or losses or other comprehensive income (loss), and therefore our ability to realize 20 gains on such assets, or indirectly through their impact on our ability to borrow and access capital.
Such changes in the market value of our real estate-related securities portfolio may affect our net equity, net income, comprehensive income, or cash flow directly through their impact on unrealized gains or losses or other comprehensive income (loss), and therefore our ability to realize gains on such assets, or indirectly through their impact on our ability to borrow and access capital.
If borrowers default on the residential mortgage loans backing our non-Agency RMBS and we are unable to recover any resulting loss through the foreclosure process, we could be materially and adversely affected. We may invest in investment property loans, which would expose us to an increased risk of loss.
If borrowers default on the residential mortgage loans backing our non-Agency RMBS and we are unable to recover any resulting loss through the foreclosure process, we could be materially and adversely affected. We invest in investment property loans, which may expose us to an increased risk of loss.
Certain provisions of the MGCL may have the effect of deterring a third party from making a proposal to acquire us or of inhibiting a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock.
Certain provisions of the MGCL may have the effect of deterring a third party from making a proposal to acquire us or of inhibiting a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a 41 premium over the then-prevailing market price of our common stock.
However, we cannot guarantee that we will qualify as a REIT in any given year because: • the rules governing REITs are highly complex; • we do not control all factual circumstances and legal determinations by courts or regulatory bodies that affect REIT qualification; and • our circumstances may change in the future.
However, we cannot guarantee that we will qualify as a REIT in any given year because: • the rules governing REITs are highly complex; • we do not control all factual circumstances and legal determinations by courts or regulatory bodies that affect REIT qualification; and 45 • our circumstances may change in the future.
As a result, we could experience poor performance or losses for which our Manager would not be liable. 15 Our Manager’s failure to identify and acquire assets that meet our target asset criteria or perform its responsibilities under the Management Agreement could materially and adversely affect us.
As a result, we could experience poor performance or losses for which our Manager would not be liable. Our Manager’s failure to identify and acquire assets that meet our target asset criteria or perform its responsibilities under the Management Agreement could materially and adversely affect us.
Consequently, prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from increases in such rates. The constant prepayment rate (“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.
Consequently, prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from increases in such rates. The conditional prepayment rate (“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.
Leverage will magnify both the gains and the losses on an investment. Leverage will increase our returns as long as we earn a greater return on investments purchased with borrowed 36 funds than our cost of borrowing such funds although there can be no assurance that would be able to earn such a greater return.
Leverage will magnify both the gains and the losses on an investment. Leverage will increase our returns as long as we earn a greater return on investments purchased with borrowed funds than our cost of borrowing such funds although there can be no assurance that would be able to earn such a greater return.
As a result, we may not recover all or even a significant part of our investment, which could result in losses and have a material adverse effect on us. We may invest in commercial bridge loans, mezzanine loans, construction loans, and B-Notes, which would subject us to an increased risk of loss.
As a result, we may not recover all or a significant part of our investment, which could result in losses and have a material adverse effect on us. We may invest in commercial bridge loans, mezzanine loans, construction loans, and B-Notes, which would subject us to an increased risk of loss.
Unscheduled prepayments of ABS may result in a loss of income. Movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain types of ABS. Borrower loan loss rates may be significantly affected by delinquencies, defaults, economic downturns, or general economic conditions beyond the control of individual borrowers.
Unscheduled prepayments of ABS may result in a loss of income. Movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain types of ABS. Borrower 25 loan loss rates may be significantly affected by delinquencies, defaults, economic downturns, or general economic conditions beyond the control of individual borrowers.
Statements by the U.S. Federal Reserve regarding monetary policy and the actions it takes to set or adjust monetary policy may affect the expectations and outlooks of market participants in ways that adversely affect our investments. Over the past few years, statements made by the Chair and other members of the Board of Governors of the U.S.
Federal Reserve regarding monetary policy and the actions it takes to set or adjust monetary policy may affect the expectations and outlooks of market participants in ways that adversely affect our investments. Over the past few years, statements made by the Chair and other members of the U.S. Federal Reserve Board and by other U.S.
The partnership agreement also provides that the general partner will not be liable to our operating partnership, its partners or any other person bound by the partnership agreement for monetary damages for losses sustained, liabilities incurred or benefits not derived by our operating partnership or any limited partner, except for liability for the general partner’s intentional harm or gross negligence.
The partnership agreement also provides that the general partner will not be liable to our operating partnership, its partners or any other person bound by the partnership agreement for monetary damages for losses sustained, liabilities incurred or benefits not derived by our operating partnership or any limited partner, except for liability due to the general partner’s intentional harm or gross negligence.
A prolonged economic slowdown, a recession, or 51 declining real estate values could impair the performance of our investments and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us.
A prolonged economic slowdown, a recession, or declining real estate values could impair the performance of our investments and harm our financial condition and results of operations, increase our funding costs, limit our access to the capital markets, or result in a decision by lenders not to extend credit to us.
General economic factors, such as recession, declining home values, unemployment, and high interest rates, may limit the supply of available non-QM loans and other 16 target assets. Moreover, competition for non-QM loans and other target assets may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
General economic factors, such as recession, declining home values, unemployment, and high interest rates, may limit the supply of available non-QM loans and other target assets. Moreover, competition for non-QM loans and other target assets may drive down supply or drive up prices, making it uneconomical to purchase such loans or other target assets.
This may materially and adversely affect us. Market conditions and other factors may affect our ability to securitize assets, which could increase our financing costs and materially and adversely affect us. We expect to use loan financing lines to finance the acquisition and accumulation of mortgage loans or other mortgage-related assets pending their eventual securitization.
This may materially and adversely affect us. Market conditions and other factors may affect our ability to securitize assets, which could increase our financing costs and materially and adversely affect us. We 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.
Our loan financing lines and our future loan financing lines and derivative contracts, such as interest rate swap contracts, index swap contracts, interest rate cap or floor contracts, futures or forward contracts or options, may allow our lenders and derivative counterparties, as the case may be, to varying degrees, to determine an updated market value of our collateral and derivative contracts to reflect current market conditions.
Our loan financing lines and derivative contracts, such as interest rate swap contracts, index swap contracts, interest rate cap or floor contracts, futures or forward contracts or options, may allow our lenders and derivative counterparties, as the case may be, to varying degrees, to determine an updated market value of our collateral and derivative contracts to reflect current market conditions.
We do not own the Angel Oak brand or trademark, but may use the brand and trademark pursuant to the terms of a trademark license agreement with Angel Oak. We do not own the brand, trademark, or logo that we will use in our business and may be unable to protect this intellectual property against infringement from third parties.
We do not own the Angel Oak brand or trademark, but may use the brand and trademark pursuant to the terms of a trademark license agreement with Angel Oak. We do not own the brand, trademark, or logo that we may use in our business and may be unable to protect this intellectual property against infringement from third parties.
In contrast, any factors having an opposite effect would be expected to cause the rate of prepayment of a pool of MBS to slow. The rate of prepayment on a pool of MBS is likely to be affected by prevailing market interest rates for mortgages of a comparable type, term, and risk level.
In contrast, any factors having an opposite effect would be expected to cause the rate of prepayment of a pool of MBS to slow. 21 The rate of prepayment on a pool of MBS is likely to be affected by prevailing market interest rates for mortgages of a comparable type, term, and risk level.
The rights and remedies afforded a senior lender may limit or preclude the exercise of rights and remedies by us, with resultant loss to us. Further, the equity owners of properties or entities in which we invest may raise defenses (including protection under bankruptcy laws) to enforcement of rights or imposition of remedies by us.
The rights and remedies afforded a senior lender may limit or preclude the exercise of rights and remedies by us, with resultant loss to us. Further, the equity owners of properties or 23 entities in which we invest may raise defenses (including protection under bankruptcy laws) to enforcement of rights or imposition of remedies by us.
Certain actions by the U.S. Federal Reserve could materially and adversely affect us. Changing benchmark interest rates, and the U.S. Federal Reserve’s actions and statements regarding monetary policy, can affect the fixed-income and mortgage finance markets in ways that could adversely affect the value of, and returns on, our investments, which could materially and adversely affect us.
Federal Reserve could materially and adversely affect us. Changing benchmark interest rates, and the U.S. Federal Reserve’s actions and statements regarding monetary policy, can affect the fixed-income and mortgage finance markets in ways that could adversely affect the value of, and returns on, our investments, which could materially and adversely affect us. Statements by the U.S.
However, if we fail to comply with these requirements at the end of any calendar quarter after the first calendar quarter for which we qualified as a REIT, we must generally 49 correct such failure within 30 days after the end of such calendar quarter to prevent us from losing our REIT qualification.
However, if we fail to comply with these requirements at the end of any calendar quarter after the first calendar quarter for which we qualified as a REIT, we must generally correct such failure within 30 days after the end of such calendar quarter to prevent us from losing our REIT qualification.
As a result of these legislative actions, the mortgage servicers on which we rely may not perform in our best interests or up to our expectations. If our third-party servicers, including mortgage servicers, do not perform as expected, it would materially and adversely affect us.
As a result of these legislative actions, the mortgage servicers on which we rely may not perform in our best interests or up to our expectations. If our third-party servicers, including mortgage servicers, do not perform as expected, it may materially and adversely affect us.
Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we have utilized, and in the future expect to continue to utilize various derivative instruments and other 40 hedging instruments to mitigate interest rate risk, credit risk and other risks.
Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we have utilized, and in the future expect to continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks.
We may invest in investment property loans, which are mortgage loans made on portfolios of residential rental properties. The repayment of such a loan by the property owner (i.e., the borrower) often depends primarily on its tenant’s continuing ability to pay rent to the property owner.
We invest in investment property loans, which are mortgage loans made on portfolios of residential rental properties. The repayment of such a loan by the property owner (i.e., the borrower) often depends primarily on its tenant’s continuing ability to pay rent to the property owner.
We may acquire B-Notes that are subordinated in right of payment to an A-Note, which is a senior interest in such loan. The B-Notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses.
We may acquire B-Notes that are subordinated in right of payment to an A-Note, which is a senior interest in such loan. The B-Notes may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses.
These trends may not be indicative of future results. Furthermore, the assumptions underlying the models may prove to be inaccurate, causing the models to also be incorrect. In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
These trends may not be indicative of future results. 26 Furthermore, the assumptions underlying the models may prove to be inaccurate, causing the models to also be incorrect. In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose us to potential risks.
If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the intrinsic value of the assets and/or the value at which we previously recorded such assets. 28 Assets that are illiquid are more difficult to finance using leverage.
If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the intrinsic value of the assets and/or the value at which we previously recorded such assets. Assets that are illiquid are more difficult to finance using leverage.
Since the housing crisis, and in response to the well-publicized failures of many servicers to follow proper foreclosure procedures (such as involving “robo-signing”), mortgage servicers are being held to much higher foreclosure-related documentation standards than they previously were.
Since the 2008 housing crisis, and in response to the well-publicized failures of many servicers to follow proper foreclosure procedures (such as involving “robo-signing”), mortgage servicers are being held to much higher foreclosure-related documentation standards than they previously were.
However, there can be no assurance that our mortgage loan purchase agreements will contain appropriate representations and warranties, that we will be able to enforce our contractual right to repurchase or substitution, or that our counterparties will remain solvent or otherwise be able to honor their obligations under these mortgage loan purchase agreements.
However, there can be no assurance that our mortgage loan purchase agreements will contain appropriate representations and warranties, that we will be able to enforce our contractual right to repurchase or substitution, or that our counterparties will remain solvent or otherwise be able to honor their obligations under these mortgage loan purchase 31 agreements.
We use leverage in executing our business strategy, which may materially and adversely affect us. We use leverage in connection with the investment in and holding of mortgage loans and other assets, and we have financed, and expect to continue to finance, a substantial portion of our mortgage loans through securitizations.
We use leverage in executing our business strategy, which may materially and adversely affect us. 35 We use leverage in connection with the investment in and holding of mortgage loans and other assets, and we have financed, and expect to continue to finance, a substantial portion of our mortgage loans through securitizations.
The non-QM loans in which we invest are subject to increased risks. The non-QM loans in which we invest are subject to increased risk of loss compared to investments in certain of our other target assets, such as Agency RMBS. A non-QM loan is directly exposed to losses resulting from default.
The non-QM loans in which we invest are subject to increased risk of loss compared to investments in certain of our other target assets, such as Agency RMBS. A non-QM loan is directly exposed to losses resulting from default.
We or Angel Oak, including our Manager and its affiliates, may be subject to regulatory inquiries or proceedings. At any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that involve us or Angel Oak, including our Manager and its affiliates.
We or Angel Oak, including our Manager and its affiliates, may be subject to regulatory inquiries or proceedings. 32 At any time, industry-wide or company-specific regulatory inquiries or proceedings can be initiated and we cannot predict when or if any such regulatory inquiries or proceedings will be initiated that involve us or Angel Oak, including our Manager and its affiliates.
In addition to the Dodd-Frank Act, its related rules and Regulation AB II, other U.S. federal or state laws and regulations that could affect our ability to execute securitization transactions may be proposed, enacted, or implemented.
In addition to the Dodd-Frank Act, its related rules and Regulation AB II, other U.S. federal or state laws and regulations that could affect our ability to execute securitization transactions may be proposed, enacted, modified or implemented.
We cannot be certain if the scaled SEC reporting options available to Smaller Reporting Companies will make our common stock less attractive to investors, which could make the market price and trading volume of shares of our common stock be more volatile and decline significantly.
We cannot be certain if the scaled SEC reporting options available to Smaller Reporting Companies will make our 50 common stock less attractive to investors, which could make the market price and trading volume of shares of our common stock be more volatile and decline significantly.
Our Manager could acquire non-QM loans or other target assets on our behalf from Angel Oak Mortgage Lending even if such non-QM loans or other target assets were unsuitable for us, or we could identify better quality non-QM loans or other target assets, or obtain better pricing, from unaffiliated third parties.
Our Manager could acquire non-QM loans or other target assets on our behalf from Angel Oak Mortgage Lending even if such non-QM loans or other target assets were unsuitable for us, or we could identify better quality non-QM loans or other target assets, or obtain better pricing, 12 from unaffiliated third parties.
In addition, legislation that has been enacted or that may be enacted in order to reduce or prevent foreclosures through, among other things, loan modifications may reduce the value of our mortgage loans or loans underlying our investments. Mortgage servicers may be incentivized by the U.S.
In addition, legislation that has been enacted or that may be enacted in order to reduce or prevent foreclosures through, among other things, loan modifications may reduce the value of our mortgage loans or loans underlying our investments. Mortgage servicers may be 29 incentivized by the U.S.
Borrowers with adjustable payments may be exposed to increased monthly payments when the related mortgage interest rate adjusts 22 upward from the initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin.
Borrowers with adjustable payments may be exposed to increased monthly payments when the related mortgage interest rate adjusts upward from the initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin.
In addition, issuers of ABS may have limited ability to enforce the security interest in the underlying 26 assets, collateral securing the payment of loans may not be sufficient to ensure repayment, and credit enhancements (if any) may be inadequate in the event of default.
In addition, issuers of ABS may have limited ability to enforce the security interest in the underlying assets, collateral securing the payment of loans may not be sufficient to ensure repayment, and credit enhancements (if any) may be inadequate in the event of default.
We cannot predict whether or in what form Congress or the various state and local legislatures may enact legislation affecting our business or whether any such legislation will require us 31 to change our practices or make changes in our portfolio in the future.
We cannot predict whether or in what form Congress or the various state and local legislatures may enact legislation affecting our business or whether any such legislation will require us to change our practices or make changes in our portfolio in the future.
Our loan financing lines subject us to additional risks, which could materially and adversely affect us. We expect to use loan financing lines to finance the acquisition and accumulation of mortgage loans or other mortgage-related assets pending their eventual securitization.
Our loan financing lines subject us to additional risks, which could materially and adversely affect us. We 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.
Our Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. • Our operating results are dependent upon our Manager’s ability to source a large volume of desirable non‑QM loans and other target assets for our investment on attractive terms. • Difficult conditions in the residential mortgage and residential real estate markets as well as general market concerns may adversely affect the value of residential mortgage loans, including non‑QM loans, and other target assets in which we invest. • Non-QM loans that are underwritten pursuant to less stringent underwriting guidelines could experience substantially higher rates of delinquencies, defaults and foreclosures than those experienced by loans underwritten to more stringent underwriting guidelines. • Angel Oak Mortgage Lending is subject to extensive licensing requirements and regulation, which could materially and adversely affect us if Angel Oak Mortgage Lending does not comply with these requirements. • Currently, we are focused on acquiring and investing in non‑QM loans, which may subject us to legal, regulatory, and other risks, which could materially and adversely affect us. • Prepayment rates may adversely affect the value of our portfolio. • Our investment in lower rated non‑Agency RMBS resulting from the securitization of our assets or otherwise, exposes us to the first loss on the mortgage assets held by the securitization vehicle.
Our Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. • Our operating results are dependent upon our Manager’s ability to source a large volume of desirable non‑QM loans and other target assets for our investment on attractive terms. • Difficult conditions in the residential mortgage and residential real estate markets as well as general market concerns, including macroeconomic events, may adversely affect the value of residential mortgage loans, including non‑QM loans, and other target assets in which we invest. • Non-QM loans that are underwritten pursuant to less stringent underwriting guidelines could experience higher rates of delinquencies, defaults and foreclosures than those experienced by loans underwritten to more stringent underwriting guidelines. • Angel Oak Mortgage Lending is subject to extensive licensing requirements and regulation, which could materially and adversely affect us if Angel Oak Mortgage Lending does not comply with these requirements. • Currently, we are focused on acquiring and investing in non‑QM loans, which may subject us to legal, administrative, regulatory, and other risks, which could materially and adversely affect us. • Prepayment rates may adversely affect the value of our portfolio. • Our investment in lower rated non‑Agency RMBS resulting from the securitization of our assets or otherwise exposes us to the first loss on the mortgage assets held by the securitization vehicle.
Similarly, if Angel Oak 14 Mortgage Lending otherwise separates from its affiliation with our Manager, it may determine to sell the non-QM loans or other target assets that it originates to other parties.
Similarly, if Angel Oak Mortgage Lending otherwise separates from its affiliation with our Manager, it may determine to sell the non-QM loans or other target assets that it originates to other parties.
If our third-party servicers are not vigilant in encouraging borrowers to make their monthly payments, the borrowers may be far less likely to make these payments, which could result in a higher frequency of default.
If our third-party servicers are not vigilant in encouraging borrowers to make their monthly payments, the borrowers may be less likely to make these payments, which could result in a higher frequency of default.
Furthermore, in the securitization transactions we participate in, we will make certain representations and warranties about the underlying mortgage loans that we intend to securitize and we will assume the obligation to repurchase or replace those mortgage loans in certain circumstances if those representations or warranties are untrue.
Furthermore, in the securitization transactions we participate in, we make certain representations and warranties about the underlying mortgage loans that we intend to securitize and we assume the obligation to repurchase or replace those mortgage loans in certain circumstances if those representations or warranties are untrue.
Upon bankruptcy or liquidation, holders of our debt securities, our Series A preferred stock and other preferred stock, if issued, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of shares of our common stock.
Upon bankruptcy or liquidation, holders of our debt securities, our preferred stock, if issued, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of shares of our common stock.
These and certain other pre-IPO 42 investors were granted rights to receive a share of our Manager’s revenues received under the Management Agreement in connection with their investments prior to the IPO.
These and certain other pre-IPO investors were granted rights to receive a share of our Manager’s revenues received under the Management Agreement in connection with their investments prior to the IPO.
Ultimately, we may not be able to recover the loans sold, which could result in a loss to us if the 39 value of such loans has increased over their repurchase price.
Ultimately, we may not be able to recover the loans sold, which could result in a loss to us if the value of such loans has increased over their repurchase price.
As long as we meet the requirements under the Code for qualification and taxation as a REIT each year, we can deduct dividends 46 paid to our stockholders when calculating our REIT taxable income.
As long as we meet the requirements under the Code for qualification and taxation as a REIT each year, we can deduct dividends paid to our stockholders when calculating our REIT taxable income.
Risk Retention Rules; (3) our TRS will make certain representations and warranties about the underlying assets and assume the obligation to repurchase or replace those assets in certain circumstances if those representations or warranties are untrue; and/or (4) our TRS and/or we will guarantee the obligations of certain of the entities included in Angel Oak Mortgage Lending to repurchase or replace those assets in certain cases if the representations or warranties made by Angel Oak Mortgage Lending about those assets are untrue or if certain covenants made regarding the servicing of those assets by Angel Oak Mortgage Lending are breached and, in any case, the related Angel Oak Mortgage Lending entity does not repurchase or replace the assets itself.
Risk Retention Rules; (3) our TRS will make certain representations and warranties about the underlying assets and assume the obligation to repurchase or replace those assets in certain circumstances if those representations or warranties are untrue; and/or (4) in circumstances where Angel Oak Mortgage Lending has made certain representations and warranties about the underlying assets, our TRS and/or we will guarantee the obligations of certain of the entities included in Angel Oak Mortgage Lending to repurchase or replace those assets in certain cases if the representations or warranties made by Angel Oak Mortgage Lending about those assets are untrue or if certain covenants made regarding the servicing of those assets by Angel Oak Mortgage Lending are breached and, in any case, the related Angel Oak Mortgage Lending entity does not repurchase or replace the assets itself.
Our Board of Directors has the authority to change our strategy, investment guidelines, hedging strategy, and asset allocation, operational, and management policies at any time without notice to or consent from our stockholders, which could result in our purchasing assets or entering into hedging transactions that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K.
Our Board of Directors has the authority to change our strategy, investment guidelines, hedging strategy, asset allocation, operational, and management policies at any time without notice to or consent from our stockholders, which could result in our purchasing assets or entering into hedging transactions that are different from, and possibly riskier or less accretive than, the investments described in this Annual Report on Form 10-K.
Changes in accounting interpretations or 34 assumptions could impact our consolidated financial statements and our ability to timely prepare our consolidated financial statements. Our inability to timely prepare our consolidated financial statements in the future would likely materially and adversely affect us.
Changes in accounting interpretations or assumptions could impact our consolidated financial statements and our ability to timely prepare our consolidated financial statements. Our inability to timely prepare our consolidated financial statements in the future would likely materially and adversely affect us.
For example, during periods of declining interest rates, prepayments can be expected to accelerate, and we would be required to reinvest proceeds at the lower interest rates then available. Prepayments of mortgages that underlie securities purchased at a premium could result in capital losses because the premium may not have been fully amortized at the time the obligation is prepaid.
For example, during periods of declining interest rates, prepayments can be expected to accelerate, and we may reinvest proceeds at the lower interest rates then available. Prepayments of mortgages that underlie securities purchased at a premium could result in capital losses because the premium may not have been fully amortized at the time the obligation is prepaid.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−4 removed7 unchanged
Biggest changeFor more information regarding risk factors that could materially adversely affect our actual results of operations, see Part I. Item IA.
Biggest changeFor more information regarding risk factors that could materially adversely affect our actual results of operations, see Part I. Item IA. “Risk Factors.” There were no issuer purchases of equity securities made by us during the year ended December 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On June 17, 2021, our common stock began trading on the NYSE under the symbol “AOMR.” As of March 1, 2023, there were 19 holders of record of our common stock. This does not include the number of stockholders that hold shares in “street name” through banks or broker-dealers.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On June 17, 2021, our common stock began trading on the NYSE under the symbol “AOMR.” As of March 1, 2024, there were 17 holders of record of our common stock. This does not include the number of stockholders that hold shares in “street name” through banks or broker-dealers.
Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the quarter ended December 31, 2022. Item 6. [Reserved] 54
Unregistered Sales of Equity Securities There were no unregistered sales of equity securities during the quarter ended December 31, 2023. Item 6. Reserved
Removed
“Risk Factors.” The following table sets forth the dividends declared for each applicable calendar quarter for 2022: Declaration Date Record Date Payment Date Per Share March 15, 2022 March 21, 2022 March 31, 2022 $0.45 May 12, 2022 May 23, 2022 May 31, 2022 $0.45 August 9, 2022 August 22, 2022 August 31, 2022 $0.45 November 8, 2022 November 22, 2022 November 30, 2022 $0.32 Issuer Purchases of Equity Securities On June 3, 2021, we entered into a Rule 10b5-1 repurchase plan with Wells Fargo Securities, LLC (the “10b5-1 Plan”).
Removed
Purchases pursuant to the 10b5-1 Plan commenced in July 2021, and the 10b5-1 Plan expired in accordance with its terms in July 2022 and was not renewed.
Removed
During the existence of the 10b5-1 Plan, Wells Fargo Securities, LLC, as our agent, had the ability to purchase in the open market up to $25.0 million in shares of our common stock in the aggregate during the period which commenced on the date that was four full calendar weeks from the closing of the IPO and ended 12 months thereafter.
Removed
During the year ended December 31, 2022, 429,333 shares were purchased at an average price paid per share of $15.86 for a total of approximately $6.9 million. These shares were subsequently cancelled after purchase and are not considered issued or outstanding. There were no purchases of equity securities made by us during the quarter ended December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

136 edited+55 added−117 removed76 unchanged
Biggest changeResidential Mortgage Loans The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2022: Portfolio Range Portfolio Weighted Average ($ in thousands) Unpaid principal balance (“UPB”) $59 - $3,441 $496 Interest rate 2.88% - 9.99% 4.80% Maturity date 9/21/2036 - 6/20/2062 February 2053 FICO score at loan origination 575 - 823 737 LTV at loan origination 8% - 95% 70% DTI at loan origination 1.20% - 59.06% 23% Percentage of first lien loans N/A 100% Percentage of loans 90+ days delinquent (based on UPB) N/A 0.91% 65 The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2021: Portfolio Range Portfolio Weighted Average ($ in thousands) UPB $48 - $3,410 $506 Interest rate 2.75% - 9.25% 4.49% Maturity date 10/1/2036 - 12/1/2061 April 2053 FICO score at loan origination 521 - 823 740 LTV at loan origination 12% - 95% 70% DTI at loan origination 1.60% - 59.06% 27% Percentage of first lien loans N/A 100% Percentage of loans 90+ days delinquent (based on UPB) N/A 0.30% The following table sets forth the information regarding the underlying collateral of our residential loans held in securitization trusts as of December 31, 2022: ($ in thousands) UPB $1,151,332 Number of loans 2,664 Weighted average loan coupon 4.72% Average loan amount 434 Weighted average LTV at loan origination and deal date 69% Weighted average credit score at loan origination and deal date 743 Current 3-month CPR 5% Percentage of loans 90+ days delinquent (based on UPB) —% The following chart illustrates the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2022: Note: No state in “Other” represents more than a 3% concentration of the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2022. 66 The following table sets forth the information regarding the underlying collateral of our residential loans held in securitization trusts as of December 31, 2021: ($ in thousands) UPB $642,951 Number of loans 1,494 Weighted average loan coupon 4.98% Average loan amount 433 Weighted average LTV at loan origination and deal date 72% Weighted average credit score at loan origination and deal date 741 Current 3-month CPR 35.1 Percentage of loans 90+ days delinquent (based on UPB) 0.13 The following chart illustrates the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2021: Note: No state in “Other” represents more than a 3% concentration of the geographic distribution of the underlying collateral of our residential loans held in securitization trusts as of December 31, 2021. 67 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, 2022: The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2021: 68 The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of December 31, 2022, based on the product profile, borrower profile and geographic location (percentages are based on the aggregate unpaid principal balance of such loans): Characteristics of Our Residential Mortgage Loans as of December 31, 2022: 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, 2022. 69 The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2021, based on the product profile, borrower profile and geographic location (percentages are based on the aggregate unpaid principal balance of such loans): Characteristics of Our Residential Mortgage Loans as of December 31, 2021: 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, 2021.
Biggest changeResidential Mortgage Loans The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2023: Portfolio Range Portfolio Weighted Average ($ in thousands) Unpaid principal balance (“UPB”) $18 - $3,410 $492 Interest rate 2.99% - 12.50% 6.8% Maturity date 9/27/2048 - 11/27/2063 December 2053 FICO score at loan origination 624 - 825 748 LTV at loan origination 9.00% - 90.00% 69.4% DTI at loan origination 1.90% - 59.10% 30.9% Percentage of first lien loans N/A 100% Percentage of loans 90+ days delinquent (based on UPB) N/A 0.9% 63 The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2022: Portfolio Range Portfolio Weighted Average ($ in thousands) UPB $59 - $3,441 $496 Interest rate 2.88% - 9.99% 4.8% Maturity date 9/21/2036 - 6/20/2062 February 2053 FICO score at loan origination 575 - 823 737 LTV at loan origination 8.00% - 95.00% 70.0% DTI at loan origination 1.20% - 59.10% 23.0% Percentage of first lien loans N/A 100% Percentage of loans 90+ days delinquent (based on UPB) N/A 0.9% The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan 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, 2022: 64 The following charts illustrate additional characteristics of our 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.
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.
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 master repurchase agreements were set to expire on January 4, 2023, with a one-time three month extension period option. The Company subsequently repaid this financing facility in full on January 4, 2023.
The master repurchase agreements were set to expire on January 4, 2023, with a one-time three month extension period option. The Company subsequently repaid this financing facility in full on January 4, 2023.
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 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 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 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.
Additionally, the agreement was also amended to remove any draw fees and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 79 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a pricing spread generally ranging from 2.20% to 3.45%.
Additionally, the agreement was also amended to remove any draw fees and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or the subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a pricing spread generally ranging from 2.20% to 3.45%.
(4) On February 4, 2022, this facility was amended to extend the initial termination date of the master repurchase agreement from February 11, 2022 to February 2, 2024; remove any draw fees; and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or such subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 82 0.00% and (ii) Term SOFR and (B) a pricing spread generally ranging from 2.20% to 3.45%.
(4) On February 4, 2022, this facility was amended to extend the initial termination date of the master repurchase agreement from February 11, 2022 to February 2, 2024; remove any draw fees; and adjust the pricing rate whereby upon the Company’s or the subsidiary’s repurchase of a mortgage loan, the Company or such subsidiary is required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate (determined based on the type of loan) equal to the sum of (A) the greater of (i) 0.00% and (ii) Term SOFR and (B) a pricing spread generally ranging from 2.20% to 3.45%.
Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which operates through a wholesale channel and has a national origination footprint.
Our strategy is to make credit-sensitive investments primarily in newly-originated first lien non-QM loans that are primarily made to higher-quality non-QM loan borrowers and primarily sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending, which currently operates primarily through a wholesale channel and has a national origination footprint.
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.
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: 85 Determining the primary beneficiary of a VIE requires judgment.
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 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 84 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.
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. Multinational Bank 2 Loan Financing Facility.
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. 77 Multinational 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 are 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.
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.
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 continue to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks.
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.
Inputs may be observable (reflecting assumptions that market participants would use in 86 pricing the asset or liability based on market data obtained from sources independent of the reporting entity) or unobservable (the entity’s own assumptions).
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).
We may strategically enter into similar securitizations with other Angel Oak entities in the future, and / or issue securitizations where we are the sole participant, as we did in 2022 and 2021, as further described below.
We may strategically enter into similar securitizations with other Angel Oak entities in the future, and / or issue securitizations where we are the sole participant, as we did in 2023, 2022 and 2021, as further described below.
Price Serve 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.
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.
(2) A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $110.5 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.
(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 $110.5 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.
Securitizations may either take the form of the issuance of securitized bonds or the sale of “real estate mortgage investment conduit” securities backed by mortgage loans or other assets, with the securitization proceeds being used in part to repay pre-existing loan financing lines and repurchase facilities.
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.
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 rates to the extent that we annually distribute less than 100% of such taxable income.
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.
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 Price Serve , Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments.
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.
To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to fair value. These adjustments are also reflected in the table below in our end of period common stockholders’ equity.
To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to fair value. These adjustments are also reflected in the table below in our end of period total stockholders’ equity.
Cash Availability Cash and cash equivalents Our cash balance as of December 31, 2022 was sufficient to meet our liquidity covenants under our financing facilities. We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur.
Cash Availability Cash and cash equivalents Our cash balance as of December 31, 2023 was sufficient to meet our liquidity covenants under our financing facilities. We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur.
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, 2022: Fair Value Collateralized Debt Allocated Capital % of Total Capital Portfolio: ($ in thousands) Residential mortgage loans $ 770,982 $ 639,870 $ 131,112 55.4 % Residential mortgage loans in securitization trust 1,027,442 1,003,485 23,957 10.1 % Commercial mortgage loans 9,458 — 9,458 4.0 % Total whole loan portfolio $ 1,807,882 $ 1,643,355 $ 164,527 69.5 % Investment securities RMBS $ 1,055,338 52,544 $ 1,002,794 424.1 % CMBS 6,111 — 6,111 2.6 % Total investment securities $ 1,061,449 $ 52,544 $ 1,008,905 426.7 % Total investment portfolio $ 2,869,331 $ 1,695,899 $ 1,173,432 496.2 % Target assets (1) $ 2,869,331 $ 1,695,899 $ 1,173,432 496.2 % Cash $ 29,272 $ — $ 29,272 12.4 % Other assets and liabilities (2) (966,225) — (966,225) (408.6) % Total $ 1,932,378 $ 1,695,899 $ 236,479 100.0 % (1) “Target assets” as presented above comprises the total investment portfolio, as there were no U.S.
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, 2022: Fair Value Collateralized Debt Allocated Capital % of Total Capital Portfolio: ($ in thousands) Residential mortgage loans $ 770,982 $ 639,870 $ 131,112 55.4 % Residential mortgage loans in securitization trust 1,027,442 1,003,485 23,957 10.1 % Commercial mortgage loans 9,458 — 9,458 4.0 % Total whole loan portfolio $ 1,807,882 $ 1,643,355 $ 164,527 69.50 % Investment securities RMBS $ 1,055,338 $ 52,544 $ 1,002,794 424.1 % CMBS 6,111 — 6,111 2.6 % Total investment securities $ 1,061,449 $ 52,544 $ 1,008,905 426.7 % Total investment portfolio $ 2,869,331 $ 1,695,899 $ 1,173,432 496.2 % Target assets (1) $ 2,869,331 $ 1,695,899 $ 1,173,432 496.2 % Cash $ 29,272 $ — $ 29,272 12.4 % Other assets and liabilities (956,767) — (966,225) (408.6) % Total $ 1,941,836 $ 1,695,899 $ 236,479 100.0 % (1) “Target assets” as presented above comprises the total investment portfolio, as there were no U.S.
Institutional Investors A and B Static Loan Pool Financing. On October 4, 2022, 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.
On October 4, 2022, 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 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 11 – Fair Value Measurements .
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 .
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 Static Loan Pool Financing.
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.
We expect to derive our returns primarily from the difference between the interest we earn on loans we make and our cost of capital, as well as the returns from bonds, including risk retention securities, that are retained after securitizing the underlying loan collateral.
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.
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. The agreement, as amended previously, was set to terminate on February 11, 2022.
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. The agreement, as amended previously, was set to terminate on February 2, 2024.
Stock Compensation For the years ended December 31, 2022 and 2021, our stock compensation expense was $5.8 million and $1.7 million, respectively.
Stock Compensation For the years ended December 31, 2023 and 2022, our stock compensation expense was $1.7 million and $5.8 million, respectively.
Effective as of the amendment executed on February 4, 2022, interest now accrues on any outstanding balance under the master repurchase agreement at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month).
Effective as of the amendment executed on February 4, 2022, interest accrues on any outstanding balance under the master repurchase agreement at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month). Previously, interest accrued at a rate based on one-month LIBOR.
Prior to December 19, 2022, the loan financing line was marked‑to‑market at fair value, where Global Investment Bank 3 retained 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 was under no obligation to purchase the eligible mortgage loans we offered to sell to them.
Prior to December 19, 2022 and subsequent to November 7, 2023, the loan financing line was marked‑to‑market at fair value, where Global Investment Bank 3 retained the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and 78 in a commercially reasonable manner and was under no obligation to purchase the eligible mortgage loans we offered to sell to them.
Our minimum liquidity requirement as of December 31, 2022 was $10.0 million. Other restrictive covenants with which we were bound to comply during 2022 related to financing facilities which are were terminated by us, and included additional requirements around GAAP net income and EBITDA.
Our minimum liquidity requirement as of December 31, 2023 was $10 million. Other restrictive covenants with which we were bound to comply during 2023 related to financing facilities which were terminated by us, and included additional requirements around GAAP net income and EBITDA.
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 1.95% and (2) the average SOFR for each U.S.
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, as of July 25, 2023, 2.10% and (2) the average SOFR for each U.S.
The agreement contained margin call provisions that provided Global Investment Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans.
The agreement contained margin call provisions that provided Regional Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans.
We are externally managed and advised by our Manager, a registered investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”) 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.
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.
Additionally, the amendment generally removed “mark to market” provisions and now requires an economic interest rate hedging account (“interest rate futures account”) which account is for the benefit of Global Investment Bank 3 and under its sole control, subject to recoupment to meet hedging margin calls.
Additionally, the amendment generally removed “mark to market” provisions and required an economic interest rate hedging account (“interest rate futures account”) which account was for the benefit of Global Investment Bank 3 and under its sole control, subject to recoupment to meet hedging margin calls.
Recent Accounting Pronouncements Refer to the notes to our consolidated financial statements included in Part II, Item 8, Footnote 2, of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements and any expected impact on us.
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.
(3) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization. 73 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, 2022: RMBS Repurchase Debt (1) Allocated Capital AOMT Third Party RMBS Total AOMT Third Party RMBS Total AOMT Third Party RMBS Total (in thousands) Mezzanine $ 1,958 $ — $ 1,958 $ 1,470 $ — $ 1,470 $ 488 $ — $ 488 Subordinate 49,578 — 49,578 24,982 — 24,982 24,596 — $ 24,596 Interest only / excess 10,424 — 10,424 1,506 — 1,506 8,918 — $ 8,918 Whole pool (2) — 993,378 993,378 — 0 24,586 — 968,792 $ 968,792 Retained RMBS in VIEs — — — — 24,586 — — — — Total $ 61,960 $ 993,378 $ 1,055,338 $ 27,958 $ 24,586 $ 52,544 $ 34,002 $ 968,792 $ 1,002,794 (1) Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).
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, 2022: RMBS Repurchase Debt (1,3) Allocated Capital AOMT Third Party RMBS Total AOMT Third Party RMBS Total AOMT Third Party RMBS Total (in thousands) Mezzanine $ 1,958 $ — $ 1,958 $ 1,470 $ — $ 1,470 $ 488 $ — $ 488 Subordinate 49,578 — 49,578 24,982 — 24,982 24,596 — $ 24,596 Interest only / excess 10,424 — 10,424 1,506 — 1,506 8,918 — $ 8,918 Whole pool (2) — 993,378 993,378 — — — — 993,378 $ 993,378 Retained RMBS in VIEs (3) — — — — 24,586 24,586 — (24,586) $ (24,586) Total $ 61,960 $ 993,378 $ 1,055,338 $ 27,958 $ 24,586 $ 52,544 $ 34,002 $ 968,792 $ 1,002,794 71 (1) Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).
Commencing with our taxable year ended December 31, 2019, we believe that we have been organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code of 1986 (the “Code”).
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.
Prior to December 19, 2022, the agreement contained margin call provisions that provided Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans.
Prior to December 19, 2022 and subsequent to November 7, 2023, the agreement contained margin call provisions that provided Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans.
For the years ended December 31, 2022 and 2021, our management fee incurred with affiliate was $7.8 million and $5.9 million, respectively. The increase is due to the increase in our average Equity (as defined in the Management Agreement) for the year ended December 31, 2022 as compared to the same period in 2021.
Management Fee Incurred with Affiliate For the years ended December 31, 2023 and 2022, our management fee incurred with affiliate was $5.8 million and $7.8 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, 2023 as compared to the same period in 2022.
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 increase despite a decrease in our equity calculated in accordance with GAAP.
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.
Pursuant to the agreement, interest accrued under the master repurchase agreement at a rate based on 1-month Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and a spread of 3.5%, with 1-month Term SOFR subject to a floor of 2.0%.
Pursuant to the agreement, interest accrued under the master repurchase agreement at a rate based on 1-month Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and a spread.
The remedies for such events of default were also customary for this type of transaction and included the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 1’s right to liquidate the mortgage loans then subject to the agreement.
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.
Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan prior to the December 19, 2022 amendment was based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever was less.
Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan prior to the December 19, 2022 amendment and subsequent to the November 7, 2023 amendment 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.
Certain information regarding the commercial mortgage loans underlying our portfolio of commercial mortgage-backed securities “CMBS” issued in the AOMT 2020-SBC1 securitization transaction is shown below as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 ($ in thousands) UPB of loans $122,432 $140,360 Number of loans 160 189 Weighted average loan coupon 7.4 % 7.4 % Average loan amount $765 $743 Weighted average LTV at loan origination and deal date 58.4 % 58.4 % The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital (in thousands) Senior $ — $ — $ — $ — $ — $ — Mezzanine — — — — — — Subordinate 2,901 — 2,901 7,993 — 7,993 Interest only / excess 3,210 — 3,210 2,763 — 2,763 Total $ 6,111 $ — $ 6,111 $ 10,756 $ — $ 10,756 76 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.
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, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 ($ in thousands) UPB of loans $112,302 $122,432 Number of loans 145 160 Weighted average loan coupon 7.5 % 7.4 % Average loan amount $774 $765 Weighted average LTV at loan origination and deal date 56.2 % 58.4 % The following table provides certain information with respect to the CMBS we received in connection with the AOMT 2020-SBC1 securitization transactions as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 CMBS Repurchase Debt Allocated Capital CMBS Repurchase Debt Allocated Capital (in thousands) Senior $ — $ — $ — $ — $ — $ — Mezzanine — — — — — — Subordinate 2,706 — 2,706 2,901 — 2,901 Interest only / excess 3,886 — 3,886 3,210 — 3,210 Total $ 6,592 $ — $ 6,592 $ 6,111 $ — $ 6,111 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.
The Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” of approximately $3.8 million on the Company’s consolidated balance sheet as of December 31, 2022, which was released on January 4, 2023.
The Company held restricted cash pertaining to this lender’s cash collateral requirements included in “restricted cash” of approximately $3.8 million on the Company’s consolidated balance sheet as of December 31, 2022, which was released on January 4, 2023. (7) This agreement expired by its terms on March 16, 2023.
In addition, we have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to replace the servicer without cause or we were determined to have power in connection with our involvement with the structure and design of 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.
On September 20, 2021, we and one of our subsidiaries (the “Subsidiary”) entered into a $400.0 million repurchase facility with a multinational bank (“Multinational Bank 2”) through the execution of a Master Repurchase Agreement (the “Master Repurchase Agreement”) between the Subsidiary and Multinational Bank 2.
On September 20, 2021, we and one of our subsidiaries (the “Subsidiary”) entered into a $400.0 million repurchase facility with a multinational bank (“Multinational Bank 2”) through the execution of a Master Repurchase Agreement between the Subsidiary and Multinational Bank 2. This agreement was set to expire on September 20, 2022.
On August 16, 2021, we and our subsidiaries entered into a non-mark-to-market $50.0 million committed financing facility with a regional bank (“Regional Bank 2”) through the execution of a Loan and Security Agreement (the “Loan and Security Agreement”) and a Promissory Note (the “Promissory Note” and together with the Loan and Security Agreement, the “Facility Documents”) among those subsidiaries and Regional Bank 2.
Regional Bank 2 Loan Financing Facility. On August 16, 2021, we and our subsidiaries entered into a non-mark-to-market $50.0 million committed financing facility with a regional bank (“Regional Bank 2”) through the execution of a Loan and Security Agreement and a Promissory Note.
Restricted Cash Restricted cash of approximately $10.6 million as of December 31, 2022 was comprised of: $5.6 million in margin collateral required by certain whole loan financing facility counterparties (as referred to above), the majority of which cash margin required was fully 85 released subsequent to December 31, 2022; $1.1 million in interest rate futures margin collateral; and margin collateral for securities sold under agreements to repurchase of $3.9 million.
Restricted cash of approximately $10.6 million as of December 31, 2022 was comprised of: $5.6 million in margin collateral required by certain whole loan financing facility counterparties; $1.1 million in interest rate futures margin collateral, and $3.9 million in 83 margin collateral for securities sold under agreements to repurchase.
On August 23, 2022, this agreement was extended to September 30, 2022, and on September 27, 2022, this agreement was extended to October 14, 2022, on which date it expired by its terms after being paid in full.
On August 23, 2022, this agreement was extended to September 30, 2022, and on September 27, 2022, this agreement was extended to October 14, 2022, on which date it expired by its terms after being paid in full. Global Investment Bank 1 Loan Financing Facility.
Treasury Securities held as of December 31, 2022. (2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $1.01 billion due to broker for our quarter-end purchase of certain whole pool RMBS. 64 As of December 31, 2021, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets.
Treasury securities held as of December 31, 2022. (2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $1.01 billion due to broker for our quarter-end purchase of certain Whole Pool Agency RMBS.
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. 80 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.
The remedies for such events of default were also customary for this type of transaction and included the acceleration of the principal amount outstanding under the agreement and Regional Bank 1’s right to liquidate the mortgage loans then subject to the agreement. 79 We and our subsidiary were also required to pay certain customary fees to Regional Bank 1 and to reimburse Regional Bank 1 for certain costs and expenses incurred in connection with its structuring, management, and administration of the agreement.
Given the accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-1 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 sheet as of December 31, 2022.
We have consolidated the AOMT 2022-1 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, 2023 and December 31, 2022.
Key Financial Metrics As a real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, Distributable Earnings Return on Average Equity, Book Value per Share of Common Stock, and Economic Book Value per Share of Common Stock. 57 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.
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.
Given the 84 accounting rules surrounding this type of transaction, we have consolidated the AOMT 2022-4 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 sheet as of December 31, 2022.
We have consolidated the AOMT 2022-4 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, 2023 and December 31, 2022.
Net interest income for the years ended December 31, 2022 and 2021 was $52.5 million and $49.1 million, respectively.
Net interest income for the years ended December 31, 2023 and 2022 was $28.9 million and $52.5 million, respectively.
Compounded SOFR is determined on a one-month basis and is defined as a daily rate as determined by Global Investment Bank 3 to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc. definitions.
On January 1, 2022, the facility was amended to transition the reference rate from a LIBOR-based index to Compounded SOFR Compounded SOFR is determined on a one-month basis and is defined as a daily rate as determined by Global Investment Bank 3 to be the “USD-SOFR-Compound” rate as defined in the International Swaps and Derivatives Association, Inc. definitions.
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 repurchase obligations.
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 repurchase obligations. We may also participate in upcoming securitizations either solely or with other Angel Oak entities.
Investing cash net inflows of $664.3 million for the year ended December 31, 2022 as compared to net outflows of $460.5 million for the year ended December 31, 2021 were primarily due to fewer purchases of RMBS during the year ended December 31, 2022 as compared to 2021.
Investing cash net outflows of $(194.1) million for the year ended December 31, 2023 as compared to net inflows of $664.3 million for the year ended December 31, 2022 were primarily due to an increase in purchases of RMBS during the year ended December 31, 2023 as compared to 2022.
We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the management agreement (the “Management Agreement”) that we and Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”) entered into with our Manager upon the completion of our initial public offering (“IPO”) on June 21, 2021.
We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the Management Agreement that we and our operating partnership entered into with our Manager upon the completion of our IPO on June 21, 2021.
The portion of this liability for which we have elected the fair value option is categorized as Level 2 in the fair value hierarchy. 87 Variable Interest Entities A VIE is defined as an entity in which equity investors (1) do not have the characteristics of a controlling financial interest, and/or (2) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.
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.
Summary of Securitization Activity Subsequent to December 31, 2022, on January 31, 2023, we participated in an approximately $580.5 million scheduled principal balance securitization transaction (AOMT 2023-1) backed by a pool of residential mortgage loans. We contributed loans with a scheduled principal balance of $241.3 million, with other Angel Oak entities contributing the remaining balance.
Subsequent to December 31, 2023, on March 12, 2024, we participated in AOMT 2024-3, an approximately $439.6 million scheduled principal balance securitization transaction backed by a pool of residential mortgage loans. We contributed loans with a scheduled principal balance of $48.7 million, with other Angel Oak entities contributing the remaining balance.
Our stock compensation expense for the year ended December 31, 2022 included a $2.6 million one-time expense resulting from the accelerated vesting of stock awards for our former Chief Executive Officer and President, due to his separation from the Company, in accordance with the Company’s Executive Severance and Change in Control Plan (the “Executive Severance Agreement”).
The primary driver of this decrease is a one-time expense resulting from the accelerated vesting of stock awards for our former Chief Executive Officer and President, due to his separation from the Company, in accordance with the Company’s Executive Severance and Change in Control Plan (the “Executive Severance Agreement”).
Pursuant to the agreement, Regional Bank 1 retained the right to determine the market value of the mortgage loan collateral in its sole discretion.
The amount paid by Regional Bank 1 for each mortgage loan was based on the loan type. Pursuant to the agreement, Regional Bank 1 retained the right to determine the market value of the mortgage loan collateral in its sole discretion.
On February 4, 2022, the agreement was amended to terminate on February 2, 2024, unless terminated earlier pursuant to the terms of the agreement.
On January 19, 2023, the agreement was amended to terminate on May 2, 2024, unless terminated earlier pursuant to the terms of the agreement.
On October 24, 2018, we and one of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”). We, and our subsidiary, are considered a “Seller” under this agreement.
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.
Total Realized and Unrealized Gains (Losses) The components of total realized and unrealized gains (losses), net for the years ended December 31, 2022 and 2021 are set forth as follows: December 31, 2022 December 31, 2021 (in thousands) Realized and unrealized gain (loss) on residential mortgage loans $ (213,528) $ 378 Realized and unrealized loss on residential loans held in securitization trusts (71,526) $ (3,427) Realized loss on RMBS (10,820) (15,113) Realized loss on CMBS (1,520) (971) Realized and unrealized gain (loss) on commercial mortgage loans (1,296) 355 Unrealized appreciation (depreciation) on interest rate futures 2,939 (530) Realized and unrealized gain (loss) on TBAs 17,411 (1,255) Realized gain on interest rate futures 67,870 13,253 Realized and unrealized loss on U.S.
Total Realized and Unrealized Gains (Losses) The components of total realized and unrealized gains (losses), net for the years ended December 31, 2023 and 2022 are set forth as follows: December 31, 2023 December 31, 2022 (in thousands) Realized and unrealized gain (loss) on residential mortgage loans $ 26,564 $ (213,528) Realized and unrealized gain (loss) on residential loans held in securitization trusts, net of non-recourse securitization obligation 13,031 (71,526) Realized loss on RMBS (2,152) (10,820) Realized and unrealized gain (loss) on Whole Pool Agency RMBS (16,458) — Realized loss on CMBS (260) (1,520) Realized and unrealized gain (loss) on commercial mortgage loans 121 (1,296) Unrealized appreciation (depreciation) on interest rate futures (3,948) 2,939 Realized and unrealized gain (loss) on TBAs 3,486 17,411 Realized gain on interest rate futures 5,493 67,870 Realized and unrealized loss on U.S.
Additionally, the amendment increased the aggregate purchase price limit to $75.0 million from $50.0 million, and beginning March 8, 2022, provided that interest accrued on any new transactions under the loan financing line at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus an additional pricing spread.
Pursuant to the agreement, we or our subsidiary could sell to Regional Bank 1, and later repurchase, up to $75.0 million, and beginning March 8, 2022, provided that interest accrued on any new transactions under the loan financing line at a rate based on Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) plus an additional pricing spread.
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: Quarter End Quarter End Balance Average Balance in Quarter Highest Month-End Balance in Quarter (in thousands) Q1 2021 27,796 57,470 27,796 Q2 2021 787,176 407,486 787,176 Q3 2021 489,287 173,265 489,287 Q4 2021 609,251 206,897 609,251 Q1 2022 477,422 272,282 477,422 Q2 2022 128,365 92,598 132,629 Q3 2022 67,454 50,988 67,454 Q4 2022 52,544 56,426 63,357 We utilize short‑term repurchase facilities on our RMBS portfolio and to finance assets for REIT asset test purposes.
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: Quarter End Quarter End Balance Average Balance in Quarter Highest Month-End Balance in Quarter (in thousands) Q1 2022 477,422 272,282 477,422 Q2 2022 128,365 92,598 132,629 Q3 2022 67,454 50,988 67,454 Q4 2022 52,544 56,426 63,357 Q1 2023 442,214 180,165 442,214 Q2 2023 340,701 101,731 340,701 Q3 2023 188,101 87,279 188,101 Q4 2023 193,656 62,536 193,656 We utilize short‑term repurchase facilities on our RMBS portfolio and to finance assets for REIT asset test purposes.
In August 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2021-4 issued approximately $316.6 million in face value of bonds.
In August 2023, 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 2023-5 issued approximately $260.6 million in face value of bonds.
We and our subsidiary were also required to pay certain customary fees to Global Investment Bank 1 and to reimburse Global Investment Bank 1 for certain costs and expenses incurred in connection with its structuring, management, and administration of the agreement while the agreement was in place. Global Investment Bank 2 Loan Financing Facility.
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. Institutional Investors A and B Static Loan Pool Financing.
Under those provisions, Global Investment Bank 3 could have required us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.
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.
For information on the fees that are payable to our Manager under the Management Agreement, see Part II, Item 8, Note 13 – Related Party Transactions . Distributable Earnings were approximately $19.4 million and $34.2 million for the years ended December 31, 2022 and 2021, respectively.
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 $(28.1) million and $19.4 million for the years ended December 31, 2023 and 2022, respectively.
Cash Flows For the Years Ended December 31, 2022 December 31, 2021 (in thousands) Cash flows used in operating activities $ (331,127) $ (1,567,946) Cash flow provided by (used in) investing activities $ 664,333 $ (460,484) Cash flows provided by (used in) financing activities $ (345,654) $ 2,034,766 Net increase (decrease) in cash and restricted cash $ (12,448) $ 6,336 Cash flows used in operating activities of $331.1 million for the year ended December 31, 2022 as compared to $1.6 billion in outflows for the year ended December 31, 2021 were primarily due to a net loss for the year ended December 31, 2022, compared to net income for 2021, along with the purchase of residential mortgage loans during the year ended December 31, 2022 (though fewer than in 2021), partially offset by the sale of residential mortgage loans in 2022.
Cash Flows For the Years Ended December 31, 2023 December 31, 2022 (in thousands) Cash flows provided by (used in) operating activities $ 306,404 $ (331,127) Cash flow provided by (used in) investing activities $ (194,107) $ 664,333 Cash flows provided by (used in) financing activities $ (107,662) $ (345,654) Net increase (decrease) in cash and restricted cash $ 4,635 $ (12,448) Cash flows provided by operating activities of $306.4 million for the year ended December 31, 2023 as compared to $331.1 million in outflows for the year ended December 31, 2022 were primarily due to net income for the year ended December 31, 2023, compared to a net loss for 2022, along with activity related to the securitization of residential mortgage loans during the year ended December 31, 2023.
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.
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.
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 consolidated financial statements.
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 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.
During the year ended December 31, 2021, we incurred an income tax expense of approximately $1.6 million based on an expectation of income taxes incurred on activities relating to income derived from our TRS. Our Portfolio As of December 31, 2022, our portfolio consisted of approximately $2.9 billion of residential mortgage loans, RMBS, and other target assets.
During the year ended December 31, 2022, we incurred an income tax benefit of approximately $3.5 million based on an expectation of a potential recovery of income taxes arising from losses associated with assets held in our TRS. 61 Our Portfolio As of December 31, 2023, our portfolio consisted of approximately $2.1 billion of residential mortgage loans, RMBS, and other target assets.
In November 2021, we were the sole participant in a securitization transaction of a pool of residential mortgage loans, a substantial majority of which were non‑QM loans originated by our affiliate mortgage origination companies, secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2021-7 issued approximately $386.9 million in face value of bonds.
Securitization Transactions 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.

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