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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 
For the Quarterly Period Ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from                      to                     
 
ARMOUR RESIDENTIAL REIT, INC.
(Exact name of registrant as specified in its charter) 
Maryland 001-34766 26-1908763
(State or other jurisdiction of incorporation or organization) (Commission File Number) (I.R.S. Employer Identification No.)
3001 Ocean Drive, Suite 201, Vero Beach, FL  32963
(Address of principal executive offices)(zip code)
(772) 617-4340
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading symbols Name of Exchange on which registered
Preferred Stock, 7.00% Series C Cumulative Redeemable ARR-PRC New York Stock Exchange
Common Stock, $0.001 par value ARR New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  Accelerated filer Non-accelerated filer  Smaller reporting company Emerging growth company  
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
The number of outstanding shares of the Registrant’s common stock as of April 26, 2022 was 103,170,033.




ARMOUR Residential REIT, Inc.
TABLE OF CONTENTS


1
Item 1. Financial Statements
1
Item 1. Legal Proceedings
Item IA. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information




1

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ARMOUR Residential REIT, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share)
March 31, 2022 December 31, 2021
Assets
Cash $ 316,852  $ 337,664 
Cash collateral posted to counterparties 9,297  18,552 
Investments in securities, at fair value
Agency Securities (including pledged securities of $5,554,860 at March 31, 2022 and $3,995,804 at December 31, 2021)
6,399,346  4,406,521 
U.S. Treasury Securities (including pledged securities of $1,104,970 at March 31, 2022 and $98,859 at December 31, 2021)
1,258,020  198,833 
Derivatives, at fair value 543,229  199,073 
Accrued interest receivable 17,412  10,570 
Prepaid and other 57,733  1,094 
Subordinated loan to BUCKLER 105,000  105,000 
Total Assets $ 8,706,889  $ 5,277,307 
Liabilities and Stockholders’ Equity    
Liabilities:    
Repurchase agreements $ 6,440,004  $ 3,948,037 
Cash collateral posted by counterparties 549,658  171,060 
Payable for unsettled purchases 687,250  — 
Derivatives, at fair value 531  10,900 
Accrued interest payable- repurchase agreements 964  944 
Accounts payable and other accrued expenses 6,547  2,727 
Total Liabilities $ 7,684,954  $ 4,133,668 
Commitments and contingencies (Note 8)
Stockholders’ Equity:
Preferred stock, $0.001 par value, 50,000 shares authorized;
7.00% Series C Cumulative Preferred Stock; 6,847 shares issued and outstanding ($25.00 per share liquidation preference)
Common stock, $0.001 par value, 200,000 shares authorized;
100,361 shares and 94,152 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
100  94 
Additional paid-in capital 3,458,492  3,403,127 
Cumulative distributions to stockholders (1,870,058) (1,837,955)
Accumulated net loss (595,041) (528,607)
Accumulated other comprehensive income 28,435  106,973 
Total Stockholders’ Equity $ 1,021,935  $ 1,143,639 
Total Liabilities and Stockholders’ Equity $ 8,706,889  $ 5,277,307 
See financial statement notes (unaudited).
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2
ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share)



For the Three Months Ended March 31,
2022 2021
Interest Income:
Agency Securities, net of amortization of premium and fees $ 27,681  $ 18,558 
U.S. Treasury Securities 5,641  — 
BUCKLER Subordinated loan 19  17 
Total Interest Income $ 33,341  $ 18,575 
Interest expense- repurchase agreements (2,406) (2,427)
Interest expense- U.S. Treasury Securities sold short —  (87)
Net Interest Income $ 30,935  $ 16,061 
Other Income (Loss):
Realized gain on sale of available for sale Agency Securities (reclassified from Other Comprehensive Loss) —  7,354 
Loss on Agency Securities, trading (254,389) (62,586)
Loss on U.S. Treasury Securities (78,387) — 
Loss on short sale of U.S. Treasury Securities —  (28)
Subtotal $ (332,776) $ (55,260)
Realized loss on derivatives (1)
(102,065) (27,360)
Unrealized gain on derivatives 346,699  145,980 
Subtotal $ 244,634  $ 118,620 
Total Other Income (Loss) $ (88,142) $ 63,360 
Expenses:
Management fees 8,140  7,437 
Professional fees 620  738 
Insurance 200  193 
Compensation 1,409  1,676 
Other 808  450 
Total Expenses $ 11,177  $ 10,494 
Less management fees waived (1,950) (2,400)
Total Expenses after fees waived $ 9,227  $ 8,094 
Net Income (Loss) $ (66,434) $ 71,327 
Dividends on preferred stock (2,995) (2,486)
Net Income (Loss) available (related) to common stockholders $ (69,429) $ 68,841 
(Continued)
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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share)


For the Three Months Ended March 31,
2022 2021
Net Income (Loss) per share available (related) to common stockholders (Note 11):
Basic $ (0.72) $ 1.04 
Diluted $ (0.72) $ 1.03 
Dividends declared per common share $ 0.30  $ 0.30 
Weighted average common shares outstanding:
Basic 96,226  65,964 
Diluted 96,226  67,018 
(1) Interest expense related to our interest rate swap contracts is recorded in realized loss on derivatives on the consolidated statements of operations. For additional information, see financial statement Note 7.
See financial statement notes (unaudited).
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4
ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)


For the Three Months Ended March 31,
2022 2021
Net Income (Loss) $ (66,434) $ 71,327 
Other comprehensive loss:
Reclassification adjustment for realized gain on sale of available for sale Agency Securities —  (7,354)
Net unrealized loss on available for sale Agency Securities (78,538) (34,880)
Other Comprehensive Loss $ (78,538) $ (42,234)
Comprehensive Income (Loss) $ (144,972) $ 29,093 

See financial statement notes (unaudited).

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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)

Shares Par
Preferred Stock Common Stock Preferred Stock Common Stock Additional Paid-in Capital Cumulative Distributions to Stockholders Accumulated Net Loss Accumulated Other Comprehensive Income (Loss) Total Stockholders'Equity
Balance, December 31, 2021 6,847  94,152  $ $ 94  $ 3,403,127  $ (1,837,955) $ (528,607) $ 106,973  $ 1,143,639 
Comprehensive Income (loss) —  —  —  —  —  —  (66,434) (78,538) (144,972)
Issuance of common stock, net —  6,162  —  54,430  —  —  —  54,436 
Stock based compensation, net of withholding requirements —  47  —  —  935  —  —  —  935 
Preferred stock dividends —  —  —  —  —  (2,995) —  —  (2,995)
Common stock dividends —  —  —  —  —  (29,108) —  —  (29,108)
Balance, March 31, 2022 6,847  100,361  $ $ 100  $ 3,458,492  $ (1,870,058) $ (595,041) $ 28,435  $ 1,021,935 
See financial statement notes (unaudited).
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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months
Ended March 31,
2022 2021
Cash Flows From Operating Activities:
Net Income (Loss) $ (66,434) $ 71,327 
Adjustments to reconcile net income (loss) to net cash and cash collateral posted to counterparties provided by (used in) operating activities:
Net amortization of premium on Agency Securities 7,486  15,795 
Net amortization (accretion) of U.S. Treasury Securities (801) — 
Realized gain on sale of Agency Securities, available for sale —  (7,354)
Loss on Agency Securities, trading 254,389  62,586 
Loss on U.S. Treasury Securities 78,387  — 
Loss on short sale of U.S. Treasury Securities —  28 
Stock based compensation 935  1,199 
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (6,064) 1,952 
Increase in prepaid and other assets (917) (7,715)
Change in derivatives, at fair value (354,525) (117,813)
Increase (decrease) in accrued interest payable- repurchase agreements 20  (610)
Increase in accounts payable and other accrued expenses 3,820  1,802 
Net cash and cash collateral posted to counterparties provided by (used in) operating activities $ (83,704) $ 21,197 
Cash Flows From Investing Activities:  
Purchases of Agency Securities (1,778,122) — 
Purchases of U.S. Treasury Securities (2,654,611) (390,126)
Principal repayments of Agency Securities 131,356  278,722 
Proceeds from sales of Agency Securities —  405,050 
Proceeds from sales of U.S. Treasury Securities 1,470,125  390,098 
Disbursements on reverse repurchase agreements —  (391,125)
Receipts from reverse repurchase agreements —  391,125 
Increase in cash collateral posted by counterparties 378,598  120,426 
Net cash and cash collateral posted to counterparties provided by (used in) investing activities $ (2,452,654) $ 804,170 
Cash Flows From Financing Activities:
Issuance of Series C Preferred stock, net of expenses —  28,173 
Issuance of common stock, net of expenses 46,427  52,960 
Proceeds from repurchase agreements 16,191,551  7,044,307 
Principal repayments on repurchase agreements (13,699,584) (7,769,582)
Series C Preferred stock dividends paid (2,995) (2,486)
Common stock dividends paid (29,108) (20,057)
Net cash and cash collateral posted to counterparties provided by (used in) financing activities $ 2,506,291  $ (666,685)
Net increase (decrease) in cash and cash collateral posted to counterparties (30,067) 158,682 
Cash and cash collateral posted to counterparties - beginning of period 356,216  171,668 
Cash and cash collateral posted to counterparties - end of period $ 326,149  $ 330,350 
(Continued)
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7
ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months
Ended March 31,
2022 2021
Supplemental Disclosure:
Cash paid during the period for interest $ 19,371  4,193 
Non-Cash Investing Activities:
Receivable for unsettled sales $ 47,713  358,670 
Payable for unsettled purchases $ (687,250) (295,991)
Net unrealized loss on available for sale Agency Securities $ (78,538) (34,880)
Non-Cash Financing Activities:
Amounts receivable for issuance of common stock $ 8,009  — 
See financial statement notes (unaudited).
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)


Note 1 - Organization and Nature of Business Operations
References to "we," "us," "our," or the "Company" are to ARMOUR Residential REIT, Inc. ("ARMOUR") and its subsidiaries. References to "ACM" are to ARMOUR Capital Management LP, a Delaware limited partnership. ARMOUR owns a 10.0% equity interest in BUCKLER Securities LLC ("BUCKLER"). BUCKLER is a Delaware limited liability company and a FINRA-regulated broker-dealer, controlled by ACM and certain executive officers of ARMOUR. Refer to the Glossary of Terms for definitions of capitalized terms and abbreviations used in this report.
ARMOUR is an externally managed Maryland corporation incorporated in 2008. The Company is managed by ACM, an investment advisor registered with the Securities and Exchange Commission (the "SEC"), (see Note 8 - Commitments and Contingencies and Note 14 - Related Party Transactions). We have elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Our qualification as a REIT depends on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and our manner of operations enables us to meet the requirements for taxation as a REIT for federal income tax purposes. As a REIT, we will generally not be subject to federal income tax on the REIT taxable income that we currently distribute to our stockholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to federal income tax at regular corporate rates. Even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some federal, state and local taxes on our income.
At March 31, 2022 and December 31, 2021, we invested in mortgage backed securities ("MBS"), issued or guaranteed by a United States ("U.S.") Government-sponsored entity ("GSE"), such as the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), or a government agency such as Government National Mortgage Administration ("Ginnie Mae") (collectively, "Agency Securities"). Our Agency Securities consist primarily of fixed rate loans. The remaining are either backed by hybrid adjustable rate or adjustable rate loans. From time to time we have also invested in Credit Risk and Non-Agency Securities, Interest-Only Securities, U.S. Treasury Securities and money market instruments.
Note 2 - Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the SEC. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2022. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.
The unaudited consolidated financial statements include the accounts of ARMOUR Residential REIT, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the accompanying condensed consolidated financial statements include the valuation of MBS, including an assessment of the allowance for credit losses, and derivative instruments.
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Note 3 - Summary of Significant Accounting Policies
Cash
Cash includes cash on deposit with financial institutions. We may maintain deposits in federally insured financial institutions in excess of federally insured limits. However, management believes we are not exposed to significant credit risk due to the financial position and creditworthiness of the depository institutions in which those deposits are held.
 Cash Collateral Posted To/By Counterparties
Cash collateral posted to/by counterparties represents cash posted by us to counterparties or posted by counterparties to us as collateral. Cash collateral posted to/by counterparties may include collateral for interest rate swap contracts, interest rate swaptions, basis swap contracts, futures contracts, repurchase agreements on our MBS and our Agency Securities purchased or sold on a to-be-announced basis ("TBA Agency Securities").
Investments in Securities, at Fair Value
Our investments in securities are generally classified as either available for sale or trading securities. Management determines the appropriate classifications of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date.
Available for Sale Securities represent investments that we intend to hold for extended periods of time and are reported at their estimated fair values with unrealized gains and losses excluded from earnings and reported as part of the consolidated statements of comprehensive income (loss).
Trading Securities are reported at their estimated fair values with gains and losses included in Other Income (Loss) as a component of the consolidated statements of operations.
Receivables and Payables for Unsettled Sales and Purchases
We account for purchases and sales of securities on the trade date, including purchases and sales for forward settlement. Receivables and payables for unsettled trades represent the agreed trade price multiplied by the outstanding balance of the securities at the balance sheet date.
Accrued Interest Receivable and Payable
Accrued interest receivable includes interest accrued between payment dates on securities and interest on unsettled sales of securities. Accrued interest payable includes interest on unsettled purchases of securities and interest on repurchase agreements. At certain times, we may have interest payable on U.S. Treasury Securities sold short.
Repurchase Agreements
We finance the acquisition of the majority of our MBS through the use of repurchase agreements. Our repurchase agreements are secured by our MBS and bear interest rates that have historically moved in close relationship to the Federal Funds Rate and short-term London Interbank Offered Rate ("LIBOR") (prior to its dissolution), and more recently the Secured Overnight Funding Rate ("SOFR"). Under these repurchase agreements, we sell MBS to a lender and agree to repurchase the same MBS in the future for a price that is higher than the original sales price. The difference between the sales price that we receive and the repurchase price that we pay represents interest paid to the lender, which accrues over the life of the repurchase agreement. A repurchase agreement operates as a financing arrangement under which we pledge our MBS as collateral to secure a loan which is equal in value to a specified percentage of the estimated fair value of the pledged collateral. We retain beneficial ownership of the pledged collateral. At the maturity of a repurchase agreement, we are required to repay the loan and concurrently receive back our pledged collateral from the lender or, with the consent of the lender, we may renew such agreement at the then prevailing interest rate. The repurchase agreements may require us to pledge additional assets to the lender in the event the estimated fair value of the existing pledged collateral declines.
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

In addition to the repurchase agreement financing discussed above, at certain times we have entered into reverse repurchase agreements with certain of our repurchase agreement counterparties. Under a typical reverse repurchase agreement, we purchase U.S. Treasury Securities from a borrower in exchange for cash and agree to sell the same securities in the future in exchange for a price that is higher than the original purchase price. The difference between the purchase price originally paid and the sale price represents interest received from the borrower. Reverse repurchase agreement receivables and repurchase agreement liabilities are presented net when they meet certain criteria, including being with the same counterparty, being governed by the same master repurchase agreement ("MRA"), settlement through the same brokerage or clearing account and maturing on the same day. We did not have any reverse repurchase agreements outstanding at March 31, 2022 and December 31, 2021.
Derivatives, at Fair Value
We recognize all derivatives individually as either assets or liabilities at fair value on our consolidated balance sheets. All changes in the fair values of our derivatives are reflected in our consolidated statements of operations. We designate derivatives as hedges for tax purposes and any unrealized derivative gains or losses would not affect our distributable net taxable income. These transactions may include interest rate swap contracts, interest rate swaptions, basis swap contracts and futures contracts.
We also may utilize forward contracts for the purchase or sale of TBA Agency Securities. We account for TBA Agency Securities as derivative instruments if it is reasonably possible that we will not take or make physical delivery of the Agency Security upon settlement of the contract. We account for TBA dollar roll transactions as a series of derivative transactions. We may also purchase and sell TBA Agency Securities as a means of investing in and financing Agency Securities (thereby increasing our “at risk” leverage) or as a means of disposing of or reducing our exposure to Agency Securities (thereby reducing our “at risk” leverage). We agree to purchase or sell, for future delivery, Agency Securities with certain principal and interest terms and certain types of collateral, but the particular Agency Securities to be delivered are not identified until shortly before the TBA settlement date. We may also choose, prior to settlement, to move the settlement of these securities out to a later date by entering into an offsetting short or long position (referred to as a “pair off”), net settling the paired off positions for cash, and simultaneously purchasing or selling a similar TBA Agency Security for a later settlement date. This transaction is commonly referred to as a “dollar roll.” When it is reasonably possible that we will pair off a TBA Agency Security, we account for that contract as a derivative.
Impairment of Assets
We assess impairment of available for sale securities at least on a quarterly basis and more frequently when economic or market concerns warrant such evaluation. We consider an impairment if we (1) intend to sell the available for sale securities, or (2) believe it is more likely than not that we will be required to sell the securities before recovery (for example, because of liquidity requirements or contractual obligations) and a credit impairment exists where fair value is less than amortized cost. Impairment losses recognized establish a new cost basis for the related available for sale securities.
Revenue Recognition
Interest income is earned and recognized on Agency Securities based on their unpaid principal amounts and their contractual terms. Recognition of interest income commences on the settlement date of the purchase transaction and continues through the settlement date of the sale transaction. Premiums and discounts associated with the purchase of Multi-Family MBS, which are generally not subject to prepayment, are amortized or accreted into interest income over the contractual lives of the securities using a level yield method. Premiums and discounts associated with the purchase of other Agency Securities are amortized or accreted into interest income over the actual lives of the securities, reflecting actual prepayments as they occur. Purchase and sale transactions (including TBA Agency Securities) are recorded on the trade date to the extent it is probable that we will take or make timely physical delivery of the related securities. Gains or losses realized from sales of available for sale securities are reclassified into income from other comprehensive income and are determined using the specific identification method.
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Interest income on U.S. Treasury Securities is recognized based on their unpaid principal amounts and their contractual terms. Recognition of interest income commences on the settlement date of the purchase transaction and continues through the settlement date of the sale transaction.
Comprehensive Income (Loss)
Comprehensive income (loss) refers to the sum of net income and other comprehensive income (loss). It represents all changes in equity during a period from transactions and other events from non-owner sources. It excludes all changes in equity during a period resulting from investments by owners and distributions to owners.
Note 4 - Fair Value of Financial Instruments
Our valuation techniques for financial instruments use observable and unobservable inputs. Observable inputs reflect readily obtainable data from third-party sources, while unobservable inputs reflect management’s market assumptions. The Accounting Standards Codification Topic No. 820, "Fair Value Measurement," classifies these inputs into the following hierarchy:
Level 1 Inputs - Quoted prices for identical instruments in active markets.
Level 2 Inputs - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs - Prices determined using significant unobservable inputs. Unobservable inputs may be used in situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period). Unobservable inputs reflect management’s assumptions about the factors that market participants would use in pricing an asset or liability and would be based on the best information available.
At the beginning of each quarter, we assess the assets and liabilities that are measured at fair value on a recurring basis to determine if any transfers between levels in the fair value hierarchy are needed.
The following describes the valuation methodologies used for our assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. Any transfers between levels are assumed to occur at the beginning of the reporting period.    
Investments in Securities
Fair value for our investments in securities are based on obtaining a valuation for each security from third-party pricing services and/or dealer quotes. The third-party pricing services use common market pricing methods that may include pricing models that may incorporate such factors as coupons, prepayment speeds, spread to the Treasury curves and interest rate swap curves, duration, periodic and life caps and credit enhancement. If the fair value of a security is not available from the third-party pricing services or such data appears unreliable, we obtain pricing indications from up to three dealers who make markets in similar securities. Management reviews pricing used to ensure that current market conditions are properly reflected. This review includes, but is not limited to, comparisons of similar market transactions or alternative third-party pricing services, dealer pricing indications and comparisons to a third-party pricing model. Fair values obtained from the third-party pricing services for similar instruments are classified as Level 2 securities if the inputs to the pricing models used are consistent with the Level 2 definition. If quoted prices for a security are not reasonably available from the third-party pricing service, but dealer pricing indications are, the security will be classified as a Level 2 security. If neither is available, management will determine the fair value based on characteristics of the security that we receive from the issuer and based on available market information and classify it as a Level 3 security. U.S. Treasury Securities are classified as Level 1, as quoted unadjusted prices are available in active markets for identical assets.
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12
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Derivatives
The fair values of our interest rate swap contracts, interest rate swaptions, basis swaps and futures contracts are valued using information provided by third-party pricing services that incorporate common market pricing methods that may include current interest rate curves, forward interest rate curves and market spreads to interest rate curves and are classified as Level 2. We estimate the fair value of TBA Agency Securities based on similar methods used to value our Agency Securities and they are classified as Level 2. Management compares the pricing information received to dealer quotes to ensure that the current market conditions are properly reflected.
The following tables provide a summary of our assets and liabilities that are measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021.
March 31, 2022 Level 1 Level 2 Level 3 Balance
Assets at Fair Value:
Agency Securities $ —  $ 6,399,346  $ —  $ 6,399,346 
U.S. Treasury Securities $ 1,258,020  $ —  $ —  $ 1,258,020 
Derivatives $ —  $ 543,229  $ —  $ 543,229 
Liabilities at Fair Value:
Derivatives $ —  $ 531  $ —  $ 531 
December 31, 2021 Level 1 Level 2 Level 3 Balance
Assets at Fair Value:
Agency Securities $ —  $ 4,406,521  $ —  $ 4,406,521 
U.S. Treasury Securities $ 198,833  $ —  $ —  $ 198,833 
Derivatives $ —  $ 199,073  $ —  $ 199,073 
Liabilities at Fair Value:
Derivatives $ —  $ 10,900  $ —  $ 10,900 
There were no transfers of assets or liabilities between the levels of the fair value hierarchy during the three months ended March 31, 2022 or for the year ended December 31, 2021.
Excluded from the tables above are financial instruments, including cash, cash collateral posted to/by counterparties, receivables, the Subordinated loan to BUCKLER, payables and borrowings under repurchase agreements, which are presented in our consolidated financial statements at cost, which approximates fair value. The estimated fair value of these instruments is measured using "Level 1" or "Level 2" inputs at March 31, 2022 and December 31, 2021.
Note 5 - Investments in Securities
As of March 31, 2022 and December 31, 2021, our securities portfolio consisted of $7,657,366 and $4,605,354 of investment securities, at fair value, respectively, and $763,273 and $4,575,060 of TBA Agency Securities, at fair value, respectively. Our TBA Agency Securities are reported at net carrying value of $2,719 and $7,697, at March 31, 2022 and December 31, 2021, respectively, and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 - Derivatives). The net carrying value of our TBA Agency Securities represents the difference between the fair value of the underlying Agency Security in the TBA contract and the cost basis or the forward price to be paid or received for the underlying Agency Security.
The following tables summarize our investments in securities as of March 31, 2022 and December 31, 2021, excluding TBA Agency Securities (see Note 7 - Derivatives). Beginning in the second quarter of 2020, we designated Agency MBS purchased as “trading securities” for financial reporting purposes, and consequently, fair value changes for these investments will be reported in net income. We anticipate continuing this designation for newly acquired Agency MBS
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13
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

positions because it is more representative of our results of operations insofar as the fair value changes for these securities are presented in a manner consistent with the presentation and timing of the fair value changes of our hedging instruments. Fair value changes for the legacy Agency Securities designated as available for sale are reported in other comprehensive income as required by GAAP.
Available for Sale Securities Trading Securities
Agency Agency U.S. Treasuries Totals
March 31, 2022
Balance, December 31, 2021 $ 1,387,845  $ 3,018,676  $ 198,833  $ 4,605,354 
Purchases (1)
—  2,464,594  2,654,611  5,119,205 
Proceeds from sales (2)
—  —  (1,517,838) (1,517,838)
Principal repayments (30,189) (101,167) —  (131,356)
Losses (78,538) (254,389) (78,387) (411,314)
(Amortization) accretion (1,763) (5,723) 801  (6,685)
Balance, March 31, 2022 $ 1,277,355  $ 5,121,991  $ 1,258,020  $ 7,657,366 
Percentage of Portfolio 16.68  % 66.89  % 16.43  % 100.00  %
December 31, 2021
Balance, December 31, 2020 $ 1,970,902  $ 3,207,420  $ —  $ 5,178,322 
Purchases (1)
—  1,265,942  987,887  2,253,829 
Proceeds from sales (167,202) (813,178) (779,684) (1,760,064)
Principal repayments (339,393) (531,592) —  (870,985)
Gains (losses) (61,106) (77,145) (9,391) (147,642)
(Amortization) accretion (15,356) (32,771) 21  (48,106)
Balance, December 31, 2021 $ 1,387,845  $ 3,018,676  $ 198,833  $ 4,605,354 
Percentage of Portfolio 30.14  % 65.55  % 4.31  % 100.00  %
(1)Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end.
(2)Proceeds from sales include cash received during the period, plus receivables for investment securities sold during the period as of period end. The receivable is included in prepaid and other assets in our consolidated balance sheet at March 31, 2022.
Available for Sale Securities
At least quarterly, we evaluate our available for sale securities to determine if the available for sale securities in an unrealized loss position are impaired. No credit loss expense was incurred for the three months ended March 31, 2022 or for the three months ended March 31, 2021.
The table below presents the components of the carrying value and the unrealized gain or loss position of our available for sale securities at March 31, 2022 and December 31, 2021. Our available for sale securities had a weighted average coupon of 3.82% and 3.83% at March 31, 2022 and December 31, 2021, respectively.
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14
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Agency Securities Principal Amount Amortized Cost Gross Unrealized Loss Gross Unrealized Gain Fair Value
March 31, 2022
Total Fannie Mae $ 1,050,660  $ 1,074,388  $ (375) $ 28,317  $ 1,102,330 
Total Freddie Mac 155,761  161,932  (222) 775  162,485 
Total Ginnie Mae 12,299  12,600  (69) 12,540 
Total $ 1,218,720  $ 1,248,920  $ (666) $ 29,101  $ 1,277,355 
December 31, 2021
Total Fannie Mae $ 1,063,403  $ 1,088,209  $ (21) $ 99,138  $ 1,187,326 
Total Freddie Mac 172,550  179,385  (4) 7,797  187,178 
Total Ginnie Mae 12,957  13,278  (20) 83  13,341 
Total $ 1,248,910  $ 1,280,872  $ (45) $ 107,018  $ 1,387,845 
The following table presents the unrealized losses and estimated fair value of our available for sale securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021. All of our available for sale securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+.
Unrealized Loss Position For:
< 12 Months ≥ 12 Months Total
Agency Securities Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
March 31, 2022 $ 39,266  $ (623) $ 4,749  $ (43) $ 44,015  $ (666)
December 31, 2021 $ 2,924  $ (17) $ 5,185  $ (28) $ 8,109  $ (45)
Actual maturities of available for sale securities are generally shorter than stated contractual maturities because actual maturities of available for sale securities are affected by the contractual lives of the underlying mortgages, periodic payments of principal and prepayments of principal.
The following table summarizes the weighted average lives of our available for sale securities at March 31, 2022 and December 31, 2021.
March 31, 2022 December 31, 2021
Weighted Average Life of Available for Sale Securities Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
< 1 year $ 183  $ 183  $ 179  $ 174 
≥ 1 year and < 3 years 25,089  24,986  27,110  26,731 
≥ 3 years and < 5 years 14,225  14,316  333,598  319,762 
≥ 5 years 1,237,858  1,209,435  1,026,958  934,205 
Total Available for Sale Securities $ 1,277,355  $ 1,248,920  $ 1,387,845  $ 1,280,872 
We use a third-party model to calculate the weighted average lives of our available for sale securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our available for sale securities. These estimated prepayments are based on assumptions such as interest rates, current and
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15
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

future home prices, housing policy and borrower incentives. The weighted average lives of our available for sale securities at March 31, 2022 and December 31, 2021 in the table above are based upon market factors, assumptions, models and estimates from the third-party model and also incorporate management’s judgment and experience. The actual weighted average lives of our available for sale securities could be longer or shorter than estimated.
Trading Securities:
The components of the carrying value of our trading securities at March 31, 2022 and December 31, 2021 are presented in the table below.
Principal Amount Amortized Cost Gross Unrealized Loss Gross Unrealized Gain Fair Value
March 31, 2022
Agency Securities:
Total Fannie Mae $ 4,210,224  $ 4,354,922  $ (254,365) $ 1,256  $ 4,101,813 
Total Freddie Mac 1,040,930  1,074,981  (55,003) 200  1,020,178 
Total Agency Securities $ 5,251,154  $ 5,429,903  $ (309,368) $ 1,456  $ 5,121,991 
U.S. Treasury Securities 1,300,000  1,290,788  (32,768) —  1,258,020 
Total Trading Securities $ 6,551,154  $ 6,720,691  $ (342,136) $ 1,456  $ 6,380,011 
December 31, 2021
Agency Securities:
Total Fannie Mae $ 2,253,393  $ 2,382,146  $ (47,079) $ 1,056  $ 2,336,123 
Total Freddie Mac 656,775  690,053  (7,546) 46  682,553 
Total Agency Securities $ 2,910,168  $ 3,072,199  $ (54,625) $ 1,102  $ 3,018,676 
U.S. Treasury Securities 200,000  198,987  (154) —  198,833 
Total Trading Securities $ 3,110,168  $ 3,271,186  $ (54,779) $ 1,102  $ 3,217,509 
The following table summarizes the weighted average lives of our trading securities at March 31, 2022 and December 31, 2021.
  March 31, 2022 December 31, 2021
Estimated Weighted Average Life of Trading Securities Fair Value Amortized Cost Fair Value Amortized Cost
< 1 year $ 199,629  $ 199,700  $ 99,973  $ 99,978 
≥ 1 year and < 3 years 93  98  5,323  5,365 
≥ 3 years and < 5 years 413,165  435,063  472,774  475,600 
≥ 5 years 5,767,124  6,085,830  2,639,439  2,690,243 
Total $ 6,380,011  $ 6,720,691  $ 3,217,509  $ 3,271,186 
We use a third-party model to calculate the weighted average lives of our trading securities. Weighted average life is calculated based on expectations for estimated prepayments for the underlying mortgage loans of our trading securities. These estimated prepayments are based on assumptions such as interest rates, current and future home prices, housing policy and borrower incentives. The weighted average lives of our trading securities at March 31, 2022 and December 31, 2021 in the tables above are based upon market factors, assumptions, models and estimates from the third-party model
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16
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

and also incorporate management’s judgment and experience. The actual weighted average lives of our trading securities could be longer or shorter than estimated.
 Note 6 - Repurchase Agreements
At March 31, 2022, we had active MRAs with 36 counterparties and had $6,440,004 in outstanding borrowings with 19 of those counterparties. At December 31, 2021, we had MRAs with 34 counterparties and had $3,948,037 in outstanding borrowings with 18 counterparties.
The following table represents the contractual repricing regarding our repurchase agreements to finance MBS purchases at March 31, 2022 and December 31, 2021. No amounts below are subject to offsetting. Our repurchase agreements require excess collateral, known as a “haircut.” At March 31, 2022, the average haircut percentage was 2.75% compared to 3.45% at December 31, 2021. The haircut for our repurchase agreements vary by counterparty and therefore, the changes in the average haircut percentage will vary with the changes in our counterparty repurchase agreement balances.
Balance Weighted Average Contractual Rate Weighted Average Maturity in days
March 31, 2022
Agency Securities
≤ 30 days $ 4,415,600  0.37  % 15
> 30 days to ≤ 90 days 917,841  0.40  % 34
> 90 days 26,605  0.98  % 175
Total or Weighted Average $ 5,360,046  0.37  % 19
U.S. Treasury Securities
≤ 30 days 1,079,958  0.18  % 1
Total or Weighted Average $ 6,440,004  0.34  % 16
December 31, 2021
Agency Securities
≤ 30 days $ 2,565,743  0.13  % 13
> 30 days to ≤ 60 days 647,584  0.13  % 35
> 60 days to ≤ 90 days 635,710  0.11  % 89
Total or Weighted Average $ 3,849,037  0.13  % 29
U.S. Treasury Securities
≤ 30 days 99,000  0.12  % 3
Total or Weighted Average $ 3,948,037  0.12  % 29
Our repurchase agreements require that we maintain adequate pledged collateral. A decline in the value of the MBS pledged as collateral for borrowings under repurchase agreements could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels. We manage this risk by maintaining an adequate balance of available cash and unpledged securities. An event of default or termination event under the standard MRA would give our counterparty the option to terminate all repurchase transactions existing with us and require any amount due to be payable immediately. In addition, certain of our MRAs contain a restriction that prohibits our leverage from exceeding twelve times our stockholders’ equity as well as termination events in the case of significant reductions in equity capital. We also may receive cash or securities as collateral from our derivative counterparties which we may use as additional collateral for repurchase agreements. Certain interest rate swap contracts provide for cross collateralization and cross default with repurchase agreements and other contracts with the same counterparty.
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17
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

At March 31, 2022 and December 31, 2021, BUCKLER accounted for 52.4% and 49.7%, respectively, of our aggregate borrowings and had an amount at risk of 8.3% and 5.0%, respectively, of our total stockholders' equity with a weighted average maturity of 16 days and 35 days, respectively, on repurchase agreements (see Note 14 - Related Party Transactions for other transactions with BUCKLER).
In addition, at March 31, 2022, we had 5 repurchase agreement counterparties that individually accounted for over 5% of our aggregate borrowings. In total, these counterparties accounted for approximately 31.0% of our repurchase agreement borrowings outstanding at March 31, 2022. At December 31, 2021, we had 2 repurchase agreement counterparties that individually accounted for over 5% of our aggregate borrowings. In total, these counterparties accounted for 16.0% of our repurchase agreement borrowings at December 31, 2021.    
Note 7 - Derivatives
We enter into derivative transactions to manage our interest rate risk and agency mortgage rate exposures. We have agreements with our derivative counterparties that provide for the posting of collateral based on the fair values of our derivatives. Through this margin process, either we or our counterparties may be required to pledge cash or securities as collateral. Collateral requirements vary by counterparty and change over time based on the fair value, notional amount and remaining term of the contracts. Certain contracts provide for cross collateralization and cross default with repurchase agreements and other contracts with the same counterparty.
Interest rate swap contracts are designed to lock in funding costs for repurchase agreements associated with our assets in such a way to help assure the realization of net interest margins. Such transactions are based on assumptions about prepayments which, if not realized, will cause transaction results to differ from expectations. Interest rate swaptions generally provide us the option to enter into an interest rate swap agreement at a certain point of time in the future with a predetermined notional amount, stated term and stated rate of interest in the fixed leg and interest rate index on the floating leg. Basis swap contracts allow us to exchange one floating interest rate basis for another, thereby allowing us to diversify our floating rate basis exposures.
TBA Agency Securities are forward contracts for the purchase (“long position”) or sale (“short position”) of Agency Securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency Securities delivered into the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. We may enter into TBA Agency Securities as a means of hedging against short-term changes in interest rates. We may also enter into TBA Agency Securities as a means of acquiring or disposing of Agency Securities and we may from time to time utilize TBA dollar roll transactions to finance Agency Security purchases. We estimate the fair value of TBA Agency Securities based on similar methods used to value our Agency Securities.
We have netting arrangements in place with all derivative counterparties pursuant to standard documentation developed by ISDA. We are also required to post or hold cash collateral based upon the net underlying market value of our open positions with the counterparty. A decline in the value of the open positions with the counterparty could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels. We manage this risk by maintaining an adequate balance of available cash and unpledged securities. An event of default or termination event under the standard ISDA would give our counterparty the option to terminate all repurchase transactions existing with us and require any amount due to be payable immediately. In addition, certain of our ISDAs contain a restriction that prohibits our leverage from exceeding twelve times our stockholders’ equity as well as termination events in the case of significant reductions in equity capital.
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18
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

The following tables present information about the potential effects of netting our derivatives if we were to offset the assets and liabilities on the accompanying consolidated balance sheets. We currently present these financial instruments at their gross amounts and they are included in Derivatives, at fair value on the accompanying consolidated balance sheets at March 31, 2022 and December 31, 2021.
Gross Amounts Not Offset
Assets
Gross Amounts(1)
Financial
Instruments
Cash Collateral Total Net
March 31, 2022
Interest rate swap contracts $ 539,979  $ —  $ (463,679) $ 76,300 
TBA Agency Securities 3,250  (531) 25  2,744 
Totals $ 543,229  $ (531) $ (463,654) $ 79,044 
December 31, 2021
Interest rate swap contracts $ 187,661  $ (7,185) $ (161,529) $ 18,947 
TBA Agency Securities 11,412  (3,715) 4,036  11,733 
Totals $ 199,073  $ (10,900) $ (157,493) $ 30,680 
(1)See Note 4 - Fair Value of Financial Instruments for additional discussion.
  Gross Amounts Not Offset  
Liabilities
Gross Amounts(1)
Financial
Instruments
Cash Collateral Total Net
March 31, 2022
TBA Agency Securities (531) 531  —  — 
Totals $ (531) $ 531  $ —  $ — 
December 31, 2021
Interest rate swap contracts $ (7,185) $ 7,185  $ —  $ — 
TBA Agency Securities (3,715) 3,715  —  — 
Totals $ (10,900) $ 10,900  $ —  $ — 
(1)See Note 4 - Fair Value of Financial Instruments for additional discussion.

The following table represents the location and information regarding our derivatives which are included in Other Income (Loss) in the accompanying consolidated statements of operations for the three months ended March 31, 2022 and March 31, 2021.

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19
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Income (Loss) Recognized
For the Three Months Ended March 31,
Derivatives Location on consolidated statements of operations 2022 2021
Interest rate swap contracts:
Interest income Realized loss on derivatives $ 1,719  $ 872 
Interest expense Realized loss on derivatives (7,985) (4,448)
Changes in fair value Unrealized gain on derivatives 350,099  185,960 
$ 343,833  $ 182,384 
TBA Agency Securities:
Realized gain Realized loss on derivatives (95,799) (23,784)
Changes in fair value Unrealized gain on derivatives (3,400) (39,980)
$ (99,199) $ (63,764)
Totals $ 244,634  $ 118,620 
The following tables present information about our derivatives at March 31, 2022 and December 31, 2021.
Interest Rate Swap Contracts (1)
Notional Amount Weighted Average Remaining Term (Months) Weighted Average Rate
March 31, 2022
< 3 years
$ 1,593,000  12 0.08  %
≥ 3 years and < 5 years
865,000  54 0.24  %
≥ 5 years and < 7 years
650,000  65 1.05  %
≥ 7 years
4,302,000  105 0.90  %
Total or Weighted Average (2)
$ 7,410,000  75 0.66  %
December 31, 2021
< 3 years
$ 1,593,000  15 0.08  %
≥ 3 years and < 5 years
708,000  57 0.24  %
≥ 5 years and < 7 years
707,000  64 0.88  %
≥ 7 years
4,202,000  107 0.87  %
Total or Weighted Average (3)
$ 7,210,000  77 0.63  %
(1)Pay Fixed/Receive Variable.
(2)Of this amount, $6,007,000 notional are Fed Funds based swaps, the last of which matures in 2032 and $1,403,000 notional are SOFR based swaps, the last of which matures in 2032. Includes $950,000 notional of forward settling swap contracts that settle by September 23, 2022.
(3)Of this amount, $1,203,000 notional are SOFR based swaps, the last of which matures in 2023; and $6,007,000 notional are Fed Funds based swaps, the last of which matures in 2032.
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20
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

TBA Agency Securities Notional Amount Cost Basis Fair Value
March 31, 2022
30 Year Long
4.0%
750,000  760,449  763,273 
Total (1)
$ 750,000  $ 760,449  $ 763,273 
December 31, 2021
15 Year Long
1.5%
$ 1,000,000  $ 999,840  $ 1,003,125 
2.0%
1,700,000 1,733,652 1,738,695
30 Year Long
2.0%
300,000  300,789  299,227 
2.5%
1,200,000  1,224,820  1,223,510 
3.0%
300,000  309,734  310,503 
Total (1)
$ 4,500,000  $ 4,568,835  $ 4,575,060 
(1)$200,000 and $400,000 notional were forward settling at March 31, 2022 and December 31, 2021, respectively.
Note 8 - Commitments and Contingencies
Management
The Company is managed by ACM, pursuant to a management agreement (see also Note 14 - Related Party Transactions). The management agreement entitles ACM to receive management fees payable monthly in arrears. Currently, the monthly management fee is 1/12th of the sum of (a) 1.5% of gross equity raised up to $1.0 billion plus (b) 0.75% of gross equity raised in excess of $1.0 billion. The cost of repurchased stock and any dividends specifically designated by the Board as liquidation dividends will reduce the amount of gross equity raised used to calculate the monthly management fee. Realized and unrealized gains and losses do not affect the amount of gross equity raised. At March 31, 2022 and March 31, 2021, the effective management fee, prior to management fees waived, was 0.97% and 1.00% based on gross equity raised of $3,368,971 and $3,026,269, respectively.
ACM began waiving 40% of its management fee during the second quarter of 2020 and on January 13, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,400 for the first quarter of 2021 and $800 per month thereafter. On April 20, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,100 for the second quarter of 2021 and $700 per month thereafter. On October 25, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver from the rate of $700 per month to $650 per month, effective November 1, 2021, until further notice. During the three months ended March 31, 2022, and March 31, 2021 ACM waived management fees of $1,950 and $2,400, respectively. The monthly management fees are not calculated based on the performance of our assets. Accordingly, the payment of our monthly management fees may not decline in the event of a decline in our earnings and may cause us to incur losses. We are also responsible for any costs and expenses that ACM incurs solely on our behalf other than the various overhead expenses specified in the terms of the management agreement. ACM is further entitled to receive termination fees from us under certain circumstances.
Indemnifications and Litigation
We enter into certain contracts that contain a variety of indemnifications, principally with ACM and underwriters, against third-party claims for errors and omissions in connection with their services to us. We have not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements, as well as the maximum amount attributable to past events, is not material. Accordingly, we have no liabilities recorded for these agreements at March 31, 2022 and December 31, 2021.
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21
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Nine putative class action lawsuits have been filed in connection with the tender offer (the “Tender Offer”) and merger (the “Merger”) for JAVELIN. The Tender Offer and Merger are collectively defined herein as the “Transactions.” All nine suits name ARMOUR, the previous members of JAVELIN’s board of directors prior to the Merger (of which eight are current members of ARMOUR’s board of directors) (the “Individual Defendants”) and JMI Acquisition Corporation (“Acquisition”) as defendants. Certain cases also name ACM and JAVELIN as additional defendants. The lawsuits were brought by purported holders of JAVELIN’s common stock, both individually and on behalf of a putative class of JAVELIN’s stockholders, alleging that the Individual Defendants breached their fiduciary duties owed to the plaintiffs and the putative class of JAVELIN stockholders, including claims that the Individual Defendants failed to properly value JAVELIN; failed to take steps to maximize the value of JAVELIN to its stockholders; ignored or failed to protect against conflicts of interest; failed to disclose material information about the Transactions; took steps to avoid competitive bidding and to give ARMOUR an unfair advantage by failing to adequately solicit other potential acquirors or alternative transactions; and erected unreasonable barriers to other third-party bidders. The suits also allege that ARMOUR, JAVELIN, ACM and Acquisition aided and abetted the alleged breaches of fiduciary duties by the Individual Defendants. The lawsuits seek equitable relief, including, among other relief, to enjoin consummation of the Transactions, or rescind or unwind the Transactions if already consummated, and award costs and disbursements, including reasonable attorneys’ fees and expenses. The sole Florida lawsuit was never served on the defendants, and that case was voluntarily dismissed and closed on January 20, 2017. On April 25, 2016, the Maryland court issued an order consolidating the eight Maryland cases into one action, captioned In re JAVELIN Mortgage Investment Corp. Shareholder Litigation (Case No. 24-C-16-001542), and designated counsel for one of the Maryland cases as interim lead co-counsel. On May 26, 2016, interim lead counsel filed the Consolidated Amended Class Action Complaint for Breach of Fiduciary Duty asserting consolidated claims of breach of fiduciary duty, aiding and abetting the breaches of fiduciary duty, and waste. On June 27, 2016, defendants filed a Motion to Dismiss the Consolidated Amended Class Action Complaint for failing to state a claim upon which relief can be granted. A hearing was held on the Motion to Dismiss on March 3, 2017, and the Court reserved ruling. On August 16, 2021, the court ordered that the entry of an Order of Dismissal is further deferred until February 1, 2022. On March 1, 2022, the court deferred the Order of Dismissal until September 1, 2022 and if the case is not fully disposed of by that date, the clerk shall enter on the docket "dismissed for lack of prosecution without prejudice."
Each of ARMOUR, JAVELIN, ACM and the Individual Defendants intends to defend the claims made in these lawsuits vigorously; however, there can be no assurance that any of ARMOUR, JAVELIN, ACM or the Individual Defendants will prevail in its defense of any of these lawsuits to which it is a party. An unfavorable resolution of any such litigation surrounding the Transactions may result in monetary damages being awarded to the plaintiffs and the putative class of former stockholders of JAVELIN and the cost of defending the litigation, even if resolved favorably, could be substantial. Due to the preliminary nature of all of these suits, ARMOUR is not able at this time to estimate their outcome.
Note 9 - Stock Based Compensation
We adopted the 2009 Stock Incentive Plan as amended (the “Plan”) to attract, retain and reward directors and other persons who provide services to us in the course of operations. The Plan authorizes the Board to grant awards including common stock, restricted shares of common stock (“RSUs”), stock options, performance shares, performance units, stock appreciation rights and other equity and cash-based awards (collectively, “Awards”), subject to terms as provided in the Plan. At March 31, 2022, there were 2,167 shares available for future issuance under the Plan.
Transactions related to awards for the three months ended March 31, 2022 are summarized below:
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22
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

  March 31, 2022
 
Number of
Awards
Weighted
Average Grant Date Fair Value per Award
Unvested RSU Awards Outstanding beginning of period 823  $ 14.07 
Vested (63) $ 16.73 
Unvested RSU Awards Outstanding end of period 760  $ 13.85 
At March 31, 2022, there was approximately $10,523 of unvested stock based compensation related to the Awards (based on a weighted grant date price of $13.85 per share), which we expect to recognize as an expense as follows: for the remaining of 2022 expense of $3,202, in 2023 expense of $2,416, and thereafter expense of $4,905. We also pay each of our non-executive Board members quarterly fees of $33, which are payable in cash, common stock, RSUs or a combination of common stock, RSUs and cash at the option of the director. Non-executive Board members have the option to participate in the Company's Non-Management Director Compensation and Deferral Program (the "Deferral Program"). The Deferral Program permits non-executive Board members to elect to receive either common stock or RSUs or a combination of common stock and RSUs at the option of the director, instead of all or part of their quarterly cash compensation and/or all or part of their committee and chairperson cash retainers.
Note 10 - Stockholders' Equity
Changes in Stockholders' Equity
The following table presents the changes in Stockholders' Equity for the following periods.
Stockholders' Equity March 31, 2022 March 31, 2021
Balance, beginning of quarter $ 1,143,639  $ 938,304 
Other comprehensive loss (78,538) (42,234)
Net income (loss) (66,434) 71,327 
Issuance of Series C Preferred Stock —  28,173 
Issuance of Common stock, net 54,436  52,960 
Stock based compensation, net of withholding requirements 935  1,199 
Series C Preferred dividends ($0.14583 per share)
(2,995) (2,486)
Common stock dividends ($0.10 per share)
(29,108) (20,057)
Balance, end of quarter $ 1,021,935  $ 1,027,186 
The following table presents the components of cumulative distributions to stockholders at March 31, 2022 and December 31, 2021.
Cumulative Distributions to Stockholders March 31, 2022 December 31, 2021
Preferred dividends $ 135,841  $ 132,845 
Common stock dividends 1,734,217  1,705,110 
Total $ 1,870,058  $ 1,837,955 

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23
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Preferred Stock
At March 31, 2022 and December 31, 2021, we were authorized to issue up to 50,000 shares of preferred stock, par value $0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by our Board of Directors (“Board”) or a committee thereof. At March 31, 2022, 10,000 shares of the Company’s authorized preferred stock, par value $0.001 per share are designated as shares of 7.00% Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") with the powers, designations, preferences and other rights as set forth therein and a total of 40,000 shares of our authorized preferred stock remain available for designation as future series.
At March 31, 2022 and December 31, 2021, we had 6,847 shares of Series C Preferred Stock issued and outstanding with a par value of $0.001 per share and a liquidation preference of $25.00 per share, or $171,175 in the aggregate. Shares designated as Series C Preferred Stock but unissued totaled 3,153 at March 31, 2022 and December 31, 2021. At March 31, 2022 and December 31, 2021, there were no accrued or unpaid dividends on the Series C Preferred Stock.
On January 29, 2020, the Company entered into an Equity Sales Agreement (the “Preferred C ATM Sales Agreement”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.) and BUCKLER, as sales agents (individually and collectively, the “Agents"), and ACM, pursuant to which the Company may offer and sell, over a period of time and from time to time, through one or more of the Agents, as the Company’s agents, up to 6,550 of Series C Preferred Stock. The Preferred C ATM Sales Agreement relates to a proposed “at-the-market” offering program. Under the Preferred C ATM Sales Agreement, we will pay the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent under the Preferred C ATM Sales Agreement. We did not sell any shares under the Preferred C ATM Sales Agreement during the three months ended March 31, 2022.
Common Stock
At March 31, 2022 and December 31, 2021, we were authorized to issue up to 200,000 shares of common stock, par value $0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by our Board. We had 100,361 shares of common stock issued and outstanding at March 31, 2022 and 94,152 shares of common stock issued and outstanding at December 31, 2021.
On February 15, 2019, we entered into an Equity Sales Agreement (the “Common stock ATM Sales Agreement”) with BUCKLER, JMP Securities LLC and Ladenburg Thalmann & Co. Inc., as sales agents, relating to the shares of our common stock. On April 3, 2020, the Common stock ATM Sales Agreement was amended to add B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.) as a sales agent. On May 4, 2020 the Common stock ATM Sales Agreement was further amended to increase the number of shares available for sale pursuant to the terms of the Common Stock ATM Sales Agreement. In accordance with the terms of the Common Stock ATM Sales agreement, as amended, we were permitted to offer and sell over a period of time and from time to time, up to 17,000 shares of our common stock, par value $0.001 per share. The Common stock ATM Sales Agreement related to an "at-the-market" offering program. Under the Common stock ATM Sales Agreement, as amended, we paid the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent. Prior to exhausting the Common stock ATM Sales Agreement, as amended, on May 18, 2021, we sold 10,713 shares for proceeds of $129,336, net of issuance costs and commissions of approximately $1,682.
After exhausting the Common stock ATM Sales Agreement, we entered into a new Equity Sales Agreement (the “2021 Common stock ATM Sales Agreement”) on May 14, 2021, with BUCKLER, JMP Securities LLC, Ladenburg Thalmann & Co. Inc. and B. Riley Securities, Inc., as sales agents, relating to the shares of our common stock. In accordance with the terms of the 2021 Common Stock ATM Sales agreement, we may offer and sell over a period of time and from time to time, up to 17,000 shares of our common stock, par value $0.001 per share. On November 12, 2021, the 2021 Common stock ATM Sales Agreement was amended to add JonesTrading Institutional Services LLC, as a sales agent and to offer an additional 25,000 shares available for sale pursuant to the terms of the 2021 Common stock ATM Sales Agreement. The 2021 Common stock ATM Sales Agreement relates to an "at-the-market" offering program. The 2021 Common stock ATM
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24
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Sales Agreement provides that we will pay the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent, under the 2021 Common stock ATM Sales Agreement. During the three months ended March 31, 2022, we sold 6,162 shares under this agreement for proceeds of $54,436, net of issuance costs and commissions of approximately $598.
See Note 14 - Related Party Transactions for discussion of additional transactions with BUCKLER.
Common Stock Repurchased
 At March 31, 2022 and December 31, 2021, there were 8,210 authorized shares remaining under the current repurchase authorization. Under the Repurchase Program, shares may be purchased in the open market, including block trades, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future. The timing, manner, price and amount of any repurchases will be at our discretion, subject to the requirements of the Securities Exchange Act of 1934, as amended, and related rules. We are not required to repurchase any shares under the Repurchase Program and it may be modified, suspended or terminated at any time for any reason. We do not intend to purchase shares from our Board or other affiliates. Under Maryland law, such repurchased shares are treated as authorized but unissued.
Equity Capital Raising Activities
The following tables present our equity transactions for the three months ended March 31, 2022 and for the year ended December 31, 2021.
Transaction Type Completion Date Number of Shares
Per Share price (1)
Net Proceeds (Costs)
March 31, 2022
2021 Common stock ATM Sales Agreement January 11, 2022 - March 31, 2022 6,162  $ 8.83  $ 54,436 
December 31, 2021
Preferred C ATM Sales Agreement January 19, 2021 - April 9, 2021 1,500  $ 24.38  $ 36,585 
Common stock ATM Sales Agreement March 3, 2021 - May 18, 2021 10,713  $ 12.07  $ 129,336 
2021 Common stock ATM Sales Agreement May 19, 2021 - December 10, 2021 17,915  $ 11.13  $ 199,444 
(1)Weighted average price
Dividends
The following table presents our Series C Preferred Stock dividend transactions for the three months ended March 31, 2022.
Record Date Payment Date
Rate per
Series C
Preferred Share
Aggregate
amount paid to
holders of record
January 15, 2022 January 27, 2022 $ 0.14583  $ 998.5 
February 15, 2022 February 28, 2022 $ 0.14583  998.5 
March 15, 2022 March 28, 2022 $ 0.14583  998.5 
Total dividends paid $ 2,995.5 
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

The following table presents our common stock dividend transactions for the three months ended March 31, 2022.
Record Date Payment Date Rate per common share Aggregate
amount paid to
holders of record
January 18, 2022 January 28, 2022 $ 0.10  $ 9,654 
February 15, 2022 February 28, 2022 $ 0.10  9,690 
March 15, 2022 March 28, 2022 $ 0.10  9,764 
Total dividends paid $ 29,108 
Note 11 - Net Income (Loss) per Common Share
The following table presents a reconciliation of net income (loss) and the shares used in calculating weighted average basic and diluted earnings per common share for the three months ended March 31, 2022 and March 31, 2021.
  For the Three Months Ended March 31,
  2022 2021
Net Income (Loss) $ (66,434) $ 71,327 
Less: Preferred dividends (2,995) (2,486)
Net Income (Loss) available (related) to common stockholders $ (69,429) $ 68,841 
Weighted average common shares outstanding – basic 96,226  65,964 
Add: Effect of dilutive non-vested awards, assumed vested —  1,054 
Weighted average common shares outstanding – diluted 96,226  67,018 
For the three months ended March 31, 2022, 760 of potentially dilutive non-vested awards outstanding were excluded from the computation of diluted Net Income (Loss) available (related) to common stockholders because to have included them would have been anti-dilutive for the period.
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26
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Note 12 - Comprehensive Income (Loss) per Common Share
The following table presents a reconciliation of comprehensive net income (loss) and the shares used in calculating weighted average basic and diluted comprehensive income (loss) per common share for the three months ended March 31, 2022 and March 31, 2021.
  For the Three Months Ended March 31,
  2022 2021
Comprehensive Income (Loss) $ (144,972) $ 29,093 
Less: Preferred dividends (2,995) (2,486)
Comprehensive Income (Loss) available (related) to common stockholders $ (147,967) $ 26,607 
Net Comprehensive Income (Loss) per share available (related) to common stockholders:
Basic $ (1.54) $ 0.40 
Diluted $ (1.54) $ 0.40 
Weighted average common shares outstanding:
Basic 96,226  65,964 
Add: Effect of dilutive non-vested awards, assumed vested —  1,054 
Diluted 96,226  67,018 
For the three months ended March 31, 2022, 760 of potentially dilutive non-vested awards outstanding were excluded from the computation of diluted Net Comprehensive Income (Loss) available (related) to common stockholders because to have included them would have been anti-dilutive for the period.

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27
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Note 13 - Income Taxes
The following table reconciles our GAAP net income (loss) to estimated REIT taxable loss for the three months ended March 31, 2022 and March 31, 2021.
  For the Three Months Ended March 31,
  2022 2021
GAAP net income (loss) $ (66,434) $ 71,327 
Book to tax differences:
TRS income (1) (7)
Premium amortization expense (41) (48)
Agency Securities, trading 254,389  62,586 
U.S. Treasury Securities 78,387  28 
Changes in interest rate contracts (250,900) (122,195)
Gain on Security Sales —  (7,354)
Amortization of deferred hedging costs (39,581) (41,867)
Other 550  417 
Estimated REIT taxable loss $ (23,631) $ (37,113)
Interest rate contracts and futures contracts are treated as hedging transactions for U.S. federal income tax purposes. Unrealized gains and losses on open interest rate contracts are not included in the determination of REIT taxable income. Realized gains and losses on interest rate contracts terminated before their maturity are deferred and amortized over the remainder of the original term of the contract for REIT taxable income. At March 31, 2022 and at December 31, 2021, we had approximately $567,419 and $607,000 in tax deductible expense relating to previously terminated interest rate swap contracts amortizing through the year 2031. At March 31, 2022, we had $240,428 of net operating loss carryforwards available for use indefinitely.
Net capital losses realized Amount Available to offset capital gains through
2018 $ (136,388) 2023
2019 $ (13,819) 2024
2021 $ (15,605) 2026
The Company's subsidiary, ARMOUR TRS, Inc. has made an election as a taxable REIT subsidiary (“TRS”). As such, the TRS is taxable as a domestic C corporation and subject to federal, state, and local income taxes based upon its taxable income.
The aggregate tax basis of our assets and liabilities was less than our total Stockholders’ Equity at March 31, 2022 by approximately $308,578, or approximately $3.07 per common share (based on the 100,361 common shares then outstanding). State and federal tax returns for the years 2018 and later remain open and are subject to possible examination.
We are required and intend to timely distribute substantially all of our REIT taxable income in order to maintain our REIT status under the Code. Total dividend payments to stockholders for the three months ended March 31, 2022 and March 31, 2021 were $32,103 and $22,543, respectively.
Our REIT taxable income and dividend requirements to maintain our REIT status are determined on an annual basis. Dividends paid in excess of current tax earnings and profits for the year will generally not be taxable to common stockholders.
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

Our management is responsible for determining whether tax positions taken by us are more likely than not to be sustained on their merits. We have no material unrecognized tax benefits or material uncertain tax positions.
Note 14 - Related Party Transactions
ACM    
The Company is managed by ACM, pursuant to a management agreement. All of our executive officers are also employees of ACM. ACM manages our day-to-day operations, subject to the direction and oversight of the Board. The management agreement runs through June 18, 2027 and is thereafter automatically renewed for an additional five-year term unless terminated under certain circumstances. Either party must provide 180 days prior written notice of any such termination.
Under the terms of the management agreement, ACM is responsible for costs incident to the performance of its duties, such as compensation of its employees and various overhead expenses. ACM is responsible for the following primary roles:
Advising us with respect to, arranging for and managing the acquisition, financing, management and disposition of, elements of our investment portfolio;
Evaluating the duration risk and prepayment risk within the investment portfolio and arranging borrowing and hedging strategies;
Coordinating capital raising activities;
Advising us on the formulation and implementation of operating strategies and policies, arranging for the acquisition of assets, monitoring the performance of those assets and providing administrative and managerial services in connection with our day-to-day operations; and
Providing executive and administrative personnel, office space and other appropriate services required in rendering management services to us.
ACM began waiving 40% of its management fee during the second quarter of 2020 and on January 13, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,400 for the first quarter of 2021 and $800 per month thereafter. On April 20, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,100 for the second quarter of 2021 and $700 per month thereafter. On October 25, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver from the rate of $700 per month to $650 per month, effective November 1, 2021, until further notice.
The following table reconciles the fees incurred in accordance with the management agreement for the three months ended March 31, 2022 and March 31, 2021.
For the Three Months
Ended March 31,
2022 2021
ARMOUR management fees $ 8,125  $ 7,428 
Less management fees waived (1,950) (2,400)
Total management fee expense $ 6,175  $ 5,028 
We are required to take actions as may be reasonably required to permit and enable ACM to carry out its duties and obligations. We are also responsible for any costs and expenses that ACM incurred solely on our behalf other than the various overhead expenses specified in the terms of the management agreement. For the three months ended March 31, 2022 and March 31, 2021, we reimbursed ACM $107 and $7 for other expenses incurred on our behalf. In 2017, 2020 and 2021, we elected to grant restricted stock unit awards to our executive officers and other ACM employees through ACM
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29
ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

that generally vest over 5 years. In 2017, 2020 and 2021, we elected to grant RSUs to the Board. We recognized stock based compensation expense of $162 and $207 for the three months ended March 31, 2022 and March 31, 2021, respectively.
BUCKLER
In March 2017, we contributed $352 for a 10.0% ownership interest in BUCKLER. The investment is included in prepaid and other assets in our consolidated balance sheet and is accounted for using the equity method as BUCKLER maintains specific ownership accounts. The value of the investment was $606 at March 31, 2022 and December 31, 2021, reflecting our total investment plus our share of BUCKLER’s operating results, in accordance with the terms of the operating agreement of BUCKLER that our independent directors negotiated. The primary purpose of our investment in BUCKLER is to facilitate our access to repurchase financing on potentially attractive terms (considering rate, term, size, haircut, relationship and funding commitment) compared to other suitable repurchase financing counterparties.
Our operating agreement with BUCKLER contains certain provisions to benefit and protect the Company, including (1) sharing in any (a) defined profits realized by BUCKLER from the anticipated financing spreads resulting from repurchase financing facilitated by BUCKLER, and (b) distributions from BUCKLER to its members of net cash receipts, and (2) the realization of anticipated savings from reduced clearing, brokerage, trading and administrative fees. In addition, the independent directors of the Company must approve, in their sole discretion, any third-party business engaged by BUCKLER and may cause BUCKLER to wind up and dissolve and promptly return certain subordinated loans we provide to BUCKLER as regulatory capital (as described more fully below) if the independent directors reasonably determine that BUCKLER’s ability to provide attractive securities transactions for the Company is materially adversely affected. For each of the three months ended March 31, 2022 and March 31, 2021, we earned $0 from BUCKLER as an allocated share of Financing Gross Profit for a reduction of interest on repurchase agreements charged to the Company. Financing Gross Profit is defined in the operating agreement, subject to a contractually required reduction in our share of the Financing Gross Profit of $306 per annum until the end of the first quarter of 2022
We have one subordinated loan agreement with BUCKLER, totaling $105.0 million and maturing on May 1, 2025. BUCKLER may, at its option after obtaining regulatory approval, repay all or a portion of the principal amount of the loan. The loan has a stated interest rate of zero, plus additional interest payable to the Company in an amount equal to the amount of interest earned by BUCKLER on the investment of the loan proceeds, generally in government securities funds. For the three months ended March 31, 2022 and March 31, 2021, the Company earned $19 and $17, respectively, of interest on this loan.
On February 22, 2021, the Company entered into an uncommitted revolving credit facility and security agreement with BUCKLER. Under the terms of the facility, the Company may, in its sole and absolute discretion, provide drawings to BUCKLER of up to $50,000. Interest on drawings is payable monthly at the Federal Reserve Bank of New York SOFR plus 2% per annum. To date, Buckler has not yet used the facility and therefore no interest expense was payable.
With BUCKLER as the sales agent, under the 2021 Common stock ATM Sales Agreement, we sold 6,162 common shares for proceeds of $54,436, net of commissions of approximately $550 during the three months ended March 31, 2022 (see Note 10 - Stockholders' Equity).
The table below summarizes other transactions with BUCKLER for the three months ended March 31, 2022 and for the year ended December 31, 2021.
Transactions with BUCKLER March 31, 2022 December 31, 2021
Repurchase agreements (1)
$ 3,372,837  $ 1,963,679 
Collateral posted on repurchase agreements $ 3,488,675  $ 2,036,385 
U.S. Treasury Securities Purchased $ 600,000  $ 100,000 
U.S. Treasury Securities Sold $ 800,000  $ — 
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ARMOUR Residential REIT, Inc.
FINANCIAL STATEMENT NOTES (UNAUDITED)
(in thousands, except per share)

(1)Interest on repurchase agreements was $1,033 and $1,388 for the three months ended March 31, 2022 and March 31, 2021, respectively. See also, Note 6 - Repurchase Agreements for transactions with BUCKLER.
Note 15 - Subsequent Events
Series C Preferred Stock
A cash dividend of $0.14583 per outstanding share of Series C Preferred Stock, or $998 in the aggregate, will be paid on April 27, 2022 to holders of record on April 15, 2022. We have also declared cash dividends of $0.14583 per outstanding share of Series C Preferred Stock payable May 27, 2022 to holders of record on May 15, 2022 and payable June 27, 2022 to holders of record on June 15, 2022.
Common Stock
A cash dividend of $0.10 per outstanding common share, or $10,360 in the aggregate, will be paid on April 29, 2022 to holders of record on April 18, 2022. We have also declared a cash dividend of $0.10 per outstanding common share payable May 27, 2022 to holders of record on May 16, 2022.
Between April 1, 2022 and April 14, 2022, we issued 2,809 shares under our 2021 Common stock ATM Sales Agreement, with BUCKLER as the sales agent, for proceeds of $22,974 net of issuance costs and commissions of $231.
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                                                       31
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
ARMOUR Residential REIT, Inc.


References to “we,” “us,” “our,” or the “Company” are to ARMOUR Residential REIT, Inc. (“ARMOUR”) and its subsidiaries. References to “ACM” are to ARMOUR Capital Management LP, a Delaware limited partnership. ARMOUR owns a 10% equity interest in BUCKLER Securities LLC ("BUCKLER"), a Delaware limited liability company and a FINRA-regulated broker-dealer, controlled by ACM and certain executive officers of ARMOUR. Refer to the Glossary of Terms for definitions of capitalized terms and abbreviations used in this report.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. U.S. dollar amounts are presented in thousands, except per share amounts or as otherwise noted.
Overview
We are a Maryland corporation managed by ACM, an investment advisor registered with the SEC (see Note 8 and Note 14 to the consolidated financial statements). We have elected to be taxed as a REIT under the Code. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and our manner of operations enables us to meet the requirements for taxation as a REIT for federal income tax purposes.
Our strategy is to create shareholder value through thoughtful investment and risk management that produces current yield and superior risk adjusted returns over the long term. Our focus on residential real estate finance supports home ownership for a broad and diverse spectrum of Americans by bringing private capital into the mortgage markets. We are deeply committed to implementing sustainable environmental, responsible social, and prudent governance practices that improve our work and our world.
We strive to contribute to a healthy, sustainable environment by utilizing resources efficiently. As an organization, we create a relatively small environmental footprint. Still, we are focused on minimizing the environmental impact of our business where possible.
At March 31, 2022 and December 31, 2021, we invested in MBS, issued or guaranteed by a U.S. GSE, such as Fannie Mae, Freddie Mac, or a government agency such as Ginnie Mae (collectively, Agency Securities). Our Agency Securities consist primarily of fixed rate loans. The remaining are either backed by hybrid adjustable rate or adjustable rate loans. From time to time we have also invested in Credit Risk and Non-Agency Securities, Interest-Only Securities, U.S. Treasury Securities and money market instruments.
We earn returns on the spread between the yield on our assets and our costs, including the interest cost of the funds we borrow, after giving effect to our hedges. We identify and acquire MBS, finance our acquisitions with borrowings under a series of short-term repurchase agreements and then hedge certain risks based on our entire portfolio of assets and liabilities and our management’s view of the market.
Factors that Affect our Results of Operations and Financial Condition
Our results of operations and financial condition are affected by various factors, many of which are beyond our control, including, among other things, our net interest income, the market value of our assets and the supply of and demand for such assets. Recent events, such as those discussed below, can affect our business in ways that are difficult to predict and may produce results outside of typical operating variances. Our net interest income varies primarily as a result of changes in interest rates, borrowing costs and prepayment speeds, the behavior of which involves various risks and uncertainties. We currently invest primarily in Agency Securities, for which the principal and interest payments are guaranteed by a GSE or other government agency. We also invest in U.S. Treasury Securities and money market instruments. In the past, we have invested in Credit Risk and Non-Agency Securities and it is possible we may do so in the future. We expect our investments to be subject to risks arising from prepayments resulting from existing home sales, financings, delinquencies and foreclosures. We are exposed to changing mortgage spreads, which could result in declines in the fair value of our investments. Our asset selection, financing and hedging strategies are designed to work together to generate current net interest income while moderating our exposure to market volatility.
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32
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

Interest Rates
Changes in interest rates, particularly short-term interest rates, may significantly influence our net interest income. With the maturities of our assets, generally of a longer term than those of our liabilities, interest rate increases will tend to decrease our net interest income and the market value of our assets (and therefore our book value). Such rate increases could possibly result in operating losses or adversely affect our ability to make distributions to our stockholders. Our operating results depend, in large part, upon our ability to manage interest rate risks effectively while maintaining our status as a REIT.
Prepayment Rates
Prepayments on MBS and the underlying mortgage loans may be influenced by changes in market interest rates and a variety of economic and geographic factors, policy decisions by regulators, as well as other factors beyond our control. To the extent we hold MBS acquired at a premium or discount to par, or face value, changes in prepayment rates may impact our anticipated yield. In periods of declining interest rates, prepayments on our MBS will likely increase. If we are unable to reinvest the proceeds of such prepayments at comparable yields, our net interest income may decline. Our operating results depend, in large part, upon our ability to manage prepayment risks effectively while maintaining our status as a REIT.
While we use strategies to economically hedge some of our interest rate risk, we do not hedge all of our exposure to changes in interest rates and prepayment rates, as there are practical limitations on our ability to insulate our securities portfolio from all potential negative consequences associated with changes in short-term interest rates in a manner that will allow us to seek attractive net spreads on our securities portfolio. Also, since we have not elected to use cash flow hedge accounting, earnings reported in accordance with GAAP will fluctuate even in situations where our derivatives are operating as intended. As a result of this mark-to-market accounting treatment, our results of operations are likely to fluctuate far more than if we were to designate our derivative activities as cash flow hedges. Comparisons with companies that use cash flow hedge accounting for all or part of their derivative activities may not be meaningful. For these and other reasons more fully described under the section captioned “Derivative Instruments” below, no assurance can be given that our derivatives will have the desired beneficial impact on our results of operations or financial condition.
In addition to the use of derivatives to hedge interest rate risk, a variety of other factors relating to our business may also impact our financial condition and operating performance; these factors include:
our degree of leverage;
our access to funding and borrowing capacity;
the REIT requirements under the Code; and
the requirements to qualify for an exclusion under the 1940 Act and other regulatory and accounting policies related to our business.
Management
See Note 8 and Note 14 to the consolidated financial statements.
Market and Interest Rate Trends and the Effect on our Securities Portfolio
Federal Reserve Actions
On March 16, 2022, the Federal Reserve raised its target range for the Federal Funds Rate to between 0.25% and 0.5%. The Fed also stated that it anticipates that ongoing increases in the target range will be appropriate. The Fed further indicated that it expects to begin reducing its holdings of agency mortgage-backed securities and other fixed-income assets at a coming meeting. Financial markets will likely be highly sensitive to the Fed’s interest rate decisions, its bond purchasing and balance sheet holding decisions, as well as its communication. ARMOUR continues to mitigate risk and maximize
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33
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

liquidity within the scope of its business plan. The agency mortgage-backed securities market remains highly dependent on the future course and timing of the Fed's actions on interest rates as well as its purchases and holdings of our target assets.
Developments at Fannie Mae and Freddie Mac
The payments we receive on the Agency Securities in which we invest depend upon a steady stream of payments by borrowers on the underlying mortgages and the fulfillment of guarantees by GSEs. There can be no assurance that the U.S. Government's intervention in Fannie Mae and Freddie Mac will continue to be adequate or assured for the longer-term viability of these GSEs. These uncertainties may lead to concerns about the availability of and market for Agency Securities in the long term. Accordingly, if the GSEs defaulted on their guaranteed obligations, suffered losses or ceased to exist, the value of our Agency Securities and our business, operations and financial condition could be materially and adversely affected.
The passage of any new federal legislation affecting Fannie Mae and Freddie Mac may create market uncertainty and reduce the actual or perceived credit quality of securities issued or guaranteed by them. If Fannie Mae and Freddie Mac were reformed or wound down, it is unclear what effect, if any, this would have on the value of the existing Fannie Mae and Freddie Mac Agency Securities. The foregoing could materially adversely affect the pricing, supply, liquidity and value of the Agency Securities in which we invest and otherwise materially adversely affect our business, operations and financial condition.
Short-term Interest Rates and Funding Costs
Changes in Fed policy affect our financial results, since our cost of funds is largely dependent on short-term rates. An increase in our cost of funds without a corresponding increase in interest income earned on our MBS would cause our net income to decline. Below is the Fed's target range for the Federal Funds Rate at each Fed meeting where a change was made since March 2020.
Meeting Date Lower Bound Higher Bound
March 16, 2022 0.25  % 0.50  %
March 16, 2020 0.00  % 0.25  %
March 3, 2020 1.00  % 1.25  %
Our borrowings in the repurchase market have historically closely tracked the Federal Funds Rate, LIBOR (prior to its dissolution) and more recently SOFR. Traditionally, a lower Federal Funds Rate has indicated a time of increased net interest margin and higher asset values. Volatility in these rates and divergence from the historical relationship among these rates could negatively impact our ability to manage our securities portfolio. If rates were to increase as a result, our net interest margin and the value of our securities portfolio might suffer as a result. Our derivatives are either Federal Funds Rate or SOFR-based interest rate swap contracts (see Note 7 to the consolidated financial statements).

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34
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

The following graph shows the effective Federal Funds Rate as compared to SOFR on a monthly basis from March 31, 2020 to March 31, 2022.    
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Long-term Interest Rates and Mortgage Spreads
Our securities are valued at an interest rate spread versus long-term interest rates (mortgage spread). This mortgage spread varies over time and can be above or below long-term averages, depending upon market participants' current desire to own MBS over other investment alternatives. When the mortgage spread gets smaller (or negative) versus long-term interest rates, our book value will be positively affected. When this spread gets larger (or positive), our book value will be negatively affected.
Mortgage spreads can vary due to movements in securities valuations, movements in long-term interest rates or a combination of both. We mainly use interest rate swap contracts, interest rate swaptions, basis swap contracts and futures contracts to economically hedge against changes in the valuation of our securities. We do not use such hedging contracts for speculative purposes.
We may reduce our mortgage spread exposure by entering in to certain TBA Agency Securities short positions. The TBA short positions may represent different securities and maturities than our MBS and TBA Agency Security long positions, and accordingly, may perform somewhat differently. While we expect our TBA Agency Securities short positions to perform well compared to our related mortgage securities, there can be no assurance as to their relative performance.
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35
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

Results of Operations
For the Three Months Ended March 31,
2022 2021
Net Interest Income $ 30,935  $ 16,061 
Total Other Income (Loss) (88,142) 63,360 
Total Expenses after fees waived (9,227) (8,094)
Net Income (Loss) $ (66,434) $ 71,327 
Reclassification adjustment for realized gain on sale of available for sale Agency Securities —  (7,354)
Net unrealized loss on available for sale Agency Securities $ (78,538) $ (34,880)
Other Comprehensive Loss $ (78,538) $ (42,234)
Comprehensive Income (Loss) $ (144,972) $ 29,093 
Net income (loss) for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 reflected interest income and expense from a larger average securities portfolio as well as mark to market losses on our Agency Securities due to changes in interest rates offset in part due to fair value gains on our derivatives.
Net interest income is a function of both our securities portfolio size and net interest rate spread.
For the Three Months Ended March 31,
2022 2021
Interest Income:
Agency Securities, net of amortization of premium and fees $ 27,681  $ 18,558 
U.S. Treasury Securities 5,641  — 
BUCKLER Subordinated loan 19  17 
Total Interest Income $ 33,341  $ 18,575 
Interest expense- repurchase agreements (2,406) (2,427)
Interest expense- U.S. Treasury Securities sold short —  (87)
Net Interest Income $ 30,935  $ 16,061 
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
Our average securities portfolio, including TBA Agency Securities, increased 25.5% from $6,902,777 to $8,661,923 quarter over quarter due to the repositioning of our securities portfolio. We disposed of TBA Agency Securities and purchased U.S. Treasury Securities and additional Agency Securities, trading.
Our average securities portfolio yield increased 0.36% and our cost of funds increased 0.07% quarter over quarter.
Our net interest rate spread increased by 0.29% quarter over quarter.
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36
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

The following table presents the components of the yield earned on our securities portfolio for the quarterly periods ended on the dates shown below:
Asset Yield Cost of Funds Net Interest Margin Interest Expense on Repurchase Agreements
March 2022 2.20  % 0.42  % 1.78  % 0.17  %
December 2021 2.15  % 0.40  % 1.75  % 0.16  %
September 2021 2.15  % 0.45  % 1.70  % 0.17  %
June 2021 1.95  % 0.50  % 1.45  % 0.17  %
March 2021 1.84  % 0.35  % 1.49  % 0.23  %
December 2020 1.99  % 0.27  % 1.72  % 0.26  %
September 2020 2.21  % 0.26  % 1.95  % 0.26  %
June 2020 2.53  % 0.90  % 1.63  % 0.55  %
March 2020 3.18  % 1.95  % 1.23  % 1.94  %
The yield on our assets is most significantly affected by the rate of repayments on our Agency Securities. The following graph shows the annualized CPR on a monthly basis for the quarterly periods ended on the dates shown below.
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37
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

Other Income (Loss)
For the Three Months Ended March 31,
2022 2021
Other Income (Loss):
Realized gain on sale of available for sale Agency Securities (reclassified from Other Comprehensive Loss) $ —  $ 7,354 
Loss on Agency Securities, trading (254,389) (62,586)
Loss on U.S. Treasury Securities (78,387) — 
Loss on short sale of U.S. Treasury Securities —  (28)
Subtotal $ (332,776) $ (55,260)
Realized loss on derivatives (102,065) (27,360)
Unrealized gain on derivatives 346,699  145,980 
Subtotal $ 244,634  $ 118,620 
Total Other Income (Loss) $ (88,142) $ 63,360 
Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021
We did not sell any Agency Securities, available for sale during the three months ended March 31, 2022. Gains on Agency Securities, available for sale, resulted from gains from sales of Agency Securities of $87,875 for the three months ended March 31, 2021.
We evaluate our available for sale securities, at least quarterly, to determine if the available for sale securities in an unrealized loss position are impaired. No credit loss expense was incurred.
Loss on Agency Securities, trading, includes changes in fair value of the securities as well as the loss on sales. For the three months ended March 31, 2022, the change in fair value of the securities was $(254,389) compared to $(59,381) for the three months ended March 31, 2021. We did not sell any Agency Securities, trading during the three months ended March 31, 2022. For the three months ended March 31, 2021, we sold $675,845 of Agency Securities, trading which resulted in a loss of $(3,205).
Loss on U.S. Treasury Securities resulted from the change in fair value of the securities as well as the loss on sales. For the three months ended March 31, 2022, the change in fair value of the securities was $(32,614). For the three months ended March 31, 2022, we sold $1,517,838 of U.S. Treasury Securities resulting in a realized loss of $(45,773). We did not have any U.S. Treasury Securities for the three months ended March 31, 2021.
Gain (losses) on Derivatives resulted from a combination of the following:
Interest rate swap contracts' aggregate notional balance increased from $7,210,000 at December 31, 2021 to $7,410,000 at March 31, 2022.
Changes in fair value due to interest rate movements.
Our total TBA Agency Securities aggregate notional balance was $4,500,000 at December 31, 2021 and $750,000 at March 31, 2022. The decrease in TBA prices as we exited our positions during the quarter resulted in losses of $(99,199) and $(63,764) for the three months ended March 31, 2022 and March 31, 2021, respectively.
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38
ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis (continued)

For the Three Months Ended March 31,
2022 2021
Expenses:
Management fees $ 8,140  $ 7,437 
Professional fees 620  738 
Insurance 200  193 
Compensation 1,409  1,676 
Other 808  450 
Total Expenses $ 11,177  $ 10,494 
Less management fees waived (1,950) (2,400)
Total Expenses after fees waived $ 9,227  $ 8,094 
Expenses
The Company is managed by ACM, pursuant to a management agreement. The management fees are determined based on gross equity raised. Therefore, management fees increase when we raise capital and decline when we repurchase previously issued stock and liquidate distributions as approved and so designated by a majority of the Board. However, because the management fee rate decreased to 0.75% per annum for gross equity raised in excess of $1.0 billion pursuant to the management agreement, the effective average management fee rate declines as equity is raised. The cost of repurchased stock and any dividends specifically designated by the Board as liquidation dividends will reduce the amount of gross equity raised used to calculate the monthly management fee. Realized and unrealized gains and losses do not affect the amount of gross equity raised. At March 31, 2022 and March 31, 2021, the effective management fee, prior to management fees waived, was 0.97% and 1.00% based on gross equity raised of $3,368,971 and $3,026,269, respectively. ACM began waiving 40% of its management fee during the second quarter of 2020 and on January 13, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,400 for the first quarter of 2021 and $800 per month thereafter. On April 20, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,100 for the second quarter of 2021 and $700 per month thereafter. On October 25, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver from the rate of $700 per month to $650 per month, effective November 1, 2021, until further notice.
Professional fees include securities clearing, legal, audit and consulting costs and are generally driven by the size and complexity of our securities portfolio, the volume of transactions we execute and the extent of research and due diligence activities we undertake on potential transactions.
Insurance includes premiums for both general business and directors and officers liability coverage. The fluctuation from year to year is due to changes in premiums.
Compensation includes non-executive director compensation as well as the restricted stock units awarded to our Board, executive officers and other ACM employees through ACM. The fluctuation from year to year is due to the number of awards vesting.
Other expenses include fees for market and pricing data, analytics and risk management systems and portfolio related data processing costs as well as stock exchange listing fees and similar stockholder related expenses, net of other miscellaneous income.
Taxable Income
As a REIT that regularly distributes all of its taxable income, we are generally not required to pay federal income tax (see Note 13 to the consolidated financial statements).
Realized gains and losses on interest rate contracts terminated before their maturity are deferred and amortized over the remainder of the original term of the contract for REIT taxable income. At March 31, 2022 and at December 31,