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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) 
Maryland001-3476626-1908763
(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 ClassTrading symbolsName of Exchange on which registered
Preferred Stock, 7.00% Series C Cumulative RedeemableARR-PRCNew York Stock Exchange
Common Stock, $0.001 par valueARRNew 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


Item 1. Financial Statements
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, 2022December 31, 2021
Assets
Cash$316,852 $337,664 
Cash collateral posted to counterparties9,297 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 value543,229 199,073 
Accrued interest receivable17,412 10,570 
Prepaid and other57,733 1,094 
Subordinated loan to BUCKLER105,000 105,000 
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 counterparties549,658 171,060 
Payable for unsettled purchases687,250  
Derivatives, at fair value531 10,900 
Accrued interest payable- repurchase agreements964 944 
Accounts payable and other accrued expenses6,547 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)
7 7 
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 capital3,458,492 3,403,127 
Cumulative distributions to stockholders(1,870,058)(1,837,955)
Accumulated net loss(595,041)(528,607)
Accumulated other comprehensive income28,435 106,973 
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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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share)



For the Three Months Ended March 31,
20222021
Interest Income:
Agency Securities, net of amortization of premium and fees$27,681 $18,558 
U.S. Treasury Securities5,641  
BUCKLER Subordinated loan19 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 derivatives346,699 145,980 
Subtotal$244,634 $118,620 
Total Other Income (Loss)$(88,142)$63,360 
Expenses:
Management fees8,140 7,437 
Professional fees620 738 
Insurance200 193 
Compensation1,409 1,676 
Other808 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,
20222021
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:
Basic96,226 65,964 
Diluted96,226 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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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands)


For the Three Months Ended March 31,
20222021
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)

SharesPar
Preferred StockCommon StockPreferred StockCommon StockAdditional Paid-in CapitalCumulative Distributions to StockholdersAccumulated Net LossAccumulated Other Comprehensive Income (Loss)Total Stockholders'Equity
Balance, December 31, 20216,847 94,152 $7 $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 — 6 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, 20226,847 100,361 $7 $100 $3,458,492 $(1,870,058)$(595,041)$28,435 $1,021,935 
See financial statement notes (unaudited).
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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months
Ended March 31,
20222021
Cash Flows From Operating Activities:
Net Income (Loss)$(66,434)$71,327 
Adjustments to reconcile net income (loss) to net cash and cash collateral posted to counterparties provided by (used in) operating activities:
Net amortization of premium on Agency Securities7,486 15,795 
Net amortization (accretion) of U.S. Treasury Securities(801) 
Realized gain on sale of Agency Securities, available for sale (7,354)
Loss on Agency Securities, trading254,389 62,586 
Loss on U.S. Treasury Securities78,387  
Loss on short sale of U.S. Treasury Securities 28 
Stock based compensation935 1,199 
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable(6,064)1,952 
Increase in prepaid and other assets(917)(7,715)
Change in derivatives, at fair value(354,525)(117,813)
Increase (decrease) in accrued interest payable- repurchase agreements20 (610)
Increase in accounts payable and other accrued expenses3,820 1,802 
Net cash and cash collateral posted to counterparties provided by (used in) operating activities$(83,704)$21,197 
Cash Flows From Investing Activities: 
Purchases of Agency Securities(1,778,122) 
Purchases of U.S. Treasury Securities(2,654,611)(390,126)
Principal repayments of Agency Securities131,356 278,722 
Proceeds from sales of Agency Securities 405,050 
Proceeds from sales of U.S. Treasury Securities1,470,125 390,098 
Disbursements on reverse repurchase agreements (391,125)
Receipts from reverse repurchase agreements 391,125 
Increase in cash collateral posted by counterparties378,598 120,426 
Net cash and cash collateral posted to counterparties provided by (used in) investing activities$(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 expenses46,427 52,960 
Proceeds from repurchase agreements16,191,551 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 period356,216 171,668 
Cash and cash collateral posted to counterparties - end of period$326,149 $330,350 
(Continued)
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ARMOUR Residential REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months
Ended March 31,
20222021
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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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, 2022Level 1Level 2Level 3Balance
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 $ $531 
December 31, 2021Level 1Level 2Level 3Balance
Assets at Fair Value:
Agency Securities$ $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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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 SecuritiesTrading Securities
AgencyAgencyU.S. TreasuriesTotals
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 Portfolio16.68 %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 Portfolio30.14 %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 SecuritiesPrincipal AmountAmortized CostGross Unrealized LossGross Unrealized GainFair Value
March 31, 2022
Total Fannie Mae$1,050,660 $1,074,388 $(375)$28,317 $1,102,330 
Total Freddie Mac155,761 161,932 (222)775 162,485 
Total Ginnie Mae12,299 12,600 (69)9 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 Mac172,550 179,385 (4)7,797 187,178 
Total Ginnie Mae12,957 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 MonthsTotal
Agency SecuritiesFair 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, 2022December 31, 2021
Weighted Average Life of Available for Sale SecuritiesFair Value
Amortized
Cost
Fair Value
Amortized
Cost
< 1 year$183 $183 $179 $174 
≥ 1 year and < 3 years25,089 24,986 27,110 26,731 
≥ 3 years and < 5 years14,225 14,316 333,598 319,762 
≥ 5 years1,237,858 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 AmountAmortized CostGross Unrealized LossGross Unrealized GainFair Value
March 31, 2022
Agency Securities:
Total Fannie Mae$4,210,224 $4,354,922 $(254,365)$1,256 $4,101,813 
Total Freddie Mac1,040,930 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 Securities1,300,000 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 Mac656,775 690,053 (7,546)46 682,553 
Total Agency Securities$2,910,168 $3,072,199 $(54,625)$1,102 $3,018,676 
U.S. Treasury Securities200,000 198,987 (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, 2022December 31, 2021
Estimated Weighted Average Life of Trading SecuritiesFair ValueAmortized CostFair ValueAmortized Cost
< 1 year$199,629 $199,700 $99,973 $99,978 
≥ 1 year and < 3 years93 98 5,323 5,365 
≥ 3 years and < 5 years413,165 435,063 472,774 475,600 
≥ 5 years5,767,124 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.
BalanceWeighted Average Contractual RateWeighted Average Maturity in days
March 31, 2022
Agency Securities
≤ 30 days$4,415,600 0.37 %15
> 30 days to ≤ 90 days917,841 0.40 %34
> 90 days26,605 0.98 %175
Total or Weighted Average$5,360,046 0.37 %19
U.S. Treasury Securities
≤ 30 days1,079,958 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 days647,584 0.13 %35
> 60 days to ≤ 90 days635,710 0.11 %89
Total or Weighted Average$3,849,037 0.13 %29
U.S. Treasury Securities
≤ 30 days99,000 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 CollateralTotal Net
March 31, 2022
Interest rate swap contracts$539,979 $ $(463,679)$76,300 
TBA Agency Securities3,250 (531)25 2,744 
Totals$543,229 $(531)$(463,654)$79,044 
December 31, 2021