ARMOUR Residential REIT(ARR) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Comprehensive financial data including statements, notes, and management's analysis for the reporting period Item 1. Financial Statements Unaudited consolidated financial statements for ARMOUR Residential REIT, Inc. as of June 30, 2025, with detailed notes on accounting policies and financial instruments Consolidated Balance Sheets (Unaudited) Presents the company's financial position, including assets, liabilities, and equity, as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $16,240,716 | $13,547,953 | | Cash and cash equivalents | $141,166 | $67,970 | | Investments in securities, at fair value | $15,118,095 | $12,439,414 | | Total Liabilities | $14,580,765 | $12,186,538 | | Repurchase agreements, net | $12,810,087 | $10,713,830 | | Total Stockholders' Equity | $1,659,951 | $1,361,415 | Consolidated Statements of Operations (Unaudited) Details the company's revenues, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Interest Income | $180,886 | $129,925 | $353,767 | $271,405 | | Interest expense | $(147,781) | $(122,956) | $(284,321) | $(259,105) | | Net Interest Income | $33,105 | $6,969 | $69,446 | $12,300 | | Total Other Loss | $(94,364) | $(44,039) | $(90,231) | $(14,418) | | Total Expenses after fees waived | $14,349 | $11,280 | $27,491 | $31,716 | | Net Loss | $(75,608) | $(48,350) | $(48,276) | $(33,834) | | Net Loss per share related to common stockholders (Basic) | $(0.94) | $(1.05) | $(0.68) | $(0.82) | | Dividends declared per common share | $0.72 | $0.72 | $1.44 | $1.44 | Consolidated Statements of Stockholders' Equity (Unaudited) Outlines changes in stockholders' equity, including net loss, stock issuance, repurchases, and dividends, for the period | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Stockholders' Equity (end of period) | $1,659,951 | $1,361,415 | | Net Loss (six months) | $(75,608) | $(48,276) | | Issuance of common stock, net | $104,664 | $476,101 | | Common stock repurchased | $(10,031) | $(10,031) | | Common stock dividends | $(60,438) | $(114,520) | Consolidated Statements of Cash Flows (Unaudited) Summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash and cash equivalents and cash collateral posted to counterparties provided by operating activities | $126,446 | $123,894 | | Net cash and cash equivalents and cash collateral posted to counterparties provided by (used in) investing activities | $(2,306,495) | $2,315,370 | | Net cash and cash equivalents and cash collateral posted to counterparties provided by (used in) financing activities | $2,456,418 | $(2,509,217) | | Net increase (decrease) in cash and cash equivalents and cash collateral posted to counterparties | $276,369 | $(69,953) | | Cash and cash equivalents and cash collateral posted to counterparties - end of period | $422,552 | $188,905 | Note 1 - Organization and Nature of Business Operations Describes ARMOUR Residential REIT, Inc.'s structure, management, REIT election, and primary investment focus on Agency Securities - ARMOUR Residential REIT, Inc. is an externally managed Maryland corporation, incorporated in 2008, and managed by ACM. It has elected to be taxed as a real estate investment trust (REIT) and primarily invests in Agency Securities (MBS issued or guaranteed by GSEs like Fannie Mae, Freddie Mac, or Ginnie Mae) and U.S. Treasury Securities[20][21][22] - The company owns a 10.8% equity interest in BUCKLER Securities LLC, a FINRA-regulated broker-dealer controlled by ACM[20] Note 2 - Basis of Presentation and Consolidation Explains the preparation of unaudited consolidated financial statements in accordance with GAAP and SEC instructions - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC instructions, including all necessary adjustments. Management's estimates and assumptions, particularly for MBS and derivative valuations, are critical[23][24] Note 3 - Summary of Significant Accounting Policies Outlines key accounting policies for investments, repurchase agreements, derivatives, and interest income recognition - Key accounting policies include classifying investments in securities as trading securities, recognizing them at fair value with gains/losses in operations. Repurchase agreements are used to finance MBS, with interest accruing over the agreement's life. Derivatives are recognized at fair value, with changes reflected in operations, and are used to manage interest rate risk and agency mortgage rate exposures[28][31][34] - TBA Agency Securities are accounted for as derivative instruments if physical delivery is not reasonably possible, and TBA dollar roll transactions are treated as a series of derivatives[35] - Interest income on Agency Securities is recognized based on unpaid principal and contractual terms, with premiums/discounts amortized/accreted over the securities' lives, reflecting actual prepayments[36] Note 4 - Fair Value of Financial Instruments Details the three-level hierarchy used for fair value measurements of financial instruments and their classification - The company uses a three-level hierarchy for fair value measurements: Level 1 for quoted prices in active markets (e.g., U.S. Treasury Securities, Futures contracts), Level 2 for observable inputs other than Level 1 (e.g., Agency Securities, most Derivatives), and Level 3 for significant unobservable inputs (none reported)[38][39][40][43][44] | Asset/Liability | June 30, 2025 (Level 1) | June 30, 2025 (Level 2) | June 30, 2025 (Level 3) | June 30, 2025 (Balance) | | :-------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Assets at Fair Value: | | | | | | Agency Securities | $— | $14,515,845 | $— | $14,515,845 | | U.S. Treasury Securities | $602,250 | $— | $— | $602,250 | | Derivatives | $— | $629,180 | $— | $629,180 | | Liabilities at Fair Value: | | | | | | Obligations to return securities as collateral | $— | $509,410 | $— | $509,410 | | Derivatives | $56,420 | $50,519 | $— | $106,939 | - No transfers between fair value hierarchy levels occurred during the six months ended June 30, 2025, or the year ended December 31, 2024[46] Note 5 - Investments in Securities Provides details on the company's securities portfolio, including fair value, unrealized gains/losses, and weighted average life - The securities portfolio increased to $15,118,095 at June 30, 2025, from $12,439,414 at December 31, 2024, primarily consisting of Agency Securities and U.S. Treasury Securities[48] | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | | Total Trading Securities | $15,118,095 | $12,439,414 | | Gross Unrealized Loss | $(203,150) | $(370,044) | | Gross Unrealized Gain | $76,354 | $2,954 | | Weighted Average Life | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :-------------------- | :------------------------- | :----------------------------- | | ≥ 3 years and < 5 years | $4,173,205 | $1,329,834 | | ≥ 5 years | $10,944,890 | $11,109,580 | | Totals | $15,118,095 | $12,439,414 | Note 6 - Repurchase Agreements, net Reports on outstanding borrowings under repurchase agreements, including weighted average rates, maturities, and haircut percentages - Outstanding borrowings under repurchase agreements, net, increased to $12,810,087 at June 30, 2025, from $10,713,830 at December 31, 2024, with 17 counterparties[52] | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total Repurchase Agreements, net | $12,810,087 | $10,713,830 | | Weighted Average Contractual Rate | 4.50% | 4.72% | | Weighted Average Maturity in days | 21 | 17 | | Average Gross Haircut Percentage | 2.68% | 2.77% | - BUCKLER accounted for 49.3% of aggregate borrowings at June 30, 2025 (vs. 45.7% at Dec 31, 2024), with an amount at risk of 7.7% of total stockholders' equity (vs. 8.0% at Dec 31, 2024)[61] Note 7 - Derivatives Discusses the company's use of derivatives for interest rate risk management and their impact on operations - The company uses derivatives (interest rate swap contracts, interest rate swaptions, basis swap contracts, futures contracts, and TBA Agency Securities) to manage interest rate risk and agency mortgage rate exposures, with all changes in fair value reflected in consolidated statements of operations[63][64][68] | Derivative Type | Three Months Ended June 30, 2025 (Income/Loss) | Three Months Ended June 30, 2024 (Income/Loss) | Six Months Ended June 30, 2025 (Income/Loss) | Six Months Ended June 30, 2024 (Income/Loss) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Interest rate swap contracts | $(77,650) | $30,128 | $(216,565) | $190,837 | | Futures contracts | $(27,583) | $(3,603) | $(89,093) | $(3,603) | | TBA Agency Securities | $(2,789) | $23,157 | $6,418 | $18,896 | | Total Gain (Loss) on Derivatives, net | $(108,022) | $49,682 | $(299,240) | $206,130 | | Derivative Type | June 30, 2025 (Notional Amount) | December 31, 2024 (Notional Amount) | | :------------------------ | :------------------------------ | :---------------------------------- | | Interest Rate Swap Contracts | $10,259,000 | $7,232,000 | | TBA Agency Securities | $300,000 | $0 | Note 8 - Commitments and Contingencies Details the management agreement with ACM, including fees, waivers, and future contractual obligations - The company is managed by ACM under an agreement extending through December 31, 2029. Monthly management fees are based on gross equity raised, with ACM voluntarily waiving $550 per month[82][83][85] | Year | Contractual Management Fee (in thousands) | | :---------------- | :-------------------------------------- | | Remainder of 2025 | $22,385 | | 2026 | $44,770 | | 2027 | $44,770 | | 2028 | $44,770 | | 2029 | $44,770 | | Total | $201,465 | - The effective management fee (prior to waivers) was 0.90% at June 30, 2025, based on gross equity raised of $4,969,351[82] Note 9 - Stock Based Compensation Outlines the Stock Incentive Plan, RSU awards, and future expected stock-based compensation expense - The company uses a Stock Incentive Plan to attract and retain personnel, with 93 shares available for future issuance at June 30, 2025[87] | Metric | June 30, 2025 (Number of Awards) | | :-------------------------------- | :------------------------------- | | Unvested RSU Awards Outstanding beginning of period | 170 | | Granted | 135 | | Vested | (31) | | Unvested RSU Awards Outstanding end of period | 274 | - Approximately $7,304 of unvested stock-based compensation is expected to be recognized as an expense through 2029[89] Note 10 - Stockholders' Equity Provides information on cumulative distributions, preferred and common stock outstanding, and recent share transactions | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cumulative Distributions to Stockholders | $2,504,062 | $2,383,539 | | Preferred dividends | $174,794 | $168,791 | | Common stock dividends | $2,329,268 | $2,214,748 | - At June 30, 2025, there were 6,864 shares of Series C Preferred Stock outstanding and 88,071 shares of common stock outstanding. The company sold 26,296 common shares for $476,039 (net) and repurchased 667 common shares for $(10,031) during the six months ended June 30, 2025[93][96][98][101] - Common stock dividends of $0.24 per share were declared for July and August 2025, and preferred stock dividends of $0.14583 per share were declared for July, August, and September 2025[104][105] Note 11 - Net Loss per Common Share Presents the calculation of basic net loss per common share and factors affecting dilutive EPS | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss related to common stockholders | $(78,611) | $(51,346) | $(54,279) | $(39,825) | | Weighted average common shares outstanding – basic | 83,803 | 48,770 | 79,536 | 48,770 | | Net Loss per share related to common stockholders - basic | $(0.94) | $(1.05) | $(0.68) | $(0.82) | - Potentially dilutive non-vested awards were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive[110] Note 12 - Income Taxes Discusses the company's REIT tax status, estimated taxable income, and net operating loss carryforwards | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | GAAP net loss | $(75,608) | $(48,350) | $(48,276) | $(33,834) | | Estimated REIT taxable income | $51,636 | $39,205 | $104,437 | $66,714 | - The company intends to distribute substantially all REIT taxable income to maintain REIT status. Unrealized gains/losses on open interest rate contracts are not included in REIT taxable income, and realized gains/losses on terminated contracts are deferred and amortized[112][116] - At June 30, 2025, the company had $257,341 thousand of net operating loss carryforwards available indefinitely and approximately $(207,726) thousand of net deductible expense from previously terminated interest rate swap and treasury futures/shorts contracts amortizing through 2035[113] Note 13 - Related Party Transactions Details transactions with related parties, including management fees paid to ACM and equity interest in BUCKLER Securities LLC - ACM manages the company's day-to-day operations, with all executive officers also being ACM employees. ACM voluntarily waived $550 per month of its contractual management fee[118][121] | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | ARMOUR management fees | $11,044 | $9,807 | $21,798 | $19,614 | | Less management fees waived | $(1,650) | $(1,650) | $(3,300) | $(3,300) | | Total management fee expense | $9,394 | $8,157 | $18,498 | $16,314 | - The company holds a 10.8% equity interest in BUCKLER, primarily to facilitate access to repurchase financing. BUCKLER accounted for 49.3% of the company's aggregate borrowings at June 30, 2025[123][124][61] Note 14 - Segment Reporting Confirms the company operates as a single segment, primarily investing in Agency MBS and U.S. Treasury Securities - The company operates as a single operating and reportable segment, investing primarily in fixed-rate residential, adjustable-rate, and hybrid adjustable-rate MBS issued or guaranteed by U.S. GSEs or Ginnie Mae, with occasional investments in U.S. Treasury Securities and money market instruments[132] Note 15 - Subsequent Events States that no material subsequent events were identified beyond those disclosed in other notes - No material subsequent events were identified through the filing date of this Quarterly Report on Form 10-Q, beyond those disclosed in Note 10 (Stockholders' Equity) and Note 13 (Related Party Transactions)[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition and operational results, covering investment strategy, hedging, liquidity, and key performance drivers Overview Introduces ARMOUR Residential REIT, Inc.'s business model, investment strategy, and objective of creating stockholder value - ARMOUR Residential REIT, Inc. is a Maryland corporation managed by ACM, operating as a REIT. It aims to create stockholder value through investment and risk management of a leveraged and diversified portfolio of Agency MBS and U.S. Treasury Securities[137][138][140] - The company earns returns on the spread between asset yields and borrowing/hedging costs, prioritizing common share dividends appropriate for the intermediate term[138][141] Factors that Affect our Results of Operations and Financial Condition Discusses primary drivers of financial results, including net interest income, asset market value, interest rates, and prepayment speeds - Results are affected by net interest income, market value of assets, and supply/demand, with interest rates, borrowing costs, and prepayment speeds being primary drivers. The company's asset selection, financing, and hedging strategies aim to generate net interest income while moderating market volatility exposure[142][144] Interest Rates Explains how changes in interest rates impact net interest income, asset market value, and hedging strategies - Changes in interest rates, especially short-term rates, significantly influence net interest income. Increases in interest rates tend to decrease net interest income and asset market value, potentially leading to operating losses[145] - The company uses strategies to economically hedge some interest rate risk, but not all exposure. For GAAP, all fair value changes of derivatives flow through earnings, alongside Agency MBS, which are classified as trading securities[146] Prepayment Rates Analyzes the influence of market interest rates and economic factors on MBS prepayment rates and net interest income - Prepayment rates on MBS are influenced by market interest rates, economic factors, and policy decisions. Higher prepayment rates on MBS acquired at a premium can reduce net interest income if proceeds cannot be reinvested at comparable yields[147] Market and Interest Rate Trends and the Effect on our Securities Portfolio Examines the impact of market volatility and interest rate trends on the company's securities portfolio and risk mitigation efforts - Tariffs introduced by the U.S. administration have increased volatility in financial markets and interest rates. ARMOUR has focused on mitigating risk, moderating leverage, and maximizing liquidity during this period[149][152] Federal Reserve Actions Discusses the Federal Reserve's monetary policy decisions, including the Federal Funds Rate and asset reductions, and their market impact - The Federal Reserve maintained the target range for the Federal Funds Rate at 4.25% to 4.50% in May and June 2025, noting elevated inflation and solid economic activity. The Fed continues to reduce its holdings of Treasury and agency securities[153][154] - Financial markets are highly sensitive to Fed decisions, and the agency mortgage-backed securities market remains dependent on the Fed's actions on interest rates and asset purchases[155] Developments at Fannie Mae and Freddie Mac Addresses the dependence of Agency Securities value on GSE guarantees and potential risks from government intervention - The value of the company's Agency Securities depends on payments from underlying mortgages and GSE guarantees. Uncertainties regarding the U.S. Government's intervention in Fannie Mae and Freddie Mac could materially and adversely affect the company's business if GSEs default or cease to exist[156] Short-term Interest Rates and Funding Costs Analyzes how Fed policy changes directly influence funding costs and their potential impact on net income - Fed policy changes directly impact funding costs, as the cost of funds is largely dependent on short-term rates. An increase in funding costs without a corresponding increase in MBS interest income would reduce net income[157] | Meeting Date | Lower Bound | Higher Bound | | :---------------- | :---------- | :----------- | | December 18, 2024 | 4.25 % | 4.50 % | | November 7, 2024 | 4.50 % | 4.75 % | | September 18, 2024| 4.75 % | 5.00 % | | July 26, 2023 | 5.25 % | 5.50 % | | May 3, 2023 | 5.00 % | 5.25 % | | March 22, 2023 | 4.75 % | 5.00 % | | February 1, 2023 | 4.50 % | 4.75 % | Long-term Interest Rates and Mortgage Spreads Examines the effect of mortgage spreads on book value and the company's use of derivatives for economic hedging - Mortgage spreads, the difference between MBS valuation and long-term interest rates, affect book value. Narrowing spreads positively affect book value, while widening spreads negatively affect it[162][164] - The company primarily uses interest rate swap contracts, interest rate swaptions, basis swap contracts, and futures contracts to economically hedge against changes in securities valuation, not for speculative purposes[165] Results of Operations Summarizes the company's financial performance, including net interest income, other loss, expenses, and net loss | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Interest Income | $33,105 | $6,969 | $69,446 | $12,300 | | Total Other Loss | $(94,365) | $(44,039) | $(90,231) | $(14,418) | | Total Expenses after fees waived | $(14,349) | $(11,280) | $(27,491) | $(31,716) | | Net Loss | $(75,608) | $(48,350) | $(48,276) | $(33,834) | - Net Loss for the three and six months ended June 30, 2025, increased compared to the prior year, driven by losses on derivatives and U.S. Treasury Securities and higher interest expense on repurchase agreements, partially offset by gains on trading securities and increased interest income from a larger securities portfolio[167] Net Interest Income Details interest income, interest expense, net interest income, and net interest spread for the reporting periods | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Interest Income | $180,886 | $129,925 | $353,767 | $271,405 | | Interest Expense | $(147,781) | $(122,956) | $(284,321) | $(259,105) | | Net Interest Income | $33,105 | $6,969 | $69,446 | $12,300 | | Net Interest Spread | 0.36% | (0.52)% | 0.42% | (0.49)% | | Net Yield on Interest Earning Assets | 0.90% | 0.27% | 0.97% | 0.22% | - Net interest income significantly increased for both the three and six months ended June 30, 2025, compared to the prior year, driven by higher interest income from a larger average securities portfolio and improved net interest spread[167][172] Other Income (Loss) Reports on gains and losses from Agency Securities, U.S. Treasury Securities, and derivatives, contributing to total other loss | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Gain (Loss) on Agency Securities, trading, net | $16,545 | $(112,870) | $224,802 | $(250,619) | | Gain (Loss) on U.S. Treasury Securities, net | $(2,887) | $19,149 | $(15,793) | $30,071 | | Gain (Loss) on derivatives, net | $(108,022) | $49,682 | $(299,240) | $206,130 | | Total Other Loss | $(94,364) | $(44,039) | $(90,231) | $(14,418) | - Total Other Loss increased significantly for both the three and six months ended June 30, 2025, primarily due to substantial losses on derivatives, partially offset by gains on Agency Securities[176][177][182] Expenses Breaks down management fees, compensation, and other operating expenses, including the impact of fee waivers | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Management fees | $11,060 | $9,807 | $21,829 | $19,610 | | Compensation | $888 | $1,135 | $1,700 | $2,572 | | Other operating | $4,051 | $1,988 | $7,262 | $12,834 | | Total Expenses | $15,999 | $12,930 | $30,791 | $35,016 | | Less management fees waived | $(1,650) | $(1,650) | $(3,300) | $(3,300) | | Total Expenses after fees waived | $14,349 | $11,280 | $27,491 | $31,716 | - Total expenses after fees waived increased for the three months ended June 30, 2025, but decreased for the six months ended June 30, 2025, compared to the prior year. Management fees increased due to higher gross equity raised, while other operating expenses decreased significantly for the six-month period, partly due to the absence of Special Committee investigation expenses present in 2024[179][189] Taxable Income Discusses the company's REIT taxable income and its implications for federal income tax obligations - As a REIT, the company generally does not pay federal income tax, distributing substantially all taxable income. Estimated REIT taxable income increased to $104,437 thousand for the six months ended June 30, 2025, from $66,714 thousand in the prior year[184][112] Financial Condition Assesses the company's overall financial health, including investment portfolio, financing, and derivative positions Investment In Securities Details the composition and changes in the company's securities portfolio, primarily Agency and U.S. Treasury Securities - The securities portfolio primarily consists of Agency Securities backed by fixed-rate home loans, with occasional investments in U.S. Treasury Securities. The yield on Agency Securities is significantly affected by mortgage loan repayment rates[186][188] | Metric | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Total Agency Securities | $14,515,845 | $12,439,414 | | Total TBA Agency Securities | $309,219 | $0 | | U.S. Treasury Securities | $602,250 | $0 | | Total Investments in Securities | $15,427,314 | $12,439,414 | | Metric | Six Months Ended June 30, 2025 (in thousands) | Year Ended December 31, 2024 (in thousands) | | :------------------------------------------------------------------------------------------------ | :-------------------------------------------- | :------------------------------------------ | | Balance, beginning of period | $12,439,414 | $11,159,754 | | Purchases | $3,711,107 | $7,271,101 | | Proceeds from sales | $(1,226,213) | $(4,589,515) | | Principal repayments | $(634,182) | $(1,053,625) | | Balance, end of period | $14,515,845 | $12,439,414 | Repurchase Agreements, net Reports on the company's primary financing source, including outstanding balances, haircut percentages, and related party exposure - Repurchase agreements are the primary financing source for MBS, with outstanding balances increasing to $12,810,087 (net) at June 30, 2025, from $10,713,830 (net) at December 31, 2024[201] - The average gross haircut percentage decreased slightly to 2.68% at June 30, 2025, from 2.77% at December 31, 2024[202] - BUCKLER accounted for 49.3% of aggregate borrowings at June 30, 2025[201] Derivative Instruments Outlines the use of various derivative contracts for interest rate risk management and their fair value and impact on earnings - The company uses various derivative contracts to manage interest rate risk, with a net fair value of $522,241 thousand at June 30, 2025, down from $906,778 thousand at December 31, 2024[203] | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Interest rate swap contracts (notional) | $10,259,000 | $7,232,000 | | Weighted average swap rate | 2.32% | 1.66% | | Weighted average term | 60 months | 76 months | | TBA Agency Securities (notional) | $300,000 | $0 | - Net losses related to derivatives were $(108,022) thousand and $(299,240) thousand for the three and six months ended June 30, 2025, respectively[209] Liquidity and Capital Resources Assesses the company's liquidity position, including cash, unencumbered securities, and debt to equity ratios - At June 30, 2025, total liquidity was $772,948 thousand, comprising $141,166 thousand in cash and cash equivalents and $631,782 thousand in unencumbered Agency and U.S. Treasury Securities[218] - The company's debt to equity ratio was 7.72:1 at June 30, 2025, and 7.87:1 at December 31, 2024. Implied leverage, including TBA Securities and forward settling sales/unsettled purchases, was 8.29:1 at June 30, 2025[222] Securities Portfolio Matters Provides details on securities purchases, sales, principal repayments, and cash flows related to the portfolio | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Securities purchased using proceeds from repurchase agreements and principal repayments | $4,313,240 | $1,933,493 | | Average securities portfolio, including TBA Securities | $14,446,881 | $11,149,695 | | Cash received from principal repayments on MBS | $634,182 | $445,368 | | Net cash increase (decrease) from repurchase agreements | $2,096,257 | $(2,576,215) | | Cash interest payments made on liabilities | $313,885 | $335,057 | Other Contractual Obligations Summarizes contractual commitments, including the management agreement with ACM and unvested stock-based compensation - The management agreement with ACM extends through December 31, 2029. Total management fee expense after waivers was $18,498 thousand for the six months ended June 30, 2025[227][230] - Unvested stock-based compensation of approximately $7,304 thousand is expected to be recognized as an expense through 2029[231] Repurchase Agreements, net Discusses the risks associated with repurchase agreements, including margin calls and potential impacts of regulatory changes - Declines in the value of the Agency Securities portfolio can trigger margin calls, potentially requiring additional collateral or liquidation of existing collateral. Changes in regulatory requirements may increase financing costs or tighten lending standards[233][234] Effects of Margin Requirements, Leverage and Credit Spreads Explains how fluctuations in MBS values can lead to margin calls and the need for additional collateral - MBS values fluctuate with market conditions, and decreases can lead to margin calls from lenders under repurchase agreements, requiring cash or additional collateral[238] Forward-Looking Statements Regarding Liquidity Outlines the company's expectations for future liquidity and capital resources, including potential funding sources - The company believes it has sufficient liquidity and capital resources for short-term requirements, including investment activities, financing obligations, management fees, and dividends. Potential sources of additional liquidity include long-term credit facilities and public/private offerings of equity or debt securities[232][239][240] Stockholders' Equity Refers to Note 10 for detailed information regarding the company's stockholders' equity - Refer to Note 10 for detailed information on stockholders' equity[243] Critical Accounting Estimates Highlights key accounting estimates, particularly the valuation of financial instruments, and associated market volatility Valuation Describes the methodology for fair value measurements, including reliance on third-party pricing and management review - Fair value for financial instruments is based on third-party pricing services and/or dealer quotes, using valuation models that incorporate various market factors. Management reviews pricing to ensure current market conditions are reflected[244][247] - During high market volatility, obtaining accurate market information can be difficult, increasing the confidence interval around valuation estimates. The largest inter-day movement in estimated book value was (0.44) per common share for the three and six months ended June 30, 2025[248] Subsequent Events Refers to other notes for information on events occurring after the reporting period - Refer to Note 10, Note 13, and Note 15 for information on subsequent events[251] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Warns readers about forward-looking statements, outlining various risks and uncertainties that could affect future results - The report contains forward-looking statements based on beliefs, assumptions, and expectations, which are subject to various risks and uncertainties. These include governmental regulation, changes in interest rates, geopolitical situations, Fed actions, developments at Fannie Mae and Freddie Mac, and general market volatility[253] - Other risks include availability of capital, economic conditions, impact of pandemics, credit rating downgrades, inability to maintain non-taxable returns, inflation/deflation, U.S. Government shutdowns, competition, changes in strategy, failure to maintain REIT status or 1940 Act exemption, dependence on ACM, conflicts of interest, and changes in GAAP or regulations[253][256] GLOSSARY OF TERMS Provides definitions for key financial, regulatory, and company-specific terms and abbreviations used in the report - The glossary defines terms such as Agency Securities, BUCKLER, CPR (Constant Prepayment Rate), Dodd-Frank Act, Fannie Mae, Fed, Federal Funds Rate, Freddie Mac, GAAP, Ginnie Mae, GSE, Haircut, ISDA, MBS, MRA, REIT, SEC, SOFR, TBA Agency Securities, and TRS[258][260] Item 3. Quantitative and Qualitative Disclosures about Market Risk Details the company's exposure to market risks, including interest rate, mortgage spread, prepayment, credit, liquidity, and operational risks, along with quantification and management strategies Interest Rate Risk Analyzes the primary market risk, detailing its impact on net interest income and MBS market value, and hedging approaches - Interest rate risk is the primary market risk, affecting net interest income and MBS market value. Borrowing costs may change faster than asset earnings rates, potentially lowering net interest income during rising interest rates[263][264] | Change in Interest Rates | June 30, 2025 (Percentage Change in Projected Net Interest Income) | June 30, 2025 (Percentage Change in Projected Portfolio Including Derivatives) | June 30, 2025 (Percentage Change in Projected Shareholder's Equity) | | :----------------------- | :--------------------------------------------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------ | | 1.00% | 0.57% | (0.82)% | (7.53)% | | 0.50% | 0.23% | (0.28)% | (2.62)% | | (0.50)% | (0.01)% | (0.05)% | (0.49)% | | (1.00)% | 0.37% | (0.57)% | (5.28)% | - The company assesses interest rate risk by estimating the effective duration of assets and liabilities and the time difference in interest rate adjustments. The sensitivity analysis assumes a parallel shift in the yield curve and constant mortgage spread[267][268] Mortgage Spread Risk Examines how changes in mortgage spreads affect portfolio performance, market value, and potential financing challenges - Weakness in the mortgage market can adversely affect the performance and market value of investments, potentially impacting book value. Lenders' unwillingness to provide financing could force MBS sales at depressed prices[271] | Change in MBS spread | June 30, 2025 (Percentage Change in Projected Portfolio Value) | June 30, 2025 (Percentage Change in Projected Shareholders' Equity) | | :------------------- | :----------------------------------------------------------- | :---------------------------------------------------------------- | | +25 BPS | (1.24)% | (11.55)% | | +10 BPS | (0.50)% | (4.62)% | | -10 BPS | 0.50% | 4.62% | | -25 BPS | 1.24% | 11.55% | Prepayment Risk Discusses the volatility of MBS prepayment speeds and their direct impact on interest income and premium amortization - Volatility in actual prepayment speeds on MBS creates volatility in premium amortization. Higher prepayment speeds reduce interest income, while lower speeds increase it[275] Credit Risk Assesses the limited exposure to impairment losses on Agency Securities due to GSE and U.S. Government guarantees - The company has limited exposure to impairment losses on Agency Securities, as principal and interest payments are guaranteed by GSEs (Fannie Mae, Freddie Mac) or backed by the full faith and credit of the U.S. Government (Ginnie Mae)[276] - All Agency Securities are issued and guaranteed by GSEs or Ginnie Mae, which have a long-term credit rating of AA+[276] Liquidity Risk Identifies the primary liquidity risks, including financing long-maturity assets with short-term debt and margin call exposure - Primary liquidity risk stems from financing long-maturity MBS with short-term debt. Rising interest rates can increase borrowing costs faster than interest earnings. Declines in MBS collateral value can trigger margin calls, requiring additional collateral or liquidation[277] Operational Risk Addresses risks related to financial systems, cybersecurity threats, and the company's mitigation efforts - The company relies on financial, accounting, and data processing systems, facing risks from cybersecurity threats like malware, viruses, hacking, and phishing attacks. While no material breaches have been detected, such incidents could significantly impact operations[278] - ACM's Information Technology Steering Committee (ITSC) and the Audit Committee oversee cybersecurity risks, including assessments, monitoring, training, policies, and periodic penetration testing, though these efforts do not guarantee complete mitigation[279][280] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control over financial reporting Evaluation of Disclosure Controls and Procedures States that the CEO and CFO concluded the company's disclosure controls and procedures were effective as of June 30, 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting of information required under the Exchange Act[282] Internal Control Over Financial Reporting Reports no material changes to internal control over financial reporting during the second quarter ended June 30, 2025 - No changes materially affecting internal control over financial reporting were identified during the second quarter ended June 30, 2025[283] PART II. OTHER INFORMATION Presents additional information not covered in the financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings Reports no material changes to legal proceedings previously disclosed in the Annual Report on Form 10-K - No material changes to legal proceedings were reported during the quarter ended June 30, 2025[285] Item 1A. Risk Factors States no material changes to risk factors previously disclosed in the Annual Report on Form 10-K and subsequent Quarterly Report - No material changes to risk factors were reported[286] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchase activities, including shares purchased, average price, and remaining authorization under the program Issuer Purchases of Equity Securities Reports on the company's common stock repurchases, including the number of shares and average price paid | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2025 through April 30, 2025 | (667) | $15.05 | | May 1, 2025 through May 31, 2025 | — | — | | June 1, 2025 through June 30, 2025 | — | — | | Totals | (667) | $15.05 | - As of June 30, 2025, 1,550 authorized shares remained under the Common Stock Repurchase Program[288][292] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities were reported[289] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[290] Item 5. Other Information Confirms that no other information is required to be reported in this section - No other information was reported[291] Item 6. Exhibits Lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), XBRL Instance Document (101.INS), XBRL Taxonomy Extension Schema Document (101.SCH), XBRL Taxonomy Extension Calculation Linkbase Document (101.CAL), XBRL Taxonomy Extension Definition Linkbase Document (101.DEF), XBRL Taxonomy Extension Label Linkbase Document (101.LAB), XBRL Taxonomy Extension Presentation Linkbase Document (101.PRE), and Cover Page Interactive Data (104)[294] SIGNATURES Contains the official signature of ARMOUR Residential REIT, Inc. by its Chief Financial Officer, confirming report authorization and filing - The report was signed by Gordon M. Harper, Chief Financial Officer, on behalf of ARMOUR Residential REIT, Inc. on July 23, 2025[297]