Quarterly Report (10-q)

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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 September 30, 2021


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

For the transition period from to

ARMOUR RESIDENTIAL REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland	001-34766	26-1908763
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

3001 Ocean Drive, Suite 201, Vero Beach, FL 32963

(Address of principal executive offices)(zip code)

(772) 617-4340

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading symbols

Name of Exchange on which registered

Preferred Stock, 7.00% Series C Cumulative Redeemable

ARR-PRC

New York Stock Exchange

Common Stock, $0.001 par value

ARR

New York Stock Exchange

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

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

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

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

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

The number of outstanding shares of the Registrant’s common stock as of October 26, 2021 was 89,689,029.

ARMOUR Residential REIT, Inc.

TABLE OF CONTENTS


PART I. Financial Information			1
Item 1. Financial Statements			1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures about Market Risk			55
Item 4. Controls and Procedures			58
PART II. Other Information			59
Item 1. Legal Proceedings			59
Item IA. Risk Factors			59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 3. Defaults Upon Senior Securities			59
Item 4. Mine Safety Disclosures			59
Item 5. Other Information			59
Item 6. Exhibits			60
Signatures			61

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARMOUR Residential REIT, Inc.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share)


	September 30, 2021		December 31, 2020
Assets
Cash	$	126,094	$	167,671
Cash collateral posted to counterparties	30,098		3,997
Investments in securities, at fair value
Agency Securities (including pledged securities of $3,385,728 at September 30, 2021 and $4,726,584 at December 31, 2020)	4,259,294		5,178,322


U.S. Treasury Securities (including pledged securities of $194,906 at September 30, 2021)	194,906		—
Receivable for unsettled sales	82,100		—
Derivatives, at fair value	178,602		54,686

Accrued interest receivable	10,220		12,833
Prepaid and other	1,574		1,977
Subordinated loan to BUCKLER	105,000		105,000
Total Assets	$	4,987,888	$	5,524,486
Liabilities and Stockholders’ Equity
Liabilities:
Repurchase agreements	$	3,450,439	$	4,536,065

Cash collateral posted by counterparties	154,713		44,704
Payable for unsettled purchases	210,646		—
Derivatives, at fair value	22,982		1,217
Accrued interest payable- repurchase agreements	534		1,625

Accounts payable and other accrued expenses	4,882		2,571

Total Liabilities	$	3,844,196	$	4,586,182

Commitments and contingencies (Note 9)

Stockholders’ Equity:
Preferred stock, $0.001 par value, 50,000 shares authorized;
7.00% Series C Cumulative Preferred Stock; 6,847 and 5,347 shares issued and outstanding ($171,175 and $133,675 aggregate liquidation preference) at September 30, 2021 and December 31, 2020, respectively	7		5
Common stock, $0.001 par value. At September 30, 2021, 200,000 shares authorized and 87,709 shares issued and outstanding and at December 31, 2020, 125,000 shares authorized and 65,290 shares issued and outstanding.	87		65
Additional paid-in capital	3,334,523		3,033,025
Accumulated deficit	(2,314,879)		(2,273,822)
Accumulated other comprehensive income	123,954		179,031
Total Stockholders’ Equity	$	1,143,692	$	938,304
Total Liabilities and Stockholders’ Equity	$	4,987,888	$	5,524,486

See financial statement notes (unaudited).

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Interest Income:
Agency Securities, net of amortization of premium and fees	$	21,659	$	25,188	$	58,422	$	128,612
Credit Risk and Non-Agency Securities, including discount accretion	—		518		—		17,746

U.S. Treasury Securities	356		—		356		469
BUCKLER Subordinated loan	20		24		52		312
Total Interest Income	$	22,035	$	25,730	$	58,830	$	147,139
Interest expense- repurchase agreements	(1,614)		(2,954)		(5,590)		(59,863)
Interest expense- U.S. Treasury Securities sold short	—		—		(87)		(32)
Net Interest Income	$	20,421	$	22,776	$	53,153	$	87,244
Other Income (Loss):
Realized gain on sale of available for sale Agency Securities (reclassified from Other Comprehensive Income (Loss))	3,724		9,468		11,078		138,802
Credit loss expense	—		—		—		(1,012)
Gain (loss) on Agency Securities, trading	(2,387)		12,149		(45,790)		20,060
Loss on Credit Risk and Non-Agency Securities	—		(6,633)		—		(189,555)

Gain (loss) on U.S. Treasury Securities	(9,170)		—		(9,170)		21,771
Loss on short sale of U.S. Treasury Securities	—		—		(28)		(414)
Subtotal	$	(7,833)	$	14,984	$	(43,910)	$	(10,348)
Realized gain (loss) on derivatives (1)	(29,540)		20,866		(60,548)		(394,850)
Unrealized gain on derivatives	59,849		6,866		113,085		46,304
Subtotal	$	30,309	$	27,732	$	52,537	$	(348,546)
Total Other Income (Loss)	$	22,476	$	42,716	$	8,627	$	(358,894)
Expenses:
Management fees	7,899		7,393		23,055		22,234
Professional fees	581		559		1,909		3,058
Insurance	200		183		588		549
Compensation	1,676		1,387		5,027		4,210
Other	659		537		1,666		724
Total Expenses	$	11,015	$	10,059	$	32,245	$	30,775
Less management fees waived	(2,100)		(2,953)		(6,600)		(5,900)
Total Expenses after fees waived	$	8,915	$	7,106	$	25,645	$	24,875
Net Income (Loss)	$	33,982	$	58,386	$	36,135	$	(296,525)
Dividends on preferred stock	(2,995)		(2,320)		(8,477)		(7,467)
Net Income (Loss) available (related) to common stockholders	$	30,987	$	56,066	$	27,658	$	(303,992)
(Continued)

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net Income (Loss) per share available (related) to common stockholders (Note 12):
Basic	$	0.37	$	0.87	$	0.37	$	(4.87)
Diluted	$	0.36	$	0.86	$	0.36	$	(4.87)
Dividends declared per common share	$	0.30	$	0.30	$	0.90	$	0.90
Weighted average common shares outstanding:
Basic	84,026		64,724		75,417		62,458
Diluted	84,927		65,272		76,318		62,458

(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 8.

See financial statement notes (unaudited).

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net Income (Loss)	$	33,982	$	58,386	$	36,135	$	(296,525)
Other comprehensive income (loss):
Reclassification adjustment for realized gain on sale of available for sale Agency Securities	(3,724)		(9,468)		(11,078)		(138,802)
Reclassification adjustment for credit loss expense on available for sale Agency Securities	—		—		—		1,012
Net unrealized gain (loss) on available for sale Agency Securities	(16,961)		13,002		(43,999)		(17,486)
Other Comprehensive Income (Loss)	$	(20,685)	$	3,534	$	(55,077)	$	(155,276)
Comprehensive Income (Loss)	$	13,297	$	61,920	$	(18,942)	$	(451,801)

See financial statement notes (unaudited).

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)


	Preferred Stock			Common Stock
	7.00% Series C
	Shares	Par		Shares	Par		Total Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
Balance, December 31, 2020	5,347	$	5	65,290	$	65	$	3,033,025	$	(2,273,822)	$	179,031	$	938,304
Series C Preferred dividends	—	—		—	—		—		(8,477)		—		(8,477)
Common stock dividends	—	—		—	—		—		(68,715)		—		(68,715)
Issuance of Series C Preferred stock, net of expenses	1,500	2		—	—		36,583		—		—		36,585
Issuance of common stock, net	—	—		22,242	22		261,274		—		—		261,296
Stock based compensation, net of withholding requirements	—	—		177	—		3,641				—		3,641

Net Income	—	—		—	—		—		36,135		—		36,135
Other Comprehensive Loss	—	—		—	—		—		—		(55,077)		(55,077)
Balance, September 30, 2021	6,847	$	7	87,709	$	87	$	3,334,523	$	(2,314,879)	$	123,954	$	1,143,692

See financial statement notes (unaudited).

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	For the Nine Months Ended September 30,
	2021		2020
Cash Flows From Operating Activities:
Net Income (Loss)	$	36,135	$	(296,525)
Adjustments to reconcile net loss to net cash and cash collateral posted to counterparties provided by (used in) operating activities:
Net amortization of premium on Agency Securities	38,434		36,922
Accretion of net discount on Credit Risk and Non-Agency Securities	—		(2,849)

Net amortization of U.S. Treasury Securities	(2)		84
Realized gain on sale of Agency Securities, available for sale	(11,078)		(138,802)
Credit loss expense	—		1,012
(Gain) loss on Agency Securities, trading	45,790		(20,060)
Loss on Credit Risk and Non-Agency Securities	—		189,555

(Gain) loss on U.S. Treasury Securities	9,170		(21,771)
Loss on short sale of U.S. Treasury Securities	28		414
Stock based compensation	3,641		3,051
Changes in operating assets and liabilities:
Decrease in accrued interest receivable	2,794		21,836
Decrease in prepaid and other assets	403		6,715
Change in derivatives, at fair value	(102,151)		(44,392)
Decrease in accrued interest payable- repurchase agreements	(1,091)		(30,643)

Increase in accounts payable and other accrued expenses	2,311		518
Net cash and cash collateral posted to counterparties provided by (used in) operating activities	$	24,384	$	(294,935)
Cash Flows From Investing Activities:
Purchases of Agency Securities	(672,816)		(5,317,832)
Purchases of Credit Risk and Non-Agency Securities	—		(237,928)

Purchases of U.S. Treasury Securities	(788,919)		(4,621,776)
Principal repayments of Agency Securities	690,933		922,148
Principal repayments of Credit Risk and Non-Agency Securities	—		45,766
Proceeds from sales of Agency Securities	901,053		10,917,211
Proceeds from sales of Credit Risk and Non-Agency Securities	—		889,057

Proceeds from sales of U.S. Treasury Securities	584,817		4,643,049
Disbursements on reverse repurchase agreements	(391,125)		(858,156)
Receipts from reverse repurchase agreements	391,125		858,156
Increase (decrease) in cash collateral posted by counterparties	110,009		(10,858)

Net cash and cash collateral posted to counterparties provided by investing activities	$	825,077	$	7,228,837
(Continued)

ARMOUR Residential REIT, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	For the Nine Months Ended September 30,
	2021		2020
Cash Flows From Financing Activities:
Redemption of Series B Preferred stock, net of expenses	—		(209,583)
Issuance of Series C Preferred stock, net of expenses	36,585		129,096
Issuance of common stock, net of expenses	261,296		48,886
Proceeds from repurchase agreements	23,233,849		62,518,438
Principal repayments on repurchase agreements	(24,319,475)		(69,362,190)
Series B Preferred stock dividends paid	—		(1,375)
Series C Preferred stock dividends paid	(8,477)		(6,092)
Common stock dividends paid	(68,715)		(55,843)
Common stock repurchased, net	—		(777)
Net cash and cash collateral posted to counterparties used in financing activities	$	(864,937)	$	(6,939,440)
Net decrease in cash and cash collateral posted to counterparties	(15,476)		(5,538)
Cash and cash collateral posted to counterparties - beginning of period	171,668		273,166
Cash and cash collateral posted to counterparties - end of period	$	156,192	$	267,628
Supplemental Disclosure:
Cash paid during the period for interest	$	13,406	178,719
Non-Cash Investing Activities:
Receivable for unsettled sales	$	82,100	—
Payable for unsettled purchases	$	(210,646)	(518,552)
Net unrealized loss on available for sale Agency Securities	$	(43,999)	(17,486)

See financial statement notes (unaudited).

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 9 - Commitments and Contingencies and Note 15 - 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 September 30, 2021 and December 31, 2020, 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 and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 2021. 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, 2020.

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.

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 our cash positions 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, Eurodollar Futures Contracts ("Futures Contracts"), and 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"), 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

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

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.

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 September 30, 2021 and December 31, 2020.

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

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

realized from sales of available for sale securities are reclassified into income from other comprehensive income and are determined using the specific identification method.

Interest income on Credit Risk and Non-Agency Securities and Interest-Only Securities is recognized using the effective yield method over the life of the securities based on the future cash flows expected to be received. Future cash flow projections and related effective yields are determined for each security and updated quarterly. Impairment losses establish a new cost basis in the security for purposes of calculating effective yields, recognized when the fair value of a security is less than its cost basis and there has been an adverse change in the future cash flows expected to be received. Other changes in future cash flows expected to be received are recognized prospectively over the remaining life of the security. 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 changes in equity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.

Note 4 - Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board. We have not identified any ASUs that we deemed to be applicable or that are expected to have a significant impact on our consolidated financial statements when adopted.

Note 5 - 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.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

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.

Derivatives:

The fair values of our interest rate swap contracts, interest rate swaptions and basis swaps 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 September 30, 2021 and December 31, 2020.


September 30, 2021	Level 1		Level 2		Level 3		Balance
Assets at Fair Value:
Agency Securities	$	—	$	4,259,294	$	—	$	4,259,294


U.S. Treasury Securities	$	194,906	$	—	$	—	$	194,906
Derivatives	$	—	$	178,602	$	—	$	178,602
Liabilities at Fair Value:
Derivatives	$	—	$	22,982	$	—	$	22,982

December 31, 2020	Level 1		Level 2		Level 3		Balance
Assets at Fair Value:
Agency Securities	$	—	$	5,178,322	$	—	$	5,178,322



Derivatives	$	—	$	54,686	$	—	$	54,686
Liabilities at Fair Value:
Derivatives	$	—	$	1,217	$	—	$	1,217

There were no transfers of assets or liabilities between the levels of the fair value hierarchy during the nine months ended September 30, 2021 or for the year ended December 31, 2020.

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,

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

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 September 30, 2021 and December 31, 2020.

Note 6 - Investments in Securities

As of September 30, 2021 and December 31, 2020, our securities portfolio consisted of $4,454,200 and $5,178,322 of investment securities, at fair value, respectively, and $4,299,273 and $2,711,977 of TBA Agency Securities, at fair value, respectively. Our TBA Agency Securities are reported at net carrying value of $(12,446) and $19,747, at September 30, 2021 and December 31, 2020, respectively, and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 8 - 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 September 30, 2021 and December 31, 2020, excluding TBA Agency Securities (see Note 8 - 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 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.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)


	Available for Sale Securities			Trading Securities
	Agency			Agency			Credit Risk and Non-Agency			U.S. Treasuries			Totals
September 30, 2021
Balance, December 31, 2020	$	1,970,902		$	3,207,420		$	—		$	—		$	5,178,322
Purchases (1)	—			883,281			—			788,919			1,672,200
Proceeds from sales	(87,875)			(813,178)			—			(584,817)			(1,485,870)
Receivable for unsettled sales	(82,100)			—			—			—			(82,100)
Principal repayments	(278,662)			(412,271)			—			—			(690,933)
Losses	(43,999)			(45,790)			—			(9,198)			(98,987)

(Amortization) accretion	(12,755)			(25,679)			—			2			(38,432)
Balance, September 30, 2021	$	1,465,511		$	2,793,783		$	—		$	194,906		$	4,454,200
Percentage of Portfolio	32.90		%	62.72		%	—		%	4.38		%	100.00		%

December 31, 2020
Balance, December 31, 2019	$	11,941,766		$	—		$	883,601		$	—		$	12,825,367
Purchases (1)	1,768,688			3,711,961			237,928			4,621,776			10,340,353
Proceeds from sales	(10,800,879)			(158,708)			(889,057)			(4,643,049)			(16,491,693)
Principal repayments	(873,650)			(343,514)			(45,766)			—			(1,262,930)
Gains (losses)	(32,565)			19,557			(189,555)			21,357			(181,206)
Credit loss expense	(1,012)			—			—			—			(1,012)
(Amortization) accretion	(31,446)			(21,876)			2,849			(84)			(50,557)
Balance, December 31, 2020	$	1,970,902		$	3,207,420		$	—		$	—		$	5,178,322
Percentage of Portfolio	38.06		%	61.94		%	—		%	—		%	100.00		%

(1)Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end.

Available for Sale Securities:

At September 30, 2021, we evaluated our available for sale securities to determine if the available for sale securities in an unrealized loss position were impaired. As a result of this evaluation, no credit loss expense was required. We do not have an allowance for credit losses as all of our available for sale securities consist of Agency MBS.

During the year ended December 31, 2020, we evaluated our available for sale securities to determine if the available for sale securities in an unrealized loss position were impaired. In the first quarter of 2020, we recognized an impairment of $1,012 in our consolidated statements of operations as we had determined that we may have been required to sell certain securities in the near future. No credit loss expense was required for the remainder of 2020.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

The table below presents the components of the carrying value and the unrealized gain or loss position of our available for sale securities at September 30, 2021 and December 31, 2020. Our available for sale securities had a weighted average coupon of 3.00% and 3.25% at September 30, 2021 and December 31, 2020.


Agency Securities	Principal Amount		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Fair Value
September 30, 2021
Total Fannie Mae	$	1,098,882	$	1,125,271	$	(26)	$	113,765	$	1,239,010
Total Freddie Mac	194,139		201,847		—		10,092		211,939
Total Ginnie Mae	14,084		14,439		(9)		132		14,562
Total	$	1,307,105	$	1,341,557	$	(35)	$	123,989	$	1,465,511

December 31, 2020
Total Fannie Mae	$	1,359,136	$	1,397,206	$	(1)	$	159,603	$	1,556,808
Total Freddie Mac	354,382		368,686		—		19,246		387,932
Total Ginnie Mae	25,388		25,979		(43)		226		26,162
Total	$	1,738,906	$	1,791,871	$	(44)	$	179,075	$	1,970,902

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 September 30, 2021 and December 31, 2020. All of our available for sale securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+.


	Unrealized Loss Position For:
	< 12 Months				≥ 12 Months				Total
Agency Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2021	$	1,722	$	(4)	$	5,341	$	(31)	$	7,063	$	(35)
December 31, 2020	$	8,811	$	(44)	$	—	$	—	$	8,811	$	(44)

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 September 30, 2021 and December 31, 2020.


	September 30, 2021				December 31, 2020
Weighted Average Life of Available for Sale Securities	Fair Value		Amortized Cost		Fair Value		Amortized Cost
< 1 year	$	118	$	115	$	71	$	72
≥ 1 year and < 3 years	28,770		28,225		548,352		520,657
≥ 3 years and < 5 years	381,710		363,268		282,739		269,716
≥ 5 years	1,054,913		949,949		1,139,740		1,001,426
Total Available for Sale Securities	$	1,465,511	$	1,341,557	$	1,970,902	$	1,791,871

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

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 future home prices, housing policy and borrower incentives. The weighted average lives of our available for sale securities at September 30, 2021 and December 31, 2020 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 September 30, 2021 and December 31, 2020 are presented in the table below. We did not have any Credit Risk and Non-Agency Securities or Interest-Only Securities at September 30, 2021 and December 31, 2020.


	Principal Amount		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Fair Value
September 30, 2021
Agency Securities:
Total Fannie Mae	$	2,184,495	$	2,310,414	$	(25,528)	$	5,325	$	2,290,211
Total Freddie Mac	482,142		505,537		(4,419)		2,454		503,572
Total Agency Securities	$	2,666,637	$	2,815,951	$	(29,947)	$	7,779	$	2,793,783




U.S. Treasury Securities	200,000		200,000		(5,094)		—		194,906

Total Trading Securities	$	2,866,637	$	3,015,951	$	(35,041)	$	7,779	$	2,988,689

December 31, 2020
Agency Securities:
Total Fannie Mae	$	2,420,828	$	2,585,409	$	(1,441)	$	18,211	$	2,602,179
Total Freddie Mac	570,654		601,320		(430)		4,351		605,241
Total Trading Securities	$	2,991,482	$	3,186,729	$	(1,871)	$	22,562	$	3,207,420

The following table summarizes the weighted average lives of our trading securities at September 30, 2021 and December 31, 2020.


	September 30, 2021				December 31, 2020
Estimated Weighted Average Life of Trading Securities	Fair Value		Amortized Cost		Fair Value		Amortized Cost
< 1 year	$	—	$	—	$	—	$	—
≥ 1 year and < 3 years	61,949		61,793		649,425		650,328
≥ 3 years and < 5 years	473,216		468,971		1,522,509		1,506,035
≥ 5 years	2,453,524		2,485,187		1,035,486		1,030,366
Total	$	2,988,689	$	3,015,951	$	3,207,420	$	3,186,729

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 September 30, 2021 and December

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

31, 2020 in the tables 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 trading securities could be longer or shorter than estimated.

Note 7 - Repurchase Agreements

At September 30, 2021, we had active MRAs with 34 counterparties and had $3,450,439 in outstanding borrowings with 18 of those counterparties. At December 31, 2020, we had $4,536,065 in outstanding borrowings with 18 counterparties.

The following table represents the contractual repricing regarding our repurchase agreements to finance MBS purchases at September 30, 2021 and December 31, 2020. No amounts below are subject to offsetting. Our repurchase agreements require excess collateral, known as a “haircut.” At September 30, 2021, the average haircut percentage was 3.44% compared to 3.13% at December 31, 2020. The haircut for our repurchase agreements vary by counterparty and therefore, the changes in the average haircut percentage will vary with the changes in our counterparty repurchase agreement balances.


	Balance		Weighted Average Contractual Rate		Weighted Average Maturity in days
September 30, 2021
Agency Securities
≤ 30 days	$	2,556,476	0.13	%	15
> 30 days to ≤ 90 days	109,082		0.11	%	49

> 90 days	584,881		0.11	%	182
Total or Weighted Average	$	3,250,439	0.13	%	46








U.S. Treasury Securities
≤ 30 days	200,000		0.14	%	1




Total or Weighted Average	$	3,450,439	0.11	%	43

December 31, 2020
Agency Securities
≤ 30 days	$	3,618,255	0.23	%	15
> 30 days to ≤ 60 days	917,810		0.23	%	45

















Total or Weighted Average	$	4,536,065	0.23	%	21

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.

At September 30, 2021 and December 31, 2020, BUCKLER accounted for 47.6% and 66.1%, respectively, of our aggregate borrowings and had an amount at risk of 3.9% and 8.3%, respectively, of our total stockholders' equity with a

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

weighted average maturity of 65 days and 21 days, respectively, on repurchase agreements (see Note 15 - Related Party Transactions).

In addition, at September 30, 2021, we had 2 repurchase agreement counterparties that individually accounted for over 5% of our aggregate borrowings. In total, these counterparties accounted for approximately 18.7% of our repurchase agreement borrowings outstanding at September 30, 2021. At December 31, 2020, we had 1 repurchase agreement counterparty that individually accounted for over 5% of our aggregate borrowings. In total, this counterparty accounted for 9.0% of our repurchase agreement borrowings at December 31, 2020.

Note 8 - 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.

Our Futures Contracts are traded on the Chicago Mercantile Exchange ("CME") which requires the use of daily mark-to-market collateral and the CME provides substantial credit support. The collateral requirements of the CME require us to pledge assets under a bi-lateral margin arrangement, including either cash or Agency Securities and these requirements may vary and change over time based on the market value, notional amount and remaining term of the Futures Contracts. In the event we are unable to meet a margin call under one of our Futures Contracts, the counterparty to such agreement may have the option to terminate or close-out all of the outstanding Futures Contracts with us. In addition, any close-out amount due to the counterparty upon termination of the counterparty’s transactions would be immediately payable by us pursuant to the applicable agreement.

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.

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 September 30, 2021 and December 31, 2020.


			Gross Amounts Not Offset
Assets	Gross Amounts(1)		Financial Instruments		Cash Collateral		Total Net
September 30, 2021
Interest rate swap contracts	$	172,592	$	(4,526)	$	(147,138)	$	20,928
Futures Contracts	—		—		12		12
TBA Agency Securities	6,010		(18,456)		19,075		6,629
Totals	$	178,602	$	(22,982)	$	(128,051)	$	27,569

December 31, 2020
Interest rate swap contracts	$	34,588	$	(866)	$	(27,773)	$	5,949
TBA Agency Securities	20,098		(351)		(13,942)		5,805
Totals	$	54,686	$	(1,217)	$	(41,715)	$	11,754

(1)See Note 5 - Fair Value of Financial Instruments for additional discussion.


			Gross Amounts Not Offset
Liabilities	Gross Amounts(1)		Financial Instruments		Cash Collateral		Total Net
September 30, 2021
Interest rate swap contracts	$	(4,526)	$	4,526	$	—	$	—
TBA Agency Securities	(18,456)		18,456		—		—
Totals	$	(22,982)	$	22,982	$	—	$	—

December 31, 2020
Interest rate swap contracts	$	(866)	$	866	$	—	$	—
TBA Agency Securities	(351)		351		—		—
Totals	$	(1,217)	$	1,217	$	—	$	—

(1)See Note 5 - Fair Value of Financial Instruments for additional discussion.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

The following table represents the location and information regarding our derivatives which are included in Other Income (Loss) in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2021 and September 30, 2020.


		Income (Loss) Recognized
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Derivatives	Location on consolidated statements of operations	2021		2020		2021		2020
Interest rate swap contracts:
Realized loss	Realized gain (loss) on derivatives	$	(58,637)	$	—	$	(58,637)	$	(461,374)
Interest income	Realized gain (loss) on derivatives	1,250		1,136		3,007		28,937
Interest expense	Realized gain (loss) on derivatives	(8,325)		(2,603)		(21,507)		(43,172)
Changes in fair value	Unrealized gain on derivatives	89,726		13,478		143,872		43,030
		$	24,014	$	12,011	$	66,735	$	(432,579)




Futures Contracts:
Realized gain	Realized gain (loss) on derivatives	2		—		2		—

		$	2	$	—	$	2	$	—
TBA Agency Securities:
Realized gain	Realized gain (loss) on derivatives	36,170		22,333		16,587		80,759
Changes in fair value	Unrealized gain on derivatives	(29,877)		(6,612)		(30,787)		3,274
		$	6,293	$	15,721	$	(14,200)	$	84,033
Totals		$	30,309	$	27,732	$	52,537	$	(348,546)

The following tables present information about our derivatives at September 30, 2021 and December 31, 2020.


Interest Rate Swap Contracts (1)	Notional Amount		Weighted Average Remaining Term (Months)	Weighted Average Rate
September 30, 2021
< 3 years	$	1,307,000	13	0.06	%
≥ 3 years and < 5 years	412,000		41	0.16	%
≥ 5 years and < 7 years	889,000		63	0.28	%
≥ 7 years	4,202,000		110	0.87	%

Total or Weighted Average (2)	$	6,810,000	81	0.59	%

December 31, 2020
< 3 years	$	2,230,000	12	0.06	%
≥ 3 years and < 5 years	463,000		45	0.14	%
≥ 5 years and < 7 years	942,000		72	0.28	%
≥ 7 years	1,702,000		113	0.50	%

Total or Weighted Average (3)	$	5,337,000	58	0.24	%

(1)Pay Fixed/Receive Variable.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

(2)Of this amount, $5,607,000 notional are Fed Funds based swaps, the last of which matures in 2032 and $1,203,000 notional are SOFR based swaps, the last of which matures in 2023. Includes $850,000 notional of forward settling swap contracts that settle by September 23, 2022.

(3)Of this amount, $2,230,000 notional are SOFR based swaps, the last of which matures in 2023; and $3,107,000 notional are Fed Funds based swaps, the last of which matures in 2030.


TBA Agency Securities	Notional Amount		Cost Basis		Fair Value
September 30, 2021
15 Year Long
1.5%	$	700,000	$	707,348	$	705,215
2.0%	1,700,000		1,753,652		1,746,736
30 Year Long
2.0%	300,000		303,320		300,609
2.5%	1,200,000		1,239,016		1,233,157
3.5%	300,000		313,543		313,556
Total (1)	$	4,200,000	$	4,316,879	$	4,299,273

December 31, 2020
15 Year Long
1.5%	$	200,000	$	204,758	$	205,781
2.0%	1,200,000		1,248,015		1,253,354
30 Year Long
2.0%	600,000		619,031		622,934
2.5%	800,000		838,047		841,314
3.5%	(200,000)		(211,055)		(211,406)
Total (1)	$	2,600,000	$	2,698,796	$	2,711,977

(1)$2,250,000 and $1,250,000 notional were forward settling at September 30, 2021 and December 31, 2020, respectively.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Note 9 - Commitments and Contingencies

Management

The Company is managed by ACM, pursuant to a management agreement (see also Note 15 - Related Party Transactions). The management agreement entitles ACM to receive management fees payable monthly in arrears. Currently, the monthly management fee is 1/12th of the sum of (a) 1.5% of gross equity raised up to $1.0 billion plus (b) 0.75% of gross equity raised in excess of $1.0 billion. The cost of repurchased stock and any dividend representing a return of capital for tax purposes will reduce the amount of gross equity raised used to calculate the monthly management fee. At September 30, 2021 and September 30, 2020, the effective management fee, prior to management fees waived, was 0.98% and 1.01% based on gross equity raised of $3,245,650 and $2,937,354, respectively. ACM began waiving 40% of its management fee during the second quarter of 2020 and on January 13, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,400 for the first quarter of 2021 and $800 per month thereafter. On April 20, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,100 for the second quarter of 2021 and $700 per month thereafter. On October 25, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver from the rate of $700 per month to $650 per month, effective November 1, 2021, until further notice (see Note 16 - Subsequent Events). During the three and nine months ended September 30, 2021, ACM waived management fees of $2,100 and $6,600, respectively. During the three and nine months ended September 30, 2020, ACM waived management fees of $2,953 and $5,900. The monthly management fees are not calculated based on the performance of our assets. Accordingly, the payment of our monthly management fees may not decline in the event of a decline in our earnings and may cause us to incur losses. We are also responsible for any costs and expenses that ACM incurs solely on our behalf other than the various overhead expenses specified in the terms of the management agreement. ACM is further entitled to receive termination fees from us under certain circumstances.

Indemnifications and Litigation

We enter into certain contracts that contain a variety of indemnifications, principally with ACM and underwriters, against third party claims for errors and omissions in connection with their services to us. We have not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements, as well as the maximum amount attributable to past events, is not material. Accordingly, we have no liabilities recorded for these agreements at September 30, 2021 and December 31, 2020.

Nine putative class action lawsuits have been filed in connection with the tender offer (the “Tender Offer”) and merger (the “Merger”) for JAVELIN. The Tender Offer and Merger are collectively defined herein as the “Transactions.” All nine suits name ARMOUR, the previous members of JAVELIN’s board of directors prior to the Merger (of which eight are current members of ARMOUR’s board of directors) (the “Individual Defendants”) and JMI Acquisition Corporation (“Acquisition”) as defendants. Certain cases also name ACM and JAVELIN as additional defendants. The lawsuits were brought by purported holders of JAVELIN’s common stock, both individually and on behalf of a putative class of JAVELIN’s stockholders, alleging that the Individual Defendants breached their fiduciary duties owed to the plaintiffs and the putative class of JAVELIN stockholders, including claims that the Individual Defendants failed to properly value JAVELIN; failed to take steps to maximize the value of JAVELIN to its stockholders; ignored or failed to protect against conflicts of interest; failed to disclose material information about the Transactions; took steps to avoid competitive bidding and to give ARMOUR an unfair advantage by failing to adequately solicit other potential acquirors or alternative transactions; and erected unreasonable barriers to other third-party bidders. The suits also allege that ARMOUR, JAVELIN, ACM and Acquisition aided and abetted the alleged breaches of fiduciary duties by the Individual Defendants. The lawsuits seek equitable relief, including, among other relief, to enjoin consummation of the Transactions, or rescind or unwind the Transactions if already consummated, and award costs and disbursements, including reasonable attorneys’ fees and expenses. The sole Florida lawsuit was never served on the defendants, and that case was voluntarily dismissed and closed on January 20, 2017. On April 25, 2016, the Maryland court issued an order consolidating the eight Maryland cases into one action, captioned In re JAVELIN Mortgage Investment Corp. Shareholder Litigation (Case No. 24-C-16-001542), and designated counsel for one of the Maryland cases as interim lead co-counsel. On May 26, 2016, interim lead counsel filed the Consolidated Amended Class Action Complaint for Breach of Fiduciary Duty asserting consolidated claims of breach of fiduciary duty, aiding and abetting the breaches of fiduciary duty, and waste. On June 27, 2016, defendants filed a Motion to Dismiss the Consolidated

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Amended Class Action Complaint for failing to state a claim upon which relief can be granted. A hearing was held on the Motion to Dismiss on March 3, 2017, and the Court reserved ruling. On September 27, 2019, the court further deferred the matter for six months. On June 15, 2020, co-counsel for the plaintiff filed a notice of supplemental authority requesting to move the matter forward. On August 19, 2020, a Notification To Parties of Contemplated Dismissal was sent out by the Clerk of the Circuit Court to all parties. Counsel for the plaintiff responded on August 24, 2020, with a Motion to Defer Dismissal, and the court deferred dismissal until May 10, 2021. A Motion to Defer Dismissal Further was not filed; however, on August 16, 2021, the court ordered that (i) entry of an Order of Dismissal is further deferred until February 1, 2022 and (ii) if the case is not fully disposed of by that date, the clerk shall enter on the docket "dismissed for lack of prosecution without prejudice." No further action has been taken by the court.

Each of ARMOUR, JAVELIN, ACM and the Individual Defendants intends to defend the claims made in these lawsuits vigorously; however, there can be no assurance that any of ARMOUR, JAVELIN, ACM or the Individual Defendants will prevail in its defense of any of these lawsuits to which it is a party. An unfavorable resolution of any such litigation surrounding the Transactions may result in monetary damages being awarded to the plaintiffs and the putative class of former stockholders of JAVELIN and the cost of defending the litigation, even if resolved favorably, could be substantial. Due to the preliminary nature of all of these suits, ARMOUR is not able at this time to estimate their outcome.

Note 10 - Stock Based Compensation

We adopted the 2009 Stock Incentive Plan, as amended (the “Plan”), to attract, retain and reward directors and other persons who provide services to us in the course of operations. The Plan authorizes the Board to grant awards including common stock, restricted shares of common stock, restricted stock units (“RSUs”), stock options, performance shares, performance units, stock appreciation rights and other equity and cash-based awards (collectively, “Awards”), subject to terms as provided in the Plan. On May 13, 2021, at the Company’s 2021 annual meeting of stockholders, the Plan was amended to increase the aggregate number of shares available for issuance by 2,125 shares of common stock from 1,875 shares to 4,000 shares. At September 30, 2021, there were 2,167 shares available for future issuance under the Plan.

Transactions related to awards for the nine months ended September 30, 2021 are summarized below:


	September 30, 2021
	Number of Awards	Weighted Average Grant Date Fair Value per Award
Unvested RSU Awards Outstanding beginning of period	496	$	19.77
Granted (1)	635	$	11.08
Vested	(230)	$	17.10

Unvested RSU Awards Outstanding end of period	901	$	14.33

(1)During the nine months ended September 30, 2021, 535 RSUs were granted to certain officers of ARMOUR through ACM and 100 RSUs were granted to the Board.

At September 30, 2021, there was approximately $12,911 of unvested stock based compensation related to the Awards (based on a weighted average grant date price of $14.33 per share), which we expect to recognize as an expense over the remaining average service period of 2.8 years. Our policy is to account for forfeitures as they occur. We also pay each of our non-executive Board members quarterly fees of $33, which are payable in cash, common stock, RSUs or a combination of common stock, RSUs and cash at the option of the director. Non-executive Board members have the option to participate in the Company's Non-Management Director Compensation and Deferral Program (the "Deferral Program"). The Deferral Program permits non-executive Board members to elect to receive either common stock or RSUs or a combination of common stock and RSUs at the option of the director, instead of all or part of their quarterly cash compensation and/or all or part of their committee and chairperson cash retainers.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Note 11 - Stockholders' Equity

Changes in Stockholders' Equity

The following table presents the changes in Stockholders' Equity for the following interim periods.


Stockholders' Equity	March 31, 2021		June 30, 2021		September 30, 2021		March 31, 2020		June 30, 2020		September 30, 2020
Balance, beginning of quarter	$	938,304	$	1,027,186	$	1,108,542	$	1,436,707	$	786,250	$	851,231
Series B Preferred dividends ($0.1640625 per share)	—		—		—		(1,375)		—		—
Series C Preferred dividends ($0.14583 per share)	(2,486)		(2,996)		(2,995)		(1,452)		(2,320)		(2,320)
Common stock dividends (1)	(20,057)		(23,197)		(25,461)		(30,377)		(5,876)		(19,590)
Series B Preferred Stock, called for redemption	—		—		—		(209,583)		—		—
Issuance of Series C Preferred Stock	28,173		8,412		—		129,221		(125)		—
Issuance of Common stock, net	52,960		159,264		49,072		—		48,886		—
Stock based compensation, net of withholding requirements	1,199		1,205		1,237		1,001		1,022		1,028
Common Stock repurchased, net	—		—		—		(777)		—		—
Net income (loss)	71,327		(69,174)		33,982		(406,659)		51,748		58,386
Other comprehensive income (loss)	(42,234)		7,842		(20,685)		(130,456)		(28,354)		3,534
Balance, end of quarter	$	1,027,186	$	1,108,542	$	1,143,692	$	786,250	$	851,231	$	892,269

(1) See the below table for common stock dividends per share for the nine months ended September 30, 2021. Common stock dividends were $0.17 per share each month for January, February and March 2020. No common stock dividends were paid in April and May 2020, $0.09 per share was paid in June 2020 and for each month from July through September 2020 common stock dividends paid were $0.10 per share.

Preferred Stock

At September 30, 2021 and December 31, 2020, we were authorized to issue up to 50,000 shares of preferred stock, par value $0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by our Board of Directors (“Board”) or a committee thereof. On January 28, 2020, we filed Articles Supplementary with the State Department of Assessments and Taxation of the State of Maryland to designate 10,000 shares of the Company’s authorized preferred stock, par value $0.001 per share, as shares of 7.00% Series C Preferred Stock with the powers, designations, preferences and other rights as set forth therein. At September 30, 2021, a total of 31,617 shares of our authorized preferred stock remain available for designation as future series.

Series C Cumulative Redeemable Preferred Stock "Series C Preferred Stock"

At September 30, 2021 and December 31, 2020, we had 6,847 and 5,347 shares, respectively, of Series C Preferred Stock issued and outstanding with a par value of $0.001 per share and a liquidation preference of $25.00 per share, or $171,175 and $133,675 in the aggregate. Shares designated as Series C Preferred Stock but unissued totaled 3,153 and 4,653 at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020, there were no accrued or unpaid dividends on the Series C Preferred Stock.

On January 29, 2020, the Company entered into an Equity Sales Agreement (the “Preferred C ATM Sales Agreement”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.) and BUCKLER, as sales agents (individually and

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

collectively, the “Agents"), and ACM, pursuant to which the Company may offer and sell, over a period of time and from time to time, through one or more of the Agents, as the Company’s agents, up to 6,550 of Series C Preferred Stock. The Preferred C ATM Sales Agreement relates to a proposed “at-the-market” offering program. Under the Preferred C ATM Sales Agreement, we will pay the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent under the Preferred C ATM Sales Agreement. During the nine months ended September 30, 2021, we sold 1,500 shares under Preferred C ATM Sales Agreement for proceeds of $36,585, net of issuance costs and commissions of approximately $445.

Common Stock

On August 20, 2021 we filed Articles of Amendment with the state of Maryland to increase the number of authorized common stock from 125,000 to 200,000 shares. At September 30, 2021 and December 31, 2020, we were authorized to issue up to 200,000 and 125,000 shares of common stock, par value $0.001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by our Board. We had 87,709 shares of common stock issued and outstanding at September 30, 2021 and 65,290 shares of common stock issued and outstanding at December 31, 2020.

On February 15, 2019, we entered into an Equity Sales Agreement (the “Common stock ATM Sales Agreement”) with BUCKLER, JMP Securities LLC and Ladenburg Thalmann & Co. Inc., as sales agents, relating to the shares of our common stock. On April 3, 2020, the Common stock ATM Sales Agreement was amended to add B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.) as a sales agent. On May 4, 2020 the Common stock ATM Sales Agreement was further amended to increase the number of shares available for sale pursuant to the terms of the Common Stock ATM Sales Agreement. In accordance with the terms of the Common Stock ATM Sales agreement, as amended, we may offer and sell over a period of time and from time to time, up to 17,000 shares of our common stock, par value $0.001 per share. The Common stock ATM Sales Agreement relates to an "at-the-market" offering program. Under the Common stock ATM Sales Agreement, as amended, we paid the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent. Prior to exhausting the Common stock ATM Sales Agreement, as amended, on May 18, 2021, we sold 10,713 shares for proceeds of $129,336, net of issuance costs and commissions of approximately $1,682.

After exhausting the Common stock ATM Sales Agreement, we entered into a new Equity Sales Agreement (the “2021 Common stock ATM Sales Agreement”) on May 14, 2021, with BUCKLER, JMP Securities LLC, Ladenburg Thalmann & Co. Inc. and B. Riley Securities, Inc., as sales agents, relating to the shares of our common stock. In accordance with the terms of the 2021 Common Stock ATM Sales agreement, we may offer and sell over a period of time and from time to time, up to 17,000 shares of our common stock, par value $0.001 per share. The 2021 Common stock ATM Sales Agreement relates to an "at-the-market" offering program. Under the 2021 Common stock ATM Sales Agreement, we will pay the agent designated to sell our shares an aggregate commission of up to 2.0% of the gross sales price per share of our common stock sold through the designated agent, under the 2021 Common stock ATM Sales Agreement. We have sold 11,529 shares under this agreement for proceeds of $131,960, net of issuance costs and commissions of approximately $1,473.

See Note 15 - Related Party Transactions for discussion of additional transactions with BUCKLER.

Common Stock Repurchased

At September 30, 2021 and December 31, 2020, there were 8,210 authorized shares remaining under the current repurchase authorization. Under the Repurchase Program, shares may be purchased in the open market, including block trades, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future. The timing, manner, price and amount of any repurchases will be at our discretion, subject to the requirements of the Securities Exchange Act of 1934, as amended, and related rules. We are not required to repurchase any shares under the Repurchase Program and it may be modified, suspended or terminated at any time for any reason. We do not intend to purchase shares from our Board or other affiliates. Under Maryland law, such repurchased shares are treated as authorized but unissued.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Equity Capital Raising Activities

The following tables present our equity transactions for the nine months ended September 30, 2021 and for the year ended December 31, 2020.


Transaction Type	Completion Date	Number of Shares	Per Share price (1)		Net Proceeds (Costs)
September 30, 2021
Preferred C ATM Sales Agreement	January 19, 2021 - April 9, 2021	1,500	$	24.38	$	36,585
Common stock ATM Sales Agreement	March 3, 2021 - May 18, 2021	10,713	$	12.07	$	129,336
2021 Common stock ATM Sales Agreement	May 19, 2021 - September 28, 2021	11,529	$	11.45	$	131,960

December 31, 2020
Preferred C Underwritten Offering	January 28, 2020	3,450	$	24.14	$	83,282
Preferred C ATM Sales Agreement	January 30, 2020 - December 23, 2020	1,897	$	24.70	$	46,856
Common stock ATM Sales Agreement	April 7, 2020 - December 15, 2020	6,287	$	8.68	$	54,575
Common stock repurchases, net	February 26, 2020 - March 3, 2020	(40)	$	19.42	$	(777)

(1)Weighted average price

Dividends

The following table presents our Series C Preferred Stock dividend transactions for the nine months ended September 30, 2021.


Record Date	Payment Date	Rate per Series C Preferred Share		Aggregate amount paid to holders of record
January 15, 2021	January 27, 2021	$	0.14583	$	779.7
February 15, 2021	February 26, 2021	$	0.14583	$	836.9
March 15, 2021	March 29, 2021	$	0.14583	$	869.6
April 15, 2021	April 27, 2021	$	0.14583	$	998.5
May 15, 2021	May 27, 2021	$	0.14583	$	998.5
June 15, 2021	June 28, 2021	$	0.14583	$	998.5
July 15, 2021	July 27, 2021	$	0.14583	$	998.5
August 15, 2021	August 27, 2021	$	0.14583	$	998.5
September 15, 2021	September 27, 2021	$	0.14583	$	998.5
Total dividends paid				$	8,477.2

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

The following table presents our common stock dividend transactions for the nine months ended September 30, 2021.


Record Date	Payment Date	Rate per common share		Aggregate amount paid to holders of record
January 15, 2021	January 28, 2021	$	0.10	$	6,646
February 16, 2021	February 26, 2021	$	0.10	6,645
March 15, 2021	March 29, 2021	$	0.10	6,766
April 15, 2021	April 29, 2021	$	0.10	7,234
May 17, 2021	May 27, 2021	$	0.10	7,646
June 15, 2021	June 29, 2021	$	0.10	8,317
July 15, 2021	July 29, 2021	$	0.10	8,413
August 16, 2021	August 27, 2021	$	0.10	8,413
September 15, 2021	September 29, 2021	$	0.10	8,635
Total dividends paid				$	68,715

Note 12 - Net Income (Loss) per Common Share

The following table presents a reconciliation of net income (loss) and the shares used in calculating weighted average basic and diluted earnings per common share for the three and nine months ended September 30, 2021 and September 30, 2020.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Net Income (Loss)	$	33,982	$	58,386	$	36,135	$	(296,525)
Less: Preferred dividends	(2,995)		(2,320)		(8,477)		(7,467)
Net Income (Loss) available (related) to common stockholders	$	30,987	$	56,066	$	27,658	$	(303,992)

Weighted average common shares outstanding – basic	84,026		64,724		75,417		62,458
Add: Effect of dilutive non-vested awards, assumed vested	901		548		901		—
Weighted average common shares outstanding – diluted	84,927		65,272		76,318		62,458

For the nine months ended September 30, 2020, 548 of potentially dilutive non-vested awards outstanding were excluded from the computation of diluted Net Income (Loss) available (related) to common stockholders because to have included them would have been anti-dilutive for the period.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Note 13 - Comprehensive Income (Loss) per Common Share

The following table presents a reconciliation of comprehensive net income (loss) and the shares used in calculating weighted average basic and diluted comprehensive income (loss) per common share for the three and nine months ended September 30, 2021 and September 30, 2020.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Comprehensive Income (Loss)	$	13,297	$	61,920	$	(18,942)	$	(451,801)
Less: Preferred dividends	(2,995)		(2,320)		(8,477)		(7,467)
Comprehensive Income (Loss) available (related) to common stockholders	$	10,302	$	59,600	$	(27,419)	$	(459,268)
Net Comprehensive Income (Loss) per share available (related) to common stockholders:
Basic	$	0.12	$	0.92	$	(0.36)	$	(7.35)
Diluted	$	0.12	$	0.91	$	(0.36)	$	(7.35)
Weighted average common shares outstanding:
Basic	84,026		64,724		75,417		62,458
Add: Effect of dilutive non-vested awards, assumed vested	901		548		—		—
Diluted	84,927		65,272		75,417		62,458

For the nine months ended September 30, 2021 and September 30, 2020, 901 and 548, respectively, of potentially dilutive non-vested awards outstanding were excluded from the computation of diluted Net Comprehensive Income (Loss) available (related) to common stockholders because to have included them would have been anti-dilutive for the period.

ARMOUR Residential REIT, Inc.

FINANCIAL STATEMENT NOTES (UNAUDITED)

(in thousands, except per share)

Note 14 - Income Taxes

The following table reconciles our GAAP net income (loss) to estimated REIT taxable loss for the three and nine months ended September 30, 2021 and September 30, 2020.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
GAAP net income (loss)	$	33,982	$	58,386	$	36,135	$	(296,525)
Book to tax differences:
TRS (income) loss	23		145		(43)		76
Premium amortization expense	(41)		(103)		(117)		(183)
Agency Securities, trading	2,387		(12,149)		45,790		(20,060)
Credit Risk and Non-Agency Securities	—		6,510		—		188,075

U.S. Treasury Securities	9,170		—		9,198		(21,357)
Changes in interest rate contracts	(37,384)		(29,199)		(71,037)		334,312
Credit loss expense	—		—		—		1,012
Gain on Security Sales	(3,724)		(9,468)		(11,078)		(138,802)
Amortization of deferred hedging costs	(40,664)

ARR-C

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