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What changed in Armour Residential REIT, Inc.'s 10-K — 2022 vs 2023

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

+358 added−366 removedSource: 10-K (2023-12-31) vs 10-K (2022-12-31)

Top changes in Armour Residential REIT, Inc.'s 2023 10-K

358 paragraphs added · 366 removed · 303 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

31 edited+13 added−5 removed35 unchanged
Biggest changeStrategies We seek to create shareholder value through thoughtful investment and risk management that produces current yield and superior risk adjusted returns over the long term. Our focus on residential real estate finance supports home ownership for a broad and diverse spectrum of Americans by bringing private capital into the mortgage markets.
Biggest changeNo other reclassifications have been made to previously reported amounts. Strategies ARMOUR brings private capital into the mortgage markets to support home ownership for a broad and diverse spectrum of Americans. We seek to create stockholder value through thoughtful investment and risk management of a leveraged and diversified portfolio of MBS.
Assets At December 31, 2022 and December 31, 2021, we invested in mortgage backed securities ("MBS"), issued or guaranteed by a United States ("U.S.") Government-sponsored entity ("GSE"), such as the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac"), or a government agency such as Government National Mortgage Administration ("Ginnie Mae") (collectively, "Agency Securities").
Assets At December 31, 2023 and December 31, 2022, 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").
We understand that ESG practices can create value by improving the environment and the lives of ACM's employees, our shareholders, our business partners, and the community and we recognize that understanding our efforts on ESG practices is increasingly important to those key relationships.
We understand that ESG practices can create value by improving the environment and the lives of ACM's employees, our stockholders, our business partners, and the community and we recognize that understanding our efforts on ESG practices is increasingly important to those key relationships.
Additional firms in the marketplace may increase competition for the available supply of mortgage assets suitable for purchase and could adversely affect the availability and cost of our financing. Many of these organizations have greater financial resources and access to lower costs of capital than we do.
Additional firms in the marketplace may increase competition for the available supply of mortgage assets suitable for purchase and could adversely affect the availability and cost of our financing. Some of these organizations have greater financial resources than we do, access to lower costs of capital than we do and lower cost structures than we have.
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.
Business (continued) 3 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.
During the years ended December 31, 2022 and December 31, 2021, ACM waived management fees of $7,800 and $8,600, respectively (see Note 8 to the consolidated financial statements). The monthly management fees are not calculated based on the performance of our assets.
During the years ended December 31, 2023, December 31, 2022 and December 31, 2021, ACM voluntarily waived management fees of $6,600 and $7,800 and $8,600, respectively (see Note 8 to the consolidated financial statements). The monthly management fees are not calculated based on the performance of our assets.
Dividends in excess of REIT taxable income for the year (including taxable income carried forward from the previous year) will generally not be taxable to common stockholders. The portion of the dividends on our common and preferred stock which represented non-taxable return of capital was 100.0% in 2022, 100.0% in 2021 and 100.0% in 2020.
Dividends in excess of REIT taxable income for the year (including taxable income carried forward from the previous year) will generally not be taxable to common stockholders. The portion of the dividends on our common and preferred stock which represented non-taxable return of capital was 47.5% in 2023, 100.0% in 2022 and 100.0% in 2021.
Business (continued) 3 Environmental, Social and Governance Initiatives ARMOUR is committed to best practices in our environmental, social and governance ("ESG") policies. We have incorporated many ESG principles into our corporate culture over time in growing the Company.
Environmental, Social and Governance Initiatives ARMOUR is committed to best practices in our environmental, social and governance ("ESG") policies. We have incorporated many ESG principles into our corporate culture over time in growing the Company.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance. ARMOUR Residential REIT, Inc.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance.
Business (continued) 4 ACM has established an Information Technology Steering Committee (the "IT Committee”) to help mitigate technology risks including cybersecurity. One of the roles of the IT Committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee the Company’s Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing.
ACM has established an Information Technology Steering Committee (the "ITSC”) to help mitigate technology risks including cybersecurity. One of the roles of the ITSC is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee the Company’s Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing.
The level of our borrowings may vary periodically depending on market conditions. In addition, certain of our MRAs and ISDAs contain a restriction that prohibits our leverage from exceeding twelve times our total stockholders’ equity as well as termination events in the case of significant reductions in equity capital.
The level of our borrowings may vary periodically ARMOUR Residential REIT, Inc. Business (continued) 2 depending on market conditions. In addition, certain of our MRAs and ISDAs contain a restriction that prohibits our leverage from exceeding twelve times our total stockholders’ equity as well as termination events in the case of significant reductions in equity capital.
See General risks common to ARMOUR and our peer mortgage REITs in Item 1A. Risk Factors of this Form 10-K for further discussion. Compliance with NYSE Corporate Governance Standards We comply with the corporate governance standards of the NYSE.
See General risks common to ARMOUR and our peer mortgage REITs in Item 1A. Risk Factors of this Form 10-K for further discussion. ARMOUR Residential REIT, Inc. Business (continued) 6 Compliance with NYSE Corporate Governance Standards We comply with the corporate governance standards of the NYSE.
In the event that ACM and the Board determine that we should raise additional equity capital, we have the authority, without stockholder approval, to issue additional stock in any manner and on such terms and for such consideration as we deem appropriate, at any time.
In the event that ACM and the Board determine that we should raise additional equity capital, we have the authority, without stockholder approval, to issue additional stock in any manner and on such terms and for such consideration as we deem appropriate, at any ARMOUR Residential REIT, Inc. Business (continued) 5 time.
At December 31, 2022, we had approximately $399,783 in tax deductible expense relating to previously terminated interest rate swap contracts amortizing through the year 2032. ARMOUR Residential REIT, Inc. Business (continued) 5 Investment Company Act of 1940 Exclusion We conduct our business so as not to become regulated as an investment company under the 1940 Act.
At December 31, 2023, we had approximately $(247,349) in tax deductible expense relating to previously terminated interest rate swap, treasury futures contracts and treasury shorts amortizing through the year 2033. Investment Company Act of 1940 Exclusion We conduct our business so as not to become regulated as an investment company under the 1940 Act.
Business (continued) 6 We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis and are required to disclose certain material events in a Current Report on Form 8-K.
Information provided on our website is not part of this Annual Report on Form 10-K and not incorporated herein. We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis and are required to disclose certain material events in a Current Report on Form 8-K.
The cost of repurchased stock and any dividend specifically designated by the Board as liquidation dividends will reduce the amount of gross equity raised used to calculate the monthly management fee. Realized and unrealized gains and losses do not affect the amount of gross equity raised.
Dividends specifically designated by the Board as liquidation dividends will reduce the amount of gross equity raised. To date, the Board has not so designated any of the dividends paid by the Company. Realized and unrealized gains and losses do not affect the amount of gross equity raised.
Business (continued) 2 also include entering into interest rate cap or floor agreements, purchasing put and call options on securities or futures contracts, or entering into forward rate agreements.
These techniques primarily consist of entering into interest rate swap contracts, basis swap contracts and swaptions and purchasing or selling futures contracts and may also include entering into interest rate cap or floor agreements, purchasing put and call options on securities or futures contracts, or entering into forward rate agreements.
From time to time, we grant restricted stock unit awards to our Board and to our executive officers that vest over various periods through 2027 and 2029, respectively (see Note 9 to the consolidated financial statements). ARMOUR Residential REIT, Inc.
We are required to take actions as may be reasonably required to permit and enable ACM to carry out its duties and obligations. From time to time, we grant restricted stock unit awards to our Board and to our executive officers that vest over various periods through 2027 and 2029, respectively (see Note 9 to the consolidated financial statements).
ACM ensures its employees have a rewarding, supportive, and healthy working environment in which to thrive, and endeavors to support their success in all things. A diverse and inclusive internal climate is supported.
Human Capital Resources Our greatest strength and most important assets are the members of the ARMOUR team. Their overall well-being is paramount to the Company's success. ACM ensures its employees have a rewarding, supportive, and healthy working environment in which to thrive, and endeavors to support their success in all things. A diverse and inclusive internal climate is supported.
At December 31, 2022, there were 137,088 authorized shares of common stock and 43,153 authorized shares of preferred stock available for issuance. At December 31, 2022, there were 6,732 authorized shares remaining available for repurchase under our Repurchase Program.
At December 31, 2023, there were 2,287 authorized shares of common stock remaining available for repurchase under our Common Stock Repurchase Program and 2,000 authorized shares of Series C Preferred Stock available for repurchase under our Series C Preferred Stock Repurchase Program.
At December 31, 2022, December 31, 2021 and December 31, 2020, the effective management fee, prior to management fees waived, was 0.95%, 0.98% and 1.00% based on gross equity raised of $3,787,042, $3,313,937 and $2,944,169, respectively.
At December 31, 2023, December 31, 2022 and December 31, 2021, the effective management fee rate, prior to management fees waived, was 0.93%, 0.95% and 0.98% based on gross equity raised of $4,231,965, $3,787,042 and $3,313,937 and effectively a rate of 3.09%, 3.53% and 3.43% based on total stockholders' equity, respectively. ARMOUR Residential REIT, Inc.
Hedging We use derivatives in the normal course of our business to reduce the impact of interest rate fluctuations on our cost of funding consistent with our REIT tax requirements. These techniques primarily consist of entering into interest rate swap contracts, basis swaps and swaptions and purchasing or selling futures contracts and may ARMOUR Residential REIT, Inc.
Hedging We use derivatives in the normal course of our business to reduce the impact of interest rate fluctuations on our cost of funding consistent with our REIT tax requirements.
U.S. dollar amounts are presented in thousands, except per share amounts or as otherwise noted. 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 ("SEC"), (see Note 8 and Note 14 to the consolidated financial statements).
U.S. dollar amounts are presented in thousands, except per share amounts or as otherwise noted. ARMOUR is an externally managed Maryland corporation incorporated in 2008.
ARMOUR’s Nominating and Corporate Governance Committee has primary oversight of our efforts in ESG policies, activities, and communications. We assess our practices with a goal of meeting or exceeding industry and peer standards. We continually seek opportunities to enhance the communities where we operate through corporate giving, employee volunteering, human capital development, and environmental sustainability programs.
ARMOUR’s Nominating and Corporate Governance Committee has primary oversight of our efforts in ESG policies, activities, and communications. We ARMOUR Residential REIT, Inc. Business (continued) 4 assess our practices with a goal of meeting or exceeding industry and peer standards.
We are deeply committed to implementing sustainable environmental, responsible social, and prudent governance practices that improve our work and our world. We strive to contribute to a healthy, sustainable environment by utilizing resources efficiently. As an organization, we create a relatively small environmental footprint. Still, we are focused on minimizing the environmental impact of our business where possible.
We prioritize maintaining common share dividends appropriate for the intermediate term rather than focusing on short-term market fluctuations. We are deeply committed to implementing sustainable environmental, responsible social, and prudent governance practices that improve our work and our world. We strive to contribute to a healthy, sustainable environment by utilizing resources efficiently.
As of December 31, 2022, ACM had 21 employees that provide services to us. Principal office location: 3001 Ocean Drive, Suite 201, Vero Beach, FL 32963 Phone number: (772) 617-4340. Website: www.armourreit.com . Our investor relations website can be found under the “Investor Relations” tab at www.armourreit.com .
Corporate Information We are managed by ACM pursuant to a management agreement between ARMOUR and ACM. We do not have any employees. As of December 31, 2023, ACM had 22 employees that provide services to us. Principal office location: 3001 Ocean Drive, Suite 201, Vero Beach, FL 32963 Phone number: (772) 617-4340. Website: www.armourreit.com .
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. Borrowings We borrow against our MBS using repurchase agreements.
Our Agency Securities consist of fixed rate loans. From time to time we also invest in U.S. Treasury Securities and money market instruments subject to certain income tests we must satisfy for our qualification as a REIT. Borrowings We borrow against our MBS using repurchase agreements.
Some of these entities may not be subject to the same regulatory constraints that we are (i.e., REIT compliance or maintaining an exclusion under the 1940 Act). Corporate Information We are managed by ACM pursuant to a management agreement between ARMOUR and ACM. We do not have any employees.
Accordingly, those competitors may be able to generate higher total economic returns and/or accept lower returns on their investments. Some of these entities may not be subject to the same regulatory constraints that we are (i.e., REIT compliance or maintaining an exclusion under the 1940 Act).
As a result of this mark-to-market accounting treatment, our reported results of operations are likely to fluctuate far more than if we used cash flow hedge accounting. Comparisons with companies that use cash flow hedge accounting for all or part of their derivative activities may not be meaningful.
Accordingly, our results of operations will not be subject to the additional fluctuations caused by the previous differences in mark-to-market accounting treatments. Comparisons with companies that use hedge accounting for all or part of their derivative activities may not be meaningful.
We continue to evaluate relevant corporate sustainability reporting frameworks with a goal of adopting and implementing best practices in our reporting framework. Human Capital Resources Our greatest strength and most important assets are the members of the ARMOUR team. Their overall well-being is paramount to the Company's success.
We continually seek opportunities to enhance the communities where we operate through corporate giving, employee volunteering, human capital development, and environmental sustainability programs. We continue to evaluate relevant corporate sustainability reporting frameworks with a goal of adopting and implementing best practices in our reporting framework.
However, changes in the fair value of our derivatives are reported in net income, while changes in the fair values of our available for sale securities are reported directly in our total stockholders’ equity. Therefore, earnings reported in accordance with GAAP will fluctuate even in situations where our derivatives are operating as intended.
Therefore, historical earnings reported in accordance with GAAP have fluctuated even in situations where our derivatives were operating as intended. Currently, all of our Agency MBS portfolio is designated as trading securities and changes in the fair values of our derivatives and Agency MBS flow through earnings together.
Removed
ACM is further entitled to receive termination fees from us under certain circumstances. We are required to take actions as may be reasonably required to permit and enable ACM to carry out its duties and obligations.
Added
The Company is managed by ACM, an investment advisor registered with the Securities and Exchange Commission ("SEC") (which registration the Company provides notice of to the state of Florida), (see Note 8 and Note 14 to the consolidated financial statements).
Removed
Coronavirus ("COVID-19") Response The health, safety, and security of ACM's employees is of highest priority. Our approach to a COVID-19 response was grounded in the Company’s purpose and striving to make a difference in our community and workplace.
Added
All per share amounts, common shares outstanding and stock-based compensation amounts for all periods presented reflect our Reverse Stock Split. Interest earned/paid on cash collateral posted/held on interest rate swap contracts was reclassified from Interest Income to Gain (loss) on derivatives, net, in the consolidated financial statements to conform to current presentation.
Removed
ACM's executives along with the IT department, have constantly monitored the evolving situation and adapted efforts and responses to ensure a seamless transition to a remote working environment. Internal communications and virtual meetings were increased. There were no layoffs or salary cuts implemented in response to COVID-19.
Added
We rely on the decades of experience of our management team for (i) MBS securities portfolio analysis and selection, (ii) access to equity capital and repurchase financing on potentially attractive rates and terms, and (iii) hedging and liquidity strategies to moderate interest rate and MBS price risk.
Removed
All of ACM's employees worked remotely ahead of any mandated guidelines and our remote work protocol has allowed us to shift quickly between in-person and virtual work environments to adapt effectively to changing conditions. The emergence of variant strains of the COVID-19 virus continues to influence individual and institutional behaviors and likely will for some time to come.
Added
As an organization, we create a relatively small environmental footprint. Still, we are focused on minimizing the environmental impact of our business where possible.
Removed
Information provided on our website is not part of this Annual Report on Form 10-K and not incorporated herein. ARMOUR Residential REIT, Inc.
Added
While we use strategies to economically hedge some of our interest rate risk, we do not hedge all of our exposure to changes in interest rates and prepayment rates, as there are practical limitations on our ability to insulate our securities portfolio from all potential negative consequences associated with changes in short-term interest rates in a manner that will allow us to seek attractive net spreads on our securities portfolio.
Added
For GAAP purposes, all changes in the fair value of our derivatives currently flow through earnings. Changes in the fair value of our legacy Agency MBS portfolio, that was designated as available for sale historically, were recognized in other comprehensive income.
Added
Gross equity raised includes the total amounts of paid in capital relating to both our common and preferred stock, before deduction of brokerage commissions and other costs of capital raising. Amounts paid to stockholders to repurchase stock, before deduction of brokerage commissions and costs, reduces gross equity raised.
Added
On February 14, 2023, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $1,650 for the first quarter of 2023 and $550 per month thereafter until ACM provides further notice to ARMOUR.
Added
ACM is further entitled to receive termination fees from us under certain circumstances. On February 14, 2023, the Company extended the contractual term of the management agreement through December 31, 2029.
Added
Based on the management fee base, gross equity raised, as of December 31, 2023, the Company’s contractual management fee commitments are: Year Contractual Management Fee 2024 39,240 2025 39,240 2026 39,240 2027 39,240 2028 39,240 2029 39,240 Total $ 235,440 The Company cannot voluntarily terminate the management agreement without cause before the expiration of its contractual term.
Added
If the management agreement is terminated in connection with a liquidation of the Company or certain business combination transactions, the Company is obliged to pay ACM a termination fee equal to 4 times the contractual management fee (before any waiver) for the preceding 12 months.
Added
At December 31, 2023, there were 41,201 authorized shares of common stock and 43,153 authorized shares of preferred stock, respectively, available for issuance.
Added
Our investor relations website can be found under the “Investor Relations” tab at www.armourreit.com .

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

134 edited+17 added−8 removed228 unchanged
Biggest changeQ1 2022 Q2 2022 Q3 2022 Q4 2022 December 31, 2022 (1) Comprehensive Income (loss) available (related) to common stockholders $ (147,967) $ (96,237) $ (155,710) $ 39,502 $ (360,412) Weighted average common shares outstanding 96,226 106,514 123,251 145,847 117,968 Comprehensive Income (loss) per common share $ (1.54) $ (0.90) $ (1.26) $ 0.27 $ (3.06) Beginning Book Value per Common Share $ 10.33 $ 8.48 $ 7.25 $ 5.83 $ 10.33 Comprehensive Income (loss) per common share (1.54) (0.90) (1.26) 0.27 (3.06) Dividends Declared per common Share (0.30) (0.30) (0.30) (0.30) (1.20) Accretive (Dilutive) Effect of Capital Activity (0.01) (0.03) 0.14 (0.02) (0.29) Ending Book Value per Common Share $ 8.48 $ 7.25 $ 5.83 $ 5.78 $ 5.78 (1) Per shares amounts are not intended to be added across periods under GAAP.
Biggest changeQ1 2023 Q2 2023 Q3 2023 Q4 2023 December 31, 2023 (1) Comprehensive Income (loss) available (related) to common stockholders $ (22,827) $ 39,966 $ (182,163) $ 96,646 $ (68,378) Weighted average common shares outstanding 36,917 40,076 46,506 49,185 43,054 Comprehensive Income (loss) per common share $ (0.60) $ 1.00 $ (3.92) $ 1.96 $ (1.59) Beginning Book Value per Common Share $ 28.90 $ 27.20 $ 26.90 $ 21.73 $ 28.90 Comprehensive Income (loss) per common share (0.60) 1.00 (3.92) 1.96 (1.59) Dividends Declared per common Share (1.40) (1.20) (1.20) (1.20) (5.00) Accretive (Dilutive) Effect of Capital Activity 0.30 (0.10) (0.05) 0.05 0.23 Ending Book Value per Common Share $ 27.20 $ 26.90 $ 21.73 $ 22.54 $ 22.54 Q1 2022 Q2 2022 Q3 2022 Q4 2022 December 31, 2022 (1) Comprehensive Income (loss) available (related) to common stockholders $ (147,967) $ (96,237) $ (155,710) $ 39,502 $ (360,412) Weighted average common shares outstanding 19,245 21,303 24,650 29,169 23,594 Comprehensive Income (loss) per common share $ (7.70) $ (4.50) $ (6.30) $ 1.35 $ (15.28) Beginning Book Value per Common Share $ 51.65 $ 42.40 $ 36.25 $ 29.15 $ 51.65 Comprehensive Income (loss) per common share (7.70) (4.50) (6.30) 1.35 (15.28) Dividends Declared per common Share (1.50) (1.50) (1.50) (1.50) (6.00) Accretive (Dilutive) Effect of Capital Activity (0.05) (0.15) 0.70 (0.10) (1.47) Ending Book Value per Common Share $ 42.40 $ 36.25 $ 29.15 $ 28.90 $ 28.90 (1) Per shares amounts are not intended to be added across periods under GAAP.
If we fail to qualify for an exclusion from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced. Our business will be materially and adversely affected if we fail to qualify for an exclusion from regulation under the 1940 Act.
If we fail to qualify for an exclusion from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced. Our business will be materially and adversely affected if we fail to qualify for an exclusion from regulation under the 1940 Act.
Such losses include approximately $(622,300) in 2013, $(539,942) in the first quarter of 2020 and $(399,914)in the first three quarters of 2022; and • Considering Distributable Earnings may cause ACM to make portfolio decisions that accelerate the realization of losses and delay the realization of gains, which may not maximize our risk-adjusted returns.
Such losses include approximately $(622,300) in 2013, $(539,942) in the first quarter of 2020 and $(399,914) in the first three quarters of 2022; and • Distributable Earnings may cause ACM to make portfolio decisions that may accelerate the realization of losses and delay the realization of gains, which may not maximize our risk-adjusted returns.
General risks common to ARMOUR and our peer mortgage REITs: We operate in a highly competitive market for investment opportunities and related financing and competition may limit our ability and financing to acquire desirable investments in our target assets, obtain necessary financing and could also affect the pricing of these assets and cost of funds.
General risks common to ARMOUR and our peer mortgage REITs: We operate in a highly competitive market for investment opportunities and related financing and competition may limit our ability and financing to acquire desirable investments in our target assets or obtain necessary financing and could also affect the pricing of these assets and cost of funds.
We experience prepayments on our Agency Security every month and the speed of prepayments varies widely from month to month and across individual Agency Securities. Factors driving prepayment speeds include the rate of new and existing home sales, the level of borrower refinancing activities and the frequency of borrower defaults.
We experience prepayments on our Agency Securities every month and the speed of prepayments varies widely from month to month and across individual Agency Securities. Factors driving prepayment speeds include the rate of new and existing home sales, the level of borrower refinancing activities and the frequency of borrower defaults.
Our Board also determines our other operational policies and may amend or revise such policies, including our policies with respect to our REIT qualification, acquisitions, dispositions, operations, indebtedness and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our stockholders.
Our Board also determines our operational policies and may amend or revise such policies, including our policies with respect to our REIT qualification, acquisitions, dispositions, operations, indebtedness and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our stockholders.
ACM is authorized to invest and obtain financing on our behalf within these guidelines. Our Board periodically reviews our investment guidelines and our investment portfolio but does not, and is not required to, review all our investments on an individual basis or in advance. In conducting periodic reviews, our Board relies primarily on information provided to it by ACM.
ACM is authorized to invest and obtain financing on our behalf within these strategies. Our Board periodically reviews our investment strategies and our investment portfolio but does not, and is not required to, review all our investments on an individual basis or in advance. In conducting periodic reviews, our Board relies primarily on information provided to it by ACM.
However, we believe that the breadth and scope of ACM’s experience will enable it to fill any needs created by discontinuing a relationship with AVM. We have very broad investment guidelines, and our Board will not approve each investment and financing decision made by ACM.
However, we believe that the breadth and scope of ACM’s experience will enable it to fill any needs created by discontinuing a relationship with AVM. We have very broad investment strategies, and our Board will not approve each investment and financing decision made by ACM.
We attempt to mitigate this risk by concentrating our investments in MBS that have more widespread trading interest resulting in deeper and more liquid trading. All of our repurchase financing has daily collateral maintenance requirements, and a substantial portion of our MBS are pledged as collateral.
We attempt to mitigate this risk by concentrating our investments in MBS that have more widespread trading interest resulting in deeper and more liquid trading. All of our repurchase financing has daily collateral maintenance requirements, and a substantial portion of our MBS is pledged as collateral.
The contractually required termination payment would increase the effective cost to us to terminate the management agreement in connection with the liquidation of ARMOUR or certain business combinations and adversely affecting ARMOUR's attractiveness as a potential business combination target.
The contractually required termination payment would increase the effective cost to us to terminate the management agreement in connection with the liquidation of ARMOUR or certain business combinations and adversely affect ARMOUR's attractiveness as a potential business combination target.
Risk Factors (continued) 25 • we would be taxed as a regular domestic corporation, which, among other things, means that we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our net income at regular corporate rates; • any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders and could force us to liquidate assets at inopportune times, causing lower income or higher losses than would result if these assets were not liquidated; and • unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification and thus, our cash available for distribution to our stockholders would be reduced for each of the years during which we do not qualify as a REIT.
If we fail to qualify as a REIT in any tax year, then: • we would be taxed as a regular domestic corporation, which, among other things, means that we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our net income at regular corporate rates; • any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders and could force us to liquidate assets at inopportune times, causing lower income or higher losses than would result if these assets were not liquidated; and • unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification and thus, our cash available for distribution to our stockholders would be reduced for each of the years during which we do not qualify as a REIT.
In addition, it is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline. ARMOUR Residential REIT, Inc. 35 Item 1B.
In addition, it is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline. ARMOUR Residential REIT, Inc.
ARMOUR’s board of directors has authorized the issuance of new common shares where the net proceeds to the Company, after fees and expenses, represents at least 93.5% of our most recent estimate of ARMOUR’s book value per common share. We endeavor to achieve net proceeds representing a higher percentage.
ARMOUR’s board of directors has authorized our CEO to issue new common shares where the net proceeds to the Company, after fees and expenses, represents at least 93.5% of our most recent estimate of ARMOUR’s book value per common share. We endeavor to achieve net proceeds representing a higher percentage.
Other mortgage REITs report Distributable Earnings or similar measures that are calculated on a different basis than the basis we use. For example, other calculations may exclude some or all prepayment effects and/or more or less hedging activities. Because Distributable Earnings is not a standardized metric, it may not be directly comparable across various reporting companies.
Other mortgage REITs report Distributable Earnings or similar measures that are calculated on a different basis than the basis we use. For example, other calculations may exclude some or all prepayment effects and/or more or less hedging activities. Because Distributable Earnings is not a standardized metric, it may not be directly comparable across various reporting companies. ARMOUR Residential REIT, Inc.
There is a risk that our counterparties might be unwilling to continue to extend repurchase financing to us. Changes in regulation, market conditions or the financial position or business strategy of our counterparties could cause them to reduce or terminate our repurchase financing facilities.
Risk Factors (continued) 13 There is a risk that our counterparties might be unwilling to continue to extend repurchase financing to us. Changes in regulation, market conditions or the financial position or business strategy of our counterparties could cause them to reduce or terminate our repurchase financing facilities.
Risk Factors (continued) 15 We regularly report book value per common share, which is calculated as stockholders’ equity attributable to common stockholders (net of liquidation preferences on preferred stock) divided by the number of shares outstanding. Changes in book value per common share are partially explained by total comprehensive income or loss per share and common per share dividends declared.
We regularly report book value per common share, which is calculated as stockholders’ equity attributable to common stockholders (net of liquidation preferences on preferred stock) divided by the number of shares outstanding. Changes in book value per common share are partially explained by total comprehensive income or loss per share and common per share dividends declared.
Distributable Earnings is a non-GAAP measure defined as net interest income plus TBA Drop Income adjusted for the net coupon effect of interest rate swaps minus net operating expenses. Distributable Earnings differs, potentially significantly, from net interest income and from total comprehensive loss (which includes realized gains and losses and market value adjustments). ARMOUR Residential REIT, Inc.
Distributable Earnings is a non-GAAP measure defined as net interest income plus TBA Drop Income adjusted for the net coupon effect of interest rate swaps minus net operating expenses. Distributable Earnings differs, potentially significantly, from net interest income and from total comprehensive loss (which includes realized gains and losses and market value adjustments).
We maintain repurchase relationships with other counterparties which may reduce this risk; • BUCKLER has acted as placement agent for 72% of the shares of common stock that ARMOUR has issued through its ATM programs in 2022; • BUCKLER provides repurchase financing to third parties and may pursue other lines of business.
We maintain repurchase relationships with other counterparties which may reduce this risk; • BUCKLER has acted as placement agent for 71% of the shares of common stock that ARMOUR has issued through its ATM programs in 2023; • BUCKLER provides repurchase financing to third parties and may pursue other lines of business.
In addition, if stockholders hold our shares as a capital asset, to the extent return of capital distributions exceed their adjusted tax basis in their shares, such stockholders would be required to include those distributions in income as long-term capital gain (or short-term capital gain if their shares have been held for one year or less). ARMOUR Residential REIT, Inc.
In addition, if stockholders hold our shares as a capital asset, to the extent return of capital distributions exceed their adjusted tax basis in their shares, such stockholders would be required to include those distributions in income as long-term capital gain (or short-term capital gain if their shares have been held for one year or less).
We consider Distributable Earnings as a measure of our investment performance and discuss our periodic financial results in terms of Distributable Earnings in our press releases and conference calls with equity analysts. We believe that Distributable Earnings is useful to investors because it is related to the amount of dividends we may distribute.
Risk Factors (continued) 21 We consider Distributable Earnings as a measure of our investment performance and discuss our periodic financial results in terms of Distributable Earnings in our press releases and conference calls with equity analysts. We believe that Distributable Earnings is useful to investors because it is related to the amount of dividends we may distribute.
Within our overall investment guidelines, we may change our target assets financing strategy and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K.
We may change our target assets financing strategy and investment strategies at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this Annual Report on Form 10-K.
Therefore, the resulting per share amounts are not additive across periods when the number of shares outstanding is changing significantly. GAAP explicitly recognizes this result (“denominator effect”), even though it is often not material because the number of shares outstanding often remains relatively constant from period to period. ARMOUR Residential REIT, Inc.
Therefore, the resulting per share amounts are not additive across periods when the number of shares outstanding is changing significantly. GAAP explicitly recognizes this result (“denominator effect”), even though it is often not material because the number of shares outstanding often remains relatively constant from period to period.
The management agreement entitles ACM to receive a management fee payable monthly in arrears calculated based on gross equity raised (see Note 9 and Note 15 to the consolidated financial statements). The annualized management fee rate is (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 management agreement entitles ACM to receive a management fee payable monthly in arrears calculated based on gross equity raised (see Note 8 and Note 14 to the consolidated financial statements). The annualized management fee rate is (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.
We may change our target assets, financing and investment strategy and other operational policies without stockholder consent, which may adversely affect the market price of our common stock and our ability to make distributions to stockholders.
We may change our target assets, financing and investment strategies and operational policies without stockholder consent, which may adversely affect the market price of our common stock and our ability to make distributions to stockholders.
However, we cannot assure you that ACM will always allocate every investment opportunity in a manner that is advantageous for us; indeed, we may expect that the allocation of investment opportunities will at times result in our receiving only a portion of, or none of, certain investment opportunities. ARMOUR Residential REIT, Inc.
However, we cannot assure you that ACM will always allocate every investment opportunity in a manner that is advantageous for us; indeed, we may expect that the allocation of investment opportunities will at times result in our receiving only a portion of, or none of, certain investment opportunities.
In addition, in certain cases, the modification of a debt instrument or, potentially, an increase in the value of a debt instrument that we acquired at a significant discount, could result in the conversion of the instrument from a qualifying real estate asset to a wholly or partially non-qualifying asset that must be contributed to a TRS or disposed of in order for us to qualify or maintain our qualification as a REIT.
In addition, in certain cases, the modification of a debt instrument or, potentially, an increase in the value of a debt instrument that we acquired at a significant discount, could result in the conversion of the instrument from a qualifying real estate asset to a wholly or partially non-qualifying asset that must be contributed to a TRS or disposed of in order for us to qualify or maintain our ARMOUR Residential REIT, Inc.
We may elect to opt into additional provisions of Title 3, Subtitle 8 of the MGCL without stockholder approval at any time that we have a class of equity securities registered under the Exchange Act and satisfy certain other requirements. ARMOUR Residential REIT, Inc.
We may elect to opt into additional provisions of Title 3, Subtitle 8 of the MGCL without stockholder approval at any time that we have a class of equity securities registered under the Exchange Act and satisfy certain other requirements.
The sale and purchase prices are set several percentage points below the current fair value of the MBS. This “haircut” percentage provides the counterparty with excess collateral to secure their loan and provides us with an incentive to complete the repurchase transaction on schedule.
The sale and purchase prices are set several percentage points below the current fair value of the MBS. This “haircut” percentage provides the counterparty with excess collateral to secure their loan and provides us with an incentive to complete the repurchase transaction on schedule. ARMOUR Residential REIT, Inc.
There are potential conflicts of interest in allocating investment opportunities among us and other funds, investment vehicles and ventures managed by ACM. ACM and its affiliates may in the future form additional funds or sponsor additional investment vehicles and ventures that have overlapping objectives with us and therefore may compete with us for investment opportunities and ACM resources.
There are potential conflicts of interest in allocating investment opportunities among us and other funds, investment vehicles and ventures which ACM and its affiliates may in the future form or sponsor, which additional investment vehicles and ventures may have overlapping objectives with us and therefore may compete with us for investment opportunities and ACM resources.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance. ARMOUR Residential REIT, Inc.
We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared . We are subject to reporting and other obligations under the Securities Act and the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act.
Risk Factors (continued) 33 We are subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared . We are subject to reporting and other obligations under the Securities Act and the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act.
This, along with other factors, should enable us to qualify for the tax benefits accorded to a REIT under the Code. However, we ARMOUR Residential REIT, Inc. Risk Factors (continued) 32 have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected by the risk factors described in this report.
This, along with other factors, should enable us to qualify for the tax benefits accorded to a REIT under the Code. However, we have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected by the risk factors described in this report.
ARMOUR continues to maintain active repurchase financing arrangements with numerous other counterparties with the intention of reducing our risk of relying primarily on BUCKLER. At December 31, 2022, we had repurchase borrowings from 16 different counterparties including BUCKLER.
ARMOUR continues to maintain active repurchase financing arrangements with numerous other counterparties with the intention of reducing our risk of relying primarily on BUCKLER. At December 31, 2023, we had repurchase borrowings from 14 different counterparties including BUCKLER.
We may be a target of a short squeeze, and investors may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value. ARMOUR Residential REIT, Inc.
We may be a target of a short squeeze, and investors may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.
We and equity analysts consider Distributable Earnings as a measure of ARMOUR’s investment performance: Distributable Earnings is a non-GAAP measure which excludes gains and losses, and therefore is an imperfect measure of our overall financial performance. Distributable Earnings is not a standardized metric.
We and equity analysts consider Distributable Earnings as a measure of ARMOUR’s investment performance: Distributable Earnings is a non-GAAP measure which excludes gains and losses, and therefore is an imperfect measure of our overall financial performance. Distributable Earnings is not a standardized metric. ARMOUR Residential REIT, Inc.
It can be difficult to predict the impact on interest rates of unexpected and uncertain global political and economic events, such as the outbreak of COVID-19, epidemic disease, warfare (including the hostilities between Russia and Ukraine), economic and international trade conflicts or sanctions, the change in the political makeup of the U.S.
It can be difficult to predict the impact on interest rates of unexpected and uncertain global political and economic events, such as the outbreak of a pandemic such as COVID-19, epidemic disease, warfare (including the war between Russia and Ukraine as well as the hostilities in the Middle East), economic and international trade conflicts or sanctions, the change in the political makeup of the U.S.
Risk Factors (continued) 21 rate environments, we may replace mortgage securities that have declined in value with new, higher coupon securities while retaining interest rate swaps that have increased in value. Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program: A material portion of our aggregate repurchase financing is facilitated through BUCKLER.
Conversely, in rising interest rate environments, we may replace mortgage securities that have declined in value with new, higher coupon securities while retaining interest rate swaps that have increased in value. Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program: A material portion of our aggregate repurchase financing is facilitated through BUCKLER.
Capital loss carry forwards totaling $921,172 expired unused in 2022 and prior years because we did not generate enough taxable net capital gains during that period relative to our level of distributions. Our current practice of declaring dividends based on non-GAAP Distributable Earnings increases the likelihood that net capital gains realized will be treated as distributed in the year realized.
Capital loss carry forwards totaling $(1,057,560) expired unused in 2023 and prior years because we did not generate enough taxable net capital gains during that period relative to our level of distributions. Our current practice of declaring dividends based on non-GAAP Distributable Earnings increases the likelihood that net capital gains realized will be treated as distributed in the year realized.
Risk Factors (continued) 34 Our common stock has experienced and may continue to experience price fluctuations, which could cause you to lose a significant portion of your investment and interfere with our efforts to grow our business.
Our common stock has experienced and may continue to experience price fluctuations, which could cause you to lose a significant portion of your investment and interfere with our efforts to grow our business.
Risk Factors (continued) 22 There are conflicts of interest in our relationship with ACM and its affiliates, including BUCKLER, which could result in decisions that are not in the best interests of our stockholders. We are subject to conflicts of interest arising out of our relationship with ACM and its affiliates, including BUCKLER. Entities affiliated with Mr. Ulm and Mr.
There are potential conflicts of interest in our relationship with ACM and its affiliates, including BUCKLER, which could result in decisions that are not in the best interests of our stockholders. We are subject to conflicts of interest arising out of our relationship with ACM and its affiliates, including BUCKLER. Entities affiliated with Mr. Ulm and Mr.
Risk Factors (continued) 28 Rapid changes in the values of our target assets may make it more difficult for us to maintain our qualification as a REIT or our exemption from the 1940 Act.
Rapid changes in the values of our target assets may make it more difficult for us to maintain our qualification as a REIT or our exemption from the 1940 Act.
Gross equity raised substantially exceeds total shareholders' equity determined in accordance with GAAP and management fee expenses do not decline with reductions in our total stockholders' equity. As a result, ACM's annualized contractual management fee rate as of December 31, 2022, equaled 3.23% of stockholders' equity.
Gross equity raised substantially exceeds total stockholders' equity determined in accordance with GAAP and management fee expenses do not decline with reductions in our total stockholders' equity. As a result, ACM's annualized contractual management fee rate as of December 31, 2023, equaled 3.09% of stockholders' equity.
Such net capital losses may be carried forward for five taxable years and generally used to offset undistributed taxable net capital gains realized during the carry forward period. Net capital losses realized totaling $(136,388), $(13,819), $(15,605), and $(732,478) will be available to offset future capital gains realized in 2023, 2024, 2026 and 2027 respectively.
Such net capital losses may be carried forward for five taxable years and generally used to offset undistributed taxable net capital gains realized during the carry forward period. Net capital losses realized totaling $(13,819), $(15,605), $(732,478), and $(496,265) will be available to offset future capital gains realized in 2024, 2026, 2027 and 2028 respectively.
Risk Factors Page Summary of Risk Factors 8 ARMOUR’s business of investing in MBS relies heavily on financial leverage which magnifies our interest rate and spread risks 8 ARMOUR actively issues new shares and redeems outstanding shares of its common and preferred stock 8 ARMOUR is externally managed by ACM 8 We and equity analysts consider Distributable Earnings as a measure of ARMOUR’s investment performance 9 Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program 9 General risks common to ARMOUR and our peer mortgage REITs 9 ARMOUR Residential REIT, Inc.
Risk Factors Page Risk Factor Summary 8 ARMOUR’s MBS investments rely heavily on financial leverage, magnifying our interest rate and spread risks 8 ARMOUR actively issues new shares and redeems outstanding shares of its common and preferred stock 8 ARMOUR is externally managed by ACM 8 We and equity analysts consider Distributable Earnings as a measure of ARMOUR’s investment performance 9 Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program 9 General risks common to ARMOUR and our peer mortgage REITs 9 ARMOUR Residential REIT, Inc.
ACM has reduced, and may further reduce, the amount of or discontinue entirely its voluntary fee waiver without our consent. ACM began waiving 40% of its management fee beginning with the second quarter of 2020. ACM reduced the fee waiver to the rate of $8,600 and $7,800 for the years ended December 31, 2021 and December 31, 2022, respectively.
ACM has reduced, and may further reduce, the amount of or discontinue entirely its voluntary fee waiver without our consent. ACM began waiving 40% of its management fee beginning with the second quarter of 2020. ACM reduced the fee waiver to the rate of $7,800 for the year ended December 31, 2022.
BUCKLER relies primarily on bilateral and triparty repurchase agreement funding through the FICC. BUCKLER’s ability to access bilateral and triparty repo funding and to raise funds through the General Collateral Finance Repo service offered by the FICC, requires that it continuously meet the regulatory and membership requirements of FINRA and the FICC, which may change over time.
BUCKLER’s ability to access bilateral and triparty repo funding and to raise funds through the General Collateral Finance Repo service offered by the FICC, requires that it continuously meet the regulatory and membership requirements of FINRA and the FICC, which may change over time.
Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program: • We hold a 10.8% equity ownership in BUCKLER and a subordinated loan for $105 million, which qualifies as regulatory capital; • BUCKLER relies primarily on bilateral and triparty repurchase agreement funding through the FICC.
Our affiliate BUCKLER is our largest financing counterparty and placement agent under our ATM program: • We hold a 10.8% equity ownership in BUCKLER and a subordinated loan agreement up to $200,000, which qualifies as regulatory capital; • BUCKLER relies primarily on bilateral and triparty repurchase agreement funding through the FICC.
If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax ARMOUR Residential REIT, Inc. Risk Factors (continued) 26 consequences.
If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
Furthermore, while the exemptive relief eliminates the CPO requirement, we still operate a commodity pool and are therefore subject to ARMOUR Residential REIT, Inc. Risk Factors (continued) 30 other CFTC requirements. Such other requirements may include having our interest rate swap contracts cleared through recognized clearing organizations or having to post higher initial margins on uncleared swaps.
Furthermore, while the exemptive relief eliminates the CPO requirement, we still operate a commodity pool and are therefore subject to other CFTC requirements. Such other requirements may include having our interest rate swap contracts cleared through recognized clearing organizations or having to post higher initial margins on uncleared swaps.
The termination of the management agreement may be difficult and costly. We may not terminate our management agreement with ACM before December 31, 2029, except for cause or in connection with the liquidation of ARMOUR or certain business combination transactions.
We may not terminate our management agreement with ACM before December 31, 2029, except for cause or in connection with the liquidation of ARMOUR or certain business combination transactions.
Accordingly, we may temporarily invest the proceeds of stock issuances by reducing our repo borrowings on our existing portfolio or purchasing US Treasuries or other assets in anticipation of more attractive MBS investment opportunities in the future. Typically, we purchase our MBS for regular settlement, which occurs only once a month.
Accordingly, we may temporarily invest the proceeds of stock issuances by reducing our repo borrowings on our existing portfolio or ARMOUR Residential REIT, Inc. Risk Factors (continued) 15 purchasing US Treasuries or other assets in anticipation of more attractive MBS investment opportunities in the future. Typically, we purchase our MBS for regular settlement, which occurs only once a month.
In the absence of offsetting net capital loss carry forward amounts, we will be required to make timely distributions of future net capital gains realized, or alternatively, pay U.S. federal income tax on such realized net capital gains not distributed. Distributions to tax-exempt investors may be classified as unrelated business taxable income.
In the absence of offsetting net capital loss carry forward amounts, we will be ARMOUR Residential REIT, Inc. Risk Factors (continued) 28 required to make timely distributions of future net capital gains realized, or alternatively, pay U.S. federal income tax on such realized net capital gains not distributed. Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Similarly, the dilutive effect of our capital activity is $0.37 per common share larger when calculated on an annual basis as compared to the algebraic sum of the individual quarterly calculations. The denominator effect is also present when aggregating days into a month or months into a quarter for purposes of per share calculations.
Similarly, the (dilutive) accretive effect of our capital activity is $(0.03) and $1.87 per common share, respectively (larger) smaller when calculated on an annual basis as compared to the algebraic sum of the individual quarterly calculations. The denominator effect is also present when aggregating days into a month or months into a quarter for purposes of per share calculations.
However, there are certain exceptions to this rule, including: (i) part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if we become a “pension held” REIT and such qualified employee pension trust owns more than 10% of our common stock; (ii) part of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the common stock; (iii) part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under the Code may be treated as unrelated business taxable income; and (iv) to the extent that we are (or a part of us, or a disregarded subsidiary of ours, is) a “taxable ARMOUR Residential REIT, Inc.
However, there are certain exceptions to this rule, including: (i) part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if we become a “pension held” REIT and such qualified employee pension trust owns more than 10% of our common stock; (ii) part of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the common stock; (iii) part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under the Code may be treated as unrelated business taxable income; and (iv) to the extent that we are (or a part of us, or a disregarded subsidiary of ours, is) a “taxable mortgage pool,” (or if we hold residual interests in a REMIC), a portion of the distributions paid to a tax-exempt stockholder that is allocable to excess inclusion income may be treated as unrelated business taxable income.
For 2022, we realized net proceeds that averaged approximately 98% of recently estimated book value, resulting in an aggregate dollar dilution of $9,528. We also consider the favorable impact of spreading administrative and operating expenses over an increased number of common shares. We may issue stock when investment opportunities are relatively less attractive.
For 2023, we realized net proceeds that averaged approximately 98% of recently estimated book value, resulting in an aggregate dollar dilution of $7,802. We also consider the favorable impact to existing stockholders of spreading administrative and operating expenses over an increased number of common shares. We may issue stock when investment opportunities are relatively less attractive.
Accordingly, the attributed accretion or dilution we report for a quarter or longer period may not be fully representative of the daily results of our capital activities. ARMOUR is externally managed by ACM: ACM may terminate the management agreement for any reason.
Accordingly, the attributed accretion or dilution we report for a quarter or longer period may not be fully representative of the daily results of our capital activities. ARMOUR Residential REIT, Inc. Risk Factors (continued) 17 ARMOUR is externally managed by ACM: ACM may terminate the management agreement for any reason.
Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the company.
Risk Factors (continued) 29 Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the company.
We may be required at times to adopt less efficient methods of financing certain of our mortgage related investments and we may be precluded from acquiring certain types of higher yielding securities. The net effect of these factors would be to lower our net interest income.
We may be required at times to adopt less efficient methods of financing certain of our mortgage related investments and we may be precluded from ARMOUR Residential REIT, Inc. Risk Factors (continued) 31 acquiring certain types of higher yielding securities. The net effect of these factors would be to lower our net interest income.
For example, in declining interest rate environments, we may replace interest rate swaps that have declined in value with new swaps requiring a lower fixed coupon payment while retaining in portfolio appreciated mortgage securities. Conversely, in rising interest ARMOUR Residential REIT, Inc.
For example, in declining interest rate environments, we may replace interest rate swaps that have declined in value with new swaps requiring a lower fixed coupon payment while retaining in portfolio appreciated mortgage securities.
For the period from January 1, 2023 through December 31, 2029, ARMOUR is obliged to pay contractual management fees totaling approximately $260,850 based on gross equity raised as of February 14, 2023, the date of the most recent management contract extension.
For the period from January 1, 2024 through December 31, 2029, ARMOUR is obliged to pay contractual management fees totaling approximately $235,440 based on gross equity raised as of December 31, 2023, the date of the most recent management contract extension.
If we fail to comply with the REIT tax requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences.
If we fail to comply with the REIT tax requirements, we must dispose of a portion of our assets within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax ARMOUR Residential REIT, Inc. Risk Factors (continued) 26 consequences.
Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings.
Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or ARMOUR Residential REIT, Inc. Risk Factors (continued) 35 estimate the amount, timing, or nature of our future offerings.
Differences in accounting methods for tax and financial reporting purposes have periodically resulted in ARMOUR reporting taxable income that is less than our comprehensive income for the same period. ARMOUR has also reported taxable losses for periods in which it reported comprehensive income.
Our return of capital distributions may increase capital gains. Differences in accounting methods for tax and financial reporting purposes have periodically resulted in ARMOUR reporting taxable income that is less than our comprehensive income for the same period. ARMOUR has also reported taxable losses for periods in which it reported comprehensive income.
At December 31, 2022 and December 31, 2021, BUCKLER (see Note 14 to the consolidated financial statements) accounted for 50.2% and 49.7%, respectively, of our aggregate borrowings and had an amount at risk of 12.9% and 5.0%, respectively, of our total stockholders' equity. Factors beyond our control may increase the prepayment speeds on our MBS, thereby reducing our interest income.
At December 31, 2023 and December 31, 2022, BUCKLER accounted for 48.4% and 50.2%, respectively, of our aggregate borrowings and had an amount at risk of 8.1% and 12.9%, respectively, of our total stockholders' equity (see Note 14 to the consolidated financial statements). Factors beyond our control may increase the prepayment speeds on our MBS, thereby reducing our interest income.
For example, the ongoing war between Russia and Ukraine and resulting economic sanctions imposed by many countries on Russia have led to disruption, instability and volatility in the U.S. and global markets and industries and are expected to have a negative impact on the U.S. and broader global economies.
For example, the ongoing war between Russia and Ukraine and resulting economic sanctions imposed by many countries on Russia, as well as the recent outbreak of hostilities in the Middle East, have led to disruption, instability and volatility in the U.S. and global markets and industries and are expected to have a negative impact on the U.S. and broader global economies.
ARMOUR actively issues new shares and redeems outstanding shares of its common stock: We have issued and may in the future issue shares of our common in underwritten “block” or “at the market” offerings, which may adversely impact the market price of our stock and result in dilution to existing stockholders.
ARMOUR actively issues new shares of its common stock: We have issued and may in the future issue shares of our common stock in “at the market” offerings or underwritten “block” offerings, which may adversely impact the market price of our stock and result in dilution to existing stockholders. We have historically been active in raising capital for ARMOUR.
Risk Factors (continued) 9 year term to December 31, 2034 unless the Company gives ACM written notice of non-renewal on or before July 3, 2029 as the result of either (i) a vote of two-thirds of our independent directors or (ii) a vote of a majority of the shares of common stock outstanding (other than shares held by ACM or its affiliates).
The management agreement automatically renews to December 31, 2034 unless the Company gives ACM written notice of non-renewal on or before July 3, 2029 as the result of either (i) a vote of two-thirds of our independent directors or (ii) a vote of a majority of the shares of common stock outstanding (other than shares held by ACM or its affiliates).
Treasury Securities 152,777 Loss on TBA Securities, less TBA Drop Income 162,313 Amortization of prior unrealized net gains 90,928 Unrealized gain on interest rate swaps (922,066) Futures contracts gains (95,428) Add back excluded net losses $ 495,989 Distributable Earnings $ 147,559 Distributable Earnings is based on the historical cost basis of our Agency Securities and interest rate swaps, while we report substantially all of our assets and liabilities at current fair values.
Treasury Securities 43,098 152,777 (Gain) loss on TBA Securities, less TBA Drop Income (17,918) 162,313 Amortization of prior unrealized net gains 170,364 90,928 Unrealized gain on interest rate swaps (41,195) (922,066) Futures contracts loss (gain) 33,385 (95,428) Add back excluded net losses $ 265,752 $ 495,989 Distributable Earnings $ 209,356 $ 147,559 Distributable Earnings is based on the historical cost basis of our Agency Securities and interest rate swaps, while we report substantially all of our assets and liabilities at current fair values.
Considering Distributable Earnings may not provide sufficient incentive to ACM to maximize risk adjusted returns on our investment portfolio.
Risk Factors (continued) 22 Distributable Earnings may not provide sufficient incentive to ACM to maximize risk adjusted returns on our investment portfolio.
Several of our competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. Several other REITs may have investment objectives that overlap with ours, which may create additional competition for investment opportunities and financing.
Several of our competitors are substantially larger and have considerably greater financial, technical, marketing and other ARMOUR Residential REIT, Inc. Risk Factors (continued) 24 resources than we do. Several other REITs may have investment objectives that overlap with ours, which may create additional competition for investment opportunities and financing.
Our Board of Directors considers Distributable Earnings among other factors when declaring dividends on our common stock. Since 2010, ARMOUR has distributed common stock dividends totaling approximately $1,776,886 while incurring cumulative total comprehensive (loss) attributable to common stockholders of $(984,207).
Our Board of Directors considers Distributable Earnings among other factors when declaring dividends on our common stock. Since 2010, ARMOUR has distributed common stock dividends totaling approximately $1,993,110 while incurring cumulative total comprehensive (loss) attributable to common stockholders of $(1,052,585).
In the future, as we expand our staff, we may absorb internally some or all of the services provided by AVM. Until we elect to move those services in-house, we continue to use AVM or other third-parties that provide similar services.
In the future, as we expand our staff, we may absorb internally some or all of the services provided by AVM. Until we elect to move those services in-house, ARMOUR Residential REIT, Inc. Risk Factors (continued) 32 we continue to use AVM or other third-parties that provide similar services.
Risk Factors (continued) 16 for our accelerated borrowings and for our future investments under such circumstances, it is likely that we would be materially and adversely affected. ACM’s liability is limited under the management agreement and we have agreed to indemnify ACM and its affiliates against certain liabilities.
If we are unable to obtain financing for our accelerated borrowings and for our future investments under such circumstances, it is likely that we would be materially and adversely affected. ACM’s liability is limited under the management agreement and we have agreed to indemnify ACM and its affiliates against certain liabilities.
Risk Factors (continued) 20 The following table illustrates the relationship between Distributable Earnings and net interest income and total comprehensive income for the year ended December 31, 2022.
The following table illustrates the relationship between Distributable Earnings and net interest income and total comprehensive income for the year ended December 31, 2023 and December 31, 2022.
These differences cause us to distribute common stock dividends that differ from our total economic return. Since 2010, ARMOUR has distributed common stock dividends totaling approximately $1,776,886 while incurring cumulative total comprehensive (loss) attributable to common stockholders of $(984,207).
These differences cause us to distribute common stock dividends that differ from our total economic return. Since 2010, ARMOUR has distributed common stock dividends totaling approximately $1,993,110 while incurring cumulative total comprehensive (loss) attributable to common stockholders of $(1,052,585).
Congress or the IRS might change tax laws or regulations and the courts might issue new rulings, in each case potentially having retroactive effect, which could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then: ARMOUR Residential REIT, Inc.
Congress or the IRS might change tax laws or regulations and the courts might issue new rulings, in each case potentially having retroactive effect, which could make it more difficult or impossible for us to qualify as a REIT.
Thus, compliance with the REIT requirements may hinder our ability to make and, in certain cases, to maintain ownership of, certain attractive investments. Complying with REIT requirements may force us to liquidate otherwise attractive investments.
Risk Factors (continued) 27 qualification as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make and, in certain cases, to maintain ownership of, certain attractive investments. Complying with REIT requirements may force us to liquidate otherwise attractive investments.
If ACM ceases to be our manager, it may constitute an event of default and the financial institution providing the arrangement may have acceleration rights with respect to outstanding borrowings and termination rights with respect to our ability to finance our future investments with that institution. If we are unable to obtain financing ARMOUR Residential REIT, Inc.
If ACM ceases to be our manager, it may constitute an event of default and the financial institution providing the arrangement may have acceleration rights with respect to outstanding borrowings and termination rights with respect to our ability to finance our future investments with that institution.
ACM has reduced and may further reduce the amount of or discontinue entirely its voluntary waiver without our consent; and • Our management agreement with ACM extends through December 31, 2029. Through that date, the Company is obliged to pay contractual management fees totaling approximately $260,850 based on gross equity raised as of February 14, 2023.
ACM has reduced and may further reduce the amount of or discontinue entirely its voluntary waiver without our consent; and • Through December 31, 2029, the Company is obliged to pay contractual management fees totaling approximately $235,440 based on gross equity raised as of December 31, 2023.
At December 31, 2022, BUCKLER provided approximately $3,247,474, or 50.2% of ARMOUR’s repurchase financing. BUCKLER is subject to various broker-dealer regulations. BUCKLER’s failure to comply with these regulations, facilitate attractive repurchase financing and its ability to conduct business with third parties could adversely affect ARMOUR’s funding costs, “haircuts” and/or counterparty exposure.
At December 31, 2023, BUCKLER provided approximately $4,667,483, or 48.4% of ARMOUR’s repurchase financing. BUCKLER is subject to various broker-dealer regulations. BUCKLER’s failure to comply with these regulations and facilitate attractive repurchase financing and its ability to conduct business with third parties could adversely affect ARMOUR’s funding costs, “haircuts” and/or counterparty exposure.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We do not own or lease any real estate or other physical properties. Pursuant to the management agreement, ACM maintains our executive offices at 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963. We consider our current office space adequate for our current operations.
Biggest changeItem 2. Properties We do not own or lease any real estate or other physical properties. Pursuant to the management agreement, ACM maintains our executive offices at 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963. We consider our current office space adequate for our current operations. Item 3.
Added
Legal Proceedings See Note 8 - Commitments and Contingencies for information on legal proceedings. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 35 PART II 36 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6. [Reserved] 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 65 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 39 PART II 40 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 40 Item 6. [Reserved] 43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 69 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Board subsequently amended the repurchase authorization on March 5, 2014 to increase the repurchase authorization from $100 million shares to 50,000 shares. On July 28, 2015, the Board increased the repurchase authorization to 9,000 shares effective in connection with the Company’s one-for-eight reverse stock split of its common stock in July 2015.
Biggest changeThe Board subsequently amended the repurchase authorization from (a) $100 million shares to 50,000 shares (such number not reflecting the Company's one-for-eight reverse stock split of its common stock or the Reverse Stock Split), (b) to 9,000 shares effective in connection with the Company's one-for-eight reverse stock split of its common stock, (c) back up to 9,000 shares (1,800 as adjusted for the Reverse Stock Split) and (d) most recently, up to 2,500 (on a post-Reverse Stock Split basis) effective October 30, 2023.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued) 38 Performance Graph The following graph compares the stockholder’s cumulative total return, assuming $100 invested at December 31, 2017, with all reinvestment of dividends, as if such amounts had been invested in: (i) our common stock; (ii) the stocks included in the S&P 500 and (iii) the stocks included in the NAREIT Mortgage REIT Index.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued) 42 Performance Graph The following graph compares the stockholder’s cumulative total return, assuming $100 invested at December 31, 2018, with all reinvestment of dividends, as if such amounts had been invested in: (i) our common stock; (ii) the stocks included in the S&P 500 and (iii) the stocks included in the NAREIT Mortgage REIT Index.
Dividends cannot be paid on our common stock unless we have paid full cumulative dividends on all classes of our preferred stock. For the year ended December 31, 2022, we paid full cumulative dividends on our preferred stock.
Dividends cannot be paid on our common stock unless we have paid full cumulative dividends on all classes of our preferred stock. For the year ended December 31, 2023, we paid full cumulative dividends on our preferred stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ARMOUR Residential REIT, Inc. 36 Stock Symbols and Holders of Common Equity Our 7.00% Series C Cumulative Preferred Stock (“Series C Preferred Stock”), and our common stock are currently listed on the NYSE under the symbols “ARR-PRC”and “ARR,” respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ARMOUR Residential REIT, Inc. 40 Stock Symbols and Holders of Common Equity Our 7.00% Series C Cumulative Preferred Stock (“Series C Preferred Stock”), and our common stock are currently listed on the NYSE under the symbols “ARR-PRC” and “ARR,” respectively.
Common Stock Repurchase Program Issuer Purchases of Equity Securities The following table presents information regarding our net common stock repurchases made during the three months ended December 31, 2022 (in thousands, except per share price).
Common Stock Repurchase Program Issuer Purchases of Equity Securities The following table presents information regarding our common stock repurchases made during the three months ended December 31, 2023 (in thousands, except per share price).
(2) Weighted average share price (3) The Board authorized the Common Stock Repurchase Program to initially authorize the Company to repurchase up to $100 million of its outstanding shares of common stock, which Common Stock Repurchase Program was announced on December 17, 2012.
(2) Weighted average share price, including fees and commissions. (3) The Board authorized the Common Stock Repurchase Program, which was announced on December 17, 2012, to initially authorize the Company to repurchase up to $100 million of its outstanding shares of common stock.
The portion of the dividends on our common stock which represented non-taxable return of capital was approximately 100.0% in 2022, 100.0% in 2021 and 100.0% in 2020. ARMOUR Residential REIT, Inc.
The portion of the dividends on our common stock which represented non-taxable return of capital was approximately 47.5% in 2023, 100.0% in 2022 and 100.0% in 2021. ARMOUR Residential REIT, Inc.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued) 37 Our REIT taxable income and dividend requirements are determined on an annual basis. Total dividend payments to common stockholders were $142,424 and dividend payments to preferred stockholders were $11,982 for the year ended December 31, 2022.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (continued) 41 Our REIT taxable income and dividend requirements are determined on an annual basis. Total dividend payments to common stockholders were $216,224 and dividend payments to preferred stockholders were $11,982 for the year ended December 31, 2023.
Total Number of Shares Purchased (1) Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs (3) October 1, 2022 - October 31, 2022 (450) $ 5.01 (450) 6,732 November 1, 2022 - November 30, 2022 — $ — — 6,732 December 1, 2022 - December 31, 2022 — $ — — 6,732 Total (450) (450) 6,732 (1) All shares were repurchased pursuant to our stock repurchase program (the "Common Stock Repurchase Program") (see Note 10 to the consolidated financial statements).
Total Number of Shares Purchased (1) Average Price Paid Per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs (3) October 1, 2023 - October 31, 2023 (98) $ 14.65 (98) 2,402 November 1, 2023 - November 30, 2023 (115) $ 16.33 (115) 2,287 December 1, 2023 - December 31, 2023 — — — Total (213) (213) 2,287 (1) All shares were repurchased pursuant to our stock repurchase program (the "Common Stock Repurchase Program") (see Note 10 to the consolidated financial statements).
On February 14, 2023, the closing per share price of our common stock as reported on the NYSE was $5.93. As of February 14, 2023, we had 155 stockholders of record of our outstanding common stock. We believe that there are more beneficial owners of shares of our common stock.
On March 14, 2024, the closing per share price of our common stock as reported on the NYSE was $18.72. As of March 14, 2024, we had 149 stockholders of record of our outstanding common stock. We believe that there are more beneficial owners of shares of our common stock.
Our estimated REIT taxable loss available to pay dividends was $(20,297) for the year ended December 31, 2022. Dividends in excess of REIT taxable income for the year (including taxable income carried forward from the previous year) will generally not be taxable to common stockholders.
Our estimated REIT taxable income available to pay dividends was $124,717 for the year ended December 31, 2023. Dividends in excess of REIT taxable income for the year will generally not be taxable to common stockholders.
Most recently, the Board increased the repurchase authorization back up to 9,000 shares on June 4, 2019. At December 31, 2022 there were 6,732 authorized shares remaining under the current Common Stock Repurchase Program. Dividend Policy We intend to continue to make regular cash distributions to holders of shares of common stock.
At December 31, 2023 there were 2,287 authorized shares remaining under the current Common Stock Repurchase Program. Dividend Policy We intend to continue to make regular cash distributions to holders of shares of common stock.
Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 ARMOUR Residential REIT $ 100.00 $ 88.07 $ 86.28 $ 57.58 $ 58.26 $ 39.74 S&P 500 Index $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 NAREIT Mortgage REIT Index $ 100.00 $ 97.48 $ 118.27 $ 96.07 $ 111.09 $ 81.53 The information in the performance graph and table has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 ARMOUR Residential REIT $ 100.00 $ 97.96 $ 65.38 $ 66.15 $ 45.13 $ 38.18 S&P 500 Index $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 NAREIT Mortgage REIT Index $ 100.00 $ 121.33 $ 98.56 $ 113.97 $ 83.64 $ 96.48 The information in the performance graph and table has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.

Item 7. Management's Discussion & Analysis

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

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Biggest changeTreasury Securities sold short — — 3,418 3,418 Balance, December 31, 2022 $ 187,944 $ 8,010,647 $ — $ 8,198,591 Percentage of Portfolio 2.29 % 97.71 % — % 100.00 % December 31, 2021 Balance, December 31, 2020 $ 1,970,902 $ 3,207,420 $ — $ 5,178,322 Purchases (1) — 1,265,942 987,887 2,253,829 Proceeds from sales (167,202) (813,178) (779,684) (1,760,064) Principal repayments (339,393) (531,592) — (870,985) Current losses (27,372) (78,295) (9,391) (115,058) Amortization: Prior unrealized (gains) losses (33,734) 1,150 — (32,584) Purchase (premium) discount (15,356) (32,771) 21 (48,106) Balance, December 31, 2021 $ 1,387,845 $ 3,018,676 $ 198,833 $ 4,605,354 Percentage of Portfolio 30.14 % 65.55 % 4.32 % 100.00 % (1) Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end.
Biggest changeTreasury Securities Sold Short December 31, 2023 Balance, December 31, 2022 $ 187,944 $ 8,010,647 $ — (506,074) Purchases (1) — 10,106,910 624,039 841,709 Proceeds from sales (189,931) (6,100,661) (618,520) (651,621) Principal repayments (1,997) (801,161) — — Current gains (losses) 3,946 (81,964) (5,393) (37,705) Change in accrued interest payable — — — (1,631) Amortization: Prior unrealized (gains) losses 110 29,299 5 — Purchase premium (72) (3,316) (131) — Balance, December 31, 2023 $ — $ 11,159,754 $ — $ (355,322) Percentage of Portfolio — % 100.00 % — % December 31, 2022 Balance, December 31, 2021 $ 1,387,845 $ 3,018,676 $ 198,833 $ — Purchases (1) — 11,809,926 4,820,464 — Proceeds from sales (988,728) (5,360,328) (4,876,767) (494,797) Principal repayments (77,101) (496,508) — — Current losses (122,917) (980,365) (144,918) (7,859) Credit loss expense (4,183) — — — Change in accrued interest payable — — — (3,418) Amortization: Prior unrealized (gains) losses (3,035) 33,699 509 — Purchase (premium) discount (3,937) (14,453) 1,879 — Balance, December 31, 2022 $ 187,944 $ 8,010,647 $ — $ (506,074) Percentage of Portfolio 2.29 % 97.71 % — % (1) Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end.
The change in fair value of the securities was $(74,214) for the year ended December 31, 2021. For the year ended December 31, 2021, we sold $813,178 of these securities which resulted in a loss of $(2,931). • Gain (loss) on U.S.
The change in fair value of the securities was $(74,214) for the year ended December 31, 2021. For the year ended December 31, 2021, we sold $813,178 of these securities which resulted in a loss of $(2,931). • Loss on U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 56 Use of derivative instruments may fail to protect or could adversely affect us because, among other things: • available derivatives may not correspond directly with the interest rate risk for which protection is sought (e.g., the difference in interest rate movements for long-term U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 60 Use of derivative instruments may fail to protect or could adversely affect us because, among other things: • available derivatives may not correspond directly with the interest rate risk for which protection is sought (e.g., the difference in interest rate movements for long-term U.S.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ARMOUR Residential REIT, Inc. 40 You should read the following discussion and analysis of our financial condition and results of operations together with “Risk Factors,” and “Special Note Regarding Forward-Looking Statements,” that appear elsewhere in this Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ARMOUR Residential REIT, Inc. 44 You should read the following discussion and analysis of our financial condition and results of operations together with “Risk Factors,” and “Special Note Regarding Forward-Looking Statements,” that appear elsewhere in this Form 10-K.
We generally pay a fixed rate and receive a floating rate with the objective of fixing a portion of our borrowing costs and hedging the change in our book value to some degree. The floating rate we receive is generally the Federal Funds Rate or SOFR. We had contractual commitments under derivatives at December 31, 2022 and December 31, 2021.
We generally pay a fixed rate and receive a floating rate with the objective of fixing a portion of our borrowing costs and hedging the change in our book value to some degree. The floating rate we receive is generally the Federal Funds Rate or SOFR. We had contractual commitments under derivatives at December 31, 2023 and December 31, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 46 The yield on our assets is most significantly affected by the rate of repayments on our Agency Securities. The following graph shows the annualized CPR on a monthly basis for the quarterly periods ended on the dates shown below.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 51 The yield on our assets is most significantly affected by the rate of repayments on our Agency Securities. The following graph shows the annualized CPR on a monthly basis for the quarterly periods ended on the dates shown below.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 62 market conditions for capital raises and for the investment of any proceeds and there can be no assurances that we will successfully obtain any such financing. Stockholders’ Equity See Note 10 to the consolidated financial statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 66 market conditions for capital raises and for the investment of any proceeds and there can be no assurances that we will successfully obtain any such financing. Stockholders’ Equity See Note 10 to the consolidated financial statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 61 Effects of Margin Requirements, Leverage and Credit Spreads Our MBS have values that fluctuate according to market conditions and, as discussed above, the market value of our MBS will decrease as prevailing interest rates or credit spreads increase.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 65 Effects of Margin Requirements, Leverage and Credit Spreads Our MBS have values that fluctuate according to market conditions and, as discussed above, the market value of our MBS will decrease as prevailing interest rates or credit spreads increase.
Traditionally, a lower Federal Funds Rate has indicated a time of increased net interest margin and higher asset values. Volatility in these rates and divergence from the historical relationship among these rates could negatively impact our ability to manage our securities portfolio.
Traditionally, a lower Federal Funds Rate has indicated a time of increased net interest spread and higher asset values. Volatility in these rates and divergence from the historical relationship among these rates could negatively impact our ability to manage our securities portfolio.
If rates were to increase as a result, our net interest margin and the value of our securities portfolio might suffer as a result. Our derivatives are either Federal Funds Rate or SOFR-based interest rate swap contracts (see Note 7 to the consolidated financial statements).
If rates were to increase as a result, our net interest spread and the value of our securities portfolio might suffer as a result. Our derivatives are either Federal Funds Rate or SOFR-based interest rate swap contracts (see Note 7 to the consolidated financial statements).
The management fees are determined based on gross equity raised. Therefore, management fees increase when we raise capital and decline when we repurchase previously issued stock and liquidate distributions as approved and so designated by a majority of the Board.
The management fees are determined based on gross equity raised. Therefore, management fees increase when we raise capital and decline when we repurchase previously issued stock and liquidation distributions as approved and so designated by a majority of the Board.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 57 The following graphs present the notional and weighted average interest rate of our interest rate swap contracts by year of maturity. ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 61 The following graphs present the notional and weighted average interest rate of our interest rate swap contracts by year of maturity. ARMOUR Residential REIT, Inc.
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 December 31, 2022 and December 31, 2021.
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 December 31, 2023 and December 31, 2022.
During times of high market volatility, it can be difficult to obtain accurate market information timely, and accordingly, the confidence interval around our valuation estimates will increase, potentially significantly. During 2022, the largest inter-day movement was the overall estimated values of our investment and hedge positions translated to a change in estimated book value of $0.52 per common share.
During times of high market volatility, it can be difficult to obtain accurate market information timely, and accordingly, the confidence interval around our valuation estimates will increase, potentially significantly. During 2023, the largest inter-day movement was the overall estimated values of our investment and hedge positions translated to a change in estimated book value of $(0.94) per common share.
December 31, 2022 Principal Amount Amortized Cost Gross Unrealized Loss Fair Value CPR (1) Weighted Average Months to Maturity Percent of Total Agency Fixed Rates ≤ 180 months 3.5% to 6.0% $ 14,264 $ 14,760 $ (768) $ 13,992 1.3 % 111 0.2 % Agency Fixed Rates ≥ 181 months 2.0% 390,154 397,483 (74,778) 322,705 7.3 % 336 3.6 2.5% 608,261 645,600 (119,925) 525,675 8.3 % 331 5.9 3.0% 969,166 973,560 (120,174) 853,386 3.9 % 349 9.5 3.5% 1,229,970 1,212,939 (91,395) 1,121,544 3.4 % 352 12.5 4.0% 1,217,621 1,219,805 (72,499) 1,147,306 3.8 % 352 12.8 4.5% 1,509,102 1,510,336 (52,439) 1,457,897 4.4 % 350 16.2 5.0% 1,733,644 1,730,097 (17,792) 1,712,305 4.6 % 356 19.0 5.5% 1,039,085 1,048,377 (4,596) 1,043,781 — % 357 11.6 Total Agency Securities $ 8,711,267 $ 8,752,957 $ (554,366) $ 8,198,591 4.0 % 351 91.3 % TBA Agency Securities: 30 Year (2) 4.5% $ 500,000 $ 489,805 $ (8,164) $ 481,641 n/a n/a 5.4 5.0% 300,000 300,164 (4,336) 295,828 n/a n/a 3.3 Total TBA Agency Securities $ 800,000 $ 789,969 $ (12,500) $ 777,469 n/a n/a 8.7 % Total $ 9,511,267 $ 9,542,926 $ (566,866) $ 8,976,060 100.0 % (1) Weighted average CPR during the fourth quarter for the securities owned at December 31, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 56 December 31, 2022 Principal Amount Amortized Cost Gross Unrealized Gain (Loss) Fair Value CPR (1) Weighted Average Months to Maturity Percent of Total Agency Fixed Rates ≤ 180 months 2.5% to 6.0% $ 14,264 $ 14,760 $ (768) $ 13,992 1.3 % 111 0.2 % Agency Fixed Rates ≥ 181 months 2.0% 390,154 397,483 (74,778) 322,705 7.3 % 336 3.6 2.5% 608,261 645,600 (119,925) 525,675 8.3 % 331 5.9 3.0% 969,166 973,560 (120,174) 853,386 3.9 % 349 9.5 3.5% 1,229,970 1,212,939 (91,395) 1,121,544 3.4 % 352 12.5 4.0% 1,217,621 1,219,805 (72,499) 1,147,306 3.8 % 352 12.8 4.5% 1,509,102 1,510,336 (52,439) 1,457,897 4.4 % 350 16.2 5.0% 1,733,644 1,730,097 (17,792) 1,712,305 4.6 % 356 19.0 5.5% 1,039,085 1,048,377 (4,596) 1,043,781 — % 357 11.6 Total Agency Securities $ 8,711,267 $ 8,752,957 $ (554,366) $ 8,198,591 4.0 % 351 91.3 % TBA Agency Securities: 30 Year (2) 4.5% $ 500,000 $ 489,805 $ (8,164) $ 481,641 n/a n/a 5.4 5.0% $ 300,000 $ 300,164 $ (4,336) $ 295,828 n/a n/a 3.3 Total TBA Agency Securities $ 800,000 $ 789,969 $ (12,500) $ 777,469 n/a n/a 8.7 % Total Investments in Securities $ 9,511,267 $ 9,542,926 $ (566,866) $ 8,976,060 100.0 % (1) Weighted average CPR during the fourth quarter for the securities owned at December 31, 2022.
You should carefully consider these risks before you make an investment decision with respect to our stock, along with the following factors that could cause actual results to vary from our forward-looking statements: • the impact of COVID-19 or a new pandemic on our operations; • the geopolitical situation as a result of the war in Ukraine may continue to adversely affect the U.S. economy, which may lead the Fed to take actions that may impact our business; • the impact of the federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the federal government and the Fed system; • the possible material adverse effect on our business if the U.S.
You should carefully consider these risks before you make an investment decision with respect to our stock, along with the following factors that could cause actual results to vary from our forward-looking statements: • the impact of COVID-19 or a new pandemic on our operations; • the geopolitical situation as a result of the war between Russia and Ukraine, as well as the recent outbreak of hostilities in the Middle East, may continue to adversely affect the U.S. economy, which may lead the Fed to take actions that may impact our business; • the impact of the federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the federal government and the Fed system; • the possible material adverse effect on our business if the U.S.
Government; • availability of suitable investment opportunities; • the degree and nature of our competition, including competition for MBS; • changes in our business and investment strategy; • our failure to maintain our qualification as a REIT; • our failure to maintain an exemption from being regulated as a commodity pool operator; • our dependence on ACM and ability to find a suitable replacement if ACM was to terminate its management relationship with us; • the existence of conflicts of interest in our relationship with ACM, BUCKLER, certain of our directors and our officers, which could result in decisions that are not in the best interest of our stockholders; • the potential for Buckler's inability to access attractive repurchase financing on our behalf or secure profitable third-party business; • our management's competing duties to other affiliated entities, which could result in decisions that are not in the best interest of our stockholders; • changes in personnel at ACM or the availability of qualified personnel at ACM; • limitations imposed on our business by our status as a REIT under the Code; • the potential burdens on our business of maintaining our exclusion from the 1940 Act and possible consequences of losing that exclusion; • changes in GAAP, including interpretations thereof; and • changes in applicable laws and regulations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 68 • the degree and nature of our competition, including competition for MBS; • changes in our business and investment strategy; • our failure to maintain our qualification as a REIT; • our failure to maintain an exemption from being regulated as a commodity pool operator; • our dependence on ACM and ability to find a suitable replacement if ACM was to terminate its management relationship with us; • the existence of conflicts of interest in our relationship with ACM, BUCKLER, certain of our directors and our officers, which could result in decisions that are not in the best interest of our stockholders; • the potential for BUCKLER's inability to access attractive repurchase financing on our behalf or secure profitable third-party business; • our management's competing duties to other affiliated entities, which could result in decisions that are not in the best interest of our stockholders; • changes in personnel at ACM or the availability of qualified personnel at ACM; • limitations imposed on our business by our status as a REIT under the Code; • the potential burdens on our business of maintaining our exclusion from the 1940 Act and possible consequences of losing that exclusion; • changes in GAAP, including interpretations thereof; and • changes in applicable laws and regulations.
However, because the management fee rate decreased to 0.75% per annum for gross equity raised in excess of $1.0 billion pursuant to the management agreement, the effective average management fee rate declines as equity is raised.
However, because the management fee rate decreases to 0.75% per annum for gross equity raised in excess of $1.0 billion pursuant to the management agreement, the effective management fee rate declines as equity is raised.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 60 The following table reconciles the fees incurred in accordance with the management agreement for the years ended December 31, 2022, December 31, 2021 and December 31, 2020 (see Note 8 to the consolidated financial statements).
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 64 The following table reconciles the fees incurred in accordance with the management agreement for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 (see Note 8 to the consolidated financial statements).
The Plan authorizes the Board to grant awards including common stock, restricted shares of common stock (“RSUs”), stock options, performance shares, performance units, stock appreciation rights and other equity and cash-based awards (collectively, “Awards”), subject to terms as provided in the Plan. At December 31, 2022, there were 2,167 shares available for future issuance under the Plan.
The Plan authorizes the Board to grant awards including common stock, restricted shares of common stock (“RSUs”), stock options, performance shares, performance units, stock appreciation rights and other equity and cash-based awards (collectively, “Awards”), subject to terms as provided in the Plan. At December 31, 2023, there were 173 shares available for future issuance under the Plan.
We identify and acquire MBS, finance our acquisitions with borrowings under a series of short-term repurchase agreements and then hedge certain risks based on our entire portfolio of assets and liabilities and our management’s view of the market.
We identify and acquire MBS, finance our acquisitions with borrowings under a series of short-term repurchase agreements and then hedge certain risks based on our entire portfolio of assets and liabilities and our management’s view of the market. ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 43 Below is the Fed's target range for the Federal Funds Rate at each Fed meeting where a change was made since March 2020.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 47 Below is the Fed's target range for the Federal Funds Rate at each Fed meeting where a change was made since March 2022.
We also had TBA Agency Securities with an aggregate notional balance of $800,000 and $4,500,000 at December 31, 2022 and December 31, 2021, respectively. The following table details the changes in the fair value of our interest rate swap contracts for the years ended December 31, 2022 and December 31, 2021.
We also had TBA Agency Securities with an aggregate notional balance of $300,000 and $800,000 at December 31, 2023 and December 31, 2022, respectively. The following table details the changes in the fair value of our interest rate swap contracts for the years ended December 31, 2023 and December 31, 2022.
No impairment was required for the year ended December 31, 2021. • Gain (loss) on Agency Securities, trading, resulted from the change in fair value of the securities as well as losses on sales during the year ended December 31, 2021. The change in fair value of the securities was $(74,214) for the year ended December 31, 2021.
No impairment was required for the year ended December 31, 2021. • Loss on Agency Securities, trading, resulted from the change in fair value of the securities as well as losses on sales during the year ended December 31, 2022.
Factors that Affect our Results of Operations and Financial Condition Our results of operations and financial condition are affected by various factors, many of which are beyond our control, including, among other things, our net interest income, the market value of our assets and the supply of and demand for such assets.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 45 Factors that Affect our Results of Operations and Financial Condition Our results of operations and financial condition are affected by various factors, many of which are beyond our control, including, among other things, our net interest income, the market value of our assets and the supply of and demand for such assets.
We have established borrowing relationships with numerous investment banking firms and other lenders, 16 of which had open repurchase agreements with us at December 31, 2022 and 18 of which had open repurchases agreements with us at December 31, 2021.
We have established borrowing relationships with numerous investment banking firms and other lenders, 14 of which had open repurchase agreements with us at December 31, 2023 and 16 of which had open repurchases agreements with us at December 31, 2022.
At December 31, 2022 and December 31, 2021, we had derivatives with a net fair value of $971,440 and $188,173, respectively. 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.
At December 31, 2023 and December 31, 2022, we had derivatives with a net fair value of $872,376 and $971,440, respectively. 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.
Our TBA Agency Securities were reported at net carrying values of $(11,797), at December 31, 2022 and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements). ARMOUR Residential REIT, Inc.
Our TBA Agency Securities were reported at net carrying values of $1,816, at December 31, 2023 and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements). ARMOUR Residential REIT, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 53 The following tables summarize our investment in securities as of December 31, 2022 and December 31, 2021, excluding TBA Agency Securities (see Note 7 to the consolidated financial statements). Available for Sale Securities Trading Securities Agency Agency U.S.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 57 The following tables summarize our investment in securities and collateral sold as of December 31, 2023 and December 31, 2022, excluding TBA Agency Securities (see Note 7 to the consolidated financial statements). Available for Sale Securities Trading Securities Agency Agency U.S. Treasuries U.S.
Our repurchase agreements require excess collateral, known as a “haircut.” At December 31, 2022, the average haircut percentage was 3.85% compared to 3.45% at December 31, 2021.
Our repurchase agreements require excess collateral, known as a “haircut.” At December 31, 2023, the average haircut percentage was 2.74% compared to 3.85% at December 31, 2022.
For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 ARMOUR management fees $ 33,714 $ 31,063 $ 29,580 Less management fees waived (7,800) (8,600) (8,855) Total management fee expense $ 25,914 $ 22,463 $ 20,725 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.
For the Years Ended December 31, 2023 December 31, 2022 December 31, 2021 ARMOUR management fees $ 38,121 $ 33,714 $ 31,063 Less management fees waived (6,600) (7,800) (8,600) Total management fee expense $ 31,521 $ 25,914 $ 22,463 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.
From time to time we have also invested in Credit Risk and Non-Agency Securities, Interest-Only Securities, U.S. Treasury Securities and money market instruments. We earn returns on the spread between the yield on our assets and our costs, including the interest cost of the funds we borrow, after giving effect to our hedges.
Our Agency Securities consist of fixed rate loans. From time to time we have also invested in U.S. Treasury Securities and money market instruments. We earn returns on the spread between the yield on our assets and our costs, including the interest cost of the funds we borrow, after giving effect to our hedges.
We recognized net gains (losses) related to our derivatives of $810,834, $52,494 and $(283,801), respectively for the years ended December 31, 2022, December 31, 2021 and December 31, 2020. As required by the Dodd-Frank Act, the Commodity Futures Trading Commission has adopted rules requiring certain interest rate swap contracts to be cleared through a derivatives clearing organization.
We recognized net gains related to our derivatives of $51,748, $810,808 and $52,493, respectively for the years ended December 31, 2023, December 31, 2022 and December 31, 2021. As required by the Dodd-Frank Act, the Commodity Futures Trading Commission has adopted rules requiring certain interest rate swap contracts to be cleared through a derivatives clearing organization.
Both parties to the repurchase and reverse repurchase transactions have the right to make daily margin calls based on changes in the value of the collateral obtained and/or pledged. At December 31, 2022, we had $704,276 in reverse repurchase agreements. We did not have any reverse repurchase agreements outstanding at December 31, 2021.
Both parties to the repurchase and reverse repurchase transactions have the right to make daily margin calls based on changes in the value of the collateral obtained and/or pledged. At December 31, 2023 and December 31, 2022, we had $353,937 and $704,276 in reverse repurchase agreements.
Subsequent Events See Note 8, Note 9 and Note 10 to the consolidated financial statements. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The forward-looking statements in this report are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The forward-looking statements in this report are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us.
We had obligations to return securities received as collateral associated with our reverse repurchase agreements as of December 31, 2022 of $502,656. We did not have such obligations at December 31, 2021. Our primary uses of cash are to purchase MBS, pay interest and principal on our borrowings, fund our operations and pay dividends.
We had obligations to return securities received as collateral associated with our reverse repurchase agreements as of December 31, 2023 and December 31, 2022 of $350,273 and $502,656, respectively. Our primary uses of cash are to purchase MBS, pay interest and principal on our borrowings, fund our operations and pay dividends.
At December 31, 2022, we had interest rate swap contracts with an aggregate notional balance of $6,350,000, a weighted average swap rate of 0.72% and a weighted average term of 73 months.
At December 31, 2022, we had interest rate swap contracts with an aggregate notional balance of $6,350,000, a weighted average swap rate of 0.72% and a weighted average term of 73 months (see Note 7 to the consolidated financial statements).
Our TBA Agency Securities were reported at net carrying values of $7,697, at December 31, 2021 and were reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements). ARMOUR Residential REIT, Inc.
(2) Our TBA Agency Securities were recorded as derivative instruments in our accompanying consolidated financial statements. Our TBA Agency Securities were reported at net carrying values of $(11,797), at December 31, 2022 and were reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements). ARMOUR Residential REIT, Inc.
Meeting Date Lower Bound Higher Bound December 14, 2022 4.25 % 4.50 % November 2, 2022 3.75 % 4.00 % September 21, 2022 3.00 % 3.25 % July 27, 2022 2.25 % 2.50 % June 15, 2022 1.50 % 1.75 % May 4, 2022 0.75 % 1.00 % March 16, 2022 0.25 % 0.50 % March 16, 2020 0.00 % 0.25 % March 3, 2020 1.00 % 1.25 % Our borrowings in the repurchase market have historically closely tracked the Federal Funds Rate, LIBOR (prior to its dissolution) and more recently SOFR.
Meeting Date Lower Bound Higher Bound 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 % December 14, 2022 4.25 % 4.50 % November 2, 2022 3.75 % 4.00 % September 21, 2022 3.00 % 3.25 % July 27, 2022 2.25 % 2.50 % June 15, 2022 1.50 % 1.75 % May 4, 2022 0.75 % 1.00 % March 16, 2022 0.25 % 0.50 % Our borrowings in the repurchase market have closely tracked the Federal Funds Rate, and SOFR.
Agency Securities: Agency Security purchase and sale transactions, including purchases and sales for forward settlement, are recorded on the trade date to the extent it is probable that we will take or make timely physical delivery of the related securities. Gains or losses realized from the sale of securities are included in income and are determined ARMOUR Residential REIT, Inc.
Agency Securities: Agency Security purchase and sale transactions, including purchases and sales for forward settlement, 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.
For the year ended December 31, 2022, we sold $5,374,982 of these securities which resulted in a realized loss of $(144,563). The change in fair value of the securities was $154 for the year ended December 31, 2021. Sales of U.S.
For the year ended December 31, 2022, we sold short $494,797 and sold $4,876,767 of these securities which resulted in a realized loss of $(144,563). The change in fair value of the securities was $154 for the year ended December 31, 2021. Sales of U.S.
During the year ended December 31, 2022, we also repurchased 1,478 common shares under our current repurchase authorization for a cost of $7,664 (see Note 10 to the consolidated financial statements). See Note 14 for additional discussion of transactions with BUCKLER.
During the years ended December 31, 2023 and December 31, 2022, we repurchased (477) and (296) common shares under our current repurchase authorization for a cost of $(9,935) and $(7,664), respectively (see Note 10 to the consolidated financial statements). See Note 14 for additional discussion of transactions with BUCKLER.
The Fed further indicated that it will roll over at auction the amount of principal payments from its holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 million per month. The table below shows the hikes in the Fed's target rate from March 2020.
The Fed further indicated that it will roll over at auction the amount of principal payments from its holdings of Treasury securities maturing in each calendar month that exceeds a cap of $60 billion per month.
At December 31, 2022, December 31, 2021 and December 31, 2020, the effective management fee, prior to management fees waived was 0.95%, 0.98% and 1.00% based on gross equity raised of $3,787,042, $3,313,937 and $2,944,169, respectively.
At December 31, 2023, December 31, 2022 and December 31, 2021, the effective management fee, prior to management fees waived was 0.93%, 0.95% and 0.98% based on gross equity raised of $4,231,965, $3,787,042 and $3,313,937, respectively.
For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 Expenses: Management fees $ 33,774 $ 31,108 $ 29,628 Compensation 5,485 6,614 5,597 Other Operating 6,374 5,793 5,595 Total Expenses $ 45,633 $ 43,515 $ 40,820 Less management fees waived (7,800) (8,600) (8,855) Total Expenses after fees waived $ 37,833 $ 34,915 $ 31,965 Expenses The Company is managed by ACM, pursuant to a management agreement.
For the Years Ended December 31, 2023 December 31, 2022 December 31, 2021 Expenses: Management fees $ 38,188 $ 33,774 $ 31,108 Compensation 4,944 5,485 6,614 Other Operating 7,019 6,374 5,793 Total Expenses $ 50,151 $ 45,633 $ 43,515 Less management fees waived (6,600) (7,800) (8,600) Total Expenses after fees waived $ 43,551 $ 37,833 $ 34,915 Expenses The Company is managed by ACM, pursuant to a management agreement.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 64 • mortgage loan modification programs and future legislative action; • actions by the Fed which could cause a change of the yield curve, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders; • the impact of a delay or failure of the U.S.
Congress passed legislation reforming or winding down Fannie Mae or Freddie Mac; • mortgage loan modification programs and future legislative action; • actions by the Fed which could cause a change of the yield curve, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders; • the impact of a delay or failure of the U.S.
U.S. dollar amounts are presented in thousands, except per share amounts or as otherwise noted. Overview We are a Maryland corporation managed by ACM, an investment advisor registered with the SEC (see Note 8 and Note 14 to the consolidated financial statements). We have elected to be taxed as a REIT under the Code.
Overview We are a Maryland corporation managed by ACM, an investment advisor registered with the SEC (see Note 8 and Note 14 to the consolidated financial statements). We have elected to be taxed as a REIT under the Code.
During the third quarter of 2022, we recognized an impairment of $4,183 in our consolidated statements of operations and comprehensive income (loss), as we had decided to sell certain available for sale securities before they recovered in value. • Gain (loss) on Agency Securities, trading, resulted from the change in fair value of the securities as well as losses on sales during the year ended December 31, 2022.
During the third quarter of 2022, we recognized an impairment of $4,183 in our consolidated statements of operations and comprehensive income (loss), as we had decided to sell certain available for sale securities before they recovered in value.
Treasury Securities were $389,586 for the year ended December 31, 2021 resulting in realized gain of $9,209. • Gain (loss) on Derivatives resulted from a combination of the following: ▪ Interest rate swap contracts' aggregate notional balance was $6,350,000 at December 31, 2022 and $7,210,000 at December 31, 2021. ▪ Our total TBA Agency Securities aggregate notional balance was $800,000 at December 31, 2022 and $4,500,000 at December 31, 2021.
Treasury Securities were $5,374,982 for the year ended December 31, 2022 resulting in realized loss of $(144,563). • Gain on derivatives, net resulted from a combination of the following: ▪ Interest rate swap contracts' aggregate notional balance was $6,786,000 at December 31, 2023 and $6,350,000 at December 31, 2022. ▪ Our total TBA Agency Securities aggregate notional balance was $300,000 at December 31, 2023 and $800,000 at December 31, 2022.
Taxable Income As a REIT that regularly distributes all of its taxable income, we are generally not required to pay federal income tax (see Note 13 to the consolidated financial statements).
Taxable Income ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 54 As a REIT that regularly distributes all of its taxable income, we are generally not required to pay federal income tax (see Note 13 to the consolidated financial statements).
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.
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. ARMOUR brings private capital into the mortgage markets to support home ownership for a broad and diverse spectrum of Americans.
In addition to the use of derivatives to hedge interest rate risk, a variety of other factors relating to our business may also impact our financial condition and operating performance; these factors include: • our degree of leverage; • our access to funding and borrowing capacity; • the REIT requirements under the Code; and • the requirements to qualify for an exclusion under the 1940 Act and other regulatory and accounting policies related to our business.
In addition to the use of derivatives to hedge interest rate risk, a variety of other factors relating to our business may also impact our financial condition and operating performance; these factors include: • our degree of leverage; • our access to funding and borrowing capacity; ARMOUR Residential REIT, Inc.
Other Income (Loss) For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 Other Income (Loss): Realized gain (loss) on sale of available for sale Agency Securities (reclassified from Other comprehensive loss) $ (7,452) $ 10,952 $ 143,877 Impairment losses on available for sale Agency Securities (4,183) — (1,012) Gain (loss) on Agency Securities, trading (946,666) (77,145) 19,557 Loss on Credit Risk and Non-Agency Securities — — (189,555) Gain (loss) on U.S.
Other Income (Loss) For the Years Ended December 31, 2023 December 31, 2022 December 31, 2021 Other Income (Loss): Realized gain (loss) on sale of available for sale Agency Securities (reclassified from Other comprehensive loss) $ (7,471) $ (7,452) $ 10,952 Impairment losses on available for sale Agency Securities — (4,183) — Loss on Agency Securities, trading (52,665) (946,666) (77,145) Loss on U.S.
At December 31, 2022, there was approximately $7,321 of unvested stock based compensation related to the Awards (based on a weighted grant date price of $12.88 per share), which we expect to recognize as an expense as follows: in 2023 an expense of $2,416, in 2024 an expense of $2,416, and thereafter an expense of $2,489.
At December 31, 2023, there was approximately $11,404 of unvested stock based compensation related to the Awards (based on a weighted grant date price of $38.21 per share), which we expect to recognize as an expense as follows: in 2024 an expense of $3,626, in 2025 an expense of $2,346, and thereafter an expense of $5,432.
Securities Portfolio Matters For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 Securities purchased using proceeds from repurchase agreements and principal repayments $ 16,630,390 $ 2,253,829 $ 10,698,641 Average securities portfolio $ 8,270,780 7,677,721 7,834,588 Cash received from principal repayments on MBS $ 573,609 870,985 1,262,930 Net cash increase (decrease) from repurchase agreements $ 2,515,021 (588,028) (6,818,482) Cash interest payments made on liabilities $ 136,966 21,316 183,502 Cash and cash collateral posted to counterparties provided by operating activities (1) $ 124,085 11,738 (257,824) (1) The increase in cash and cash collateral posted to counterparties related to operating activities from 2021 to 2022 and from 2020 to 2021 is related to the realized gains on derivatives.
Securities Portfolio Matters For the Years Ended December 31, 2023 December 31, 2022 December 31, 2021 Securities purchased using proceeds from repurchase agreements and principal repayments $ 10,730,949 $ 16,630,390 $ 2,253,829 Average securities portfolio, including TBA Securities $ 11,451,334 8,270,780 7,677,721 Cash received from principal repayments on MBS $ 803,158 573,609 870,985 Net cash increase (decrease) from repurchase agreements $ 3,184,924 2,515,021 (588,028) Cash interest payments made on liabilities $ 607,030 144,938 21,316 Cash and cash collateral posted to counterparties provided by operating activities (1) $ 132,816 124,085 11,738 (1) The increase in cash and cash collateral posted to counterparties related to operating activities from 2022 to 2023 is related to the repositioning of our securities portfolio and the increase from 2021 to 2022 is related to the realized gains on derivatives.
Results of Operations For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 Net Interest Income 107,638 73,368 106,431 Total Other Loss (299,735) (23,090) (289,577) Total Expenses after fees waived (37,833) (34,915) (31,966) Net Income (Loss) $ (229,930) $ 15,363 $ (215,112) Reclassification adjustment for realized (gain) loss on sale of available for sale Agency Securities 7,452 (10,952) (143,877) Reclassification adjustment for Impairment losses on available for sale Agency Securities 4,183 — 1,012 Net unrealized loss on available for sale Agency Securities (130,135) (61,106) (33,577) Other comprehensive loss $ (118,500) $ (72,058) $ (176,442) Comprehensive Loss $ (348,430) $ (56,695) $ (391,554) Net loss for the year ended December 31, 2022 reflects interest income from a larger average securities portfolio as well as net gain on our derivatives offset by losses on our Agency Securities and U.S.
Results of Operations For the Years Ended December 31, 2023 December 31, 2022 December 31, 2021 Net Interest Income 27,109 107,664 73,369 Total Other Loss (51,481) (299,761) (23,091) Total Expenses after fees waived (43,551) (37,833) (34,915) Net Income (Loss) $ (67,923) $ (229,930) $ 15,363 Reclassification adjustment for realized (gain) loss on sale of available for sale Agency Securities 7,471 7,452 (10,952) Reclassification adjustment for Impairment losses on available for sale Agency Securities — 4,183 — Net unrealized gain (loss) on available for sale Agency Securities 4,056 (130,135) (61,106) Other comprehensive income (loss) $ 11,527 $ (118,500) $ (72,058) Comprehensive Loss $ (56,396) $ (348,430) $ (56,695) Net loss for the years ended December 31, 2023 and December 31, 2022 reflects interest income from a larger average securities portfolio as well as net gain on our derivatives offset by losses on Agency Securities and U.S.
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.
ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 55 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.
At December 31, 2022 and at December 31, 2021, we had approximately $399,783 and $607,000, respectively, in tax deductible expense relating to previously terminated interest rate swap contracts amortizing through the years 2031 and 2032, respectively. At December 31, 2022, we had $240,428 of net operating loss carryforwards available for use indefinitely.
At December 31, 2023 and at December 31, 2022, we had approximately $(247,349) and $(307,316), respectively, in tax deductible expense relating to previously terminated interest rate swap and treasury futures contracts amortizing through the years 2033 and 2032, respectively. At December 31, 2023, we had $257,341 of net operating loss carryforwards available for use indefinitely.
For the Years Ended Interest Swap Contracts December 31, 2022 December 31, 2021 Net Balance, beginning of period $ 180,476 $ 33,722 Net interest rate swap contract payments paid 17,027 14,279 Interest rate swap income accrued 107,269 4,436 Interest rate swap expense accrued (54,049) (29,241) Current unrealized gains 677,865 81,587 Amortization of prior unrealized gains 122,101 17,056 Gain (loss) on early terminations (67,030) 58,637 Net Balance, end of period $ 983,659 $ 180,476 Our policies do not contain specific requirements as to the percentages or amount of interest rate risk that we are required to hedge.
For the Years Ended Interest Swap Contracts December 31, 2023 December 31, 2022 Net Balance, beginning of period $ 983,659 $ 180,476 Net interest rate swap contract payments paid (133,863) 17,027 Interest rate swap income accrued 397,468 107,269 Interest rate swap expense accrued (180,585) (54,049) Current unrealized gains 41,194 922,067 Amortization of prior unrealized gains (199,778) (122,101) Loss on early terminations (37,535) (67,030) Net Balance, end of period $ 870,560 $ 983,659 Our policies do not contain specific requirements as to the percentages or amount of interest rate risk that we are required to hedge.
Our leverage ratios, including notional on our TBA Agency Securities, were 6.51:1 and 7.39:1 at December 31, 2022 and December 31, 2021, respectively. Implied leverage, including TBA Securities and forward settling sales and unsettled purchases was 6.83:1 at December 31, 2022.
Implied leverage, including TBA Securities and forward settling sales and unsettled purchases was 7.96:1 and 6.83:1 at December 31, 2023 and December 31, 2022, respectively.
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 back in the future. We then sell such U.S. Treasury Securities to third parties and recognize a liability to return the securities to the original borrower. Reverse repurchase agreement receivables ARMOUR Residential REIT, Inc.
Under a typical reverse repurchase agreement, we purchase U.S. Treasury Securities from a borrower in exchange for cash and ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 63 agree to sell the same securities back in the future. We then sell such U.S.
The Fed stated that it will reinvest into agency MBS the amount of principal payments from the Fed's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
The Fed also stated that it will continue reducing its holdings of agency mortgage-backed securities and other fixed-income assets as described in its previously announced plans and that it will reinvest into agency MBS the amount of principal payments from the Fed's holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month.
We generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital. Because the level of our borrowings can be adjusted on a daily basis, the level of cash carried on our consolidated balance sheet is significantly less important than our potential liquidity available under our borrowing arrangements.
Because the level of our borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our consolidated balance sheet is significantly less important than our potential liquidity available under our borrowing arrangements.
Our operating results depend, in large part, upon our ability to manage interest rate risks effectively while maintaining our status as a REIT.
Such rate increases could possibly result in operating losses or adversely affect our ability to make distributions to our stockholders. Our operating results depend, in large part, upon our ability to manage interest rate risks effectively while maintaining our status as a REIT.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 50 using the specific identification method. We typically purchase Agency Securities at premium prices. The premium price paid over par value on those assets is expensed as the underlying mortgages experience repayment or prepayment.
Gains or losses realized from the sale of securities are included in income and are determined using the specific identification method. We typically purchase Agency Securities at premium prices. The premium price paid over par value on those assets is expensed as the underlying mortgages experience repayment or prepayment.
Accordingly, if the GSEs defaulted on their guaranteed obligations, suffered losses or ceased to exist, the value of our Agency Securities and our business, operations and financial condition could be materially and adversely affected.
Accordingly, if the GSEs defaulted on their guaranteed obligations, suffered losses or ceased to exist, the value of our Agency Securities and our business, operations and financial condition could be materially and adversely affected. Short-term Interest Rates and Funding Costs Changes in Fed policy affect our financial results, since our cost of funds is largely dependent on short-term rates.
This mortgage spread varies over time and can be above or below long-term averages, depending upon market participants' current desire to own MBS over other investment alternatives. When the mortgage spread gets ARMOUR Residential REIT, Inc.
This mortgage spread varies over time and can be above or below long-term averages, depending upon market participants' current desire to own MBS over other investment alternatives. When the mortgage spread gets smaller (or negative) versus long-term interest rates, our book value will be positively affected. When this spread gets larger (or positive), our book value will be negatively affected.
We are required to clear certain new interest rate swap contracts. Cleared interest rate swaps may have higher margin requirements than uncleared interest rate swaps we previously had. We have established an account with a futures commission merchant for this purpose. To date, we have not entered into any cleared interest rate swap contracts.
We are required to clear certain new interest rate swap contracts. Centrally-cleared interest rate swaps may have higher margin requirements than bilateral interest rate swaps. We have established an account with a futures commission merchant for this purpose. At December 31, 2023, we had $1,275,000 notional amount of centrally-cleared interest rate swap contracts.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 58 Liquidity and Capital Resources At December 31, 2022, our liquidity totaled $689,156, consisting of $87,284 of cash plus $601,872 of unencumbered Agency Securities and U.S. government securities (including securities received as collateral).
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 62 Liquidity and Capital Resources At December 31, 2023, our liquidity totaled $657,001, consisting of $221,888 of cash and cash equivalents plus $435,113 of unencumbered Agency Securities and U.S. government securities (including securities received as reverse margin collateral).
Gross Amounts Not Offset Liabilities Gross Amounts (1) Financial Instruments Cash Collateral Total Net December 31, 2022 Futures contracts $ (516) $ 516 $ — $ — TBA Agency Securities (12,500) 12,500 — — Totals $ (13,016) $ 13,016 $ — $ — December 31, 2021 Interest rate swap contracts $ (7,185) $ 7,185 $ — $ — TBA Agency Securities (3,715) 3,715 — — Totals $ (10,900) $ 10,900 $ — $ — (1) See Note 4 to the consolidated financial statements for additional discussion.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 59 Gross Amounts Not Offset Liabilities Gross Amounts (1) Financial Instruments Cash Collateral Total Net December 31, 2023 Interest rate swap contracts $ (5,036) $ 5,036 $ — $ — TBA Agency Securities — 1,816 (2,070) (254) Totals $ (5,036) $ 6,852 $ (2,070) $ (254) December 31, 2022 Futures contracts $ (516) $ 516 $ — $ — TBA Agency Securities (12,500) 12,500 — — Totals $ (13,016) $ 13,016 $ — $ — (1) See Note 4 to the consolidated financial statements for additional discussion.
TBA Agency Securities are included in the table below on a gross basis as they can be used to establish and finance portfolio positions in Agency Securities. ARMOUR Residential REIT, Inc.
TBA Agency Securities are included in the table below on a gross basis as they can be used to establish and finance portfolio positions in Agency Securities The tables below summarize certain characteristics of our investments in securities at December 31, 2023 and December 31, 2022.
ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 54 Repurchase Agreements, net We have entered into repurchase agreements to finance the majority of our MBS.
ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 58 Repurchase Agreements, net We have entered into repurchase agreements to finance the majority of our MBS. Our repurchase agreements are secured by our MBS and bear interest at rates that have moved in close relationship to the Federal Funds Rate and SOFR.
With the maturities of our assets, generally of a longer term than those of our liabilities, interest rate increases will tend to decrease our net interest income and the market value of our assets (and therefore our book value). Such rate increases could possibly result in operating losses or adversely affect our ability to make distributions to our stockholders.
Interest Rates Changes in interest rates, particularly short-term interest rates, may significantly influence our net interest income. With the maturities of our assets, generally of a longer term than those of our liabilities, interest rate increases will tend to decrease our net interest income and the market value of our assets (and therefore our book value).
Inflation Virtually all of our assets and liabilities are interest rate-sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.
Similarly, 95% of inter-day movements in estimated value translated to changes in estimated book value per share of $1.30 or less. Inflation Virtually all of our assets and liabilities are interest rate-sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation.
We did not have such obligations at December 31, 2021. At December 31, 2022, BUCKLER accounted for 50.2% of our aggregate borrowings and had an amount at risk of 12.9% of our total stockholders' equity with a weighted average maturity of 15 days on repurchase agreements (see Note 6 to the consolidated financial statements).
At December 31, 2023 and December 31, 2022, BUCKLER accounted for 48.4% and 50.2%, respectively, of our aggregate borrowings and had an amount at risk of 8.1% and 12.9%, respectively, of our total stockholders' equity (see Note 6 to the consolidated financial statements).
Recent events, such as those discussed below, can affect our business in ways that are difficult to predict and may produce results outside of typical operating variances. Our net interest ARMOUR Residential REIT, Inc.
Recent events, such as those discussed below, can affect our business in ways that are difficult to predict and may produce results outside of typical operating variances. Our net interest income varies primarily as a result of changes in interest rates, borrowing costs and prepayment speeds, the behavior of which involves various risks and uncertainties.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 59 and repurchase agreement liabilities are presented net when they meet certain criteria, including being with the same counterparty, being governed by the same MRA, settlement through the same brokerage or clearing account and maturing on the same day.
Treasury Securities to third parties and recognize a liability to return the securities to the original 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 MRA, settlement through the same brokerage or clearing account and maturing on the same day.
Market and Interest Rate Trends and the Effect on our Securities Portfolio Federal Reserve Actions On December 14, 2022, the Fed raised its target range for the Federal Funds Rate to between 4.25% and 4.50%.
Market and Interest Rate Trends and the Effect on our Securities Portfolio Federal Reserve Actions On December 13, 2023, the Fed kept its target range for the Federal Funds Rate unchanged at 5.25% to 5.50%, which they had set on July 26, 2023 and maintained on September 20, 2023.
Treasuries and money market instruments, subject to certain income tests we must satisfy for our qualification as a REIT. Our charter permits us to invest in MBS. Our TBA Agency Securities are reported at net carrying value and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements).
Our TBA Agency Securities are reported at net carrying value and are reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements).
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 45 Net interest income is a function of both our securities portfolio size and net interest rate spread.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 49 Net interest income is a function of the size of and yield earned from our investment portfolio and the size of and cost of our repurchase and other financing costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeMarket Risk Disclosures (continued) 68 Liquidity Risk Our primary liquidity risk arises from financing long-maturity MBS with short-term debt. The interest rates on our borrowings generally adjust more frequently than the interest rates on our ARMs. Accordingly, in a period of rising interest rates, our borrowing costs will usually increase faster than our interest earnings from MBS.
Biggest changeAccordingly, in a period of rising interest rates, our borrowing costs will usually increase faster than our interest earnings from MBS. Our repurchase agreements require that we maintain adequate pledged collateral.
In addition, our Audit Committee periodically monitors and oversees our information and cybersecurity risks including reviewing and approving any information and cybersecurity policies, procedures and resources, and reviewing our information and cybersecurity risk assessment, detection, protection, and mitigation systems. ARMOUR Residential REIT, Inc. 69
In addition, our Audit Committee periodically monitors and oversees our information and cybersecurity risks including reviewing and approving any information and cybersecurity policies, procedures and resources, and reviewing our information and cybersecurity risk assessment, detection, protection, and mitigation systems. ARMOUR Residential REIT, Inc.
The sensitivity analysis tables presented below reflect the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, at December 31, 2022 and December 31, 2021. It assumes that the mortgage spread on our MBS remains constant.
The sensitivity analysis tables presented below reflect the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, at December 31, 2023 and December 31, 2022. It assumes that the mortgage spread on our MBS remains constant.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance. ACM has established an IT Committee to help mitigate technology risks including cybersecurity.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of our networks or systems (or the networks or systems of third parties that facilitate our business activities) or any failure to maintain performance. ACM has established the ITSC to help mitigate technology risks including cybersecurity.
One of the roles of the IT Committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee the Company’s Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing. Our cybersecurity risk assessment includes an evaluation of cyber risk related to sensitive data held by third parties on their systems.
One of the roles of the ITSC is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee the Company’s Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing. Our cybersecurity risk assessment includes an evaluation of cyber risk related to sensitive data held by third parties on their systems.
Actual interest rate movements over time will likely be different, and such differences may be material. When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on ACM’s expectations. Interest rates for interest rate swaps and repurchase agreements are assumed to remain positive.
Actual interest rate movements over time will likely be different, and such differences may be material. When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on ACM’s expectations. Interest rates for interest rate swaps ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) 70 and repurchase agreements are assumed to remain positive.
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. Operational Risk We rely on our financial, accounting and other data processing systems.
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. ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) 72 Operational Risk We rely on our financial, accounting and other data processing systems.
December 31, 2022 December 31, 2021 Percentage Change in Projected Percentage Change in Projected Change in MBS spread Portfolio Value Shareholders' Equity Portfolio Value Shareholders' Equity +25 BPS (1.54)% (12.39)% (1.35)% (10.81)% +10 BPS (0.61)% (4.96)% (0.54)% (4.32)% -10 BPS 0.61% 4.96% 0.54% 4.32% -25 BPS 1.54% 12.39% 1.35% 10.81% Prepayment Risk As we receive payments of principal on our MBS, premiums paid on such securities are amortized against interest income and discounts are accreted to interest income as realized.
Market Risk Disclosures (continued) 71 December 31, 2023 December 31, 2022 Percentage Change in Projected Percentage Change in Projected Change in MBS spread Portfolio Value Stockholders' Equity Portfolio Value Stockholders' Equity +25 BPS (1.14)% (10.29)% (1.54)% (12.39)% +10 BPS (0.46)% (4.12)% (0.61)% (4.96)% -10 BPS 0.46% 4.12% 0.61% 4.96% -25 BPS 1.14% 10.29% 1.54% 12.39% Prepayment Risk As we receive payments of principal on our MBS, premiums paid on such securities are amortized against interest income and discounts are accreted to interest income as realized.
Percentage Change in Projected Change in Interest Rates Net Interest Income Portfolio Including Derivatives Shareholder's Equity December 31, 2022 1.00% 2.81% (1.60)% (13.54)% 0.50% 1.41% (0.76)% (6.39)% (0.50)% (1.42)% 0.60% 5.08% (1.00)% (2.87)% 0.98% 8.31% December 31, 2021 1.00% 48.15% (0.85)% (6.98)% 0.50% 24.45% (0.30)% (2.49)% (0.50)% (3.93)% (0.07)% (0.57)% (1.00)% (6.69)% (0.56)% (4.60)% While the tables above reflect the estimated immediate impact of interest rate increases and decreases on a static securities portfolio, we rebalance our securities portfolio from time to time either to seek to take advantage of or reduce the impact of changes in interest rates.
Percentage Change in Projected Change in Interest Rates Net Interest Income Portfolio Including Derivatives Stockholder's Equity December 31, 2023 1.00% (5.93)% (1.24)% (11.57)% 0.50% (2.96)% (0.50)% (4.64)% (0.50)% 2.95% 0.20% 1.83% (1.00)% 5.89% 0.07% 0.61% December 31, 2022 1.00% 2.81% (1.60)% (13.54)% 0.50% 1.41% (0.76)% (6.39)% (0.50)% (1.42)% 0.60% 5.08% (1.00)% (2.87)% 0.98% 8.31% While the tables above reflect the estimated immediate impact of interest rate increases and decreases on a static securities portfolio, we rebalance our securities portfolio from time to time either to seek to take advantage of or reduce the impact of changes in interest rates.
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. A portion of our securities portfolio consists of hybrid adjustable rate and adjustable rate MBS.
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.
Our securities portfolio's sensitivity to mortgage spread changes will vary with changes in interest rates and in the size and composition of our securities portfolio. Therefore, actual results could differ materially from our estimates.
The estimated impact of changes in spreads is in addition to our interest rate sensitivity presented above. Our securities portfolio's sensitivity to mortgage spread changes will vary with changes in interest rates and in the size and composition of our securities portfolio. Therefore, actual results could differ materially from our estimates. ARMOUR Residential REIT, Inc.
Effective duration essentially measures the market price volatility of financial instruments as interest rates change. We generally estimate effective duration using various financial models and empirical data. Different models and methodologies can produce different effective duration estimates for the same securities.
We generally estimate effective duration using various financial models and empirical data. Different models and methodologies can produce different effective duration estimates for the same securities.
Therefore, on average, our cost of funds may rise or fall more quickly than our earnings rate on our assets. Hence, in a period of increasing interest rates, interest rates on our borrowings could increase without limitation, while the changes in the interest rates on our mortgage related assets could be limited.
Hence, in a period of increasing interest rates, interest rates on our borrowings could increase without limitation, while the changes in the interest rates on our mortgage related assets could be limited.
We primarily assess our interest rate risk by estimating the effective duration of our assets and the effective duration of our liabilities and by estimating the time difference between the interest rate adjustment of ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) 66 our assets and the interest rate adjustment of our liabilities.
We primarily assess our interest rate risk by estimating the effective duration of our assets and the effective duration of our liabilities and by estimating the time difference between the interest rate adjustment of our assets and the interest rate adjustment of our liabilities. Effective duration essentially measures the market price volatility of financial instruments as interest rates change.
Our fixed rate MBS have interest rates that are not variable and are constant for the entire loan term. Our borrowings are not subject to similar restrictions and are generally repurchase agreements of limited duration that track the Federal Funds Rate and SOFR and are periodically refinanced at current market rates.
Our borrowings are not subject to similar restrictions and are generally repurchase agreements of limited duration that track the Federal Funds Rate and SOFR and are periodically refinanced at current market rates. Therefore, on average, our cost of funds may rise or fall more quickly than our earnings rate on our assets.
Furthermore, if our lenders are unwilling or unable to provide additional financing, we could be forced to sell our MBS at an inopportune time when prices are depressed. ARMOUR Residential REIT, Inc.
Furthermore, if our lenders are unwilling or unable to provide additional financing, we could be forced to sell our MBS at an inopportune time when prices are depressed. The table below quantifies the estimated changes in the fair value of our securities portfolio and in our stockholders' equity as of December 31, 2023 and December 31, 2022.
All of our Agency Securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+. At December 31, 2022 and December 31, 2021, we did not own any Credit Risk and Non-Agency Securities.
All of our Agency Securities are issued and guaranteed by GSEs or Ginnie Mae. The GSEs have a long term credit rating of AA+. Liquidity Risk Our primary liquidity risk arises from financing long-maturity MBS with short-term debt. The interest rates on our borrowings adjust frequently while the interest rates on our MBS are fixed.
Removed
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ARMOUR Residential REIT, Inc. 65 We seek to manage our risks related to the credit-quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk adjusted returns through ownership of our capital stock.
Added
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ARMOUR Residential REIT, Inc. 69 We seek to create stockholder value through thoughtful investment and risk management of a leveraged and diversified portfolio of MBS.
Removed
Hybrid mortgages are ARMs that have a fixed interest rate for an initial period of time (typically three years or greater) and then convert to an adjustable rate for the remaining loan term. ARMs are typically subject to periodic and lifetime interest rate caps that limit the amount the interest rate can change during any given period.
Removed
Furthermore, some ARMs may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. ARMs are also typically subject to a minimum interest rate payable. Most of our adjustable rate assets are based on the one-year constant maturity treasury rate.
Removed
Market Risk Disclosures (continued) 67 The table below quantifies the estimated changes in the fair value of our securities portfolio and in our shareholders' equity as of December 31, 2022 and December 31, 2021. The estimated impact of changes in spreads is in addition to our interest rate sensitivity presented above.
Removed
From time to time we may purchase Credit Risk and Non-Agency Securities at prices which incorporate our expectations for prepayment speeds, defaults, delinquencies and severities. These expectations determine the yields we receive on our assets. If actual prepayment speeds, defaults, delinquencies and severities are different from our expectations, our actual yields could be higher or lower.
Removed
We evaluate each investment based on the characteristics of the underlying collateral and securitization structure, rather than relying on the ratings assigned by rating agencies. Credit Risk and Non-Agency Securities are subject to risk of loss with regard to principal and interest payments. ARMOUR Residential REIT, Inc.

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