ARR Filings — Armour Residential Reit, Inc.

ARR Filings — Armour Residential Reit, Inc. - FilingSpy

10-Q · Quarter ended Jun 30, 2026 · SEC filing ↗

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Original filing text

Management's Discussion and Analysis

ARMOUR Residential REIT, Inc. References to “we,” “us,” “our,” or the “Company” are to ARMOUR Residential REIT, Inc. (“ARMOUR”) and its subsidiary. References to “ACM” are to ARMOUR Capital Management LP, a Delaware limited partnership. ARMOUR owns a 10.8% equity interest in BUCKLER Securities LLC ("BUCKLER"), a Delaware limited liability company and a FINRA-regulated broker-dealer, controlled by ACM. Refer to the Glossary of Terms for definitions of capitalized terms and abbreviations used in this report. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. U.S. dollar amounts are presented in thousands, except per share amounts or as otherwise noted. Overview We are a Maryland corporation managed by ACM, an investment advisor registered with the SEC (see Note 8 and Note 13 to the consolidated financial statements). We have elected to be taxed as a REIT under the Code. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code and our manner of operations enables us to meet the requirements for taxation as a REIT for federal income tax purposes. 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. 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. 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 an organization, we create a relatively small environmental footprint. Still, we are focused on minimizing the environmental impact of our business where possible. At June 30, 2026 and December 31, 2025, our investments in securities included MBS, issued or guaranteed by a U.S. GSE, such as Fannie Mae, Freddie Mac, or a government agency such as Ginnie Mae (collectively, Agency Securities) and U.S. Treasury Securities. Our investment in securities consist primarily of fixed rate loans. Our charter permits us to invest in MBS backed by fixed rate, hybrid adjustable rate and adjustable rate home loans as well as unsecured notes and bonds issued by GSEs, U.S. Treasuries and money market instruments. We earn returns on the spread between the yield on our assets and our costs, including the interest cost of the funds we borrow, after giving effect to our hedges. We identify and acquire MBS, finance our acquisitions with borrowings under a series of short-term repurchase agreements and then hedge certain risks based on our entire portfolio of assets and liabilities and our management’s view of the market. Factors that Affect our Results of Operations and Financial Condition Our results of operations and financial condition are affected by various factors, many of which are beyond our control, including, among other things, our net interest income, the market value of our assets and the supply of and demand for such assets. Recent events, such as those discussed below, can affect our business in ways that are difficult to predict and may produce results outside of typical operating variances. Our net interest income varies primarily as a result of changes in interest rates, borrowing costs and prepayment speeds, the behavior of which involves various risks and uncertainties. We currently invest primarily in Agency Securities, for which the principal and interest payments are guaranteed by a GSE or other government agency. 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. We expect our investments to be subject to risks arising from prepayments resulting from existing home sales, financings, delinquencies 28 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) and foreclosures. We are exposed to changing mortgage spreads, which could result in declines in the fair value of our investments. Our asset selection, financing and hedging strategies are designed to work together to generate current net interest income while moderating our exposure to market volatility. Interest Rates Changes in interest rates, particularly short-term interest rates, may significantly influence our net interest income. With the maturities of our assets, generally of a longer term than those of our liabilities, interest rate increases will tend to decrease our net interest income and the market value of our assets (and therefore our book value). Such rate increases could possibly result in operating losses or adversely affect our ability to make distributions to our stockholders. Our operating results depend, in large part, upon our ability to manage interest rate risks effectively while maintaining our status as a REIT. 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. For GAAP purposes, all changes in the fair value of our derivatives currently flow through earnings. 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. 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. Prepayment Rates Prepayments on MBS and the underlying mortgage loans may be influenced by changes in market interest rates and a variety of economic and geographic factors, policy decisions by regulators, as well as other factors beyond our control. To the extent we hold MBS acquired at a premium or discount to par, or face value, changes in prepayment rates may impact our anticipated yield. In periods of declining interest rates, prepayments on our MBS will likely increase. If we are unable to reinvest the proceeds of such prepayments at comparable yields, our net interest income may decline. Our operating results depend, in large part, upon our ability to manage prepayment risks effectively while maintaining our status as a REIT. In addition to the use of derivatives to hedge interest rate risk, a variety of other factors relating to our business may also impact our financial condition and operating performance; these factors include: •our degree of leverage; •our access to funding and borrowing capacity; •the REIT requirements under the Code; and •the requirements to qualify for an exclusion under the 1940 Act and other regulatory and accounting policies related to our business. Management See Note 8 and Note 13 to the consolidated financial statements. 29 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Market and Interest Rate Trends and the Effect on our Securities Portfolio Second Quarter 2026 Trends The Middle East conflict that began in late February 2026 significantly increased U.S. interest rate volatility, primarily through its impact on energy markets. As oil prices rose sharply amid concerns about potential supply disruptions, particularly through the Strait of Hormuz, market participants reassessed the inflation outlook and likely path of monetary policy. Expectations regarding futures pricing shifted from at least two 25 basis point Federal Reserve cuts by year-end 2026 immediately before the conflict to at least one 25 basis point hike, contributing to a pronounced bear flattening of the U.S. Treasury curve and a more challenging technical backdrop for Agency MBS. Although the April ceasefire and mid-June memorandum of understanding between the U.S. and Iran partially reversed the most severe moves in rates, volatility, and mortgage spreads, ARMOUR expects a return of bouts of volatility until the conflict is more definitively resolved and, accordingly, intends to continue prioritizing risk management during this period of heightened uncertainty. In 2025, the U.S. administration imposed tariffs on imports from a broad range of trading partners, including Canada, Mexico, member states of the European Union, Japan, and China. In response, several trading partners imposed, and others may yet impose, retaliatory tariffs. In February 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, invalidating the broad-based tariffs the administration had imposed under that statute. The administration subsequently shifted to alternative authorities, including a temporary surcharge under Section 122 of the Trade Act of 1974, while also signaling its intent to preserve a broader tariff regime through other trade statutes and legal mechanisms. The Section 122 tariffs are set to expire on July 24, 2026 unless extended by Congress and have since faced legal challenges, adding further uncertainty to the tariff outlook. These U.S. tariffs, together with actual and potential retaliatory measures, contributed to increased volatility in financial markets and interest rates and could continue to do so. Accordingly, ARMOUR expects to continue prioritizing liquidity considering the potential for renewed market volatility and related financial risks. Federal Reserve Actions At its April 29, 2026 and June 17, 2026 meetings, the Federal Open Market Committee maintained the target range for the Federal Funds Rate at 3.50% to 3.75%. In its June 17, 2026 statement, the Committee noted that economic activity is expanding at a solid pace despite elevated uncertainty, in part due to the conflict in the Middle East, and that productivity growth and capital investment are strong. The Committee also stated that job gains have kept pace with the workforce, the unemployment rate has changed little, and inflation remains elevated relative to its 2% goal, partly reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee emphasized that it will deliver price stability. At the June 17, 2026 meeting, the Committee also reaffirmed its policy of maintaining ample reserves in the banking system. Consistent with the conclusion of the reduction in its aggregate securities holdings effective December 1, 2025, the Committee directed the Open Market Desk to roll over at auction all principal payments from the Federal Reserve’s Treasury securities holdings and to reinvest all principal payments from its agency debt and agency mortgage-backed securities holdings into Treasury bills. Additionally, the FOMC's reserve management purchase (RMP) program, launched in 2025 with approximately $40 billion per month in short-dated Treasury securities, has since stepped down to $10 billion per month, where it remains through at least mid-July 2026. The Federal Reserve has also indicated that future RMP amounts will remain data-dependent, set on a month-to-month basis. Despite the reduction in RMP, repurchase funding conditions remained liquid and orderly, particularly relative to prior years. ARMOUR continues to monitor these developments closely, as further changes to RMP pace or repo market conditions could affect the Company's borrowing environment; at present, we do not view this as a material near-term risk, yet prudent portfolio management warrants ongoing attention to this program. Financial markets will likely be highly sensitive to the Fed’s interest rate decisions, its bond purchasing and balance sheet holding decisions, as well as its communication. We intend to continue to mitigate risk and maximize liquidity within 30 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) the scope of our business plan. The agency mortgage-backed securities market remains highly dependent on the future course and timing of the Fed's actions on interest rates as well as its purchases and holdings of our target assets. Developments at Fannie Mae and Freddie Mac The payments we receive on the Agency Securities in which we invest depend upon a steady stream of payments by borrowers on the underlying mortgages and the fulfillment of guarantees by GSEs. There can be no assurance that the U.S. Government's intervention in Fannie Mae and Freddie Mac will continue to be adequate or assured for the longer-term viability of these GSEs. These uncertainties may lead to concerns about the availability of and market for Agency Securities in the long term. Accordingly, if the GSEs defaulted on their guaranteed obligations, suffered losses or ceased to exist, the value of our Agency Securities and our business, operations and financial condition could be materially and adversely affected. Short-term Interest Rates and Funding Costs Changes in Fed policy affect our financial results, since our cost of funds is largely dependent on short-term rates. An increase in our cost of funds without a corresponding increase in interest income earned on our MBS would cause our net income to decline. Below is the Fed's target range for the Federal Funds Rate at each Fed meeting where a change was made since 2024. Meeting Date Lower Bound Higher Bound December 10, 2025 3.50 % 3.75 % October 29, 2025 3.75 % 4.00 % September 17, 2025 4.00 % 4.25 % December 18, 2024 4.25 % 4.50 % November 7, 2024 4.50 % 4.75 % September 18, 2024 4.75 % 5.00 % Our borrowings in the repurchase market have closely tracked the Federal Funds Rate and SOFR. 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, 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 following graph shows the effective Federal Funds Rate as compared to SOFR on a monthly basis from June 30, 2024 to June 30, 2026. 31 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Long-term Interest Rates and Mortgage Spreads Our securities are valued at an interest rate spread versus long-term interest rates (mortgage spread). This mortgage spread varies over time and can be above or below long-term averages, depending upon market participants' current desire to own MBS over other investment alternatives. When the mortgage spread gets smaller (or negative) versus long-term interest rates, our book value will be positively affected. When this spread gets larger (or positive), our book value will be negatively affected. Mortgage spreads can vary due to movements in securities valuations, movements in long-term interest rates or a combination of both. We mainly use interest rate swap contracts, interest rate swaptions, basis swap contracts and futures contracts to economically hedge against changes in the valuation of our securities. We do not use such hedging contracts for speculative purposes. We may reduce our mortgage spread exposure by entering into certain TBA Agency Securities short positions. The TBA short positions may represent different securities and maturities than our MBS and TBA Agency Security long positions, and accordingly, may perform somewhat differently. While we expect our TBA Agency Securities short positions to perform well compared to our related mortgage securities, there can be no assurance as to their relative performance. 32 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Results of Operations Net Income (Loss) For the Three Months Ended June 30, For the Six Months Ended June 30, 2026 2025 2026 2025 Net Interest Income $ 76,819 $ 33,105 $ 147,533 $ 69,446 Total Other Income (Loss) 55,157 (94,364) (55,061) (90,231) Total Expenses after fees waived (17,160) (14,349) (32,507) (27,491) Net Income (Loss) $ 114,816 $ (75,608) $ 59,965 $ (48,276) Net Income for the three and six months ended June 30, 2026 compared to Net Loss for the three and six months ended June 30, 2025 reflected increased interest income from a larger average securities portfolio and gains on derivatives partially offset by interest expense on a larger average balance of repurchase agreements and unrealized losses on our trading securities, net, due to market movements. Net interest income is a function of the size of and yield earned from our investment portfolio and the size and cost of our repurchase and other financing costs. For the Three Months Ended June 30, For the Six Months Ended June 30, 2026 2025 2026 2025 Interest Income $ 263,870 $ 180,886 $ 513,071 $ 353,767 Interest Expense (187,051) (147,781) (365,538) (284,321) Net Interest Income $ 76,819 $ 33,105 $ 147,533 $ 69,446 33 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) The following tables detail the factors impacting our net interest income for three and six months ended June 30, 2026 and June 30, 2025. For the Three Months Ended June 30, 2026 For the Three Months Ended June 30, 2025 Interest Income (Expense) Average Balance Yield/Rate Interest Income (Expense) Average Balance Yield/Rate Interest-bearing Assets: Agency Securities, Net of Amortization $ 254,379 $ 20,477,663 4.97 % $ 176,485 $ 14,090,262 5.01 % Cash Equivalents & Treasury Securities 9,491 941,882 4.03 % 4,401 676,809 2.60 % Total Interest Income/Average Interest Earning Assets $ 263,870 $ 21,419,545 4.93 % $ 180,886 $ 14,767,071 4.90 % Interest-bearing Liabilities: Repurchase Agreements (187,051) 19,558,852 (3.83) % (142,320) 12,520,352 (4.55) % Treasury Securities Sold Short — — — % (5,461) 507,299 (4.31) % Total Interest Expense/Average Interest Bearing Liabilities $ (187,051) $ 19,558,852 (3.83) % $ (147,781) $ 13,027,651 (4.54) % Net Interest Income/Net Interest Spread $ 76,819 1.10 % $ 33,105 0.36 % Net Yield on Interest Earning Assets 1.43 % 0.90 % For the Six Months Ended June 30, 2026 For the Six Months Ended June 30, 2025 Interest Income (Expense) Average Balance Yield/Rate Interest Income (Expense) Average Balance Yield/Rate Interest-bearing Assets: Agency Securities, Net of Amortization $ 496,403 $ 19,987,876 4.97 % $ 348,911 $ 13,928,214 5.01 % Cash Equivalents & Treasury Securities 16,668 930,337 3.58 % 4,856 375,102 2.59 % Total Interest Income/Average Interest Earning Assets $ 513,071 $ 20,918,213 4.91 % $ 353,767 $ 14,303,316 4.95 % — Interest-bearing Liabilities: Repurchase Agreements (365,538) 19,071,613 (3.83) % (273,429) 12,063,674 (4.53) % Treasury Securities Sold Short — — — % (10,892) 504,796 (4.32) % Total Interest Expense/Average Interest Bearing Liabilities $ (365,538) $ 19,071,613 (3.83) % $ (284,321) $ 12,568,470 (4.52) % Net Interest Income/Net Interest Spread $ 147,533 1.07 % $ 69,446 0.42 % Net Yield on Interest Earning Assets 1.41 % 0.97 % 34 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) 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. Other Income (Loss) For the Three Months Ended June 30, For the Six Months Ended June 30, 2026 2025 2026 2025 Other Income (Loss): Gain (Loss) on Agency Securities, trading, net (42,624) 16,545 (225,219) 224,802 Loss on U.S. Treasury Securities, net (10,454) (2,887) (21,102) (15,793) Gain (Loss) on derivatives, net 108,235 (108,022) 191,260 (299,240) Total Other Income (Loss) $ 55,157 $ (94,364) $ (55,061) $ (90,231) Three Months Ended June 30, 2026 vs. Three Months Ended June 30, 2025 •Gain (Loss) on Agency Securities, trading, net includes mark to market changes in the fair value of our securities as well as the gain (loss) on sales. ◦The change in fair value of the securities was $(40,015) and $(231,949) for the three and six months ended June 30, 2026 compared to $28,680 and $240,110 for the three and six months ended June 30, 2025. ◦Sales of our Agency Securities, trading resulted in realized gains (losses) of $(2,609) and $6,730 and $(12,135) and $(15,308) for the three and six months ended June 30, 2026 and June 30, 2025, respectively. ◦During the three and six months ended June 30, 2026, and June 30, 2025, we sold $865,173 and $1,756,297 (inclusive of $344,372 of unsettled sales) and $992,009 and $1,226,213, respectively, of Agency Securities, trading. 35 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) •Loss on U.S. Treasury Securities, net resulted from the change in fair value of the securities as well as the gain (loss) on sales. ◦The change in fair value of the securities was $(1,131) and $(11,321) and $(2,887) and $(15,793), for the three and six months ended June 30, 2026 and June 30, 2025, respectively. ◦During the three and six months ended June 30, 2026, we sold $391,734 and $491,402 of U.S. Treasury Securities, resulting in a realized loss of $(9,323) and $(9,781), respectively. •Gain (Loss) on Derivatives resulted from a combination of the following: ◦Changes in fair value due to interest rate movements. ◦Interest rate swap contracts' aggregate notional balance was $15,889,000 at June 30, 2026 and $12,327,000 at December 31, 2025. ◦Our TBA Agency Securities aggregate notional balance was $600,000 at June 30, 2026. Expenses For the Three Months Ended June 30, For the Six Months Ended June 30, 2026 2025 2026 2025 Expenses: Management fees $ 12,539 $ 11,060 $ 24,754 $ 21,829 Compensation 1,163 888 2,116 1,700 Other operating 3,458 4,051 5,637 7,262 Total Expenses $ 17,160 $ 15,999 $ 32,507 $ 30,791 Less management fees waived — (1,650) — (3,300) Total Expenses after fees waived $ 17,160 $ 14,349 $ 32,507 $ 27,491 The Company is managed by ACM, pursuant to a management agreement. The management fees are determined based on gross equity raised. Therefore, management fees increase when we raise capital and decline when we repurchase previously issued stock and make liquidation distributions as approved and so designated by a majority of the Board. 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. The cost of repurchased stock and any dividends specifically designated by the Board as liquidation distributions will reduce the amount of gross equity raised used to calculate the monthly management fee. Realized and unrealized gains and losses do not affect the amount of gross equity raised. At June 30, 2026 and June 30, 2025, the effective management fee was 0.88% and 0.90% (prior to management fees waived) based on gross equity raised of $5,812,714 and $4,969,351, respectively. During the three and six months ended June 30, 2025 ACM voluntarily waived management fees of $1,650 and $3,300, respectively, (see Note 13 - Related Party Transactions). Compensation includes non-executive director compensation as well as the restricted stock units awarded to our Board and executive officers directly or through ACM. The fluctuation from year to year is due to the number of awards vesting. Other Operating expenses include: •Fees for market and pricing data, analytics and risk management systems and portfolio related data processing costs as well as stock exchange listing fees and similar stockholder related expenses, net of other miscellaneous income. •Professional fees for securities clearing, legal, audit and consulting costs that are generally driven by the size and complexity of our securities portfolio, the volume of transactions we execute and the extent of research and due diligence activities we undertake on potential transactions. 36 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) •Insurance premiums for both general business and directors and officers liability coverage fluctuate from year to year due to changes in premiums. 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 12 to the consolidated financial statements). Realized gains and losses on interest rate contracts and treasury futures terminated before their maturity are deferred and amortized over the remainder of the original term of the contract for REIT taxable income. At June 30, 2026 and December 31, 2025, we had approximately $(190,650) and $(313,284), respectively, of net deductible expense relating to previously terminated interest rate swap and treasury futures/shorts contracts amortizing through the year 2040. At June 30, 2026, we had $257,341 of net operating loss carryforwards available for use indefinitely. Financial Condition Investment In Securities Our securities portfolio consists primarily of Agency Securities backed by fixed rate home loans. Our charter permits us to invest in MBS backed by fixed rate, hybrid adjustable rate and adjustable rate home loans as well as unsecured notes and bonds issued by GSEs, U.S. Treasuries and money market instruments, subject to certain income tests we must satisfy for our qualification as a REIT. 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). Agency Securities: Agency Security purchase and sale transactions, including purchases and sales for forward settlement, are recorded on the trade date, based on the specific identification method, to the extent it is probable that we will take or make timely physical delivery of the related securities. Premiums and discounts associated with the purchase of Multi-Family MBS, which are generally not subject to prepayment, are amortized or accreted into interest income over the contractual lives of the securities using a level yield method. Premiums and discounts associated with the purchase of other Agency Securities are amortized or accreted into interest income over the actual lives of the securities, reflecting actual prepayments as they occur. Gains or losses realized from the sale of securities are included in income and are determined using the specific identification method. We purchase some of our Agency Securities at premium prices. The lower the prepayment rate, the lower the amount of amortization expense for a particular period. Accordingly, the yield on an asset and earnings are higher. If prepayment rates increase, the amount of amortization expense for a particular period will go up. These increased prepayment rates would act to decrease the yield on an asset and would decrease earnings. Our net interest income is primarily a function of the difference between the yield on our assets and the financing (borrowing and hedging) cost of owning those assets. Since we tend to purchase Agency Securities at a premium to par, the main item that can affect the yield on our Agency Securities after they are purchased is the rate at which the mortgage borrowers repay the loan. While the scheduled repayments, which are the principal portion of the homeowners’ regular monthly payments, are fairly predictable, the unscheduled repayments, which are generally refinancing of the mortgage but can also result from repurchases of delinquent, defaulted, or modified loans, are less so. Being able to accurately estimate and manage these repayment rates is a critical portion of the management of our securities portfolio, not only for estimating current yield but also for considering the rate of reinvestment of those proceeds into new securities, the yields on those new securities and the impact of the repayments on our hedging strategy. 37 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) 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. TBA Agency Securities are forward contracts for the purchase (“long position”) or sale (“short position”) of Agency Securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency Securities delivered pursuant to the contract upon the settlement date, published each month by the Securities Industry and Financial Markets Association, are not known at the time of the transaction. We estimate the fair value of TBA Agency Securities based on similar methods used to value our Agency Securities. TBA Agency Securities are included in the table below on a gross basis, as applicable, since they can be used to establish and finance portfolio positions in Agency Securities. U.S. Treasury Securities: From time to time, we may purchase U.S. Treasury Securities to tailor the overall risk characteristics of our investment securities portfolio. While U.S. Treasury Securities provide overall interest rate exposure, they are generally not sensitive to the other risks inherent in MBS. The tables below summarize certain characteristics of our investments in securities at June 30, 2026 and December 31, 2025. June 30, 2026 Principal Amount Amortized Cost Gross Unrealized Gain (Loss) Fair Value CPR (1) Weighted Average Months to Maturity Percent of Total Agency Fixed Rates ≥ 181 months 2.0% $ 312,636 $ 255,509 $ (3,190) $ 252,319 3.5 % 299 1.2 % 2.5% 270,952 222,561 $ 4,501 $ 227,062 2.5 % 312 1.0 % 3.0% 758,725 658,363 5,510 663,873 4.5 % 301 3.0 % 3.5% 1,163,700 1,115,593 (53,287) 1,062,306 5.5 % 311 4.9 % 4.0% 1,013,446 1,003,238 (47,694) 955,544 7.5 % 311 4.4 % 4.5% 2,148,860 2,111,885 (34,291) 2,077,594 7.3 % 330 9.5 % 5.0% 4,252,003 4,215,514 (5,042) 4,210,472 7.3 % 341 19.3 % 5.5% 6,136,926 6,175,539 32,744 6,208,283 12.4 % 339 28.5 % 6.0% 3,242,640 3,299,680 36,893 3,336,573 21.7 % 336 15.3 % 6.5% 416,647 429,221 4,722 433,943 28.2 % 337 2.0 % Other Agency Securities Agency CMBS 1,170,567 1,180,589 (12,262) 1,168,327 n/a 90 5.4 % Total Agency Securities $ 20,887,102 $ 20,667,692 $ (71,396) $ 20,596,296 10.7 % 319 94.5 % TBA Agency Securities (2) 30 Year Long, 5.0% 100,000 97,734 665 98,399 n/a n/a 0.5 % 30 Year Long, 5.5% 300,000 300,897 402 301,299 n/a n/a 1.4 % 30 Year Long, 6.0% 200,000 203,547 274 203,821 n/a n/a 0.9 % Total TBA Agency Securities $ 600,000 $ 602,178 $ 1,341 $ 603,519 n/a n/a 2.8 % U.S. Treasury Securities $ 600,000 $ 599,320 $ (11,972) $ 587,348 n/a n/a 2.7 % Total Investment in Securities $ 22,087,102 $ 21,869,190 $ (82,027) $ 21,787,163 100.0 % 38 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) (1)Weighted average CPR during the quarter for the securities owned at June 30, 2026. Negative CPR can occur if payments are not made on the first of the month and the scheduled principal amount is not received. (2)Our TBA Agency Securities were recorded as derivative instruments in our accompanying consolidated financial statements. Our TBA Agency Securities were reported at a net carrying value of $1,791, at June 30, 2026 and were reported in Derivatives, at fair value on our consolidated balance sheets (see Note 7 to the consolidated financial statements). December 31, 2025 Principal Amount Amortized Cost Gross Unrealized Gain (Loss) Fair Value CPR (1) Weighted Average Months to Maturity Percent of Total Agency Fixed Rates ≥ 181 months 2.5% $ 279,247 $ 229,375 $ 7,753 $ 237,128 3.8 % 318 1.2 % 3.0% 786,291 682,281 15,411 697,692 4.5 % 307 3.5 % 3.5% 1,214,594 1,164,509 (34,947) 1,129,562 6.2 % 317 5.6 % 4.0% 955,727 949,417 (33,903) 915,514 5.9 % 317 4.6 % 4.5% 1,109,874 1,097,323 (5,153) 1,092,170 7.1 % 324 5.5 % 5.0% 3,512,525 3,481,472 45,274 3,526,746 6.3 % 343 17.6 % 5.5% 5,784,032 5,812,792 86,973 5,899,765 10.4 % 343 29.5 % 6.0% 3,949,537 4,016,730 60,878 4,077,608 20.0 % 342 20.4 % 6.5% 702,504 722,927 11,653 734,580 31.4 % 342 3.6 % Other Agency Securities Agency CMBS 1,086,473 1,100,260 6,615 1,106,875 n/a 48 5.5 % Total Agency Securities $ 19,380,804 $ 19,257,086 $ 160,554 $ 19,417,640 10.8 % 321 97.0 % U.S. Treasury Securities $ 600,000 $ 598,760 $ (651) $ 598,109 n/a n/a 3.0 % Total Investments in Securities $ 19,980,804 $ 19,855,846 $ 159,903 $ 20,015,749 100.0 % (1)Weighted average CPR during the fourth quarter for the securities owned at December 31, 2025. Negative CPR can occur if payments are not made on the first of the month and the scheduled principal amount is not received. The following tables summarize changes in our investments in securities as of June 30, 2026 and December 31, 2025, excluding TBA Agency Securities (see Note 7 to the consolidated financial statements). June 30, 2026 December 31, 2025 Agency Securities, Trading U.S. Treasury Securities Agency Securities, Trading U.S Treasury Securities U.S. Treasury Securities Sold Short Balance, beginning of period $ 19,417,640 $ 598,109 $ 12,439,414 $ — $ (497,234) Purchases (1) 4,273,614 501,709 9,796,487 1,200,838 504,277 Proceeds from sales (1,411,926) (491,402) (1,634,243) (603,493) — Principal repayments (1,453,118) — (1,696,914) — — Gains (losses) (225,219) (21,102) 514,836 854 (10,844) Accrued interest payable — — — — 3,801 Amortization of purchase premium (4,695) 34 (1,940) (90) — Balance, end of period $ 20,596,296 $ 587,348 $ 19,417,640 $ 598,109 $ — Percentage of Portfolio 97.2 % 2.8 % 97.0 % 3.0 % 39 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) (1)Purchases include cash paid during the period, plus payable for investment securities purchased during the period as of period end. 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. We have established borrowing relationships with numerous investment banking firms and other lenders, 25 and 22 of which had open repurchase agreements with us at June 30, 2026 and December 31, 2025, respectively. We had outstanding balances under our repurchase agreements, net at June 30, 2026 and December 31, 2025 of $19,441,457 and $17,941,796, respectively. At June 30, 2026 and December 31, 2025, BUCKLER accounted for 46.8% and 47.0% of our aggregate borrowings and had an amount at risk of 6.8% and 7.1%, respectively, of our total stockholders' equity with a weighted average maturity of 27 days and 13 days, respectively, on repurchase agreements (see Note 6 to the consolidated financial statements). Our repurchase agreements require excess collateral, known as a “haircut.” At June 30, 2026, the average haircut percentage was 2.51% compared to 2.63% at December 31, 2025. Derivative Instruments We use various contracts to manage our interest rate risk as we deem prudent in light of market conditions and the associated costs with counterparties that have a high-quality credit rating and with futures exchanges. 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 June 30, 2026 and December 31, 2025. At June 30, 2026 and December 31, 2025, we had derivatives with a net fair value of $592,888 and $592,241, respectively (see Note 7 to the consolidated financial statements). At June 30, 2026, we had interest rate swap contracts with an aggregate notional balance of $15,889,000, a weighted average swap rate of 2.78% and a weighted average term of 52 months. At December 31, 2025, we had interest rate swap contracts with an aggregate notional balance of $12,327,000, a weighted average swap rate of 2.44% and a weighted average term of 51 months. We also had TBA Agency Securities with an aggregate notional balance of $600,000 at June 30, 2026. We did not have TBA Agency Securities at December 31, 2025 (see Note 7 to the consolidated financial statements). The following table details the changes in the fair value of our interest rate swap contracts for the six months ended June 30, 2026 and for the year ended December 31, 2025. Interest Swap Contracts For the Six Months Ended June 30, 2026 For the Year Ended December 31, 2025 Net Balance, beginning of period $ 574,514 $ 894,715 Net interest rate swap contract payments received (105,255) (203,247) Interest rate swap income accrued 252,343 433,274 Interest rate swap expense accrued (183,396) (250,397) Unrealized gains (losses) 113,155 (368,209) Loss on early terminations 2,025 68,378 Net Balance, end of period $ 653,386 $ 574,514 40 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Our policies do not contain specific requirements as to the percentages or amount of interest rate risk that we are required to hedge. No assurance can be given that our derivatives will have the desired beneficial impact on our results of operations or financial condition. We have not elected cash flow hedge accounting treatment as allowed by GAAP. Since we do not designate our derivative activities as cash flow hedges, realized as well as unrealized gains/losses from these transactions will impact our GAAP earnings. Although we attempt to structure our derivatives to offset the changes in asset prices, the complexity of the actual and expected prepayment characteristics of the underlying mortgages as well as the volatility in mortgage interest rates relative to U.S. Treasury and interest rate swap contract rates makes achieving high levels of offset difficult. We recognized net (losses) gains related to our derivatives of $108,235 and $191,260 and $(108,022) and $(299,240), for the three and six months ended June 30, 2026 and June 30, 2025, respectively. 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 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 June 30, 2026 and December 31, 2025, we had $10,808,000 and $7,193,000, respectively, of notional amount of centrally-cleared interest rate swap contracts. We are required to account for our TBA Agency Securities as derivatives when it is reasonably possible that we will not take or make timely physical delivery of the related securities. However, from time to time, we use TBA Agency Securities primarily to effectively establish portfolio positions. See the section, "TBA Agency Securities" above. The following graphs present the notional and weighted average interest rate of our interest rate swap contracts by year of maturity. 41 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Liquidity and Capital Resources At June 30, 2026, our liquidity totaled $1,222,244, consisting of $83,679 of cash and cash equivalents plus $1,138,565 of unencumbered Agency Securities and U.S. Treasury Securities (including securities received as reverse margin collateral). Our primary sources of funds are borrowings under repurchase arrangements, monthly principal and interest payments on our MBS and cash generated from our operating results. 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 and cash equivalents carried on our consolidated balance sheet is significantly less important than our potential liquidity available under our borrowing arrangements. We continue to pursue additional lending counterparties in order to help increase our financial flexibility and ability to withstand periods of contracting liquidity in the credit markets. In addition to the repurchase agreement financing discussed above, from time to time we have entered into reverse repurchase agreements with certain of our repurchase agreement counterparties. Under a typical reverse repurchase agreement, we purchase U.S. Treasury Securities from a borrower in exchange for cash and agree to sell the same securities 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 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. The practical effect of these transactions is to replace a portion of our repurchase agreement financing of our MBS in our securities portfolio with short positions in U.S. Treasury Securities. We believe that this helps to reduce interest rate risk, and therefore counterparty credit and liquidity risk. 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. Our primary uses of cash are to purchase MBS, pay interest and principal on our borrowings, fund our operations and pay dividends. From time to time, we purchase or sell assets for forward settlement up to 90 days in the future to lock 42 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) in purchase prices or sales proceeds. At June 30, 2026 and December 31, 2025, we financed our securities portfolio with $19,441,457 and $17,941,796 of borrowings under repurchase agreements, respectively. We generally seek to borrow (on a recourse basis) between six and ten times the amount of our total stockholders’ equity. Our debt to equity ratios at June 30, 2026 and December 31, 2025, were 7.54:1 and 7.94:1, respectively. Our leverage ratios, including our TBA Agency Securities, were 7.77:1 and 7.94:1 at June 30, 2026 and December 31, 2025, respectively. Implied leverage, including TBA Securities and forward settling sales and unsettled purchases was 7.73:1 and 8.07:1 at June 30, 2026 and December 31, 2025, respectively. Securities Portfolio Matters For the Six Months Ended June 30, 2026 2025 Securities purchased using proceeds from repurchase agreements and principal repayments $ 4,775,323 $ 4,313,240 Average securities portfolio, including TBA Securities $ 20,355,876 $ 14,446,881 Cash received from principal repayments on MBS $ 1,453,118 $ 634,182 Net cash increase (decrease) from repurchase agreements $ 1,499,661 $ 2,096,257 Cash interest payments made on liabilities $ 485,224 $ 313,885 Net cash and cash equivalents and cash collateral posted to counterparties provided by operating activities $ 321,734 $ 126,446 Other potential sources of liquidity include our automatic shelf registration filed with the SEC, pursuant to which we may offer an unspecified amount of shares of our common stock, preferred stock, warrants, depositary shares and debt securities. The following tables present our equity transactions for the six months ended June 30, 2026 and for the year ended December 31, 2025 (see Note 10 and Note 13 to the consolidated financial statements). Transaction Type Completion Date Number of Shares Per Share price (1) Net Proceeds (costs) June 30, 2026 Preferred C ATM Sales Agreement January 2, 2026 - June 29, 2026 505 $ 20.75 $ 10,475 2023 Common stock ATM Sales Agreement January 6, 2026 - June 30, 2026 24,535 $ 17.69 $ 434,031 DRIP shares issued January 26, 2026 - June 29, 2026 5 $ 17.15 $ 76 Common stock repurchased March 20, 2026 (125) $ 16.11 $ (2,013) December 31, 2025 Preferred C ATM Sales Agreement January 22, 2025 - December 31, 2025 201 $ 20.50 $ 4,118 August 2025 Public Offering August 5, 2025 18,500 $ 16.14 $ 298,502 2023 Common stock ATM Sales Agreement January 2, 2025 - July 30, 2025 32,290 $ 17.82 $ 575,554 DRIP shares issued January 27, 2025 - December 29, 2025 7 $ 16.59 $ 111 Common stock repurchased April 8, 2025 -September 22, 2025 (1,351) $ 14.77 $ (19,947) (1)Weighted average price. 43 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) Other Contractual Obligations The Company is managed by ACM, pursuant to a management agreement (see Note 8 and Note 13 to the consolidated financial statements). The management agreement runs through March 31, 2033 and is thereafter automatically renewed for an additional five-year term unless terminated under certain circumstances. The following table reconciles the fees incurred in accordance with the management agreement for the three and six months ended June 30, 2026 and June 30, 2025 (see Note 8 to the consolidated financial statements). For the Three Months Ended June 30, For the Six Months Ended June 30, 2026 2025 2026 2025 ARMOUR management fees $ 12,539 $ 11,044 $ 24,754 $ 21,798 Less management fees waived — (1,650) — (3,300) Total management fee expense $ 12,539 $ 9,394 $ 24,754 $ 18,498 We adopted the 2009 Stock Incentive Plan (as amended, the “Plan”) to attract, retain and reward directors and other persons who provide services to us in the course of operations. The Plan authorizes the Board to grant awards including common stock, restricted shares of common stock (“RSUs”), stock options, performance shares, performance units, stock appreciation rights and other equity and cash-based awards (collectively, “Awards”), subject to terms as provided in the Plan. At June 30, 2026, there were 383 shares available for future issuance under the Plan. At June 30, 2026, there was approximately $16,724 of unvested stock based compensation related to the Awards (based on a weighted grant date price of $18.71 per share), which we expect to recognize as an expense as follows: for the remainder of 2026 an expense of $2,182, in 2027 an expense of $3,699, and thereafter an expense of $10,843. Our policy is to account for forfeitures as they occur. We also pay each of our non-executive Board members quarterly fees, which are payable in cash, common stock, RSUs or a combination of common stock, RSUs and cash at the option of the director. Compensation to be paid to our non-executive Board in the form of cash and common equity is $1,219 annually (see Note 9 to the consolidated financial statements). We currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments, repayments on repurchase borrowings, reacquisition of securities to be returned to borrowers and the payment of cash dividends as required for continued qualification as a REIT. Repurchase Agreements, net Declines in the value of our Agency Securities portfolio can trigger margin calls by our lenders under our repurchase agreements. An event of default or termination event under the standard MRA would give our counterparty the option to terminate all repurchase transactions existing with us and require any amount due to be payable immediately. Changing capital or other financial market regulatory requirements may cause our lenders to exit the repurchase market, increase financing rates, tighten lending standards or increase the amount of required equity capital or haircut we post, any of which could make it more difficult or costly for us to obtain financing. The following graph represents the outstanding balances of our repurchase agreements (before the effect of netting reverse repurchase agreements), which finance most of our MBS. Our repurchase agreements balance will fluctuate based on our change in capital, leverage targets and the market prices of our assets (including the effects of principal paydowns) and the level and timing of investment and reinvestment activity (see Note 6 and Note 13 to the consolidated financial statements). 44 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) 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. When the value of the securities pledged to secure a repurchase agreement decreases to the point where the positive difference between the collateral value and the loan amount is less than the haircut, our lenders may issue a margin call, which requires us to pay the difference in cash or pledge additional collateral to meet the obligations under our repurchase agreements. Under our repurchase facilities, our lenders have full discretion to determine the value of the MBS we pledge to them. Most of our lenders will value securities based on recent trades in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled principal repayments are announced monthly. Forward-Looking Statements Regarding Liquidity Based on our current portfolio, leverage rate and available borrowing arrangements, we believe that our cash flow from operations and our ability to make timely portfolio adjustments will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements such as to fund our investment activities, meet our financing obligations, pay fees under the management agreement and fund our distributions to stockholders and pay general corporate expenses. We may increase our capital resources by obtaining long-term credit facilities or making public or private offerings of equity or debt securities, including classes of preferred stock, common stock and senior or subordinated notes to meet our liquidity requirements. As of the date hereof, we have "at-the-market" offering programs with 2,443 shares of 7.00% Series C Cumulative Redeemable Preferred Stock available under the Preferred C ATM Sales Agreement and 544 shares of common stock available under the 2023 Common stock ATM Sales Agreement. In accordance with the terms of these agreements, we may offer and sell shares of stock over a period of time and from time to time, with BUCKLER and other agents as sales agents (see Note 10 to the consolidated financial statements). These liquidity requirements include maturing repurchase agreements, settling TBA Agency Security positions and potentially making net payments on our interest rate swap contracts, and in each case, continuing to meet ongoing margin requirements. Such financing will depend 45 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) on 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. Critical Accounting Estimates Valuation Fair value is based on valuations obtained from third-party pricing services and/or dealer quotes. The third-party pricing services use common market pricing methods that include valuation models which incorporate such factors as coupons, collateral type, bond structure, historical and projected future prepayment speeds, priority of payments, historical and projected future delinquency rates and default severities, spread to the Treasury curve and interest rate swap curves, duration, periodic and life caps and credit enhancement. If the fair value of the MBS is not available from the third-party pricing services or such data appears unreliable, we obtain pricing indications from up to three dealers who make markets in similar MBS. Management reviews pricing used to ensure that current market conditions are properly reflected. This review includes, but is not limited to, comparisons of similar market transactions or alternative third-party pricing services, dealer pricing indications and comparisons to a third-party pricing model. Valuation modeling is required because each individual MBS pool is a separately identified security with individual combinations of characteristics that influence market pricing. While the Agency Security market is generally very active and liquid within the context of broader classes of MBS, any particular security will likely trade infrequently. Our bilateral contracts with individual dealers and counterparties are not cleared through recognized clearing organizations, and valuation models for these positions rely on information from the active and liquid general interest rate swap market to infer the value of these unique positions. From time to time, we challenge the information and valuations we receive from third-party pricing services. Occasionally, the third-party pricing services revise their information or valuations as a result of such challenges. While we have concluded that the fair values reflected in the financial statements are appropriate, there is no way to verify that the particular fair value estimated for any individual position represents the price at which it may actually be bought or sold at any given date. Fair value for our U.S. Treasury Securities is based on obtaining a valuation for each U.S. Treasury Security from third-party pricing services and/or dealer quotes. 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. Our financial statements are prepared in accordance with GAAP and any distributions we may make will be determined by our Board based in part on our REIT taxable income as calculated according to the requirements of the Code; in each case, our activities and balance sheet are measured with reference to fair value without considering inflation. Subsequent Events See Note 10, Note 13 and Note 15 to the consolidated financial statements. 46 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) 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. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. See Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q and Part I, Item 1A. "Risk Factors" of our most recent Annual Report on Form 10-K. 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: •risks related to governmental regulation, including uncertainties from the U.S. federal administration, including the impact of sanctions, tariffs and other trade policies of the U.S. and its global trading partners; •changes in interest rates, interest rate spreads and the yield curve or prepayment rates; •political, regulatory or market uncertainty, including economic downturns and heightened geopolitical tensions and conflicts, 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. 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; •availability, terms and deployment of capital; •changes in economic conditions generally; •the impact of a new pandemic on our operations; •general volatility of the financial markets, including markets for mortgage securities; •a downgrade of the U.S. Government's or certain European countries' credit ratings and future downgrades of the U.S. Government's or certain European countries' credit ratings may materially adversely affect our business, financial condition and results of operations; •our inability to maintain the level of non-taxable returns of capital through the payment of dividends to our stockholders or to pay dividends to our stockholders at all; •inflation or deflation; •the impact of a shutdown of 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; 47 ARMOUR Residential REIT, Inc. Management’s Discussion and Analysis (continued) •the potential for BUCKLER's inability to access attractive repurchase financing on our behalf or secure profitable third-party business; •our management's and certain directors' 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; •changes in applicable laws and regulations, including to federal tax law and other regulatory provisions as a result of the One Big Beautiful Bill Act being signed into law; and •changes in effectiveness of our controls. We cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on forward-looking statements, which apply only as of the date of this report. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements set forth in this report to reflect new information, future events or otherwise, except as required under the U.S. federal securities laws. 48 GLOSSARY OF TERMS ARMOUR Residential REIT, Inc. Term Definition 2023 Common stock ATM Sales Agreement An equity sales agreement that we entered into on July 26, 2023 with BUCKLER, JonesTrading Institutional Services LLC, Citizens JMP Securities, LLC (formerly JMP Securities LLC), Ladenburg Thalmann & Co. Inc. and B. Riley Securities, Inc., as sales agents, as amended on October 25, 2023 to add StockBlock Securities LLC as a sales agent, as amended on June 20, 2024 to add BTIG, LLC as a sales agent, as amended on August 23, 2024 to increase the number of shares of the Company's common stock that may be offered and sold under the agreement by 25,000, as amended on September 20, 2024, to add Janney Montgomery Scott LLC as a sales agent, as amended on February 13, 2025, to increase the number of shares of the Company's common stock that may be offered and sold under the agreement by 15,000, as further amended on July 25, 2025, to increase the number of shares of the Company's common stock that may be offered and sold under the agreement by 9,500, and as further amended on January 28, 2026, to increase the number of shares of our common stock that may be offered and sold under the agreement by 15,000 and to remove Janney as a sales agent, and to add Huntington Securities, Inc. as a sales agent, pursuant to which we may offer and sell over a period of time and from time to time up to 79,500 shares of our common stock, par value $0.001 per share. Agency CMBS Commercial mortgage backed securities. Agency Securities Securities issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae; interests in or obligations backed by pools of fixed rate, hybrid adjustable rate and adjustable rate mortgage loans. Basis swap contracts Derivative contracts that allow us to exchange one floating interest rate basis for another, for example, Federal Funds Rate and SOFR, thereby allowing us to diversify our floating rate basis exposures. Board ARMOUR’s Board of Directors. BUCKLER A Delaware limited liability company, and a FINRA-regulated broker-dealer. The primary purpose of our investment in BUCKLER is to facilitate our access to repurchase financing, on potentially more attractive terms (considering rate, term, size, haircut, relationship and funding commitment) compared to other suitable repurchase financing counterparties. CFO Chief Financial Officer of ARMOUR, Gordon Harper. CME Chicago Mercantile Exchange. CEO Chief Executive Officer of ARMOUR, Scott Ulm. Code The Internal Revenue Code of 1986. Common Stock Repurchase Program ARMOUR's common stock repurchase program originally authorized by our Board on December 17, 2012, as amended from time to time. CPR Constant prepayment rate. Dodd-Frank Act The Dodd-Frank Wall Street Reform and Consumer Protection Act. Exchange Act Securities Exchange Act of 1934. Fannie Mae The Federal National Mortgage Association. Fed The U.S. Federal Reserve. Federal Funds Rate Federal Funds Effective Rate. FINRA The Financial Industry Regulatory Authority. A private corporation that acts as a self-regulatory organization. Freddie Mac The Federal Home Loan Mortgage Corporation. GAAP Accounting principles generally accepted in the United States of America. Ginnie Mae The Government National Mortgage Administration. GSE A U.S. Government Sponsored Entity. Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. 49 ARMOUR Residential REIT, Inc. GLOSSARY OF TERMS (continued) Haircut The weighted average margin requirement, or the percentage amount by which the collateral value must exceed the loan amount. Among other things, it is a measure of our unsecured credit risk to our lenders. Hybrid A mortgage that has a fixed rate for an initial term after which the rate becomes adjustable according to a specific schedule. ISDA International Swaps and Derivatives Association. MBS Mortgage backed securities. A security representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collects the payments on the loans in the pool and “passes through” the principal and interest to the security holders on a pro rata basis. MRA Master repurchase agreement. A document that outlines standard terms between the Company and counterparties for repurchase agreement transactions. Multi-Family MBS MBS issued under Fannie Mae's Delegated Underwriting System (DUS) program. Preferred C ATM Sales Agreement An equity sales agreement that we entered into on January 20, 2020 with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.) and BUCKLER, as sales agents, as amended on June 20, 2024 to add BTIG, LLC as a sales agent, pursuant to which we may offer and sell, over a period of time and from time to time, through one or more of the agents, up to 6,550 shares of Series C Preferred Stock. REIT Real Estate Investment Trust. A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage mortgage loans and/or income property. SEC The Securities and Exchange Commission. SOFR Secured overnight financing rate. A measure of the cost of borrowing cash overnight collateralized by U.S. Treasury Securities. TBA Agency Securities Forward contracts for the purchase (“long position”) or sale (“short position”) of Agency Securities at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. TBA Drop Income The discount associated with TBA Agency Securities contracts which reflects the expected interest income on the underlying deliverable Agency Securities, net of an implied financing cost, which would have been earned by the buyer if the TBA Agency Securities contract had settled on the next regular settlement date instead of the forward settlement date specified. TBA Drop Income is calculated as the difference between the forward settlement price of the TBA Agency Securities contract and the spot price of similar TBA Agency Securities contracts for regular settlement. The Company generally accounts for TBA Agency Securities contracts as derivatives and TBA Drop Income is included as part of the periodic changes in fair value of the TBA Agency Securities that the Company recognizes in the Other Income (Loss) section of its Consolidated Statement of Operations. TRS Taxable REIT subsidiary. U.S. United States. 1940 Act The Investment Company Act of 1940. 50

Quantitative and Qualitative Disclosures About Market Risk

ARMOUR Residential REIT, Inc. We seek to create stockholder value through thoughtful investment and risk management of a leveraged and diversified portfolio of MBS. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. Interest Rate Risk Our primary market risk is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on our assets and the interest expense incurred in connection with our liabilities, by affecting the spread between the interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates also can affect the value of MBS and our ability to realize gains from the sale of these assets. 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 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. 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. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would negatively impact our liquidity, net income and our ability to make distributions to stockholders. We anticipate that in most cases the interest rates, interest rate indices and repricing terms of our mortgage assets and our funding sources will not be identical, thereby creating an interest rate mismatch between assets and liabilities. These indices generally move in the same direction, but there can be no assurance that this will continue to occur. Furthermore, our net income may vary somewhat as the spread between one-month interest rates, the typical term for our repurchase agreements, and the interest rates on our mortgage assets varies. During periods of changing interest rates, such interest rate mismatches could negatively impact our net interest income, dividend yield and the market price of our stock. Another component of interest rate risk is the effect changes in interest rates will have on the market value of our MBS. We face the risk that the market value of our MBS will increase or decrease at different rates than that of our liabilities, including our derivative instruments and obligations to return securities received as collateral. 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. 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. 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 June 30, 2026 and December 31, 2025. It assumes that the mortgage spread on our MBS remains constant. 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. The analysis presented utilized assumptions, models and estimates of ACM based on ACM's judgment and experience. 51 ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) Percentage Change in Projected Change in Interest Rates Net Interest Income Portfolio Including Derivatives Shareholder's Equity June 30, 2026 1.00% 2.61% (0.54)% (4.69)% 0.50% 1.17% (0.18)% (1.60)% (0.50)% (0.60)% (0.20)% (1.72)% (1.00)% (0.29)% (0.88)% (7.59)% December 31, 2025 1.00% (6.31)% (0.99)% (8.98)% 0.50% (3.25)% (0.38)% (3.44)% (0.50)% 3.55% (0.05)% (0.41)% (1.00)% 7.46% (0.59)% (5.36)% 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. It is important to note that the impact of changing interest rates on market value and net interest income can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the market value of our assets could increase significantly when interest rates change beyond amounts shown in the tables above. In addition, other factors impact the market value of and net interest income from our interest rate-sensitive investments and derivative instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, interest income would likely differ from that shown above and such difference might be material and adverse to our stockholders. Mortgage Spread Risk Weakness in the mortgage market may adversely affect the performance and market value of our investments. This could negatively impact our book value. 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 June 30, 2026 and December 31, 2025. 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. June 30, 2026 December 31, 2025 Percentage Change in Projected Percentage Change in Projected Change in MBS spread Portfolio Value Shareholders' Equity Portfolio Value Shareholders' Equity +25 BPS (1.21)% (10.22)% (1.16)% (10.24)% +10 BPS (0.48)% (4.09)% (0.46)% (4.10)% -10 BPS 0.48% 4.09% 0.46% 4.10% -25 BPS 1.21% 10.22% 1.16% 10.24% 52 ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) 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. Premiums arise when we acquire MBS at prices in excess of the principal balance of the mortgage loans underlying such MBS. Conversely, discounts arise when we acquire MBS at prices below the principal balance, adjusted for expected impairment losses, of the mortgage loans underlying such MBS. Volatility in actual prepayment speeds will create volatility in the amount of premium amortization we recognize. Higher speeds will reduce our interest income and lower speeds will increase our interest income. Credit Risk We have limited our exposure to impairment losses on our securities portfolio of Agency Securities. The payment of principal and interest on the Freddie Mac and Fannie Mae Agency Securities are guaranteed by those respective agencies and the payment of principal and interest on the Agency Securities guaranteed by Ginnie Mae are backed by the full faith and credit of the U.S. Government. Fannie Mae and Freddie Mac remain in conservatorship of the U.S. Government. There can be no assurances as to how or when the U.S. Government will end these conservatorships or how the future profitability of Fannie Mae and Freddie Mac and any future credit rating actions may impact the credit risk associated with Agency Securities and, therefore, the value of the 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. Accordingly, 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. 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. Computer malware, viruses, computer hacking and phishing attacks have become more prevalent in our industry and may occur on our systems. Although we have not detected a material cybersecurity breach to date, or encountered any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to affect the Company, including its business strategy, results of operations or financial condition, other financial services institutions have reported material breaches of their systems, some of which have been significant. Even with all reasonable security efforts, not every breach can be prevented or even detected. It is possible that we have experienced an undetected breach. There is no assurance that we, or the third parties that facilitate our business activities, have not or will not experience a breach. 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), any failure to maintain performance. ACM has established an IT Governance Committee (the "ITGC") to help mitigate technology risks including cybersecurity. One of the roles of the ITGC is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee the Company’s Cybersecurity Policies, including an 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. There is no assurance that these efforts will effectively mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur. 53 ARMOUR Residential REIT, Inc. Market Risk Disclosures (continued) 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. 54

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