Armour Residential REIT (ARR) risk factors, FY2025 10-K

Other

1. 01Volatility in the relationships between the market prices and yields for our securities and certain benchmark prices and interest rates periodically will adversely affect our net income, earnings per share and stockholders' equity65% rewritten
2. 02would be expected, exposing us to the risk of unexpected volatility in our net income, earnings per share, and total stockholders’ equity. Our most recent significant experience of this phenomena occurred in the first half of 2020New
3. 03We cannot predict the impact of future Fed monetary policy on the prices and liquidity of Agency Securities or other securities in which we invest, although Fed action could increase the prices of our target assets and reduce the spread on our investments or decrease our book value64% rewritten
4. 04We invest in MBS guaranteed by GSEs such as Fannie Mae and Freddie Mac, which are under conservatorship by the FHFA. Changes to the conservatorship or to the laws and regulations affecting the support GSEs receive may adversely affect the availability, financing, pricing, market value and liquidity of our assets53% rewritten
5. 05Tariff actions by the U.S and other countries may adversely affect our business, financial condition and results of operationsNew
6. 06The use of derivative instruments may fail to protect or could adversely affect usNew
7. 07During stressful market conditions, we have sold and may in the future be forced to sell MBS at distressed prices, thereby potentially incurring permanent equity losses
8. 08Our lenders may insist on financing terms that could result in reducing the availability and/or increasing the cost of our financing or may terminate our financing
9. 09There 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
10. 10We may not be able to minimize potential credit risks that could arise in the event of bankruptcy of one or more of our counterparties
11. 11An inability to economically roll our TBA Agency Security transactions or to meet margin requirements on our TBA contracts could have a material adverse effect on our business, financial condition, and results of operationsNew
12. 12future date, with the specific securities to be delivered determined just prior to settlement. To maintain our desired portfolio exposure, we often “roll” these contracts by entering into a new TBA contract with a later settlement date prior to the settlement of the original contractNew
13. 13Factors beyond our control may increase the prepayment speeds on our MBS, thereby reducing our interest income
14. 14Our MBS portfolio may lose some of its liquidity capital due to margin calls from repurchase counterparties on the fourth business day of each month
15. 15Reliance on inaccurate models or estimates could lead to poor business decisions and expose us to risk80% rewritten
16. 16We may issue stock when investment opportunities are relatively less attractive53% rewritten
17. 17purchasing US Treasuries or other assets in anticipation of more attractive MBS investment opportunities in the futureNew
18. 18We may repurchase our common and preferred stock at prices below book value, to the potential disadvantage of selling stockholders
19. 19ACM may terminate the management agreement for any reason. If ACM ceases to be our investment manager, financial institutions providing any financing arrangements to us may not provide future financing to us
20. 20ACM’s liability is limited under the management agreement and we have agreed to indemnify ACM and its affiliates against certain liabilities. As a result, we could experience poor performance or losses for which ACM would not be liable
21. 21There are potential conflicts of interest with current and future investment entities affiliated with ACM
22. 22In allocating investment opportunities among us and any other funds or accounts that may be managed by them, ACM's personnel are guided by the principles that they will treat all entities fairly and equitably, they will not arbitrarily distinguish among entities and they will not favor one entity over another
23. 23Members of our management team have competing duties to other entities, which could result in decisions that are not in the best interests of our stockholders21% rewritten
24. 24The termination of the management agreement may be difficult and costly85% rewritten
25. 25The management agreement with ACM will automatically renew for an additional 5-year term unless ARMOUR gives 180-day written notice of non-renewal
26. 26The management agreement was not negotiated on an arm’s-length basis and the terms, including fees payable, may not be as favorable to us as if they were negotiated with an unaffiliated third-party
27. 27Distributable Earnings is a non-GAAP measure which excludes gains and losses, and therefore is an imperfect measure of our overall financial performance, and is not a standardized metric73% rewritten
28. 28Because Distributable Earnings excludes gains and losses in portfolio value, using it as a measure of investment performance may encourage ACM to make portfolio decisions on our behalf that have the effect of accelerating the realization of losses and delaying the realization of gainsNew
29. 29A material portion of our aggregate repurchase financing is facilitated through BUCKLER40% rewritten
30. 30We hold a 10.8% equity ownership interest in BUCKLER and additionally, provided BUCKLER with $250 million in additional regulatory capital70% rewritten
31. 31BUCKLER relies primarily on bilateral and triparty repurchase agreement funding through the FICC
32. 32BUCKLER is the primary placement agent for ARMOUR's common share ATM Program42% rewritten
33. 33BUCKLER may pursue business opportunities with third parties72% rewritten
34. 34There 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
35. 35We 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
36. 36Our ability to buy or sell our securities and arrange our repurchase financing may be severely limited or not profitable and we may be required to post additional collateral in connection with our financing
37. 37Exchange-traded swaps and futures have higher initial margin requirements than bilateral swap agreements
38. 38We 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
39. 39There are significant restrictions on ownership of our common stock22% rewritten
40. 40If we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow
41. 41Complying with REIT requirements may cause us to forgo otherwise attractive opportunities
42. 42Complying with REIT requirements may force us to liquidate otherwise attractive investments
43. 43The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT
44. 44Our capital loss carry forward for tax purposes may expire before we can fully use it to offset otherwise taxable income or gains65% rewritten
45. 45Distributions to tax-exempt investors may be classified as unrelated business taxable income
46. 46The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur and may limit the manner in which we effect future securitizations
47. 47Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us

Risks related to rights to take action against directors and officers under Maryland law

1. 48Provisions of Maryland law and other provisions of our organizational documents may limit the ability of a third-party to acquire control of the company
2. 49Rapid 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
3. 50Maintenance of our exclusion from the 1940 Act will impose limits on our business
4. 51Loss of the 1940 Act exclusion would adversely affect us, the market price of shares of our stock and our ability to distribute dividends
5. 52business will be materially and adversely affected if we fail to qualify for an exclusion from regulation under the 1940 ActNew
6. 53Under rules adopted under the Dodd-Frank Act, any investment fund that trades in swaps may be considered a “commodity pool,” which would cause its directors to be regulated as CPOs66% rewritten
7. 54We depend on ACM for our key personnel. The loss of those key personnel could severely and detrimentally affect our operations
8. 55We have very broad investment strategies, and our Board will not approve each investment and financing decision made by ACM
9. 56We are highly dependent on information and communications systems. System failures, security breaches or cyber-attacks of networks or systems could significantly disrupt our business and negatively affect the market price of our common stock and our ability to distribute dividends
10. 57The use of artificial intelligence presents risks and challenges that may adversely impact our businessNew
11. 58efficiency, accuracy, and decision-making, their use also introduces a number of risks and uncertainties that could adversely affect our business, financial condition, and results of operationsNew
12. 59We 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
13. 60We have not established a minimum dividend payment level and there are no guarantees of our ability to pay dividends in the future
14. 61We may use proceeds from equity and debt offerings and other financings to fund distributions, which will decrease the amount of capital available for purchasing our target assets
15. 62Our return of capital distributions may increase capital gains
16. 63The performance of our common stock correlates to the performance of our REIT investments, which may be speculative and aggressive compared to other types of investments
17. 64Our common stock may become the target of a “short squeeze.”
18. 65Our 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
19. 66If securities or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their expectations, our share price and trading volume could decline