Related Party Transactions

3 Months Ended

Mar. 31, 2022

Note 14 - Related Party Transactions

ACM

The Company is managed by ACM, pursuant to a management agreement. All of our executive officers are also employees of ACM. ACM manages our day-to-day operations, subject to the direction and oversight of the Board. The management agreement runs through June 18, 2027 and is thereafter automatically renewed for an additional five-year term unless terminated under certain circumstances. Either party must provide 180 days prior written notice of any such termination.

Under the terms of the management agreement, ACM is responsible for costs incident to the performance of its duties, such as compensation of its employees and various overhead expenses. ACM is responsible for the following primary roles:

•Advising us with respect to, arranging for and managing the acquisition, financing, management and disposition of, elements of our investment portfolio;

•Evaluating the duration risk and prepayment risk within the investment portfolio and arranging borrowing and hedging strategies;

•Coordinating capital raising activities;

•Advising us on the formulation and implementation of operating strategies and policies, arranging for the acquisition of assets, monitoring the performance of those assets and providing administrative and managerial services in connection with our day-to-day operations; and

•Providing executive and administrative personnel, office space and other appropriate services required in rendering management services to us.

ACM began waiving 40% of its management fee during the second quarter of 2020 and on January 13, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,400 for the first quarter of 2021 and $800 per month thereafter. On April 20, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver to the rate of $2,100 for the second quarter of 2021 and $700 per month thereafter. On October 25, 2021, ACM notified ARMOUR that it intended to adjust the fee waiver from the rate of $700 per month to $650 per month, effective November 1, 2021, until further notice.

The following table reconciles the fees incurred in accordance with the management agreement for the three months ended March 31, 2022 and March 31, 2021.


	For the Three Months Ended March 31,
		2022		2021
ARMOUR management fees		$	8,125	$	7,428
Less management fees waived		(1,950)		(2,400)
Total management fee expense		$	6,175	$	5,028

We are required to take actions as may be reasonably required to permit and enable ACM to carry out its duties and obligations. We are also responsible for any costs and expenses that ACM incurred solely on our behalf other than the various overhead expenses specified in the terms of the management agreement. For the three months ended March 31, 2022 and March 31, 2021, we reimbursed ACM $107 and $7 for other expenses incurred on our behalf. In 2017, 2020 and 2021, we elected to grant restricted stock unit awards to our executive officers and other ACM employees through ACM

that generally vest over 5 years. In 2017, 2020 and 2021, we elected to grant RSUs to the Board. We recognized stock based compensation expense of $162 and $207 for the three months ended March 31, 2022 and March 31, 2021, respectively.

BUCKLER

In March 2017, we contributed $352 for a 10.0% ownership interest in BUCKLER. The investment is included in prepaid and other assets in our consolidated balance sheet and is accounted for using the equity method as BUCKLER maintains specific ownership accounts. The value of the investment was $606 at March 31, 2022 and December 31, 2021, reflecting our total investment plus our share of BUCKLER’s operating results, in accordance with the terms of the operating agreement of BUCKLER that our independent directors negotiated. The primary purpose of our investment in BUCKLER is to facilitate our access to repurchase financing on potentially attractive terms (considering rate, term, size, haircut, relationship and funding commitment) compared to other suitable repurchase financing counterparties.

Our operating agreement with BUCKLER contains certain provisions to benefit and protect the Company, including (1) sharing in any (a) defined profits realized by BUCKLER from the anticipated financing spreads resulting from repurchase financing facilitated by BUCKLER, and (b) distributions from BUCKLER to its members of net cash receipts, and (2) the realization of anticipated savings from reduced clearing, brokerage, trading and administrative fees. In addition, the independent directors of the Company must approve, in their sole discretion, any third-party business engaged by BUCKLER and may cause BUCKLER to wind up and dissolve and promptly return certain subordinated loans we provide to BUCKLER as regulatory capital (as described more fully below) if the independent directors reasonably determine that BUCKLER’s ability to provide attractive securities transactions for the Company is materially adversely affected. For each of the three months ended March 31, 2022 and March 31, 2021, we earned $0 from BUCKLER as an allocated share of Financing Gross Profit for a reduction of interest on repurchase agreements charged to the Company. Financing Gross Profit is defined in the operating agreement, subject to a contractually required reduction in our share of the Financing Gross Profit of $306 per annum until the end of the first quarter of 2022

We have one subordinated loan agreement with BUCKLER, totaling $105.0 million and maturing on May 1, 2025. BUCKLER may, at its option after obtaining regulatory approval, repay all or a portion of the principal amount of the loan. The loan has a stated interest rate of zero, plus additional interest payable to the Company in an amount equal to the amount of interest earned by BUCKLER on the investment of the loan proceeds, generally in government securities funds. For the three months ended March 31, 2022 and March 31, 2021, the Company earned $19 and $17, respectively, of interest on this loan.

On February 22, 2021, the Company entered into an uncommitted revolving credit facility and security agreement with BUCKLER. Under the terms of the facility, the Company may, in its sole and absolute discretion, provide drawings to BUCKLER of up to $50,000. Interest on drawings is payable monthly at the Federal Reserve Bank of New York SOFR plus 2% per annum. To date, Buckler has not yet used the facility and therefore no interest expense was payable.

With BUCKLER as the sales agent, under the 2021 Common stock ATM Sales Agreement, we sold 6,162 common shares for proceeds of $54,436, net of commissions of approximately $550 during the three months ended March 31, 2022 (see Note 10 - Stockholders' Equity).

The table below summarizes other transactions with BUCKLER for the three months ended March 31, 2022 and for the year ended December 31, 2021.


Transactions with BUCKLER	March 31, 2022		December 31, 2021
Repurchase agreements (1)	$	3,372,837	$	1,963,679
Collateral posted on repurchase agreements	$	3,488,675	$	2,036,385
U.S. Treasury Securities Purchased	$	600,000	$	100,000
U.S. Treasury Securities Sold	$	800,000	$	—

(1)Interest on repurchase agreements was $1,033 and $1,388 for the three months ended March 31, 2022 and March 31, 2021, respectively. See also, Note 6 - Repurchase Agreements for transactions with BUCKLER.