Armour Residential REIT Inc

Completion of Special Committee’s Internal Investigation

As previously disclosed in the Company’s Form 12b-25 filed on March 1, 2024, the independent members of the Board of Directors of the Company formed a special committee (the “Special Committee”) comprised of certain of the independent directors to conduct an internal investigation of issues raised internally at the Company in late January 2024. The issues generally related, among other things, to (a) the appropriateness of reporting Distributable Earnings and Net Interest Margin (“NIM”), which are non-GAAP financial measures, in earnings releases and the Company’s public filings with the SEC and the methods of calculating such measures; (b) the Company’s considerations with respect to reviewing and evaluating its external manager, ARMOUR Capital Management LP (“ACM”) and (c) certain of the internal control over financial reporting and disclosure controls and procedures of the Company (the “Complaints”). The Special Committee, which promptly began its work in early February 2024, engaged outside counsel and an independent accounting firm (collectively, the "Advisors") to assist in the process.

The Special Committee has concluded its internal investigation. The Special Committee’s findings, which are summarized below, did not result in any changes to the Company’s previously announced preliminary unaudited results for the fourth quarter of 2023 or financial condition as of December 31, 2023, the preliminary unaudited results set forth in Attachment A to its 12b-25 filing, or the veracity of its previously issued financial statements.

The Special Committee found that:

1. The Company’s use and disclosure of Distributable Earnings and NIM, and the methods of calculating such measures, are appropriate. The Company nevertheless determined that because the Company's computation of NIM contains a non-GAAP financial measure, any reporting of NIM in this Annual Report on Form 10-K and in future press releases and SEC filings should include enhanced disclosures in accordance with applicable SEC guidance. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for a revised presentation of certain information related to net interest income, including NIM.

2. The Company’s Board of Directors, Compensation Committee and Audit Committee followed an appropriate process in reviewing and evaluating the management agreement between ARMOUR and ACM, and the management fees paid to ACM. Regarding these matters, the independent directors were found to have complied with their fiduciary duties.

3. Internal issues that were raised concerning certain of the Company’s internal control over financial reporting and disclosure controls and procedures, which related to controls around Distributable Earnings and NIM disclosures; potential conflicts of interest involving the Co-CEOs and certain directors who are affiliated with ACM; and Board, and Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee oversight of such potential conflicts and certain investment activities of ACM undertaken on behalf of the Company, were not substantiated by the Special Committee’s review of the Company’s applicable policies, procedures, and practices.

As part of the Special Committee’s investigation, it also reviewed allegations concerning the Company’s “tone at the top.” The Special Committee found that certain members of senior management and the Board engaged in inappropriate conduct during the course of the Special Committee’s and its Advisors’ internal investigation that did not comport with the Company’s culture of compliance and Code of Business Conduct and Ethics, Whistleblower Policy and the Board’s Corporate Governance Guidelines. The tone set by these individuals was insufficient to create the proper environment for effective internal control over financial reporting, to ensure compliance with the Company’s policies, and to further the Company’s commitment to integrity and ethical values.

With oversight and input from the Board, management has begun designing and implementing changes in processes and controls to remediate the “tone at the top” issues described above, which the Company has determined amount to material weaknesses in internal control over financial reporting. Management and the Board, including the independent members of the Board, are committed to working to remediate these material weaknesses. While the Company expects to take other remedial actions, including regular training on “tone at the top,” to date, the Company has streamlined the Company’s senior management structure such that the Company now has a single CEO and Vice Chair.

In addition, the Company plans to take certain other actions to enhance its internal control over financial reporting and its corporate culture.

For more information about the material weaknesses in internal control over financial reporting and the Company’s remedial actions, please see Part II, Item 9A. Controls and Procedures, of this Form 10-K, which disclosure is incorporated herein by reference.

Chief Financial Officer Transition

On March 11, 2024, the Company appointed Gordon Harper, the Company’s Vice President of Finance and Controller, age 57, as Chief Financial Officer and Secretary to succeed James Mountain, who was removed as Chief Financial Officer and Secretary for reasons unrelated to the Special Committee’s investigation or its findings, effective on March 11, 2024. Mr. Harper will remain Controller of the Company and replace Mr. Mountain as the Company’s Principal Financial Officer.

A brief biography of Mr. Harper is provided in the Company’s definitive proxy statement for its 2023 annual meeting of stockholders, filed with the SEC on March 23, 2023 under the section titled, “ARMOUR’s Executive Officers,” which disclosure is incorporated by reference herein.

There are no arrangements or understandings between Mr. Harper and any other person pursuant to which Mr. Harper became Chief Financial Officer and Secretary of the Company, and Mr. Harper has no family relationships required to be disclosed pursuant to Item 401(d) of Regulation S-K. Mr. Harper has not engaged in any related party transactions with ARMOUR that are reportable under Item 404(a) of Regulation S-K.

Mr. Harper has not entered into, no material amendment has been made to, and no grant or award has been made to, Mr. Harper under any material plan, contract or arrangement of the Company in connection with his becoming Chief Financial Officer and Secretary. Mr. Harper will continue to participate in, and receive equity compensation awards under, the Company’s Third Amended and Restated 2009 Stock Incentive Plan, as he has done in his immediately preceding roles with the Company.

Retirement of Co-CEO

Effective March 15, 2024, Jeffrey Zimmer retired from his positions of Co-Chief Executive Officer, President, Vice Chair and director of the Company, which positions he held since November 2009. Going forward, he will serve as an ex-officio, non-voting special advisor to the Board of Directors of the Company.