8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

February 11, 2010

Date of Report (Date of earliest event reported)

ARLINGTON ASSET INVESTMENT CORP.

 (Exact Name of Registrant as Specified in its Charter)

Virginia

(State or Other Jurisdiction of Incorporation)

000-50230	54-1873198
(Commission File Number)	(IRS Employer Identification No.)

1001 Nineteenth Street North

Arlington, VA 22209

 (Address of Principal Executive Office) (Zip Code)

(877) 370-4413

 (Registrant's Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On February 11, 2010, Arlington Asset Investment Corp. issued a press release announcing its financial results for the year and quarter ended December 31, 2009. A copy of the press release is attached hereto as Exhibit 99.1.

The information in Item 2.02 of this Current Report on Form 8-K, including the exhibit furnished pursuant to Item 9.01, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that Section. Furthermore, the information in Item 2.02 of this Current Report on Form 8-K, including the exhibit furnished pursuant to Item 9.01, shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933.

Item 9.01 Financial Statements and Exhibits.

Exhibit.

99.1 Arlington Asset Investment Corp. Press Release dated February 11, 2010.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

	Arlington Asset Investment Corp.
Date: February 11, 2010	By:	/s/ Kurt R. Harrington
		Kurt R. Harrington
		Executive Vice President and Chief Financial Officer, Arlington Asset Investment Corp.

EX-99.1

Arlington Asset Investment Corp. Reports Fourth Quarter and Full Year 2009 Financial Results

Net income of $0.59 per share

Book value of $19.54 per share

ARLINGTON, Va., Feb. 11 /PRNewswire-FirstCall/ -- Arlington Asset Investment Corp. (NYSE: AI) (the “Company”) today reported net income of $4.7 million for the quarter ended December 31, 2009, or $0.59 per share (diluted), compared to a net loss of $268.5 million, or $35.50 per share (diluted) for the quarter ended December 31, 2008.  For the twelve months ended December 31, 2009, the Company reported net income of $116.5 million, or $14.89 per share (diluted), compared to a net loss of $417.5 million, or $55.23 per share (diluted) for the twelve months ended December 31, 2008.  As of December 31, 2009, book value per share was $19.54.

Fourth Quarter Highlights

Net income of $4.7 million for the fourth quarter of 2009 includes the following:

·     $4.0 million of operating cash income;

·     $2.3 million in net investment gains from mortgage-backed securities (MBS) and other investment related activities;

·     $2.5 million in income tax benefits;

·     $3.4 million loss from the sale of FBR Capital Markets Corporation stock.

During the quarter, the Company invested proceeds from its October 28, 2009 sale of FBR Capital Markets stock primarily to grow its non-agency MBS portfolio.  At December 31, 2009, the Company’s non-agency MBS portfolio was unlevered with a cost basis of $151 million, which represented $308 million of face value, an average cost of 51% of par, and a weighted average coupon of 5.7%.  During the fourth quarter of 2009, the unlevered annualized cash yield on the non-agency MBS portfolio was approximately 19% measured as a percentage of cost basis.

The Company’s net interest income increased to $6.1 million during the quarter primarily as a result of growth in our non-agency MBS portfolio. Ongoing fixed operating overhead expenses were approximately $2.2 million for the fourth quarter, a decline of $0.3 million compared to the prior quarter.  During the fourth quarter, the agency MBS portfolio of $137 million was structured to substantially eliminate market price risk.  Excluding borrowings on the agency MBS portfolio, Arlington’s total debt equaled $17 million, or 5% of total assets, at December 31, 2009.  The Company’s net operating loss carry-forwards and net capital loss carry-forwards are currently in excess of $800 million.

Subsequent to December 31, 2009, additional capital was invested in the Company’s non-agency MBS portfolio such that at February 11, 2010, the cost basis was $160 million and was allocated approximately 65% to first tranche securities and approximately 35% to re-remic mezzanine securities.  At that time, the total face value of the non-agency MBS securities was $324 million with an average cost basis of 51% of par, and a weighted average coupon of 5.7%.  Total investable capital was approximately $174 million at February 11, 2010, inclusive of capital invested in agency MBS.

Arlington’s unlevered non-agency MBS portfolio is now nearly fully deployed with a current annualized cash yield on invested capital of approximately 19% before expenses.  Future portfolio growth is expected to come primarily from internally-generated capital through retained earnings which the Company expects will benefit from potential future reductions in ongoing fixed overhead expenses, Arlington’s estimated tax rate of 2%, and the potential realization over time of the purchase discount (currently $164 million) on the Company’s non-agency MBS securities.

“Our company made significant progress in the fourth quarter and for the full year 2009.  With our non-agency MBS portfolio now nearly fully invested, continued expense reductions, and utilization of our tax benefits, Arlington is currently generating significant after tax cash returns with very low leverage.  In addition, the large purchase discount on our non-agency portfolio means the Company has significant reflation potential above its current tangible book value. While market conditions improved over the course of the fourth quarter and the value of our assets has correspondingly increased, we continue to see new opportunities which meet or exceed our risk adjusted return expectations.  The outlook for Arlington makes us optimistic about its ability to offer shareholders an attractive cash dividend as well as an opportunity for growth in earnings and book value on a tax advantaged basis going forward given our C-Corp. structure and substantial loss carry-forwards,” said J. Rock Tonkel, Jr., President and Chief Operating Officer.

The Company’s board of directors has approved a $0.35 dividend for the first quarter.  The dividend will be payable on April 30, 2010 to shareholders of record on March 31, 2010 (ex-dividend date of March 29, 2010).  This represents a 9.4% annualized dividend yield based on the closing price of $14.84 on February 10, 2010, resulting in a payout ratio of 50% to 60% of current period net income on a cash basis excluding non-recurring items. Arlington will continue to assess the best alternatives for shareholders with regard to the appropriate dividend payout ratio in future periods.      

About the Company

Arlington Asset Investment Corp. (NYSE: AI) is a principal investment firm that invests primarily in mortgage-related assets. The Company is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.arlingtonasset.com.

Statements concerning future performance, returns, plans and steps to position the Company to realize value, and any other guidance on present or future periods, constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, changes in interest rates, increased costs of borrowing, decreased interest spreads, changes in default rates, preservation of our net operating loss and net capital loss carry-forwards, impacts of regulatory changes and changes to Fannie Mae and Freddie Mac, availability of opportunities that meet or exceed our risk adjusted return expectations, ability and willingness to make future dividends, ability to generate sufficient cash through retained earnings to satisfy capital needs, changes in mortgage pre-payment speeds, risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political, regulatory and market conditions. These and other risks are described in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q that are available from the Company and from the SEC and you should read and understand these risks when evaluating any forward-looking statement.

Financial data follows

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

	Quarter Ended
	December 31
	2009			2008
INTEREST INCOME:
Interest on investment securities	$	6,362		$	9,402
Dividends		4			227
Other interest income		5			132
Total interest income		6,371			9,761
INTEREST EXPENSE:
Interest on short-term debt		77			4,612
Interest on long-term debt		163			4,922
Total interest expense		240			9,534
Net interest income		6,131			227
OTHER INCOME (LOSS), NET:
Gain on extinguishment of long-term debt		-			35,005
Investment income (loss)		2,294			(217,068	)
Other (loss) income		(4	)		7,981
Total other income (loss), net		2,290			(174,082	)
Income (loss) from continuing operations before other expenses		8,421			(173,855	)
OPERATING EXPENSES
Compensation and benefits		1,128			4,485
Professional services		1,055			1,939
Business development		(1,323	)		70
Occupancy and equipment		122			241
Other operating expenses		1,850			11,071
Total other expenses		2,832			17,806
Income (loss) from continuing operations before income taxes		5,589			(191,661	)
Income tax (benefit) provision		(2,507	)		1,899
Net income (loss) from continuing operations		8,096			(193,560	)
Loss from discontinued operations, net of taxes		(3,394	)		(130,747	)
Net income (loss)		4,702			(324,307	)
Net loss attributable to noncontrolling interests		-			(55,815	)
Net income (loss) attributable to Arlington Asset Investment Corp.	$	4,702		$	(268,492	)
EARNINGS PER SHARE - BASIC:
Income (loss) from continuing operations attributable to Arlington Asset Investment Corp. shareholders	$	1.05		$	(25.59	)
Discontinued operations attibutable to Arlington Asset Investment Corp. shareholders		(0.44	)		(9.91	)
Net income (loss) attributable to Arlington Asset Investment Corp. shareholders	$	0.61		$	(35.50	)
EARNINGS PER SHARE - DILUTED:
Income (loss) from continuing operations attributable to Arlington Asset Investment Corp. shareholders	$	1.02		$	(25.59	)
Discontinued operations attibutable to Arlington Asset Investment Corp. shareholders		(0.43	)		(9.91	)
Net income (loss) attributable to Arlington Asset Investment Corp. shareholders	$	0.59		$	(35.50	)
Weighted average shares  - basic (in thousands)		7,679			7,564
Weighted average shares  - diluted (in thousands)		7,907			7,564

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

	Twelve Months Ended
	December 31,
	2009			2008
INTEREST INCOME:
Interest on MBS	$	13,940		$	77,954
Interest on loans held for sale		-			37
Dividends		112			724
Other interest income		27			2,379
Total interest income		14,079			81,094
INTEREST EXPENSE:
Interest on short-term debt		495			50,539
Interest on long-term debt		3,150			21,764
Interest on mortgage loans and mortgage banking operations		-			401
Other interest expense		-			47
Total interest expense		3,645			72,751
Net interest income		10,434			8,343
OTHER INCOME (LOSS), NET:
Gain on extinguishment of long-term debt		160,435			39,083
Investment income (loss)		3,926			(390,378	)
Other (loss) income		(147	)		83,947
Total other income (loss), net		164,214			(267,348	)
Income (loss) from continuing operations before other expenses		174,648			(259,005	)
OPERATING EXPENSES
Compensation and benefits		14,366			21,780
Professional services		7,053			6,056
Business development		6,577			604
Occupancy and equipment		538			1,248
Other operating expenses		5,955			19,008
Total other expenses		34,489			48,696
Income (loss) from continuing operations before income taxes		140,159			(307,701	)
Income tax provision		9,522			1,899
Net income (loss) from continuing operations		130,637			(309,600	)
Loss from discontinued operations, net of taxes		(25,551	)		(194,730	)
Net income (loss)		105,086			(504,330	)
Net loss attributable to noncontrolling interests		(11,459	)		(86,867	)
Net income (loss) attributable to Arlington Asset Investment Corp.	$	116,545		$	(417,463	)
EARNINGS PER SHARE - BASIC:
Income (loss) from continuing operations attributable to Arlington Asset Investment Corp. shareholders	$	17.02		$	(40.96	)
Discontinued operations attibutable to Arlington Asset Investment Corp. shareholders		(1.84	)		(14.27	)
Net income (loss) attributable to Arlington Asset Investment Corp. shareholders	$	15.19		$	(55.23	)
EARNINGS PER SHARE - DILUTED:
Income (loss) from continuing operations attributable to Arlington Asset Investment Corp. shareholders	$	16.69		$	(40.96	)
Discontinued operations attibutable to Arlington Asset Investment Corp. shareholders		(1.80	)		(14.27	)
Net income (loss) attributable to Arlington Asset Investment Corp. shareholders	$	14.89		$	(55.23	)
Weighted average shares  - basic (in thousands)		7,675			7,558
Weighted average shares  - diluted (in thousands)		7,825			7,558

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share amounts)

(Unaudited)

ASSETS	31-Dec-09			31-Dec-08
Cash and cash equivalents	$	10,123		$	46,851
Receivables:
Interest		2,011			1,130
Other		20			356
Investments:
Mortgage-backed securities, at fair value		295,600			139,955
U.S. Treasury bonds, at fair value		-			550,000
Other investments		2,580			13,802
Furniture, equipment, software and leasehold improvements, net		114			-
Prepaid expenses and other assets		3,201			7,475
Assets of discontinued operation		-			800,722
Total assets	$	313,649		$	1,560,291
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	126,830		$	647,003
Interest payable		124			2,019
Accrued compensation and benefits		5,921			3,339
Accounts payable, accrued expenses and other liabilities		13,904			13,322
Long-term debt		16,857			254,357
Liabilities of discontinued operation		-			496,995
Total liabilities		163,636			1,417,035
Equity:
Common stock, 7,919 and 7,961 shares		80			80
Additional paid-in capital		1,507,394			1,494,642
Accumulated other comprehensive income (loss)		7,015			(118	)
Accumulated deficit		(1,364,476	)		(1,481,021	)
Total Arlington Asset Investment Corp. shareholders' equity		150,013			13,583
Noncontrolling interest		-			129,673
Total equity		150,013			143,256
Total liabilities and equity	$	313,649		$	1,560,291
Book value per share	$	19.54		$	18.95
Shares outstanding (in thousands)		7,679			7,561

CONTACT: Media: +1-877-370-4413, or ir@arlingtonasset.com, or Investors: Kurt Harrington, +1-877-370-4413, or ir@arlingtonasset.com