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

November 9, 2009

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:

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

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

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

¨ 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 November 9, 2009, Arlington Asset Investment Corp. issued a press release announcing its financial results for the quarter ended September 30, 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 November 9, 2009.

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: November 10, 2009	By:	/S/    KURT R. HARRINGTON
		Kurt R. Harrington
		Executive Vice President and Chief Financial Officer, Arlington Asset Investment Corp.

EX-99.1

Exhibit 99.1

Contacts:

Media: 877.370.4413 or ir@arlingtonasset.com

Investors: Kurt Harrington at 877.370.4413 or ir@arlingtonasset.com

Arlington Asset Investment Corp. Reports Third Quarter 2009 Financial Results

Positive operating cash income

Net income of $42.4 million

Book value of $17.84 per share

ARLINGTON, VA, November 9, 2009 – Arlington Asset Investment Corp. (NYSE: AI) (the Company) today reported net income of $42.4 million for the quarter ended September 30, 2009, or $5.38 per share (diluted), compared to a net loss of $169.0 million, or $22.34 per share (diluted) for the quarter ended September 30, 2008. For the nine months ended September 30, 2009, the Company reported net income of $111.8 million, or $14.28 per share (diluted), compared to a net loss of $149.0 million, or $19.71 per share (diluted) for the nine months ended September 30, 2008. As of September 30, 2009, book value per share was $17.84. The per share data reflect the impact of a 1-for-20 reverse stock split that was effective on October 6, 2009.

Third Quarter Highlights

Net income of $42.4 million for the third quarter of 2009 includes the following:

• $0.9 million of operating cash income, excluding $2.0 million of non-cash compensation charges;

• $1.7 million in net investment gains from mortgage-backed securities (MBS) related activities;

• $4.2 million of net expenses related to income tax provisions and non-recurring activities;

• $28.0 million of gain from the extinguishment of Trust Preferred securities;

• $18.0 million in net gain from the sale and change in fair value of shares of FBR Capital Markets Corporation (FBR Capital Markets) common stock.

During the quarter, the Company deployed proceeds from its May 20, 2009 sale of FBR Capital Markets stock primarily to grow its non-agency MBS portfolio. The non-agency MBS portfolio consists primarily of first tranche securities in private label residential mortgage securitizations. At September 30, 2009, the book value of the Company’s unlevered non-agency MBS portfolio was $55.7 million which represented $132.1 million of face value with a weighted average coupon of 5.7% and an average cost of 42% of par. During the third quarter of 2009, the unlevered annualized yield on that portfolio was 20% measured as a percentage of book value.

The Company’s net interest income increased to $3.4 million during the quarter primarily as a result of growth in our non-agency MBS portfolio. In addition, the Company’s ongoing overhead expenses were reduced by $1 million compared to the second quarter of 2009. During the quarter, the levered agency MBS portfolio of $118.1 million was structured with the intent to significantly reduce bond price risk.

Subsequent to September 30, 2009, additional capital was deployed to the Company’s non-agency MBS portfolio, including a portion of the proceeds from the Company’s October 28, 2009 sale of FBR Capital Markets stock. At November 6, 2009, the book value of the Company’s non-agency portfolio was approximately $99 million which represented $211 million of face value with a weighted average coupon of 5.7%, an average cost basis of 47% of par, and an expected annualized yield of approximately 20% measured as a percentage of book value.

Corporate Direction

On October 28, 2009, the Company announced the closing on the sale of all of its remaining 14.8 million shares of FBR Capital Markets common stock at $6.00 per share in an underwritten public offering. Proceeds to the Company, after the underwriting discount but before expenses, were $84.1 million. The net price per share after the underwriting discount to the Company was $5.70, which was less than the Company’s carrying value of $5.93 per share at September 30, 2009. As a result, in the fourth quarter of 2009, the Company expects to record a pre-tax book loss of $3.4 million related to the sale of FBR Capital Markets common stock.

With the sale of FBR Capital Markets stock and other actions taken to strengthen the Company’s balance sheet and reduce costs, the Company is positioned to focus all of its capital and resources on its core principal investing strategy and expects to benefit from:

• Approximately $165 million of investable capital;

• Low balance sheet leverage of 0.5x total assets as of September 30, 2009;

• Unlevered non-agency MBS portfolio of $211 million in face value at November 6, 2009, with a cost basis of 47% of par, and expected annualized yield of approximately 20%;

• Strong liquidity position with $62 million in cash available for future investment at November 6, 2009; and

• Reduction of $1 million in general overhead expenses compared to the second quarter of 2009 with potential for additional reductions in future quarters.

The Company intends to expand investments that generate attractive current cash returns and have potential for capital appreciation, including primarily the growth of its existing non-agency mortgage securities portfolio. The deployment of capital into investments that offer current income as well as capital appreciation potential positions the Company to utilize its net operating loss carry-forwards and net capital loss carry-forwards, which are currently in excess of $800 million.

“We have completed the major steps to strengthen and monetize the Company’s balance sheet, achieved operational independence, reduced overhead costs and deployed liquidity from recent asset sales primarily in non-agency MBS with attractive cash risk adjusted returns as well as upside potential,” said J. Rock Tonkel, Jr., President and Chief Operating Officer. “We look forward to realizing the Company’s earnings potential for shareholders as we achieve full deployment of our capital along with continued reductions in one time as well as ongoing fixed expenses. We believe our capital is well protected with substantial liquidity and low leverage. Using a selective approach, we continue to capitalize on attractive investment opportunities which we expect to allow us to generate attractive cash returns on invested capital, utilize our tax benefits and offer an opportunity for growth in book value per share going forward.”

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, 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 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.

Financial data follows

ARLINGTON ASSET INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts) (Unaudited)	Quarter Ended September 30,
	2009			2008
REVENUES:
Capital markets	$	—		$	50,694
Principal investment:
Interest		3,719			23,173
Net investment income (loss)		19,737			(153,110	)
Dividends		—			158
Other		—			739
Total revenues (loss)		23,456			(78,346	)
Interest expense		310			25,387
Revenues (loss), net of interest expense		23,146			(103,733	)
NON-INTEREST EXPENSES:
Compensation and benefits		2,735			61,111
Professional services		878			10,442
Business development		16			5,262
Clearing and brokerage fees		—			3,834
Occupancy and equipment		94			8,282
Communications		100			5,773
Other operating expenses		1,163			6,668
Total non-interest expenses		4,986			101,372
Operating income (loss)		18,160			(205,105	)
OTHER INCOME (LOSS):
Loss on subsidiary share transactions		(116	)		—
Gain on extinguishment of long-term debt		27,982			4,078
Other loss		(4	)		(4	)
Income (loss) before income taxes		46,022			(201,031	)
Income tax provision (benefit)		3,585			(18,123	)
Net income (loss)		42,437			(182,908	)
Less: Net loss attributable to the nonconrolling interest of consolidated subsidiary		—			(13,886	)
Net income (loss) attributable to Arlington Asset shareholders	$	42,437		$	(169,022	)
Basic earnings (loss) per share attributable to Arlington Asset (1)	$	5.51		$	(22.34	)
Diluted earnings (loss) per share attributable to Arlington Asset (1)	$	5.38		$	(22.34	)
Weighted average shares - basic (in thousands) (1)		7,705			7,565
Weighted average shares - diluted (in thousands) (1)		7,895			7,565

⁽¹⁾ Reflects the impact of 1-for-20 reverse stock split effective October 6, 2009.

ARLINGTON ASSET INVESTMENT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts) (Unaudited)	Nine Months Ended September 30,
	2009			2008
REVENUES:
Capital markets	$	81,075		$	207,766
Principal investment:
Interest		7,600			70,867
Net investment income (loss)		15,754			(173,311	)
Dividends		108			497
Other		—			3,095
Total revenues		104,537			108,914
Interest expense		3,656			70,895
Revenues, net of interest expense		100,881			38,019
NON-INTEREST EXPENSES:
Compensation and benefits		73,466			192,035
Professional services		12,871			33,401
Business development		13,139			24,368
Clearing and brokerage fees		5,950			10,857
Occupancy and equipment		13,573			26,051
Communications		8,964			18,046
Other operating expenses		10,099			19,107
Total non-interest expenses		138,062			323,865
Operating loss		(37,181	)		(285,846	)
OTHER INCOME (LOSS):
Loss on subsidiary share transactions		(10,028	)		(189	)
Gain on extinguishment of long-term debt		160,435			4,078
Other (loss) income		(11	)		73,030
Income (loss) before income taxes		113,215			(208,927	)
Income tax provision (benefit)		12,830			(28,903	)
Net income (loss)		100,385			(180,024	)
Less: Net loss attributable to the nonconrolling interest of consolidated subsidiary		(11,459	)		(31,053	)
Net income (loss) attributable to Arlington Asset shareholders	$	111,844		$	(148,971	)
Basic earnings (loss) per share attributable to Arlington Asset (1)	$	14.58		$	(19.71	)
Diluted earnings (loss) per share attributable to Arlington Asset (1)	$	14.28		$	(19.71	)
Weighted average shares - basic (in thousands) (1)		7,673			7,557
Weighted average shares - diluted (in thousands) (1)		7,830			7,557

⁽¹⁾ Reflects the impact of 1-for-20 reverse stock split effective October 6, 2009.

ARLINGTON ASSET INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	30-Sep-09			31-Dec-08
ASSETS
Cash and cash equivalents	$	13,299		$	254,653
Receivables:
Interest		1,111			1,378
Other		60			32,571
Investments:
Mortgage-backed securities, at fair value		173,895			594,294
U.S. Treasury bonds, at fair value		—			550,000
Equity investments, at fair value		87,497			—
Trading securities, at fair value		—			17,954
Long-term and other investments		2,563			54,976
Derivative assets, at fair value		—			264
Intangible assets, net		—			8,943
Furniture, equipment, software and leasehold improvements, net		114			24,442
Prepaid expenses and other assets		4,786			20,816
Total assets	$	283,325		$	1,560,291
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements	$	100,000		$	1,063,040
Trading account securities sold but not yet purchased, at fair value		—			8,325
Derivative liabilities, at fair value		—			56
Interest payable		129			2,064
Accrued compensation and benefits		7,360			47,259
Due to clearing broker		—			3,009
Accounts payable, accrued expenses and other liabilities		22,041			38,925
Long-term debt		16,816			254,357
Total liabilities		146,346			1,417,035
Equity:
Common stock, 7,920 and 7,961 shares (1)		80			80
Additional paid-in capital (1)		1,505,787			1,494,642
Accumulated other comprehensive income (loss)		289			(118	)
Accumulated deficit		(1,369,177	)		(1,481,021	)
Total Arlington Asset shareholders' equity		136,979			13,583
Noncontrolling interest		—			129,673
Total equity		136,979			143,256
Total liabilities and equity	$	283,325		$	1,560,291
Book value per share - Arlington Asset shareholder’s equity (1)	$	17.84		$	1.80
Book value per share - total equity (1)	$	17.84		$	18.95
Shares outstanding (in thousands) (1)		7,679			7,561

⁽¹⁾ Reflects the impact of 1-for-20 reverse stock split effective October 6, 2009.