Dynex Capital Inc (DX) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Dynex Capital third-quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Wednesday, November 3, 2004.

I would now like to turn the conference over to Mr. Stephen Benedetti, Executive Vice President and Chief Financial Officer of Dynex Capital. Please go ahead, sir.

Thank you, operator. I would also like to welcome Tom Akin, our Chairman, to the call.

I will briefly discuss the results for the quarter and highlight some things in the press release, and then I will turn the call over to Tom for the discussion of the strategic issues. Let me thank everyone in advance for joining today. I understand the concession speech is going on at this moment, and I know this conference call is probably not quite as riveting as that event, so we do appreciate your taking your time today to join us.

First, let me review the customary Safe Harbor statement and the SEC rules regarding the use of non Generally Accepted Accounting Principles, or non GAAP, financial measures. I will review the forward-looking statement disclosure first. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. The words 'believe', 'expect', 'forecast', 'anticipate', 'estimate', 'project', 'plan' and similar expressions identify forward-looking statements that are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.

The Company's actual results and timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements as a result of unforeseen external factors. These factors may include, but are not limited to, changes in general economic and market conditions, disruptions in the capital markets, fluctuations in interest rates, defaults by borrowers, defaults by third-party servicers, the accuracy of subjective estimates used in determining the fair value of certain financial assets of the Company, the impact of recently issued financial accounting standards, increases in costs, and other general competitive factors.

For additional information, see the Company's quarterly report on the Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission and our quarterly report on Form 10-Q for the nine-month period ended September 30, 2004, which will be filed with the Securities and Exchange Commission.

In regards to non-GAAP disclosure, we will attempt to reconcile non-GAAP numbers on the call with GAAP. Any such reconciliation will also be included in the 10-Q.

Jumping to the results for the quarter, as you saw from the press release, we reported a net loss of $56,000 and after consideration of preferred dividend, we reported a net loss of $1.4 million, or 12 cents per common share.

Results for the quarter include a $3.2 million loss from the sale of our delinquent property tax receivable portfolio and operations in Ohio. If you exclude this loss from our results, we actually would have reported net income of 3.2 million ,or approximately $15 per common share. The 3.2 million of net income, adjusted for the loss from the Ohio sale -- or excluding that loss -- really reflects the earnings from our existing investment portfolio for this quarter and in particular reflects the improved net interest margin for the Company as the provision for loan losses and impairment charges on our manufactured housing loan and securities portfolio have obviously dramatically declined from last quarter by virtue of the fact that we had fully reserved for our credit exposure on these assets at the end of the second quarter.

Net interest margin was 6.4 million and included approximately $760,000 in prepayment penalty received on a commercial mortgage loan. Ordinarily, we don't receive prepayment penalties and ordinarily, commercial mortgage loans don't prepay. This improved our net interest spread for the quarter, which was approximately 121 basis points, by 19 basis points.

Third-quarter net interest margin also included a net charge amortization expensed charge of approximately $500,000 on MERIT Series 13 and with the closing of the sale of that transaction in October, we won't have that expense, going forward, in our net interest margin. For comparative purposes, net interest margin last quarter was 5.5 million, but last quarter included an approximate $2 million amortization expense for 70 million of actual delinquent commercial mortgage loans, which prepaid in full and for which no prepayment penalties were received by the Company.

The in terms of going forward, provision for losses were $1.2 million for this quarter. They will continue at or near that pace for the foreseeable future and really represent our reserving for our remaining credit exposure on our commercial mortgage loan portfolio.

G&A also declined. We got a partial benefit from some staffing reductions in our Pennsylvania tax lien servicing operation. We should expect to see G&A continue to decline as we rationalize that business, really effective mid-quarter, and we've also taken the G&A drag out of the net income from the Ohio operations, which were sold in September. We would expect, overall, annually, we've taken approximately $2 million in G&A expense out of our income statement. We have rationalized the economics, if you will, of that business vis-a-vis we're targeting annual operating collection expenses at approximately 30 percent of our actual collections on the remaining tax receivable portfolio.

Cash flow for the third quarter was -- excluding the sale proceeds was 10.7 million, versus 12 million last quarter and 11.1 million for the first quarter. Cash flow for the third quarter included approximately 6.8 million from securitized finance receivables, 1.6 million from securities and other loans and approximately 2.3 million from other investments, which is really our tax lien business.

At this point, we expect a sequential quarter-to-quarter decline in cash flow until we can materially reinvest our free cash or our free capital. Assets will continue to decline, of course, as we have prepayments. Our liability costs are creeping up, of course, as the Fed continues to tighten. We were getting some contribution from our Ohio tax lien portfolio; that's included in the 10.7 million, so that of course, since we sold that portfolio and monetized it, on an ongoing basis, we will not be collecting that cash. For the short-term, and we are currently just reinvesting our cash in very short-term, very liquid investments at very low rates, which also has the impact of driving down our cash flows.

Our cash flows will remain only moderately sensitive to interest rate changes and more sensitive actually to the credit performance of our underlying assets. Most of our assets are match-funded with our securitization financing, and where it is not managed-funded, we've swapped out most of our basis risk through mid-2005 using interest rate swaps.

In terms of the balance sheet, I will just highlight a few areas. Our cash and cash equivalents at the end of September were $40 million. Shareholders equity was $133 million, which translates into a $6.33 book value per common share. That does not reflect the MERIT 13 transaction; that deal was not marked-to-market, so that would be an additional 17.8 million in value, or approximately $1.47 per common share. At the end of October, we would expect, therefore, shareholders equity to be approximately 151 million, or $7.80 per share, and cash and cash equivalents will have increased from $40 million to approximately $52 million.

Our recourse borrowings are only 15.4 million today, and repurchase agreements, as we've redeemed the senior notes for $823,000, and of course our securitization financings are nonrecourse to the Company, i.e., they are recourse only to the assets pledged.

In terms of our investment portfolio, the approximate 1.6 billion of investments we have, 1.3 billion of fixed-rate and 273 million are adjustable rate. Substantially all of the adjustable-rate assets are single-family assets that are in our SASCO Series 2002-9 transaction, which we estimate to reach its optional redemption date in the first quarter of 2005.

As I mentioned, our credit risk is our predominant risk that's remaining in the investment portfolio today, as it's currently constructed. That credit risk is principally the securitizable transactions and it's generally in single-family mortgage loans and commercial mortgage loans. Overall, today, we have net unreserved credit risk on those structures of approximately $40 million. We will continue to provide, as I mentioned earlier, approximately 1.2 million in provision for losses for the next quarter and for the foreseeable future.

That concludes my comments on the results and the balance sheet. I'd like to turn the call over to Tom for a discussion of strategic issues.

Thanks, Steven.

I hope everybody got a good night's sleep last night. I was up pretty late myself and obviously, it's nice to have a concession speech and -- (technical difficulty) -- on our way. But we've been very busy at Dynex over the last several months. Steve, I think, has outlined a lot of what has happened, and I'd like to outline some of a positive changes and elaborate a little further in detail on some of the items that we discussed in our press release.

First of all, let's start off with what has been accomplished by Dynex management recently. Steve mentioned the sale of the MERIT 13s for 11.9 million, effective the end of October. With that, we will have removed approximately 242 million in manufacturing housing loans from our books and about 225 million of the associated nonrecourse securitization financing. We will record an approximate $17.8 million gain on the sale, improving our book value to about $7.80 per common share, and that gain will be reflected in a $1.47 earnings addition to the fourth quarter.

Second of all, we sold our Ohio tax loan portfolio for 19.2 million and in the process, we converted a non-interest earning asset that cost approximately $1 million a year to service into cash. Our remaining investment in tax liens is essentially limited to the Pennsylvania portfolio, and that's going to have a total investment of approximately 11.5 million. I should add that this investment is properly cash-flowing and we should continue to recoup that investment over the next three or four years. At the same time, we also reduced our overhead in Pittsburgh substantially.

Third of all, we've raised significant amounts of cash from the year-end, 2003. Our cash at the end of 2003 was 7.4 million, and we are currently projecting that we are going to have almost 57 million in cash by the end of 2004, absent any reinvestment. That's a gain of almost 50 million, and I think it speaks well to Steve and the job he's done.

For the book value, after MERIT 13 transaction, we will be increased $7.80, as Steve pointed out, and again, an earnings gain for the fourth quarter of approximately $1.47.

Fifth, our earnings, beginning this quarter ,is no longer going to reflect the drag of the losses from manufactured housing investments and absent any unexpected change in interest rates or credit performance on our deals, we would expect to report earnings for the fourth quarter.

Sixth, our improvements in our balance sheet and better visibility to what's going on in the balance sheet -- one, as I mentioned before, the strong cash position in our balance sheet now. Our low recourse leverage and our equity capital structure is now more balanced between the preferred and the common. Also, we've reduced the G&A in the Company by almost $2 million annually, which I think rationalizes our G&A versus the size of our balance sheet.

The second area I'd like to discuss is the focus of the Company over the near term. That is what we're going to be doing over the next year. One, as we've pointed out before, we have a SASCO 2002-9 securitization that's estimated to be callable sometime in the first quarter of 2005. We will be looking to add attractively priced mortgage-backed securities or single-family (indiscernible) loans to this deal if they can be purchased at attractive prices. Currently, we are looking for returns in excess of 15 percent for any capital allocated to this effort.

The second area we're going to be looking at is investment of our current cash in low-risk but highly liquid investments over the short term with returns in excess of 10 percent. We did invest in the equity of another mortgage REIT, a company called Bimini Mortgage Management, New York Stock Exchange BMM. The Company could put to work -- could put our money to work at cheaper prices than we could create the business ourselves. BMM currently yields 13 percent and with the stock appreciation we've had since our purchase, we have an annualized return of almost 20 percent. We are going to continue to review and seek out different investment opportunities that represent this kind of return.

Thirdly, I should point out that we do not view that this environment today -- that we should be stretching for yield. We do not want to take a lot of risk. We are going to be an opportunistic investor and our hurdle rates in the near term our going to be fairly low. We will be -- and because of our tax advantages, it's going to be lower than other mortgage REITs.

Okay, finally, I'd like to discuss areas of strategic importance for the Board and I think importance to all our investors. One, dividend policy -- currently, Dynex does not pay a dividend, as a preferred D covenant prevents us from any cash pay-out to the common until the total equity is 3X the Series D preferred outstanding. This covenant, coupled with the advantage of Company gains from utilizing the net operating loss first, means that we will not likely pay a dividend for the foreseeable future.

Second of all, we have a net operating loss of significant size. The Company currently has a net operating loss tax carryforward estimated at $130 million. These NOLs have a life of 20 years and most won't expire until 2019 or 2020. That gives us plenty of time to try and create gains versus those losses.

Our current projections show that we will not use up these NOLs until sometime in 2013 or 2014. However, until the time that these NOLs have been used, any taxable income generated by Dynex will accrue effectively tax-free. The Dynex Board feels that the NOLs -- (technical difficulty) -- very valuable asset to Dynex shareholders and the ability to compound our capital essentially tax-free is of tremendous value. To put this into perspective, if we were a tax-paying entity, the current $130 in NOLs, assuming a 40 percent tax rate, is worth approximately $52 million, or about $4 a share. We'd like to see that go to our shareholders. Again, our projections indicate that DX will utilize this NOL well before they expire.

These NOLs also have implications for the risk return analysis that we can do on Dynex investments. Using our target return of 10 percent on investments and a 40 percent tax rate, a taxable entity would have to earn somewhere around 16.5 gross to equal the after-tax gain of 10 percent. This means that Dynex investments can be less risky to achieve an above-average rate of return to our shareholders.

Finally, as many of you know, I am the largest shareholder of Dynex common and preferred. My interest is in maximizing Dynex shareholder value. The Board and the management have worked tirelessly to monetize the Dynex assets in the most attractive fashion to the shareholders. I think we've done that. Dynex is now positioned with the capital to move forward as a public company and give shareholders a solid, expected return. We will not take undue risk with shareholders' capital, and we will balance and risk and return opportunities for all shareholders.

I'm excited about the future of Dynex and feel, over the next several quarters, we will show our ability to reinvest that capital in an intelligent, shareholder-friendly manner. I appreciate all your support in this endeavor.

With that, operator, why don't we open it up for questions?

Thank you. (OPERATOR INSTRUCTIONS). David Soshnik of Stifel.

Thank you. I have a question on the litigation exposure of the Company at the moment.

Do you want us to update you on the VCM situation?

I'd like that, yes, and any other litigation that's out there.

Okay, David. How are you doing?

Doing fine. I'm tired, too!

Stayed up most of the night, did you?

On the litigation, as we've publicly reported, the verdict that was entered (indiscernible) that was rendered by the jury, I should say, against the Company as well as its former affiliate, DCI Commercial, was reversed by the judge, or set aside, in effect. That's where it stayed and ended at the trial-court level. The plaintiffs in that case have filed a Notice of Appeal, and it is our understanding, at least at this point, that they will -- they intend to appeal that litigation. At this point, there's no verdict against the Company or the affiliate, so there's no bonding requirements and it basically would go the way of the appellate court.

In terms of other litigation, we still have litigation at our tax lien entity in Pennsylvania, and that really goes all the way back to the origin of the transaction when we bought the liens and whether we were allowed to take ownership of the liens and effectively step into the county's shoes and collect certain fees and costs -- the interpretation of the Municipal Tax Lien Claim Act and how we executed on collecting.

We have -- as you know, it went to the Pennsylvania Supreme Court, which resolved some things. There was then legislation which resolved some things. We have subsequently learned that the legislation, the retroactivity of that legislation was upheld, and so at this point, everything has been remanded back to down to the trial court. We continue to have victories at the trial-court level, and it's going to take probably some continued time, because there's just one attorney down there that lost some business when we bought this business and sort of continues to pursue actions, but we've been able to beat that back pretty well, I think. So, other than those two litigation issues, there are no others for the Company.

Thank you.

Jay Buck (ph) of Demeter (ph) Asset Management.

I don't have a question; I have a comment. I think both of you guys have done a wonderful job over the last 12 to 18 months. I think it has been a situation where you both righted the ship. I think there have challenges in the tax lien business; there were challenges on these court cases; there were challenges in the portfolio. I would just say, as a shareholder, that I think the two of you have done a wonderful job putting the Company on sound footing and I'm actually very optimistic and hopeful, going forward in the next 12 months.

Thanks, Jay.

Jeff Border (ph) of Border (ph) Capital Management.

Yes, I was wondering if you could give us some idea of some of the other opportunities on the balance sheet, like the MERIT 13s that are going to come up over the next, say, 12 or 18 months, where we might be able to extract some value.

Well, we mentioned that we feel there's a substantial opportunity with the SASCO deal, Jeff, in the first quarter of '05, but in terms of being able to call any more of our securitizations, I don't think there are any at this point. Steve, is that correct?

Over next 12 months, that is correct, Tom. That would be the only one.

Right. So, in terms of finding -- you know, almost finding that money out of the securitizations like we did this year, you know, both the MERIT 12s and the MERIT 13, which represent almost 20 million in cash -- I don't think that that's going to reoccur over the near-term, although we were very happy to have it occur in '04.

Okay. The second question -- you mentioned that you guys had mitigated a lot of interest-rate risk by engaging in some interest-rate swaps which go on into, say, mid-2005. When those things come off, are you going to evaluate the rate structure and then figure out if you want to push those swaps out further? Are you going to kind of stay with that strategy of sort of trying to minimize your interest-rate risk?

Well, we are always going to want to minimize our interest-rate risk. The swaps that we have out there, actually, I would say -- the current rates on those, I believe -- Steve, correct me if I'm wrong -- are 3 and 3/8, aren't they?

3.73 percent.

Okay, about 3.75, so given the current rate environment, I would say that, once they are off in June, it's actually going to help out more than hinder us. What we do, going forward, will obviously be dependent on how much risk there is in the portfolio. The floating-rate assets have paid down in a fairly substantial way so that we don't have a significant amount of floating-rate risk. Steve, do you have anything to add?

I would just add, Tom, that the swaps we put on in June of 2002 and they were a three-year bullet, 100 million notional (ph) and with 50 million of capital today, we are obviously all very closely watching forward rates and looking for opportunities to lock some long-term funding up. I would say that we would only swap out floating-rate liabilities; that might be financing fixed-rate assets and wouldn't try to make a bet on -- prudent interest rate risk management and try to not make any bets on where we think rates are going.

Todd Amaf (ph) of Wachovia Securities.

I think that's Todd, isn't it?

Yes. Hi, guys. I had a couple of questions but David covered my first on litigation I wanted to ask about; you answered that. Second one, Jay Buck covered that. I wanted to laud you guys for the good job you've done for the last -- you know, Steve and Tom and the whole Board for the last five years, really, carrying us through this and that was great. Along with the last question, though, be sure not to over-hedge. We had problems with that before. But since most of my questions were answered, I will just say that I wish St. Louis would have won the World Series so certain Board members would be in a better mood. That's it! (LAUGHTER).

I don't know to comment on that, Todd, so I will just take the next question, operator.

Scott Peters (ph) of Tradewinds (ph) Investment Management.

Congratulations on a nice quarter and improving the situation at the Company. I agree with everyone else; it's been a long hill we have been climbing. I actually have two questions. I guess this first one is for Tom. So, Tom, in your comments, you mentioned that your idea here is to maintain a lower risk profile, going forward, so -- or at least for the near-term. So is the idea, with the ten-year note at 407 and mortgage-backed spreads tight, rather than levering up here, like a lot of the other REITs do, your idea is to let the NOL value of the carryforward basically provide us with free tax return to basically compensate for the market risk you don't want to take right now?

I think we all know that interest rates are probably lower than they are higher, right now. I think one of the things we obviously don't want to do is buy a whole lot of securities and lever up and then watch them go down in value and give up some of the really sort of hard-fought cash that we've created this year.

Scott, the good news is, is we do have a net operating loss that's fairly substantial and because all our income is going to be tax-free, we don't have to go out and take that same risk as other people. I just want everyone to know that if opportunities are out there to get return, we will definitely do that, but only commensurate with the risk and only with the idea that we don't have to take sort of the taxable risk that a lot of our peers have to do. So, we have a lower hurdle rate, in all honesty, and to me, it's much more important -- and the Board as well -- for us to consistently show performance on the upside than of good year/bad year, good year/bad year. We'd like to start, from this day forward, showing some steady gains in this portfolio, and we would obviously love to see those returns, the 10 percent, on an after-tax yield. So yes.

Thanks. I'm not sure if my second question is for you or for Steve. Can you give us any guidance as to what to look for in 2005 regarding the cash flow of the Company, or is it too soon for that?

Well, we discussed that and we would like to make those sort of we -- would like to talk about that at the beginning of next year. Once we get this year over and a few things settled down and we start taking a look at the substantial amount of cash that we have right now, we'd like to get that started to be reinvested. Once we get a feel for that reinvestment parameter, then I think we can start talking about cash flows.

The good news is, is that we've got a lot of cash. The bad news is, is rates are pretty low. So we are going to have to get a feel for just how we can put that to work. In addition, remember we have this SASCO deal coming up in the first quarter of '05, and we're going to be able to use a fair amount of capital in that securitization as well.

Steve, do you have anything to add?

Tom, I think you hit the two very critical points in that projection, so no, I don't.

Chris Castellon (ph) of Dynex.

Of Dynex? That would be interesting, huh?

I hope not! I hope we don't have our own people asking questions!

I think it would be Deutsche Bank, but either way -- you know, most of my questions have been answered. I've just kind of waited in queue. Tom, nice explanation of kind of the strategy, going forward, and especially the details into the tax loss carryforwards and what not. So I'm going to make a comment. I don't know if it really can even be answered, but is it my understanding or can I come to the conclusion, let's say, that assuming you're 10 percent annual return, that the Dynex common can be looked at as a 10 percent tax-free (indiscernible) bond with these carryforwards trading at basically a discount to book value, assuming that the MERIT 13s gets added back and that takes us to 7 -- I think you're quoting 7.80 a share book value? Is that fair for me to look at it that way?

Well, obviously, that's what we'd like to do. That's the return that we would like to get. Whether or not we can get -- (Multiple Speakers).

Sure. I understand you leave yourself an out but it's just I'm just looking at this from -- you know, I don't want to oversimplify it but --.

If you do, it's not totally tax-free because if you do end up selling your stock, eventually you're going to have to take the capital gain.

I understand.

But way from that, every dollar that we put back in the Company is going to go back into book value ,over the near term, until those NOLs are extinguished or until there's something much, much better that we can do for all of our shareholders. So, if we can achieve what we're trying to achieve, we hope to be able to create that.

Great. Thanks a lot. Nice job, guys and continue the success.

Thank you.

(OPERATOR INSTRUCTIONS). Jay Weinstein of Oak Forest.

Tom, are you in California?

Yes, I still am.

Well, that means you got -- you should have gotten three hours more sleep than I did anyway! I wanted to also echo what they've said; you guys have done such a great job of making this company understandable to those of us who are not smart enough to have figured it out before, so cleaning up the balance sheet and -- (Multiple Speakers).

We're still working.

Exactly, and kind rationalizing your businesses, I offer my congratulations as well. A couple of quick questions -- the tax loss carryforward, the $130 million number, is that before or -- I'm assuming that the relatively large gain you've announced for the fourth quarter -- is that essentially coming off the $130 million number, so kind of going toward, it's more like -- what was it -- 115, 113?

Steve, why don't you answer that because I think it's in a different bucket, isn't it?

Yes, that actually will be characterized as a capital gain, and we have capital loss carryforwards which will be able to offset that, so the 130 million is the number today and it's expected to be the number at the end of year.

Oh, okay. Any estimate what your capital loss carryforwards are as well?

Yes. It's 27. Most of it expires this year, but the two transactions in the MERIT 12 and 13 have $20 million, we believe and expect to have them -- they will be classified as capital, so we will offset 20 of that 27 that's expiring with those two transactions.

If you know any way we can get a capital gain of 7 million over the next 45 days (LAUGHTER), we are in the market!

I will e-mail some hot tips. There is probably some 30 cent stock you can buy out there somewhere. That's all right, I guess. At least you get to keep all the dollars that you make. I didn't hear any -- I mean, every so often, there is mention of buying some profitable entity as a way to help use up your NOL. I haven't heard any discussion of that. Is that kind of on the back burner? I know you always would reserve the right to do it but it just doesn't seem like as big a priority now.

Well, I think you hit the nail on the head. We obviously reserve the right to do that if we can, if we see something that's quite outstanding, but I don't have to tell you that almost every asset has been scrutinized and leveraged to the n-th degree at this point. We are clearly -- you know, after coming off 1 percent Fed funds rate for a couple of years, I would say the values out there are pretty fully priced, and it's pretty hard for us to see anything that is a real deal. If we see something, then we'll obviously be interested, but I would say, right now, there is probably a lot more risk out there than there is return, so we are a little leery, in all honesty.

Yes, frankly, that makes sense, I think, probably to most of us on this call.

Second question, or third question -- I think you mentioned the covenant of the preferred stock was what -- equity had to be three times the preferred? Equity, which by my calculation, that would take it about 170 of total equity. Is that correct?

I think that's about right.

Okay. You'll be up at about 150, I suppose ,after this transaction in the fourth quarter, not including any earnings but just including the MERIT 13?

I believe that's right.

(indiscernible) So you are far away but you are not that far away.

That's also my next question. You know, your preferred equity -- I think it's at 9.5 yield if my memory serves correctly. With the capital that you have, does it make any sense to slowly retire that rather than just leaving it out there?

Well, if we can't take that capital -- if we take that capital and retire the preferred, sure, we save the 9.5 percent dividend, no question, but we also reduce our opportunity to use that NOL because we won't have capital available. We will be taking it basically, at this point, one-third of our capital and kiss it goodbye forever.

I see, because (inaudible) preferred dividends, since it's not a -- it's not increasing your pretax earnings, so therefore it doesn't help you with the NOL.

Right and -- (Multiple Speakers) (multiple speakers) -- and also, if we can reinvest that, let's say, 50 million at a rate higher than 9.5 percent, then it's a win-win for both the preferreds -- they get their dividend -- or the common get the advantage of that spread between 9.5 and whatever we can -- (Multiple Speakers) -- tax-free.

Well, obviously it made me think of it. You know, you had this 10 percent target and obviously your 9.5 isn't that far away and the 9.5 is a sure thing and the 10 percent may or may not be. But your point is well taken about where it is on the income statement. Given that it's an after-net-income sort of charge, that it does prevent you -- that capital from using up the NOL. I hadn't thought of that.

Yes. At the same time, that preferred is convertible at $10 a share into common and other under the best of all worlds, we would love to be able to convert that common and then we are all in the same boat.

I got it. Thank you. I was glad I asked the question because I learned something. Again, I really do think you guys have done a nice job and those of us that go way, way back following this company and previous management and all headaches they put everybody through, we appreciate that.

Great.

David Trumble (ph) of A.G. Edwards.

You mentioned you made an investment in Bimini. Was that prior to quarter end or after?

We've made two basic investments. We made an investment in the private placement at the beginning of this year, and so we've received several dividends from that investment. In fact, I think it's three, almost three dividends on there. Then we actually bought some in the IPO. We paid 14.50 in the IPO, and the stock is currently at, let's see, I think it was last seen at about 15.70, so we have a gain in that purchase. But more importantly, it has been paying about a $2 dividend, which is a very nice yield.

On the balance sheet, is that in securities?

I believe so. Isn't it, Steve?

Yes, it is.

We have no further questions at this time. I will turn the call over to you.

Well, again, I thank everybody for listing in. I appreciate that we had to take you away from the concession speech of Kerry and now we will allow you to get back to your election coverage. We appreciate everybody's confidence and support and we hope to do our best to fulfill our end of the bargain and thank you so much for being on the call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.