Gladstone Capital Corp (GLAD) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gladstone Capital fiscal year-end conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. I would now like to introduce your host for today's conference, Mr. David Gladstone. Sir, you may begin.

Bob, thank you for the introduction. This is our quarterly and year-end report, and I need to read the obligatory warning about forward-looking statements. This report that I'm about to give may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933, and the Security and Exchange Act of 1934, including statements with regard to the future performance of the company.

These forward-looking statements inherently involve certain risks and uncertainties, and although they are based on the company's current plans, the company believes to be reasonable as of today. There's no guarantee about the future of the company, of course. There are many factors that may cause the company's actual results to be materially different from any future results expressed or implied by these forward-looking statements, including those factors listed under the caption "risk factors" in the company's 10-K filing that's filed with the Securities and Exchange Commission, and can be found on our web page at www.gladstonecapital.com. Is that up? Is it already up? So, okay. It is up on the web page already. So that's good.

The company undertakes no obligations to publicly update the -- or revise the forward-looking statements, whether as a result of new information, future events, or otherwise. While this is the quarter ending September 30, 2004, it was not a very good quarter for us, in terms of the number of loans we booked, and we hope we'll be doing a lot better in the -- going forward. Certainly, the quarter ending December looks much stronger. The loans we had -- fairly poor quarter for the loan closings. We had an Allied Extruders for $4 million -- that's a manufacturer of proprietary polyurethane bag stocks that sold to these guys that make the bags that you carry groceries or shopping items in.

And then the quarter ending December, looks like to date we're at about $30 million. We think that will get up around $35, maybe more. Tech Lighting, for $9 million, Global Materials for $5.5 million, Valar Telecommunications for about $8 million, and Santana for about $8 million. Those are the ones that may be up on the web page. Are those all up on the web page, too? None of them are up? Okay, so those will be going up shortly.

The difficulty during the quarter was also, we got paid down -- about $13.5 million was paid off early in the quarter -- and approximately $24 million has paid off in the quarter that we're in. Those are early pay-offs; and while they're wonderful in the sense that we get some nice fees coming in, we have to go out and replace those loans. We did a press release on American Water Heater that paid off in the quarter ending December. That's about $1.4 million fee. That will show up in the December quarter. This is really deferred interest rather than a fee. But it's coming in in the quarter ending December. We've now had about 11 companies that have paid off since the inception, and the average return on those loan payoffs has been an all-in return of about 19%.

So the program that we set up when we set the company up about three years ago is working, and so there's really no reason to change the plan at this juncture. New people -- what we do need to do is hire more people. We have added one associate in the quarter ending this quarter. And we're certainly looking to hire more people. Should hire a few more, hopefully, in the next few months, and that will increase our capacity to grow the asset base, which is the thing that makes the dividend grow as well. The numbers for the quarter ending September were relatively poor. The ones ending December are going to be much stronger.

Net investment income for the quarter ending September -- fourth quarter was substantially less than we had expected, simply because we wrote off the fees that we had paid CIBC, which was our lender -- that's Canadian Imperial Bank. We had paid them substantial fees when we set up our loan program with them. We'd expected that to be written off over five years, but instead of that, CIBC got into some kind of trouble with the regulators, and so as a result, had to get out of the business of lending money, and doing some securitization.

So we moved our line of credit over to Deutsche Bank, as well as Key Banc; and of course, we decided then we should write off the fees that we paid CIBC, and were amortizing over five years, so we wrote off about $1.1 million worth of fees. So net investment income for the year was $1.29 rather than the $1.40 that we were shooting for. Write-off of fees cost us about 11 cents a share, more or less. But the good news, is we don't have to write those fees off going forward; and hopefully, that will mean earnings will be a little bit higher than they would have been if we were writing those fees off.

Net investment income is the number, of course, that we pay our dividends from. Our distributions go out almost on a one to one basis with our net investment income. So looking at that number, that's the number that we keep our eyes on here at the company. Unrealized -- now I'm turning to the unrealized appreciation and depreciation. Our portfolio was down over the year about $2.7 million, net depreciation. We had some appreciation, obviously, and some depreciation. The net was a decrease of $2.7 million.

Most notable in all of this was a company called FEN [PHONETIC] that was down in its cost basis from its cost basis about 23%. $1.6 million of it during this quarter. That's a lot. The company is paying as agreed. We think they're going to be fine. No reason to worry about the payments. Have a great LVO fund that owns the company, and they are continuing to work with the company, and it continues to move along; but we use Standard and Poor's to come in and independently value our portfolio, and they came in and decided that it was time to take down the value of FEN, and they did that. And as a result, it took the value down by about $1.6 million.

One other company that had about a $250,000, I think was the next largest; and then all the others were either up sort of 1% to 3%, either up or down, and that made up the increase or decrease -- in our case, the decrease. The increases were offset by the decreases, so a decrease is what we had in the net asset value. So increase in shareholder's equity from operations for the year was $1.05, and a big chunk of that is depreciation of the portfolio. Our companies are paying on time, as agreed. We don't have anybody that's behind. The portfolio keeps getting stronger as the economy gets better. but when you ask an independent third party like S&P to put a value on your loans, and they give you a value of what they think it should be, you just have to accept it, or you really throw out the whole process.

So our board accepted that value; and in fact, they have always accepted the values set up by S&P. Another way of looking at our portfolio is the loan rating system that we use. We have a 10-point system, in which 10 is the highest, that loan ratings of our portfolio seems to remain about the same. We're running at about 7.6 on that 10-point scale. And so this gives you a feeling of how we see our portfolio in terms of the risk of default. We think they're staying relatively low at 7.6 as a good number, so the probability of default is rather low, and there's really been no change from this quarter and last quarter.

Anyway, as an overall comment, we are happy with the portfolio, and it tends to go along at a good pace. And as I mentioned, it is continuing to get stronger. The marketplace that we're in since I last talked to you,, the senior and sub debt marketplace for large middle market companies has continued to be strong. Large loan marketplace, which is run by all the Wall Street underwriters, is absolutely flying along. Money is pouring in. And companies are getting good ratings from Standard and Poor's and Moody's, and then are able to do wonderfully low rate syndicated loans. So if you had a loan request of $200 million today, you'd probably be borrowing at 2 to 3% over LIBOR, and with LIBOR in the 2.5% range, you're borrowing at somewhere around 4.5 to 5% on your -- on your loan today, and that is exceedingly low by historical standards. And this, as they say, will not last. LIBOR has traditionally been at 5 to 6%, so businesses are going to go back to paying 6, 7, 8% for their financing, and it's just a matter of time.

The good news for us is, we've been reluctant to do any fixed rate loans in quite some time. We're concentrating on variable rate loans, so. We do a fixed rate loan from time to time, and most of our loans are variable rates. So we're really not as tied to the Federal Reserve as they increase interest rates over the next few quarters. As we -- as many of you know, we did put a hedge or cap in place that covers our fixed rate loans. We did that sometime back, and have had a small loss in the hedge that we had in place, but it fixes our -- it takes our fixed rates and turns them into variable rates, so we feel very comfortable with that.

We're not worried about rising interest rates from the standpoint of the impact on our loans, but like everybody else, we're worried that the Fed will jack rates up so much that they'll kill the economic growth the way Greenspan seemed to have done last time. The things we're worried about today is, continue to worry about the cost of oil. It has a tremendous rippling effect all through the economy, and we watch our companies, as they have to absorb that cost, and we review them all - the new requests coming in -- to make sure they can pass on these oil costs, as well as the other commodities that they're buying. All the commodity groups seem to be going up.

And our existing portfolio companies seem to be able to pass on -- at least most of them can -- the commodity price increases that we're seeing, so we're not as dependant as perhaps some of the other companies that we've seen out there on these -- on being able to withstand this barrage that's coming now. The amount of money that's being spent on the war in Iraq -- and certainly a lot of the spending by Federal and State governments is certainly putting too many dollars out into the world system, and that's caused a great deal of problems, since there are fewer and fewer buyers for all of the dollars that are floating around.

Some of this is good for some of our small businesses that we back in the sense that they don't buy a lot from the -- from outside the United States, but they do have some sales to customers that are outside the U.S.; and of course, that makes -- with the dollar being in steep decline, it makes their products and services much cheaper.

The trade deficit for us is another worry. China and other nations just continue to sell us more goods than we buy from them; and of course, it is a fact that the Chinese and other governments are subsidizing their businesses -- certainly China through not floating the -- their currency against our dollar. And it is just a killer to go up against some of those guys. We've turned down a number of businesses that we didn't think could compete with some of the Asian countries in production. So that continues to worry us.

And so inflation, from our standpoint, is going to continue to ripple through the economy, through all the businesses that we see, as well as the businesses that we're in, and there seems to be not much on the horizon to stop inflation from having a good impact in 2005 in terms of where prices are going. In our own marketplace, demand for loans in the big capital marketplace is continuing to go along, and we see that one day coming down into our marketplace. It's not there yet. We watch this big capital market, hoping that it won't come down to our market; but of course, eventually it will. As of today, you have to have probably $150 million worth of request in order to get the real good interest rates; but those more lenient loan standards will eventually come down from the big marketplace into the smaller market.

The market we invest in is not seeing too much fallout from that today, but -- and certainly the banks are not back in any meaningful way making loans to small businesses that are exceedingly lenient, so we just have to continue to complete for our loans with small private lenders and mezzanine funds, and some other of the BDCs. Our pipline of loan requests is still very strong. Closings this quarter will be very good. For December, we think the first quarter of '05 -- that is, the quarter ending March -- will also be quite -- quite strong. And so there's really no reason to change our standards, or to make -- in order to make loan production better. We just are going to continue to stick with our guns, and do the best loans we can and make sure we don't get into that frothy marketplace that continues to go on out there. Loan quality is our primary concern here -- making sure that loan quality is strong.

The industrial base of the U.S. continues to get stronger. All of the business that we're seeing, they're much stronger than they were a year ago, even six months ago. Many of the manufacturing concerns are not nearly anywhere close to manufacturing capacity, so that's good news. And certainly the number of manufacturing concerns that are hiring people today, and the backlog that they have, are just wonderful. I think 2005 will be -- the calendar year will a tremendous year, and our year-ending September '05 will be a good year as well. And as all of you know, you've listened to these calls, I have not been bullish for a long time, and I'm now -- maybe I'm the last bear coming out of the woods, as they say, but I'm certainly very bullish today on where the economy is going, and where these small businesses are going.

And I'm hopeful that this will translate into a lot of good loans for us. And while 2004 was not what I wanted in terms of earnings or even the loan production, I still think 2005 will be a very strong year. Our shelf offering is still in place. As most of you know, we used that shelf to raise $25 million -- a little under 25 -- I guess it was $24.5 million -- in net equity to us in the quarter ending September, right at the end of the year, and we have no plans of using that in the near term. But we will constantly look at when we need additional equity, versus doing a securitization. We still have on the planning boards to do a securitization, and we expect to do it hopefully in the next 12 months, if the marketplace looks right to us.

We've seen a couple new business development companies come out since we last spoke. Recently, another energy-related business development company was taken public. We don't make that many investments in the energy area, so we don't see them as competition. We do welcome all of these BDCs coming in, because it will help the general character of the BDC marketplace, in the sense that you will have more analysts that want to cover business development companies, and we should shine in a marketplace of business development companies.

We'd ask you all please to go to the Web site and sign up for e-mail notifications so that you get the information that we're sending out on -- not a frequent basis, but we do send out information from time to time that we think would be meaningful to you. And again, we hope that 2005 is going to be a good year; and certainly the first quarter for our fiscal year ending September '05 has gone out great. And we look forward to a good year in 2005. And with that, I'll turn it back over to the operator to give you instructions on how to ask questions.

Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Joel Houck.

Yeah, good afternoon, David.

Hi, Joel.

Just -- just kind of a question more kind of going forward on an external vehicle. You know, we've got the 125 investment advisory fee and the 75 basis point administration fee modeled in for fiscal '05. The question is, what -- well, assuming the very little corporate SG&A, but do you have any sense for what the dollars will be for G&A in a corporate sense?

No, we haven't put out any numbers on that. Why don't we try to do something to help you get a handle on that, and put it in our Q&A on the Web site. I know that's going to be a frequent question, so we probably should give you some idea of what we think that is. And so we'll do that for you, Joel.

Okay. And then, you know, just in terms of pricing in your market, you know, I hear what you're saying -- on the syndicated side, things are pretty tight there. We're not hearing that this has kind of filtered down to the middle market. Is that consistent with what you're seeing? Or are you seeing something different?

Well, it depends on how you define middle market. Certainly, the low end of the middle market, it's not there yet. We aren't seeing syndicated loans at $75 million or $90 million yet. As you will remember, five years ago, they were doing those, and it ended up not looking too well for a lot of people. But the banks and the other buyers of syndicated loan haven't come down to that level, and they certainly aren't down to some of our smaller business levels that we're at. And so I would say you're right, it's not in the normal definition of middle market, but middle market then stretched to be a billion dollars in revenue, and so some of those would certainly fit into the syndicated loan marketplace.

Okay. That's helpful. Thanks.

Our next question comes from John Maier.

Hi, David, how are you doing?

Okay, John.

A couple of questions for you. You had mentioned the redemptions of $24 million in the current quarter. Is that -- was that a correct statement I heard you say?

That is correct.

So approximately $30 million of new investments so far and 24 of redemptions so far?

That's right.

Okay.

Just barely staying ahead of ourselves. But we've got a few more closings this month, so we'll be ahead, I'm pretty sure, for this quarter.

Okay. The -- under the expenses, there's an item called "loan servicing". I don't know if you -- maybe you can explain that to me a little bit more.

We've got methodologies set up where by loan servicing fees going forward are offset against the 2% fee. So there's no double counting there. But we have to book it the way it is set up. What happens is the management company took over the loan servicing work that was originally done by our subsidiary, Gladstone Advisors. And as a result of doing that, of course we're not going to charge twice for servicing the same loans. But the lender who makes a loan to the business loan LLC that we set up to use for securitization wanted a separate servicing agreement, and since the servicing has been externalized, we had to externalize that as well. So when we externalize it, you know, we have a fee for that, but then the 2% is off -- we offset that against the 2%. So if you took it to its extreme, if they were close, you would have no managerial assistance -- I'm sorry, managerial advisory fee -- but you would have a servicing fee. So the investment -- sorry, the investment advisory fee, which is 2%, will be offset by any monies received by the management company for loan servicing. Does that make sense?

A little confusing. Maybe a better way to look at it is, you have 2% of -- what's not included in the 2%, basically?

Again, in --

In terms of --

I will give you a list of those, and that's the same thing that Joel asked, but think about it this way: When you borrow money in an LLC that's been set up for securitization, the securitization lenders want to make sure that there is a separate servicing agreement so that you have to service the loans for them, in case something happens to the company that originated the loans. And so we are servicer. We also have a backup servicing arrangement with Bank of New York. All of that is set up so that the securitization that occurs can occur in case something ever happened to the parent company, Gladstone Capital. So we have to charge that fee, and we have to be in place and do that. But it's the same servicing we would do under the investment advisory fee of 2%. So any money we receive under the servicing arrangement that's with the lenders is -- is offset. So let's say it's 1% of assets. Now, your investment advisory fee would be down to 1%. So the things that aren't included would be things like director's fees, any kind of insurance that the company has to put in place -- B&O insurance, for example -- that are specific to that company. And if you read the investment advisory agreement, I know we have a long list there in the investment advisory agreement of what things are included and what are excluded. Joel's question was, of course, what do you think that's going to be? And we will get -- we can go back and look at historically what it was in 2003 -- I'm sorry, 2004, and post that on the Web site, and that way it will give you a flavor of what it was in 2004, and you can make your estimates for 2005.

All right. Thanks a lot, David.

Our next question comes from Dan Sanen.

Thanks, David. Could you please give a comment on the -- what S&P said in regards to the FEN investment, and any other comments they had with regards to other portfolio companies?

Yeah, we can talk about it. What they pointed to was the industry itself. And I think it's a good example of how Standard and Poor's does their valuation versus the way I have always done them. We always would look at it and say in our own mind, would we do the deal today, and what's changed, and those kind of things, and we'd get a good flavor for the loan and what its value was, and we would use some of the same -- some of the same determinants that S&P would use. They have about six historical determinants that they work from, and they have a portfolio of some 2,000 loans that they look at, both public and private. And they looked at the marketplace for loans in the category that FEN's in, which is landscaping equipment, and looked at some of theirs that are comparable, and said the industry has had some problems, and so as a result, loans have decreased -- that is, generally, loan values have decreased in that area -- and as a result, we think if you had to sell that loan today, it would be for less than you paid for it. And they work from that angle, which is an angle that I dare say -- well, most companies that are doing their valuations don't look at, and certainly when I was doing them in other companies -- and even here at this company before we hired S&P -- we rarely looked at kind of the marketplace for loans in that category. So S&P brings a wealth of information and knowledge about loan valuations that we can't possibly duplicate, and so it came at it from that direction. The company did have some operating problems last year, and has recently -- the LBO Group has changed out, the president of the company, and I think they've done a good job in bringing it back. But we'll just have to see. They've not missed any payments. Things that senior lender and us as this subordinated debt lender, are all going along as agreed. So I think the company will be just fine. But S&P takes a different perspective as what it would -- what would we have to -- what could we sell the loan for today if we had to sell it.

Okay. Thank you.

Does that give you an idea?

Yeah, that's helpful.

Our next question comes from Vernon Plack.

Yeah, hi, David. My question -- most of my question was just answered as it related to FEN -- but I do see that the warrant value actually stayed relatively stable. Does S&P value the warrant? Or is that -- would that be the reason why that stayed fairly stable versus the fact that the loan went down quite a bit in value?

Yeah, here's the -- and we run into this every time we do it. We did the value on the warrant, and we did it based on the continued increase in value if the business is sold. We would get paid before the LBO fund. So it's sitting out there -- just like a paid in kind accretion would come along on a loan, this one's not paid in kind, because it only is paid if the business is sold. Now, the company is owned by an LBO fund. I don't know when they're going to sell it. But if they do sell it, we will get not only the value that you see there, but the full amount that is due us under that, which is substantially above the value that is placed on it at that time. There was a chance -- I want to say, six months ago -- that the company was going to get sold. I don't think they are planning that today. I think they're going to build it back up, and try to make a huge success out of it rather than a small success. But that's why we continue to hold that warrant, which has a put on it, in essence, at a success fee kind of rate, if the business is sold. So it's sitting there and continuing to accumulate value, and it's really hard to write it down if every year you get a higher amount that's due you if the business is sold.

Thank you.

Our next question comes from Henry Coffey.

Hi, David. Not to to belabor the one situation, but in the past, when you've been put in the position of writing down investments through this whole S&P process, and I think it's a good one, by looking at market value, you've had companies that either had very good projected cash flows, maybe bad negative -- you know, historical cash flows, but clearly enough to warrant, you know, good fundamental value, just not perhaps good loan value. What is the status of -- what has the senior lender done with the loan? Do you know how they're carrying it? And is there enough cash flow curvature to meet debt service?

In terms of the senior lender, I don't know what they have it on the books. It's not in the workout department. It's being carried at par, I suspect. And as far as we know, they're happy. We have not heard anything back from them to indicate that they're unhappy and want to get out, or anything. They're -- they've been just -- it's -- and it is a bank, it is a federally chartered bank -- I believe they're federally charted -- but it is a bank name you'd recognize. And as far as I know, the -- there has been no movement afoot in their organization to do anything other than to continue to go forward. There is cash flow coverage, and so I'm assuming they feel comfortable, as we do, that the cash flow continues to come in. It's just the industry, as you can imagine -- landscaping equipment, as far as roads and a lot of landscaping -- they sell this machinery that's used to spray this green stuff with grass, for example, on the side of the road. They also build large pieces of machinery that can spread a good deal of hay over places that you're trying to grow grass, and those kind of landscaping equipments. They are the Cadillac of the business. They have market share in the 70 to 80% range of the whole industry of this large end. So I think it -- I think most of this write-down is due to the fact that landscaping -- there aren't any office buildings being built to speak of these days, and so there's not a need for landscaping equipment. They're primarily in the area of landscaping for new home development, where you're going in and seeding and putting down a lot of grass seed and the stuff to help it grow, in a large, say, planned urban development kind of place. And so all of that continues to go along, and they continue to make money, it's just that the industry per se that they were in -- the road construction and the -- and the office side of it -- had taken a dive, and probably rightly so. If we had to sell the loan today, not that we're interested in selling the loan, it would be sold at a discount. Whether it's a 24% discount, the way S&P couched it, I don't know, and I don't think anybody in the world knows, but S&P probably has a better guess than anyone else, and that's why we use somebody as big and strong and with as much knowledge as S&P. I don't know, have I answered what you're --

Yeah, no, that sounds fine. That sort of characterized the last time you did a write down, it was as much market driven as financially driven.

You know, if this business was sold tomorrow, we would certainly get every cent due us on the company, and I know that this business could be sold for in excess of its debts today, and even in excess of the amount of the warrant that we have with the put on it. So to me -- again, using my old methodology of valuing -- I might have written it down some, but I wouldn't have hit it as hard as this. And so from our perspective, we don't see the problem with this company. In fact, it's -- it's so strong in its category, that any movement in the category of new road construction, or certainly if office buildings start coming back in some areas, this thing will absolutely boom.

Excellent. Also, I think posting some of that overhead information will be very helpful, so we're glad to see you're going to do that.

Okay.

Great. Thank you.

Our next question comes from Jeff Fossy.

Yes, hi. I had a question to ask about -- well, two questions. One has to do with the prepayment of loans and the fact that you concentrate on, as you said, on variable loans. Do you think that increases the likelihood of repayment as opposed to having a portfolio that would be mostly fixed loans?

Well, certainly, if you're in a fixed rate that's low, and you don't get paid off, I don't know anybody doing second liens or mezzanines that has cheap rates. Most of them are locked up at around 12, 13%. So the likelihood of somebody paying off our variable rate for a fixed rate at 12, 13% seems to me unlikely. Most of these transactions have been refinanced by senior lenders that the businesses have gotten much stronger, and as a result, have been able to go out and get a senior loan that would be probably 5% cheaper, and have taken us out for that reason as opposed to -- our a couple of them were sold. A couple of the businesses that we had loans to were actually sold, and we got our success fees, so I don't know that there is a good mix here that would keep out the other lenders. If you had some low fixed rate lenders, sure, they could take all of our portfolio out. So I don't think there's any of those guys out there, and in a rising rate environment, I don't know of anybody that's doing a lot of fixed rate loans right now at low rates of say, 7, 8%.

Just based on your somewhat optimistic outlook for the industrial part of the economy, it sounds as if you might be expecting prepayments to continue at a pretty good clip?

Yeah, it's really hard to say. The ones that paid off were awfully good loans for us. But they were also very good companies the day we made the loans. And the only reason we got those opportunities is because A, we would move rather quickly, and -- but more importantly, there was some flaw in the situation. For example, it might be a business that the senior lender who needed both collateral and cash flow couldn't find enough collateral. And so we would be brought in to make that loan that was covered by cash flow but didn't have enough collateral in the accounts receivable and inventory and machinery/equipment to make the senior lender happy; and certainly, most banks need both cash flow and collateral as coverage in order to make loans. To the extent that businesses grow and can then deliver, as some of them have been able to do a much -- a much larger package of collateral -- sure, they're going to pay us off and go to the cheaper money. That tends to happen as the economy grows, and we would expect some in every quarter. Now that we're getting bigger, somebody's going to pay off probably in every quarter. While you hate to lose them, it's a validation of your original analysis of the businesses that they would grow up and go somewhere that they can get cheaper money. Just as we will. We're today paying a certain rate for our revolving line of credit, and would hope that one day, we will get a lot cheaper money as we grow bigger and stronger.

I appreciate that answer. I would ask a quick question, which this may be a bit inexpert of me -- I read an article recently of some FAS-B proposal on fair value accounting. Does -- would that apply to you? Does it represent any kind of change that would make a difference as far as your financial statements go?

Well, I don't know where you've read, but we are fair value accounting oriented. It's what we must do. You know, we don't have any alternative. I think what you may have read about is that some other companies that are not on fair value accounting will have to go to fair value accounting. All business development companies, as you probably know, are on fair value, and everything must be valued. We don't have the option of saying we'll keep it at cost because we're not intending to sell the loan, as some banks are. Banks can move from having a loan on the books that they say they're not intending to sell, and if something moves along, they can value it at just about whatever they want to until the OCC -- the people who regulate them -- come in and say we're going to make you write this down, or whatever. So from our standpoint, I don't think any new regulatory authority on implementing fair value at other companies will do anything other than help us. It will provide more research that we can do on how people determine fair value.

Okay. Yeah, just -- it probably makes sense. I mean, this is an article by a guy at Ernst & Young, and it says that the -- FAS-B has issued proposed statements that would provide guidance for how to measure fair value, and --

Well, I don't know that anybody's got a great handle on what the loans should sell for. I would put my bet down on Standard and Poor's, with their 20,000 or so loans they track, probably knows more about what a loan would sell for than anybody else.

Well, thanks. Thanks a lot.

Next question?

Our next question comes from John Maier.

Hey, David. Another question. Last quarter's financial statement, there is a line item called "loss on derivatives" which I didn't see in this most recent year-end financials.

Oh, it's there. Yeah, it's there. We moved it down. It's down under -- it's down with the portfolio. Finally -- I guess Price Waterhouse agreed that we could move it into the portfolio section as opposed to keeping it up above, so take a look at that line item.

Okay, [INAUDIBLE] 214,000.

It's about -- $214,000 is the loss. What was it last quarter? 114, I think it was. Do you see it now, John?

Yeah, thanks a lot. I appreciate it.

Okay. Next question?

Again, ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. I'm showing no questions at this time, sir.

All right. Well, we thank you all for attending, and look for the good news come -- I guess it's January 4 or 5, I forget what the date is we have our board meeting -- we'll be declaring our dividend for the quarter ending March, and hopefully, we can do some good deeds for you there. And also look forward to talking to you again next quarter. Thank you all for attending.

Ladies and gentlemen, if you wish to hear the replay of this conference, please call 703-925-2533. Or 888-266-2081. Replay code, 615328. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect.