If not for a pesky billion dollars in unrealized depreciation, American Capital Strategies (Nasdaq: ACAS) would've had a fantastic quarter.

The company reported a first-quarter loss of $813 million, or $4.16 per share, versus earnings of $134 million, or $0.86 per share, in the year-ago period. Admittedly, this loss seems like milk money compared to the multibillion-dollar write-offs of Citigroup (NYSE: C), UBS (NYSE: UBS), Merrill Lynch (NYSE: MER), or Wachovia (NYSE: WB).

Why the loss?
The company said its earnings decline owed to unrealized depreciation of $997 million in assets, based on "declining trading prices, the continued widening of investment spreads, and [the] adoption of SFAS 157, a new accounting rule which compels companies to value financial assets based on fair marker value."

Until recently, American Capital had valued assets based on internal models and original transaction costs. The rule and its adoption allow the company to adjust its balance sheets, take the hit, and get back to business as usual. American Capital CEO Malon Wilkus claimed that unrealized depreciation "will have little impact on our future revenues."

What's the good news?
Despite the loss, net operating income showed a nice increase year over year, to $151 million, or $0.77 per share, from $114 million, or $0.73 per share. The company also announced a 13% dividend increase. This was a very respectable showing in a rocky market, and the stock rallied Wednesday on the news.

So what if American Capital had to write off a billion dollars? It could happen to anybody. We're highly unlikely to see anything remotely approaching this amount of unrealized depreciation in future quarters, and the company's showing impressive earnings power in a tough environment.

The stock is more than 35% off its 52-week high, and it's currently paying a dividend greater than 13%. I think American Capital is getting unfairly punished along with its more misbehaving peers. Fools, consider keeping an eye on this financial stock.

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