ArrowMark Financial (BANX) 14 May 212021 Q1 Earnings call transcript

Welcome to the StoneCastle Financial Corp. Q1 2021 Investor Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Now I would like to turn the call over to Julie Muraco, Investor Relations of StoneCastle Financial. ahead. go Please

involve purchases this statements. that begin included and general the be I'd as risks us to as reports expectations like forward-looking no StoneCastle results statements available uncertainties. of Company. has as speak forward-looking Before results this advisory, of discussed Company differ may statements securities stock; the presentation changes to stated conference statements made March forward-looking of everyone materially that made update administrative statements on undertakes management current certain based other based may risks to or implied Financial shares economic on information this time contracts; during XX, volumes depend remind and statements annual XXXX. time Actual we in The of financial on call, substantial by the forward-looking and considered the today, investment or the May would and semiannual numerous any or conditions; of All from common with in duty Company's sales the the from these markets in This of factors such XXXX. to and in herein. continuation of filings XX, forward-looking service only including SEC, call

Now call to I the Bhonsle. turn will Sanjai over

with with afternoon, to here Financial's call StoneCastle Along CFO. Good XXXX. first Farrell, welcome Julie. and investor you, today Julie, is our Thank for me Pat quarter

will of net Financial's results the and XXXX provide on presentation, increased general, and results institutions. benefit industry greater Then are banking you the earnings. commenting our review, of expansion show community the and all for from In industry the had well StoneCastle Pat we capitalized should I reporting X% credit continues the up on banks quarterly I before today's and with research questions. that fourth will open also on the FDIC the center portfolio income banks before large will reported across Furthermore, of detail banks During call an quarter markets in company. money XXXX, economy. to financial and The comment briefly first better-than-expected that quarter banking provide

was banks community reported they number that income higher XX% as For net growth.

same charge-off that banks capital net fell fourth quarter, XX%. that the all the to During also nearly point period, want increased across rates versus quarter. by in equity previous bank X.X% I out

first portfolio company's trend at and continue on A XX% reserves banks ratios net QX. portfolio They in book was of a We community of bank first average during the up growth during quarter results. also X% X.X% the slightly X.X%. deposit reported of and up a year-over-year reported XX.X%, community majority this StoneCastle's Tier have reported reported income basis. have change community the capital and which seen is from Also, prior portfolio X.X%, quarter. in quarter. quarter StoneCastle's quarter their fourth And up X the banks sequentially loan and from XX% growth addition,

in points regulatory performance at than levels of purchased saw regulatory like to were continuing or money quarter, that of most at well. higher remain par pre-COVID the points were space. XX since out point yields I yields market capital investments some to the first these investments other also despite credit ahead company's basis investments capital bank discount. would to down basis extremely paying strong tightening. a XX The During Several we schedule either amortize also capital regulatory center performed

COVID Federal of widening factors crisis, U.S. infrastructure including contributed uncertainty, the rates XX U.S. the the signaling With perception interest fears. low basis on Now markets during the treasury will of heighten the This points bill let remain rates of the this volatile to that Reserve to comment rising me for future. issued other maybe basis led the despite proposed through has markets. among credit approximately point, foreseeable XX-year XXXX. half XXX the second height The inflation on to stimulus have packages the from the

impending inflationary upward from sector we rates, Regarding expanding an positively net loan benefit pressures, to loans. margin of part trend for believe funded This businesses NIM, higher in earnings. bank Also, economy to which an would stands during banking increased the growth, interest bank result or should thus lead bank impacting from should bank positively will earnings. needing in be capital book which growth lending more impact

in default banking should sector lead bank positive be to decrease a benefits trends. of also Financial's should related overall. fundamentals combination investment This earnings these resulting In constructive to along premium the with in StoneCastle meaningfully will Therefore, loan positioned portfolio the addition, economy underlying probabilities. to the of reap expanding risk decrease an growth

should rate since portfolio StoneCastle's rate In of environment benefit portfolio today addition, floating our rising securities. over is in XX% the

and long-term over from pipeline. from bank note, market, continued capital the quarter, cover opportunities quarter, banks XXXX. In might the approximately origination line there issuance during regional was was bank, was States balance Of this issuance U.S. other regulatory with to same. regional in decision regulatory risk in of flat United be expansion that a issuing Financial, a release, In well-known expertise $XXX banking and When new in a to stated QX by believe first money will across debt to community the banks. proactively start and in fourth we the regulatory to ArrowMark market in subordinated a active primary issuance security in quarter the billion to approximately capital take prompt the a historical slightly as and maybe the markets, activity the there do management With their quarter, took strong capital was advisor to during press under believe which benefit platform. of banks relationships for their the issuance regional approach StoneCastle to million ArrowMark basically be and possible We $X.X the and to clients recent enter StoneCastle trend. regional expansion bank space, to innovative the the from down the first bank quarter. I an entire across seasonally the we first a In community advantage this capital center the regulatory take and and regional position may primary of Next, company, of sheet bank capital this community industry a non-money first unique Financial’s, center optimize the shareholders.

quarter. Now on to StoneCastle results the first for Financial's

at that end end quarter, of from million At was first investment net million $XXX the of the the per the the per share. are net the investor $X.XX share up flat to for quarter was value quarter the report prior the income quarter. asset first $X.XX share first approximately $X.X We The pleased $XX.XX of or portfolio per sequentially. value was

turn review. portfolio me the let Now to

new securities a yield secondary weighted past average quarter, a positively first this the capital The of invested contributed of the portfolio investment average weighted purchased X.X% approximately the to six of the portfolio. Yields in X.X%. the to market quarter. During to majority remain accretive company assets these and were $XX.X regulatory six new with million total a maturity the coupon in investments investments. of The of

invested also stable cash pay effective the downs. yield yield cash quarter excluding the estimated or X.XX%. of full-years $X running. for X% over At During approximately and equivalents consecutive of company annualized proceeds securities XXXX, XX has the quarter by generated portfolio, million was This the maturing held end, first portfolio and received quarters from above

view for of the A the banking-related positioned portfolio investment investments available website. be most has schedule found shareholder Our creating on our team value. the in risk-adjusted a returns with full long-term of advantageous can assets

value. StoneCastle out we the to believe credit Before beginning we I position are a our I cycle as company that significant turn over Pat, Financial, with that the call of to will new want point incremental at

probability We This favor. have reduce rising with rates. economy investment positively banking to reopening entire that an are should risk industries portfolio. which increased performance, has the of further potential profile cycle the enhance our StoneCastle’s short, is fundamentals financial In in the new of

been nearly continue we decrease optimizing offering adjusted or investors capital have premium investment preservation on of Within the Today, All company while, and returns. value focused is to a the growing portfolio, returns risk portfolio while NAV consistent thus We majority X.X% that whether to fixed the the second XXXX, dividend of $X.XX Today, investment half we will of always performance for for a X%. other Financial, portfolio vehicles. continue the our we stock the related in strategy believe dividend, providing risk income, yield stable over stable consistent is and points underlying delivering grade. have consistent to given our believe versus exceeded a yield portfolio Since significant StoneCastle exceptional or of basis offering investment annualized yield shareholders. an banking still and our equity or company income offers deliver oriented income shareholders. a we nearly XXX incremental and earned

want I the call over turn Now, Pat. to to

Sanjai. you, Thank

March As up in prior results net the of detail. present value The I through I quarterly $XX.XX quarter. will components do was financial share by company's the results quarter, per XX the each going asset $X.XX the at from

four components. components: lastly, NAV paid value comprised capital the of change is the and income; the gains of of and the losses; on distributions breakdown Now net NAV portfolio's The investment during investments; to period. the in realized

quarter $X.XX income quarter Gross Net $X.X per review or or expenses investment operating per the for resulting or share. per the components. of million was $X.X were share, million these $X.X in Let's quarter through income the net $X.XX $X.XX for share. million

in certain non-recurring connection transition in per of As QX, the with to reminder, expenses related we of share $X.XX to ArrowMark. a reimbursement had income the

and change As were the gains per losses timing downs to company. is or of $X.X of Realized foreign gains share. approximately the the capital net million second any the $X.XX the income The is quarter every and transactions Realized if case or due gains from NAV. pay impact affecting assignments, component generation the in $X.XX the calls, investments realized quarter, approximately were share. capital per currency in $XX,XXX option

or portfolio quarter changes the quarter to end. end the component value previous The how of has from changed investment third appreciation the the depreciation portfolio the of relates current unrealized to and entire

March net want value distribution do The paid our the which gains we asset foreign currency the of asset in depreciation record on quarter, and $X.XX on of on losses in to with cash per foreign the net activities fourth transactions $X.XX per share. a began the value XXth for out from $XX.XX shareholders I income. or $XXX,XXX investments affecting distribution. unrealized share. net summary, March The quarter For was point is hedging the change quarter to In share, the XXth. through was regular first impact per not component currency approximately change was net

of value the we of $X.X decreased approximately income quarter, generated million the by the net $XXX,XXX. of portfolio gains During capital realized $X.X unrealized net and million,

these of from quarter. share, of value by per Some up prior in share $XX.XX components a March XX, resulted asset which at net of $X.XX $X.XX reduced distribution per was the

the to be worth our holdings. the It that is noting independently for the valuations to vast marked. continues portfolio majority portfolio Turning of

investments two million, prepaid of have degree of in or prices. and closing funds therefore, For third-party cash had BDCs the the marks reflect consisting their an portfolio total in many publicly quotations portfolio. assets closed-end $XXX.X whose $XXX of self-marked and readily value million. receivable $X.X total XX% comprised company's quotations not assets of should minimum assets quarter, value do or greater a represents of the versus independent that quarter-end, actual approximately dividends and the quotations, interest approximately of other company available are of a traded million At the and market totaling assessment portfolios. of of portfolios the underlying assets of prices confidence the current This These provide exchange

dividend X%. the of quarter Our yield at was the approximately end

Now total total On of let our where available $XX to the may me facility $XX Based assets, credit the update our XX.X% balance company million of investment rules, drawn million you leaving company March only of XX, to from draw. on assets. the has we facility. regulated on up XX% borrow

turn closing call the to over want I to for Sanjay back Now remarks.

Pat. you, Thank

questions. to Now up for like operator, the I'd open call

Our a ahead. go conducting KBW. from first with be [Operator now question-and-answer Please Chris O'Connell session. will We question Instructions] comes

Hi. Good evening, guys.

Hello, there.

all Hope Chris. Hey, well. is

Thanks. And the same.

guess I quarters putting couple off expecting start the So more with on just capital I than of dynamics over I this of little was quarter. the maybe a in, on just the bit to now stabilizing investments, shift you the that portfolio the given yield where yield there? Can toward walk yielding. which regulatory Can want based through going kind past dive typically you're books of you are forward? see can And some what higher the you

take I'll that. Sanjai,

Sure.

anything. miss you start, You add I'll can if

Yes. Yes. That's fine.

quarter This And XX.X% had was partners. earning big of off yield for we maturity was – that one securities that us. a came the young of a

off. a that that came piece big was So

also did on in mid-Xs of pay through have a of a some to earning We Xs also put that did that came had downs couple the the XX, number on XX, are were XX, number a securities low-Xs. that securities, but or high-Xs. We were in we

a number what income, December. put it's – end of Overall you of at So when just called right as of the during on. know, last of period called function of we that were we quarter, terms to securities happen the it's or sold of at this had a end in securities are timing the

do little want So all to time you add it a takes put work. to money Sanjai, on? to that

holding when some coupons. is, I still at mean, only on thing it I our look to Yes. the pipeline, healthy would is fairly add Chris I

type spread active base probably – some low-XXs over a some the high-Xs, right. last think in [XWF]. you've rate, of the I of year over seen So And trade

We’re the kind going trying stripes. I'd of started forward asset I to a But optimize venture, pipeline portfolio. terms in of pretty say good looks our

off that it. are yields quarter being rolling being Got on? mentioning yield low-Xs or this that was The put past you was

actually we a had off – had on mix, residents came a let's we've we at say, XXX. came And at had it our had We [indiscernible] XXX. –

mix. put was really between and I mean, I mentioned, just we $X.X million it's million a XX – on like So XX. that earning $X

it. Got Okay.

to somewhere what kind it quarter range around between equal? the going forward So somewhere kind last and similar is of quarter or this to of yield fair all is XXX characterize the bouncing is

I say so. Yes. would

the a some great. just forward. environment going are know the the outlook those up overall Okay, I bit ramp a on here, stronger the U.S. XQ securities And is at a then investments little bit is your XQ capital for from given on dynamics, I on based the comments looking the that of appreciate potential and and usually little seasonality regulatory lag.

so of The the Is quarter? as be XQ. And rest you you continue on put to move or month off overall holding do the of first seems pipeline what it’s to quarter? guys already that pace good at volumes pretty you origination triple kind in through to you if the some up the have second kick that

what COVID a guide I'm just like desk. kind a we back seeing market we're was it nicely, was during today takes taking adaptive the as have there, And seeing Yes. saw time, Because a cetera, to the But so – it's for primary structure, market was a February, of part this you'll new year ramp in answer et the seen fortunately right? issuance, part primary side, And early this versus of forward secondary market. of pretty would come same The in took to pretty it back. quarter, quarter then deal terms kicked slow between going from short the the is first start mix we see on mix because seems their I'm we're the in healthy of the of of secondary issue bit I assuming it's people however, up and that markets about secondary. the secondary all, next however, step yes. new and What a of probably the fatigue. even active. in XQ balance just it and bit all of of early time really

questions. like the closing to over management floor are comments. I There no further turn to for would

see another coming few any I'll questions just does here Stacy, give to through. if seconds Yes. other probably

back. I we Chris think have

O'Connell. Chris

Hi.

around. dynamics bit, item, just was of wondering kind Just I the but were a what follow-up little small a

The it guys the like of other seems miscellaneous that. of dropped one the and some fee off seen maybe like lower levels to that fees and you line, have around recently drivers

Sure.

was income was quarter transition to other ArrowMark. that have in The last related we the reimbursed the that to reimbursement

a item. we one-time So quarter was last that had came in reimbursement

kind a prior quarter, rate quarter seems like there it just to was like was close it item? Okay. dragging double. else even it run I run anything is kind Where of new this to over came this that Or of line mean, of for rate or kind the in though, that? last

will the for new be rate there. run No. This

Okay, the me overview, little you you walk in a how each what maybe And financial got just is foreign just basic hedging could it. of through and through then just exactly runs terms again get the strategy quarter? that statements

Sure.

securities that the is then hedge month, at that in PMs of of in to had position. you'll So the the what result, on that we basis currency big million, have And $X.X a month. quarter, out the or are amount some the euros we this do whatever look pounds a gains $X.X they'll for quarter. we gains and monthly currency this or close happen there, end see At as million will

of the of side might them that go the way. portfolio other The other that then is securities, some

value of separately. statement, on transactions whole decrease operations So statement the on those flow All out, the And those then hedge. there. income laid right all for the doing purpose the through are that's the those of

gain $X,XXX line on contracts flows Is million then separate realized So loss items the translations, through for everything cetera. and But helpful? that there. et

Absolutely. Yes.

that are correct? those hedged. fully so And being Is

Yes.

Got it.

it. That's Okay.

I think all I'm set.

out Thank you. for So the queue I'll step now. of

Okay.

Instructions] [Operator

enjoy great evening. look thank the operator to and Okay. With soon, meeting you we of forward you Have here start soon. everyone, and that to summer please a

Thank you. concludes This teleconference. today’s

at you time. participation. lines your your for thank disconnect And may You this