ArrowMark Financial Corp. Q3 FY2021 earnings call

• Banking industry: Banks showed improvement in financial performance with loan balances growing across the industry, driven primarily by auto lending and credit cards; community banks in StoneCastle portfolio were well capitalized with median common equity Tier 1 capital ratios at 13.09% in Q3.
• Credit markets: Federal Reserve announced tapering to begin later in 2021 through 2022, short-term interest rates held, markets factoring in interest rate increases starting mid-2022; 10-year U.S. treasury yield ticked up, corporate credit spreads stable; risen interest rates accretive to bank earnings and StoneCastle as ~65% of portfolio is floating rate assets.
• StoneCastle results: Net investment income $2.8 million or $0.40 per share; net realized and unrealized gain on investments ~$250,000 or $0.04 per share; net asset value $21.86 per share, up $0.06 from prior quarter.
• Portfolio review: Invested $20.4 million in 4 regulatory capital transactions in primary market with weighted average coupon 8.59% and yield to maturity ~8.96%; invested ~$500,000 in 9% community bank preferred stock in secondary market; partial paydowns and sale of PFF; subsequent to quarter end, invested additional $11.4 million in new investments and received ~$8.2 million in paydowns and calls; estimated annualized effective yield of invested portfolio excluding cash and cash equivalents was 9.2% in Q3.
• Growth developments: Successfully closed $10.77 million registered direct offering in Q3, which increased total share count by ~7.5%; established aftermarket offering program (ATM) for up to $30 million in October.
• Investment team: Positioning portfolio to seek most advantageous risk-adjusted returns in banking-related assets; believe company offers significant value at current yield of ~7%.

Net investment income for the third quarter of 2021 was approximately $2.8 million or $0.40 per share. The company also reported a net realized and unrealized gain on investments of approximately $250,000 or $0.04 per share. Net asset value was $21.86 per share, up $0.06 from the prior quarter. During the quarter, the company invested a total of $20.4 million in 4 regulatory capital transactions with a weighted average coupon of 8.59% and weighted average yield to maturity of approximately 8.96%. It also invested approximately $500,000 in 9% community bank preferred stock. Investments were partially offset by $4.4 million in paydowns from 6 investments and partial sale of $5 million of PFF. Year-over-year, total assets of the portfolio increased by $61 million or 41%.

• Certain statements made during the call may be forward-looking statements involving substantial risks and uncertainties, such as changes in securities or financial markets or general economic conditions; volume of sales and purchases of shares of common stock; continuation of investment advisory, administrative and service contracts; and other risks discussed in company's filings with the SEC.