ArrowMark Financial Corp. Q3 FY2022 earnings call

• Market Environment: Equity and credit markets were volatile in the third quarter with major indices declining due to inflation and global recession fears. The U.S. Federal Reserve raised the Fed funds rate significantly, and more hikes were likely in 2023.
• Portfolio Management: The company's time-tested portfolio monitoring process helped address credit concerns, such as reducing exposure to a borrower through a secondary market sale close to par. NAV was $20.74 per share, down $0.20 but holding up better than many income-generating publicly traded funds.
• Financial Results: Net investment income for Q3 was approximately $3.3 million or $0.46 per share, up 7% from prior quarter. For the first nine months of 2022, net investment income was up 17% compared to 2021. NAV at quarter-end was $20.74 per share, down $0.20 from prior quarter.
• Origination Pipeline: Industry-wide regulatory capital origination was steady in Q3, with new issue spreads widening. The community bank new issue market was quiet, but the secondary market became more attractive as rates widened.
• Yield: The estimated annualized yield of the portfolio investments as of September 30 was 11.85%, the highest in the company's history.

ArrowMark Financial Corp.'s investment portfolio is primarily composed of securities from global money center banks and U.S. community banks, with approximately 83% of the portfolio being regulatory capital securities. In the third quarter, the company invested $17.9 million in four regulatory capital transactions, which had an effective weighted average coupon of 13.7% and a yield to maturity of 14.9%. The $17.9 million of investments were offset by $14.9 million proceeds from the sale of community bank assets and regulatory capital partial paydowns. Revenue contribution: Approximately 83% of the portfolio consists of regulatory capital securities.

• The Fed is expected to continue rate hikes, likely leading to an economic slowdown.
• The company is being prudent in deploying investable cash and is opportunistic to take advantage of market volatility to buy discounted assets.
• The fourth quarter dividend to be declared by the Board in December will include required annual tax distributions, and the final amount will depend on fourth quarter performance and other factors.

• Market volatility in equity and credit markets poses risks.
• Further Fed rate hikes could impact the economy and the company's portfolio.
• Potential credit concerns in the portfolio if economic conditions worsen.