ArrowMark Financial Corp.

Our 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Now, I would like to turn the call over to Julie Morocco, investor relations of Stonecastle Financial.

Please go ahead. Before we begin this conference call, I'd like to remind everyone that certain statements made during the call may be considered forward-looking statements based on current management expectations that involve substantial risks and uncertainties. Actual results may differ materially from the results stated in or implied by these forward-looking statements. This would depend on numerous factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of shares of common stock, the continuation of investment advisory, administrative, and service contracts, and other risks discussed from time to time in the company's filings with the SEC, including annual and semiannual reports of the company. Stone Castle Financial is based on the forward-looking statements included in this presentation on information available to us as of March 31, 2021. The company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of today May 13th, 2021. Now I will turn the call over to Sanjay Bosele.

Thank you, Julie. Good afternoon and welcome to Stone Castle Financial's first quarter investor call for 2021. Along with Julie, here with me today is Pat Farrell, our CFO. During today's presentation, I will briefly comment on the banking industry and the credit market before commenting on the company. Then I will provide Stone Castle Financial's quarterly results and portfolio review, and Pat will provide you with greater detail on our financial results before we open up the call for questions. In general, the first quarter of 2021 had large money center banks and community banks reporting better than expected earnings. Furthermore, industry research continues to show that banks are well capitalized and should benefit from an expansion of the economy. The FDIC also reported that in the fourth quarter of 2020, net income increased 9% across all banking institutions. For community banks, that number was higher, as they reported 21% net income growth. During that same period, net charge-off rates across all banks fell nearly 20%. I also want to point out that in the fourth quarter, bank equity capital increased by 1.9% versus the previous quarter. We have seen this trend continue during the first quarter. A majority of the company's portfolio of community banks have reported their first quarter results. Stone Castle's community bank's portfolio reported net income and deposit growth of 7.1% and 4.6% sequentially during the quarter, and 62 percent and 23 percent on a year-over-year basis. They also reported average Tier 1 capital ratios at 13.3 percent, which is up slightly from Q4. Also, Stone Castle's community bank portfolio reported a fourth quarter change in reserves up 1.2 percent, and in addition, loan book growth was up 2% from the prior quarter. During the first quarter, we also saw strong performance in the Money Center Bank regulatory capital space. The company's regulatory capital investments performed extremely well. Several investments were either paying down at par or continuing to amortize ahead of schedule since some of these investments were purchased at a discount. I would also like to point out that regulatory capital yields remain 25 to 50 basis points higher than pre-COVID levels, despite most other credit market yields tightening. Now, let me comment on the credit markets. The stimulus packages issued during the height of the COVID crisis, including the proposed infrastructure bill, among other factors, have led to heightened inflation fears. This has contributed to the US 10-year Treasury widening from 93 basis points to approximately 160 basis points, despite the Federal Reserve signaling that US interest rates will remain low for the foreseeable future. With this uncertainty, the markets may be volatile on the perception of rising rates through the second half of 2021. Regarding impending inflationary pressures, we believe during an upward trend in rates, the banking sector stands to benefit from higher net interest margin, or NIM, which would positively impact bank earnings. Also, an expanding economy should lead to businesses needing more capital for growth, part of which will be funded from bank loans. This increased bank lending should result in loan book growth, thus positively impacting bank earnings. In addition, an expanding economy should also lead to a decrease in loan default probabilities. This combination of positive fundamentals along with resulting growth in bank earnings should meaningfully decrease the risk premium related to the banking sector overall. Therefore, Stonecastle Financial's underlying investment portfolio will be positioned to reap the benefits of these constructive trends. In addition, a rising rate environment should benefit Stonecastle's portfolio since over 70% of the portfolio today is in floating rate securities. Next, I will cover the origination pipeline. In the first quarter, regional and community banks continued to be active, issuing approximately $1.1 billion of subordinated debt in the primary markets, which was basically flat from Q1 of 2020. In the Money Center Bank regulatory capital market, primary issuance during the first quarter was approximately $800 million, in line with historical activity in the first quarter and down slightly from the seasonally strong fourth quarter. Of note, during the first quarter, there was a regulatory capital issuance from a well-known U.S. regional bank, a possible start to a new trend. When Aramark took over as advisor to Stone Castle Financial, we believed there might be opportunities for expansion of regulatory capital issuance in the United States across regional and community banks. We believe a recent regulatory capital security issuance by a regional bank may prompt other non-money-centered banks to do the same. In the press release, the bank stated that the decision to enter this market was to proactively optimize its balance sheet and take an innovative approach to capital and risk management to benefit their company, clients, and their shareholders. With Stone Castle Financial's long-term relationships and expertise in the regional and community bank space, we may be in a unique position to take advantage of this expansion across the entire banking industry under the Aramark platform. Now on to Stone Castle Financial's results for the first quarter. We are pleased to report that net investment income for the first quarter was approximately $2.6 million, or 40 cents per share. At the end of the first quarter, the value of the investor portfolio was 178 million flat sequentially. The net asset value at the end of the first quarter was $21.62 per share, up 18 cents per share from the prior quarter. Now let me turn to the portfolio review. During the first quarter, the company invested a total of $17.5 million in six regulatory capital investments. The six new investments positively contributed to the portfolio, with a weighted average coupon of 9.5% and a weighted average yield to maturity of approximately 8.6%. The majority of the securities were purchased in the second-year market this past quarter. Yields of these new assets remain accretive to the investment portfolio. During the first quarter of 2021, the company also received proceeds of $9 million from maturing securities and paydowns. At quarter end, the estimated annualized effective yield generated by the invested portfolio, excluding cash and cash equivalents, was approximately 9.35%. This portfolio yield has held stable above 9% for 17 consecutive quarters. or over four years running. Our investment team is positioning the portfolio for the most advantageous risk-adjusted returns available in the banking-related assets with a long-term view of creating shareholder value. A full schedule of investments can be found on our website. Before I turn the call over to Pat, I want to point out that at Stone Castle Financial, We believe we are at the beginning of a new credit cycle that will position our company with significant incremental value. We have an economy that is reopening with increased probability of rising rates. This new cycle has potential to positively enhance the entire banking industry's financial performance, which should further reduce the risk profile of Stone Castle's investment portfolio. In short, the fundamentals are in our favor. Within the investment portfolio, we have always been focused on capital preservation and optimizing risk-adjusted returns. Today, we believe the risk premium of the underlying portfolio will continue to decrease, thus offering investors of Stone Castle Financial exceptional returns given a nearly 7.5% dividend yield while delivering a portfolio that is majority investment grade. Since second half of 2015, we have earned or exceeded our 38-cent dividend, providing consistent performance for our shareholders. Today, the company still offers nearly 500 basis points of incremental yield versus other banking-related income-oriented vehicles. All the while, we continue to deliver consistent and stable investment income a stable and growing NAV, and a consistent annualized portfolio yield of over 9%. We believe the company's stock, whether for an equity or a fixed income strategy, is offering significant value to its shareholders. Now, I want to turn the call over to Pat.