ArrowMark Financial Corp.

Stonecastle Financial Corp Q2 2021 Investor Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. As a reminder, this conference is being recorded. Now I would like to turn the call over to Julie Morocco, Investor Relations of Stone Castle Financial.

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 has based the forward-looking statements included in this presentation on information available to us as of June 30, 2021. The company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of today, August 5, 2021. Now, I will turn the call over to Sanjay Bosele.

Thank you, Julie. Good afternoon, and welcome to Stone Castle Financial's second 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 markets before commenting on the company. Then I will provide Stonecastle Financial's quarterly results and portfolio review, and Pat will provide you with greater detail on financial results before we open the call for questions. In general, the banking industry continues to perform well. In the latest FDIC quarterly profile report, net income across all banking institutions more than tripled versus a year-ago quarter. In fact, 75% of all banks reported higher quarterly net income, and for community banks in particular, net income grew 77%. Also in June, which rating reported that the number of banks with a stable rating doubled on a year-over-year basis. Overall, we continue to believe in the help of the banking industry. Now let me comment on the credit markets. Recently, the Federal Reserve signaled that interest rates are expected to be stable over the foreseeable future. The 10-year U.S. Treasury yield has now contracted to approximately 1.2%, or nearly a 50 basis point decline since the beginning of the second quarter. The treasury markets were somewhat volatile during the quarter, given the combination of timing of the Fed's comments, concerns on inflation, and concerns over a new strain of COVID. The corporate credit spreads, however, were relatively stable over the second quarter, suggesting the economy is recovering as expected. As I mentioned last quarter, an expanding economy should positively impact bank fundamentals, and we believe Stonecastle's underlying investment portfolio should reap the benefits of this trend. In addition, if continued economic strength results in future interest rate hikes, Stonecastle is poised to benefit from increases in rates, as approximately 80% of the portfolio today is in floating rate assets. Next, I will cover our origination pipeline. In the second quarter, regional and community banks issued approximately $2.5 billion in subordinated debt. Issuance rates, for the most part, were at sub-4%, and therefore continue to be below stone-castle threshold for investments. At this time, we continue to find red-cap issuances by large money-centered banks much more attractive. In fact, in Q2, the regulatory capital relief market for money-centered banks had a strong issuance of approximately $3 billion. We expect a strong pipeline to continue into the third and fourth quarters as banks seek to optimize their balance sheets. The secondary market had consistent activity in the quarter as well. However, the transactions were competitively priced. As mentioned in our previous call, we continue to look across the entire spectrum of banking institutions for opportunities to participate in regulatory capital release transactions. Of note, we are seeing activity within regional and community banks as it relates to issuance of REDCap securities to optimize their respective balance sheets. Stone Castle is positioned to benefit from these issuances if the deals offer optimized risk-adjusted returns. Now onto Stone Castle Financial's results for the second quarter. We are pleased to report that net investment income for the second quarter was approximately 2.6 million or 40 cents per share. At the end of the second quarter, net asset value was $21.80 per share, up 18 cents from the prior quarter.