ArrowMark Financial Corp.

Welcome to the Aramark Financial Corp Q1 2022 Investor Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Julie Maracco, Investor Relations for Aramark Financial Corp, formerly known as Stonecastle Financial Corp.

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. Aramark Financial has based the forward-looking statements included in this presentation on information available to us as of March 31, 2022, unless otherwise noted. The company undertakes no duty to update any forward-looking statement made herein. In today's call, the management of Aramark Financial will be providing prepared remarks. Investors will have the opportunity to address their questions directly to management by calling Investor Relations at 212-468-5441 or emailing jmorocco at aramarkpartners.com. Now, I will turn the call over to Sanjay Bosley.

Thank you, Julie. Good afternoon and welcome to Aramark Financial's first quarter investor call for 2022. Along with Julie, here with me today is Pat Farrell, our CFO. In the next few minutes, I'll briefly comment on the market environment and factors affecting the credit markets before commenting on the company. Then I will provide Aramark Financial's quarterly results and portfolio review and Pat will provide you with greater detail on our financial results. So to start off, the markets today are experiencing volatility as a reversal of nearly 15 years of near-zero interest rates, which began during the great financial crisis come to an end. This monetary policy is in part driven by the conflation of current macro factors weighing on the markets including the Ukraine crisis and disruptive supply chain, both in part driving higher inflation. With a long-term view in mind, I want to put some macro factors affecting the market into a perspective when it comes to Aramark Financial Corp and our underlying investment portfolio. We believe that our investment portfolio, which is made up of securities, primarily issues but money-centered banks and U.S. community banks will withstand the macro factors affecting our current economy. In fact, we believe that our defensive approach based on capital preservation, income generation, and earning total risk-adjusted returns combined with approximately 70% floating rate assets allows for our investment portfolio to offer a strong inflation hedge. Our beliefs are based on the following. First, our investments are structured in a way that mitigates risk. As previously mentioned, our regulatory capital release investments are primarily issued by money-centered banks that are well-capitalized and are also investment-grade in rating. We also deploy capital in well-capitalized community banks where we invest in term loans, and preferred securities issued by these banks. Second, in regards to our portfolio of regulatory capital and community bank investments, these investments are diversified across money center banks and community banks. Third, we further mitigate risk through our portfolio management process as our investment team is in frequent contact with the issuers and continually stress the portfolio against various economic scenarios. And finally, our seasoned team has experience managing through multiple economic cycles and market conditions. These experiences are exactly why we remain intensely focused on credit quality when underwriting the portfolio. Now, I'd like to say a few words on the credit markets and the positive impact it can have on our earnings. The U.S. 10-year hit 3% for the first time since 2018. The markets have factored in a minimum 50 basis points increase on last week. While the credit and equity markets are expected to be volatile through this period of rising interest rates, we believe a rise in base rates should be beneficial to our portfolio. What may not be fully known to our investors is that approximately 70% of the company's total investments are in floating-weight assets, notably the regulatory capital securities. The base rate, such as LIBOR or SOFR, on regulatory capital investments will adjust higher, which in turn will translate into higher effective coupons on these investments. All things being equal, the anticipated increases in rates will provide Aramark Financial the ability to increase the company's earnings potential. We estimate that every 25 basis points increase in the Fed funds rate can translate into an additional half penny to one penny per share per quarter in net income, all things being equal. Next. I will cover our nation pipeline. In the community banking space, the primary and secondary markets continue to be aggressively priced in the 4% to 5% coupon range, but off the low coupon rates that we saw in 2020 and 2021. While our strategy continues to look across the entire banking sector, the regulatory capital release securities today continue to be more attractive on a risk-adjusted basis, recently community banks. However, community banks' subdebt yields in the secondary market are increasing as some fixed-rate, low-coupon community bank securities are trading at a discount to adjust to a rising rate environment. As such, in the event community banks issue securities in the secondary market, we're to widen This should allow us to opportunistically invest in these instruments. Now onto Aramark Financial's results for the first quarter. We are pleased to report that net investment income for the first quarter of 2022 was approximately $3 million, or 42 cents per share, up 2.5% from the prior quarter. I want to take a moment to reflect that since the second quarter of 2020, When Arrowmark Asset Management took over management contract for the company, net investment income has consistently been reported in the 40 cents per share range or higher. As some of you may recall, during the first quarter of this year, the company announced an increase to a quarterly dividend by one cent per share or a 2.6% increase. This is the first time the company increases quarterly dividend rate in five years. In regards to our net asset value at the end of the quarter, the company's NAV was $21.44, down $0.26 per share from the prior quarter. This week, we released our unaudited estimated April NAV, which was at $21.36 per share. Even during volatile times, our NAV can be relatively stable and provide some stability to our stocks. Now, let me turn to the portfolio review. During the first quarter, the company invested a total of $6 million in one regulatory capital transaction. The security was purchased in the secondary market for an effective coupon of a little over 8%. I want to point out that the yields of the regulatory capital relief security will continue to benefit from the rise in interest rates due to their floating rate structure. The addition of the $6 million investment during Q1 was offset with $13.2 million in proceeds from four call investments and $4 million of partial paydowns. Subsequent to the end of the first quarter, the company invested $23.8 million in four transactions and received $6.4 million in partial paydowns. Year-to-date portfolio activity in terms of new investments Repayments and partials paid out had a net positive impact with net investments increasing $6.2 million. The company's estimated annual yield of the portfolio investments as of March 31st was 9.53%, up five basis points over the last quarter. At quarter end, I'm pleased to report that total assets of the portfolio were reported at $211 million up 15.6% from the prior year. The investor's portfolio was reported at $200 million, up 12.4% from the prior year. In closing my remarks, I want to highlight that for the first quarter, Aramark Financial reported an increase in net investment income, an increase in the dividend, and an attractive dividend yield of over 8%. We firmly believe that during these volatile times, The company is benefiting from the strategic mix of regulatory capital investments and community bank investments. Aramark Financial is the only public investment company that offers this unique investment opportunity to investors. Now, I want to turn the call over to Pat.