ArrowMark Financial (BANX) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Earnings for Q3 2019 were approximately $3.4 million or $0.52 per share, consisting of net investment income of $2.5 million or $0.38 per share, and net realized capital gains of approximately $1 million or $0.14 per share [5][14] - Total assets were $169.2 million, with the invested portfolio valued at $166.9 million, and the net asset value (NAV) at the end of the quarter was $21.75 per share, down $0.05 from the prior quarter [5][17] Business Line Data and Key Metrics Changes - The company sold its equity interest in Happy Bancshares, realizing a capital gain of approximately $1 million, effectively doubling the initial investment with an average annualized return exceeding 14% [6] - The estimated annualized portfolio yield increased from 9.16% at the end of Q2 to 9.55% at the end of Q3 [12] Market Data and Key Metrics Changes - The company received full call proceeds of $10 million from Katahdin Bankshares and $4.5 million from Mercantil, along with principal amortization payments of $1.6 million during the quarter [6] Company Strategy and Development Direction - The strategic focus remains on finding value in the banking sector, particularly through investments in alternative capital securities that are non-dilutive to banks and generate significant current income [7][10] - The company is actively seeking additional investment opportunities in the banking sector, particularly as the market environment for bank subordinated debt issuance remains low [9] Management's Comments on Operating Environment and Future Outlook - Management noted a general trend of banks moving to a "hunker down" mode, indicating a cautious approach to lending amid economic uncertainties [26] - There is an increased focus among banks on adopting new technology to enhance competitiveness and reduce expenses [27] Other Important Information - The company is involved in a lawsuit filed against StoneCastle Partners and its affiliates, which it believes was a mistake due to the similarity of company names, and is awaiting a court ruling on a motion to dismiss [12] Q&A Session Summary Question: What additional investment opportunities are being seen as year-end approaches? - Management indicated that there is a slight increase in inquiries and a potential pickup in transactions as Q4 historically tends to see more activity [22] Question: Are there any new trends observed from community banks? - Management noted no significant hotspots in credit issues but mentioned a general pullback in funding desires among banks, indicating a cautious outlook on lending [26] Question: What is the status of potential call proceeds for Q4? - Management stated that approximately $15 million is currently available for calls, but they do not expect any material calls in the near term [32] Question: How does the delay of the CECL implementation affect small banks? - Management suggested that while small banks may have some breathing room, regulators are likely to hold them to higher standards in preparation for the CECL rule [34] Question: What yields are being seen in the current pipeline? - Management reported that yields for traditional products are still low, with interest in deals yielding in the 8% to high 7% range [38]