ArrowMark Financial (BANX) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net investment income for Q2 2019 was $2.5 million or $0.38 per share, with total assets approximately $168.2 million and an investment portfolio value of about $165.1 million [6][15] - Net asset value (NAV) at the end of the quarter was $21.80 per share, an increase of $0.17 from the prior quarter [12][14] - Gross income for the quarter was $4.05 million or $0.62 per share, while net operating expenses were $1.58 million or $0.24 per share [12] Business Line Data and Key Metrics Changes - The estimated annualized portfolio yield was approximately 9.16%, despite $12.9 million of securities being redeemed during the quarter [7] - The majority of the portfolio continues to be independently marked, with approximately 94% of the portfolio prices reflecting a minimum of two quotations or actual closing exchange prices [14] Market Data and Key Metrics Changes - The community banking industry experienced a quiet quarter, with debt offerings by U.S. banks below $10 billion in assets reported at only $176 million in Q2, with a weighted average coupon of 5.27% [6] - The current market environment has seen a decline in the 10-year treasury yield by over 90 basis points since the beginning of the year, contributing to the relative value of the company's stock [10] Company Strategy and Development Direction - The company is focusing on regulatory capital relief transactions, which are typically issued by larger banks, to improve capital ratios without selling off loan portfolios [8][42] - The company emphasizes discipline on credit quality, with the majority of underlying banks scored investment-grade or better, which is crucial as the credit cycle progresses [10] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic policy and foreign trade issues have little direct effect on community banks, which are historically recession-resistant [26][27] - The company is actively seeking investments that align with its long-term strategy, despite the current market volatility and uncertainty [9][20] Other Important Information - The cash distribution for the quarter was $0.38 per share, paid on June 26 to shareholders of record on June 20 [13][14] - The company had $24 million drawn from its credit facility at the end of the quarter, with the ability to borrow up to 33.3% of total assets based on regulated investment company rules [15] Q&A Session Summary Question: How is the company thinking about dividend coverage today? - Management indicated that they are currently covering the dividend and are actively working on new positions to maintain coverage, with good odds that it will continue [20][21] Question: How is the portfolio positioned for the current macro backdrop? - Management stated that smaller banks typically enjoy better net interest margins and have more pricing power, making them resilient in the current economic environment [24][25] Question: Could you provide details on the credit facility and interest expense going forward? - Management explained that they have flexibility in borrowing and have seen a decrease in interest expense due to lower rates, which positively impacts the bottom line [29][30]