ArrowMark Financial (BANX) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net investment income for Q1 2019 was $2.5 million or $0.38 per share, a decrease of $0.04 from the prior quarter [7][17] - Total assets were approximately $181.3 million, with the value of the invested portfolio at approximately $173 million [7][21] - The net asset value (NAV) at the end of the quarter was $21.63, up $0.20 from the prior quarter, primarily due to market recovery [7][16] Business Line Data and Key Metrics Changes - The estimated annualized portfolio yield was approximately 9.29%, despite a call of $17.5 million from three investments [9][10] - The gross income for the quarter was $4.2 million or $0.65 per share, while net operating expenses were $1.7 million or $0.27 per share [17] Market Data and Key Metrics Changes - Debt offerings by U.S. banks and thrifts were down 48% in Q1 2019 compared to the same period in the previous year [8] - Bank demand for capital remains below historic norms, contributing to stronger credit quality in the existing portfolio [12] Company Strategy and Development Direction - The company emphasizes a disciplined investment approach referred to as "patient capital," focusing on long-term yields and capital preservation [10][11] - The company is exploring alternative investments within the community banking sector and is actively working on expanding its investment pipeline [31][49] Management's Comments on Operating Environment and Future Outlook - Management believes the company is late in the current credit cycle and anticipates a normal market correction, but does not expect a crisis of the magnitude seen in 2008 [12][44] - The company is positioned to take advantage of future opportunities as they arise, with a focus on maintaining credit quality [12][13] Other Important Information - The company has a dividend yield of 7.1%, which is nearly three times higher than the average community bank [21] - The company is seeking shareholder approval to convert to a Delaware trust, which would result in annual tax savings of $90,000 [59][60] Q&A Session Summary Question: Were the call proceeds in the quarter idiosyncratic events or indicative of underlying trends? - Management indicated that the call proceeds were more idiosyncratic, with no significant underlying trends driving them [24][25] Question: Is there any leverage to generate additional yield or earnings in the intermediate term? - Management is working on several opportunities but emphasizes the importance of not sacrificing long-term returns for short-term gains [26][27] Question: Who is refinancing the deals in the current market? - The refinancing is primarily being driven by insurance companies seeking long-term assets to match their liabilities [33][34] Question: What is the outlook for banks with robust loan growth? - Management noted that while some banks are growing aggressively, many are being cautious due to potential credit risks [40][41] Question: What are the potential impacts of the next credit cycle? - Management believes the next cycle could occur in 12 to 24 months, with potential losses manageable within the capital structure of banks [44][46] Question: What are the advantages of converting to a Delaware trust? - The conversion would provide tax savings of $90,000 annually, benefiting shareholders without any downside [59][60]