Q2 2021 StoneCastle Financial Corp Earnings Call

Please standby the conference will begin momentarily we thank you for your patience and I thought you. Please remain on the line.

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Instead 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 reports of the company don't.

Don't count the financial is based the forward looking statements included in the presentation on information available to US as of June 30th 2021. The company undertakes no duty to update any forward looking statements made herein all forward looking statements speak only as of today August 5th 2021, now I will turn the call over.

<unk> J <unk>.

Thank you Julie good afternoon, and welcome to the Stonecastle financials second quarter and mustard call for 2021.

Along with Julie.

Here with me today, Sir I'll ask fearful.

During today's presentation, our briefly comment on the banking industry of the credit markets.

Before commenting on the company.

Then I'll provide stonecastle financials quarterly results and portfolio review.

And path will provide you with greater detail on the financial results before we open the call for questions.

In general the.

Banking industry continues to perform well.

And the latest Fdic's quarterly both of our report.

Net income across all banking institutions more than triple versus a year ago quarter.

In fact 75 per cent of all banks reported higher quarterly net income.

And for Canadian banks in particular net income grew 7.7%.

Also in June switch ratings reported that the number of of banks.

With the stable rating doubled on a year of your basis.

Overall, we continue to believe in the health of the banking industry.

Now, let me comment on the credit markets.

The order as well.

However, the transactions were competitively priced.

As mentioned in the previous call. We continue to look across the entire spectrum of banking institution for opportunities to participate in regulatory capital release transactions.

Of note.

We are seeing activity within recently can the bank.

As it relates to issuance of Red cap securities to optimize their respective balance sheet.

Don't castle is positioned to benefit from the the issuances of.

Of the deals offer optimize the risk adjusted returns.

Now onto Stonecastle financials results for the second quarter.

We of police report that net investment income for the second quarter was approximately 2.6 million or 40 per share.

At the end of the second quarter net asset value was $21.80 per share.

Up 18 cents from the prior quarter.

Now, let me turn to the portfolio of review.

During the second quarter of the company of invested a total of $17.1 million and 4 regulatory capital of transactions.

The 4 new investments, possibly contributed to the portfolio.

With the weighted average coupon of 10.1 per cent.

Kind of weighted average yield the majority of approximately 10.3 per cent.

The majority.

<unk> Securities were purchased in the primary markets.

Yields of these new assets remain accretive the the investment portfolio.

During the second quarter of 2021 the.

The company received proceeds of $4 million from 1 call and 5 paydowns.

Subsequent to the end of the quarter the company and method approximately $5.5 million and received partial paydowns to date of 1 of 8 million.

We have targeted another investment of approximately $3 million at the time of this call.

At quarter and the estimated annualized effected you generated by the method portfolio.

The swirling cash and cash equivalents was 947%.

Up from 932% in Q1.

This portfolio yield of health stable above 9% for 18 consecutive quarters are 4 and a half years running.

I want to point out that this yield is produced with the majority of high quality investment great assets.

I also want dimensions. The subsequent to the end of the quarter, we successfully closed on the issuance of $10.8 million and a registered direct offering.

This transaction was executed of the companies active $150 million shelf registration.

The issuance price was $21.89.

Ah slight pm to any of the at the time of the transaction and therefore accretive to our shareholders.

Last year, 1 of the commitments Aramark made during the Stonecastle transition.

Was to grow assets by investing are available credit line.

And through opportunities and the equity capital markets.

We found him growing assets using the shelf for accretive transactions and the alignment with shareholder interest.

We're excited about the clothes transaction and look forward to executing on more of the the opportunities when market conditions are favorable.

And my closing remarks.

I want to point out the continue the advantages of our company.

Company and our stock.

<unk> continues to position the portfolio to seek the most advantageous risk adjusted of returns available in banking related assets in the industry today.

Yet we believe our stock price does not reflect the significant value added by our team and the continued to outside of the returns we're delivering to our investors.

Since the second half of 2015.

<unk> or exceeded or 38% dividend.

Providing consistent performance for our shareholders.

Today, the company still offers over 500 basis points of incremental yield.

Versus other banking related income oriented vehicles.

All the while.

We continued to deliver consistent net and.

The investment income.

A stable and growing and navy and of consistent annualized portfolio of yield of over 9%.

We believe the company stock.

Whether foreign equity or a fixed income strategy is offerings significant value to of shareholders at his current yield of approximately 7%.

Now I want to turn the call over the past.

Thank you sound you.

As I do each quarter I will present, the financial results by going through the components of the company's quarterly results in detail.

No. That's it value of June 30th was $21.80 per share of 18 cents from the prior quarter.

Now onto the breakdown of the any of the components.

Yeah, maybe he is comprised of 4 components that messman income.

Realized capital gains and losses, the change the value of the portfolio investments and lastly distributions paid during the period.

Let's review of these components.

Gross income for the quarter was $4.2 million for 65 cents per share net.

Operating expenses for the quarter 1.6 million for 25 cents per share, resulting in net investment income for the quarter of $2.6 million or 40 cents per share.

Hi. This is the case of every quarter of the timing of calls Paydowns an option assignment if any impact the income generation of the company.

Realized capital gains or losses in the quarter, because the second component of sucking the change in the Navy.

The net realized capital losses from investments were approximately 960004, approximately 15 cents per share.

Realize losses due to foreign currency transactions, where approximately 500 of 19004.8 cents per share.

The third component changes and unrealized appreciation of depreciation of the portfolio relates to have the value of the entire investment portfolio has changed from the previous quarter and the the current boyfriend.

The the second quarter the change of net unrealized a appreciation on investments in foreign currency transaction was approximately $2.6 million or 39 cents per share.

I want to point out the gains and losses from foreign currency hedging activities do not impact our note income.

The fourth component affecting the change of net asset values distributions.

The regular cash distribution for the quarter was 38 cents per share, which was paid on June 28th to shareholders of record on June 21st.

In summary, we began the quarter with a net asset value of $21.62 per share.

During the quarter of generated net income of $2.6 million.

Net realized cup of losses of approximately 960000.

And the unrealized value of the portfolio and foreign currency transactions increased by $2.6 million.

Some of the components reduced by distribution of 38 cents per share resulted in a net asset value of $21.80 per share on June 30th which was up 18 cents from the prior quarter.

Turning to the valuations for our portfolio holdings is worth noting that the vast majority of the portfolio continues to be independent anymore.

For the quarter of approximately 87 per cent of the portfolio of prices hallmark's reflect the minimum of 2 quotations or actual closing exchange prices.

These quotations represents an independent third party assessment of the current value of of the portfolio.

It should provide a greater degree of confidence in the company underlying value versus other publicly traded clothes and fun and BDC, whose portfolios are comprised of assets that do not have readily available market quotations and therefore silk mark many of the assets in their portfolio.

A quarter and the company of total assets of $250.1 million consisting of total investments of $246.5 million.

And cash interest and dividends receivable and prepaid assets totaling approximately 3.6 million.

The total assets reported this quarter reflects approximately $51.7 million of investment related activities, which closed in the first week of the third quarter.

Net of this transaction the company's total assets were of $198 million at the end of the quarter up from $182.5 million in Q1 or 7 per cent sequentially.

Our dividend yield at the end of the quarter was approximately 6.9 per cent.

Now, let me update you on the balance of our credit facility.

Of June 30th of the company at 53.5 million drunk from the facility for 27 per cent of total assur.

He's kind of regulated investment company rules, we may only borrow off the 33.3 per cent of our total assets.

And I want to turn the call back over to Sanjay for closing remarks.

Thank you Pat now operator, I would like to open up the call for questions.

Thank you.

So that basically you know 51 million or so of that you know take out of out of the investment portfolio and the assets to get the leverage ratio 27, <unk> figured out of 27 per cent that you guys referred to.

<unk>, you're exactly right exactly right that that cast in the money markets directly offset that do the custodian amount.

Okay got it it makes sense and congratulations you know the the successful offering was hoping I'd just you know.

Have you guys for vital color update you know is that an indication of you know of higher growth outlook that we could see you know and in the second half of the year here.

Yeah, Hi, Hey, Chris of the subject how are Ya.

Good how are Ya sundry.

None of that yeah.

Yeah. So you know in in regards to the investing pipeline.

The.

Continues to be fairly active and and as you might recall from a previous comments Q.

Q3, and Q4 generally speaking are fairly active quarters, the fourth quarter being the most of it relates to issuance of new regulatory capital securities by banks right.

And and of today, we do have some availability on the credit line, but having said that.

We would like to ideally match, the investment pipeline with the growth of the company and if the capital markets allow us to issue of additional shares we would be looking at that so hopefully.

Hopefully hopefully that helps.

Yeah, absolutely and.

As far as the you know the the credit line goes is that something that you know if the if there is a robust kind of growth outlook as you come into the back of of the year here that that is something that you might consider increasing in size.

Yeah. So we do have a fairly good relationship with our banking partner, there who has indicated to us from time to time that they'd like to grow alongside the company and I mean of all things constant we do expect them to to grow with us.

[noise] got it and then as far as the outlook of those with the pipeline on the Red cap side.

Is it is the stuff that you're putting on school around the same yields and kind of.

Hi, not even flow of 10 and yields.

Yes, that's right I mean, that's kind of of what we're seeing in the market today there'll be an average I would say that's kind of of will end up in the in the ninth.

And [noise].

Yeah, so sort of really know materially centered there.

[noise] [noise] [noise], Okay, great and then excluding you know the the cash of the study amount that's gonna fall off the balance sheet.

Can you just remind us of you know the the interest rate sensitivity profile of and you know how much of the portfolio investment portfolios floating right.

[noise] sure that do you want to think that or do you want me to start.

You could you could take of now I'll add on certainly sure.

Sure So Chris and of today, if you were to look at look at it on a total of.

The asset basis.

About 60% of the for the portfolio as in floating rate.

And.

So.

And that's you know, it's either labour or software type of index asset.

So again to clarify on about 195 million of assets take about 60% of those being floating.

Okay, Great got it yeah.

Alright, that's that's all I had thank you.

Step out.

Thanks, Chris.

Okay.

Yeah no questions at this time I will now turn the call back over to management for closing remarks.

Oh well everyone. Thank you very much for listening in and you know I look forward to answering the questions you of all folks might have and have a great night. Thank you.

Yeah.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.

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