Welcome to the StoneCastle Financial Corp. Q4 2020 Investor Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. Now, I would like to turn the call over to Ms. Julie Muraco, Investor Relations of StoneCastle Financial. Thank you. You may begin.

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. This would depend on numerous factors such as changes in securities or financial markets or general economic conditions; the volumes of sales and purchases of shares of common stock; the continuation 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 and semiannual reports of the company. StoneCastle financial has based the forward-looking statements included in this presentation on information available to us as of December 31, 2020. The company undertakes no duty to update any forward-looking statements made therein. All forward-looking statements speak only as of today March 1, 2021. Now, I will turn the call over to Sanjai Bhonsle.

Thank you, Julie. Good afternoon, and welcome to StoneCastle Financial's fourth quarter investor call for 2020. Along with Julie, here with me today is, Pat Farrell our CFO. During today's presentation, I will briefly comment on the banking industry and credit markets, before commenting on the company. Then, I will provide StoneCastle Financial's quarterly results and portfolio review and Pat will provide you with greater detail on our financial results before we open the call for questions. In general, the fourth quarter of 2020 continued the trend of large money center banks and community banks reporting better-than-expected earnings. Furthermore, we believe banks will continue to be well capitalized. For the most part, banks have adequate reserves in anticipation of any corporate defaults from continued economic uncertainty. The most obvious concerns continue to be the industry sectors, most affected by the pandemic in hospitality, retail, transportation and some parts of energy. I want to remind our shareholders that the bank investments in StoneCastle Financial's portfolio have underlying loans, diversified by industry sectors. Also, community banks within the portfolio, primarily service their local markets in real estate such as multifamily, owner-occupied residential, C&I and other small businesses that have held up well during the past year. During the fourth quarter, we saw relatively strong performance with most of the company's community banks reporting sequential growth in net income with fairly stable to upward trending Tier one capital ratios. The issuance of new PPP loans help community banks partially mitigate increases in loan loss reserves with some banks partially reversing these increases during the fourth quarter. To date, a majority of the company's underlying community banks had reported their fourth quarter results with median net income up 16.8% versus the third quarter. In addition, these banks reported average Tier one capital ratios of…

Thank you, Sanjai. As I do each quarter, I will present the financial results by going through the components of the company's quarterly results in detail. The net asset value at December 31st was $21.44 per share, up $0.55 or 4.8% from the prior quarter including reinvestment of dividends. Now on to the breakdown of the NAV components, the NAV is comprised of four components. Net investment income, realized capital gains and losses, the change in value of the portfolio's investments, and lastly, distributions paid during the period. Let's review these components. Gross income for the quarter was $4.7 million, or $0.71 per share. Net operating expenses for the quarter were $1.6 million, or $0.25 per share resulting in net investment income for the quarter of $3.1 million, or $0.46 per share. This compares to $2.8 million reported in the prior quarter, up $0.04 per share. I would like to note in the fourth quarter $0.03 per share of net investment income represents non-recurring income related to the reimbursement of certain expenses in connection with the transition to StoneCastle ArrowMark. Realized capital gains and losses in the quarter is the second component affecting the change in NAV. The net realized capital gains from investments were approximately $312,000 or approximately $0.05 per share. Realized losses due to foreign currency transactions were approximately $1.6 million, or $0.25 per share. The third component changes in unrealized appreciation or depreciation of the portfolio relates to how the value of the entire investment portfolio has changed from the previous quarter end to the current quarter end. For the fourth quarter, the change in net unrealized appreciation on investments and foreign currency transactions was $5.4 million, or $0.81 per share, and unrealized depreciation on options written of $620,000 or $0.09 per share. I want to point…

Thank you, Pat. Now operator, I'd like to open up the call for questions.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Chris O'Connell with KBW. You may proceed with your question.

Good evening.

Good evening.

So just wanted to start off with the portfolio yield, I know you guys mentioned at the end of the quarter coming in around 9.65%. I was just wondering if you had what the average yield was for the fourth quarter.

Pat, do you want to take that?

Sure. I believe we noted that in the press release, 9.65% was the number for the quarter.

Okay, great. And then, it sounds like the investments you made during the quarter were coming on around 10.4% yield. Was there any change in that in terms of what the investments were coming on following the quarter end?

You mean for Q1?

Yes. You guys had mentioned that following the end of the quarter. You had made some additional investments, I think around $13.5 million or so. I'm just wondering, if there's any change in that yield versus what was oncoming during the fourth quarter.

Those are also strong, also in the 9s, and I believe we may have a couple of 10s in there as well.

Okay, great. And then -- so I'm assuming it's safe to say that all new investments are coming on kind of consistent to that level and kind of consistent to what you guys were gearing towards last quarter in the high 9s range. And as far the demand and the growth in the back half of the year, especially in the fourth quarter was really strong congratulations there. But I was wondering going forward, demand obviously following quarter end also seemed strong. Is it safe to say that given where the sub-debt issues that you guys mentioned in the 4% to 6% range for community bank yields and in general community banks are kind of flushed with liquidity right now, following some of the Fed actions in 2020. Is it safe to say that the alternative investments will be kind of leading the first half 2021 demand at least as far as you see now?

Yes. So Chris, that should be fairly accurate. You're right; the community bank sub-debt is in the 4% to 6% range. And we are seeing a slowdown of issuance there to begin with here in the New Year. And if there's any portfolio churn, you should expect a disproportionate amount of that liquidity being deployed in regulatory capital investments, Q1, Q2 at least.

Great. And then as far as the demand for overall alternative capital investments, has that kind of remained strong so far in 2021?

What do you mean by demand for...

Are you guys seeing against continuing to see strong growth in the first half of the year?

Okay. Got it. Yes. So just to -- and obviously we've talked about this in our previous calls, regulatory capital issuance is a bit seasonal. And usually Q4 is the strongest quarter. And then, Q1 kind of lags that right? What we have seen during Q1 is the seasonal adjustment to that. However, the secondary markets and regulatory capital have been fairly active. And so, from that perspective, we are seeing sufficient amount of investments that we need to take a look at. And so between the primary market and the secondary market in Q1, it's a healthy amount of investments again like I said to analyze and make a decision on.

Got it. And just given where we are in the quarter a little bit further than we typically are for this call and update, is it safe to say also with your comments around the red cap investments being seasonally a little bit lower in the first quarter that the first quarter kind of net investment portfolio growth isn't going to be too much stronger than what was already indicated in the press release, or do you guys have kind of a late pipeline that's coming through in the back half of this quarter?

Yes. So obviously, I can't give you specific details as to what's going on in Q1. But as mentioned in my previous comments, we did make additional purchases during the first quarter. And like I said it has been a fairly active quarter, both in the primary and secondary markets. And -- but having said that you obviously see some investments repay. And timing of that is not always a known quantity but, I'll just kind of mention that we have been active buying new investments here during the first quarter.

Got it. Thanks. That’s all I had. I’ll step back in the queue. Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to our CEO for closing remarks.

Well, thank you operator. Again, thank you for your support through a challenging 2020. Please do stay safe and healthy. And I'm looking forward to the time when we can all meet in person again. So thank you, good night and speak with you all soon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.