SEC Filing - ArrowMark Financial Corp.

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StoneCastle Financial Corp.

Schedule of Investments (unaudited)

As of March 31, 2020

		# of
		Shares/Par
Company(1)	Investment	Amount ($)(2)		Fair Value(3)
Term Loans — 16.1%
Banking - 16.1%
American Capital Bancorp	Subordinated Term Loan, 9.00%, 4/1/2028	$	7,000,000	$	6,816,250
Big Poppy Holdings, Inc.	Subordinated Term Loan, 6.50%, 7/1/2027	$	3,500,000	3,395,000
F.N.B.C. of La Grange, Inc.	Subordinated Term Loan, 6.38%, 1/1/2030	$	700,000	658,000
TransPecos Financial Corp.	Senior Term Loan, 9.00%, 10/1/2028	$	4,000,000	3,800,000
Tulsa Valley Bancshares	Subordinated Term Loan, 6.38%*, 12/31/2028	$	1,700,000	1,598,000
Young Partners, L.P.	Secured Term Loan, 10.50%, 11/9/2020	$	4,565,000	3,846,013

	Total Term Loans (Cost $21,205,294)			20,113,263
Debt Securities — 7.5%
Banking - 7.5%
Deutsche Bank AG	Senior Unsecured Debt Obligation, Floating Rate Notes, Credit Linked to CRAFT 2018-2A, Current period coupon 11.83%^, 1/20/2026, 144A(4)	$	9,959,857	7,314,500
MMCapS Funding I, Ltd. / MMCapS Funding I, Inc.	Fixed Rate Senior Notes, 6.34%, 6/8/2031, 144A(4)	$	2,469,435	1,531,050
Preferred Term Securities, Ltd. / Preferred Term Securities, Inc.	Fixed Rate Mezzanine Notes, 9.74%, 9/15/2030, 144A(4)	$	569,076	554,849

	Total Debt Securities (Cost $12,507,676)			9,400,399
Trust Preferred Securities — 2.4%
Banking - 2.4%
Central Trust Company Capital Trust I.	Junior Subordinated Debt (Trust Preferred Security), 10.25%, 7/25/2031	$	1,004,000	927,445
M&T TPS LLC	Trust Preferred Security, Series 2015-1 9.74%, Note, 9/30/2030, 144A(4)	$	2,016,697	2,004,092

	Total Trust Preferred Securities (Cost $3,066,658)			2,931,537

See notes to Schedule of Investments

		# of
		Shares/Par
Company(1)	Investment	Amount ($)(2)		Fair Value(3)
Credit Securitizations — 32.2%
Banking - 32.2%
Community Funding CLO, Ltd.	Preferred Shares(5) (Estimated effective yield 10.37%), 144A(4)	$	45,500,000	$	38,902,500
U.S. Capital Funding I, Ltd. / U.S. Capital Funding I, Corp.	Subordinate Income Note, (Estimated effective yield 17.94%), 5/1/2034, 144A(4)	$	4,700,000	1,245,500

	Total Credit Securitizations (Cost $46,637,339)			40,148,000
Pooled Equity Interest — 14.4%
Banking - 14.4%
Community Funding 2018,LLC.	Preferred Shares(5) (Estimated effective yield 9.34%), 144A(4)	$	22,860,000	18,005,679

	Total Pooled Equity Interest (Cost $22,374,793)			18,005,679
Preferred Stocks — 15.9%
Banking - 15.9%
Fidelity Federal Bancorp	Fixed Rate Cumulative Perpetual Preferred Stock, Series A, 9%	$	4,439,000	4,217,050
Fidelity Federal Bancorp	Fixed Rate Cumulative Perpetual Preferred Stock, Series B, 9%	$	51,000	48,450
First Marquis Holdings, LLC.	Variable Rate Perpetual Preferred Stock(5) (Estimated effective yield 13.15%)(6)	$	6,550,000	6,513,975
Marshall Holdings Limited	Variable Rate Perpetual Preferred Stock(5) (Estimated effective yield 12.10%)(6)	$	5,000,000	4,407,000
The Queensborough Company	Fixed Rate Cumulative Perpetual Preferred Stock, Series A, 9%	$	2,670,000	2,536,500
The Queensborough Company	Fixed Rate Cumulative Perpetual Preferred Stock, Series B, 9%	$	94,000	89,300
TriState Capital Holdings	Fixed / Floating Cumulative Perpetual Preferred Stock, 6.75% (TSCAP)	$	80,000	2,000,000

	Total Preferred Stocks (Cost $20,810,452)			19,812,275
Exchange Traded Fund — 13.7%
Diversified Financials and Banking - 13.7%
iShares S&P U.S. Preferred Stock Index Fund	iShares U.S. Preferred Stock Index Fund - Exchange Traded Fund (PFF)	535,100		17,037,584

	Total Exchange Traded Fund (Cost $20,064,987)			17,037,584
	Total Long Term Investments (Cost $146,667,199)			127,448,737

See notes to Schedule of Investments

		# of
		Shares/Par
Company(1)	Investment	Amount ($)(2)	Fair Value(3)
Money Market Fund — 4.5%
Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio	Institutional Share Class - Money Market Mutual Fund (MISXX) 0.64%	5,529,321	$	5,529,321

	Total Money Market Fund (Cost $5,529,321)		5,529,321
	Total Investments (Cost $152,196,520)(7)† — 106.7%		132,978,058
	Other assets and liabilities, net — (6.7)%(8)		(8,299,580		)
	Total Net Assets — 100.0%		$	124,678,478

(1)		We do not “control” and are not an “affiliate” of any of our investments, each as defined in the Investment Company Act (the “1940 Act”).
(2)		$represents security position traded in par amount.
(3)		Fair Value is determined in good faith in accordance with the Company’s valuation policy and is reviewed and accepted by the Company’s Board of Directors.
(4)		Security is exempt from registration under Rule 144A of the Securities Act of 1933.
(5)		The preferred shares are considered an equity position. Equity investments are entitled to recurring distributions which are generally equal to the remaining cash flow of the payments made by the underlying company’s securities less contractual payments to debt holders and company expenses. The estimated effective yield indicated is based upon a current projection of the amount and timing of these recurring distributions and the estimated amount of repayment of principal upon termination. Such projections are periodically reviewed and adjusted as needed. The estimated effective yield may ultimately not be realized.
(6)		Investments determined using significant unobservable inputs (Level 3). The value of such securities is $10,920,975 or 8.8% of net assets.
(7)		Cost values reflect accretion of original issue discount or market discount, and amortization of premium.
(8)		Includes $9,000,000 in bank loans from Texas Capital Bank.
*		The estimated effective yield including structuring fees paid annually through maturity of 2028 is 9.60%.
^		Current period coupon is based on the 3 month LIBOR rate plus 1,000 basis points at the time of purchase. Coupon resets on a quarterly basis on January, 20th, April 20th, July 20th and October 20th.
†		As of March 31, 2020, the tax cost basis of investment securities was $152,196,520. The gross unrealized appreciation over tax cost was $277,300 and gross unrealized depreciation under tax cost was ($19,495,762). Net unrealized depreciation of tax cost under value was ($19,218,462).

See notes to Schedule of Investments

Additional Information

The following is a listing of the underlying unsecured loans, subordinated debentures and notes that were made by Community Funding CLO, Ltd. See Notes to Financial Statements for additional information on StoneCastle Financial Corp’s. investment in Community Funding CLO, Ltd.

Principal

Bank Name

Amount

State

Bank Name

Amount

State

Progress Financial Corporation

5,500,000

Alabama

Glacier Bancorp, Inc.

7,500,000

Montana

Cornerstone Community Bancorp

5,000,000

California

First State Holding Co.

9,350,000

Nebraska

Bankwell Financial Group

7,500,000

Connecticut

Lakeland Bancorp, Inc.

7,500,000

New Jersey

Liberty Bank

7,500,000

Connecticut

OceanFirst Financial Corp.

7,500,000

New Jersey

Idaho Trust Bancorp

5,000,000

Idaho

Pathfinder Bancorp, Inc.

10,000,000

New York

Bancorp Financial, Inc.

12,500,000

Illinois

Quontic Bank Holdings Corporation

3,000,000

New York

Market Street Bancshares, Inc.

7,500,000

Illinois

MidWest Community Financial Corp.

7,500,000

Oklahoma

First Internet Bancorp

10,000,000

Indiana

Myers BancShares, Inc.

10,000,000

Oklahoma

Treynor Bancshares, Inc.

12,500,000

Iowa

First Resource Bank

2,000,000

Pennsylvania

Freedom Bancshares, Inc.

2,000,000

Kansas

Victory Bancorp, Inc.

5,000,000

Pennsylvania

Williams Holding Company, Inc.

1,000,000

Kansas

Sandhills Holding Company, Inc.

8,500,000

South Carolina

CB&T Holding Corp.

12,500,000

Louisiana

First Citizens Bancshares, Inc.

10,000,000

Texas

Delmar Bancorp

2,000,000

Maryland

Happy Bancshares, Inc.

7,500,000

Texas

Citizens Bancshares

12,500,000

Missouri

Linden Bancshares, Inc.

4,000,000

Texas

First Bancshares, Inc.

2,500,000

Missouri

First National Corporation

5,000,000

Virginia

Security State Bancshares, Inc.

12,500,000

Missouri

FS Bancorp. Inc.

10,000,000

Washington

First Citizens BancShares, Inc. (FCNC)

7,500,000

North Carolina

Bank First Corporation

7,000,000

Wisconsin

Total

246,850,000

The following is a listing of the underlying unsecured loans that were made by Community Funding 2018, LLC. See Notes to Financial Statements for additional information on StoneCastle Financial Corp’s. investment in Community Funding 2018, LLC.

	Principal
Bank Name	Amount		State
Big Poppy Holdings, Inc.	$	9,000,000	California
Freeport Bancshares, Inc.	3,150,000		Illinois
Fidelity Federal Bancorp	8,000,000		Indiana
Halbur Bancshares	3,000,000		Iowa
Vintage Bancorp	3,000,000		Kansas
Delmar Bancorp	4,500,000		Maryland
First Bancshares	10,000,000		Mississippi
MidWest Regional Bank	5,000,000		Missouri
Lincoln Park Bancorp	5,000,000		New Jersey
MidWest Community	2,500,000		Oklahoma
Peoples Bancshares	4,000,000		Virginia
Total	$	57,150,000

See notes to Schedule of Investments

Notes to Schedule of Investments (unaudited)

Investment Valuation— The most significant estimates made in the preparation of the financial statements of StoneCastle Financial Corp. (“SCFC” or the “Company”) are the valuation of equity and debt investments and the effective yield calculation with respect to certain debt securities, as well as the related amounts of unrealized appreciation and depreciation of investments recorded. The Company believes that there is no single definitive method for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments that SCFC makes. The Company is required to specifically fair value each individual investment on a quarterly basis.

The Company complies with ASC 820-10, Fair Value Measurements and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. ASC 820-10 clarified the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. ASC 820-10 also establishes the following three-tier fair value hierarchy:

· Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

· Level 2 — Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. These inputs may include quoted prices for the identical instrument on an active market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data; and

· Level 3 — Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Company’s own assumptions about the assumptions that a market participant would use in valuing the asset or liability, and that would be based on the best information available.

To the extent securities owned by the Company are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. Securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level 2 of the fair value hierarchy.

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by SCFC in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on

the lowest level input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, SCFC’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. SCFC uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

SCFC will determine fair value of its assets and liabilities in accordance with valuation procedures adopted by its Board of Directors. The Company may utilize the services of one or more regionally or nationally recognized independent valuation firms to help it determine the value of each investment for which a market price is not available. SCFC’s Board of Directors will also review valuations of such investments provided by StoneCastle-ArrowMark Asset Management, LLC, the Advisor to the Company (“the Advisor”). To the extent SCFC invests in securities for which market quotations are readily available, such market value will be used to value those securities. If a market value cannot be obtained or if SCFC’s Advisor determines that the value of a security as so obtained does not represent a fair value as of the measurement date (due to a significant development subsequent to the time its price is determined or otherwise), fair value shall be determined pursuant to the methodologies established by our Board of Directors. In making these determinations, the Company may engage an independent valuation firm from time to time to assist in determining the fair value of our investments. The methods for valuing these investments may include fundamental analysis, discounts from market prices of similar securities, purchase price of securities, subsequent private transactions in the security or related securities, or discounts applied to the nature and duration of restrictions on the disposition of the securities, as well as a combination of these and other factors.

Credit Securitization and Pooled Equity Interests— SCFC may acquire preferred share positions in credit securitizations or pooled equity interests. In valuing such investments, SCFC attempts to obtain a minimum of two marks provided by recognized industry brokers as a primary source, supplemented by actual trades executed in the market at or around period-end, as well as the marks provided by the broker who arranges transactions in such investment vehicles. These positions may result in a layering of leverage in overall structure. The more leverage is employed, the more likely a substantial change will occur in the Company’s net asset value (“NAV”).Accordingly, any event adversely affecting the value of an investment would be magnified to the extent leverage is utilized.

The Company’s assets measured at fair value subject to the disclosure requirements of ASC 820-10-35 at March 31, 2020, were as follows:

					LEVEL2		LEVEL 3
					SIGNIFICANT		SIGNIFICANT
	TOTAL FAIR		LEVEL 1		OBSERVABLE		UNOBSERVABLE
	VALUE AT 3-31-20		QUOTED PRICE		INPUTS		INPUTS
Term Loans	$	20,113,263	$	—	$	20,113,263	$	—
Debt Securities	9,400,399		—		9,400,399		—
Trust Preferred Securities	2,931,537		—		2,931,537		—
Credit Securitizations	40,148,000		—		40,148,000		—
Pooled Equity Interest	18,005,679		—		18,005,679		—

							LEVEL 3
					LEVEL2		SIGNIFICANT
	TOTAL FAIR		LEVEL 1		SIGNIFICANT		UNOBSERVABLE
	VALUE AT 3-31-20		QUOTED PRICE		OBSERVABLE INPUTS		INPUTS
Preferred Stocks	$	19,812,275	$	—	$	8,891,300	$	10,920,975
Exchange Traded Fund	17,037,584		17,037,584		—		—
Money Market Fund	5,529,321		5,529,321		—		—

Total Investments in Securities	$	132,978,058	$	22,566,905	$	99,490,178	$	10,920,975

The Level 3 categorized assets listed above have been valued via the use of a) independent third party valuation firms, or, b) fair valued as determined in good faith by the Board of Directors, in accordance with procedures established by the Board of Directors.

For fair valuations using significant unobservable inputs, U.S. generally accepted accounting principles (“U.S. GAAP”) requires SCFC to present a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchase and sales, and transfers in and out of Level 3 during the period. Transfers in and out between levels are based on values at the end of a period. U.S. GAAP also requires SCFC to disclose amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. A reconciliation of Level 3 investments is presented below:

	PREFERRED
	STOCK			TOTAL
Balance at December 31, 2019	$	12,632,975		$	12,632,975
Realized gains including earnings	—			—
Unrealized appreciation/(depreciation) on investments	(1,712,000		)	(1,712,000		)
Purchases	—			—
Sales	—			—
Transfers in	—			—
Transfers out	—			—
Balance at March 31, 2020	$	10,920,975		$	10,920,975

The change in unrealized appreciation on Level 3 securities held as of March 31, 2020 was $(1,712,000).

IMPACT TO

FAIR VALUE AT

VALUATION

UNOBSERVABLE

VALUATION FROM AN

3/31/2020

TECHNIQUES

INPUTS

ASSUMPTIONS

INCREASE TO INPUT

Preferred Stock

10,920,975

Prior Transaction Analysis

Discount for transaction costs

3.00

Increase in unobservable input will Decrease the value.

For more information with regard to significant accounting policies, see the most recent Company’s annual report filed with the Securities and Exchange Commissions.