ArrowMark Financial Corp. Annual Report 2018

FY2018 Annual Report · ArrowMark Financial Corp.

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STONECASTLE

FINANCIAL CORP.

Annual Report

December 31, 2018

Important information about access to shareholder reports

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of StoneCastle Financial Corp.’s
annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each
time a report is posted on the website and will be provided with a link to access the report.

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect
to receive shareholder reports and other communications from the StoneCastle Financial Corp. electronically by contacting your financial intermediary (such as a
broker-dealer or bank). You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you
can contact the intermediary to request that you continue to receive paper copies. If you have any questions, please contact our Investor Relations Department at
(212) 354-6500, ext. 324.

Copies of all shareholder reports can be found at http://ir.stonecastle-financial.com/financial-information/annual-reports

NASDAQ | BANX

stonecastle-financial.com

STONECASTLE FINANCIAL CORP.
Table of Contents

Page

Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

About StoneCastle Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Geographic Distribution of Bank Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Statements of Changes In Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Auditor’s Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Results of Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Board Approval of the Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Privacy Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

This page intentionally left blank.

Letter To Shareholders

Dear Shareholders,

We are pleased to provide you with the enclosed report of StoneCastle Financial Corp. (“StoneCastle”
“we,” “us,” “our” or the “Company”) for the fiscal year ended December 31, 2018.

Our primary investment objective is to provide stockholders with current income, and to a lesser extent,
capital appreciation. We attempt to achieve our investment objectives through investment in preferred
equity, subordinated debt, convertible securities and common equity in the U.S. community banking sector.
We may also invest in companies that provide goods and/or services to banking companies. Together with
banks, we refer to these types of companies as banking-related businesses and intend, under normal
circumstances, to invest at least 80% of the value of our net assets plus, the amount of any borrowings for
investment purposes, in such businesses.

Since our inception, StoneCastle has benefitted from this wide range of investments within a bank’s capital
structure. Our Schedule of Investments is predominantly a fixed-income portfolio housed within a public
common equity vehicle, as the Company for the most part, invests in securities that rank senior to bank
common equity. As such, a little understood aspect of the portfolio construction is that the senior ranking
investments offer a capital buffer to absorb economic impact or credit losses sustained by the individual
banks, thereby better insulating StoneCastle’s income stream.

2018 Performance Review

At year-end, StoneCastle’s market capitalization was $126.4 million and its share price closed at $19.30,
up 3.84% for the year including dividend reinvestment. Declared distributions were $1.66 per share,
resulting in a dividend yield of approximately 8.6%. At year end, total assets were $196.2 million with an
estimated effective annualized portfolio yield of 9.32%.

Notable highlights in the year included Wintrust Financial Corporation’s redemption of Chicago Shore,
Series A and B, which had been in our portfolio since 2014. Prior to that redemption, StoneCastle
exchanged its preferred stock positions in Chicago Shore for the variable rate preferred stock issued by a
new financing vehicle, First Marquis Holdings. First Marquis received the cumulative, unpaid, Chicago Shore
dividends of approximately $1.8 million, as well as the $6.55 million principal repayment. Prior to year-
end, the Company paid a special dividend reflecting StoneCastle’s successful investment strategy and ability
to generate income in excess of the regular quarterly declared dividends.

Landscape of Banking

In the past year, bank profitability and capital levels remained high and therefore the demand for capital
was low. The yield on new issue subordinated debt issued by community banks compressed significantly
over the past several years and we believe this has largely been driven by the reduction in issuance as well
as the market’s perception of the improved credit quality of banks. For these reasons, we believe community
banks need for capital will continue to be relatively low in the immediate future.

Although there may be a cyclical decline in demand for capital, we believe that the multi-trillion dollar
community bank sector is ripe with opportunity for us as we survey a broad landscape of bank and banking
related investments. We believe the Company is well positioned to participate in expanded opportunities
consistent with our investment objective to deliver attractive income, and to a lesser extent capital
appreciation to its shareholders.

Widening the Net for Attractive Credit-Worthy Investments

StoneCastle’s reputation in the market and its industry expertise allows us a unique reach into community
banks and banking related companies. We have proprietary and early knowledge of front, mid, and back
office services available to automate and digitize banks, along with the opportunity to understand the
trends and adoption rates of these businesses.

StoneCastle Financial Corp. | Annual Report

An example of this is technology and its impact on consumer behavior. Banks are seeing the first generation
of customers who can’t remember a time before the internet or digital banking. In general, we believe that
the impact of technology will be favorable for community banking and many companies have and will
continue to grow rapidly to service this multi trillion dollar industry.

Banks are increasingly developing digital solutions for their customers and streamlining operations to
reduce non-interest expenses. Another example of banking related services are specialized companies
performing time consuming administrative functions such know-your-customer, OFAC and third-party risk
assessment. Banks are outsourcing these functions in increased regularity to emerging service companies,
many of which offer opportunities to us as direct investments. The vast majority of banks in the U.S. are of a
size that allow for cost efficient outsourced technology solutions, and a number of companies have
emerged to serve the needs of these 5,4001 banks.
While StoneCastle’s focus is primarily on direct bank investments, we continue to see a wide footprint of
attractive banking related investments whose very success is tied to that of the community bank industry.
As we have stated, we are not willing to sacrifice credit quality to chase yield. If we can find more
attractive risk/return profiles elsewhere in the banking related scope of opportunities we prefer to focus on
those alternatives.

Banking business has historically been profitable and most banks, at their core, are lenders, providing
commercial and/or consumer credit. As such, we believe that bank performance is highly correlated with the
credit performance of these underlying assets, a term we call “community risk”. The current lack of demand
for capital by banks is creating compressed spreads. Therefore, we are seeking to increase our exposure to
other bank related credit products and bank related services and software businesses, as they represent a
correlated asset class and may offer attractive returns relative to bank capital investments. We believe that
the inclusion of such investments complements our overall strategy and enhances the diversity of our
holdings.

Conclusion

In conclusion, I want to address the significant impact community banks have on their local markets and
economies. While not widely known, community banks are the exclusive financial institutions serving nearly
900 U.S. counties, representing 28%2 of all U.S. counties. They serve a geographically and socio-economic
diverse client base and make a contribution to two important societal themes: financial access and financial
inclusion. Community banks have a strong reputation for community service in support of the health and
well-being of communities in which they operate and are not often given enough credit for their
tremendous contribution to our society.

On the following pages, we provide additional details on our 2018 financial and operational results.

We appreciate your continued support and interest in StoneCastle Financial and its mission. We look
forward to updating you on our progress throughout the year.

Joshua S. Siegel
Chairman & CEO
StoneCastle Financial Corp.

(1) FDIC, Quarterly Banking Profile Reports 2018, (https://www.fdic.gov/bank/analytical/qbp/)

(2) FDIC, “Community Bank Developments in 2012”, 2013, Volume 7, No.4, (https://www.fdic.gov/bank/analytical/quarterly/2013-vol7-4/article.pdf)

Annual Report | StoneCastle Financial Corp.

About StoneCastle Financial Corp.

MANAGEMENT DISCUSSION AND SUMMARY

This report provides information on the financial performance for StoneCastle Financial Corp. (“StoneCastle
Financial” or the “Company”) for the year ended December 31, 2018. StoneCastle Financial (BANX) is
a closed-end management investment company listed on the NASDAQ Global Select Market.

For the full year, StoneCastle Financial had gross investment income of $17.7 million and operating expenses
of $7.0 million. This resulted in net investment income of $10.7 million or $1.63 per share based on
average shares outstanding during the year.The Company had realized and unrealized losses of ($657,394)
or ($0.10) per share. During the year, StoneCastle Financial declared distributions of ($1.66) per share
including the Company’s fourth quarter special cash distribution cash of $0.14 per share.

Based on the fourth quarter 2018 dividend rate of $0.38 per share and the closing price of $19.30 per
share on December 31, 2018, the year-end distribution yield was 7.9%. For the full year, an investment
in StoneCastle Financial resulted in a total annual return of 3.84%, including the reinvestment of distributions
based on the closing market prices of StoneCastle Financial’s stock.

PORTFOLIO DISCUSSION

THEPORTFOLIO

StoneCastle Financial makes long-term, non-control investments in community banks seeking capital for
organic growth, acquisitions, and share repurchases along with other investment opportunities.The Company
primarily invests in senior debt and term loans, subordinated debt, credit securitizations, preferred securities
and to a lesser extent, common stock.

Over the course of 2018, StoneCastle Financial purchased securities totaling $78.8 million, which consisted
of 17 transactions. During the same period, the Company executed sales of $43.0 million in 9 transactions.
In addition, the Company exchanged $6.55 million related to one transaction, received call (redemption)
notices for two transactions totaling $4.6 million for the year, and received pay downs of approximately
$180,000.

Annual Report | StoneCastle Financial Corp.

As of December 31, 2018, the Company had a total investment portfolio of $189.1 million representing
96% of total assets and consisting of:

Investment Type

Term Loans
Debt Securities
Trust Preferred Securities
Credit Securitizations
Pooled Equity Interest
Preferred Stocks
Common Stock
Exchange Traded Fund
Money Market (Short Term Investment)
Total Investments in Securities

Amount

17.4%
4.2%
13.1%
24.2%
11.5%
17.7%
1.6%
9.7%
0.6%
100.0%

TERMLOANS

StoneCastle Financial purchased $28.8 million of term loans in seven transactions in 2018. At year-end,
the Company held six investments in term loans totaling $32.9 million or 17.4% of total investments.
The Company’s largest holding in a term loan was $13.0 million of Baraboo Bancorporation, Inc. Senior
Secured Term Loan, 10.5%, 12/28/2026.

DEBTSECURITIES

At year-end, the Company held two debt security investments valued at $8.0 million or 4.2% of total
investments. The largest debt investment is $4.4 million PreferredTerm Securities, Ltd, Fixed Rate Mezzanine
Notes, 9.74%, 9/15/2030.

TRUSTPREFERREDSECURITIES

At year-end, the Company held seven trust preferred investments totaling $24.8 million, or 13.1% of
the total investments. Trust preferred securities are debt securities that may qualify as capital for a bank
or bank holding company.

While trust preferred securities may have been issued by both public and private banks, the securities
held by the Company are typically more liquid securities, offered by large public banking institutions. The
largest trust preferred investment is $6.5 million in First Alliance Capital Trust I, Junior Subordinated Debt,
10.25%, due 07/25/2031.

CREDITSECURITIZATIONS

During the year, the Company had no changes to credit securitizations. At year-end the Company held
two positions in credit securitizations totaling $45.8 million or 24.2% of total investments.The Community
Funding CLO, Ltd. is the largest holding in this category valued at $44.6 million. Community Funding
CLO contains direct capital investments in 35 community and regional banks from 24 states.The estimated
effective yield for Community Funding at year end 2018 was 10.37%.

POOLEDEQUITYINTEREST

In the first quarter, the Company made a $17.6 million pooled equity interest investment in Community
Funding 2018, LLC preferred shares, due 07/15/2026. Subsequent to the end of the first quarter, the
Company made two additional investments in Community Funding 2018.This was valued at $21.7 million,
representing 11.5% of total investments held at year end. The year-end estimated effective yield was
9.34%.

StoneCastle Financial Corp. | Annual Report

PREFERREDSECURITIES

During 2018, StoneCastle Financial purchased $8.6 million of preferred securities in two transactions.
At year-end, the Company held seven investments in preferred securities totaling $33.5 million, or 17.7%
of total investments. The Company’s largest holding in preferred securities was $12.6 million in Reliance
Bancshares, Inc., Fixed Rate Cumulative Perpetual Preferred Stock, SeriesA, 9%, which is located in Missouri.
A majority of these investments qualify for dividend received deduction (DRD) or qualified dividend income
(QDI) tax treatment. For more details, please see the 2018 Tax Information posted on the StoneCastle
Financial website (www.Stonecastle-Financial.com).

Please note that StoneCastle Financial is not a tax advisor and advises that shareholders consult a tax
advisor regarding their personal tax status.

COMMONSTOCK

At the end of 2018, the Company held two equity investments totaling $3.1 million, or 1.6% of the
total investments. Equity securities are typically held for capital appreciation, however, some positions
may be held for both dividend income and capital appreciation.

EXCHANGETRADEDFUND

The Company may utilize certain exchange traded funds as short-term positions expected to be redeployed
into higher yielding, long-term investments. At year end, the Company held one investment in iShares
S&P U.S. Preferred Stock Index Fund for a total of $18.3 million or 9.7% of the investment portfolio at
year end 2018.

SHORTTERMINVESTMENT

At year-end, StoneCastle Financial held The Morgan Stanley Institutional Liquidity Fund-Treasury Portfolio
as a short-term position for cash to be redeployed into higher yielding, long-term investments which, at
year end, was 0.6% of total investments.

PORTFOLIOCONSIDERATIONS

StoneCastle Financial is steadfast in its pursuit of constructing a portfolio able to generate long-term,
consistent and stable returns, primarily for income distribution and to a lesser extent, capital appreciation.
The Company seeks to achieve this goal while maintaining high credit quality standards. At year end,
the Company reported zero credit losses, zero impaired assets and no material deterioration of credit
quality within the underlying portfolio. In 2018, the Company had an issuer rating of A+ from Kroll Bond
Rating Agency and a BBB+ rating for Preferred Shares1. The Company also maintains an A3 rating from
Moody’s Investor Services on its revolving credit facility.

Among the factors that affect the timing of capital deployment are: (i) a bank’s timeframe to obtain
internal approvals to issue, (ii) the protracted nature of mergers and acquisitions, and (iii) an approval
process from government regulators which must provide final regulatory approvals for a bank merger,
capital issuances and capital redemptions (refinancing).

In 2018, the Company received notification that Chicago Shore Corporation, Fixed Rate Cumulative Perpetual
Preferred Stock, Series A, 9% and Chicago Shore Corporation, Fixed Rate Cumulative Perpetual Preferred
Stock, Series B, 9% was to be acquired byWintrust Financial Corporation. Subsequent to this announcement,
the investments in Chicago Shore became current on deferred perpetual and cumulative dividend payments
as permitted by terms of their securities. The Company elected to reward long-term shareholders of
StoneCastle Financial by paying out, over time, the nearly $1.8 million in cumulative and unpaid dividends
through a preferred shares portfolio investment vehicle, First Marquis Holdings, LLC.

Annual Report | StoneCastle Financial Corp.

INVESTMENTPROCESS

The Company conducts due diligence on pending investments in several phases, beginning with a preliminary
screening and ending, in most cases, with an on-site management visit. The investment process includes
both quantitative and qualitative reviews with investment decisions made by an investment committee
with nearly 120 years of combined investment experience in the bank sector. The Company’s disciplined
approach to due diligence and commitment to credit quality reflects its long-term view. The Company
believes shareholders have high regard for this dedicated and disciplined approach to portfolio construction,
as we expect it will serve to provide predictable cash flows over an extended period of time.

INVESTMENTFOCUS

StoneCastle Financial typically pursues a range of investments in a bank’s capital structure. A bank’s
capital structure includes subordinated debt, preferred stock and common equity. Bank holding company
senior debt can also be absorbed at the bank level and become part of the bank’s capital structure. As
a lender, a bank makes senior and mezzanine loans to borrowers. A bank’s common equity and loan loss
reserves offer a capital buffer to absorb credit losses from bank loans. StoneCastle typically invests in
securities that rank senior to the common equity of a bank.As investors in senior and subordinated debt,
StoneCastle would only incur a credit loss if the bank’s common equity plus loan loss reserves were
exhausted.

Conclusion

We believe that StoneCastle Financial offers investors a unique opportunity to participate in the community
banking industry.

The Company will continue to work diligently for our shareholders by prudently managing the investment
portfolio with the capital entrusted to us. As we work to deploy capital with a long-term view, credit
quality and a rigorous investment approach are of paramount focus in our stewardship, and in the value
we offer to our shareholders.

StoneCastle Financial continued its solid progress in 2018, despite increases in interest rates over the
course of the year. For 2019, we believe the market uncertainty due to changes in interest rates will
continue to produce volatility and mispriced credits. We believe this market activity will offer more attractive
investment opportunities for StoneCastle Financial.

We appreciate the feedback we receive from our shareholders and thank you for your support.

(1) StoneCastle Financial does not currently have a preferred share issuance.

StoneCastle Financial Corp. | Annual Report

StoneCastle Financial Corp.
Schedule of Investments

As of December 31, 2018

Company(1)

Investment

# of
Shares/Par
Amount ($)(2)

Fair Value(3)

Term Loans – 23.5%

Banking − 23.5%
American Capital Bancorp
Baraboo Bancorporation, Inc.

Big Poppy Holdings, Inc.
TransPecos Financial Corp.
Tulsa Valley Bancshares

Young Partners, L.P.

Debt Securities – 5.7%
Banking − 5.7%
MMCapS Funding I, Ltd. /
MMCapS Funding I, Inc.
Preferred Term Securities, Ltd.
/ Preferred Term Securities,
Inc.

Subordinated Term Loan, 9.00%, 4/1/2023
Senior Secured Term Loan, 10.50%,
12/28/2026
Subordinated Term Loan, 6.50%, 4/1/2028
Senior Term Loan, 9.00%, 10/1/2028
Subordinated Term Loan, 6.375%,
12/31/2028(4)*
Secured Term Loan, 10.50%, 11/9/2020

Total Term Loans
(Cost $32,971,844)

$ 7,000,000

7,000,000

$13,000,000
$ 3,500,000
$ 4,000,000

$ 1,700,000
$ 4,565,000

13,065,000
3,465,000
4,000,000

1,649,000
3,746,724

32,925,724

Fixed Rate Senior Notes, 8.04%, 6/8/2031,
144A(5)
Fixed Rate Mezzanine Notes, 9.74%,
9/15/2030, 144A(5)

Total Debt Securities
(Cost $7,937,167)

$ 4,307,097

3,526,436

$ 4,435,141

4,489,179

8,015,615

Trust Preferred Securities – 17.7%
Banking − 17.7%
Capital City TPS LLC

Central Trust Company

Capital Trust I.

First Alliance Capital Trust I

First Citizens TPS LLC

M&T TPS LLC

Mercantil TPS LLC

National Bank of Indianapolis

TPS LLC

Trust Preferred Security, Series 2015-1
9.74%, Note, 9/30/2030, 144A(5)
Junior Subordinated Debt (Trust Preferred
Security), 10.25%, 7/25/2031
Junior Subordinated Debt (Trust Preferred
Security), 10.25%, 7/25/2031
Trust Preferred Security, Series 2015-1
9.74%, Note, 9/30/2030, 144A(5)
Trust Preferred Security, Series 2015-1
9.74%, Note, 9/30/2030, 144A(5)
Trust Preferred Security Series 2015-1
9.74%, Note, 9/30/2030, 144A(5)
Trust Preferred Security, Series 2015-1
9.74%, Note, 9/30/2030, 144A(5)

$ 1,903,832

1,903,238

$ 2,500,000

2,517,969

$ 6,500,000

6,544,688

$ 2,221,137

2,220,444

$ 2,538,442

2,550,338

$ 4,759,579

4,758,094

$ 4,283,622

4,282,285

Total Trust Preferred Securities
(Cost $25,217,365)

24,777,056

StoneCastle Financial Corp. | Annual Report

See notes to financial statements

Company(1)

Investment

Credit Securitizations – 32.6%

# of
Shares/Par
Amount ($)(2)

Fair Value(3)

Banking − 32.6%
Community Funding CLO, Ltd.

U.S. Capital Funding I, Ltd. /
U.S. Capital Funding I,
Corp.

Preferred Shares(6) (Estimated effective
yield 10.37%), 144A(5)
Subordinate Income Note, (Estimated
effective yield 21.44%), 5/1/2034, 144A(5)

Total Credit Securitizations
(Cost $46,663,629)

$45,500,000

44,564,975

$ 4,700,000

1,216,125

45,781,100

Pooled Equity Interest – 15.4%
Banking − 15.4%
Community Funding 2018,

LLC.

Preferred Stocks – 23.9%

Banking − 23.9%
First Marquis Holdings, LLC.

Katahdin Bankshares

Corporation

Reliance Bancshares, Inc.

Tennessee Valley Financial

Holdings, Inc.

Tennessee Valley Financial

Holdings, Inc.
The Queensborough

Company

TriState Capital Holdings

Common Stocks – 2.2%

Banking − 2.2%
Happy Bancshares, Inc.

Howard Bancorp, Inc.

Preferred Shares(6) (Estimated effective
yield 9.34%), 144A(5)

Total Pooled Equity Interest
(Cost $22,328,868)

Variable Rate Perpetual Preferred Stock(4)(6)
(Estimated effective yield 13.15%)
Floating Rate Non-Cumulative Preferred
Stock, Series D, 8.75%
Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, 9%
Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, 9%
Fixed Rate Cumulative Perpetual Preferred
Stock, Series B, 9%
Fixed Rate Cumulative Perpetual Preferred
Stock, Series A, 9%
Fixed / Floating Cumulative Perpetual
Preferred Stock, 6.75% (TSCAP)

Total Preferred Stocks
(Cost $32,769,890)

Equity Security - Private Placement,
144A(4)(5)(7)
Equity Security (HBMD)~(7)

Total Common Stocks
(Cost $2,004,317)

Exchange Traded Fund – 13.0%

Diversified Financial Services − 13.0%
iShares S&P U.S. Preferred

Stock Index Fund

iShares U.S. Preferred Stock Index Fund -
Exchange Traded Fund (PFF)

Total Exchange Traded Fund
(Cost $20,064,987)

Total Long Term Investments
(Cost $189,958,067)

$22,860,000

21,684,994

$ 6,550,000

7,550,840

$10,000,000

9,900,000

$12,750,000

12,622,500

100,000

49,000

97,500

47,775

$ 1,218,000

1,205,820

80,000

2,078,400

33,502,835

44,000
83,119

1,870,000
1,188,600

3,058,600

535,100

18,316,473

188,062,397

See notes to financial statements

Annual Report | StoneCastle Financial Corp.

Company(1)

Investment

Money Market Fund – 0.7%
Morgan Stanley Institutional
Liquidity Funds - Treasury
Portfolio

Institutional Share Class - Money Market
Mutual Fund (MISXX), 2.33%(8)

# of
Shares/Par
Amount ($)(2)

Fair Value(3)

1,008,100

Total Money Market Fund
(Cost $1,008,100)
Total Investments
(Cost $190,966,167)(8)(9)† — 134.7%
Other assets and liabilities, net — (34.7)%(10)

Total Net Assets — 100.0%

1,008,100

189,070,497

(48,690,876)

$ 140,379,621

(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)

(5)

(6)

Investments determined using significant unobservable inputs (Level 3). The value of such securities is $11,069,840 or 7.89% of net
assets.

Security is exempt from registration under Rule 144A of the Securities Act of 1933.

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.

(7) Currently non-income producing security.
(8)

Investments are income producing assets unless otherwise noted by footnote (7).

(9) Cost values reflect accretion of original issue discount or market discount, and amortization of premium.
(10)

Includes $51,000,000 in bank loans from Texas Capital Bank.

The estimated effective yield including structuring fees paid annually through maturity of 2028 is 9.60%.

~ Effective March 1, 2018, Howard Bancorp, Inc. acquired First Mariner Bank. This transaction resulted in an exchange of 50,000 shares

(par value $1,000,000) of Priam Capital Fund I, L.P. for 83,119 shares of Howard Bancorp, Inc.

†

As of December 31, 2018, the cost basis of investment securities owned was substantially identical for both book and tax purposes.
Gross unrealized depreciation of investments was $4,448,249 and gross unrealized appreciation was $2,552,579 resulting in net
unrealized depreciation of $1,895,670.

StoneCastle Financial Corp. | Annual Report

See notes to financial statements

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.

Bank Name

Progress Financial
Corporation

Cornerstone Community

Bancorp

Bankwell Financial

Group

SBT Bancorp, Inc.
Biscayne Bancshares,

Inc.

Principal
Amount

State

Bank Name

Principal
Amount

State

$ 5,500,000

Alabama

Inc.

$ 7,500,000

Montana

InterMountain Bancorp,

5,000,000

California

First State Holding Co.

9,350,000

Nebraska

7,500,000 Connecticut

Highlands Bancorp, Inc.
Country Bank Holding

7,500,000

New Jersey

7,500,000 Connecticut

Co., Inc.

7,500,000

New York

7,500,000

Florida

Pathfinder Bancorp, Inc.
Quontic Bank Holdings

10,000,000

New York

Idaho Trust Bancorp

5,000,000

Idaho

Corporation

3,000,000

New York

Bancorp Financial, Inc.
Market Street

Bancshares, Inc.
First Internet Bancorp
Treynor Bancshares, Inc.
Freedom Bancshares,

Inc.

Williams Holding
Company, Inc.
CB&T Holding Corp.
Delmar Bancorp

First Bancshares, Inc.
Citizens Bancshares
Security State

Bancshares, Inc.

12,500,000

Illinois

7,500,000
10,000,000
12,500,000

Illinois
Indiana
Iowa

2,000,000

Kansas

1,000,000
12,500,000
2,000,000

Kansas
Louisiana
Maryland

2,500,000
12,500,000

Missouri
Missouri

MidWest Community
Financial Corp.

Myers BancShares, Inc.
First Resource Bank
Victory Bancorp, Inc.
Sandhills Holding
Company, Inc.

First Citizens

Bancshares, Inc.
Happy Bancshares, Inc.
Linden Bancshares, Inc.
First National
Corporation
FS Bancorp. Inc.
Partnership Community

7,500,000

Oklahoma

10,000,000
2,000,000
5,000,000

Oklahoma
Pennsylvania
Pennsylvania

8,500,000 South Carolina

10,000,000
7,500,000
4,000,000

Texas
Texas
Texas

5,000,000
10,000,000

Virginia
Washington

12,500,000

Missouri

Bancshares

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.

Bank Name
Big Poppy Holdings, Inc.
Freeport Bancshares,

Inc.

Fidelity Federal Bancorp
Halbur Bancshares
Vintage Bancorp
Delmar Bancorp
First Bancshares
MidWest Regional Bank
Lincoln Park Bancorp
MidWest Community
Peoples Bancshares
Total

Principal
Amount
$ 9,000,000

State
California

Illinois
3,150,000
Indiana
8,000,000
Iowa
3,000,000
Kansas
3,000,000
4,500,000 Maryland
10,000,000 Mississippi
5,000,000
Missouri
5,000,000 New Jersey
2,500,000 Oklahoma
Virginia
4,000,000
$57,150,000

See notes to financial statements

Annual Report | StoneCastle Financial Corp.

StoneCastle Financial Corp.

As of December 31, 2018
Geographic Distribution of Bank Issuers(1) (unaudited)

State
Alabama
Arkansas
California
Connecticut
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi

% of Total
Investments(2)
1.11%
0.21%
3.80%
3.03%
10.16%
0.25%
1.01%
4.92%
5.90%
3.11%
1.58%
0.16%
2.84%
2.04%
5.61%
0.16%
0.76%
1.95%

State
Missouri
Montana
Nebraska
New Jersey
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Washington
West Virginia
Wisconsin

% of Total
Investments(2)
9.90%
1.51%
2.21%
2.49%
8.26%
1.46%
0.27%
0.16%
4.68%
2.16%
1.71%
0.03%
7.48%
2.00%
2.28%
0.48%
4.32%
100.00%

Washington
2.28%

Idaho
1.01%

California
3.80%

Montana
1.51%

North Dakota
0.27%

Nebraska
2.21%

Iowa
3.11%

Wisconsin
4.32%

Michigan
0.76%

Illinois
4.92%

Indiana
5.90%

Ohio
0.16%

Kansas
1.58%

Missouri
9.90%

Oklahoma
4.68%

Arkansas
0.21%

Kentucky
0.16%

Tennessee
0.03%

Massachusetts
0.16%

Maine
2.04%

New
York
8.26%

Connecticut
3.03%

Pennsylvania
2.16%

Virginia
2.00%

North Carolina
1.46%

New Jersey
2.49%

Maryland
5.61%

West Virginia
0.48%

Texas
7.48%

Alabama
1.11%

Mississippi
1.95%

Louisiana
2.84%

South
Carolina
1.71%

Georgia
0.25%

Florida
10.16%

(1) Theterm“BankIssuers”asusedhereinreferstobanksorholdingcompaniesthereofandincludesissuersinwhich

wehavedirectandindirectinvestments.IncludesCommunityFundingCLO,Ltd.,CommunityFunding2018,LLC.,U.S.
CapitalFundingI,PreferredTermSecurities,Inc.andMMCapFundingI,Inc.

(2) ForpurposesofthistablethecalculationofthepercentageoftotalLong-TermInvestmentsarebasedontheBank

IssuersinwhichSCFCdirectlyandindirectlyholdsinvestments.Withrespecttodirectinvestmentsthataresecuredby
obligationsissuedbyBankIssuers(eacha“SecuredBond”),thepercentagewascalculatedbyproratingthemarket
valueoftheSecuredBondamongtheobligationsissuedbytheunderlyingBankIssuersthatcollateralizesuch
SecuredBondanddividingeachsuchamountbytotalLong-TermInvestments.

See notes to Financial Statements

Annual Report | StoneCastle Financial Corp.

Financial Statements

Statement of Assets and Liabilities As of December 31, 2018

Assets

Investments in securities, at fair value (Cost $190,966,167)
Cash (see Note 7)
Receivable for investment securities redeemed
Interest and dividends receivable
Prepaid assets

Total assets

Liabilities

Loan payable (see Note 7)
Dividends payable
Investment advisory fees payable
Loan interest payable
Directors’ fees payable
Accrued expenses payable

Total liabilities

Net Assets

Net assets consist of:

Common stock, at par ($0.001 per share)
Paid-in capital
Total distributable earnings (loss)

Net Assets

Net asset value per share
Common Stock Shares Outstanding

Net asset value per common share

Market price per share

Market price discount to net asset value per share

189,070,497
2,831,334
428,000
3,056,292
827,666
196,213,789

51,000,000
3,406,057
871,281
76,117
13,325
467,388
55,834,168

140,379,621

6,550
143,684,532
(3,311,461)
140,379,621

6,550,110

21.43

19.30

-9.94%

StoneCastle Financial Corp. | Annual Report

See notes to Financial Statements

Statement of Operations For the Year Ended December 31, 2018

This Statement of Operations summarizes the Company’s investment income earned and
expenses incurred in operating the Company. It also shows net gains (losses) for the period
stated.

Investment Income
Interest
Dividends
Origination fee income
Other income (Note 2)
Total investment income

Expenses
Investment advisory fee
Interest expense
Professional fees
Transfer agent, custodian fees and administrator fees
Directors’ fees
Bank Fees
ABA marketing and licensing fees
Investor relations fees
Delaware franchise tax
Insurance expense
Valuation service fees
Printing fees
Due diligence expense
Miscellaneous fees (proxy, rating agency, etc.)
Total expenses before waivers
Less: Advisory fee waiver (Note 2)
Net expenses after waivers

Net investment income

Realized and Unrealized Gain on Investments
Net realized loss on investments
Net change in net unrealized appreciation on investments
Net realized and unrealized gain/(loss) on investments

12,835,729
3,878,838
629,376
383,978
17,727,921

3,329,460
1,903,989
495,659
234,830
205,502
178,154
150,000
118,800
89,735
72,000
67,000
54,555
24,777
199,586
7,124,047
(86,726)
7,037,321

10,690,600

(1,421,922)
764,528
(657,394)

Net Increase in Net Assets Resulting From Operations

10,033,206

See notes to Financial Statements

Annual Report | StoneCastle Financial Corp.

Statements of Changes In Net Assets

These statements of changes in net assets show how the value of the Company’s net assets has
changed during the last two periods. The difference reflects earnings less expenses, any
investment gains and losses, distributions, if any, paid to shareholders and the net of Company
share transactions.

Increase (Decrease) in Net Assets

From Operations
Net investment income
Net realized gain/(loss) on investments
Net change in unrealized appreciation on investments

For the
Year Ended
December 31,
2018

For the
Year Ended
December 31,
2017

10,690,600
(1,421,922)
764,528

10,355,000
600,956
1,073,783

Net increase in net assets resulting from operations

10,033,206

12,029,739

Distributions to shareholders
From total distributable earnings1
Total distributions

From Company share transactions
Reinvestment of distributions
Increase in net assets resulting from Company share
transactions

(10,869,201)
(10,869,201)

(9,806,183)
(9,806,183)

166,118

270,736

Total increase/(decrease)

(669,877)

2,494,292

Net assets
Beginning of year
End of year2

Shares outstanding
Beginning of year
Reinvestment of distributions
End of year

141,049,498

140,379,621

138,555,206

141,049,498

6,542,289
7,821
6,550,110

6,528,105
14,184
6,542,289

Distributions from net investment income and from realized gains are no longer required to be separately disclosed.
See (Note 2). For the year ended December 31, 2017, distributions from net investment income was $9,806,183 and
$0, respectively.
Parenthetical disclosure of undistributed net investment income is no longer required. See (Note 2). For the year
ended December 31, 2017, end of year net assets included accumulated net investment loss of ($1,078,833).

StoneCastle Financial Corp. | Annual Report

See notes to Financial Statements

Statement of Cash Flow

This Statement of Cash Flows shows cash flow from operating and financing activities for
the year stated.

Cash flows from operating activities
Net increase in net assets from operations

Adjustments to reconcile net increase in net assets from operations to net cash

provided by operating activities:

Purchase of investment securities
Proceeds from sales and redemption of investment securities
Net purchase of short-term investments
Net realized loss on investments
Net change in unrealized depreciation on investments
Net accretion of discount
Increase in receivable for securities sold
Decrease in prepaid expenses
Increase in interest receivable and dividends receivable
Increase in advisory fees payable
Increase in loan interest payable
Decrease in Directors’ fees payable
Increase in accrued fees payable
Net cash provided by operating activities
Cash flows from financing activities
Increase in loan payable
Cash distributions to shareholders
Net cash used by financing activities
Net increase in cash
Cash:
Beginning of year
End of year

Supplemental disclosure of cash flow information

Cash paid for interest
Distributions reinvested

For the
Year Ended
December 31,
2018

10,033,206

(79,770,442)
54,776,243
2,220,717
1,421,922
(764,528)
(42,863)
(428,000)
225,694
(620,984)
119,520
24,216
(1)
139,588
(12,665,712)

25,250,000
(9,783,096)
15,466,904
2,801,192

30,142
2,831,334

1,879,773
166,118

$
$

See notes to Financial Statements

Annual Report | StoneCastle Financial Corp.

Financial Highlights

The financial highlights show how the Company’s net asset value for a common stock share has
changed during the year.

Per share operating performance
Net Asset value, beginning of year
Net investment income1
Net realized and unrealized gain (loss) on investments1
Offering costs1
Total from investment operations
Less distributions to shareholders
From net investment income
Return of capital
Total distributions
Net asset value, end of year
Per share market value, end of year
Total investment return based on market value2
Total investment return based on net asset value2
Ratios and supplemental data
Net assets end of year(in millions)
Ratios (as a percentage of average net assets):
Expenses before waivers and/or recoupment, if any3
Expenses after waivers and/or recoupment, if any4,5
Net investment income6
Portfolio turnover rate
Revolving credit agreement
Total revolving credit agreement outstanding (000s)
Asset Coverage per $1,000 for revolving credit agreement7

For the
Year
Ended
December
31,
2018

For the
Year
Ended
December
31,
2017

For the
Year
Ended
December
31,
2016

For the
Year
Ended
December
31,
2015

For the
Year
Ended
December
31,
2014

$ 21.56
1.63
(0.10)
—
1.53

$ 21.22
1.58
0.26
—
1.84

$ 21.62
1.56
(0.50)
—
1.06

$ 21.86
1.44
(0.17)
—
1.27

$ 23.07
0.84
0.01
(0.06)
0.79

(1.66)
—
(1.66)
$ 21.43
$ 19.30

(1.50)
—
(1.50)
$ 21.56
$ 20.13

(1.46)
—
(1.46)
$ 21.22
$ 18.69

(1.29)
(0.22)
(1.51)
$ 21.62
$ 16.30

(1.22)
(0.78)
(2.00)
$ 21.86
$ 19.47

3.84%
7.65%

16.21%
9.62%

24.45%
6.53%

(8.68)% (13.59)%
3.28%
7.88%

140.4

141.0

138.6

140.8

142.1

5.01%
4.95%
7.52%
30%

4.93%
5.01%
7.39%
16%

5.02%
4.94%
7.33%
34%

4.87%
4.50%
6.56%
101%

3.73%
3.73%
3.41%
30%

$ 51,000
3,753

$ 25,750
6,478

$ 61,500
3,253

$ 25,000
6,631

$ 22,500
7,317

The net investment income, unrealized gain/(loss) on investments and offering costs per share was calculated using
the average shares outstanding method.
Based on share market price and reinvestment of distributions at the price obtained under the Dividend
Reinvestment Plan. Total return does not include sales load and offering expenses.
Ratio of expenses before waivers or recapture, if any to managed assets equals 3.83%, 3.67%, 3.58% and
3.62% for the years ended December 31, 2018, 2017, 2016 and 2015, respectively.
Ratio of expenses after waivers or recapture, if any to managed assets equals 3.78%, 3.73%, 3.52% and 3.35% for
the years ended December 31, 2018, 2017, 2016 and 2015, respectively.
Excluding interest expense, net operating expenses would have been 3.61%, 3.75%, 3.74% and 3.54% for the
years ended December 31, 2018, 2017, 2016 and 2015, respectively.
Ratio of net investment income to managed assets equals 5.74%, 5.51%, 5.23% and 4.88% for the years ended
December 31, 2018, 2017, 2016 and 2015, respectively.
Calculated by subtracting the Company’s total liabilities (excluding the loan) from the Company’s total assets and
dividing that amount by the loan outstanding in 000’s.

StoneCastle Financial Corp. | Annual Report

See notes to Financial Statements

Notes to Financial Statements

Note 1 — Organization
StoneCastle Financial Corp.(“SCFC”or the“Company”) is a Delaware corporation registered as a non-diversified,
closed-end management investment company under the Investment Company Act of 1940, as amended,
(the “Investment Company Act”) which commenced investment operations on November 13, 2013. In
addition, SCFC has elected to be treated for tax purposes as a regulated investment company, or ‘‘RIC’’
under Subchapter M of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). As an investment
company, the Company follows the accounting and reporting guidance of the FinancialAccounting Standards
Board and the Accounting Standards Codification Topic 946 “Financial Services — Investment
Companies.”

SCFC’s primary investment objective is to provide stockholders with current income, and to a lesser extent
capital appreciation. We attempt to achieve our investment objectives through investments in preferred
equity, subordinated debt, convertible securities and, to a lesser extent, common equity primarily in the
U.S. community bank sector. We may also invest in similar securities of larger U.S. domiciled banks and
companies that provide goods and/or services to banking companies. Together with banks, we refer to
these types of companies as banking-related and intend, under normal circumstances, to invest at least
80% of the value of our net assets plus the amount of any borrowings for investment purposes in such
businesses. There is no guarantee that we will achieve our investment objective.

Note 2 — Significant accounting policies
The following is a summary of significant accounting policies consistently followed by SCFC in the preparation
of its financial statements.The preparation of the financial statements is in conformity with U.S. generally
accepted accounting principles (“U.S.GAAP”) and requires the Board of Directors,inclusive of the sub-committees,
and the Advisor to make estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from those estimates.

CashandCashEquivalents — SCFC considers all highly liquid debt instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.

InvestmentValuation — The most significant estimates made in the preparation of the Company’s
financial statements 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:

Annual Report | StoneCastle Financial Corp.

(cid:129) Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the Company

has the ability to access;

(cid:129) 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

(cid:129) 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 will also review valuations of such investments provided by
the Advisor. Securities for which market quotations are readily available shall be valued at “market value.”
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

StoneCastle Financial Corp. | Annual Report

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 equity or preferred equity
in credit securitizations or other structured financings. 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. Any event adversely affecting the value of such
credit securitizations and other structured financings, including events that impact the value of the underlying
collateral held by such vehicles, would be magnified to the extent leverage is utilized. SCFC’s investment
in credit securitization and other structured financings that utilize leverage may make it more likely that
substantial changes in the Company’s net asset value (“NAV”) will occur.

The fair value of the credit securitization is determined using market price quotations (where observable)
and other observable market inputs.When using market price quotations from brokers, fair value is calculated
using the average of two or more indicative broker quotes obtained as of the valuation date.When quotations
are unobservable,internal valuation models (typically including discounted cash flow analysis and comparable
analysis) are employed. Credit securitizations are generally categorized as Level 2 or 3 in the fair value
hierarchy,depending on the availability of broker quotes and observable inputs. At December 31, 2018,SCFC’s
investment in Community Funding CLO, Ltd. was valued on the basis of the average of two broker
quotes.

Service fees are paid to StoneCastle Investment Management,LLC,an affiliate of StoneCastleAsset Management,
StoneCastle Financial Corp.’s advisor. StoneCastle Asset Management, LLC (“The Servicer”) rebates the
entire service fee to SCFC quarterly. For the year ended December 31, 2018 this amounted to $249,213
relating to Community Funding CLO, Ltd., $123,529 relating to Community Funding 2018, LLC and $8,188
relating to First Marquis Holding Co. LLC.

Preferred and Trust Preferred Securities. The fair value of preferred securities and trust preferred
securities is generally determined using market price quotations (where observable) and other observable
market inputs (including recently executed transactions).When using market price quotations from brokers,
fair value is calculated using the average of two or more indicative broker quotes obtained as of the
valuation date.When quotations are unobservable, internal valuation models (typically including discounted
cash flow analysis and comparable analysis) are employed. Perpetual preferred securities are generally
categorized as Level 2 or 3 in the fair value hierarchy, depending on the availability of observable inputs.

Debt Securities. Under procedures established by our Board of Directors, we value secured debt, unsecured
debt, senior term loans, subordinated term loans and other debt securities, for which market quotations
are readily available, at such market quotations (unless they are deemed not to represent fair value). We
attempt to obtain market quotations from at least two brokers if available. If not available or when market
quotations are deemed not to represent fair value, we typically utilize independent third party valuation
firms to assist us in determining fair value. Our independent valuation firms consider observable market
inputs together with significant unobservable inputs in arriving at their valuation recommendations for
such Level 2 and Level 3 categorized assets. Investments that are not publicly traded or whose market
quotations are not readily available are valued at fair value as determined in good faith by or under the
direction of our Board of Directors. Such determination of fair values may involve subjective judgments
and estimates.

Equity Securities. SCFC may invest in equity securities (including exchange traded funds) for which
bid and ask prices can be observed in the marketplace. Bid prices reflect the highest price that the marketplace
participants are willing to pay for an asset. Ask prices represent the lowest price that the marketplace
participants are willing to accept for an asset. The Company’s policy for listed securities for which no

Annual Report | StoneCastle Financial Corp.

sale was reported on that date is generally to value the security using the last reported “bid” price if
held long, and last reported “ask” price if sold short. Equity securities are generally categorized as Level
1 or 2 in the fair value hierarchy, depending on trading volume levels.

The Company’s assets measured at fair value subject to the disclosure requirements of ASC 820-10-35
at December 31, 2018, were as follows:

Term Loans

Debt Securities

Trust Preferred Securities

Credit Securitizations

Pooled Equity Interest

Preferred Stocks

Common Stocks

TOTAL FAIR
VALUE AT 12-31-18

LEVEL 1
QUOTED PRICE

LEVEL2
SIGNIFICANT
OBSERVABLE INPUTS

LEVEL 3
SIGNIFICANT
UNOBSERVABLE
INPUTS

$ 32,925,724

— $ 31,276,724

$ 1,649,000

8,015,615

24,777,056

45,781,100

21,684,994

33,502,835

—

3,058,600

1,188,600

8,015,615

24,777,056

45,781,100

21,684,994

—

25,951,995

7,550,840

—

1,870,000

—

Exchange Traded Fund

18,316,473

Money Market Fund

1,008,100

Total Investments in Securities

$189,070,497

$20,513,173

$157,487,484

$11,069,840

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. GAAP requires SCFC to present reconciliation
of the beginning to ending balances for reported market 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. Transfer in and out between levels are based on values at the end of the period. A
reconciliation of Level 3 investments is presented below:

Balance at
December 31, 2017
Realized gains including
earnings
Unrealized appreciation/
(depreciation) on
investments
Purchases
Sales
Transfers in
Transfers out
Balance at
December 31, 2018

TERM
LOAN

COMMON
STOCK

LIMITED
PARTNERSHIP
INTEREST

PREFERRED
STOCK

TOTAL

— $ 1,326,160

$846,000

— $ 2,172,160

—

(51,000)
1,700,000
—
—
—

543,840
—
—
—
—

—
—
—
—
(846,000)

—
—
—
7,550,840
—

492,840
1,700,000
—
7,550,840
(846,000)

$1,649,000(1)

$1,870,000(2)

$ —

$7,550,840(3)

$11,069,840

(1) Value based on broker quote.

StoneCastle Financial Corp. | Annual Report

(2) Value based on offering price.
(3) Value based on discount for transaction costs.

The change in unrealized depreciation on Level 3 securities still held as of December 31, 2018 was $492,840.

Term Loan

Fair Value at
12/31/2018
$ 1,649,000

Valuation Techniques
Prior Transaction
Analysis

Unobservable Inputs
Broker Quote

Assumptions

$97

Preferred Stock

$ 7,550,840

Prior Transaction
Analysis

Discount for
transaction costs

Common Stock

$ 1,870,000

Prior Transaction
Analysis

Offering Price

$42.50

$11,069,840

Impact To
Valuation From An
Increase To Input

Increase in
unobservable
Input will Increase
the value
Increase in
unobservable
input will
Decrease the value
Increase in
unobservable
input will increase
the value

SecuritiesTransactions,InvestmentIncomeandExpenses — Securities transactions are recorded
on trade date for accounting and financial statement preparation purposes. Realized gains and losses
on investments sold are recorded on the identified cost basis. Interest income is recorded on the accrual
basis.Accretion of discounts and amortization of premiums are recorded on a daily basis using the effective
yield method except for short term securities, which records discounts and premiums on a straight-line
basis. Dividends are recorded on the ex-dividend date.

Dividends and Distributions to Shareholders — Dividends from net investment income, if any,
are declared and paid quarterly. Distributions, if any, of net short-term capital gain and net capital gain
(the excess of net long-term capital gain over the short-term capital loss) realized by SCFC, after deducting
any available capital loss carryovers are declared and paid to shareholders at least annually. Income
dividends and capital gain distributions are determined in accordance with U.S.federal income tax regulations,
which may differ from U.S. GAAP.These differences include the treatment of non-taxable dividends, losses
deferred due to wash sales and excise tax regulations. Permanent book and tax basis differences relating
to shareholder distributions will result in reclassifications within the components of net assets.

RecentAccountingPronouncement — Effective November 15, 2018, the SEC amended existing
rules intended to modernize reporting and disclosure of information.These amendments relate to Regulation
S-X which sets forth the form and content of financial statements. The amendment requires collapsing
the components of distributable earnings on the Statement of Assets and Liabilities and collapsing the
distributions paid to shareholders on the Statements of Changes in NetAssets. Management has evaluated
the implications of adopting these amendments and there is no significant impact on the financial statements
and accompanying notes.

In August 2018, the Financial Accounting Standards Board issued Accounting Standards Update 2018-13
“Changes to the Disclosure Requirements for FairValue Measurement”which modifies disclosure requirements
for fair value measurements.The guidance is effective for fiscal years beginning after December 15, 2019
and for interim periods within those fiscal years. Management is currently evaluating the impact of this
guidance to the Funds.

Note 3 — Investment Advisory Fee and Other Fee Arrangements
StoneCastle Asset Management, LLC (“Advisor”), a subsidiary of StoneCastle Partners, LLC (“StoneCastle
Partners”), serves as investment advisor to SCFC pursuant to a management agreement with SCFC (the
“Management Agreement”). For its services as the investment advisor, SCFC pays the Advisor a fee at

Annual Report | StoneCastle Financial Corp.

the annual rate of 1.75% of total assets. SCFC will pay the management fee quarterly in arrears, and it
will be equal to 0.4375% (1.75% annualized) of our assets at the end of such quarter, including cash
and cash equivalents and assets purchased with borrowings.

Pursuant to an agreement between SCFC and theAdvisor, theAdvisor agreed to waive $86,726 representing
a portion of the management fee that would otherwise be payable to the Advisor for the quarter
ended March 31, 2018.This fee was related to the purchase of $20.1 million iShares U.S. Preferred Stock
Index ETF on March 28th and March 29th, 2018.

SCFC currently pays each Director who is not an officer or employee of the Advisor a fee of $55,000 per
annum, plus $1,500 for each in-person meeting of the Board of Directors or committee meeting. The
chairman of SCFC’s audit committee and the Lead Independent Director are each to be paid an additional
amount not expected to exceed $10,000 per year. Directors do not receive any pension or retirement
plan benefits and are not part of any profit sharing plan. Interested Directors do not receive any compensation
from SCFC. SCFC has incurred $205,502 of Directors fees for the year ended December 31, 2018.

Note 4 — Purchases and Sales and Redemptions of Securities
For the year ended December 31, 2018, (i) the cost of purchases was $79,770,442 (ii) the sales and
redemptions of securities was $54,776,243.

Note 5 — Federal Tax Information
The Company intends to operate so as to qualify to be taxed as a RIC under Subchapter M of the Internal
Revenue Code and, as such, to not be subject to federal income tax on the portion of its taxable income
and gains distributed to stockholders. To qualify for RIC tax treatment, SCFC is required to distribute at
least 90% of its investment company taxable income, as defined by the Code.

Because federal income tax regulations differ from accounting principles generally accepted in the United
States, distributions in accordance with tax regulations may differ from net investment income and realized
gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent
differences are reclassified among capital accounts in the financial statement to reflect their tax character.
Temporary differences arise when certain items of income, expense, gain or loss are recognized at some
time in the future. Differences in classification may also result from the treatment of short-term gains as
ordinary income for tax purposes.

SCFC has followed the authoritative guidance on accounting for and disclosure of uncertainty in tax
positions, which requires SCFC to determine whether a tax position is more likely than not to be sustained
upon examination, including resolution of any related appeals or litigation processes, based on the technical
merits of the position. SCFC has determined that there was no effect on the financial statements from
following this authoritative guidance. In the normal course of business, SCFC is subject to examination
by federal, state and local jurisdictions, where applicable, for tax years for which applicable statutes of
limitations have not expired.

In order to present net asset components on the Statement of Assets and Liabilities that more closely
represent their tax character, certain reclassifications are made to the net asset components. Net assets,
net investment income and net realized gains were not affected by these adjustments. For the year ended
December 31, 2018, these adjustments increased distributable earnings by $1,340,529 and decreased
paid-in capital by $1,340,529. The primary reason for this reclassification relates to a prior year audit
partnership income/loss reclass.

StoneCastle Financial Corp. | Annual Report

As of December 31, 2018, the components of distributable earnings on a tax basis were as follows:

Capital Loss Carryforwards
Unrealized Depreciation
Undistributed income
Total

$(1,498,417)
(1,895,670)
82,627
$(3,311,460)

For the year ended December 31, 2018,the tax character of distributions paid by the Company was $9,949,214
of ordinary income dividends. For the year ended December 31, 2017, the tax character of distributions
paid by the Company was $9,735,512 of ordinary income dividends. Distributions from net investment
income and short-term capital gains are treated as ordinary income for federal tax purposes.

The Company declared a $0.38 per share dividend on March 9, 2018,June 7, 2018,September 13, 2018 and a
$0.52 per share dividend on December 7, 2018,which was paid on March 27, 2018, June 28, 2018,September
28, 2018 and January 2, 2019, respectively.

At December 31, 2018, the federal tax cost, aggregate gross unrealized appreciation and depreciation
of securities held by SCFC were as follows:

Federal tax cost

Gross unrealized appreciation
Gross unrealized depreciation
Net unrealized depreciation

$190,966,167

$ 2,552,579
(4,448,249)
$ (1,895,670)

Pursuant to federal income tax rules applicable to regulated investment companies, SCFC may elect to
treat certain capital losses up to and including December 31 as occurring on the first day of the following
tax year. For the period after October 31, 2018 and ending December 31, 2018, any amount of losses
elected within the tax year will not be recognized for federal income tax purposes until 2019. For the
year ended December 31, 2018, SCFC had no ordinary income or long-term capital loss deferrals.

Accumulated capital losses represent net capital loss carry forwards as of December 31, 2018 that may
be available to offset future realized capital gains and thereby reduce future capital gains distributions.
SCFC is permitted to carry forward capital losses incurred for an unlimited period. Additionally, capital
losses that are carried forward will retain their character as either short-term or long-term capital losses.
For the year ended December 31, 2018,SCFC had capital loss carryforwards of $1,498,417 of which $900,957
are short-term and $597,460 long-term losses.

Note 6 — Risk Considerations
Risks are inherent in all investing. The following summarizes some, but not all, of the risks that should
be considered for the Company. For additional information about the risks associated with investing in
the Company, please see the Company’s prospectus as well as other Company regulatory filings.

InvestmentandMarketRisk — An investment in the Company’s common shares (“Common Shares”)
is subject to investment risk, including the possible loss of the entire principal invested. Common Shares
at any point in time may be worth less than the original investment, even after taking into account the
reinvestment of Company dividends and distributions. The Company expects to utilize leverage, which
will magnify investment risk.

PreferredandDebtSecuritiesRisk — Preferred and debt securities in which the Company invests
are subject to various risks, including credit risk, interest rate risk, call/prepayment risk and reinvestment
risk. In addition, preferred securities are subject to certain other risks, including deferral and omission
risk, subordination risk, limited voting rights risk and special redemption rights risk.

Annual Report | StoneCastle Financial Corp.

CreditRisk — The Company is subject to credit risk, which is the risk that an issuer of a security may
be unable or unwilling to make dividend, interest and principal payments when due and the related risk
that the value of a security may decline because of concerns about the issuer’s ability or willingness to
make such payments.

Leverage Risk — The use of leverage by the Company can magnify the effect of any losses. If the
income and gains from the securities and investments purchased with leverage proceeds do not cover
the cost of leverage, the return on the Common Shares will be less than if leverage had not been used.
Moreover, leverage involves risks and special considerations for holders of Common Shares including
the likelihood of greater volatility of net asset value and market price of the Common Shares than a
comparable portfolio without leverage, and the risk that fluctuations in interest rates on reverse repurchase
agreements, borrowings and short-term debt or in the dividend rates on any preferred shares issued by
the Company will reduce the return to the holders of Common Shares or will result in fluctuations in the
dividends paid on the Common Shares.There is no assurance that a leveraging strategy will be successful.
See Note 7 for additional information on leverage.

Call/PrepaymentandReinvestmentRisk — If an issuer of a security exercises an option to redeem
its issue at par or prepay principal earlier than scheduled, the Company may be forced to reinvest in
lower yielding securities.A decline in income could affect the Common Shares’ market price or the overall
return of the Company.

Risks of Concentration in the Banking industry/Financial Sector — Because the Company
concentrates in the banking industry and may invest up to 100% of its managed assets in the banking
industry and financials sector, it will be more susceptible to adverse economic or regulatory occurrences
affecting the banking industry and financials sector, such as changes in interest rates, loan concentration
and competition.

Regulatory Risk — Financial institutions, including community banks, are subject to various state
and federal banking regulations that impact how they conduct business, including but not limited to how
they obtain funding. Changes to these regulations could have an adverse effect on their operations and
operating results and our investments.We expect to make long-term investments in financial institutions
that are subject to various state and federal regulations and oversight. Congress, state legislatures and
the various bank regulatory agencies frequently introduce proposals to change the laws and regulations
governing the banking industry in response to the Dodd-Frank Act, Consumer Financial Protection Bureau
(the “CFPB”) rulemaking or otherwise. The likelihood and timing of any proposals or legislation and the
impact they might have on our investments in financial institutions affected by such changes cannot be
determined and any such changes may be adverse to our investments. Federal banking regulators recently
proposed amended regulatory capital regulations in response to The Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) and Basel Ill protocols which would impose even more
stringent capital requirements. In the event that a regulated bank falls below certain capital adequacy
standards, it may become subject to regulatory intervention including, but not limited to, being placed
into a FDIC-administered receivership or conservatorship. The effect of inadequate capital can have a
potentially adverse consequence on the institution’s financial condition, its ability to operate as a going
concern and its ability to operate as a regulated financial institution and may have a material adverse
impact on our investments.

InterestRateRisk — The Company is subject to interest rate risk, which is the risk that the preferred
and debt securities in which the Company invests will decline in value because of rising market interest
rates.

ConvertibleSecurities/ContingentConvertibleSecuritiesRisk — The market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the market value of convertible securities tends

StoneCastle Financial Corp. | Annual Report

to vary with fluctuations in the market value of the underlying common stock. Contingent convertible
securities provide for mandatory conversion into common stock of the issuer under certain circumstances.
Since the common stock of the issuer may not pay a dividend, investors in these instruments could experience
a reduced income rate, potentially to zero; and conversion would deepen the subordination of the investor,
hence worsening standing in a bankruptcy. In addition, some such instruments have a set stock conversion
rate that would cause a reduction in value of the security if the price of the stock is below the conversion
price on the conversion date.

IlliquidandRestrictedSecuritiesRisk — Investment of the Company’s assets in illiquid and restricted
securities may restrict the Company’s ability to take advantage of market opportunities. Illiquid and restricted
securities may be difficult to dispose of at a fair price at the times when the Company believes it is desirable
to do so. The market price of illiquid and restricted securities generally is more volatile than that of more
liquid securities, which may adversely affect the price that the Company pays for or recovers upon the
sale of such securities. Illiquid and restricted securities are also more difficult to value, especially in challenging
markets. The risks associated with illiquid and restricted securities may be particularly acute in situations
in which the Company’s operations require cash and could result in the Company borrowing to meet its
short-term needs or incurring losses on the sale of illiquid or restricted securities.

Note 7 — Revolving Credit Agreement
On June 9, 2014, the Company entered into a revolving credit agreement (the “Credit Agreement”) with
a syndicate of financial institutions led by Texas Capital Bank, N.A. (collectively, the “Syndicates”) to
borrow up to $45,000,000. On January 16th, 2015 the Company closed an additional $25 million on
the Credit Agreement, which increased the maximum borrowing amount to $70 million.

On May 25, 2017, the Company amended its Credit Agreement to the following terms:

(cid:129) The Facility is now solely funded by Texas Capital Bank, located in Dallas, Texas.
(cid:129) The cost of the Facility has decreased to a significantly lower credit spread of LIBOR +2.35%, down
from LIBOR +2.85%.
(cid:129) The maturity date of the facility has been extended for five years to May 16, 2022.
(cid:129) The size of the Facility has been adjusted from $70 million to $62 million, reflecting the maximum
amount the Company can borrow based on current assets and internal guidelines.
(cid:129) In the prior facility, the Company was required to maintain a deposit account of $3.5 million of cash
with the lead lender. The $3.5 million account is no longer required.

The Facility is rated “A3” by Moody’s Investor Services. The Facility remains secured by substantially all
of the assets of the Company.

As of December 31, 2018, $51,000,000 has been committed and drawn and is at fair value. Such borrowings
constitute financial leverage. The Agreement has a five year term and a stated maturity of May 2022 and
was priced at LIBOR +2.35%. The Company is charged a fee of 0.50% on any undrawn commitment
balance.The Credit Agreement contains customary covenants, negative covenants and default provisions,
including covenants that limit the Company’s ability to incur additional debt or consolidate or merge
into or with any person, other than as permitted, or sell, lease or otherwise transfer, directly or indirectly,
all or substantially all of its assets.The covenants also impose on the Company asset coverage requirements,
which are more stringent than those imposed on the Company by the Investment Company Act, as well
as the Company’s policies. For the year ended December 31, 2018, the average daily loan balance was
$39,734,247 at a weighted average interest rate of 4.78%. With respect to these borrowings, interest
of $1,903,989 is included in the Statement of Operations.

Note 8 — Indemnification
In the normal course of business, SCFC may enter into contracts that provide general indemnifications.
SCFC’s maximum exposure under these arrangements is dependent on claims that may be made against

Annual Report | StoneCastle Financial Corp.

SCFC in the future, and therefore, cannot be estimated; however, based on experience, the risk of material
loss from such claims is considered remote.

Under the SCFC’s organizational documents, its officers and directors are indemnified against certain
liabilities arising out of the performance of their duties to SCFC.

Note 9 — Origination Fees and Other Income
Includes closing fees (or origination fees or structuring fees) associated with investments in portfolio
companies. Such fees are normally paid at closing of the Company’s investments, are fully earned and
non-refundable, and are generally non-recurring. Other Income includes service fees earned from the
Community Funding CLO, Ltd. credit securitization and due diligence fees. SCFC had closing fee income
of $629,376 and other income of $383,978 for the year ended December 31, 2018.

Note 10 — Capital Share Transactions
As of December 31, 2018, 50,000,000 shares of $0.001 par value capital stock were authorized. Of the
authorized shares, SCFC is authorized to issue 40,000,000 shares of common stock and 10,000,000
shares of preferred stock. Prior to commencement of operations on November 13, 2013, SCFC issued
4,001 shares of common stock. On November 13, 2013, SCFC sold 4,400,000 shares of our common
stock via an initial public offering at a price of $25.00 per share. On December 3, 2013 and
December 11, 2013 SCFC sold an additional 125,000 shares and 167,047 shares, respectively, of our
common stock at a public offering price of $25.00 per share pursuant to the underwriters’ exercise of
the over-allotment option. On November 7, 2014, SCFC sold an additional 1,600,000 shares via an initial
public offering at a price of $23.00 per share. On December 2, 2014, SCFC sold an additional 202,000
shares of our common stock at a public offering price of $23.00 per share pursuant to the underwriters’
exercise of the over-allotment option. Total shares issued and outstanding at December 31, 2018 were
6,550,110.

Note 11 — Subsequent Events
Management has evaluated the impact of all subsequent events on the company and has determined
that there were no subsequent events requiring recognition or disclosure in the financial statements.

StoneCastle Financial Corp. | Annual Report

Auditor’s Report

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
of StoneCastle Financial Corp.

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of StoneCastle Financial Corp. (the “Company”),
including the schedule of investments, as of December 31, 2018, the related statement of operations for the year then
ended, the statement of cash flows for the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the four years in the period then ended, and the
related notes (collectively referred to as the “financial statements”). The financial highlights for the year ended December
31, 2014 were audited by other auditors, and in their opinions dated February 27, 2015, they expressed unqualified
opinions on said financial highlights. In our opinion, the financial statements present fairly, in all material respects, the
financial position of StoneCastle Financial Corp. as of December 31, 2018, the results of its operations for the year then
ended, its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the four years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB. We have served as the Company’s auditor since 2015.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of
December 31, 2018 by correspondence with the custodian and private companies. We believe that our audits provide a
reasonable basis for our opinion.

TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 27, 2019

Annual Report | StoneCastle Financial Corp.

Dividends and Distributions

Dividends from net investment income are declared and paid on a quarterly basis. Distributions of net
realized capital gains, if any, will be made at least annually. It is the Company’s policy to comply with
the requirements of the Internal Revenue Code of 1986, as amended, applicable to “regulated investment
companies” or “RICs” and to distribute substantially all of its taxable income to its shareholders. In order
to provide shareholders with a more stable level of dividend distributions, the Company may at times
pay out more or less than distributable income earned in any particular quarter. The Company’s current
accumulated but undistributed net investment income, if any, is disclosed in the Statement of Assets and
Liabilities, which comprises part of the financial information included in this report. The character and
timing of dividends and distributions are determined in accordance with federal income tax regulations,
which may differ from U.S. GAAP.

Summary of Dividends Declared in 2018

Period
1st Quarter 2018
2nd Quarter 2018
3rd Quarter 2018
4th Quarter 2018

Amount
Declared
$ 0.38
$ 0.38
$ 0.38
$ 0.52
$ 1.66

Dividend Reinvestment Plan

We have a common stock dividend reinvestment plan for our stockholders. Our plan is implemented as
an “opt out” dividend reinvestment plan.As a result, if a stockholder participates in ourAutomatic Dividend
Reinvestment Plan (“Plan”) all distributions will automatically be reinvested in additional common stock
(unless a stockholder is ineligible or elects otherwise). If a stockholder opts out of the Plan, such stockholder
will receive distributions in cash. If a stockholder holds shares with a brokerage firm that does not participate
in the Plan, the stockholder may not be able to participate in the Plan and any dividend reinvestment
may be effected on different terms than those of the Plan.

In the case that newly issued shares of our common stock are used to implement the Plan, the number
of shares of common stock to be delivered to a participating stockholder shall be determined by (i) dividing
the total dollar amount of the dividends payable to such stockholder by (ii) 97% of the average market
prices per share of common stock at the close of regular trading on the NASDAQ Global Select Market
for the five trading days immediately prior to the valuation date to be fixed by our Board of Directors.

In the case that shares repurchased on the open market are used to implement the Plan, the number of
shares of common stock to be delivered to a participating stockholder shall be determined by dividing (i)
the total dollar amount of the dividends payable to such stockholder by (ii) the weighted average purchase
price of such shares.

We intend to use primarily newly issued shares to implement the dividend reinvestment plan (so long
as we are trading at a premium to net asset value). If our shares are trading at a significant enough
discount to net asset value and we are otherwise permitted under applicable law to purchase such shares,
we intend to purchase shares in the open market in connection with our obligations under our dividend
reinvestment plan. However, we reserve the right to issue new shares of our common stock in connection

StoneCastle Financial Corp. | Annual Report

with our obligations under the dividend reinvestment plan even if our shares are trading below net asset
value. Automatically reinvesting dividends and distributions does not mean that a stockholder does not
have to pay income taxes due upon receiving dividends and distributions. Capital gains and income are
realized although cash is not received by the stockholder.

For further information or to opt-out of or withdraw from the Plan, contact the Plan Agent, Computershare
Trust Company, N.A. by writing to 250 Royall Street, Canton, Massachusetts 02021.

Annual Report | StoneCastle Financial Corp.

Tax Information

For federal income tax purposes, the following information is furnished with respect to the distributions
of the Company, if any, paid during its taxable year ended December 31, 2018.

32.46% of ordinary income dividends paid qualify for the corporate dividends-received deduction.

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “Act”), 32.46% of ordinary dividends
paid during the fiscal year ended December 31, 2018 are designated as “qualified dividend income,”
as defined in the Act, and are subject to reduced tax rates.

Eligible shareholders were mailed a 2018 Form 1099-DIV in early 2019. This reflected the tax character
of all distributions paid in calendar year 2018.

Additional Information

Availability of Quarterly Schedule of Investments

The Company files their complete schedule of portfolio holdings with the SEC for the first and third quarters
of each fiscal year on Form N-Q.The Company’s Form N-Q is available on the SEC’s website at http://www.sec.gov.
The Company’s Form N-Q may also be obtained upon request and without charge by calling Investor
Relations (212) 354-6500 or on the Company’s website at www.StoneCastle-Financial.com.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Company uses to determine how to vote proxies
relating to portfolio securities is available (1) without charge, upon request, by calling Investor Relations
(212) 354-6500; (2) at www.StoneCastle-Financial.com; and (3) on the SEC’s website at http://
www.sec.gov.

Availability of Proxy Voting Record

Information about how the Company voted proxies relating to securities held in the Company’s portfolio
during the Annual period ended June 30 is available upon request and without charge (1) at
www.StoneCastle-Financial.com or by calling Investor Relations (212) 354-6500 and (2) on the SEC’s
website at http://www.sec.gov.

StoneCastle Financial Corp. | Annual Report

Results of Stockholders Meeting

The Annual Meeting of Stockholders of StoneCastle Financial Corp (the “Company”) was held on June
12, 2018. A description of the proposal and number of shares voted at the Meeting are as follows:

Proposal 1:

To elect two Class I Directors of the Company, each to serve for a term ending at the 2021 Annual Meeting
of Stockholders of the Company and when his or her successor is duly elected and qualified.

Emil Henry
Joshua Siegel

Proposal 2*:

Voted
For

5,935,010
5,597,448

Withheld

56,667
394,229

The Board to approve an Agreement and Plan of Reorganization pursuant to which the Company would
be reorganized into a newly formed Delaware statutory trust.

For

2,123,748

Against

33,137

Abstain

45,250

Non Votes

3,789,542

*Proposal 2 was not approved since the required number of votes to reach a quorum was not obtained.

Annual Report | StoneCastle Financial Corp.

Board Approval of the Management Agreement

At a meeting held on September 12, 2018, the Company’s Board of Directors, including those Directors
who are not“interested persons”as such term is defined in the Investment CompanyAct of 1940 (“Independent
Directors”), reviewed and unanimously approved the continuance of the management agreement (the
“Management Agreement”) between the Company and StoneCastle Asset Management, LLC (the
“Advisor”).

Prior to approval of the continuance of the Management Agreement, the Directors had requested from
the Advisor, and received and evaluated, extensive materials. In an executive session of the Independent
Directors, the Independent Directors reviewed the proposed continuance of the Management Agreement
with experienced counsel who is independent of the Advisor (“Independent Directors’ Counsel”), who
advised on the relevant legal standards.

The Independent Directors considered the services provided by theAdvisor to the Company.The Independent
Directors considered the Advisor’s personnel and the depth of the Advisor’s personnel who possess the
experience to provide investment management services to the Company. Based on the information provided
by the Advisor, the Independent Directors concluded that (i) the nature, extent and quality of the services
provided by the Advisor are appropriate and consistent with the terms of the Management Agreement,
(ii) the quality of those services has been consistent with industry norms, (iii) the Company is likely to
benefit from the continued provision of those services by theAdvisor, (iv) theAdvisor has sufficient personnel,
with the appropriate education and experience, to serve the Company effectively and has demonstrated
its continuing ability to attract and retain qualified personnel, and (v) the satisfactory nature, extent, and
quality of services currently provided to the Company and its stockholders is likely to continue. In addition,
the Board noted the Advisor’s expertise in, and numerous relationships with investment professionals
within, the banking industry in which the Company concentrates.

The Independent Directors considered the overall investment performance of the Advisor and the Company
since the Advisor was appointed the Company’s investment adviser in November 2013. The Directors
reviewed and considered the Company’s performance relative to a peer group of 32 registered closed-end
investment companies (“CEIC”) and business development companies (“BDCs”) selected by the Advisor
that operate in a similar manner as the Company (the “Peer Group”) noting, however, the limited usefulness
of such information in light of the Company’s unique investment strategy and industry focus.The Independent
Directors also reviewed and considered the Company’s performance based on market price and net asset
value versus the performance of the Bloomberg Barclays Aggregate Bond Index (the “Aggregate Bond
Index”) and the Bloomberg Barclays US Corporate High Yield 2% Issuer Capped Index (the “High Yield
Index”) for the 12 months ended December 31, 2017, for the six months ended June 30, 2018 and since
inception (November 13, 2013) through June 30, 2018.The Independent Directors noted that the indices
were selected by theAdviser for comparison purposes because the indices’ constituents had similar characteristics
to those securities in which the Company may invest but acknowledged that no index was likely to correspond
to the Company’s holdings in light of the Company’s unique investment strategy. The Directors noted
that: (a) based on net asset value, the Company outperformed both indices for the 12 months ended
December 31, 2017, six months ended June 30, 2018 and since inception (November 13, 2013) through
June 30, 2018; and (b) based on market price, the Company outperformed both indices for the 12 months
ended December 31, 2017,
the six months ended June 30, 2018 and since inception
(November 13, 2013) through June 30, 2018. The Independent Directors also noted their review and
evaluation of the Company’s investment performance on an on-going basis throughout the year. The
Independent Directors considered the consistency of performance results and the short-term and long-term
performance of the Company and recognized that such performance was impacted by, among other

StoneCastle Financial Corp. | Annual Report

things, the limited operating history of the Company, issuer prepayment and calls and the time lag required
for the initial deployment and subsequent redeployments of assets.They concluded that the performance
of the Company and theAdviser represented satisfactory performance in light of the Company’s investment
objective and strategy.

The Independent Directors considered the costs of the services provided by the Adviser, the compensation
and benefits received by theAdviser in providing services to the Company, as well as theAdviser’s profitability.
The Independent Directors were provided with and had reviewed the Adviser’s unaudited balance sheet
and income statement for the six months ended June 30, 2018 and the year ended December 31, 2017.The
Independent Directors noted that the Adviser appeared to be a viable concern generally and as investment
adviser of the Company specifically, notwithstanding that the Adviser’s profitability analysis indicated
that the Adviser was not currently earning a profit in its capacity as investment adviser to the Company.
The Independent Directors concluded that theAdviser’s fees and profits (if any) derived from its relationship
with the Company in light of the Company’s expenses were reasonable in relation to the nature and
quality of the services provided, taking into account the fees charged by other investment advisers of
CEICs and BDCs in the Peer Group. The Independent Directors noted that the Company’s management
fee was in line with the average and median management fee of the Peer Group and, specifically, with
two registered CEICs in the Peer Group.The Independent Directors also concluded that the overall expense
ratio of the Company (lower than the Peer Group median and average) was reasonable, taking into account
the size of the Company, the quality of services provided by the Adviser, and the investment performance
of the Company. On the basis of these considerations, together, with the other information it considered,
the Independent Directors determined that the advisory fee to be received by the Adviser is reasonable
in light of the services provided.

The Independent Directors discussed and considered the extent to which economies of scale would be
realized relative to fee levels as the Company grows, and whether the advisory fee levels reflect these
economies of scale for the benefit of stockholders.The Independent Directors determined that economies
of scale would be achieved at higher asset levels for the Company to the benefit of Company stockholders
as fixed expenses are spread over a larger asset base, however, the Independent Directors noted that
the opportunity for asset growth was limited because the Company is a closed-end investment company
that was trading at a discount to its NAV at the time of the Board’s consideration of the Management
Agreement.

The Board also noted the high level of diligence the Independent Directors exercised throughout the year
in evaluating theAdviser, and the extensive information provided with respect to theAdviser’s performance
and the Company’s expenses on a quarterly basis. The Independent Directors considered whether any
events have occurred that would constitute a reason for the Independent Directors not to renew the
Management Agreement and determined that there were none.

After the executive session of the Independent Directors, the Independent Directors reviewed with the
Board as a whole each of the determinations made by the Independent Directors during the executive
session, with which each of the non-independent directors agreed. The Board concluded that the investment
advisory fee rate under the Management Agreement is reasonable in relation to the services provided
and that continuation of the Management Agreement is in the best interests of the stockholders of the
Company.The Directors also concluded that the investment advisory fees are at acceptable levels in light
of the quality of services provided to the Company. On these bases, the Directors concluded that the
investment advisory fees for the Company under the Management Agreement are reasonable. In arriving
at their decision, the Directors did not identify any single matter as controlling, but made their determination
in light of all the circumstances.

Annual Report | StoneCastle Financial Corp.

Management

Board of Directors and Executive Officers
Our business and affairs are managed under the direction of our board of directors. Accordingly, our
board of directors provides broad supervision over our affairs, including supervision of the duties performed
by our Advisor. Our Advisor is responsible for our day-to-day operations. The names, ages and addresses
of our directors and officers and specified employees of ourAdvisor, together with their principal occupations
and other affiliations during the past five years, are set forth below. Each director and officer will hold
office for the term to which he is elected and until his successor is duly elected and qualifies, or until he
resigns or is removed in the manner provided by law. Unless otherwise indicated, the address of each
director is c/o StoneCastle Partners, 152 West 57th Street, 35th Floor, New York, New York 10019. Our
board of directors will initially consist of three directors who are not “interested persons” (as defined in
the Investment Company Act of 1940 (the “Investment Company Act”)) of our Advisor or its affiliates
and two directors who are “interested persons.” Our directors who are not interested persons are also
independent pursuant to the NASDAQ stock exchange listing standards,and we refer to them as“independent
directors.”We refer to the directors who are “interested persons” (as defined in the Investment Company
Act) are referred to below as “interested directors.” Under our certificate of incorporation, the board is
divided into three classes. Each class of directors will hold office for a three-year term. However, the initial
members of the three classes have initial terms of one, two and three years, respectively. At each annual
meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting
will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third
year following the year of their election and until their successors are duly elected and qualified.

Interested Directors

Name

Joshua Siegel

Age

George Shilowitz

Position(s) Held with
Company

Term
End

Principal Occupation(s)
Last 5 Years

Other Directorships
Last 5 Years

Director, Chairman of
the Board & Chief
Executive Officer
Director & President

2021 Managing Partner and CEO
of StoneCastle Partners,
LLC

2019 Managing Partner and
Co-CEO of StoneCastle
Partners, LLC; Senior
Portfolio Manager of
StoneCastle Partners, LLC

StoneCastle Partners, LLC;

StoneCastle Cash
Management, LLC
StoneCastle Partners, LLC

Independent Directors

Position(s) Held with
Company

Term
End

Principal Occupation(s)
Last 5 Years

Other Directorships
Last 5 Years

Name

Alan Ginsberg

Age

Director, Chairman of
Audit Committee

Emil Henry

Director, Member of

Audit Committee and
Lead Independent
Director

2019

Senior Advisor from

2010-2013; Managing
Director Barclays Bank
8/2017 - Present

2021 CEO and Founder of Tiger
Infrastructure Partners

External Advisory Board of

Peabody Museum at Yale
University

Chairman, Board of Director
of Tiger Cool Express,
Hudson Fiber Network,
Easterly Government
Properties, American
National

GuideStar, The Robert

Sterling Clark Foundation,
and Family Independence
Initiative

Clara Miller

Director, Member of
Audit Committee

2019 Non-Profit Finance Fund
1984 to 2010; The F.B.
Heron Foundation 2011
to 2017

StoneCastle Financial Corp. | Annual Report

Executive Officers Who are not Directors

Name

Patrick J. Farrell

Age

Position(s) Held with
Company

Term
Served

Principal Occupation(s)
Last 5 Years

Chief Financial Officer

Since April 1, 2014

Chief Financial Officer of

Rachel Schatten

General Counsel, Chief
Compliance Officer
and Secretary

Since July 2013

StoneCastle Partners, LLC
from April 2014 to date;
Chief Financial Officer of
Emerging Managers
Group, LP

General Counsel and Chief
Compliance Officer of
Hardt Group, General
Counsel and Chief
Compliance Officer of
StoneCastle Partners, LLC

Biographical Information

Interested Directors
The following sets forth certain biographical information for our Interested Directors.An Interested Director
is an “interested person” as defined in Section 2(a)(19) of the 1940 Act:

Joshua S. Siegel. Chief Executive Officer & Chairman of the Board. Mr. Siegel is the founder and Managing
Partner of StoneCastle Partners and serves as its Chief Executive Officer.With over two decades of experience
in financial services, 19 of which have been spent advising clients and investing in financial institutions
or assets, he is widely regarded as a leading expert and investor in the banking industry and is often
quoted in financial media, including The Wall Street Journal, The New York Times, American Banker, and
CNNMoney. In addition, he speaks frequently at industry events, including those hosted by the American
Bankers Association, Conference of State Bank Supervisors, FDIC, Federal Reserve Bank and SNL Financial.
A creative instructor with a passion for teaching, Mr. Siegel has regularly been invited to educate government
regulators about the specialized community banking sector. He also serves as Adjunct Professor at the
Columbia Business School in New York City. Immediately prior to co-founding StoneCastle, Mr. Siegel was
a co-founder and Vice President of the Global Portfolio Solutions Group at Citigroup, a group organized
to finance portfolios of financial assets for corporations and to invest in the sector as a principal and
market maker. He later assumed responsibility for developing new products, including pooled investment
strategies for the community banking sector. Mr. Siegel originally joined Salomon Brothers in 1996 (which
was merged into Travelers in 1998 and into Citigroup in 1999) in the tax and lease division, providing
financing and advisory services to government-sponsored enterprises and Fortune 500 corporations. Prior
to his tenure at Citigroup, Mr. Siegel worked at Sumitomo Bank where he served as a corporate lending
officer, as a banker managing equipment lease and credit derivative transactions, and as a member of
the New York Credit Committee and at Charterhouse, carrying out merchant banking and private equity
transactions. Mr. Siegel has provided strategic advice to the Global Food Banking Network. He also provides
annual economic support to Prep for Prep to make sure academic brilliance is recognized and nurtured
without regard to a student’s economic, demographic or sociological impediments. He holds a B.S. in
Management and Accounting from Tulane University.

George Shilowitz. President and Director. Mr. Shilowitz is a Managing Partner and Co-CEO of StoneCastle
Partners and serves as the Senior Portfolio Manager of StoneCastle Partners. Mr. Shilowitz has two decades
of fixed income and principal investment experience. Mr. Shilowitz worked with StoneCastle since its
founding in 2003 and became a partner in 2007. Prior to joining StoneCastle, Mr. Shilowitz was a senior
executive at Shinsei Bank and participated in its highly successful turnaround, sponsored by J.C. Flowers
& Co. and Ripplewood Partners.At Shinsei, Mr. Shilowitz managed various business units, including Merchant
Banking and Principal Finance and was the President of its wholly-owned subsidiary, Shinsei Capital
(USA) Limited. Prior to Shinsei, Mr. Shilowitz was a senior member of the Principal Transactions Group
at Lehman Brothers in Asia from 1997-2000, focusing on proprietary investments and debt portfolio

Annual Report | StoneCastle Financial Corp.

acquisitions from distressed financial institutions. From 1995-1997, he was a member of Salomon Brothers’
asset finance group where he met and first collaborated with Mr. Siegel. Mr. Shilowitz began his career
in 1991 at First Boston Corporation (now Credit Suisse) as a member of the fixed income mortgage
arbitrage group and also held positions in the financial engineering group and in asset finance investment
banking where he focused on banks and specialty finance companies. He holds a B.S. in Economics from
Cornell University.

Independent Directors
The following sets forth certain biographical information for our Independent Directors.Independent Directors
are not “interested persons” of StoneCastle Financial Corp., as defined by the 1940 Act:

Alan Ginsberg. Mr. Ginsberg has more than 30 years of experience in providing financial advisory
services to financial institutions. Mr. Ginsberg began his investment banking career at Salomon Brothers
Inc. in 1983, followed by being a key member of a group that moved to UBS Financial Services Inc. in
1995 and to Donaldson, Lufkin & Jenrette in 1998. He remained at DLJ through the merger with Credit
Suisse First Boston until 2004, when he was recruited to Head HSBC Bank USA’s Financial Institutions
Group Americas, remaining there until mid-2006. Following HSBC, Mr. Ginsberg was a senior member
of the Banc of America Securities Financial Institutions Group. Currently, Mr. Ginsberg is a Managing
Director of Barclay’s and has advised on more than 70 strategic transactions and advisory assignments
during his tenure as an investment banker. Mr. Ginsberg received his B.A. in Economics fromYale University.
He currently serves on Yale’s Peabody Museum Advisory Board, and he served as a Senior Advisor to
StoneCastle Partners from 2010 until May 2013.

Emil W. Henry, Jr. Mr. Henry is the CEO and Founder of Tiger Infrastructure Partners, a private equity
firm focused on infrastructure investment opportunities. Prior to founding Tiger Infrastructure Partners,
he was Global Head of the Lehman Brothers Private Equity Infrastructure businesses, where he oversaw
global infrastructure investments. In 2005, Mr. Henry was appointed Assistant Secretary of the Treasury
for Financial Institutions by the President of the United States. Until his departure in 2007, he was a key
advisor to two Treasury Secretaries on economic, legislative and regulatory matters affecting U.S. financial
institutions and markets. Before joining the Treasury, Mr. Henry was a partner of Gleacher Partners LLC,
an investment banking and investment management firm,where he served as Chairman ofAsset Management,
and Managing Director, and where he oversaw the firm’s investment activities. Mr. Henry began the formative
part of his career at Morgan Stanley in the mid-1980s in that firm’s merchant banking arm where he
executed management buyouts for Morgan Stanley’s flagship private equity fund. He holds an M.B.A.
from Harvard Business School and a B.A. in Economics from Yale University.

Clara Miller. Clara Miller is President Emeritaof the Heron Foundation, which helps people and communities
help themselves out of poverty. She was President of Heron from 2011 through 2017. Prior to assuming
Heron’s presidency, Miller was President and CEO of Nonprofit Finance Fund which she founded and
ran from 1984 through 2010. Miller serves on the boards of the Sustainability Accounting Standards
Board (SASB), Family Independence Initiative, and StoneCastle Financial Corp. She is a board member
of the U.S. Impact Investing Alliance and is a Bridgespan Fellow. In 2017 she was named Social Innovator
of the Year by the University of New Hampshire. In 1996, Miller was appointed by President Clinton to
the U.S. Treasury’s first Community Development Advisory Board for the then-newly-created Community
Development Financial Institutions Fund. She later became its Chair. She chaired the Opportunity Finance
Network board for six years and was a member of the Community Advisory Committee of the Federal
Reserve Bank of New York for eight years. Ms. Miller speaks and writes extensively and has been published
in TheFinancialTimes,Medium,TheAtlanticBlog,StanfordSocialInnovationReview,TheNonprofitQuarterly
andTheChronicleofPhilanthropy. She has spoken recently at Aspen Ideas Festival, Sciences Po, Oxford
Saïd Business School, Bloomberg L.P., SOCAP, and Mission Investors Exchange.

StoneCastle Financial Corp. | Annual Report

Executive OfficersWhoAre Not Directors
Patrick J. Farrell. Chief Financial Officer. Mr. Farrell has over 30 years of hands-on management experience
in finance and accounting, specifically focused on domestic and offshore mutual funds, bank deposit
account programs, investment advisory and broker dealer businesses. Prior to joining StoneCastle Partners
as Chief Financial Officer in February 2014, Mr. Farrell was CFO/COO of the Emerging Managers Group,
L.P., a specialty asset management firm focused on offshore mutual funds. Prior to that, Mr. Farrell was
CFO at Reserve Management, where he oversaw all financial activities for the company. Earlier in his
career, he held financial positions at Lexington Management, Drexel Burnham,Alliance Capital and New
York Life Investment Management, all focused on investment advisory and mutual fund activities. He
began his career at Peat Marwick Mitchell & Co. Mr. Farrell holds a B.S. in BusinessAdministration-Accounting
from Manhattan College. Mr. Farrell is a Certified Public Accountant in New York State and a member
of the American Institute of Certified Public Accountants.

Rachel Schatten. General Counsel, Chief Compliance Officer and Secretary. Ms. Schatten had over 12
years of investment adviser experience prior to joining StoneCastle Partners as General Counsel and Chief
Compliance Officer in 2013.From 2004 to 2013,she served as the U.S.General Counsel and Chief Compliance
Officer of a subsidiary of Hardt Group Investments AG, an international fund of funds, and the General
Securities Principal of its affiliated broker-dealer since its inception through its subsequent sale. Prior to
her tenure at the Hardt Group, Ms. Schatten was an Associate in the investment management group of
Schulte Roth & Zabel LLP, where she counseled investment advisers on developing and structuring new
hedge funds, including domestic and offshore entities, master feeder funds, and funds of funds. She holds
Series 7, 63 and 24 licenses and is admitted to practice law in New York. She graduated Cum Laude
from Albany Law School of Union University, where she was an associate editor of the Albany Law Review
and a member of the Justinian Society.

AdditionalinformationregardingtheDirectorsofStoneCastleFinancialCorp.canbefoundintheStatement
ofAdditionalInformation,whichisavailable,withoutcharge,uponrequest,bycalling1-877-373-6374
andisalsoavailableontheCompany’swebsiteathttp://www.stonecastle-financial.com

Annual Report | StoneCastle Financial Corp.

Privacy Notice

StoneCastle Financial Corp. (“we” or “us”) is committed to maintaining your right to privacy. Protecting
the information we receive as part of our relationship with you is of primary importance to us. Please
take the time to read and understand the privacy policies and procedures that we have implemented to
safeguard your nonpublic personal information.

InformationWe Collect

We must collect certain personally identifiable financial information about our customers to provide financial
services and products. Nonpublic personal information means personally identifiable financial information
and any list, description or other grouping of consumers that is derived using any personally identifiable
financial information that is not publicly available. The personally identifiable financial information that
we gather during the normal course of doing business with you may include:

1. information we receive from you on applications or other forms;

2. information about your transactions with us, our affiliates, or others;

3. information collected through the Internet; and

4. information we receive from a consumer reporting agency.

InformationWe Use

The information that we collect and store relating to you is primarily used to enable us to provide our
services to you in the best possible manner. In addition, we may use the information for the following
purposes:

1. To provide you with information relating to us;

2. To provide third parties with statistical information about the users of our website;

3. To monitor and conduct an analysis of our Website traffic and usage patterns; and

4. To analyze trends.

InformationWe Disclose

We do not disclose any nonpublic personal information about our customers or former customers to
anyone, except as permitted or required by law, or as necessary to provide services to you.We may disclose
all of the information we collect, as described above, to certain nonaffiliated third parties such as attorneys,
accountants, auditors, regulators and persons or entities that are assessing our compliance with industry
standards. We enter into contractual agreements with all nonaffiliated third parties that prohibit such
third parties from disclosing or using the information other than to carry out the purposes for which we
disclose the information.

If you have questions or comments about our privacy practices, please call us at (212) 354 6500.

StoneCastle Financial Corp. | Annual Report

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StoneCastle Financial Corp.

BOARD OF DIRECTORS

InterestedDirectors(1)
Joshua S. Siegel, Chairman of the Board of Directors
George Shilowitz

IndependentDirectors
Alan Ginsberg
Emil Henry, Jr.
Clara Miller

OFFICERS

Joshua S. Siegel, Chief Executive Officer
George Shilowitz, President
Patrick J. Farrell, Chief Financial Officer
Rachel Schatten, General Counsel, Chief Compliance Officer and Secretary

INVESTMENT ADVISOR

StoneCastle Asset Management LLC
152 West 57th St, 35th Floor
New York, NY 10019

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Tait, Weller & Baker LLP
50 South 16th Street, Suite 2900
Philadelphia, PA 19102

TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR

Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021

(1)AsdefinedundertheInvestmentCompanyActof1940,asamended.