StoneCastle Financial Corp. (BANX)
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StoneCastle Financial Corp. (BANX)
A closed end investment management company making investments in bank-related assets including community banks,
regulatory capital relief securities and companies that provide goods and/or services to banking companies.
StoneCastle Financial Corp. | 212-468-5441 | 100 Fillmore Street, Ste. 325, Denver, CO 80206
www.stonecastle-financial.com September 30,2021
Disclaimers & Disclosures Forward-Looking Statements This presentation, and all oral statements made regarding the subject matter of this communication, contain forward-looking statements, including statements regarding the matters described in this presentation. Such forward-looking statements reflect current views with respect to future events and financial performance. Statements that include the words “should,” “would,” “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “seek,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements in this material. All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. Actual future results may differ significantly from those stated in any forward-looking statement, depending on factors such as changes in securities or financial markets or general economic conditions, the volume of sales and purchases of shares of common stock, the continuation of investment advisory, administrative and service contracts, and other risks discussed from time to time in StoneCastle Financial Corp.’s filings with the SEC, which are available at the SEC’s website http://www.sec.gov. Any forward-looking statements speak only as of the date of this communication. StoneCastle Financial Corp. undertakes no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Disclosures StoneCastle-ArrowMark Asset Management, LLC is majority owned by ArrowMark Colorado Holdings LLC (“ArrowMark Partners”). ArrowMark Partners is a registered investment adviser. StoneCastle-ArrowMark has entered into a staffing agreement (the “Staffing Agreement”) with its parent company, ArrowMark Partners and several of its affiliates. Under the Staffing Agreement, ArrowMark Partners provides experienced investment professionals to StoneCastle-ArrowMark and provides access to their senior investment personnel. StoneCastle-ArrowMark capitalizes on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of ArrowMark Partners’ investment professionals. 2
Founded in 2007 by investment professionals with a track record of
delivering strong returns and preserving client capital
ArrowMark Partners At-A-Glance $24.1 billion in Assets Under Management
By Asset Type ($B) By Client Type ($B)
▪ Active investment process, driven by Commercial
Other, $0.9
fundamental research and analysis Real Estate1, Insurance,
$0.8 $1.0
▪ Specialized expertise in niche credit and
capacity constrained equity markets
Credit & Family
▪ Manage alternative, traditional, and Multi- Office / CLO Funds,
Asset, $3.8 HNW, $2.8
customized investment strategies in public $5.7
and private vehicles Retail /
Equity, Intermediary,
▪ 79 employees and growing CLO, $13.7 $3.1
$5.7
▪ 47 tenured investment professionals Sub-Advisory,
Corporate / $6.3
▪ 100% employee-owned Public, $4.3
▪ Headquartered in Denver, CO with
presence in California, London, and New
York
As of 9/30/2021. 1CRE AUM represents commercial mortgage loans that ArrowMark or its affiliate has originated and/or currently manage on behalf of insurance companies and other
institutional investors. Other includes sovereign wealth, not-for-profit institutions, and internal capital.
3Focused on building an enduring investment firm by aligning human capital
with client need and market opportunity
AUM:$24.1B
AUM:$22.2B
$30.0
Credit & Multi-Asset CLO AUM:$20.3B 79
90
AUM:$17.3B 77
Equity Commercial Real Estate AUM:$15.9B 71 80
$25.0 AUM:$11.1B
Employees AUM: $7.7B 63 70
59 60
$20.0 54 60
AUM: $7.4B
50
AUM: $5.4B
$15.0
37
40
AUM:$1.9B 30
$10.0
AUM: $1.0B AUM: $1.4B AUM:$1.6B AUM: $1.7B 30
18
13 14 14 20
$5.0
10
10
$- 0
2007 / 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Launched inaugural Demand for yield Issued first broadly Opened NYC office Expanded specialty Closed Global
multi-asset absolute created syndicated CLO, with expansion of lending capabilities to Opportunity III,
return strategy, opportune time to Elevation 2013-1 credit team include CRE with $1bn in
Firm Inception Fundamental launch Income financing, with commitments
Acquired Larkspur- First recognized as one
Founding partners Opportunity Opportunity as Bridge Lending focus
based Aster of the “Best Places to Launched Life
(Corkins & Reidy) an alternative to Changed firm name
Investment Work in Money Issued first static Science II
set out to build an Participated in U.S. traditional fixed following trademark
Management and Management” by CLO, Après I
enduring investment Federal Reserve income dispute
Meridian mutual Pensions & Investment Launched first
management firm, TALF program,
funds Soft-closed SMID Launched Global CLO Equity
leveraging their leading to launch of Inception of Life
strategy Opportunity III Strategic
collective years of Structured Bhonsle joins Science focused Partners Fund
experience and time- Opportunity to broaden private fund
tested fundamental securitized credit
Launched Life Science I Launched
approach to deliver and leveraged
Structured
solutions that address loan expertise Opened London Opportunity II
client needs Meade & Schaub Issued first office
join with small / Inception of new SMID
middle-market Select & Mid-Cap Acquired BANX, a
Abrell joins to focus mid-capexpertise Soft-closed Small Cap
CLO, Peaks I Growth strategies and publicly traded
on securitized credit Growth strategy
Launched Small expansion of team investment
opportunities Launched first
Cap Growth Closed Global company
dedicated Regulatory Launched Global
strategy Opportunity II, with
Capital Relief fund, Opportunity II $879mm in commitments
As of 9/30/2021. Global Opportunity
4ArrowMark Investment Capabilities
Our specialized expertise and research-driven process allow us to exploit
niche investment opportunities across credit and equity markets
ArrowMark Investment Capabilities
Public / Private Equity Securitized Credit Regulatory Capital Relief CLO / Leveraged Loan Specialty Finance
Highly active; emphasis Seeks to capture Highly asymmetric Comprehensive Commercial Real
on capacity constrained excess yield in niche opportunity coverage of loan Estate
markets market segments universe
▪ Middle-market bridge
▪ Small-to-mid caps ▪ ABS / RMBS / CMBS ▪ Bilateral, club and ▪ Broadly syndicated loans
syndicated transactions corporate loans
▪ Biotech ▪ Agency Lower middle-market
▪ Liquid alternatives ▪ CLO debt / equity / ▪ Diversified collateral ▪ Middle-market bank corporate
▪ Hedged, utilizing option warehouse types loans ▪ Cross-capital structure,
structures ▪ TALF flexible growth financing
Shared fundamental research-based process, with emphasis on mitigating drawdowns
Integrated equity & credit research
Cross-collaboration across platform
5About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Relief Overview Fixed Income Market Update
About StoneCastle Financial Corp.
StoneCastle Financial
• StoneCastle Financial Corp. is an SEC registered non-diversified closed-end investment company
under the ticker symbol “BANX”. The Company is structured as a non-BDC RIC1.
• The portfolio is managed by one of the leading advisors dedicated to the banking and financial
services sector, StoneCastle-ArrowMark Asset Management, LLC.
• At Q3 2021 dividend yield 6.9%; For the tax year 2020, 34.5% of taxable income was eligible for QDI.
• At Q3 2021 StoneCastle Financial Corp. traded at a 1% premium to NAV2 .
INVESTMENT OBJECTIVE
• The Company’s primary investment objective is to provide stockholders with current income. The
Company is focused on income generation, capital preservation, and providing risk-adjusted
returns.
INVESTMENT STRATEGY
• The Company intends to make long-term, passive, non-control investments in bank related
securities seeking regulatory capital for organic growth, acquisitions and other refinancing activities.
• The Company invests in term loans, senior and subordinated debt, structured debt, regulatory
capital relief securities, convertible securities, preferred and common equity.
1. Regulated Investment Company 7
2. Source: As of 9.30.21, StoneCastle Financial Corp. www.stonecastle-financial.comBANX Investment Team & Supporting Resources
BANX
INVESTMENT COMMITTEE
Kaelyn Abrell Sanjai Bhonsle Karen Reidy
Partner Partner Partner
21 Years of Experience 25 Years of Experience 31 Years of Experience
INVESTMENT TEAM
Regulatory Capital Community Banking Hedged Equity Structured Credit
Kaelyn Abrell Dana Staggs Clay Freeman Doug Schwartz
21 Years of Experience 17 Years of Experience 16 Years Experience 6 Years of Experience
Juan Grana AJ Somers Jack Stallone
22 Years of Experience 13 Years of Experience 5 Years of Experience
James McKinney Ian Fox
8 Years of Experience 9 Years of Experience
Heather Guttersohn
14 Years of Experience
Penny Tan
7 Years of Experience
RESTRUCTURINGS / WORKOUTS
Sanjai Bhonsle Dana Staggs AJ Somers
Team as of 9/30/21. There can be no assurance that any particular individual will be involved in the management of any particular portfolio for any given period of time, if at all.
8
Source: ArrowMarkRelative Value Compared to NAV
BANX Relative Value: Market Price Benchmarked Against NAV
$23.00 22.89
22.42 22.30
22.04 22.16 22.05
Over the last five 22.01
21.83
22.01
21.86
21.75 21.81
21.80 21.75 21.8
years, BANX NAV $22.0021.56 21.58 21.63 21.62
21.43 21.43 21.44
has been in a
relatively tight range 20.93
$21.00
and stable.
20.27
20.13
At quarter-end, BANX 19.79
$20.00
traded at a 1% 19.30 19.41
19.25
premium to NAV, 19.00
including the $19.00
reinvestment of
dividends. $18.00
BANX solicits a
minimum of 2 $17.00
independent, third 16.23
party quotes in order 15.90
to value the portfolio. $16.00
We believe this should $15.00
provide a greater
degree of confidence
in the Company’s
underlying value.
Net Asset Value Market Price
1. Source: Bloomberg, www.Bloomberg.com, StoneCastle-Financial Corp. www.stonecastle-financial.com As of 9/30/21
9Relative Value Compared by Yield
BANX Relative Value benchmarked by Dividend Yield
In Q3 2021 BANX
had better BANX Relative Market Performance of Banking Related Peers and Respective
Dvd
performance Dividend Yields at Q3 2021 Yields
versus other
40%
income-oriented
vehicles dedicated
30%
to financial
services and 1.7%
banking 20%
2.0%
At quarter-end, 10%
BANX had a
dividend yield 0% 6.9%
of 6.9% in 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021
comparison to XLF -10%
with a 1.7%
dividend yield and -20%
KBWB with a 2.0%
dividend yield -30%
BANX offered over -40%
a 500 basis point
yield advantage
-50%
versus these two
peer indices
-60%
LEGEND BANX XLF KBWB
BANX – StoneCastle Financial Corp.
XLF – Financial Select Sector SPDR Fund
KBWB – KBW Bank Index
1. Source: Bloomberg, www.Bloomberg.com, As of 9/30/21 10About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Relief Overview Fixed Income Market Update
About Community Banks
COMMUNITY BANKS
• StoneCastle Financial invests in community banks that are typically less than $10B in assets. They
require capital for organic growth, acquisitions, and share repurchases.
• Community banks, by count, represent a majority of the banks in the U.S. However, they have 12%
total industry assets, and 16% of total industry loans¹.
• Community banks exponentially serve the small business and rural market communities. They cater
to local markets primarily in multi-family or owner occupied residential real estate, C&I, and small
business loans. Community banks have high impact on their communities through economic
development, financial inclusion and job creation.
• Community banks were the predominant PPP lenders. Community banks made 60% of PPP loans to
small businesses, making 4.7 million PPP loans worth $429 billion, serving ~56% of all PPP
recipients. The PPP loans were made in 98.5% of low-income or economically distressed counties².
• StoneCastle Financial typically invests in community bank issued securities such as subordinated
debt, preferred securities (including TARP) and structured debt.
• Between 2021-2019, community banks saw an attrition rate of 30%, primarily due to merger activity³.
1. Source: FDIC Quarterly Banking Profile as of June 30, 2021 www.fdic.gov
2. Source: Independent Community Bankers Association, 9.1.2021. www.icba.org 12
3. Source: FDIC Community Banking Study, December 2020 www.fdic.govBank Debt Capital Markets Update: Dec-20 to early Sept-21 New Issuance
▪ Q3-2021 activity moderated with 23 new issuances for ~$1.5bn from a strong Q2-2021 of 28 new issuances for approximately ~$2.5bn and a year
ago (Q3-2020) of 53 new issuances at ~$2.3bn. This is likely driven by seasonal impact of a slower summer (vs Q2) and an unusually strong Q3-
2020 new issue market as banks strengthened balance sheets due to Covid-19 concerns and a robust capital markets environment. However, it
is worth noting that Q3 2019 was much lighter at 18 transactions for ~$0.7mm. Pricing tightened further in Q3-2021 to an average of 3.40% vs
3.74% in Q2 Spread
Call to UST Mkt. Cap
Issue Date Deal Size Issuer Type Fixed Rate Schedule Moody's S&P Fitch Kroll EJ DBRS (bps) Assets ($B) ($M)
10/26/2021 $7.50 CMUV Bancorp HC - Sub 3.63% 10NC5 - - - - - - 201.71 $0.3 $24.2
10/22/2021 $10.00 InsCorp, Inc. HC - Sub 3.75% 10NC5 - - - - - - 211.76 $0.7 $54.1 ➢ Loan demand is robust as seen in
10/1/2021 $11.00 First US Bancshares, Inc. HC - Sub 3.50% 10NC5 - - - - - - 203.84 $1.0 $65.6
10/1/2021 $20.00 InBankshares, Corp HC - Sub 3.75% 10NC5 - - - - - - 228.84 $0.7 $101.9 the continued tightening of pricing,
9/29/2021 $15.00 Oregon Pacific Banking Co. HC - Sub 3.38% 10NC5 - - - - - - 185.83 NA NA
9/28/2021 $30.00 MVB Financial Corp. HC - Sub 3.25% 10NC5 - - - - - - 171.26 $2.7 $493.5
as pricing has generally dipped
9/24/2021 $50.00 Sierra Bancorp HC - Sub 3.25% 10NC5 - - - BBB- - - 179.91 $3.3 $357.3 below 3.5%. Spreads over the 10-
9/22/2021 $50.00 STAR Financial Group, Inc. HC - Sub 3.25% 10NC5 - - - - - - 194.94 $2.8 $250.9
9/17/2021 $4.00 Buckeye State Bancshares, Inc. HC - Sub 4.00% 10NC5 - - - - - - 263.84 $0.2 NA
year US Treasury is tightening,
9/16/2021 $350.00 Bank OZK HC - Sub 2.75% 10NC5 Baa3 - - BBB+ - - 141.22 $26.6 $5,290.8 with average spreads breaching
9/15/2021 $15.00 Bank of Idaho Holding Company HC - Sub 3.38% 10NC5 - - - - - - 207.62 $0.7 $72.2
9/15/2021 $150.00 Lakeland Bancorp, Inc. HC - Sub 2.88% 10NC5 - - - - - - 157.62 $7.9 $836.9
2.0% in July. Average Q3
9/8/2021 $150.00 Heartland Financial USA, Inc. HC - Sub 2.75% 10NC5 - - - BBB - - 141.24 $18.4 $1,977.0 spreads tightened to 2.06% over
9/7/2021 $32.50 ChoiceOne Financial Services, Inc. HC - Sub 3.25% 10NC5 - - - - - - 187.68 $2.1 $188.2
9/3/2021 $12.00 Uwharrie Capital Corp HC - Sub 3.50% 10NC5 - - - - - - 217.77 $0.8 $60.0 treasuries from a Q2 spread of
9/3/2021 $8.00 Uwharrie Capital Corp HC - Sub 4.00% 15NC10 - - - - - - 267.77 $0.8 $60.0 2.16%
8/26/2021 $27.00 AmeriServ Financial, Inc. HC - Sub 3.75% 10NC5 - - - - - - 240.09 $1.4 $67.3
8/26/2021 $70.00 Triumph Bancorp, Inc. HC - Sub 3.50% 10NC5 - - - - - - 215.09 $6.0 $1,983.1
8/26/2021 $16.50 Union Bankshares, Inc. HC - Sub 3.25% 10NC5 - - - - - - 190.09 $1.1 $147.6
8/20/2021 $110.00 Hanmi Financial Corporation HC - Sub 3.75% 10NC5 - - - BBB- - - 249.5 $6.6 $573.1
8/17/2021 $35.00 California BanCorp HC - Sub 3.50% 10NC5 - - - - - - 223.83 $1.9 $147.1
8/16/2021 $60.00 First Internet Bancorp HC - Sub 3.75% 10NC5 - - - - - - 248.5 $4.2 $298.0
8/10/2021 $150.00 NexBank Capital, Inc. HC - Sub 4.00% 10NC5 - - - - - - 265.1 $9.3 ➢ In 2020, many community banks
7/30/2021 $35.00 Farmers & Merchants Bancorp, Inc. HC - Sub 3.25% 10NC5 - - - - - - 202.77 $2.2 $243.8 participated in the new issue
7/14/2021 $30.00 Old Point Financial Corporation HC - Sub 3.50% 10NC5 - - - - - - 215.41 $1.3 $125.3
7/8/2021 $30.00 Bridgewater Bancshares, Inc. HC - Sub 3.25% 10NC5 - - - - - - 195.72 $3.1 $440.5 activity of their peers, driving
7/7/2021 $100.00 Nicolet Bankshares, Inc. HC - Sub 3.13% 10NC5 - - - - - - 180.87 $2.3 $690.0 yields lower. Community banks
6/29/2021 $25.00 Bancorp 34, Inc. HC - Sub 4.00% 10NC5 - - - - - - 253.03 $0.5 $33.3
6/29/2021 $20.00 BankGuam Holding Company HC - Sub 4.75% 10NC5 - - - - - - 328.03 $2.4 $106.9 continue to face a challenging
6/23/2021 $80.00 Southern BancShares (N.C.), Inc. HC - Sub 3.13% 10NC5 - - - - - - 163.98 $4.1 $403.6 origination environment, so we
6/18/2021 $8.00 RCB Financial Corporation HC - Sub 4.38% 10NC5 - - - - - - 293.69 $0.2
6/17/2021 $15.00 1st Capital Bancorp HC - Sub 4.00% 10NC5 - - - - - - 249.6 $0.9 $79.4 suspect continued participation
6/17/2021 $60.00 BancFirst Corporation HC - Sub 3.50% 15NC10 - - - - - - 199.6 $11.0 $2,117.9
6/15/2021 $20.00 Chesapeake Financial Shares, Inc. HC - Sub 3.25% 10NC5 - - - - - - 175.78 $1.3 $123.7
by community banks in new
6/15/2021 $150.00 Preferred Bank HC - Sub 3.38% 10NC5 - - - BBB+ - - 188.28 $5.6 $998.6 issuance activity
6/15/2021 $6.00 RBAZ Bancorp, Inc. HC - Sub 5.00% 10NC5 - - - - - - 350.78 $0.2 $17.7
6/7/2021 $600.00 Western Alliance Bancorporation HC - Sub 3.00% 10NC5 Baa2 - - BBB+ BBB+ - 143.13 $43.4 $10,300.0
6/3/2021 $85.00 CNB Financial Corporation HC - Sub 3.25% 10NC5 - - - - - - 162.5 $4.9 $409.5
6/2/2021 $30.00 Isabella Bank Corporation HC - Sub 3.25% 10NC5 - - - - - - 166.25 $1.8 $185.0
6/2/2021 $6.00 SouthPoint Bancshares, Inc HC - Sub 4.25% 15NC10 - - - - - - 266.25 $0.6 $66.8 ➢ Institutional interest has been
6/2/2021 $24.00 SouthPoint Bancshares, Inc HC - Sub 3.88% 10NC5 - - - - - - 228.75 $0.6 $66.8 heavily weighted towards bids
5/28/2021 $300.00 Valley National Bancorp HC - Sub 3.00% 10NC5 - - - - - - 140.57 $41.2 $5.9
5/28/2021 $10.00 HV Bancorp, Inc HC - Sub 4.50% 10NC5 - - - - - - 290.57 $0.6 $43.5 from insurance companies
5/27/2021 $20.00 SB Financial Group, Inc HC - Sub 3.65% 10NC5 - - - - - - 204.38 $1.3 $183.4
5/19/2021 $25.00 Citizens & Northern Corporation HC - Sub 3.25% 10NC5 - - - - - - 157.9 $2.3 $398.5
5/14/2021 $7.50 Blackhawk Bancorp, Inc HC - Sub 3.50% 10NC5 BBB- 187.16 $1.2 $99.2
5/14/2021 $7.50 Blackhawk Bancorp, Inc HC - Sub 3.88% 15NC10 - - - - - - 224.66 $1.2 $99.2
5/11/2021 $14.00 National Capital Bancorp, Inc HC - Sub 3.75% 10NC5 - - - - - - 212.83 $0.6
5/6/2021 $375.00 Texas Capital Bancshares, Inc. HC - Sub 4.00% 10NC5 - BB - - - - 243.04 $40.1 $3,532.6
1310Y US Tr Rate vs HG/Comm. Bank New Issue/BANX Spread over 10Y US Tr
16
• HG Corp Spreads have decreased since Q1 2020
(note this is HG spread and not HG yield)
14 • Community bank spreads decreased significantly
from over 4% in Q2 and Q3 2020 to close to 2%
in Q3 2021. October is hovering around the
12 same level at 2.12%
• BANX Dividend Spread over 10-year Treasury
shows good value today relative to 2019 levels,
10 but has steadily been decreasing reflecting
improving trading prices
8
6
4
2
0
Jun-19
Aug-19
Aug-20
Aug-21
Jul-19
Jul-20
Jul-21
Apr-19
May-19
Nov-19
Apr-20
May-20
Jun-20
Nov-20
Feb-21
Apr-21
May-21
Jun-21
Dec-19
Jan-19
Feb-19
Mar-19
Sep-19
Jan-20
Feb-20
Mar-20
Sep-20
Dec-20
Jan-21
Mar-21
Sep-21
Oct-19
Oct-20
Oct-21
10 Yr. Corp Spread BANX Dividend Spread Community Bank New Issue Spread
14Regulatory Capital Ratios: BANX vs Peers with
Regulatory Capital Ratios: BANX vs Peers with
About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Relief Overview Fixed Income Market Update
About Money Center Banks
Money Center Banks
• StoneCastle Financial invests in regulatory capital relief securities primarily issued by large money
center banks that are global in nature and exceed $50 billion in assets
• Regulatory capital relief securities are backed by a diverse range of underlying corporate credits held
by the bank itself. The underlying credits are typically investment grade performing loans.
• Regulatory capital is issued by money center banks in order to optimize regulatory capital ratios
under Basel III.
• Regulatory capital relief transactions are facilitated by long-term trusted relationships with issuing
banks of which only a small group of financial institutions are known to participate.
. 18Recurring Investment Opportunity
Current market dynamics provide a robust environment for continued investment
▪ Continued need for banks to issue post-COVID as part of their ongoing efforts to improve balance sheet efficiency
▪ Growth of the issuer base within the U.K. and Europe as well as to the U.S., Canada, and Asia as banks continue to
recognize benefits of security issuance
▪ Expansion of collateral types that make economic sense for banks to include in transactions given ongoing regulatory and
accounting changes
▪ Supply growth met by only a moderate increase in demand due to various constraints associated with investing in the
asset class
Increasing issuance from long-term and new issuers Limitations on growth of the investor base
Relief from capital Ability to enhance Client and lending portfolio Insurance and ERISA
requirements profitability data sensitivity complications
Increasing regulatory Collateral type Growing but still smaller Lack of alignment with
acceptance expansion market size security characteristics
Ongoing regulatory and Required investment
accounting changes skillset
19Intermittent Opportunities from the Secondary Market
▪ The ability to extract an illiquidity discount presents the opportunity to generate returns from price appreciation,
in addition to security income
▪ Seasoned, secondary opportunities can provide complementary exposure to new issue investments
▪ Factors contributing to secular growth of secondary market volumes include:
▪ Increasing standardization of security structures and documentation for banks with established issuance
platforms (although each transaction still features some degree of bespoke characteristics)
▪ The presence of non-core investors that do not have the intention/ability to hold securities to maturity
▪ A natural source of potential liquidity from other investors in club (2-3 investors) and syndicated (5-8
investors) transactions
▪ The 1H, 2021activity in secondary market was the result of:
▪ Select investors need to source liquidity to meet margin calls, redemption requests, or other cash needs
▪ The relative value approach of some investors that caused them to sell regulatory capital relief and rotate
into other asset classes that were trading at severely discounted prices
“Normal” Market Environment 2020
Annual Volume1 ▪ $100-$300mm ▪ $1bn total
▪ $600mm from mid-March to June
Typical Minimum ▪ As low as 0.90 to 0.95 ▪ As low as 0.70 to 0.75
Price
Available Yields ▪ Seek to capture 100-150bps of additional ▪ Mid-to-high teens, even when applying
yield relative to the new issue market, stressed scenario loss assumptions
often for shorter maturity securities
Past performance is no guarantee of future results. The above characteristics are hypothetical and do not represent a particular investment.
1ArrowMark’s estimate of secondary market volumes. 20About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Relief Overview Fixed Income Market Update
Regulatory Capital Relief Overview
▪ Loans and revolving lines of credit extended to investment grade and near investment grade
Diversified Pools of borrowers
▪ Geographic, sector, and individual borrower diversification enforced by security guidelines
Performing ▪ Large corporates comprise the majority of historical issuance followed by small/medium
Collateral enterprise, and trade finance; recent expansion to mortgage, commercial real estate, and auto
loan portfolios
▪ Collateral is originated with the intention to be held on the balance sheet as part of the issuing
Structural bank’s core lending book
Alignment ▪ Issuers retain material exposure through the transaction structure, which incentivizes banks to
maintain underwriting discipline
Income-Driven ▪ Performance driven by securities’ floating rate coupons
▪ Potential downside mitigation through collateral quality and structural enhancements
Returns with Low ▪ Historical returns characterized by resilience during periods of market stress and low
Correlation correlation to most traditional and alternative asset classes
▪ Transactions are a core balance sheet optimization tool and complement other efforts to
Effective Tool for improve capital levels, adhere to internal balance sheet guidelines, and respond to ongoing
regulatory changes
Large, Global Bank ▪ Enables banks to maintain core lending activities that are often prerequisites to gaining
Issuers investment and commercial banking business
▪ Benefits reinforced by issuer expansion across the U.K., Europe, North America, and Asia
Past performance is no guarantee of future results. Diversification does not eliminate the risk of experiencing investment loss.
22Diversified Pools of Performing Collateral
Security Reference Portfolio1
Typical Reference Portfolio Characteristics
Large Corporate Security
Collateral ▪ Originated with the intention to be held June 2020
Description on the issuing bank’s balance sheet
▪ Performing at the time of security
$51bn 3.4x 139bps
issuance
Average Market Average Net Average CDS
▪ Remain part of the bank’s core loan Capitalization Leverage Spread
portfolio after issuance
Credit ▪ BBB to BB weighted average 0.74% 74%
Quality ▪ Individual exposures range from AA to Average Borrower Investment Grade
B-; no CCC or below Exposure Credit Quality2
▪ Limits on the size of individual and
aggregate exposures to sub-investment BB+/Ba1
grade borrowers Weighted Average Credit Quality
Diversification ▪ Geographic
Guidelines ▪ Sector 98% 93% 98%
▪ Borrower Borrowers Borrowers Rated Revolvers as %
Domiciled in U.S. by NRSRO of Portfolio
1The investments described herein are noted for illustration purposes only and are included to illustrate the way in which the Partnership would invest in certain securities. It should not be
assumed that this example or future investments will be profitable. If any assumptions used do not prove to be true, results may vary substantially. Diversification does not eliminate the
risk of experiencing investment loss. Characteristics are based on the composition of the collateral pool at issuance in June 2020. 2Credit rating based on issuing bank’s internal rating
methodology.
23Effective Tool for Banks’ Balance Sheet Management
Under Basel III with
Under Basel II Under Basel III a Regulatory
($mm) ($mm) Capital Relief
Transaction ($mm)
Reference Portfolio $1,000 $1,000 $1,000
Risk-Weighted Assets $1,000 $1,000 $500
Portfolio Yield to the Bank
(assumes 5% weighted $50 $50 $50
average coupon)
Reduced by
Coupon Paid to Investors n/a n/a -$9 50%
Bank Cost of Capital -$34.8 -$42.6 -$36.3
Net Interest Margin $15.2 $7.4 $4.7
Tier 1 Capital Ratio 4.0% 10.5% 10.5%
Required Tier 1 Capital $40 $105 $52.5
Return on Tier 1 Capital 38.0% 7.0% 9.0%
160%+ increase in required tier 1
capital negatively impacts a
bank’s return on capital
▪ Return on Tier 1 Capital increases
+27% from 7.0% to 9.0%
▪ $52.5mm of Tier 1 Capital can be
redeployed
The above example is hypothetical and does not represent the economics of a particular bank. Small changes to any of the assumptions incorporated in the example may lead to a
significant change in outputs. Assumptions in the example include: 1) 100% risk weighting for exposures to corporate credit; 2) 50% reduction in risk weighted assets for the bank through
the issuance of a regulatory capital relief security with a $90mm equity tranche and 10% coupon; 3) 5% weighted average coupon for the reference portfolio; 4) 3% debt cost of capital
and 15% equity cost of capital.
24Regulatory Capital Relief Strategy
Seeks to achieve investors’ long-term objectives by partnering with global banks through regulatory capital relief
transactions
▪ Attempt capitalize on potential double-digit security coupons and expected resilience during periods of market stress
through disciplined issuer and security selection
▪ Emphasis on floating rate, income-driven returns with downside mitigation contributes to low historical correlation to
traditional and alternative asset classes
▪ Provides a potential source of excess return and yield as investors navigate an environment characterized by
historically low interest rates and compressed credit spreads
Benefit from ArrowMark’s experience investing $4.7 billion in 66 distinct transactions since 2010
▪ Opportunistic Approach: Flexible investment process that continues to adapt as the market and opportunity set evolve
▪ Sourcing: Relationships, scale, and reputation developed over decades in the industry and ten years of consistent
participation in the asset class
▪ Structuring: Ability to tailor security structures to a range of collateral types, issuers, and regulatory jurisdictions
▪ Fundamental Research: In-depth loan-level analysis led by seven core team members with the ability to draw upon all
of ArrowMark’s investment professionals
▪ Risk Management: Mitigation of unintended risks through thorough due diligence, investment discretion, and
disciplined portfolio construction
Investor Alignment
▪ Transaction structures create alignment with the issuing bank
▪ Ability to customize vehicle and exposure to the asset class creates alignment with investor objectives
▪ Incentive fee-only structure creates alignment with ArrowMark
Past performance is no guarantee of future results. There is no assurance the objectives may be met. Diversification does not eliminate the risk of experiencing investment loss.
Transaction data as of 09/30/21
25Regulatory Capital Ratios: BANX vs Peers with
Regulatory Capital Ratios: BANX vs Peers with
Risk Management Approach
Risk Factors Risk Mitigants
▪ High quality, performing loans and revolving lines of credit
Security Attributes
▪ Collateral diversification
Credit ▪ Loan-level fundamental analysis
▪ Evaluation of market and issuer loss history for similar collateral
ArrowMark Approach
▪ Conduct scenario analysis to define best/base/stressed outcomes in
a variety of macroeconomic environments
Interest Rate Security Attributes ▪ Floating rate coupons, based on 3-month LIBOR
Currency ArrowMark Approach ▪ Hedging of any non-USD transactions
Liquidity ArrowMark Approach ▪ Vehicle term matches asset maturity
▪ Alignment through issuers’ retained exposure
▪ Segregation of investment principal and limitations on bank’s ability
Security Attributes to access the capital
Counterparty ▪ Various additional measures that can include principal held by third
parties, downgrade triggers, and country-specific regulations
▪ Initial due diligence and ongoing monitoring of all counterparties
ArrowMark Approach
▪ Partner with large, global financial institutions
Diversification does not eliminate the risk of experiencing investment loss.
28About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Overview Fixed Income Market Update
Summary of Fixed Income Markets & BANX – Q2 2021
Market Summary
▪ Markets continued to improve during Q3 2021 and year over year.
▪ Fixed income markets ended Q3 with positive returns with HY returning 11.3% and Leveraged
Loans returning 5.8% during the last twelve months (LTM).
▪ Cost of funding for banks decreased despite volatility, given hunt for yield
▪ Post Election, equity markets continued to be stable
▪ Bank valuations continued to rise
▪ Markets lowered expectation for higher defaults
▪ Issuance in community banking and regulatory capital securities continued to be stable in Q3 v. Q2
▪ StoneCastle saw lower prepayments in Q3
▪ StoneCastle increased its regulatory capital investments during Q3
BANX Summary
▪ The StoneCastle community bank portfolio performance was flat to down slightly in during Q3 2021
▪ Median Net Income -4.4% quarter over quarter
▪ Loan book growth down -0.2% from Q2 2021
▪ Median Tier One Capital Ratio of 13.09%
▪ Q3 2021 NAV of $21.86– up $0.06 per share from Q2, 2021
30About StoneCastle Financial Corp. About Community Banks About Money Center Banks Regulatory Capital Relief Overview Fixed Income Market Update
Performance Review Since Inception
ArrowMark Partners
Investment performance since IPO closes transaction and
forms StoneCastle-
ArrowMark Asset
40% Management
35%
30%
BANX Raises $117M in IPO
25%
20%
$41M Follow-On Offering
15%
10%
BANX Announces a
Dividend Raised to $0.35 Special Dividend of BANX
5% $0.14 Announces a
Special
0% Dividend of
$0.05
-5%
-10%
BANX Receives A+ Kroll Issuer Rating
-15%
-20%
-25% Dividend Raised to
$0.37
-30%
-35% Dividend Cut from
$0.50 to $0.33
32
1. Source: Bloomberg, www.Bloomberg.com, As of 09/30/21Management Biographies
Sanjai Bhonsle, Mr. Bhonsle was elected Chairman & CEO of StoneCastle Financial Corp. in February 2020. He also
Chairman & CEO serves on the Board of Directors of StoneCastle-ArrowMark Asset Management, LLC.
Mr. Bhonsle joined ArrowMark in October 2012 and serves as Partner and Portfolio Manager for
ArrowMark’s leveraged loan investments and collateralized loan obligation funds. Prior to joining
ArrowMark, he founded MB Consulting Partners in 2009, where he specialized in financial and
operational restructuring advisory to stressed and distressed middle-market companies. With more
than 10 years of restructuring experience, he has led several assignments across various industries.
Sanjai was a Senior Portfolio Manager at GSO Capital Partners, a subsidiary of The Blackstone
Group, and member of the Investment and Management Committee (2005-2009). Prior to joining
GSO Capital Partners, Sanjai was an Assistant Portfolio Manager for RBC Capital Partners’ debt
investment group and was a member of the Investment Committee (2001-2005). He also led the
group’s restructuring efforts related to distressed investments and represented the firm’s interests on
creditor committees. From 1999-2001, Sanjai was a Senior Investment Analyst at Indosuez Capital
Partners. Sanjai received a bachelor’s degree in Mechanical Engineering from the University of
Wisconsin - Madison and an MBA from the Eli Broad Graduate School of Management at Michigan
State University.
Patrick J. Farrell, Mr. Farrell was re-elected as StoneCastle Financial Corp.’s Chief Financial Officer in February 2020.
Chief Financial Officer He has served in this role since April 2014.
As Chief Financial Officer at StoneCastle Partners LLC, Mr. Farrell is responsible for all financial and
accounting activities at StoneCastle. He has over thirty-five 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.
Previously, Mr. Farrell was CFO/COO of the Emerging Managers Group, LP, a specialty asset
management firm focused on offshore mutual funds. Prior to that, Pat was CFO at Reserve
Management, where he oversaw all financial activities for the company. Earlier in his career, Pat held
financial positions at Lexington Management, Drexel Burnham, Alliance Capital and New York Life
Investment Management, all focused on investment advisory activities. He began his career as an
auditor at Peat Marwick Mitchell & Co. in New York. Pat holds a BS in Business Administration-
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.
33Management Biographies
Mr. Grove was elected Chief Compliance Officer of StoneCastle Financial
Rick Grove Corp. in February 2020.
Chief Compliance Officer
He is a Principal and Chief Compliance Officer at ArrowMark Partners. He is
also the Vice President, Chief Compliance Officer and Secretary for Meridian
Fund, Inc. Before joining ArrowMark Partners in 2008, he was Vice President
and Chief Compliance Officer for Black Creek Global Advisors (2007-2008).
Prior to that position, Rick served as Vice President and Chief Compliance
Officer for Madison Capital Management (2005-2007), Assistant Vice
President and Director of Compliance at Janus Capital Group (1993-2005),
and Fund Accountant for Oppenheimer Funds (1992-1993). Rick graduated
from the University of Wyoming with a bachelor’s degree in Accounting.
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