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Summary of Hercules Capital Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Total Investment Income: $149.1 million, up 5.4% quarter-over-quarter and 8.5% year-over-year.
• Net Investment Income (NII): $92.9 million ($0.50 per share), a 5.5% increase quarter-over-quarter and 4.7% year-over-year, covering base distribution by 125%.
• Record Originations: $2.74 billion for the first half of 2026, a 35.6% increase year-over-year.
• Gross Fundings: $1.35 billion, up 8.5% year-over-year.
• Net Asset Value (NAV): Increased by $0.25 to $12.15 per share, reflecting a 2.1% quarter-over-quarter increase.
• Weighted Average Internal Credit Rating: Slight increase to 2.17 from 2.11 in Q1.
• Prepayment Activity: $572.1 million, with expectations for Q3 to normalize between $200 million and $300 million.

2. Strategic Updates and Business Highlights

• Continued focus on disciplined underwriting, maintaining a strong balance sheet, and proactive credit management.
• Portfolio remains diversified with approximately 50% in life sciences and 50% in technology, with no single sub-sector exceeding 25%.
• Strong liquidity position with $652.9 million available in the BDC and over $1 billion across the Hercules platform.
• Hercules Adviser, managing nearly $2 billion in private funds, contributed $7 million to NII in Q2.
• Investment in technology and AI governance to enhance operational efficiency and maintain data security.

3. Forward Guidance and Outlook

• Anticipated core yields for Q3 expected to be in the range of 11.8%-12%.
• Q3 originations expected to be seasonally lower, consistent with historical trends, but still robust.
• Strong pipeline with $149.3 million in new commitments and $112.5 million funded as of July 27, 2026.
• Continued confidence in M&A activity and capital raising within the portfolio, with expectations for sustained investment opportunities.

4. Bad News, Challenges, or Points of Concern

• Increase in Grade 3 credits to 32.7% from 28.6% in Q1, indicating some deterioration in credit quality.
• Competition from banks and non-bank lenders has intensified, with aggressive deal structures noted, which may pressure margins.
• Concerns about the sustainability of high capital raising levels in the venture space as market conditions evolve.
• Potential for increased volatility in M&A valuations and timing, which could impact exit activity.

5. Notable Q&A Insights

• Management acknowledged a seasonal slowdown in Q3 but expressed confidence in robust origination activity.
• Prepayments were largely driven by M&A and equity capital raises, indicating strong borrower liquidity.
• The competitive landscape is shifting, with banks being aggressive in lending, but management remains focused on quality underwriting.
• The company is cautious about AI deployment, ensuring proprietary data remains secure while leveraging technology for operational efficiency.

Overall, Hercules Capital reported a strong Q2 2026, marked by record financial metrics and a solid outlook, despite facing increased competition and some credit quality concerns.