UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 814-00702 HERCULES CAPITAL, INC. (Exact Name of Registrant as Specified in its Charter) Maryland 74-3113410 (State or Jurisdiction of Incorporation or Organization) 400 ...

Financing the Growth of Tomorrow's Companies Today Q1 2022 INVESTOR PRESENTATION May 5, 2022 | --- | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

Hercules Capital, Inc. (NYSE:HTGC) Q1 2022 Earnings Conference Call May 5, 2022 5:00 PM ET Company Participants Michael Hara – Investor Relations and Corporate Communications Scott Bluestein – Chief Executive Officer and Chief Investment Officer Seth Meyer – Chief Financial Officer Conference Call Participants Crispin Love – Piper Sander Kevin F – JMP Finian O’Shea – Wells Fargo John Hecht – Jefferies Ryan Lynch – KBW Operator Good day, and thank you for standing by. Welcome to the Hercules Capital Q1 2022 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 814-00702 HERCULES CAPITAL, INC. (Exact Name of Registrant as Specified in its Charter) Maryland 74-3113410 (State or Jurisdiction of Incorporation or Organization) 40 ...

Hercules Capital, Inc. (NYSE:HTGC) Q4 2021 Results Conference Call February 22, 2022 5:00 PM ET Company Participants Michael Hara - Managing Director, IR Scott Bluestein - CEO and CIO Seth Meyer - CFO Conference Call Participants Crispin Love - Piper Sander Kevin Fultz - JMP Securities Finian O'Shea - Wells Fargo Securities Christopher Nolan - Ladenburg Thalman Kenneth Lee - RBC Capital Markets Ryan Lynch - KBW Casey Alexander - Compass Point Operator Thank you for standing by, and welcome to Hercules Capit ...

[Part I](index=3&type=section&id=Part%20I) [Business](index=3&type=section&id=Item%201.%20Business) Hercules Capital is an internally managed specialty finance company providing senior secured loans to high-growth, venture-backed firms in technology, life sciences, and sustainable technology sectors - Hercules Capital is a specialty finance company providing senior secured loans to high-growth, innovative venture capital-backed companies in technology, life sciences, and sustainable/renewable technology industries[21](index=21&type=chunk) - The company operates as an internally managed, non-diversified Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for tax purposes[28](index=28&type=chunk)[30](index=30&type=chunk) - The primary business objectives are to increase net income, net investment income, and NAV by investing in debt with warrants or equity, targeting attractive current yields and potential for equity appreciation[22](index=22&type=chunk) - Since its inception through December 31, 2021, the company's team has originated structured debt, debt with warrants, and equity investments in over **500 companies**, representing more than **$13.0 billion** in commitments[47](index=47&type=chunk)[95](index=95&type=chunk) - As of December 31, 2021, the investment portfolio had a weighted average investment grading of **2.10** on a scale of 1 (least risk) to 5 (most risk)[89](index=89&type=chunk) Portfolio Composition by Industry (Fair Value, Dec 31, 2021) | Industry | Percentage of Portfolio | | :--- | :--- | | Drug Discovery & Development | 39.7% | | Software | 24.1% | | Internet Consumer & Business Services | 16.3% | | All other industries | 19.9% | [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its internally managed BDC structure, concentrated investments in volatile sectors, substantial leverage, and market factors like interest rate fluctuations and the LIBOR transition - As an internally managed BDC, the company is dependent on key personnel, particularly CEO Scott Bluestein, and faces limitations in offering competitive compensation structures compared to externally managed BDCs, which could impact talent retention[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) - The company operates in a highly competitive market, competing with larger entities that may have a lower cost of funds, potentially forcing Hercules to accept less attractive investment terms[188](index=188&type=chunk) - With the minimum asset coverage ratio reduced to **150%**, the company can incur additional leverage, which increases the risk of investing by magnifying potential gains and losses[197](index=197&type=chunk)[199](index=199&type=chunk) - The investment portfolio is concentrated in technology-related sectors, with **80.1%** of fair value in three industries as of year-end 2021, making the company vulnerable to downturns in these specific sectors[258](index=258&type=chunk)[259](index=259&type=chunk) - The COVID-19 pandemic continues to pose a risk by potentially disrupting portfolio companies' operations and their ability to meet debt obligations, which could lead to increased defaults and losses[379](index=379&type=chunk)[380](index=380&type=chunk) - The discontinuation of LIBOR and transition to alternative rates like SOFR may affect the value of financial obligations and could cause disruptions in credit markets, impacting the company's portfolio[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk) - The company's Notes are unsecured and structurally subordinated to the indebtedness of its subsidiaries, including the secured SBA debentures, meaning holders of secured debt have priority claims on assets in a liquidation[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) [Unresolved SEC Staff Comments](index=67&type=section&id=Item%201B.%20Unresolved%20SEC%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[425](index=425&type=chunk) [Properties](index=67&type=section&id=Item%202.%20Properties) The company does not own any real estate. It leases its corporate headquarters in Palo Alto, CA, and maintains additional leased offices in Boston, New York, Bethesda, Westport, Chicago, San Diego, and London - The company leases approximately **14,500 square feet** for its corporate headquarters in Palo Alto, CA, and has **7** other leased offices in the U.S. and the United Kingdom[426](index=426&type=chunk) [Legal Proceedings](index=67&type=section&id=Item%203.%20Legal%20Proceedings) The company may be involved in litigation in the normal course of business but does not expect any current matters to materially affect its financial condition or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or results of operations[427](index=427&type=chunk) [Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[428](index=428&type=chunk) [Part II](index=68&type=section&id=Part%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=68&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hercules Capital's common stock trades on the NYSE, with a variable distribution policy aiming to distribute 90-100% of taxable income quarterly, and an 'opt-out' dividend reinvestment plan 2021 Quarterly Stock Price and Distribution Data | Quarter | NAV per Share | High Price | Low Price | High Price to NAV | Low Price to NAV | Distribution per Share | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Q1 2021 | $11.36 | $16.60 | $14.21 | 46.1% | 25.1% | $0.37 | | Q2 2021 | $11.71 | $17.66 | $15.98 | 50.8% | 36.5% | $0.39 | | Q3 2021 | $11.54 | $17.56 | $16.50 | 52.2% | 43.0% | $0.39 | | Q4 2021 | $11.22 | $18.07 | $16.14 | 61.1% | 43.9% | $0.40 | - The company's distribution policy aims to distribute **90-100%** of its taxable quarterly or potential annual income[448](index=448&type=chunk) - The company maintains an 'opt-out' dividend reinvestment plan, under which **248,041 shares** were issued in 2021[438](index=438&type=chunk)[449](index=449&type=chunk) - No common stock was repurchased on the open market during 2021, 2020, or 2019. A prior **$25.0 million** repurchase plan expired in June 2019[442](index=442&type=chunk)[553](index=553&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=71&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, total investment income slightly decreased to **$281.0 million**, while net realized gains significantly reversed prior losses, maintaining a stable **$2.4 billion** investment portfolio and strong liquidity Portfolio Value Comparison (Fair Value) | Portfolio Component | Dec 31, 2021 (in millions) | Dec 31, 2020 (in millions) | | :--- | :--- | :--- | | Debt Investments | $2,200 | $2,100 | | Equity Investments | $184.7 | $224.7 | | Warrant Investments | $38.4 | $34.6 | | **Total Portfolio** | **$2,400** | **$2,400** | Key Operational Metrics (2021 vs 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Investment Income | $281.0M | $287.3M | | Total Net Operating Expenses | $131.0M | $130.1M | | Net Investment Income | $150.0M | $157.1M | | Net Realized Gains (Losses) | $20.9M | ($56.1M) | | Net Change in Unrealized Appreciation | $3.3M | $126.2M | | Net Increase in Net Assets | $174.2M | $227.3M | | Basic EPS | $1.50 | $2.02 | - During 2021, the company received approximately **$1,185.0 million** in aggregate principal repayments, of which **$1,104.1 million** were early repayments from **49** portfolio companies[478](index=478&type=chunk) - As of December 31, 2021, the company had **$627.7 million** in available liquidity, including **$133.1 million** in cash and available borrowing capacity under its credit facilities and SBIC license[541](index=541&type=chunk) - The company's regulatory asset coverage ratio was **218.9%** as of December 31, 2021 (excluding SBA debentures), well above the required minimum of **150%**[542](index=542&type=chunk) - The non-GAAP Core Yield on the debt portfolio was **11.4%** in 2021, compared to **11.6%** in 2020. This metric excludes one-time income events like early payoff accelerations[481](index=481&type=chunk)[489](index=489&type=chunk)[491](index=491&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, with **94.0%** of its loan portfolio having variable rates, and a 100 basis point increase would raise annual net income by approximately **$18.0 million** - As of December 31, 2021, approximately **94.0%** of the company's loans had variable interest rates, making its income sensitive to changes in Prime and LIBOR rates[576](index=576&type=chunk) Annualized Impact of Interest Rate Changes on Net Income (as of Dec 31, 2021) | Basis Point Change | Net Income Change (in thousands) | EPS Change | | :--- | :--- | :--- | | +200 | $36,629 | $0.32 | | +100 | $17,936 | $0.16 | | +50 | $8,965 | $0.08 | | -50 | ($44) | $0.00 | | -75 | ($47) | $0.00 | - The company does not currently engage in hedging activities against interest rate or foreign currency fluctuations but may do so in the future[578](index=578&type=chunk) [Financial Statements and Supplementary Data](index=89&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for fiscal year 2021, including key statements and schedules, with an unqualified opinion from PricewaterhouseCoopers LLP on financial statements and internal controls - The independent registered public accounting firm, PricewaterhouseCoopers LLP, provided an unqualified opinion on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2021[584](index=584&type=chunk) - The auditor identified the valuation of Level 3 investments (senior secured debt, unsecured debt, preferred stock, common stock) as a critical audit matter due to the significant management judgment and use of unobservable inputs required[593](index=593&type=chunk)[594](index=594&type=chunk) [Consolidated Statements of Assets and Liabilities](index=92&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of December 31, 2021, total assets were **$2.60 billion**, with total investments at fair value increasing to **$2.43 billion**, and total net assets rising to **$1.31 billion** Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $2,434,522 | $2,354,078 | | Cash and cash equivalents | $133,115 | $198,282 | | Total Assets | $2,600,013 | $2,623,997 | | Total Debt (net) | $1,236,303 | $1,286,638 | | Total Liabilities | $1,291,466 | $1,332,293 | | Total Net Assets | $1,308,547 | $1,291,704 | | Net Asset Value per share | $11.22 | $11.26 | [Consolidated Statements of Operations](index=94&type=section&id=Consolidated%20Statements%20of%20Operations) For 2021, total investment income was **$281.0 million**, with net investment income at **$150.0 million**, leading to a net increase in net assets from operations of **$174.2 million** Consolidated Income Statement Highlights (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Investment Income | $280,976 | $287,258 | $267,874 | | Total Net Operating Expenses | $131,008 | $130,118 | $124,602 | | Net Investment Income | $149,968 | $157,140 | $143,272 | | Total Net Realized/Unrealized Gain | $24,187 | $70,121 | $30,326 | | **Net Increase in Net Assets** | **$174,155** | **$227,261** | **$173,598** | | Basic EPS | $1.50 | $2.02 | $1.71 | | Diluted EPS | $1.49 | $2.01 | $1.71 | [Notes to Consolidated Financial Statements](index=119&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, fair value measurements, investment composition, and debt obligations, highlighting that **93.6%** of the portfolio is Level 3, and subsequent debt refinancing activities - As of December 31, 2021, approximately **93.6%** of the company's total assets were investments valued in good faith by the Board (Level 3 assets), highlighting the subjective nature of the portfolio's valuation[702](index=702&type=chunk) - The company's debt portfolio is primarily senior secured, with **77.0%** of debt investments in a first lien position as of December 31, 2021[781](index=781&type=chunk) - Subsequent to year-end, in January 2022, the company issued **$350.0 million** of 3.375% notes due 2027. In February 2022, it used the proceeds to fully redeem its **$230.0 million** 2022 Convertible Notes and its **$150.0 million** 2022 Notes[899](index=899&type=chunk)[900](index=900&type=chunk)[901](index=901&type=chunk) - On February 16, 2022, the Board declared a Q4 cash distribution of **$0.33 per share** and a supplemental cash distribution of **$0.60 per share**, to be paid in four quarterly installments of **$0.15**[897](index=897&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=157&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not Applicable[904](index=904&type=chunk) [Controls and Procedures](index=157&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion confirmed by PricewaterhouseCoopers LLP - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[905](index=905&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO Framework[909](index=909&type=chunk) - The effectiveness of the company's internal control over financial reporting was audited by PricewaterhouseCoopers LLP, which concurred with management's assessment[910](index=910&type=chunk) [Other Information](index=158&type=section&id=Item%209B.%20Other%20Information) This section provides an updated table of fees and expenses, with total annual expenses at **9.87%** of average net assets for 2021, and a detailed 10-year history of senior securities Annual Expenses (as a % of net assets for YE 2021) | Expense Category | Percentage | | :--- | :--- | | Operating expenses | 5.11% | | Interest and fees paid on borrowed funds | 4.75% | | Acquired fund fees and expenses | 0.01% | | **Total annual expenses** | **9.87%** | - The Senior Securities table provides a historical overview of the company's various debt facilities, including credit facilities, SBA debentures, and multiple note issuances, from 2011 through 2021[923](index=923&type=chunk)[924](index=924&type=chunk) - Total senior securities outstanding were **$1.25 billion** as of December 31, 2021, with an asset coverage per unit of **$2,046**[926](index=926&type=chunk) [Part III](index=162&type=section&id=Part%20III) [Directors, Executive Officers and Corporate Governance](index=162&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - This section incorporates information by reference from the company's 2022 Proxy Statement[935](index=935&type=chunk) [Executive Compensation](index=162&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement - This section incorporates information by reference from the company's 2022 Proxy Statement[936](index=936&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=162&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the company's 2022 Proxy Statement - This section incorporates information by reference from the company's 2022 Proxy Statement[937](index=937&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=162&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2022 Proxy Statement - This section incorporates information by reference from the company's 2022 Proxy Statement[938](index=938&type=chunk) [Principal Accountant Fees and Services](index=162&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement - This section incorporates information by reference from the company's 2022 Proxy Statement[939](index=939&type=chunk) [Part IV](index=163&type=section&id=Part%20IV) [Exhibits and Financial Statement Schedules](index=163&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report, including audited financials and various corporate agreements - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents, debt indentures, credit agreements, and executive certifications[941](index=941&type=chunk)[968](index=968&type=chunk) [Form 10-K Summary](index=164&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[943](index=943&type=chunk)

Financial Performance Highlights - Net Investment Income (NII) reached $38.1 million[8] - Total Investment Income amounted to $70.2 million[10] - The effective yield on investments stood at 12.7%[20] - The company's Net Interest Margin (NIM) was 9.2%[16] Portfolio and Investment Activity - Total debt investments at cost were $2.26 billion[17] - Total investments at cost reached $2.43 billion[19] - Gross debt & equity fundings totaled $431.1 million[26] - Available liquidity was $818.4 million[27] Shareholder Returns and Capitalization - Annualized Dividend Yield was 7.9% as of September 30, 2021[6] - 1YR/3YR/5YR Total Shareholder Returns were 54.6%/55.2%/69.0% respectively[12]

Hercules Capital, Inc. (NYSE:HTGC) Q3 2021 Earnings Conference Call October 28, 2021 5:00 PM ET Company Participants Michael Hara - Managing Director, IR Scott Bluestein - CEO and CIO Seth Meyer - CFO Conference Call Participants Crispin Love - Piper Sandler Kevin Fultz - JMP Securities Christopher Nolan - Ladenburg Thalmann Sarkis Sherbetchyan - B. Riley Securities Ryan Lynch - KBW Finian O'Shea - Wells Fargo Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the Hercules C ...

PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Hercules Capital, Inc. as of September 30, 2021, and for the three and nine-month periods then ended [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of September 30, 2021, total assets increased to **$2.79 billion** from **$2.62 billion** at year-end 2020, driven by a rise in the fair value of investments Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | September 30, 2021 (unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $2,511,854 | $2,354,078 | | Total Assets | $2,791,208 | $2,623,997 | | Total Liabilities | $1,453,676 | $1,332,293 | | Total Net Assets | $1,337,532 | $1,291,704 | | Net Asset Value per share | $11.54 | $11.26 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For the nine months ended September 30, 2021, total investment income was **$208.5 million**, with a net increase in net assets from operations of **$170.4 million** Key Operating Results (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Investment Income | $208,511 | $211,926 | | Total Net Operating Expenses | $98,898 | $96,948 | | Net Investment Income | $109,613 | $114,978 | | Net Realized/Unrealized Gain (Loss) | $60,830 | $(38,889) | | Net Increase in Net Assets from Operations | $170,443 | $76,089 | | Basic EPS (from operations) | $1.47 | $0.68 | [Consolidated Statements of Changes in Net Assets](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) For the nine months ended September 30, 2021, net assets increased from **$1.29 billion** to **$1.34 billion**, primarily driven by a **$170.4 million** net increase from operations Reconciliation of Net Assets (in thousands) - Nine Months Ended Sep 30, 2021 | Description | Amount | | :--- | :--- | | Balance as of December 31, 2020 | $1,291,704 | | Net increase in net assets from operations | $170,443 | | Distributions | $(133,143) | | Stock-based compensation & other | $7,785 | | Other stock activities (net) | $(9,257) | | **Balance as of September 30, 2021** | **$1,337,532** | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2021, net cash provided by operating activities was **$28.7 million**, leading to an overall increase in cash, cash equivalents, and restricted cash of **$11.7 million** Summary of Cash Flows (in thousands) - Nine Months Ended Sep 30 | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $28,681 | $(24,015) | | Net Cash from Investing Activities | $(12) | $(115) | | Net Cash from Financing Activities | $(16,931) | $(42,805) | | **Net Increase (Decrease) in Cash** | **$11,738** | **$(66,935)** | [Consolidated Schedule of Investments](index=12&type=section&id=Consolidated%20Schedule%20of%20Investments) The schedule details the company's investment portfolio, totaling **$2.51 billion** at fair value as of September 30, 2021, predominantly composed of debt investments Investment Portfolio Summary as of September 30, 2021 (in thousands) | Investment Type | Cost | Fair Value | | :--- | :--- | :--- | | Debt Investments | $2,262,660 | $2,263,542 | | Equity Investments | $135,593 | $204,411 | | Warrant Investments | $25,913 | $42,859 | | Investment Funds & Vehicles | $1,223 | $1,042 | | **Total Investments** | **$2,425,389** | **$2,511,854** | [Notes to Consolidated Financial Statements](index=51&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies and methodologies used in preparing the financial statements, covering business description, significant accounting policies, and breakdowns of investments and debt [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=65&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance and condition, highlighting portfolio activity, operational results, liquidity, and capital resources [Overview](index=66&type=section&id=Overview) Hercules Capital is an internally managed Business Development Company (BDC) specializing in senior secured loans to venture capital-backed companies in technology, life sciences, and renewable technology sectors - The company's primary business is providing structured debt with warrants to high-growth, venture capital-backed companies[318](index=318&type=chunk)[319](index=319&type=chunk) - Hercules operates as a BDC under the 1940 Act and has elected to be taxed as a RIC, which generally eliminates corporate-level taxes on distributed income[325](index=325&type=chunk)[326](index=326&type=chunk) - In May 2020, the company formed a wholly-owned subsidiary, Hercules Adviser LLC, to provide investment advisory services to third-party funds[327](index=327&type=chunk) [Portfolio and Investment Activity](index=67&type=section&id=Portfolio%20and%20Investment%20Activity) The total fair value of the investment portfolio grew to **$2.5 billion** as of September 30, 2021, with **$1.47 billion** in net new debt commitments originated Portfolio Activity for the Nine Months Ended September 30 (in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Debt Commitments | $1,469.2 | $1,035.3 | | Net Debt Fundings | $907.0 | $629.4 | | Unfunded Contractual Commitments | $309.9 | $242.5 | Debt Investment Portfolio Grading (at Fair Value) | Investment Grading | Sep 30, 2021 (% of Portfolio) | Dec 31, 2020 (% of Portfolio) | | :--- | :--- | :--- | | 1 (Highest Quality) | 30.6% | 19.6% | | 2 | 48.8% | 49.1% | | 3 | 20.2% | 29.7% | | 4 | 0.4% | 1.2% | | 5 (Lowest Quality) | 0.0% | 0.4% | - Non-accrual investments decreased to **1.0%** of the total portfolio at amortized cost as of September 30, 2021, down from **1.3%** at December 31, 2020[360](index=360&type=chunk) [Results of Operations](index=72&type=section&id=Results%20of%20Operations) For the nine months ended September 30, 2021, total investment income was **$208.5 million**, with a significant positive swing in net realized and unrealized gains driving a substantial increase in net assets from operations to **$170.4 million** Comparison of Operating Results (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Investment Income | $208,511 | $211,926 | | Total Net Operating Expenses | $98,898 | $96,948 | | Net Investment Income | $109,613 | $114,978 | | Net Realized/Unrealized Gain (Loss) | $60,830 | $(38,889) | | **Net Increase in Net Assets** | **$170,443** | **$76,089** | [Financial Condition, Liquidity, and Capital Resources](index=77&type=section&id=Financial%20Condition%2C%20Liquidity%2C%20and%20Capital%20Resources) As of September 30, 2021, Hercules had **$818.4 million** in available liquidity and an asset coverage ratio of **198.3%**, well above the regulatory requirement - The company had **$818.4 million** in available liquidity as of September 30, 2021, consisting of **$235.9 million** in cash and **$582.5 million** in available credit[413](index=413&type=chunk) - The asset coverage ratio was **198.3%** (excluding SBA debentures), exceeding the **150%** regulatory minimum[414](index=414&type=chunk) - In October 2021, the company used proceeds from the September 2026 Notes offering to fully redeem its outstanding 2027 and 2028 Asset-Backed Notes totaling **$289.2 million**[310](index=310&type=chunk)[417](index=417&type=chunk)[419](index=419&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with **95.9%** of its debt investments being floating rate, positioning it to potentially benefit from rising interest rates Interest Rate Sensitivity Analysis (Annualized) | Basis Point Change | Net Income Impact (in thousands) | EPS Impact | | :--- | :--- | :--- | | +200 | $32,646 | $0.28 | | +100 | $15,619 | $0.14 | | +50 | $7,784 | $0.07 | | -25 | $(27) | $(0.00) | - As of September 30, 2021, approximately **95.9%** of the company's loan portfolio had variable rates, while its SBA Debentures and various notes are fixed-rate, creating a liability-sensitive balance sheet that could benefit from rising interest rates[451](index=451&type=chunk) [Item 4. Controls and Procedures](index=84&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[456](index=456&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[457](index=457&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=85&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it may be involved in litigation in the normal course of business but does not expect any current matters to materially affect its financial condition or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material impact on its financial condition[460](index=460&type=chunk) [Item 1A. Risk Factors](index=85&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the concentration risk within the investment portfolio, where seven portfolio companies each represented over **5%** of the company's net assets as of September 30, 2021 Portfolio Companies Representing >5% of Net Assets (as of Sep 30, 2021) | Portfolio Company | Fair Value (in thousands) | Percentage of Net Assets | | :--- | :--- | :--- | | BridgeBio Pharma LLC | $115,523 | 8.6% | | Zepz (p.k.a. Worldremit Group Limited) | $103,068 | 7.7% | | Corium, Inc. | $90,618 | 6.8% | | Rocket Lab Global Services, LLC | $87,722 | 6.6% | | Phathom Pharmaceuticals, Inc. | $85,827 | 6.4% | | EverFi, Inc. | $85,210 | 6.4% | | uniQure B.V. | $72,593 | 5.4% | [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the nine months ended September 30, 2021, the company issued **189,356** shares of common stock through its dividend reinvestment plan (DRIP) for approximately **$3.1 million** - Under its dividend reinvestment plan, the company issued **189,356** shares of common stock for an aggregate value of approximately **$3.1 million** during the first nine months of 2021[464](index=464&type=chunk)

July 29, 2021 SECOND QUARTER 2021 INVESTOR PRESENTATION Financing the Growth of Tomorrow's Companies TodayTM IMPORTANT NOTICE: FORWARD LOOKING STATEMENTS This presentation may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should understand that under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the "safe harbor" provisions ...