Financial Data and Key Metrics Changes - Total investment income for Q4 2020 was $5.7 million, down from $9.6 million in Q4 2019, primarily due to a decrease in debt investments outstanding [12] - Total expenses decreased to $5.7 million in Q4 2020 from $7.7 million in Q4 2019, with interest and financing expenses declining by $1.4 million [13] - Net realized gains were $0.6 million or $0.23 per share in Q4 2020, compared to $1.2 million in Q4 2019 [14] - Net assets at December 31, 2020, totaled $108.9 million or $40.19 per share, up from $39.99 per share at September 30, 2020 [15] - The company's total debt-to-equity ratio improved to 1.98:1 at December 31, 2020, from 2.72:1 at March 31, 2020 [16] Business Line Data and Key Metrics Changes - The investment portfolio included 36 investments with a fair value of $274.7 million and a cost basis of $277.7 million at year-end 2020 [17] - First lien debt investments comprised 60.9% of the portfolio, second lien debt investments represented 14.3%, and equity warrant investments accounted for 24.8% [17] - Four debt investments were on nonaccrual status with a cost basis of $37.5 million and a fair market value of $20.8 million [18] Market Data and Key Metrics Changes - The company generated $51 million of liquidity through repayments and the wind down of Capitala Senior Loan Fund II, LLC during Q2 2020 [7] - The company is currently sitting on over $50 million in cash and has an undrawn senior secured credit facility [9] Company Strategy and Development Direction - The company is focused on portfolio liquidity, reducing leverage, and supporting small businesses impacted by the pandemic to stabilize NAV [6] - There is a plan to monetize several larger investments over the next few quarters, particularly equity positions [22] - The company aims to obtain a subsequent SBIC license to leverage low-cost, long-term capital for growth [25] Management's Comments on Operating Environment and Future Outlook - Management noted that the pandemic negatively impacted the portfolio, but there has been stabilization and appreciation in NAV since March 2020 [6] - The management expressed optimism about the performance of portfolio companies, with many seeking exit opportunities [32] - The market for small businesses is described as robust, with significant deployment activity in private funds [34] Other Important Information - The company has a green light from the SBA for the submission of an additional SBIC license to replace the existing license [10] - The company repaid $20 million of SBA guaranteed debentures after year-end, with a portion maturing in March 2021 [16] Q&A Session Summary Question: How much of the monetization of investments will be from equity investments? - Management indicated that several larger investments are being engaged for sale or refinancing, expecting to monetize a substantial portion of equity in 2021 [22] Question: Is the priority to pay down SBA debt or redeeming the 2022 notes? - Management stated that all debt repayment is a priority, with a focus on repaying SBA debt to facilitate obtaining a subsequent SBIC license [23][24] Question: Is monetizing the investment portfolio more of a priority than reinstating the dividend? - Management emphasized that dividends are important, but the focus is on addressing debt maturities and reestablishing the SBIC license to grow earnings [25]

Part I [Business](index=3&type=section&id=Item%201.%20Business) Capitala Finance Corp. is an externally managed BDC focused on debt and equity investments in U.S. lower and middle-market companies, utilizing an SBIC-licensed subsidiary - Capitala Finance Corp. is an externally managed BDC with a **dual investment objective** of generating current income and capital appreciation[14](index=14&type=chunk)[15](index=15&type=chunk) - The company invests in **first and second lien loans**, as well as **equity securities**, targeting lower and traditional middle-market companies with EBITDA typically between **$4.5 million and $30.0 million**[15](index=15&type=chunk)[29](index=29&type=chunk) - The company has elected to be treated as a **Regulated Investment Company (RIC)** for U.S. federal income tax purposes, which generally allows it to avoid corporate-level income tax by distributing its earnings to shareholders[14](index=14&type=chunk)[118](index=118&type=chunk) - A significant portion of the company's investments are held through its wholly-owned subsidiary, Fund III, which is licensed as a Small Business Investment Company (SBIC) and regulated by the SBA. As of December 31, 2020, Fund III had **$91.0 million** of SBA-guaranteed debentures outstanding[161](index=161&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks across its business operations, investment portfolio, and securities, including reliance on key personnel, market competition, illiquidity, and stock price volatility - Business and structural risks include reliance on the Investment Advisor's key personnel, operating in a **highly competitive market**, potential conflicts of interest, and the complexities of maintaining BDC and RIC status[174](index=174&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk)[185](index=185&type=chunk) - Investment risks are high due to a focus on smaller, privately held companies, which involves **illiquidity**, **lack of public information**, and greater vulnerability to economic downturns. The portfolio may also **lack diversification**[296](index=296&type=chunk)[301](index=301&type=chunk)[317](index=317&type=chunk)[323](index=323&type=chunk) - Risks related to the company's securities include **significant market price fluctuation**, the possibility of shares trading at a **discount to net asset value (NAV)**, and **potential dilution** to existing shareholders from future equity offerings[355](index=355&type=chunk)[363](index=363&type=chunk) - The **COVID-19 pandemic** is identified as a significant risk, potentially affecting portfolio companies' operations and ability to repay debt, disrupting capital markets, and impacting the fair value of investments[280](index=280&type=chunk)[281](index=281&type=chunk)[283](index=283&type=chunk) [Unresolved Staff Comments](index=71&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - There are **no unresolved staff comments**[374](index=374&type=chunk) [Properties](index=71&type=section&id=Item%202.%20Properties) The company's executive offices are located in Charlotte, NC, provided by its Administrator and deemed suitable for business needs - The company's executive offices are located in **Charlotte, NC**, and are provided by its Administrator[375](index=375&type=chunk) [Legal Proceedings](index=71&type=section&id=Item%203.%20Legal%20Proceedings) The company and its subsidiaries are not currently subject to any material legal proceedings - The company is **not currently subject to any material legal proceedings**[376](index=376&type=chunk) [Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - **Not applicable**[378](index=378&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=73&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock (CPTA) traded at a significant discount to NAV, with distributions suspended in 2020 due to the COVID-19 pandemic - The company's common stock (CPTA) has traded at a **significant discount to its Net Asset Value (NAV)** per share, particularly in 2020[383](index=383&type=chunk)[386](index=386&type=chunk) Distributions Declared per Share (2019-2020) | Fiscal Year | Q1 | Q2 | Q3 | Q4 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **2020** | $1.50 | $0.00 | $0.00 | $0.00 | **$1.50** | | **2019** | $1.50 | $1.50 | $1.50 | $1.50 | **$6.00** | - Distributions were **suspended after the first quarter of 2020** due to the impact of the **COVID-19 pandemic** on the company's expected net investment income. The distribution policy was also changed from monthly to quarterly[387](index=387&type=chunk) - For the year ended December 31, 2020, distributions of **$4.1 million** were estimated to be comprised of approximately **$0.7 million** from ordinary income and **$3.4 million** from return of capital[393](index=393&type=chunk) [Selected Consolidated Financial Data](index=80&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) Selected financial data for 2020 indicates a significant decline in total investment income, net investment income, and net asset value per share Selected Financial Data (2019 vs. 2020) | Metric (in thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | Total investment income | $26,446 | $44,035 | | Net investment income | $58 | $13,043 | | Net (decrease) in net assets from operations | $(35,447) | $(27,647) | | Net asset value per share | $40.19 | $54.84 | | Distributions declared per share | $1.50 | $6.00 | - Total assets decreased from **$427.3 million** in 2019 to **$328.0 million** in 2020, while total net assets declined from **$148.1 million** to **$108.9 million** over the same period[408](index=408&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=81&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 2020 performance decline to the COVID-19 pandemic, resulting in reduced investment income, decreased net assets, and strategic liquidity adjustments - Total investment income for 2020 decreased by **$17.6 million (39.9%)** compared to 2019, primarily due to lower interest income from a smaller average debt portfolio and a significant drop in dividend income[497](index=497&type=chunk)[500](index=500&type=chunk) - Total operating expenses for 2020 decreased by **$4.6 million (14.9%)** compared to 2019, driven by lower interest and financing expenses, a smaller base management fee, and no incentive fees being paid[502](index=502&type=chunk) - The company recorded a net decrease in net assets from operations of **$35.4 million** in 2020, compared to a **$27.6 million** decrease in 2019. This was driven by a **$24.0 million** net realized loss and an **$11.6 million** net unrealized depreciation on investments[495](index=495&type=chunk)[506](index=506&type=chunk) - As of December 31, 2020, **four portfolio companies** were on non-accrual status, representing **13.5%** of the portfolio's amortized cost and **7.6%** of its fair value. This increase from zero non-accrual investments in 2019 was largely driven by the **COVID-19 pandemic**[476](index=476&type=chunk) - In 2020, the company terminated its ING Credit Facility and entered into a new, smaller KeyBank Credit Facility for up to **$25.0 million**. The Board also authorized a **$10.0 million** bond repurchase program for its 2022 Notes and 2022 Convertible Notes[509](index=509&type=chunk)[510](index=510&type=chunk)[513](index=513&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=105&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk, with variable-rate debt investments at interest rate floors and fixed-rate liabilities, resulting in limited sensitivity to rate decreases - As of December 31, 2020, **51.1%** of the fair value of the company's debt portfolio had variable interest rates. However, all of these investments were at their **interest rate floors**, limiting downside risk from falling rates[542](index=542&type=chunk) Interest Rate Sensitivity Analysis (Annual Impact on Net Income) | Basis Point Change | Increase (decrease) in net income (in thousands) | | :--- | :--- | | Up 300 basis points | $1,684 | | Up 200 basis points | $708 | | Up 100 basis points | $147 | | Down 100 basis points | $0 | | Down 200 basis points | $0 | | Down 300 basis points | $0 | [Consolidated Financial Statements and Supplementary Data](index=106&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for FY2020, with an unqualified opinion from Ernst & Young LLP, highlighting Level 3 investment valuation as a critical audit matter - The independent registered public accounting firm, Ernst & Young LLP, issued an **unqualified opinion** on the consolidated financial statements[549](index=549&type=chunk) - The critical audit matter identified was the valuation of **Level 3 investments**, which totaled **$274.2 million** at year-end. This was due to the complex judgment required for significant unobservable inputs like EBITDA multiples and required rates of return[553](index=553&type=chunk)[554](index=554&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=163&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - **None**[772](index=772&type=chunk) [Controls and Procedures](index=163&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that both disclosure controls and procedures and internal control over financial reporting were **effective** as of December 31, 2020[773](index=773&type=chunk)[775](index=775&type=chunk) [Other Information](index=163&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - **None**[778](index=778&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=164&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's five-member Board of Directors, including independent members and the Audit Committee's financial expert - The Board of Directors is comprised of **five members**: two interested directors (Joseph B. Alala, III and M. Hunt Broyhill) and **three independent directors** (R. Charles Moyer, Larry W. Carroll, and H. Paul Chapman)[781](index=781&type=chunk)[823](index=823&type=chunk) - The Audit Committee consists of **three independent directors**, with H. Paul Chapman serving as Chairman and designated as the '**audit committee financial expert**'[791](index=791&type=chunk) [Executive Compensation](index=167&type=section&id=Item%2011.%20Executive%20Compensation) Executive officers are compensated by affiliated entities, while independent directors receive fees, with a 20% waiver in 2020 due to COVID-19 - Executive officers are **not directly compensated** by the company. Their compensation is paid by the Investment Advisor or the Administrator[798](index=798&type=chunk) Director Compensation for Fiscal Year 2020 | Director | Fees Earned or Paid in Cash | | :--- | :--- | | **Joseph B. Alala, III** | $0 | | **M. Hunt Broyhill** | $0 | | **R. Charles Moyer** | $106,750 | | **Larry W. Carroll** | $106,750 | | **H. Paul Chapman** | $111,000 | - Effective April 1, 2020, independent directors agreed to **waive 20% of their fees** for the remainder of the fiscal year due to the impact of the **COVID-19 pandemic**[796](index=796&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=168&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 5, 2021, directors and executive officers collectively owned 8.2% of common stock, with key individuals holding significant stakes Security Ownership of Management (as of March 5, 2021) | Name of Beneficial Owner | Percentage of Class | | :--- | :--- | | **Joseph B. Alala, III** | 3.4% | | **M. Hunt Broyhill** | 2.5% | | **Larry W. Carroll** | 2.0% | | **Executive Officers and Directors as a Group** | 8.2% | [Certain Relationships and Related Transactions, and Director Independence](index=170&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company engages in related party transactions with affiliated entities, and the Board, with a majority of independent directors, re-approved the Investment Advisory Agreement - The company's primary related party transactions are the **Investment Advisory Agreement** and the **Administration Agreement** with entities controlled by or affiliated with the company's management[811](index=811&type=chunk)[815](index=815&type=chunk) - The Board **re-approved the Investment Advisory Agreement** on July 30, 2020, after reviewing the nature of services, fee structures, and performance relative to peers, and found the terms to be **reasonable**[816](index=816&type=chunk)[817](index=817&type=chunk)[819](index=819&type=chunk) - The Board has determined that Messrs. Moyer, Carroll, and Chapman are **three independent directors**, while Messrs. Alala and Broyhill are interested persons[823](index=823&type=chunk) [Principal Accountant Fees and Services](index=172&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Ernst & Young LLP served as the independent auditor, billing $683,900 in FY2020 for audit and tax services, all pre-approved by the Audit Committee Accountant Fees (in thousands) | Fee Type | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Audit Fees | $632.4 | $808.5 | | Audit-Related Fees | $0.0 | $0.0 | | Tax Fees | $51.5 | $51.5 | | All Other Fees | $0.0 | $0.0 | | **Total Fees** | **$683.9** | **$860.0** | - The Audit Committee has a **pre-approval policy** for all services provided by the independent auditor, and **100% pre-approved** the services in 2020[829](index=829&type=chunk) Part IV [Exhibits and Consolidated Financial Statement Schedules](index=174&type=section&id=Item%2015.%20Exhibits%20and%20Consolidated%20Financial%20Statement%20Schedules) This section provides an index to the consolidated financial statements and a comprehensive list of all exhibits filed with the Form 10-K - This section provides an **index to the consolidated financial statements** and a **list of exhibits** filed with the annual report[832](index=832&type=chunk)[834](index=834&type=chunk) [Form 10-K Summary](index=176&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - **None**[835](index=835&type=chunk)

Capitala Finance Corp. (CPTA) Q3 2020 Earnings Conference Call November 4, 2020 8:30 AM ET Company Participants Joe Alala - Chairman & Chief Executive Officer Steve Arnall - Chief Financial Officer & Chief Operating Officer Conference Call Participants Christopher Nolan - Ladenburg Thalmann Kyle Joseph - Jefferies Operator At this time, I would like to welcome everyone to the Capitala Finance Corp's Conference Call for the Quarter Ended September 30, 2020. All participants are in a listen-only mode. A quest ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2020 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | Exact name of registrant as specified in its charter, | | | --- | --- | --- | | Commission | address of principal executive office, telephone number, and | I.R.S. Employer | | File Number | state ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2020 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | Commission | Exact name of registrant as specified in its charter, address of principal executive office, telephone number, and | | I.R.S. Employer | | --- | --- | --- | --- | | File Number | state or o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | Commission | Exact name of registrant as specified in its charter, address of principal executive office, telephone number, and | I.R.S. Employer | | --- | --- | --- | | File Number | state or other ju ...

TABLE OF CONTENTS | UNITED STATES | SECURITIES AND EXCHANGE COMMISSION | | | | | | --- | --- | --- | --- | --- | --- | | Washington, D.C. 20549 | FORM 10-K | | | | | | ☒ | Annual Report Pursuant to Section 13 or 15(d) | of the Securities Exchange Act of 1934 | | | | | For the Fiscal Year Ended December 31, 2019 | | | | | | | ☐ | Transition Report Pursuant to Section 13 or 15(d) | of the Securities Exchange Act of 1934 | | | | | Commission | Exact name of registrant as specified in its charter, address of pr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2019 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | Exact name of registrant as specified in its charter, | | | --- | --- | --- | | Commission | address of principal executive office, telephone number, and | I.R.S. Employer | | File Number | state ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2019 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | Exact name of registrant as specified in its charter, | | --- | | Commission address of principal executive office, telephone number and I.R.S. Employer | | File Number state or other jurisdiction of in ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2019 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | Commission | Exact name of registrant as specified in its charter, address of principal executive office, telephone number and | I.R.S. Employer | | --- | --- | --- | | File Number | state or other jur ...