PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Stellus Capital Investment Corporation as of March 31, 2024, and for the three-month period then ended [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of March 31, 2024, total assets increased to $935.2 million from $908.1 million at year-end 2023, driven by a rise in cash and investments, with net assets increasing to $323.4 million and NAV per share to $13.41 Consolidated Balance Sheet Summary (unaudited) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$935,221,348** | **$908,086,328** | | Total Investments at Fair Value | $875,884,146 | $874,460,683 | | Cash and cash equivalents | $48,761,721 | $26,125,741 | | **Total Liabilities** | **$611,780,944** | **$588,146,540** | | Credit Facility payable | $181,343,929 | $156,564,776 | | SBA-guaranteed debentures | $320,587,412 | $320,273,358 | | **Net Assets** | **$323,440,404** | **$319,939,788** | | **Net Asset Value Per Share** | **$13.41** | **$13.26** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2024, Net Increase in Net Assets from Operations significantly rose to $13.1 million ($0.54 per share) from $4.7 million ($0.24 per share) in Q1 2023, driven by unrealized appreciation despite a net realized loss Quarterly Operating Results (unaudited) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Total Investment Income** | **$25,996,749** | **$24,075,347** | | Total Operating Expenses, net | $15,760,833 | $15,007,727 | | **Net Investment Income** | **$10,235,916** | **$9,067,620** | | Net realized (loss) gain | ($20,384,731) | $34,967 | | Net change in unrealized appreciation (depreciation) | $23,518,590 | ($4,249,642) | | **Net Increase in Net Assets from Operations** | **$13,148,460** | **$4,736,147** | | **NII Per Share** | **$0.42** | **$0.46** | | **Net Increase in Net Assets Per Share** | **$0.54** | **$0.24** | | Distributions Per Share | $0.40 | $0.40 | [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased by $3.5 million in Q1 2024 to $323.4 million, primarily due to net investment income and unrealized appreciation, partially offset by realized losses and distributions Reconciliation of Net Assets for Q1 2024 (unaudited) | Description | Amount | | :--- | :--- | | **Net Assets at December 31, 2023** | **$319,939,788** | | Net investment income | $10,235,916 | | Net realized loss on investments | ($20,384,731) | | Net change in unrealized appreciation on investments | $23,518,590 | | Distributions from net investment income | ($9,647,844) | | Other changes | ($221,315) | | **Net Assets at March 31, 2024** | **$323,440,404** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company generated $4.5 million in cash from operating activities in Q1 2024, a significant improvement from the prior year, resulting in a $22.6 million net increase in cash and cash equivalents Summary of Cash Flows (unaudited) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash Provided (Used) in Operating Activities | $4,456,954 | ($32,043,024) | | Net Cash Provided by Financing Activities | $18,179,026 | $1,851,795 | | **Net Increase (Decrease) in Cash** | **$22,635,980** | **($30,191,229)** | | Cash and Cash Equivalents at End of Period | $48,761,721 | $17,852,100 | [Consolidated Schedules of Investments](index=7&type=section&id=Consolidated%20Schedules%20of%20Investments) As of March 31, 2024, the investment portfolio had a fair value of $875.9 million across 94 companies, with 90% in senior secured first lien loans and significant concentrations in business services and healthcare Portfolio Composition by Investment Type (March 31, 2024) | Investment Type | Fair Value | % of Total | | :--- | :--- | :--- | | Senior Secured – First Lien | $782,845,785 | 90% | | Senior Secured – Second Lien | $11,948,850 | 1% | | Unsecured Debt | $6,210,612 | 1% | | Equity | $74,878,899 | 8% | | **Total Investments** | **$875,884,146** | **100%** | - The total investment portfolio consisted of investments in 94 companies with a total fair value of **$875.9 million** as of March 31, 2024[184](index=184&type=chunk)[254](index=254&type=chunk) - All investments are valued using significant unobservable inputs and are therefore classified as Level 3 within the fair value hierarchy[35](index=35&type=chunk)[189](index=189&type=chunk) [Notes to Unaudited Financial Statements](index=31&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) This section details the company's accounting policies, operations as a BDC and RIC, related-party agreements, dividend distributions, equity offerings, portfolio valuation, debt facilities, financial highlights, and subsequent events - The company operates as a Business Development Company (BDC) and a Regulated Investment Company (RIC), focusing on debt and equity investments in U.S. middle-market companies[85](index=85&type=chunk)[96](index=96&type=chunk) - The company utilizes two wholly-owned Small Business Investment Company (SBIC) subsidiaries to access up to **$325 million** in SBA-guaranteed debentures, which are excluded from the BDC asset coverage test[88](index=88&type=chunk)[89](index=89&type=chunk)[223](index=223&type=chunk) Financial Highlights Per Share (Q1 2024 vs Q1 2023) | Per Share Data | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net asset value at beginning of period | $13.26 | $14.02 | | Net investment income | $0.42 | $0.46 | | Total from operations | $0.54 | $0.24 | | Stockholder distributions | ($0.40) | ($0.40) | | **Net asset value at end of period** | **$13.41** | **$13.87** | - As of March 31, 2024, the company's asset coverage ratio was **214%** (or 2.14x), well above the regulatory minimum of **150%**[95](index=95&type=chunk)[209](index=209&type=chunk) - Subsequent to quarter-end, the company made new investments totaling over **$10 million**, realized its investment in Nutritional Medicinals, and declared monthly dividends of **$0.1333** per share for April, May, and June 2024[239](index=239&type=chunk)[240](index=240&type=chunk)[242](index=242&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operating results, covering investment objectives, portfolio composition, asset quality, operating performance, liquidity, capital resources, and debt facilities - The company's investment objective is to maximize total return through debt and equity investments in middle-market companies, typically those with **$5.0 million** to **$50.0 million** of EBITDA[246](index=246&type=chunk)[253](index=253&type=chunk) - As of March 31, 2024, **82%** of the portfolio by fair value was rated in the top two categories (performing at or above expectations), an improvement from **86%** at year-end 2023, with four portfolio companies on non-accrual status, representing **2.1%** of the portfolio's fair value[269](index=269&type=chunk)[270](index=270&type=chunk) - The increase in net investment income in Q1 2024 compared to Q1 2023 was attributed to portfolio growth and rising interest rates, which was partially offset by higher management and incentive fees[276](index=276&type=chunk)[280](index=280&type=chunk)[282](index=282&type=chunk) - Liquidity is derived from a **$260 million** Credit Facility, **$325 million** in SBA-guaranteed debentures, and **$100 million** in Notes Payable, with **$48.8 million** in cash and cash equivalents as of March 31, 2024[293](index=293&type=chunk)[295](index=295&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, as 98% of its debt portfolio consists of floating-rate loans, with a 100 basis point interest rate increase or decrease impacting annual net interest income by approximately $6.1 million - As of March 31, 2024, **98%** of the company's loans by fair value bore interest at floating rates, primarily indexed to SOFR, making the company sensitive to changes in interest rates[330](index=330&type=chunk) Annual Impact of Interest Rate Changes on Net Income (as of March 31, 2024) | Change in Basis Points | Net Interest Income Impact ($ in millions) | | :--- | :--- | | Up 200 | $12.1 | | Up 100 | $6.1 | | Up 50 | $3.1 | | Down 50 | ($3.1) | | Down 100 | ($6.1) | | Down 200 | ($12.1) | [Item 4. Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[335](index=335&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal controls[336](index=336&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=80&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - The company reports no material legal proceedings as of the filing date[338](index=338&type=chunk) [Item 1A. Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors discussed in the company's Annual Report on Form 10-K filed on March 4, 2024, were identified during the three months ended March 31, 2024[339](index=339&type=chunk)[340](index=340&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of its equity securities during the three months ended March 31, 2024 - The company did not conduct any unregistered sales of equity securities in the first quarter of 2024[341](index=341&type=chunk) [Item 3. Defaults Upon Senior Securities](index=80&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable as there were no defaults upon senior securities during the reporting period - Not applicable[342](index=342&type=chunk) [Item 4. Mine Safety Disclosures](index=80&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[343](index=343&type=chunk) [Item 5. Other Information](index=80&type=section&id=Item%205.%20Other%20Information) During the fiscal quarter ended March 31, 2024, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or any non-Rule 10b5-1 trading arrangements - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter[344](index=344&type=chunk) [Item 6. Exhibits](index=81&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the quarterly report, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and XBRL data files - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[345](index=345&type=chunk)

Financial Data and Key Metrics Changes - Investment income per share was $0.50 and GAAP net investment income was $0.49 per share, with net asset value increasing by $0.07 to $13.26 per share [6] - A tax refund of $3 million was recorded due to a realized loss on previously marked down positions [6] - The company has $60 million of equity investments at cost marked at $72 million, indicating potential for greater than 2 times realization based on historical performance [7] Business Line Data and Key Metrics Changes - The investment portfolio at fair value was approximately $874 million across 93 portfolio companies, down from $886 million across 96 companies at the end of the previous quarter [32] - During the fourth quarter, the company invested $40.3 million in 3 new and 11 existing portfolio companies, with net portfolio decline at cost of $39.5 million [32] Market Data and Key Metrics Changes - The company is experiencing a slower environment for originations compared to previous quarters, with expectations that funding will be offset by repayments [8] - The average loan per company is $9.9 million, with the largest investment being $18.9 million, both at fair value [17] Company Strategy and Development Direction - The company aims to benefit from higher interest rates, with over 98% of its portfolio priced at floating rates and approximately 73% of liabilities at fixed rates [20] - There is an expectation for increased investment activity in the second half of the year, supported by substantial capacity for new investments [21] Management's Comments on Operating Environment and Future Outlook - Management noted that while the current environment is slower, they anticipate a pickup in activity due to significant dry powder in private equity and realizations from private equity firms [27] - The company expects to continue covering its dividend of $0.40 per share, with an annual yield of about 12.4% based on recent stock prices [34] Other Important Information - The company has two SBIC licenses, with plans to work with the SBA for a third license as some debentures are coming due [40] - Spillover income is projected to be about $37 million, which is sufficient to cover current dividends [48] Q&A Session Summary Question: How does the company view the 14% of the portfolio rated 3 or below? - Management believes these positions are manageable and supported by private equity ownership, indicating predictable results despite being under plan [38] Question: What is the expectation for fee income and other income in the upcoming year? - Management expects less other income in the first quarter but anticipates repayments to pick up later in the year [25] Question: What is the company's outlook on funding activity in the second half of the year? - Management expects funding activity to increase due to a combination of pipeline activity and broader market developments [42] Question: What are the expectations for PIK income in 2024? - Management does not expect a material change in PIK income for 2024, noting flexibility as a lender to provide PIK interest if necessary [52] Question: Are there any particular industries that the company finds increasingly attractive? - The company focuses on companies with substantial free cash flow generation and growth potential, avoiding high maintenance CapEx and commodity price risks [67]

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, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 001-35730 STELLUS CAPITAL INVESTMENT CORPORATION (Exact name of registrant as specified in its charter) Maryland 46-0937320 (State or other jurisdiction of incorpo ...

Stellus Capital Investment Corporation (NYSE:SCM) Q3 2023 Earnings Conference Call November 8, 2023 11:00 AM ET Company Participants Robert Ladd - CEO Todd Huskinson - CFO Conference Call Participants Christopher Nolan - Ladenburg Thalmann Robert Dodd - Raymond James Paul Johnson - KBW Bryce Rowe - B. Riley Operator Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's Conference Call to Report Financial ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-35730 STELLUS CAPITAL INVESTMENT CORPORATION (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorpora ...

Stellus Capital Investment Corporation (NYSE:SCM) Q2 2023 Earnings Conference Call August 10, 2023 11:00 AM ET Company Participants Robert Ladd - Chairman and Chief Executive Officer Todd Huskinson - Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary Conference Call Participants Christopher Nolan - Ladenburg Thalmann Erik Zwick - Hovde Group Robert Dodd - Raymond James Ryan Lynch - KBW Operator Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would l ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (I.R.S. Employer Identification No.) 4400 Post Oak Parkway, Suite 2200 Houston, Texas 77027 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-35730 STELLUS CAPITAL INVESTMENT CORPORATION (Exact Na ...

Financial Data and Key Metrics Changes - Net asset value per share decreased from $14.02 to $13.87, a drop of $0.15 per share [5] - Total assets under management across the Stellus platform reached $2.9 billion [10] - GAAP net investment income for the first quarter was $0.46 per share, while core net investment income was $0.45 per share [55] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $877 million across 88 portfolio companies, up from $845 million across 85 companies at year-end [21] - The company invested $41 million in 4 new and 2 existing portfolio companies during the first quarter, with no full repayments received [21] - 99% of loans were secured and 97% were priced at floating rates, with 88% of the portfolio consisting of unitranche loans [22] Market Data and Key Metrics Changes - The company is approaching the overall economic environment cautiously due to the higher interest rate environment and stress in the regional banking sector [10] - The company has not seen a significant increase in amendment requests from portfolio companies, indicating stable credit conditions [38] Company Strategy and Development Direction - The company aims to invest in larger transactions through private institutional funds that co-invest alongside its public company [9] - The strategy includes investing modestly in the equity of portfolio companies to generate realized gains to offset losses over time [8] - The focus remains on diversification, with an average loan per company of about $10.8 million [56] Management's Comments on Operating Environment and Future Outlook - Management expects second quarter earnings to exceed those of the first quarter due to the repricing of loans in a higher interest rate environment [8] - There is an expectation for some equity realizations during 2023, although the pace may be reduced compared to previous years [30] - Management advises portfolio companies to maintain adequate working capital liquidity and avoid over-leverage [31][32] Other Important Information - The company declared over $223 million in dividends to investors since its IPO in November 2012, equating to $14.15 per share [6] - The company has four loans on nonaccrual, comprising 2% of the fair value of the total loan portfolio [7] Q&A Session Summary Question: Update on spillover income and potential special dividend - Management indicated that the current spillover income is a little over $28 million, and they do not expect a special dividend this year [11] Question: Sentiment of PE sponsors in a severe economic environment - Management noted no unusual increase in amendment requests and emphasized the importance of the quality and track record of private equity firms in their underwriting process [38] Question: NII and ROE expectations for the quarter - Management explained that repayments in the fourth quarter provided key acceleration income, which was not present in the first quarter, affecting NII and ROE [43] Question: Expectations for equity realizations - Management expects some incremental realizations in equity investments, but at a reduced pace compared to previous years [44] Question: Demand for cash flow lending as offshoring trends change - Management has not seen a significant increase in U.S. manufacturing demand yet, but acknowledges the potential for future growth as companies reposition away from China [48]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details the company's financial statements, management's analysis of operations, market risk exposures, and internal control effectiveness [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements for Q1 2023 show increased total assets and net investment income, with the investment portfolio growing to $877.5 million [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) This section presents the company's financial position, showing total assets, liabilities, and net assets as of March 31, 2023 Consolidated Balance Sheet Highlights (unaudited) | Metric | March 31, 2023 (USD) | December 31, 2022 (USD) | | :--- | :--- | :--- | | **Total Assets** | $900,852,176 | $898,182,782 | | **Total Liabilities** | $620,000,131 | $622,406,169 | | **Net Assets** | $280,852,045 | $275,776,613 | | **Net Asset Value Per Share** | $13.87 | $14.02 | - Net Asset Value (NAV) per share decreased slightly to **$13.87** at the end of Q1 2023 from **$14.02** at the end of 2022[7](index=7&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's investment income, operating expenses, and net investment income for the first quarter of 2023 Consolidated Statements of Operations Highlights (unaudited) | Metric | Three Months Ended Mar 31, 2023 (USD) | Three Months Ended Mar 31, 2022 (USD) | | :--- | :--- | :--- | | **Total Investment Income** | $24,075,347 | $15,494,404 | | **Total Operating Expenses** | $15,007,727 | $9,980,221 | | **Net Investment Income** | $9,067,620 | $5,514,183 | | **Net Increase in Net Assets** | $4,736,147 | $5,222,164 | | **Net Investment Income Per Share** | $0.46 | $0.28 | | **Distributions Per Share** | $0.40 | $0.28 | - Net investment income increased by **64.4%** year-over-year, driven by a significant rise in total investment income which outpaced the growth in operating expenses[9](index=9&type=chunk) [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) This section details the changes in the company's net assets, reflecting investment income, distributions, and equity transactions - Net assets increased from **$275.8 million** at the end of 2022 to **$280.9 million** at March 31, 2023. The increase was primarily driven by **$9.1 million** in net investment income and **$8.3 million** from the net issuance of common stock, partially offset by **$8.0 million** in distributions and a **$4.2 million** net change in unrealized depreciation on investments[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash flows from operating, investing, and financing activities for the period ended March 31, 2023 Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2023 (USD) | Three Months Ended Mar 31, 2022 (USD) | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | $(32,043,024) | $(62,924,974) | | **Net Cash Provided by Financing Activities** | $1,851,795 | $43,380,901 | | **Net Decrease in Cash** | $(30,191,229) | $(19,544,073) | - Cash and cash equivalents decreased by **$30.2 million** during the quarter, ending at **$17.9 million**. The decrease was primarily due to **$41.2 million** in investment purchases, partially offset by proceeds from stock issuance and investment repayments[14](index=14&type=chunk) [Consolidated Schedules of Investments](index=7&type=section&id=Consolidated%20Schedules%20of%20Investments) This section details the company's investment portfolio, including composition by type, fair value, and number of portfolio companies Portfolio Composition by Investment Type | Investment Type | Fair Value (Mar 31, 2023, USD) | % of Total | Fair Value (Dec 31, 2022, USD) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Senior Secured – First Lien | $767,818,131 | 87% | $735,555,508 | 87% | | Senior Secured – Second Lien | $43,780,075 | 5% | $45,304,300 | 5% | | Unsecured Debt | $5,428,810 | 1% | $4,823,898 | 1% | | Equity | $60,466,765 | 7% | $59,049,932 | 7% | | **Total Investments** | **$877,493,781** | **100%** | **$844,733,638** | **100%** | - As of March 31, 2023, the total fair value of the investment portfolio was **$877.5 million**, spread across **88** portfolio companies, an increase from **$844.7 million** in **85** companies at year-end 2022[180](index=180&type=chunk)[183](index=183&type=chunk) [Notes to Unaudited Financial Statements](index=28&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) These notes detail the company's accounting policies, related-party transactions, equity offerings, debt facilities, and subsequent investment activities Advisory Fees Incurred (Q1 2023 vs Q1 2022) | Fee Type | Three Months Ended Mar 31, 2023 (USD) | Three Months Ended Mar 31, 2022 (USD) | | :--- | :--- | :--- | | Base Management Fees | $3,735,102 | $3,492,713 | | Income Incentive Fees | $2,124,835 | $0 | | Capital Gains Incentive Fee Reversal | $(569,528) | $(42,217) | - During Q1 2023, the company issued **581,614** shares under its At-The-Market (ATM) program, raising gross proceeds of **$8.4 million** and net proceeds of **$8.3 million** after fees and reimbursements from the Advisor[172](index=172&type=chunk) Debt Outstanding as of March 31, 2023 | Debt Facility | Outstanding Principal (USD) | Weighted Avg. Interest Rate (%) | | :--- | :--- | :--- | | Credit Facility | $198,277,831 | 7.3% | | SBA-guaranteed debentures | $313,600,000 | 3.1% | | 2026 Notes | $100,000,000 | 4.9% | - Subsequent to quarter-end, the company invested in two new and five existing portfolio companies, issued an additional **587,363** shares under its ATM program, and declared monthly dividends of **$0.1333** per share for April, May, and June 2023[240](index=240&type=chunk)[241](index=241&type=chunk)[245](index=245&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, portfolio growth, asset quality, and liquidity position, highlighting increased net investment income [Portfolio Composition and Investment Activity](index=59&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) This section details the investment portfolio's fair value, composition by type and geography, and quarterly investment activity - The weighted average yield on all debt investments increased to **11.4%** as of March 31, 2023, from **11.1%** at the end of 2022, reflecting the impact of rising interest rates on its predominantly floating-rate portfolio[269](index=269&type=chunk) - During Q1 2023, the company invested **$41.2 million** in four new and four existing portfolio companies and received **$5.9 million** in proceeds from investment repayments[271](index=271&type=chunk) Investment Rating of Portfolio | Investment Category | Fair Value (Mar 31, 2023, USD) | % of Total Portfolio | | :--- | :--- | :--- | | 1 - Performing above expectations | $153.0 million | 17% | | 2 - Performing within expectations | $573.4 million | 66% | | 3 - Performing below expectations | $130.8 million | 15% | | 4 - Substantially below, loss of return expected | $20.3 million | 2% | | 5 - Substantially below, loss of principal expected | $0 | 0% | - As of March 31, 2023, loans to four portfolio companies were on non-accrual status, representing **2.5%** of the loan portfolio at fair value, a slight increase from **2.3%** at year-end 2022[275](index=275&type=chunk) [Results of Operations](index=65&type=section&id=Results%20of%20Operations) This section analyzes the company's Q1 2023 financial performance, highlighting growth in investment income and net investment income despite increased operating expenses Comparison of Results of Operations (in millions) | Metric | Q1 2023 (USD Millions) | Q1 2022 (USD Millions) | | :--- | :--- | :--- | | Total Investment Income | $24.1 | $15.5 | | Total Operating Expenses | $15.0 | $10.0 | | **Net Investment Income** | **$9.1** | **$5.5** | | Net Realized Gain | $0.0 | $3.5 | | Net Unrealized Depreciation | $(4.2) | $(3.7) | | **Net Increase in Net Assets** | **$4.7** | **$5.2** | [Financial condition, liquidity and capital resources](index=68&type=section&id=Financial%20condition%2C%20liquidity%20and%20capital%20resources) This section assesses the company's financial condition, liquidity sources, capital resources, and compliance with regulatory asset coverage requirements - The company's asset coverage ratio was **194%** as of March 31, 2023, an increase from **192%** at year-end 2022 and well above the regulatory requirement of **150%**[302](index=302&type=chunk) - As of March 31, 2023, the company had **$198.3 million** outstanding on its **$265.0 million** Credit Facility[308](index=308&type=chunk) - The company had a total of **$313.6 million** in SBA-guaranteed debentures outstanding across its two SBIC subsidiaries as of March 31, 2023[311](index=311&type=chunk)[312](index=312&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's primary exposure to interest rate risk, with a sensitivity analysis on net interest income from rate changes - As of March 31, 2023, **97%** of the company's debt investments bore interest at floating rates, making its income sensitive to changes in benchmark rates like SOFR and LIBOR[340](index=340&type=chunk) Annual Impact on Net Income from Interest Rate Changes (in millions) | Change in Basis Points | Impact on Net Interest Income (USD Millions) | | :--- | :--- | | Up 200 bps | $12.0 | | Up 100 bps | $6.0 | | Up 50 bps | $3.0 | | Down 50 bps | $(3.0) | | Down 100 bps | $(6.0) | | Down 200 bps | $(12.0) | [Item 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[343](index=343&type=chunk) - No changes in the company's internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[344](index=344&type=chunk) [PART II. OTHER INFORMATION](index=75&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section addresses legal proceedings, updated risk factors, unregistered equity sales, and other required disclosures [Item 1. Legal Proceedings](index=75&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any threatened actions - The company reports no material legal proceedings as of the filing date[347](index=347&type=chunk) [Item 1A. Risk Factors](index=75&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor was added concerning the potential impact of bank impairments or failures on the company's portfolio companies - A new risk factor was added concerning the potential impact of bank impairments or failures on the company's portfolio companies. The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank are cited as examples that could inhibit portfolio companies' access to capital and ability to meet debt obligations[350](index=350&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were issued under the company's distribution reinvestment program during Q1 2023 or the comparable prior period - The company did not issue any shares through its distribution reinvestment program in Q1 2023 or Q1 2022[351](index=351&type=chunk) [Other Items](index=75&type=section&id=Other%20Items) This section notes no defaults on senior securities, no mine safety disclosures, and lists the exhibits filed with the report - The company reported no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other information (Item 5) for the period[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)

Financial Data and Key Metrics Changes - Core net investment income was $1.38 per share and GAAP net investment income was $1.46 per share for Q4 2022, with total distributions of $0.34 per share covered through core net investment income of $0.44 per share [5][22] - For fiscal year 2022, realized income was $1.65 per share, exceeding the dividend of $1.30 per share [21] - Net asset value decreased by $9.3 million year-over-year, primarily due to portfolio company-specific issues [5] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $845 million across 85 portfolio companies, up from $773 million across 73 companies as of December 31, 2021 [6] - The average loan per company is $10.8 million, with 83 of the 85 portfolio companies backed by a private equity firm [7] - 99% of loans were secured and 97% were priced at floating rates, with first lien loans comprising 87% of the loan portfolio [24] Market Data and Key Metrics Changes - The company invested $211 million in 22 new and 28 existing portfolio companies during 2022, with repayments of $90 million resulting in net portfolio growth of $90.8 million [6] - The company expects to maintain its investment portfolio between $850 million and $900 million throughout 2023 [9] Company Strategy and Development Direction - The strategy includes modest investments in the equity of portfolio companies to generate realized gains sufficient to offset losses over time [8] - The company aims to remain active in the market and invest in larger transactions, supported by total assets under management of approximately $2.8 billion [26] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are headwinds in the economy, there has not been a significant downturn, and they expect to remain active in M&A activities [68] - The company anticipates higher earnings in the first and second quarters due to rising interest rates, with LIBOR expected to exceed 5% [41][68] Other Important Information - The regular dividend was increased by 43% from $0.28 per share to $0.40 per share, reflecting greater earnings in the higher interest rate environment [25] - The company has a spillover income of over $28 million, which supports the current dividend level [31] Q&A Session Summary Question: Any increase in amendment requests from portfolio companies? - Management indicated that there has not been a significant increase in amendment requests, and they believe they have a good way to run before higher rates impact portfolio companies [30] Question: Expectations for realized gains and dividend sustainability? - Management expects realized gains to be modest but meaningful, covering potential losses and supporting dividends [35][36] Question: Broader economic view guiding investment decisions? - Management expressed caution regarding inflation and interest rates but remains positive about M&A activity and investment opportunities [68][80]