Financial Data and Key Metrics Changes - For the first quarter ended March 31, 2025, the company generated GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, which excludes estimated excise taxes [5] - The net asset value per share decreased by $0.21 during the quarter, primarily due to company-specific write-downs in the loan portfolio and a reduction of spillover income [5] - The company has paid $295 million in dividends to investors since its IPO, representing $17.9 per share to an investor in the IPO [5] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $991.1 million across 110 portfolio companies, up from $953.5 million across 105 companies as of December 31, 2024 [6] - During the first quarter, the company invested $46.7 million in seven new portfolio companies and had $8.7 million in other investment activity at par [6] - The average loan per company is $9.4 million, with the largest overall investment at $21.9 million, both at fair value [6] Market Data and Key Metrics Changes - 90% of the company's loans were secured, and 91% were priced at floating rates as of March 31, 2025 [6] - Currently, loans to five portfolio companies are on non-accrual status, comprising 6.7% of the total cost and 4% of the fair value of the total loan portfolio, representing a decrease from the prior quarter [7] Company Strategy and Development Direction - The company plans to draw new leverage under the SBIC III license to continue funding qualifying portfolio company investments [8] - The company aims to grow its portfolio to over $1 billion, with potential for more than $10 million in equity gains by year-end [10] - The company has shifted its investment strategy to focus on first lien unitranche secured lending with equity co-investments, moving away from second lien loans due to risk management considerations [38] Management's Comments on Operating Environment and Future Outlook - The management noted that the pipeline for new loan originations is slower compared to three months ago, affected by tariff activity and overall economic conditions [17] - The management expressed optimism about picking up activity as clarity improves in the market, indicating that the current slowdown is temporary [46] - The company expects to maintain the dividend at $0.40 per share for the second and third quarters, although net investment income is currently running below this level [19][21] Other Important Information - The company issued $75 million in aggregate principal amount of 7.25% notes due April 1, 2030, using the proceeds to repay the bank facility [8] - The company has received a green light letter from the Small Business Administration for Stellus Capital SBIC III, which is a significant step in the licensing process [8] Q&A Session Summary Question: Impact of first quarter originations on interest income - The average portfolio in the first quarter was higher than in the fourth quarter, which is expected to result in a pickup in yield in dollars for the second quarter [13][14] Question: Pipeline status and opportunities - The pipeline is slower than three months ago, but there are still interesting opportunities expected to close in the current and next quarter [17][18] Question: Trajectory of net investment income to cover dividends - The company is currently running at a level of net investment income less than the dividend, but expects to be in a good position by the end of the year [21][22] Question: Trade education acquisition restructuring - The business was restructured and recapitalized satisfactorily, with expectations for improved performance going forward [25][26] Question: Logic behind issuing fixed-rate debt - The issuance was necessary to retire maturing bonds and to have some unsecured debt in the capital stack [32][33] Question: Future issuance of common shares - The company will consider issuing shares based on market conditions to ensure accretive outcomes [36] Question: Second lien loans strategy - The company does not expect to issue new second lien loans, focusing instead on first lien unitranche secured lending [38] Question: Impact of SBA green light letter on earnings - The potential for SBIC debentures could allow for lower rates than current borrowing, positively impacting earnings [40][41]

Financial Data and Key Metrics Changes - The company reported operating earnings of $20 million or $0.22 per share, while GAAP net income was $19.1 million resulting in earnings per share of $0.21, after accounting for merger charges of $971,000 [5][11] - Total assets decreased by $385.5 million to $11.5 billion, primarily due to a deliberate reduction in cash equivalents and loan portfolio [8] - Customer deposits increased by $113.8 million, and the net interest margin improved by 10 basis points to 3.22% [6][9] Business Line Data and Key Metrics Changes - The loan portfolio contracted by $136.6 million, with significant declines in commercial real estate and equipment finance, while commercial loans saw growth [5][8] - The specialty vehicle portfolio decreased by $29 million to $267 million, with minimal charge-offs reported [9][50] Market Data and Key Metrics Changes - The company anticipates a 4% to 5% growth in deposits, favoring interest-bearing accounts, while loan portfolio growth is expected to be in the low single digits for the remainder of 2025 [12] - Noninterest income is projected to range between $5.5 million to $6.5 million per quarter, with significant variability in components [12] Company Strategy and Development Direction - The company is focused on reducing commercial real estate exposures while maintaining important customer relationships, and it plans to continue its merger with Berkshire Hills Bancorp [5][14] - The management is cautious about future loan growth and is adapting to the uncertain economic environment, particularly regarding tariffs and their impact on customer behavior [11][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the net interest margin improving throughout 2025, despite current market volatility and uncertainty [6][12] - The company is closely monitoring economic scenarios and adjusting its strategies accordingly, with a focus on maintaining capital for customer support [10][72] Other Important Information - The Board approved maintaining the quarterly dividend at $0.135 per share, with payment scheduled for May 23 [11] - The merger with Berkshire Hills Bancorp is progressing well, with regulatory applications filed and stockholder meetings scheduled for May 21 [13][14] Q&A Session Summary Question: Impact of a 25 basis point Fed rate cut on margin - Management indicated that the impact depends on the yield curve's behavior, with a cut at the short end potentially beneficial if mid to long-term rates remain stable [22][23] Question: Details on the $7.1 million commercial charge-off - The charge-off was related to a large commercial and industrial credit, with specific reserves already in place [24][25] Question: Tariff implications on equipment finance and manufacturing loans - Management noted that tariffs are causing unease among customers, impacting underwriting processes, but no tangible effects have been observed yet [26] Question: Loan pricing and sentiment among C&I borrowers - Management expressed optimism about loan pricing and the quality of the pipeline, noting that larger banks are currently cautious [34][36] Question: Expense management and guidance for the second quarter - Expenses are expected to remain stable, with careful management in light of the upcoming merger [40][41] Question: Update on the office loan expected to close in Q2 - Management confirmed that the loan is imminent to close, with no additional losses anticipated [52][53] Question: Overall pass-rated loans in the portfolio - The overall pass-rated loans are approximately 95%, indicating a healthy loan portfolio [55][56] Question: Future capital management and share buybacks - Management stated it is too early to discuss buybacks, with a focus on optimizing capital structure post-merger [65][66]