Financial Data and Key Metrics Changes - Pre-tax net investment income was $34.6 million, or $0.60 per share, an increase from the previous quarter [16] - Total investment income rose to $61.4 million from $56.9 million, driven by increases in PIK income, fees, and dividend income [16][18] - Undistributed taxable income (UTI) increased to $1.02 per share, up from $0.68 per share in December 2024 [3][17] - NAV per share increased to $16.75 from $16.62 in the prior quarter [18] Business Line Data and Key Metrics Changes - Closed $244 million in total new commitments across eight new portfolio companies and 16 existing portfolio companies [4] - The weighted average spread on new commitments was approximately 6.4% [5] - The on-balance sheet credit portfolio ended at $1.8 billion, representing a 19% year-over-year growth [10] - 100% of new portfolio company debt originations were first lien senior secured [10] Market Data and Key Metrics Changes - Approximately 93% of the credit portfolio is sponsor-backed, providing strong governance and operational support [10] - The credit portfolio generated a weighted average yield of 11.3% with a weighted average leverage of 3.6x EBITDA [12] - Cash flow coverage improved to 3.4 times, up from 2.9 times during peak base rates [14] Company Strategy and Development Direction - The company announced a joint venture to enhance competitiveness in the lower middle market, allowing participation in larger, higher-quality deals [7] - The joint venture is expected to generate low to mid-teens equity returns for the company [7] - The company aims to maintain disciplined growth and create long-term value for shareholders [21][73] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the competitive position in the lower middle market despite challenges faced by peers [25] - The company is focused on executing its strategy and maintaining a conservative leverage cushion to mitigate capital market volatility [19][73] - Management noted that the lower middle market remains active, with private equity sponsors still looking for deals [32] Other Important Information - The company has a robust liquidity position with approximately $438 million in cash and undrawn leverage commitments [19] - Non-accruals represented just 1.5% of the investment portfolio at fair value [16] Q&A Session Summary Question: Can you expand on the competitive dynamics in the lower middle market? - Management noted that while regional banks have fluctuated in their lending, the competitive landscape remains stable with fewer BDCs currently trading at book value [24][25] Question: What is the outlook for spreads in the coming quarters? - Management indicated that spreads have stabilized, with expectations to remain between 7% and 7.25% over the next 12 months [26] Question: What is the breakdown of the portfolio between sponsored and non-sponsored deals? - The portfolio consists of approximately 93% sponsored and 7% non-sponsored deals [30] Question: How are sponsors behaving in the current market environment? - Sponsors are still looking for deals, although last year was considered weak for deployment [31] Question: How is AI disruption risk being evaluated in the portfolio? - The company has formed an AI committee to assess AI risks in existing and new investments, indicating a proactive approach to potential disruptions [68]

Financial Data and Key Metrics Changes - The investment portfolio grew by approximately $300 million or 21% from $1.5 billion to $1.8 billion [4] - Weighted average leverage in the investment portfolio decreased to 3.5 times, with non-accruals at fair value reduced from 2.3% to 1.7% [4][9] - Pre-tax net investment income was $28.5 million or $0.56 per share, with adjusted pre-tax net investment income at $31.3 million or $0.61 per share [27] - Total investment income increased to $52.4 million from $52 million in the prior quarter [28] - NAV per share increased to $16.70 from $16.59 in the prior quarter [31] Business Line Data and Key Metrics Changes - The equity portfolio saw unrealized appreciation grow from $38.5 million or $0.85 per share to $53.2 million or $1 per share [4] - The credit portfolio ended the quarter at $1.6 billion, representing year-over-year growth of 19% from $1.3 billion [17] - 100% of new portfolio company debt originations were first lien senior secured [17] - The credit portfolio had a weighted average yield of 11.7% and a weighted average leverage of 3.5 times EBITDA [22] Market Data and Key Metrics Changes - The lower middle market remains competitive, with a significant number of private equity firms represented across the investment portfolio [20] - Approximately 93% of the credit portfolio is backed by private equity firms, providing guidance and potential junior capital support [18] - The company identified 7% of the debt portfolio as moderate risk due to tariff exposure, with only 1% having both moderate risk and a loan-to-value above 50% [14] Company Strategy and Development Direction - The company aims to maintain dividend sustainability, strong credit performance, and continued access to capital from multiple sources [8] - The recent approval for a second FDIC license allows for an additional $175 million in debt capital to support the direct lower middle market platform [7] - The company plans to methodically raise secured and unsecured debt capital while maintaining a conservative balance sheet [33] Management's Comments on Operating Environment and Future Outlook - Management noted that geopolitical uncertainties and trade policy changes have created short-term impacts on the lower middle market [11] - The company remains vigilant in underwriting standards due to ongoing economic uncertainties [12] - Management expressed confidence in the balance sheet's ability to endure market volatility, with no maturities until October 2026 [15] Other Important Information - The company raised over $300 million in new debt capital commitments during the year [5] - The regular dividend increased from $2.24 per share to $2.31 per share, with supplemental dividends totaling $0.23 per share [8] - The company has a robust liquidity position with approximately $384 million in cash and undrawn leverage commitments [32] Q&A Session Summary Question: How attractive is the current vintage of investments in the lower middle market? - Management indicated that the current deals are in industries of interest, with a focus on service industries, while cyclical deals are being delayed or pulled [37] Question: What were the main drivers of the net realized loss and markdown in the credit portfolio? - The realized and unrealized losses were primarily driven by restructurings of two companies on non-accrual [40] Question: When will the new SBIC subsidiary start injecting capital? - Capital injection is expected to begin in the next three months, with debenture draws anticipated shortly thereafter [43] Question: What is the outlook for spreads in the current market? - Management expects spreads to tighten slightly due to increased competition for non-tariff impacted industries, but does not anticipate material spread compression [72] Question: What is the comfort level regarding the UTI balance? - Management aims to maintain a UTI balance above $0.50 to support regular and supplemental dividends, with a focus on returning capital to shareholders [80]