Hercules Capital Q3 NII Slips as Portfolio Grows and Yields Decline

Hercules Capital Inc. (NYSE: HTGC) reported modestly lower third-quarter earnings as rising financing costs and lower portfolio yields offset growth in interest income and the size of its investment portfolio. Net investment income of $0.47 per share equaled the company’s declared base and supplemental distributions for the quarter.

For the three months ended September 30, 2026, net investment income declined 1% year over year to $87.3 million, while NII per share fell 4% to $0.47 as the weighted-average share count increased 3%. Total investment income rose 1% to $140.1 million.

Interest income excluding payment-in-kind income increased 6% to $123.7 million. That gain was partly offset by a 27% decline in PIK interest income to $10.6 million and a 15% decrease in fee income to $5.9 million. Interest and loan-fee expense climbed 22% to $33.2 million, contributing to a 7% increase in total net operating expenses to $52.8 million.

Including realized and unrealized investment changes, the increase in net assets from operations was $93.6 million, down 22% from $119.7 million a year earlier. Net realized gains and changes in unrealized appreciation totaled $6.2 million, compared with $31.1 million in the prior-year period.

Portfolio expands as yields decline

Hercules ended the quarter with $4.87 billion of investments at cost and $4.85 billion at fair value. Debt investments totaled $4.64 billion at cost and $4.65 billion at fair value, up from a fair value of $4.38 billion at the end of the second quarter.

The debt portfolio’s effective yield was 12.3%, compared with 13.4% in the second quarter and 13.5% in the third quarter of 2025. The effective yield includes fee and income accelerations associated with early repayments and other transactions. Core yield, a non-GAAP measure that excludes early repayments and certain other items, was 11.4%, while the loan coupon rate was 9.6%.

Net interest margin declined to 9.3% from 10.5% in the preceding quarter. Unscheduled early payoffs totaled $148.3 million, or 3.2% of the ending debt portfolio at cost, down from $572.1 million and 13.0% in the second quarter.

The portfolio remained highly sensitive to interest rates, with 97.9% of loans carrying floating rates and interest-rate floors. Hercules estimated that a 100-basis-point decline in the prime rate would reduce EPS by approximately $0.07, based on its September 30 portfolio and 186 million basic weighted-average shares. Actual results could also be affected by changes in the portfolio and future equity issuance.

Hercules said 88.8% of its debt investments were first-lien senior secured, while 9.5% were second-lien senior secured. The weighted-average internal credit grade improved to 2.12 from 2.17 in the second quarter, on a scale where lower scores represent higher quality. Grade 4 assets represented 1.1% of fair value and Grade 5 assets accounted for 0.3%.

Originations and capital position

Gross debt and equity commitments during the quarter were $701.0 million, with gross fundings of $572.9 million. Those figures include investments assigned to, or made directly by, external vehicles managed by Hercules Adviser LLC. Across the Hercules platform, gross commitments reached more than $3.44 billion during the first nine months of 2026.

Since inception, HTGC has made $24.9 billion of net debt commitments and $16.4 billion of fundings. The company reported a cumulative annualized net realized loss rate of 1.9 basis points, excluding debt-extinguishment and other non-credit losses.

Total assets increased to $4.95 billion from $4.58 billion at the end of 2025, while net assets rose to $2.32 billion from $2.22 billion. Net asset value per share was $12.26, up from $12.15 at the end of the second quarter and $12.13 at year-end 2025. Quarterly NII added $0.47 per share to NAV, while dividends reduced it by the same amount; unrealized appreciation and equity-related activity accounted for the net increase.

Hercules declared a base distribution of $0.40 per share and a supplemental distribution of $0.07 for the third quarter. The company reported $506.6 million of available liquidity, subject to existing terms and covenants, and $397.6 million of available unfunded commitments. GAAP leverage was 111.1%, while regulatory leverage excluding Small Business Administration debentures was 96.1%.

The company’s funding sources include bank facilities, SBA debentures, unsecured institutional notes, convertible notes, retail notes and asset-backed securities. Its maturity schedule includes $350 million of institutional notes due in January 2027.

Hercules did not provide formal earnings or portfolio-growth guidance in the presentation. Its outlook remains exposed to interest-rate movements, competition, economic and regulatory conditions, portfolio-company performance and the timing of repayments and liquidity events. The company also cautioned that the financial information presented could change before its formal regulatory filing if additional adjustments are recorded.