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Market Overview

Hercules Capital Announces First Quarter 2018 Financial Results and Quarterly Distribution of $0.31 per Share

Share:

Achieved Strong Total New Debt and Equity Commitments and Total Gross
Fundings, up 39.3% and 54.1% Year-over-Year, Respectively

Maintains Low Regulatory Leverage of 72.0% and Net Regulatory
Leverage of 57.8 %
(1)

Completes Acquisition of Asset-Based Lender – Gibraltar Business
Capital

Highly Asset Sensitive Debt Investment Portfolio Stands to Benefit
from Any Further Rate Increases by the Federal Reserve Benchmark
Interest Rate

$16.1 Million, or $0.19 per Share, of Projected 2017 Earnings
Spillover
(2)

Q1 2018 Financial Achievements and Highlights

  • Net Investment Income "NII" of $26.1 million, up 15.0%
    year-over-year, or $0.31 per share
    • Total Investment Income of $48.7 million, up 5.0% year-over-year
    • New debt and equity commitments of $266.0 million, up 39.3%
      year-over-year
    • Total gross fundings of $236.3 million, up 54.1% year-over-year
    • Unscheduled principal repayments or "early loan pay-offs" of
      $243.5 million
  • Distributable Net Operating Income "DNOI," a non-GAAP measure, of
    $28.4 million, or $0.34 per share
  • 14.3% GAAP Effective Yields
  • $313.2 million of available liquidity for future portfolio and
    earnings growth, subject to existing terms and covenants
  • Regulatory leverage of 72.0% and net regulatory leverage, a
    non-GAAP measure, of 57.8%
    (1)
  • 12.7% Return on Average Equity "ROAE" (NII/Average Equity)
  • 6.5% Return on Average Assets "ROAA" (NII/Average Assets)

(1) Net regulatory leverage is defined as regulatory leverage
less cash balance at period end

(2) Per share calculation based on weighted shares of common
stock outstanding of 84.6 million, subject to final tax filings in 2018
and overall performance during the year

Hercules
Capital, Inc.
(NYSE:HTGC) ("Hercules" or the "Company"), the
leading specialty financing provider to innovative venture growth stage
companies backed by leading venture capital firms, today announced its
financial results for the first quarter ended March 31, 2018.

The Company announced that its Board of Directors has declared a first
quarter cash distribution of $0.31 per share, that will be payable on
May 21, 2018, to shareholders of record as of May 14, 2018.

"We are off to a strong start to 2018 as evidenced by our team's
impressive new debt origination activities during the quarter, which
resulted in $266 million in new debt and equity commitments and more
than $236 million in total new gross fundings," stated Manuel A.
Henriquez, chairman and chief executive officer of Hercules. "This solid
performance highlights the strength of the Hercules Capital platform, as
the growth capital partner of choice to many of the top leading venture
capital-backed companies in the U.S., which continue to overwhelmingly
choose Hercules as their partner. Furthermore, these results enabled us
to complete our desired portfolio rotation and served to offset our
anticipated elevated levels of early loan repayments."

Henriquez continued, "If the second half of the first quarter is any
indication of what to expect in 2018, then Hercules appears to be on
pace for another potential record year. We are very encouraged by the
recent elevated demands for growth capital by many of these innovative
and disruptive venture capital-backed companies. In addition, we see
early indications of a slight tapering of pre-payments activities which,
if realized, should allow us to see a return to debt investment growth
in the second half of 2018."

Henriquez added, "We finished Q1 2018 with a very strong liquidity
position of over $313 million, and we remain well positioned to fund our
expected portfolio growth with our recent new bond offering of $75
million as we prepare to enter the second half of 2018, while also
maintaining a highly flexible, low-leverage and highly asset sensitive
balance sheet that will benefit from future rate increases, as we
monitor the rapidly evolving broader market conditions."

Henriquez concluded, "I am delighted to see the strong bi-partisan
Congressional support for the passage of The Small Business Credit
Availability Act, which will help to ensure that U.S. small and medium
sizes businesses gain access to cost competitive capital to grow. The
recent legislation to increase leverage for BDCs is indeed a
game-changer and helps to level the playing field for the industry. Over
time, the eventual expected impact to Hercules Capital could be
material, particularly since we are already generating one of the BDC
industry's highest ROAEs, above 12.0%, while operating below the 1-to-1
leverage limits, currently. However, we have chosen not to immediately
seek approval to increase leverage, but rather pursue ‘a wait-and-see
strategy' to allow this new norm to be fully understood and processed by
all stakeholders, including the respective credit rating agencies and
institutional bond and equity holders. Together with our board of
directors, we look forward to further communications on this matter once
we evaluate the many options."

Q1 2018 Review and Operating Results

Debt Investment Portfolio

Hercules achieved another strong quarter, having successfully extended
new debt and equity commitments to ten (10) new companies and two (2)
existing companies, totaling $266.0 million, and gross fundings of
$236.3 million.

During the quarter, Hercules realized an anticipated above normal level
of early loan pay-offs of $243.5 million, along with normal scheduled
amortization of $29.8 million, or $273.3 million in total debt
repayments. Nearly half of the early loan pay-offs activities were
select sector portfolio rotations initiated by Hercules Capital.

Net debt investment portfolio decreased during the first quarter, on a
cost basis, by $71.4 million, driven by an anticipated higher level of
early loan pay-offs.

The Company's total investment portfolio, (at cost and fair value) by
category, quarter-over-quarter and year-over-year are highlighted below:

Total Investment Portfolio: Q4 2017 to
Q1 2018

(in millions)     Debt     Equity     Warrants     Total Portfolio
Balances at Cost at 12/31/17 $ 1,440.0   $ 136.2   $ 43.6   $ 1,619.8  
New fundings(a) 206.8 28.7 0.8 236.3
Warrants not related to Q1 2018 fundings - - (0.2 ) (0.2 )
Early payoffs(b) (243.5 ) - - (243.5 )
Principal payments received on investments (29.8 ) - - (29.8 )
Net changes attributed to conversions, liquidations, and fees   (4.9 )   -     (1.4 )   (6.3 )
Net activity during Q1 2018   (71.4 )   28.7     (0.8 )   (43.5 )
Balances at Cost at 3/31/18 $ 1,368.6   $ 164.9   $ 42.8   $ 1,576.3  
 
       
Balances at Value at 12/31/17 $
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