Hercules Early Loan Repayments Collapse 74%
Net investment income was $87.3 million, or $0.47 a share, as early payoffs fell to $148.3 million and NII coverage of the base cash distribution was 118%.
Hercules Capital, Inc. (HTGC), the specialty finance company that lends to venture- and growth-stage companies, reported net investment income of $87.3 million, or $0.47 a share, for the third quarter ended September 30, 2026, down from $92.9 million, or $0.50 a share, in the second quarter.
Unscheduled early loan repayments fell to $148.3 million, a 74.1% decrease from $572.1 million in the second quarter, after that second-quarter figure had already jumped 153.4% from $225.8 million in the first quarter. Chief executive officer and chief investment officer Scott Bluestein said the company continued to cover the base dividend despite the nearly 75% reduction in early-repayment volume. NII provided 118% coverage of the base cash distribution.
Total investment income was $140.1 million, up 1.5% from a year earlier, after a record $149.1 million in the second quarter that was up 8.5% year-over-year. The company said the year-over-year increase was primarily attributable to a higher weighted average debt investment portfolio, partially offset by lower yields. The GAAP effective yield on the debt portfolio fell to 12.3% from 13.4% in the second quarter. Core yield, a non-GAAP measure, slipped to 11.9% from 12.0%, remaining within the company’s expected range of 11.8% to 12.0%.
Interest expense and fees rose to $33.2 million from $27.2 million a year earlier as the weighted average cost of borrowings increased to 5.4% from 5.1%. Non-interest and fee expenses were $24.3 million. Return on average equity declined to 15.4% from 16.8% in the second quarter; return on average assets fell to 7.4% from 8.3%.
New debt and equity commitments slowed to $701.0 million from $927.3 million in the second quarter, which had followed a record $1.81 billion in the first quarter. Total fundings declined to $572.9 million from $647.5 million. Combined with repayments and normal scheduled amortization, those activities produced a net debt investment portfolio increase of $252.9 million on a cost basis, reversing a $170.2 million decrease in the second quarter. The ending debt portfolio at cost was $4,644.6 million.
Year-to-date through the third quarter, the company said total new debt and equity commitments reached a record $3.44 billion, up 20.0% year-over-year, and total fundings reached a record $1.93 billion, up 9.9%. Nine-months total investment income was a record $430.8 million, up 9.0%, and nine-months NII was a record $268.4 million, up 5.4%.
Credit metrics remained tight. The weighted average grade of the debt portfolio at cost improved to 2.12 from 2.17 at June 30. Grade 1 loans were 23.1% of the fair-value debt book. Two loans remained on non-accrual, with cost of about $18.8 million, or 0.4% of the portfolio at cost, and fair value of $13.2 million, or 0.3% of value.
Net GAAP leverage rose to 109.0% from 101.8% in the second quarter, and net regulatory leverage rose to 94.0% from 86.4%. GAAP leverage was 111.1% and regulatory leverage 96.1%. Available liquidity was $506.6 million. NAV per share rose 0.9% to $12.26 from $12.15.
The company sold 2.3 million shares under its equity ATM for $39.2 million of net proceeds, leaving 13.0 million shares remaining. After the quarter, on October 8, 2026, Hercules issued $400.0 million of 6.700% unsecured notes due October 8, 2029.
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