HCXY

• Core Strategic Priorities • Maintain three core guiding pillars: disciplined conservative underwriting, strong flexible balance sheet, proactive credit management, unchanged from prior quarters • Stay disciplined on pricing and deal structure amid aggressive competition from bank and non-bank lenders, refusing to chase low-quality deals that do not benefit shareholders • Maintain intentional portfolio diversification, with a 50/50 target asset allocation between life sciences and technology verticals, and no single subsector exceeding 25% of total portfolio value • Hold higher-than-normal first lien exposure (87% as of Q2 2026) and maintain defensive portfolio positioning with modestly sized available unfunded commitments

• Operational Highlights • Record first half 2026 performance: $2.74 billion in total originations (35.6% YoY increase) and $1.35 billion in total fundings (8.5% YoY increase); Q2 2026 alone saw over $927 million in new commitments and $647 million in gross fundings • Total AUM reached $6.1 billion as of Q2 2026, a 14.4% YoY increase; net investment income covered the base quarterly distribution by 125% and the full distribution (including supplemental payout) by 106%, marking the 24th consecutive quarter of supplemental distributions • Credit quality remained stable: only 1.9% of portfolio fair value is in the lowest credit rating categories (4 and 5), and non-accrual loans represent just 0.1% of total portfolio fair value; the one new non-accrual loan added in Q2 was resolved post-quarter with a $1 million recovery above Q2 fair value and a positive realized IRR • Portfolio company capital raising reached all-time highs: 29 portfolio companies raised $5.7 billion in Q2 2026, bringing year-to-date capital raising to $9.3 billion (far exceeding full-year 2025 totals), with 11 more companies raising over $550 million post-quarter • Operating efficiency improved: the annualized operating cost ratio is ~2%, far lower than externally managed BDC peers, with a 70 basis point reduction in the cost ratio since launching Hercules Advisor in 2021 alongside 134% AUM growth

• Platform and Technology Initiatives • Expanded leadership team to support growth, with Seth Meyer moving to President and Andrew Olson appointed CFO • Invested in technology upgrades for CRM, pipeline management, portfolio management, and loan servicing to enable efficient scaling; implemented targeted AI use cases with formal governance controls to protect confidential data, where AI only supports analysis and does not make underwriting or investment decisions • Proprietary origination via long-standing industry relationships remains the core of the business model, allowing the firm to capitalize on market disruption when competitors face headwinds

• Core yield for Q3 2026 is expected to be in the 11.8-12% range, reflecting the muted ongoing impact of 2025 rate cuts and portfolio turnover from elevated prepayments in Q2
• Prepayment activity is expected to normalize to a $200-$300 million range in Q3 2026, down from the record $572.1 million in Q2 2026
• Q3 2026 interest expense is expected to be broadly stable or slightly up compared to Q2, as reduced leverage from Q2 prepayments will be partially offset by incremental funding for new originations
• Gross SG&A for Q3 2026 is expected to be $25-26 million, with RIA expense allocation of ~$4.7 million and quarterly RIA dividends expected to be $2-2.5 million
• Q3 originations are expected to be seasonally lower than other quarters and back-end loaded, consistent with historical patterns, though overall pipeline and activity levels remain robust
• Management expects M&A exit activity to continue at the same pace seen in the first half of 2026 for the second half of the year
• Capital raising for Hercules will remain opportunistic; the firm has sufficient current liquidity after its post-Q2 $325 million note issuance, but will access markets again when pricing is attractive for shareholders

Hercules Capital operates two core business segments: the public BDC (business development company) and the private credit fund business (Hercules Advisor). For Q2 2026:

1. Public BDC Segment: Total investment income was a record $149.1 million, with net investment income reaching a record $92.9 million ($0.50 per share). The BDC holds a $4.4 billion fair value debt investment portfolio across 136 companies, with warrants and equity making up 4.5% of total portfolio value.
2. Private Credit Fund (Hercules Advisor) Segment: Manages nearly $2 billion in committed institutional capital, with no retail investor exposure or near-term redemption risk. For Q2 2026, the segment contributed $7 million in net investment income to HTGC (a 26% year-over-year increase), consisting of a $2.1 million dividend and $4.9 million in expense reimbursement. Cumulative cash flows to the public BDC from Hercules Advisor now exceed $78.6 million, with $13.7 million contributed in the first half of 2026. By sector, the overall investment portfolio is split 50% to life sciences and 50% to technology, with no single subsector representing more than 25% of total portfolio value. In Q2 2026 originations, 59% of new commitments went to life sciences (41% to technology), and 45% of fundings went to life sciences (55% to technology).

• General market volatility continues, with uncertainty around M&A valuations and exit process timelines in some segments of the market
• A larger share of the current deal pipeline consists of low-quality companies that do not meet Hercules' underwriting standards, increasing screening workload and requiring continued discipline
• Some banks and non-bank lenders are pursuing aggressively priced, loose-structured deals to gain market share, creating competitive pressure that could compress spreads if Hercules chose to match it
• AI use carries inherent data security risks, requiring strict governance and controls to prevent improper disclosure of proprietary and borrower confidential information
• While credit quality is currently stable, the proactive downgrade of companies preparing to raise equity to credit grade 3 means credit ratings could shift if capital raises are not completed successfully
• 75% of prime-based loans are already at their contractual interest rate floors, leaving limited upside to net yields if interest rates rise in the future

Q: The deployment backdrop looks strong – do you expect a seasonal slowdown in Q3 originations, and what is the broader outlook for venture debt demand? / A: Management confirms Q3 originations will be seasonally lower than other quarters, consistent with 21 years of historical patterns, but still expects robust overall activity. The firm's deal pipeline is at a record size, but there is mixed quality across opportunities, so the team remains focused on only funding deals that meet the firm's quality standards. The large share of low-quality opportunities in the current pipeline is a market-wide trend, not concentrated in any single sector like AI. Most balance sheet cash-driven prepayments in Q2 came from recent equity raises where borrowers chose to retire outstanding debt, with 60% of total Q2 prepayments coming from M&A or balance sheet cash, a higher share than typical that signals portfolio strength.

Q: What does the next phase of growth look like for Hercules – will growth come from new origination expansion, or continued scaling of the private credit RIA business? / A: Growth will come from both the public BDC and the private credit Hercules Advisor business, with the private funds business currently growing faster than the public BDC. The firm will not pursue strategy drift, and will remain focused on its core 50/50 life sciences/technology venture lending niche, but is exploring targeted new product and geographic expansion. The larger platform now allows Hercules to keep working with portfolio companies longer as they scale, rather than being refinanced out by larger lenders, which increases repeat origination opportunity. Growth will continue to leverage existing internal resources to maintain operating efficiency, rather than large incremental spending on expansion.

Q: 86% of first half 2026 VC deal value is concentrated in AI – are there attractive under-the-radar opportunities outside AI, and is pipeline quality mixed specifically in AI? / A: Management confirms there are attractive opportunities outside of AI, and the 14% of VC activity not allocated to AI is still at near-record levels compared to historical periods. The firm maintains strict diversification rules to avoid excessive concentration in AI or any single subsector, and sees attractive opportunities in subsectors of both technology and life sciences that benefit from AI innovation without the risk of pure-play AI investments. The pipeline as a whole is at record size, but has an unusually high share of companies that do not meet Hercules' quality standards, with choppy quality spread across the market rather than concentrated exclusively in AI.

Q: Why has core yield ticked down slightly quarter over quarter, and what is driving current incremental yield on new originations? / A: The 20 basis point drop in core yield from Q1 to Q2 was almost entirely driven by the full-quarter impact of the December 2025 rate cut, not a change in underwriting standards or new issue pricing. The record $572 million in Q2 prepayments were mostly higher-yielding legacy vintage loans, so replacing these assets with new loans at current target yields naturally pulled the overall portfolio core yield down modestly. All new originations are started at the contractual interest rate floor, which provides downside protection on yields while保留 upside if rates rise in the future. Underwriting standards for loan-to-value, debt-to-equity, and spreads have not changed quarter over quarter, with LTVs still targeted below 20% and debt-to-equity below 30%.