Executive Summary

Q2 FY26 total investment income was $56.9M, up 1.8% q/q and ~16.9% y/y, beating consensus ($55.5M*) on stronger fee income and higher average investment balances .
Net investment income per share (EPS proxy for BDCs) was $0.57 vs $0.581* consensus (slight miss) as interest expense rose to $16.0M and weighted average debt yield compressed to 11.5% (−30 bps q/q) .
Originations accelerated: $245.5M of new commitments (7 new, 10 add-ons), signaling robust pipeline into year-end; 99% first-lien mix maintained and non‑accruals stayed low at 1.0% of FV .
Balance sheet strengthened: issued $350M 5.95% notes due 2030; subsequently redeemed 2026 and 2028 notes with no make‑whole; pro forma regulatory leverage ~0.82x vs 0.91x reported .
Board maintained monthly regular dividends of $0.1934 for Oct/Nov/Dec and a $0.06 supplemental in December ($0.64 total), supported by rising UTI of $1.13/share and continued equity gains .

What Went Well and What Went Wrong

What Went Well

Record origination pace with $245.5M new commitments (7 new platforms, 10 add-ons) while keeping 99% of the credit book first-lien; management highlighted a robust sponsor pipeline and stable new-commitment spreads (~6.5%) .
Capital structure de-risked and duration extended via $350M 2030 notes and redemption of 2026/2028 notes without make‑whole; management emphasized pro forma leverage back to ~0.82x and $719M of liquidity coverage for $334M unfunded commitments .
Taxable earnings support improved: UTI rose to $1.13/share, aided by $3.5M realized equity gains; management reiterated confidence in continuing quarterly supplemental dividends .

What Went Wrong

EPS miss vs consensus by ~$0.01 as interest expense increased to $16.0M (from $15.3M) and PIK contribution declined (4.9% of TII vs 5.8% prior quarter) .
Portfolio yield edged down to 11.5% (−30 bps q/q), driven by a prior-quarter OID acceleration roll-off, slight spread compression, and modest non‑accrual impact per management .
Net realized & unrealized losses of $6.4M reflected $10.3M of credit portfolio depreciation (partly offset by $5.7M equity appreciation), tempering the NAV benefit from ATM accretion .

Financial Results

Metric	Q2 FY2025 (Sep 30, 2024)	Q4 FY2025 (Mar 31, 2025)	Q1 FY2026 (Jun 30, 2025)	Q2 FY2026 (Sep 30, 2025)
Total Investment Income ($USD Millions)	48.706	52.406	55.947	56.945
Pre‑Tax Net Investment Income ($USD Millions)	30.014	28.464	32.717	34.017
Pre‑Tax NII per Share ($)	0.64	0.56	0.61	0.61
Net Investment Income per Share ($)	0.66	0.54	0.59	0.57
Net Realized & Unrealized Gains/Losses ($USD Millions)	(8.481)	(10.281)	(4.888)	(6.363)

Portfolio, balance sheet and dividend KPIs:

KPI	Q4 FY2025	Q1 FY2026	Q2 FY2026
NAV per Share ($)	16.70	16.59	16.62
Weighted Avg Yield on Debt Investments (%)	11.7%	11.8%	11.5%
Non‑Accruals (% of FV)	1.7%	0.8%	1.0%
New Committed Investments ($MM)	149.9	115.2	245.5
Regulatory Debt‑to‑Equity (x)	0.89x	0.82x	0.91x
Cash & Equivalents ($MM)	43.2	46.9	87.4
Unused Credit Capacity ($MM)	341.2	397.2	632.2

Consensus vs actuals and next quarter outlook:

Metric	Q2 FY2026 Consensus*	Q2 FY2026 Actual	Result	Q3 FY2026 Consensus*
Revenue (Total Investment Income, $MM)	55.51*	56.95	Beat	57.37*
EPS (NII per share, $)	0.581*	0.57	Miss	0.563*

*Values retrieved from S&P Global. EPS estimates based on “Primary EPS Consensus Mean”; Revenue based on “Revenue Consensus Mean”; # of estimates: EPS (Q2=6, Q3=5), Revenue (Q2=5, Q3=5).

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Regular Monthly Dividend per Share	Oct–Dec 2025	$0.1934 per month ($0.58/qtr)	$0.1934 per month ($0.58/qtr)	Maintained
Supplemental Dividend per Share	Oct–Dec 2025	$0.06	$0.06	Maintained
Target Regulatory Leverage	Ongoing	0.8x–0.95x (management framework)	0.8x–0.95x (management framework)	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2025)	Previous Mentions (Q1 FY2026)	Current Period (Q2 FY2026)	Trend
Origination volume & pipeline	~$150M new commitments	$115.2M new; management expected very active Sept quarter	$245.5M new commitments; expect Dec quarter similar to Sept; add‑ons ~32% LTM 39%	Accelerating
Credit quality & non‑accruals	Non‑accruals 1.7% of FV	0.8% of FV	1.0% of FV; 91% of credit FV rated 1–2; cash flow coverage 3.6x	Stable/solid
Spreads & yields	Wtd avg yield 11.7%	11.8%	11.5%; new commitments ~6.5% spread; slight compression; prior quarter OID acceleration rolled off	Slight compression
Capital & liquidity	Facility to $510M; SBIC II license	Continued ATM usage	Issued $350M 2030s; redeemed 2026/2028; liquidity ~$719M vs $334M unfunded; pro forma leverage ~0.82x	De‑risked/extended
UTI & distributions	UTI $0.79; intent to continue supplementals	UTI $1.00; $0.64 total quarterly payouts	UTI $1.13; $0.64 total for Dec quarter; confidence to continue supplementals	Building support
Sector stance & regulation	—	—	More discerning in healthcare/government‑funded sectors given policy/reimbursement uncertainty	Heightened scrutiny

Management Commentary

“We generated pre‑tax net investment income of $0.61 per share…UTI balance to $1.13 per share…raised $350 million in 5.95% notes due 2030…redeemed our 2026 and 2028 notes…raised ~$40 million through our Equity ATM Program.” — Michael Sarner, CEO .
“91% of the portfolio at fair value [is] rated in one of the top two categories…cash flow coverage…3.6x, the strongest level in the past three years…credit portfolio had a weighted average yield of 11.5%.” — Josh Weinstein, CIO .
“Total investment income increased to $56.9 million…fees and other income up $1.3 million…PIK as a % of TII decreased to 4.9%…NAV per share at $16.62…liquidity is robust, with approximately $719 million.” — Chris Rehberger, CFO .
“We’ve seen a significant uptick in the size of the pipeline…12/31 is probably going to look similar volume to 9/30.” — Michael Sarner, CEO .

Q&A Highlights

Pipeline and volume: Management anticipates Dec quarter originations similar to Sept and sees sustained sponsor activity; run‑rate originations shifting from $100–$125M to $150–$200M in a “normal” quarter .
Credit quality and watch list: ~9% of portfolio below expectations but underwritten at lower leverage with strong covenant cushions; issues are idiosyncratic without clear industry correlation .
Prepayments and spread environment: Prepayment risk mitigated by granularity; yields showed slight compression but remained within 5.5%–7.25% range on new deals; LTM prepayments ~10–12% vs 15–20% of assets rated “1” .
Sector selectivity: Increased caution in healthcare and government‑funded models due to reimbursement/policy uncertainty; leaning on sponsor expertise and tighter structures/spreads when needed .
Capital mix and rates: No major shift expected in mix of unsecured/secured/SBIC; SBIC will remain a key source in calendar 2026; target leverage 0.8x–0.95x with cushion for volatility .

Estimates Context

Q2 FY26 revenue beat consensus (Actual $56.95M vs $55.51M*) while EPS (NII/share) modestly missed (Actual $0.57 vs $0.581*), likely reflecting higher interest expense ($16.0M) and lower PIK contribution, as well as small yield compression per management commentary .
Near-term (Q3 FY26) Street looks for $57.37M* revenue and $0.563* EPS; management’s expectation for similar origination volume in Dec quarter and robust liquidity may support revenue, while spread compression and lower base rates could constrain EPS .

*Values retrieved from S&P Global (consensus).

Key Takeaways for Investors

Revenue momentum and fee income drove a top‑line beat; origination velocity and a healthy sponsor pipeline should sustain deployment into year‑end .
Slight EPS miss was driven by higher interest expense and lower PIK/portfolio yield; watch interest expense trajectory and spread discipline as key EPS swing factors .
Balance sheet durability improved materially: 2030 notes extend duration; 2026/2028 redemptions remove near‑term maturities; pro forma leverage back to ~0.82x within the 0.8–0.95x target .
Credit quality remains solid (1.0% non‑accruals; 91% rated 1–2) with strong cash flow coverage (3.6x) and first‑lien focus (99%), reducing downside risk in a competitive lending market .
UTI at $1.13/share and ongoing equity realizations support continued supplemental dividends alongside monthly regulars—an ongoing income catalyst .
Yield headwinds are manageable: management cites stable new‑deal spreads (~6.5%) and portfolio granularity mitigating prepayment/yield dilution risk .
Monitoring list: healthcare/government policy risk, base‑rate path, and any acceleration in credit depreciation vs equity appreciation that could pressure NAV and NII .

CAPITAL SOUTHWEST CORP (CSWC)·Q2 2026 Earnings Summary