Executive Summary

Q4 FY2025 results were solid operationally but missed Street EPS and slightly missed revenue: Total investment income was $52.4M vs S&P Global consensus $52.71M (−0.6%), while “Primary EPS” (NII/share) was $0.54 vs $0.61 consensus (−11%); pre-tax NII/share was $0.56 and adjusted pre-tax NII/share (ex-CEO transition costs) was $0.61, matching the Street on an adjusted basis (estimates from S&P Global: 0.61 EPS, $52.71M revenue*)*.
Credit quality and earnings capacity improved: nonaccruals fell to 1.7% of FV (from 2.7% in Q3), UTI rose to $0.79/share, and management harvested ~$20M realized gains post-quarter, bolstering dividend support .
Capital and funding strengthened: SBIC II license adds up to $175M of additional SBA debenture capacity; corporate credit facility raised by $25M to $510M; regulatory leverage remains conservative at 0.89x .
Macro commentary flagged tariff-related uncertainty and potential spread compression for “safe” sectors, but management expects quality originations to continue with a focus on first-lien senior secured lending (99% of credit portfolio) .

What Went Well and What Went Wrong

What Went Well
- Nonaccruals improved to 1.7% of FV (from 2.7% prior quarter); portfolio remained predominantly first lien (99%) with 3.5x weighted avg leverage and 11.7% weighted average yield .
- Strong UTI and equity realizations: UTI increased to $0.79/share in Q4; management realized ~$20M gains subsequent to quarter end, supporting continued supplemental dividends .
- Funding diversification and ratings: SBIC II license secured (up to $175M), credit facility upsized to $510M, and BBB- corporate ratings affirmed with Fitch secured debt upgrade; target run-rate operating leverage to 1.4–1.5% by FYE’26 .
What Went Wrong
- EPS miss vs consensus: “Primary EPS” (NII/share) of $0.54 vs $0.61 consensus, driven by lower fees and $2.8M one-time CEO departure costs; total investment income only modestly up q/q to $52.4M (consensus/actual EPS from S&P Global*)*.
- Net depreciation in credit portfolio: Q4 saw $25.7M net depreciation in debt (offset by $19.3M equity gains), yielding $10.3M net realized & unrealized depreciation .
- Macro headwinds: management sees tariff-related uncertainty reducing underwritable opportunities and potentially compressing spreads in unaffected sectors; visibility for exits remains mixed .

Financial Results

Metric	Q2 FY2025	Q3 FY2025	Q4 FY2025
Total Investment Income (“Revenue”) ($M)	$48.706	$51.973	$52.4
Pre-tax NII per share ($)	$0.64	$0.64	$0.56
Adjusted Pre-tax NII per share ($)	N/A	N/A	$0.61
Weighted Avg Yield on Debt (%)	12.9%	12.1%	11.7%
Nonaccruals (% of FV)	3.5%	2.7%	1.7%
NAV per share ($)	$16.59	$16.59	$16.70
LTM Operating Leverage (%)	1.7%	1.6%	1.7%

Estimates and actuals (Q4 FY2025):

Metric	Consensus	Actual	Surprise
Primary EPS (NII/share) ($)	0.61*	0.54*	MISS
Revenue ($M)	52.71*	52.406	MISS

Notes: Consensus/actual EPS and revenue marked with asterisk are from S&P Global; Values retrieved from S&P Global.

KPIs and portfolio/credit metrics:

KPI	Q2 FY2025	Q3 FY2025	Q4 FY2025
Total Investment Portfolio ($B)	$1.5	$1.7	$1.8
Credit Portfolio ($B)	$1.4	$1.5	$1.6
First Lien (% of credit)	98%	98%	99%
New Commitments ($M)	$89.8	$317.5	$149.9
UTI ($/share)	N/A	$0.68	$0.79
Regulatory leverage (D/E)	0.80x	0.90x	0.89x

Net realized/unrealized (losses) gains:

Period	Net Realized & Unrealized ($M)	Equity Gains/(Losses) ($M)	Credit Gains/(Losses) ($M)
Q2 FY2025	(8.5)	(1.3)	(7.2)
Q3 FY2025	(13.7)	12.3	(26.0)
Q4 FY2025	(10.3)	19.3	(25.7)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Regular dividend ($/share)	Q1 FY2026 (June qtr)	$0.58 for Mar-25 qtr	$0.58	Maintained
Supplemental dividend ($/share)	Q1 FY2026 (June qtr)	$0.06 for Mar-25 qtr	$0.06	Maintained
Operating leverage (run-rate)	By end FY2026	Not previously targeted	1.4%–1.5%	New
Regulatory leverage target	Ongoing	0.8x–0.95x (implicit target band)	0.8x–0.95x (maintain cushion)	Maintained
SBIC capacity	Ongoing	$175M (SBIC I drawn)	+$175M via SBIC II (aggregate up to $350M)	Raised capacity
Corporate credit facility	Ongoing	$485M commitments	$510M commitments	Increased

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2, Q3)	Current Period (Q4)	Trend
Macro/tariffs impact	Not highlighted in PRs	Tariff uncertainty reducing underwritable deals; potential spread compression in unaffected sectors; 7% of debt FV with moderate tariff exposure; 1% with both moderate exposure and LTV>50%	New risk, vigilant underwriting
Originations volume/mix	Q2: $89.8M orig., robust backlog ; Q3: $317.5M orig.	Q4: $149.9M orig.; 99% first lien; pipeline of 3–5 new platforms ($75–100M) + ~$50M add-ons for June qtr	Moderating from Q3 spike; quality focus
Spreads/competition	Not called out	Possible modest spread compression; ~10 bps compression this qtr; SOFR −25 bps; new deal spreads ~5.5%–7.5% (avg ~7%)	Slight tightening
Credit quality	Q2: nonaccrual 3.5% ; Q3: 2.7%	Q4: 1.7% nonaccrual; portfolio 95% rated 1–2; cash interest 94% of TII	Improving
Capital structure/liquidity	Q2/Q3: ATM usage; 2029 converts; ample liquidity	SBIC II license (+$175M); facility to $510M; 47% liabilities unsecured; earliest maturity Oct’26	Strengthening
Dividends/UTI	Q2/Q3: Regular $0.58 + supplemental; intent to continue	UTI $0.79; continue supplemental; may increase supplemental if UTI grows; prefer programmatic supplementals vs specials	Sustained/possible upside

Management Commentary

“During the year, we grew our investment portfolio by approximately $300 million or 21%... while decreasing our nonaccruals at fair value from 2.3% to 1.7%.”
“Adjusted pretax net investment income was $0.61 per share... UTI balance to $0.79 per share... Board has declared a regular dividend of $0.58 and a supplemental dividend of $0.06 for the June quarter.”
“Our portfolio has limited direct exposure to tariffs... only 1% of the debt portfolio at fair value has both moderate tariff risk and LTV above 50%.”
“We anticipate our run rate operating leverage to be in the 1.4% to 1.5% range by the end of our next fiscal year.”

Q&A Highlights

Vintage quality and pipeline: Management sees fewer but higher-quality opportunities, expecting ~$125–$150M originations with continued focus on service industries less exposed to tariff risk .
Spread dynamics: No expectation for spread widening; potential modest compression due to capital chasing fewer “safe” deals; ~10 bps portfolio spread compression in Q4; SOFR down 25 bps .
UTI strategy: Preference for sustaining/increasing supplemental dividends programmatically rather than specials; comfortable maintaining at least ~$0.50 UTI/share, with potential to raise supplemental if UTI grows materially .
SBIC timing: Expect initial SBIC II debenture draws ~3 months out (likely September quarter), after seeding with equity .
PIC income: Some temporary toggles in Q4 expected to revert; management sees recurring PIC moving toward 5–6% in June quarter .

Estimates Context

S&P Global consensus for Q4 FY2025 Primary EPS (NII/share) was $0.61; actual was $0.54, a miss largely attributable to lower fees and $2.8M in one-time CEO transition costs; adjusted pre-tax NII/share was $0.61 (in line) (EPS values from S&P Global*)*.
Revenue consensus was $52.71M; actual total investment income was $52.406M, a slight miss (−$0.3M) (consensus from S&P Global*)*.
Street metrics: 3 EPS estimates, 6 revenue estimates; target price consensus mean $23.58*; recommendation text not available in this pull (S&P Global*)*.

Notes: All starred values (*) in this section are from S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

Slight headline EPS/revenue miss masks underlying strength: adjusted pre-tax NII met consensus, nonaccruals improved, and UTI rose—supporting continued (and potentially higher) supplemental dividends .
Portfolio resilience: 99% first lien exposure, 95% rated 1–2, and 3.5x weighted avg leverage provide downside protection amid macro uncertainty .
Capital flexibility: SBIC II capacity (+$175M), higher facility commitments ($510M), and unsecured mix (47%) position CSWC to be opportunistic if competition eases .
Watch spreads and fee income: management flagged modest spread compression and noted lower fees q/q; SOFR drift also trims asset yields—monitor for further pressure vs expense discipline (run-rate op leverage target 1.4%–1.5%) .
Dividend trajectory: With $0.79 UTI/share and realized gains post-quarter, supplemental dividends look sustainable; management prefers programmatic increases over specials—potential positive catalyst if UTI builds .
Near-term setup: Expect moderating but healthy originations ($125–$150M) focused on less impacted sectors; any easing of tariff uncertainty could re-open deal flow and relieve spread pressure .
Medium-term thesis: Internally managed model with superior operating leverage, strong credit underwriting, and equity co-investment upside should support NAV stability and dividend growth through the cycle .

Appendix: Additional Q4 Disclosures

Total investment income increased $0.4M q/q to $52.4M; interest and dividend income +$2.8M offset by −$2.4M fees and other income .
Q4 net realized & unrealized depreciation was $10.3M (equity +$19.3M; credit −$25.7M); NAV/share rose to $16.70, primarily from ATM accretion .
Dividends declared for June quarter: $0.58 regular and $0.06 supplemental (payable 6/30/25) .

Citations:

Q4 press release and financial detail: .
Q4 earnings call transcript (prepared remarks and Q&A): .
Preliminary Q4 estimates (NII range, nonaccrual): .
SBIC II license PR: .
Prior quarters PRs: Q3 FY2025 ; Q2 FY2025 .
8-K Item 2.02 furnishing the press release: .

Notes on S&P Global data: Consensus and “Primary EPS” (NII/share), revenue estimates, actuals (as returned), estimate counts, and target price are from S&P Global; Values retrieved from S&P Global.

CAPITAL SOUTHWEST CORP (CSWC)·Q4 2025 Earnings Summary