Trinity Capital - Q1 2024

Executive Summary

• Record quarter: total investment income $50.5M (+21.5% Y/Y) and NII $25.2M ($0.54 basic), with dividend coverage of ~106% and 13th straight regular dividend increase to $0.51; NAV/share ended at $12.88 as unrealized depreciation and RSU issuance offset strong NII.
• Credit trends improved sequentially: non‑accruals fell to $30.4M (2.4% of debt FV) from $43.2M (3.5%) in Q4, helped by Core Scientific’s removal from non‑accrual; ~97.6% of the portfolio performing and weighted average risk rating steady at 2.7.
• Origination engine remains robust: $286.8M of new commitments and $242.7M fundings in Q1; unfunded commitments ended at $405M, with leadership calling the pipeline the “most robust” ever.
• Balance sheet actions extend ladder and liquidity: issued $115M 7.875% notes due 2029 (TRINZ) and plan to redeem $30M of 2025 notes; available liquidity $172M; net leverage 118% with 74% unsecured debt, 7.4% weighted average cost of debt.
• Strategic expansion post‑quarter supports forward growth narrative: launched Sponsor Finance vertical and expanded operations into Europe; fully exited Core Scientific equity with a 17.7% IRR on initial investment.

What Went Well and What Went Wrong

• What Went Well

  • Record investment income and NII; management emphasized diversified verticals (tech lending, life sciences, equipment, warehouse) and a large, active pipeline: “We’re bullish about the future… diversifying our investments to mold the best‑in‑class direct lending platform”.
  • Credit stabilization: non‑accruals decreased to 2.4% of debt FV; CFO and COO noted most unrealized depreciation concentrated in one credit and Core Scientific mark‑to‑market, with portfolio otherwise slightly up.
  • Dividend growth and coverage: regular dividend raised to $0.51; NII per share covered the regular distribution by ~106% and undistributed income was ~$55M ($1.33/share) providing additional cushion.

• What Went Wrong

  • NAV/share declined to $12.88 (from $13.19) due to RSU issuance and net unrealized depreciation, partially offset by accretive ATM issuance.
  • Net investment margin moderated to 12.2% (from 13.2% in Q4), reflecting a modest step‑down in effective yield (15.8% vs 16.7% prior quarter) and mix effects.
  • Higher leverage (118% vs 106% in Q4) as debt outstanding increased to fund net portfolio growth; while within target, this reduces immediate balance sheet flexibility if credit were to soften.

Transcript

Operator (participant)

Good afternoon. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's first quarter 2024 earnings conference call. This call is being recorded and will be available for replay beginning at approximately 3:00 P.M. Eastern Time. The replay dial number is 1-800-839-2389, and no conference ID is required for access. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that when posing your question, please pick up your handset to allow optimal sound quality.

Lastly, if you should require operator assistance, you may press star 0. It is now my pleasure to turn the call over to Ben Malcolmson, head of investor relations for Trinity Capital. Please go ahead.

Ben Malcolmson (Head of Investor Relations)

Thank you, Jamie, and welcome to Trinity Capital's earnings conference call for the first quarter 2024. Today, we are joined by Kyle Brown, Chief Executive Officer; Michael Testa, Chief Financial Officer; and Gerry Harder, Chief Operating Officer. Also joining us for the Q&A portion of the call are Ron Kundich, Chief Credit Officer; and Sarah Stanton, Chief Compliance Officer and General Counsel. Trinity's financial results were released earlier today and can be accessed from our investor relations website at ir.trinitycap.com. A replay of the call will be available on our website or by using the telephone number provided in today's earnings release. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements under federal securities laws.

Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Trinity Capital assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, May 1st, 2024. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Now, please allow me to turn the call over to Trinity Capital's CEO, Kyle Brown.

Kyle Brown (CEO)

Thank you, Ben. Thanks, everyone, for joining us today. First quarter was a strong start to the year for Trinity. We remained opportunistic in the current market by investing in our platform as we continue to scale and deliver value to our shareholders. Notable highlights during the quarter include $243 million of gross fundings across eight new portfolio companies and 12 existing portfolio companies. Platform AUM growth of 38% year-over-year, pushing our assets under management to $1.6 billion. Record net investment income of $25.2 million, 30% increase versus Q1 of last year, and return on equity of 16.1%. Our performance allowed us to increase our quarterly dividend to $0.51 per share in the first quarter, making this the 13th consecutive quarter we've increased our dividend. Credit underwriting and portfolio management continue to remain fundamental to our success.

We maintain regular standards and origination diligence in portfolio management to position us to effectively navigate a dynamic market. Our team of nearly 80 professionals is the quarter cornerstone of Trinity's track record and is the key to our trajectory going forward. We're committed to creating a unique culture here of excellence that is built around six pillars: humility, integrity, trust, uncommon care, continuous learning, and an entrepreneurial spirit, all of which create the differentiated lending platform that we've built here at Trinity. We strive to provide value above and beyond expectations to every part of the Trinity platform, whether that's employees, clients, or investors. And as an internally managed BDC, our employees and management own the same shares as our investors. Shareholders own a pool of assets as well as a management company, which maximizes returns and maintains strong alignment of interest with our shareholders.

Our commitment to expanding the platform is highlighted by our investments in strategic growth initiatives across the platform. In the first quarter, Trinity solidified its position as a diversified lender by further growing our four distinct business verticals: equipment financing, life sciences, warehouse lending, and tech lending, each with their own originations credit and portfolio management teams. Our exceptional relationships with portfolio companies and industry partners have also been pivotal in achieving our strong performance. In the first quarter, an aggregate of $1.2 billion of equity was raised by 21 of our portfolio companies, demonstrating that our portfolio companies are able to secure the funding they seek. We ended the quarter with a strong investment pipeline, including $405 million of unfunded commitments, leaving us well-positioned for continued growth in 2024. As a reminder, all of Trinity's unfunded commitments are subject to ongoing diligence and approval by our investment committee.

Turning to the macro environment, activity is picking up in the venture capital and private equity worlds. Exceptional levels of dry powder remain in BDCs, and non-bank lenders continue to be vehicles of choice for sponsor-backed companies. With this high demand for capital, we maintain our selective approach with new opportunities. As a direct lender, we own our pipeline and have originators strategically located in major markets around the country to further build deep relationships with sponsors, banks, and operators. We pride ourselves on three core principles here at Trinity: exhibiting uncommon care for our employees and our partners; serving our clients by being partners rather than just money; and providing outsized returns for our shareholders. We're bullish about the future. We plan to continue to invest in our teams and systems, diversifying our investments to mold a best-in-class direct lending platform. We're just getting started.

We look forward to extending this momentum in the quarters to come as we continue to grow and maximize value for our shareholders. With that, I'll turn the call over to Michael Testa, our CFO, to discuss financial results in more detail. Mike.

Michael Testa (CFO)

Thank you, Kyle. In Q1, we achieved record total investment income of $50.5 million, a 21.5% increase over the same period in 2023. Our effective yield on the portfolio for Q1 was once again strong at 15.8%. Our core yield, which excludes fee and prepayment income, was 15.3%, mostly consistent with the prior quarter. Net investment income for the first quarter was $25.2 million or $0.54 per basic share, an increase of 30% compared to $19.3 million or $0.55 per basic share in the same period of the prior year. Our net investment income represents 106% coverage of our quarterly distribution, and our undistributed income is approximately $65 million or $1.33 per share. Our platform continues to generate strong returns for our shareholders, with ROAE based on net investment income over average equity of 16.1% and ROAA based on net investment income over average total assets of 7.5%.

As of March 31st, 2024, our NAV was $626 million, which increased from $611 million as of December 31st, 2023. Our corresponding NAV per share was $12.88 per share at the end of Q1, which decreased from $13.19 per share as of December 31st, 2023. The decrease in NAV per share this quarter was primarily attributable to the issuance of a restricted stock award that enabled us to continue to grow our platform, as well as net unrealized appreciation that Gerry will discuss in more detail later in the call. Under our ATM program in Q1, we raised approximately $24.3 million in proceeds, all adding an accretive premium to NAV to fund our ongoing portfolio growth. As of March 31st, 2024, we had total liquidity of $172 million, comprised of $160 million of undrawn capacity under our credit facility and $12 million in unrestricted cash and cash equivalents.

We continue to realize the benefits of our co-investment joint venture, which in Q1 provided $1.3 million or $0.03 per share of interest, dividend, and fee income to the BDC. During the quarter, the joint venture also expanded its revolving credit facility and, as of March 31st, 2024, had more than $200 million of assets under management. This off-balance sheet vehicle provides incremental capital for growth and accretive returns to our shareholders. At the end of the quarter, we raised $115 million on secured notes that mature in 2029, further enhancing our balance sheet and liquidity positions and extending our maturity ladder. We believe our current debt funding mix, which is currently 74% unsecured debt, is appropriate, and we remain consistent with managing the right side of the balance sheet. We intend to repay $30 million over 2025 notes in May.

Our weighted average cost of debt was in line with prior quarter at 7.4%, and we continue to benefit from low fixed-rate debt, having access to unsecured markets during a period of lower interest rates. Our net leverage ratio, which represents principal debt outstanding less cash on hand, was 1.16 times as of March 31st. Both our strong liquidity position and the fact they were operating within our targeted leverage range provide Trinity with the flexibility to manage a strong pipeline and be opportunistic in the marketplace. I'll now turn the call over to our COO, Gerry Harder, to discuss our portfolio performance and platform in more detail. Gerry.

Gerry Harder (COO)

Thank you, Michael. At the end of Q1, on a cost basis, our total portfolio consisted of 74.3% secured loans, 19.7% equipment financing, 3.7% equity, and 2.3% warrants. The composition of our portfolio remained consistent with prior quarters, with diversification across investment type, transaction size, industry, and geography. Our portfolio is segmented across 21 industry categories, with our largest industry exposure, finance and insurance, representing 13.3% of the portfolio at cost. Growth in this industry sector was driven by investments in three new portfolio companies in the quarter. Our next largest industry concentrations are green technology and space technology, representing 10.5% and 8.7% of the portfolio at cost, respectively. Life sciences-related industries, including healthcare tech, medical devices, biotechnology, and diagnostics and tools, collectively made up 18.2% of our total portfolio on a cost basis.

As of the end of Q1, our largest debt financing is to Rocket Lab USA, Inc., and represents 3.9% of our debt portfolio and 3.6% of our total portfolio on a cost basis. Our 10 largest debt investments collectively represent 25.8% of our total portfolio on a cost basis. Moving on to credit, the credit quality of our portfolio companies remained stable, with approximately 97.6% of our portfolio performing on a fair value basis. Our average internal credit rating for the first quarter stood at 2.7 based on our 1 to 5 rating system, with 5 indicating very strong performance. This rating is in line with our average credit rating in each of the last four quarters and reinforces Trinity's track record of low loss rates.

The total number of credits in our lowest two credit tiers did not change from Q4 to Q1 but was reduced on both a cost and a fair value basis. Quarter over quarter, we remained consistent with five portfolio companies on non-accrual. Core Scientific was removed from non-accrual in Q1 following its emergence from bankruptcy and our election to receive shares of its common stock in lieu of our debt investment. However, one additional credit was added to non-accrual status. As Michael mentioned earlier in his prepared remarks, our decrease in net asset value per share in Q1 was a function of expenses related to growth of the platform as well as unrealized depreciation in the portfolio. Out of approximately $12 million in unrealized depreciation within the portfolio, approximately $9 million is due to the single credit mentioned above.

Additionally, approximately $5 million of unrealized depreciation was due to a decrease in the publicly traded share price for our common share holdings in Core Scientific. Outside of these two positions, the fair value of the balance of our debt and equity portfolio was slightly up for the quarter. At the end of Q1, our non-accrual credits had a total fair value of approximately $30.4 million, representing 2.4% of the total debt portfolio. At quarter end, 75% of our total principal outstanding was backed by first position liens on enterprise, equipment, or both. The weighted average loan to value of our entire portfolio sits at just under 19%, demonstrating that our portfolio companies are generally not over-levered and are in a healthy position to service the debt, even if our loan is not in first position.

In closing, I'd like to remind our investors that our team is made up of dozens of veteran investment professionals who are solely focused on portfolio management and asset quality. They continue to take a vigilant approach to the overall health of our portfolio companies and, when necessary, work tirelessly to find resolutions that benefit both the portfolio company and Trinity shareholders. At this time, we'd like to open the line for questions. Operator.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself at any time from the queue by pressing star two. Once again, that's star one to ask a question and star two to remove yourself. We'll take our first question from Bryce Rowe with B. Riley.

Bryce Rowe (Senior Equity Research Analyst)

Thanks. I guess, good afternoon from the East Coast.

Kyle Brown (CEO)

Hey, Bryce.

Bryce Rowe (Senior Equity Research Analyst)

Hey. Maybe, Kyle, I wanted to start with just from the comments you made about activity picking up. You've seen your unfunded levels kind of go up as well as we've progressed here over the last, I don't know, a couple of years or so. Is that a function of just, again, the market picking up or, I guess, the broader capabilities that you've been working on there at Trinity over the last year or so?

Kyle Brown (CEO)

Yeah. So I just got back last night from an offsite with our sales team in our San Diego office, 25 professionals covering 4 different business verticals: life science, equipment financing, tech lending, warehouse lending. And these are people that we've recruited over multiple years. They're seasoned veterans, 20+ years of experience, most of them. They're fired up. I wouldn't want to be competing against them. They're out there building the business, very excited, tons of opportunities. And yeah, it is exactly what you said. It's a lot of great people who are very good at what they do. And then it also speaks to the diversification of our business. We have continued to grow above and beyond just doing technology venture loans. We have multiple businesses, multiple products, and we are seeing growth in those different business verticals. So yeah, it's very active right now.

This is the most robust pipeline we've ever had, and it's looking really exciting going forward.

Bryce Rowe (Senior Equity Research Analyst)

Kyle, as you think about, against that backdrop, there's a lot of planning that needs to go on kind of the right side of the balance sheet. You've taken some steps with some equity being raised. You've got the JVs and RIA that I would assume is kind of getting up to speed, and you've raised some debt here. How do you think about kind of managing the right side of the balance sheet, especially with interest rates being a little bit higher? I guess debt markets are a bit open at this point. Are you going to try to take advantage and lock in some debt financing for the right side of the balance sheet?

Kyle Brown (CEO)

Yeah. We're not trying to time the market, right? So we're going to be opportunistic, and we're going to raise debt and equity as it makes sense to in the most efficient way we can. I think that you saw that with the bond deal we did recently. You see that with the ATM. It's a really efficient way to raise capital. But we start each one of those conversations, Bryce, with, "Is this growth going to be accretive for our investors?" Again, we have to. It should not be a mystery on what we're trying to do at this point. We are 17 quarters now of a publicly reporting company of steady and growing returns for shareholders, increasing the dividend 13 straight times. I don't need to predict the future for you here. We have laid out what we're doing and where we're going and how we're doing it.

So we're not raising capital for the sake of AUM growth. That makes zero sense as an internally managed BDC. I don't want to see my shares diluted, which is the same shares that your investors have. It makes no sense. So we're going to build the balance sheet in a way that's accretive and good for investors. We're going to raise equity opportunistically. We're going to raise debt opportunistically. If our team has the ability to grow and build and continue to take market share, then we're going to deploy that capital. And to the extent it makes sense to raise equity or debt, and it's good, and we can put it to work and raise returns for investors, we're going to keep doing that.

Bryce Rowe (Senior Equity Research Analyst)

Excellent. I'll jump back in queue and give somebody else a chance. Thanks.

Operator (participant)

We'll go next to Kyle Joseph with Jefferies.

Kyle Joseph (Managing Director)

Hey. Good morning, guys. Thanks for taking my question. Just given where we are in the year, if we're thinking back to where we were last year at this point and given your expertise in venture, but just give us kind of an update on the competitive environment now that we're kind of a year out from, call it, the regional bank fallout.

Kyle Brown (CEO)

So I think there's been less competition. If you're talking about our venture business, it's been less competition. You've seen returns, you've seen equity dollars start to flow from venture firms. I think you're back to 2019 levels, which were at the time historic levels, right, from a deployment standpoint. We are top of funnel, seeing more deal flow. We've tightened up. We've actually seen the amount of deals from a percentage standpoint, top of funnel to funding, go down. That's just a testament to our underwriting, making sure we're funding the right deals. We've seen runway of those venture-backed companies continue to increase and the barrier and threshold for us to fund companies. We've gotten tighter there on making sure they have the equity support. But shoot, the investments that we're making right now, these are companies that are growing in the face of headwinds.

These are great investments at much lower valuations than they saw a couple of years ago. So we are seeing growth. We are seeing some competition, I'd say a little bit less competition, particularly from the banks. I think they're pulling back a little bit. That's created more opportunities for us to swim upstream and even have some higher-quality credits that might have been able to get bank financing before that are now open to the idea of kind of alternative bank financing like Trinity.

Kyle Joseph (Managing Director)

Got it. Very helpful. And then just shifting to credit, all the metrics you highlighted seem like things are relatively stable. Companies have adapted to the rate environment. But give us a sense for kind of the growth rates you guys track and where those are trending versus, I don't know, call it six months ago versus a year ago.

Kyle Brown (CEO)

I think you're talking about our—is it Core Yield? Is that what you're talking about, Bryce?

Kyle Joseph (Managing Director)

Oh, no. I apologize. I was talking about credit broadly. You guys mentioned it's stable, but just want to get a sense for growth rates at portfolio companies and how that compares to, call it, six months ago or a year ago.

Kyle Brown (CEO)

Okay. Sorry, Kyle. Yeah. Ron, you want to touch on that?

Ron Kundich (Chief Credit Officer)

Sure. Hey, Kyle. Ron Kundich here. As Kyle mentioned in his answer just now, I mean, the top of the funnel is very active. We're seeing companies of all shapes and sizes. We're focused on the companies that are growing, growth-stage companies. The companies that we're lending to are growing still at a relatively healthy clip. We're not focused on flat to non-growth companies. So broadly speaking, the industry is mixed, but we're laser-focused on the growth stage.

Kyle Brown (CEO)

Yeah. And the majority of our portfolio is now made up of investments made post that banking volatility. And so you're looking at companies that have figured out a way to grow and perform with headwinds, and those are the investments and the companies we're putting capital into. And things haven't changed really for a lot of those investments since we made them.

Kyle Joseph (Managing Director)

Got it. Very helpful. Thanks for taking my questions, and congrats on another strong quarter.

Kyle Brown (CEO)

Thanks, Kyle.

Operator (participant)

We'll go next to Vilas Abraham with UBS.

Vilas Abraham (Analyst)

Hey, everyone. Thanks for taking the question. Just in terms of the pipeline you mentioned, I was just wondering on mix. We look at Q1, looks like about $188 million venture loans, $50 million equipment finance. Is that the kind of mix we should think about throughout this year, or is it going to be kind of more opportunistic quarter by quarter?

Kyle Brown (CEO)

I'll let Gerry give some more specifics, but maybe I'll just start high level. We've got an AOP that we are sticking to. We plan this out well in advance. We're very strategic about each of those verticals, how much they're going to deploy annually, quarterly, what that pipeline needs to look like to achieve it. We feel like we're on plan for the year. So it's not just opportunistic. No. Each of these business verticals has their own contribution margin they're focused on. I mean, they know exactly what they need to deploy. They know exactly what they can spend. We're not just winging it. We're not just being opportunistic. You want to add to that, Gerry?

Gerry Harder (COO)

Yeah. I mean, at a high level, Vilas, we're looking at somewhere between 40%-45% of the deployment across the year ought to be in the tech lending and then 25%-30% in life sciences and equipment and maybe 10% or so in asset-based or warehouse. So this is on the annual level. It is lumpy, right? And so in a given quarter, you can get the wrong signal of percentages based on what we happen to close just within that quarter versus what pushes. But at a high level, annually, you will see tech lending be our largest deployment, but life sciences and equipment also posting very strong. \

Vilas Abraham (Analyst)

Okay.

And then on the venture lending side, do you have a line of sight into healthy companies that may or may not or not may, but may not have come to the market over the last couple of years that you may be eyeing later on in this year as potential opportunities? Is there anything there that kind of gives you a sense of optimism as to the quality of investments on that side of your deployment that you'll be able to do?

Kyle Brown (CEO)

For a few? You mean for potential investments?

Vilas Abraham (Analyst)

Potential investments. Yeah.

Kyle Brown (CEO)

Yeah. Well, I think particularly because we do a lot on the venture debt side, we're doing mostly later-stage companies, right? And so I think what you're seeing there is a lot of companies who have remained private hoping for that IPO or exit-type opportunity. They're seeing that window start to open up. We're having different conversations with companies internally, externally about financings kind of leading up to it. So I think that what you're seeing is a new exit opportunity, which is creating new investment opportunities kind of leading towards that, which is new for 2024.

Vilas Abraham (Analyst)

Okay. Makes sense. And just one more on credit in your prepared remarks. You mentioned a new non-accrual. I think you were alluding to NextCar. I was just wondering if there was any kind of commentary you could give there on what you're seeing, given it seems like the market you have there, about 50% of cost, is a bit more cautious than one of your peers that's looking at the same company. So is there any color you can provide there on how to think about that? Yeah. I mean, we try to be very rigorous and process-oriented in our valuation methodology, right? And so we repeat this quarter-on-quarter. We follow a rigorous methodology. We use third-party corroboration. We happen to have third-party corroboration of our mark to NextCar just this quarter. And for a scenario like this, we're very often going to do profitability-weighted outcome analysis.

We're going to lean heavily on the experience of our portfolio management staff in doing that. And I can tell you that account is managed by our most senior portfolio manager with 25-30 years' experience in the banking industry. So he's going to call it as he sees it. We're getting third-party corroboration, and we're going to be very consistent in following that process quarter on quarter.

Kyle Brown (CEO)

Got it. Very helpful. Thank you.

Operator (participant)

At this time, I would like to remind our audience that it's star one if you would like to ask a question, press star one. We'll go next to Paul Johnson with KBW.

Paul Johnson (Vice President and Equity Research Analyst)

Yeah. Thanks for taking my question. In terms of when you guys are making loans on the platform, whether it be from any of the verticals that you have, warehousing, equipment leasing, during the quarter, whether it's intra-quarter or going over reporting period, I mean, how much do you have any kind of limit or, yeah, I guess any sort of limit on what sort of hold sizes you're willing to take for any given loan in the BDC, or how much credit, I guess, you're essentially kind of willing to extend to any single borrower?

Kyle Brown (CEO)

So, I think historically, we've tried to stay below that 4% of total assets. I think average, we were significantly lower than that. But that's kind of the threshold. And we don't want any one deal to cause too much volatility for Trinity. And so we're going to continue to have a really very granular portfolio, diversified across the verticals, and then diversified within the verticals with no one company having the ability to take us down or anything. Add to that, Gerry.

Gerry Harder (COO)

Yeah. I'd further add, right, as we look to grow and expand the platform at Trinity, we're going to do this very thoughtfully, but by providing additional value products to our growth-stage companies and not by increasing our hold sizes, right? That's not the approach we intend to take. So Kyle mentioned that, yeah, 4% line. I think over time, you can see that drop, right, as our platform continues to expand. And that's at the BDC level when we talk about that 4%, not at the total aggregated holdings across the balance sheet.

Paul Johnson (Vice President and Equity Research Analyst)

Got it. I appreciate that. Thanks for the color on that. Then as you guys continue to grow, you're building out the platform with the JV and the RIA eventually. You're building up underwriting teams, distinct underwriting teams under each of these verticals of the business. Obviously, headcount's been growing pretty fast since you guys have come into the space. I was curious, is there a point kind of where headcount or maybe AUM gets to a certain point where you think you've kind of fully built out the business and maybe you start to kind of build some scale from there?

Kyle Brown (CEO)

So I mean, I think you ended with what we're trying to do, which is build and scale. The internally managed BDC has not reached efficiencies, right? We are going to continue to get to scale. And as we do so, you'll start seeing some efficiencies in some of our cost ratios, expense ratios. We have a long ways to go before we hit a ceiling on what we can deliver for shareholders just at the internally managed BDC. That does not include our off-balance sheet activity. And again, I said it before. It should not be a mystery at this point about what we're doing and how we're going to do it. We now own an RIA. We now manage money off-balance sheet.

We have been for multiple quarters now generating fee income, and we are intending to generate more fee income off-balance sheet above and beyond the interest we can generate off our loans and equipment financings, etc. And so at what scale can we get this to? The number's significantly past where we are right now. We're going to see what this team's capable of. We're not going to grow for the sake of growth. We have a five-year plan that we are very honed in on that we think is very achievable growth in a way that's accretive and good for investors and then further diversified and not just from a return standpoint.

I think that that model I just talked about with generating fee income above and beyond our loans, that's great for generating new income, but we also have the ability to grow and diversify the portfolio across multiple verticals, which creates further diversification of the portfolio, which I think is a way to mitigate risk, right? And so that's not a specific answer with some numbers for you, but we have our eye on the ball. And as a public company, we are growing, and we're going to do it in a way that's really good and accretive for investors.

Paul Johnson (Vice President and Equity Research Analyst)

Thanks. Appreciate that, Kyle. That's all for me. Thanks, Paul.

Operator (participant)

We'll go next to Casey Alexander with Compass Point.

Casey Alexander (Managing Director and Senior Equity Analyst)

Hi. Just wondering, any update on the launch and funding of the RIA?

Kyle Brown (CEO)

We've been talking about deploying capital in Q2, and that is still the target, Casey.

Casey Alexander (Managing Director and Senior Equity Analyst)

Okay. That's my only question. Thank you.

Kyle Brown (CEO)

Okay.

Operator (participant)

We'll go now to Finian O'Shea with Wells Fargo.

Finian O'Shea (Director and Senior Equity Research Analyst)

Hey, everyone. Good afternoon. Question: there's a lot of discussion of scaling and growth to new heights for the business. Can you talk about your expected loss rate on the portfolio, understanding you're originating or lending out at 10% over SOFR or whatnot, but earnings, net income have been consistently pretty well below NII? So seeing what you have for updated thoughts there in today's market and how we should think of the portfolio loss rate going forward. Thank you.

Kyle Brown (CEO)

Well, I think, and Mike, maybe you can pull up the exact loss rate. The loss rate's been very consistent for 16 years. Four of those, of course, have been as a publicly reporting company, 32 basis points. I mean, the loss rate in our world is oh, 26 basis points.

26 basis points. Okay. Sorry. It's less than what I thought. We have consistently been able to keep that loss rate low. The upside that we get in our investments via warrants and those realized gains, they offset those losses and deliver a little upside for investors. We've seen that play out for 16 years. We intend to just keep doing what we've been doing. So I do not see for any reason why that loss rate should increase. Our underwriting and our thesis on how we invest has not evolved or changed. And so I think that should stay steady, Finn. And over time, and particularly with this season right now with valuations dramatically increasing, that creates some really interesting upside potential on our warrants.

And so I think there's some upside that we're starting to see and hopefully baking into the long-term plan here with the investments we're making today.

Finian O'Shea (Director and Senior Equity Research Analyst)

Awesome. It's helpful. Thanks so much.

Kyle Brown (CEO)

Yep.

Operator (participant)

We'll go next to Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan (Sr VP)

Hi, guys. I appreciate the comments on mitigating risks and so forth. I'd like to turn that around a little bit. I'd like to get a better understanding of how you're mitigating risk in your funding base, particularly your debt funding. You got a number of maturities in 2025 to 2026. You have a credit facility accounts for 26% of total borrowings, by my calculation, with a single bank, which, by my estimate, has roughly 70% of its loans in commercial-related investments. That's a risk profile for the company, which Nolan is talking about. I'd like to get your thoughts on that.

Michael Testa (CFO)

Hey, Mike here. I just want to talk a bit about why we went into the unsecured market, I think, in the past quarter. We were pleased with the execution on that deal and that size. And that, again, it was really a consistent approach of laddering out our maturities. We're going to continue to tap the market, whether it's secured or unsecured. And in our revolver with KeyBank, we have 10 other banks in there. So we're happy having that diversified across that. Also, the liquidity through a joint venture, and we upsized the facility across two additional banks in the JV facility. So we look at that as a risk mitigant to diversify our funding sources. And then long-term, the vehicles under the RIA adding to that flexibility of multiple funding sources, debt, and equity.

Christopher Nolan (Sr VP)

Great. Thanks for the detail, Mike. Is the plan to replace these maturing notes with secured borrowings when they mature?

Michael Testa (CFO)

Sorry. Can you repeat the question?

Christopher Nolan (Sr VP)

Yeah. Are you going to use more secured funding as these unsecured notes mature?

Michael Testa (CFO)

Yeah. That's definitely an opportunity for us. We've been in discussions. We've seen a lot of our peers use a CLO structure for securitizing and increasing our leverage. I think we have room with our current leverage range that we're operating in. But again, I think diversifying our borrowing sources is important. And I think having the ability across 10 different banks currently in our syndicate and in discussions, expanding that through the current revolver or additional revolvers in the future.

Kyle Brown (CEO)

Yeah. A key point there, I think, Chris, that you'd mentioned before about having exposure to one bank. We have 10 banks in that syndicate. It's growing. We've got close relationships with all of those banks. And that was strategic. We want that to be diversified across multiple banks.

Christopher Nolan (Sr VP)

Okay. Thanks for the detail.

Michael Testa (CFO)

Yep.

Operator (participant)

It appears that we have no additional questions at this time.

Christopher Nolan (Sr VP)

Okay. Well, listen, we're really proud of our first-quarter results, and we look forward to updating you on our next call in August. We'd like to just thank everybody for participating in the call today and appreciate your interest and investment in Trinity Capital. Have a great rest of your day.