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    SCM
    Earnings call· Jun 2026(Q2 FY26)

    Stellus Capital Investment Q2 FY26 earnings call SCM

    Aug 11, 2026 Source

    Executive summary

    Stellus Capital Investment Corporation Q2 FY26 — Dividend Aligned with NII, SBIC License Expansion, and Ridge Post Partnership

    Stellus Capital reported a sequential increase in NAV, driven by positive portfolio marks and accretive share repurchases, despite a slight decrease in the overall investment portfolio. The company aligned its quarterly dividend with net investment income, signaling a sustainable payout moving forward. Strategic initiatives, including a new SBIC license and a partnership with Ridge Post Capital, are expected to drive future portfolio growth and origination activity, while management remains focused on reducing elevated nonaccrual loans.

    Highlights

    5

    • NAV increased by $0.26 per share or 2% sequentially, driven by net realized and unrealized gains of $0.30 per share and share repurchases adding $0.05 per share.

    • Dividend set to $0.25 per share, aligned with current NII trajectory, with expectation to earn or exceed this moving forward.

    • Received approval for a third SBIC license, expected to increase investment portfolio size by up to $100 million over time.

    • Partnership with Ridge Post Capital and RCP Advisors is expected to significantly increase origination opportunities annually.

    • Repurchased 467,000 shares for approximately $4 million under the $20 million program, immediately accretive to NAV and EPS.

    Concerns

    3

    • Nonaccrual loans remain elevated, comprising 8.5% of total cost and 5.4% of fair value of the total investment portfolio.

    • Dividend payments exceeded earnings by $0.08 per share in Q2 FY26 due to distributing remaining spillover income from 2025.

    • Investment portfolio decreased from $990 million to $968 million sequentially.

    Guidance & targets

    7
    CategoryTargetConfidence
    Portfolio growth
    meaningfully increase the size of our investment portfolio
    high materiality
    High
    Investment portfolio expansion from SBIC
    expand the investment portfolio by up to $100 million over time or 10% of the current portfolio at fair value today
    high materiality
    High
    Quarterly dividend
    $0.25 per quarter per share
    high materiality
    High
    Net investment income (NII)
    earn our $0.25 quarterly dividend or more moving forward
    high materiality
    High
    Origination pipeline activity
    gross origination activity is set to increase toward the end of the year
    medium materiality
    Medium
    Net portfolio growth
    positive implications on net portfolio growth for the company over the next several quarters
    medium materiality
    Medium
    Portfolio size (Q3 FY26)
    slightly down from where we are today
    medium materiality
    High

    Operational metrics

    33
    GAAP net investment income per share
    $0.26
    Q2 FY26
    Core net investment income per share
    $0.26
    Q2 FY26
    Net asset value (NAV) increase
    $0.262% sequentially
    Q2 FY26

    Driven by net realized and unrealized gains and share repurchases.

    Net realized and unrealized gains contribution to NAV
    $0.30
    Q2 FY26

    Primarily driven by write-ups related to company-specific performance.

    Share repurchase program contribution to NAV
    $0.05
    Q2 FY26

    Accretive to NAV.

    Dividend payments exceeding earnings
    $0.08
    Q2 FY26

    Due to distributing remaining spillover income from 2025.

    Life-to-date return on equity
    9.5%
    Life-to-date (since IPO in Nov 2012)

    Demonstrates effectiveness of underwriting and portfolio management.

    Dividends paid life-to-date
    $349 million
    Life-to-date (since IPO in Nov 2012)
    Investment portfolio at fair value
    $968 milliondecrease from $990 million
    Q2 FY26
    Total investments made
    $18 million
    Q2 FY26
    Full repayments received
    $38.7 million
    Q2 FY26
    Equity realization
    $500,000
    Q2 FY26

    From one equity realization.

    Other repayments
    $10 million
    Q2 FY26
    Secured loans percentage
    100%
    Q2 FY26

    Of total loans.

    Floating rate loans percentage
    92%
    Q2 FY26

    Of total loans.

    Average loan per company
    $8.9 million
    Q2 FY26
    Largest overall investment
    $26 million
    Q2 FY26
    Weighted average EBITDA level of loan portfolio companies
    $15.6 million
    Q2 FY26
    Weighted average normalized leverage quotient for performing loans
    4.2x
    Q2 FY26
    Portfolio rated 1 or 2 (on or ahead of plan)
    74%
    Q2 FY26

    Overall asset quality slightly below billion.

    Loan portfolio rated 3 or below (not meeting plan)
    26%
    Q2 FY26

    Overall asset quality slightly below billion.

    Nonaccrual loans (cost)
    8.5%decrease from prior quarter
    Q2 FY26

    Represents 5 portfolio companies.

    Nonaccrual loans (fair value)
    5.4%slight increase at fair value
    Q2 FY26

    Represents 5 portfolio companies.

    Current portfolio at fair value (as of call date)
    $960 million
    As of 2026-08-11
    Share repurchase program authorization
    $20 million
    March 3, 2026 authorization

    Approved by Board of Directors.

    Shares repurchased
    467,000
    Since March 3, 2026

    Under the $20 million program.

    SBIC equity contribution capacity
    $125 million
    Future

    Expected to be contributed in excess of SBA debentures.

    SBA guaranteed debentures capacity
    $250 million
    Future

    Long-term low-cost financing.

    Maximum SBA debentures for family of funds
    $475 millionincreased from $350 million
    Current

    Provides additional long-term financing capacity.

    Nonaccruing assets at fair value
    $50 million
    Q2 FY26

    Part of $140 million total that could be recycled into earning assets.

    Equity co-invests at fair value
    $90 million
    Q2 FY26

    Part of $140 million total that could be recycled into earning assets.

    Regulatory leverage target
    1:1
    Target

    Current leverage is less than this.

    GAAP leverage target
    2:1
    Target

    Current leverage is less than this.

    Deals & partnerships

    1
    Ridge Post CapitalExternal adviser, Stellus Capital Management, officially joined the Ridge Post Capital platform. Ridge Post is a leading alternative investment manager with over $50 billion of AUM.

    The transition is going well with early integration underway, coordinating investment origination, management, investor relations, fundraising, and operations.

    Risks & headwinds

    4
    Elevated nonaccrual loansCurrent

    Comprised 8.5% of total cost and 5.4% of fair value of the total investment portfolio (5 portfolio companies).

    Mitigation: Actively working each position, aiming to exit investments or return them to accrual status. Management and other lenders now control most nonperforming situations, working with management teams to improve operations and position companies for exit.

    Dividend payments exceeding earningsQ2 FY26

    Exceeded earnings by $0.08 per share in Q2 FY26.

    Mitigation: Dividend has been reset to $0.25 per share for Q3 FY26 to align with the current trajectory of NII, with expectations to earn or exceed this moving forward.

    Investment portfolio declineQ2 FY26

    Decreased from $990 million to $968 million (fair value) sequentially.

    Mitigation: Expect gross origination activity to increase towards the end of the year, with positive implications for net portfolio growth over the next several quarters. New SBIC license also expected to expand portfolio.

    Market conditions fluidity and deal timing uncertaintyNear term

    market conditions remain fluid and the timing around future deal closings is never certain

    Mitigation: Despite this, gross origination activity is expected to increase towards year-end, driven by seasonal trends and improving sponsor activity.

    What to watch in Q3 FY26

    5

    Net portfolio growth

    Next several quarters, increasing towards year-end
    CurrentDecreased from $990M to $968M in Q2 FY26. Expected to be "slightly down" in Q3 FY26.
    TargetPositive net portfolio growth

    Why it matters

    Indicates the effectiveness of new origination efforts and the SBIC license in driving asset base expansion.

    gross origination activity is set to increase toward the end of the year, which have positive implications on net portfolio growth for the company over the next several quarters.

    Q&A highlights

    6

    What is driving the optimism for an improving pipeline in the back half of the year? Is it the Ridge Post partnership, improved market activity, or other factors?

    Rob Ladd attributed the optimism primarily to seasonal deal activity, with the second half and Q4 typically being busier. He noted a general pickup in activity and stable pricing. While the Ridge Post partnership is still early, it's starting to generate common opportunities and is expected to make a real difference over time, but current improvements are mainly from existing origination capabilities.

    “I'd say 1 thing, it's generally true that the deal activity tends to be somewhat seasonable -- seasonal. And therefore, second half of the year is typically busier than the first. and the fourth quarter is typically the busiest of the 4 quarters.”

    asked by Erik Zwick (Lucid Capital Markets) · answered by Robert Ladd

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Partnership with Ridge Post Capital

    Stellus Capital Management officially joined the Ridge Post Capital platform on June 22, 2026. Ridge Post Capital, an alternative investment manager with over $50 billion in AUM, is expected to significantly enhance Stellus's origination capabilities. The integration leverages Ridge Post's RCP Advisors, which has relationships with over 200 lower middle market private equity firms, aligning directly with Stellus's direct lending strategy. This partnership is anticipated to provide significant incremental origination opportunities annually, additive to Stellus's existing pipeline.

    02

    SBIC License Expansion and Growth Opportunities

    The company received approval for a third SBIC license, enabling it to contribute up to $125 million of equity and access $250 million of SBA-guaranteed debentures. This, combined with the SBA's increased maximum debenture amount for a family of funds from $350 million to $475 million, is projected to expand Stellus's investment portfolio by up to $100 million over time⏳, representing a 10% increase from the current fair value. This expansion provides long-term, low-cost financing capacity for growth.

    03

    Share Repurchase Program

    Stellus Capital's Board of Directors approved a common stock repurchase program of up to $20 million on March 3, 2026. Since then, the company has repurchased 467,000 shares for approximately $4 million. Management views these buybacks as an attractive and accretive use of capital, especially with the stock trading at a significant discount to NAV, immediately enhancing net asset value and earnings per share for shareholders.

    04

    Portfolio and Asset Quality Management

    The investment portfolio ended Q2 FY26 at $968 million across 116 companies, a decrease from $990 million. While nonaccrual loans remain elevated at 8.5% of cost and 5.4% of fair value, management is actively working to reduce these positions and improve overall portfolio quality. The company removed one loan from nonaccrual status during the quarter and did not add any new ones, indicating ongoing efforts to manage underperforming investments.

    05

    Dividend Alignment and NII Outlook

    Stellus has aligned its quarterly dividend to $0.25 per share for Q3 FY26, matching the current trajectory of net investment income. This adjustment follows a period where dividend payments exceeded earnings due to the distribution of spillover income from 2025. Based on the current NII outlook and expectations for short-term rates and spreads, management anticipates being well-positioned to earn or exceed this new dividend level moving forward.

    AI-generated summary of the company’s earnings call. Not investment advice.