Good day, ladies and gentlemen, and welcome to Hercules Capital Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded. I would like to introduce your host for today's conference, Mr. Michael Hara, Senior Director of Investor Relations. Sir, please go ahead.

Thank you, Michelle. Good afternoon, everyone, and welcome to Hercules conference call for the fourth quarter and full year 2016. With us on the call today from Hercules are Manuel Henriquez, Founder, Chairman, and CEO; and Mark Harris, Chief Financial Officer. Hercules fourth quarter and full year 2016 financial results were released just after today's market closed and could be accessed from Hercules Investor Relations section at www.htgc.com. We have arranged for a replay of the call at Hercules web page or by using the telephone number and passcode provided in today's earnings release. During this call, we may make forward-looking statements based on current expectations. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and in the confirmation of the final audit results. In addition, statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, the risks and uncertainties, including the uncertainties surrounding the current market turbulence and other factors we identify from time-to-time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date hereof and Hercules assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit our website, htgc.com. For today's agenda, Manuel will begin with a brief overview of our key highlights and accomplishments for the fourth quarter and full year business highlights, followed by an overview of the venture capital markets, a perspective on potentially new administrative legislation and regulations and conclude with a brief outlook for the first half of 2017. Mark will follow with a more detailed overview of the results and accomplishments for the fourth quarter 2016. And following the conclusion of our prepared remarks, we will open the call for question and answers. With that, I'll turn the call over to Manuel Henrique, Hercules Chairman and Chief Executive Officer.

Thank you, Michael. And good afternoon, everyone, and thank you all for joining us today for Hercules Capital fourth quarter and full year 2016 earnings call. First and foremost, I am very pleased and proud to announce yet another outstanding and robust fourth quarter activities for Hercules Capital, which culminated in delivering another strong record performance for Q4 and the full year 2016. As Michael said, we'll go through a quick presentation or I should say discussion and then followed by Mark's presentation and a Q&A. Now, let me get into some of the specifics of our achievements and highlights for the quarter and to the year. We delivered our third consecutive quarter of net investment income exceeding our dividend and distribution of $0.31 and in fact, realized NII for the quarter on a GAAP basis was $0.43 per share. Excluding the one-time event in the quarter, which I think it's prudent to do of $8 million, our adjusted GAAP was approximately $0.33 from the $0.43, reflecting the adjustment of one-time, once again covering our dividend, truly a great performance for Q4 activities and finishing a very strong year. In addition, we achieved the following records for 2016. Total debt investment portfolio grew to $1.38 billion at a cost of 20% year-over-year. Total investment assets for the year ended at $1.42 billion at value, up 19% year-over-year. Total investment income at $175 million, up 11% year-over-year, and of course, our net investment income with and without the adjustment, meaning $100 million with the onetime event fee or $1.34, up 37% year-over-year or excluding the onetime $8 million settlement from litigation, we are at $92 million of net investment income, up 26% year-over-year. We also successfully generated our third consecutive year of projected cumulative dividends and earning spillover of approximately $34.2…

Thank you, Manuel. And good afternoon and evening, ladies and gentlemen. Today, I'm going to make comments on our core numbers, which means that I will not be speaking to, I will be speaking to all numbers and ratios without the benefit of the one-time income of $8 million related to a litigation settlement. We at Hercules believe strongly in providing accurate view of our performance, then I'll present alternative facts as we want our investors to have a reasonable trend line to judge our performance today and into the next several periods. If you would like to see the full impact of this income, I would direct you to our 10-K and press release filed today after market. With that in mind, I'm pleased to report another strong quarter and our annual 2016 financial results as our premium eventual lending platform continues to deliver outstanding financial performance on virtually every meaningful metric. When we look at 2016 performance compared to 2015, we see growth on nearly all fronts. For example, our total investment income grew 11%, our NII grew 26% and our NII per share grew 19% for the year ended December 31, 2016. All of this was possible to the growth of our balance sheet, where we achieved another record high investment portfolio of $1.424 billion at value or growth of 19%. We did this through raising $92.8 million of net equity at a blended rate of 1.32 price to book under our equity ATM program and issuance of our debt with a weighted average cost of debt dropping from 6% to 5.8%, demonstrating again our full accessibility to the capital markets by erasing $243 million in 2016 alone. In addition, we're pleased to declare our 46th consecutive dividend since going public in 2005, a $0.31 per share…

[Operator Instructions] Our first question comes from the line of Jonathan Bock with Wells Fargo Securities. Your line is open. Please go ahead.

Good afternoon or good evening and thank you for taking my questions. Manuel, I just wanted to start to make sure I got it correct, but if you're a bit, let's say, hesitant and would like to see how the administration plays out in a number of your core areas, did I hear it correctly that you're looking to perhaps just lighten the accelerator a bit and perhaps not intend to grow the portfolio significantly over the next several months, is that generally what I'm hearing? I just want to make sure I got that fine point. Then, I've a small follow-up.

Yeah. Because of all the noise going on in Q1 and refinancing the bonds, the excess interest expense, the one-time non-cash charge, the rebalancing of portfolio that we're doing, ostensibly what I'm saying is we're still going to take the amortization in early payout activities and reinvest it to sustain the cadence of the portfolio at the levels we're at today. So you may see a modest growth in Q1, but our intent is basically kind of keeping it flat at the same interest earning level that is today. And then, as we get more clarity on various key things that are going on in the market, you'll see a step-up origination activities going into Q2 and I think you can expect to see Q2 to be net up, meaning net portfolio growth considerably $50 million and probably more like $100 million of portfolio growth.

Okay. So then if that's the case, then should we also see the ATM issuance slow meaningfully as well?

I want to negotiate myself, but the answer is yes. And until such time - look, I want to be very clear here. The administration has done some very positive things, others have not so much. But I think as the cabinet members finally settle in, I think that you'll see us get more comfortable in certain sectors and if that happens, you'll see us accelerate growth more and tap the ATM. But at this point, reliance in ATM for the first half of 2017 will be light at this point.

Okay. And then maybe one competitive question, and it's just come as a dovetail, So then while your balance sheet now affords you flexibility to do very large offerings, particularly for publicly traded small life sciences companies, right, nonqualified asset from a BDC perspective because your lending to company with, say, perhaps $250 million of market cap - equity market cap or greater, there is interest in that market from some of your competitors, some of whom performed a large JV, $700 million, I guess, in terms of size. Manuel, can you talk about the competitiveness only because your balance sheet is so large and when it's time to grow, making sizable loans to those types of life sciences companies is fairly beneficial to all, how would you rate the competitive environment in large cap life science fields with more capital entering that marketplace or is it really just you and Oxford, a mid-cap and perhaps a new entrant, that's not bad, there's plenty enough to go around for everyone.

Well, look, I think there is a couple of critical points in your question. I mean, number one, I think that the construct of the BDC regardless of my large balance sheet in itself places limitations on size of investments. And as you rightly have pointed out, the good asset, bad asset, 30% bucket, which can include international companies or what have you, so even though there could be a robust opportunity for us to pursue on the public side. It is certainly probably best done with having a sister fund or join fund, as you referred to, with some of the other players out there. It doesn't mean that Hercules we will not be disenfranchised in that opportunity. But you can actually rather we distribute more of the capital that we're deploying into a sister fund, for example, to continue to grow the franchise, but also be cognizant of the regulatory 30% bucket role in doing that, which some of my competitors are in fact doing and they have that flexibility that I currently do not have today. So that totally affords it. As to the more macro question, I think that as most people know, venture capital, life science investing has always been - acquires a public to private franchise, because of the enormous amount of capital that these life sciences companies needs and the amount of capital that's available in the private venture capital marketplace is finite and limited, hence the reason why you have to bridge the private to public world and oftentimes, these life science companies continue have support by the venture capital partners, even as public companies themselves. So we think that market remains quite attractive. It is a tricky market. Just because we have an outstanding track record of doing it, it is not something as easy replicatable, and we think it adds significant barriers to entry, which others will soon learn, and it takes us quite an expertise to do life science investing.

Okay. Got it. Then just as a follow up on one investment in particular, Sungevity. How big was that post quarter follow-on and more of a detail on that investment, should we expect changes from the 4Q mark, which was at about $0.75 [indiscernible]? Thank you.

So, I'm not going to disclose the actual amount of the capital because that's something that's private to the company itself. I would tell you that the amount of capital that was raised certainly affords the company the exercise that they're engaged with right now with evaluating the various strategic opportunities they have before them. They chose to not to pursue the IPO that ended, I think it was January 4, 2017, and as such, the engage investment bankers as advisors to evaluate multiple different opportunities and would be early chatter that we are seeing and hearing, we are quite encouraged with the path that they are evaluating. We are not on the Board, so we're simply lenders to the company, but I think the company is embarked on a good process. And I think that they're having a higher receptivity to multiple different options they're doing. And to answer your more macro question, if everything continues to go down the path that I'm seeing, I think that you could have a substantial, if not entire, recovery of the position that was marked if everything comes to fruition that I see things falling into place right now. But again, I need to caution everybody, strategic evaluations are probably different decisions by parties that we do not control or involved with. So at this point, we are along for the ride, and we're encouraged by what we're seeing.

Yes. We'll look at passes prologue to understand that workup situations, you've done them much better than almost everyone. So thank you for taking my question.

Thank you for that.

Thank you. And our next question comes from the line of Kyle Joseph with Jefferies. Your line is open. Please go ahead.

Hey. Afternoon, guys. Thanks for taking my questions. Congratulations on a good quarter or actually for that matter, good year overall.

Thanks, Kyle.

Thanks, Kyle.

I'd just like to start, I know you talked about your investment philosophy post-election and you nurture sort of cautiously optimistic or whatever right now, and you're not really deploying capital until we get a little more certainty and I fully understand that, but from a longer-term perspective, are there any changes you have to your investment strategy regarding specific industries just based on the election?

So, Kyle, as much as I'd like to share that with you, the last thing I want to do is share that with you and give my competitors a perspective as to why we do, what we do and why we navigate the historical credit performance that we have is because we have - one of the most before things about Hercules is different from the vast majority of players out there is that we don't have generalist. We have three industry verticals; a team in renewals, a team and technology and a team in life sciences, and those teams are staffed with highly experienced, highly knowledgeable individuals who share with us their perspectives on what's going on in the industries. And so I would give this service to our team and our franchise to divulge exactly what we are doing in our strategy, but I would tell you that we will - we are pruning and rebalancing our portfolio, and we will still originate over $100 million just by reinvesting the amortization and the early payoffs. So we're doing what most people came and do in a year, we're doing it still in a quarter, so we're quite busy. We just chose not to growth it in Q1 and may grow modestly and then grow it in Q2 by probably net $100 million or so. So you'll still see some growth in the portfolio. We just want to wait and see with all the new cabinet members to exactly if there's an alignment with this insurance policies and alignment with that of the cabinet and also regulatory changes that we want to see occur, which we're encouraged by.

Got it. And then I know you talked about it, you addressed the dividend sort of mid this year, I think you said, can you give us your philosophy, Manuel, on special versus sort of run rate increase of the quarterly dividend, just given where your NOIs trended to and also the spillover you had as of 12/31?

It's obvious that we have three quarters sequentially of earning NII well and excess of our dividends. So obviously, that is one of the items that allowed us to see the growth in earnings spillover over, but I have to remind everybody that we have a very independent board and the decision on dividend policy is one that is discussed and reached an agreement with perspective with the board, our policy. However, it would be my preference to consider doing a small one-time dividend sometime in the second half of the year. And once I have a good directional knowledge of where we're going as an economy, also probably increase our normal $0.31 dividend by a $0.01 or $0.03 given the portfolio growth, and that's going to be the function of those two factors. But there's no question that we intend to distribute those dividends, and there is also an element that I believe strongly that given the potential lower corporate tax that we are potentially seeing coming up in the future is a highly accretive event whereby we actually retain some of those earnings and end up doing a 1099 that grows us up on the cost base for the benefit of shareholders, and we see growth - net book value growth continue, especially when the stock's trading at 150 to book.

Got it. And then earlier this month, I saw a press release that you guys made a pretty large investment in a company called Axovant. I think it was a $55 million investment. Would you have any intention to syndicate a portion of that? I know that you’re fully capable of taking on and investing that size given where your balance sheet is grown too, but can you discuss your thoughts there?

Sure. I mean, historically, we have chosen not to syndicate. I don't think in the immediate future I have an interest to syndicate. As of right now, we do have a few BDC partners that we consider to be highly credible and very good investors that we would be happy to partner with if we still choose to do syndications, but it's something that we're evaluating and we've been approached by other BDCs as well in kind of the upper tier BDCs that share the same kind of credit discipline as ourselves. So it's not on the question, but it's not something that is on the horizon in Q1 or Q2, but we have been approached proactively, and we have approached few of them also proactively on the possibility of entertaining that, especially in light of initial question that was asked in terms of size of investments and concentration issues that may exist, and it may be prudent especially when you're looking at bad asset, this is a particular bad asset, I mean, this is a foreign asset. When you look at the issues of foreign assets, you have to make sure you are monitoring your bad bucket closely, which we are, but it's an issue of eventual growth that we may have to address.

Got it. Thanks very much for answering my questions.

Thank you. And our next question comes from the line of Ryan Lynch with KBW. Your line is open. Please go ahead.

Good morning. Following up - sorry, good afternoon. Following up on kind of that question on the administration, obviously, you talked about kind of slowing down or pulling back just a little bit, just be a little more cautious and so you guys get a little more clarity on the administration's new positions. Are you seeing the same caution, outlook or pullback from some of the venture capital firms in terms of their deployment of capital or M&A in response to the new administration?

Ryan, you got to understand we're dealing in the world where a tweak can cause volatility in the stock, alternative facts become real facts. We are living in a paradigm that is very difficult to handicap until we have clarity. I mean, policies seem to ebb and flow, and there are implications that we as risk managers have to be cognizant of and that is the implications on H1 visa program, to that of staffing and our technology companies and getting PhDs in biotechnology companies. The implications of drug prices and the pressure that these companies could face that could alter their business models. The un-clarity or lack of definition on the affordable care act on reimbursements, especially when it comes to medical devices and other aspects of the business. So prudence we tell you that it's better to go slow and if some competitors want to jump in and the waters warm, I invite them to go swimming. But I got a 12 year record here of managing this book with my team of being prudent. I think slow and steady is the right thing to do. There is - I don't believe there is threat to my earning power, the way it is, especially for $0.43 still over, I think we have the advantage with a highly flexible liquid balance sheet, low leverage earning spillover that to sustain our earnings for the time being, I think it's the right strategy.

Yeah. I agree with that. Moving to a different point, though, you mentioned that there seems to be some signs of early competition in your space and new competitors may be in the space over the last few months, I have read or a seen a few articles out there that are talking about actually some meaningful players in the space pulling back from technology lending specifically. So, are you seeing any less competition in the technology lending space and if so, does that mean that that's because of - that's more of a riskier asset class right now or is that maybe present an opportunity for you guys to go in there to take some market share?

So I say this all-time, I don't understand the concept of the market share when you run a risk business and you do risk investments and risk management. So to me, the opportunities are what they are, and they just have to meet the appropriate screens that reflect a risk award basis that is commensurate with what we deem to be appropriate and also with an eye of long-term capital preservation as a strategy. I think that you're absolutely correct that we've seen a lot of new entrances rush to originate assets and then find themselves pulling back because of their experiences in significant losses. Not to give an infomercial on behalf of Hercules, but we have one of the best teams in the industry as evidenced with $6.5 billion of commitments we've done over 12 years and culminating in 12 years of cumulative losses net of gains of just $2 million. We make it look easy, but it's far from that and is evidenced by many who have tried, and so we will continue to do what we do, which is methodically evaluate new opportunities. We're not going to get hung up on market share or simply grabbing market share if it doesn't make sense. And as I said this many times in the past that of any investors, if investment quality is not there, I'm more than happy to miss earnings and risk the balance sheet. And so I think that discipline is more important than just trying to make earnings. And I think that's evidence in how we perform and how we manage this business, but we will certainly evaluate all opportunities, all opportunities are welcome that meet our screens, but we're going to be who we are, we're just methodical conservative guys and gals and how we evaluate opportunities.

Okay. And then just one last one, in your press release, you talked about core yields in your portfolio or I guess core yields in new investments maybe coming down just slightly about 25 basis points you expect in 2017. Can you just talk about what are the drivers that's compressing those yields slightly? And I'll be interested to know that if you guys are pulling back and maybe not being as aggressive and being more selective in deals, at least in the first half of year related the first quarter, is there a chance that your selectivity is going to offset some of the lower yields you guys are seeing in the market today?

So there is a couple factors there. First of all, on the more macro question, our overall yield, it basically, its pricing equilibrium. Our pricing necessity, excuse me, so we have rising rates, as Mark indicated, from all accounts that Fed anticipates three rising rates in fiscal 2017, that 75 basis points. You have the rental rate increase in December. So sensibly you could find yourself effectively at 100 basis point increase in your overall weighted yields, which could be obviously $0.10, $0.12 in earnings just for Hercules alone from that. So the conservative nature of that statement on pricing elasticity is primarily attributed, I want to make sure we could pass those rate increases fully to our underlying new perspective companies that we are going to be lending to. So that is one signaling that until I have a good confidence that those prospected future rate increases can be fully passed through. Hence, what I believe is a more conservative outlook on kind of managing down the core yields that I talk about. The second element that I will clarify for you that you addressed, which I don't 100% support, is that we're not going to be out of the market if we find competitive price yields, that's not what I'm saying. In fact, what I am saying is that we will be more than happy defend our franchise. And if we have to go significantly very competitive on certain deals because we think that those deals merit a very, very aggressive pricing, given that I have a $1.3 billion loan book at over 30% plus, I can go do a highly competitive deal at significant lower yields that I'm doing today and the impact on the overall aggregate maybe 5 basis points, 10 basis points in that. So the comment that you've made is I'm going to put it back into why I made the comment. It's an offensive comment and allows to have greater flexibility with the liquidity in our balance sheet that we have that we want to be very competitive and offer highly competitive rates if we so choose, we can do that without materially impacting our overall weighted yields.

Okay. Make sense. Thanks for taking my questions and congrats on a great quarter.

Thank you very much.

Thank you. And our next question comes from the line of Chris York with JMP Securities. Your line is open. Please go ahead.

Hey, guys and thanks for taking my questions. Most have been asked and answered, but how are you ranking your seemingly expanding opportunity set for strategic initiatives like ABL venture leasing, maybe your life sciences' JV today and is expanding your reach globally also included in that opportunity set?

So the answer is yes, all the above. But the answer is also driven a lot by a potential or anticipation of regulatory changes. The two-to-one leverage for example will be critical and embarking more earlier than non-ABL product. The joint venture and looking at that asset distribution, that also could have an impact in the business and looking at it, because if you have two-to-one, you still have a 30% bucket issue to balance and looking at that. There is no question that there's opportunities that we're seeing in Europe, as evidenced by the cold question asked earlier regarding our recent exposure to European life sciences company, we're seeing good opportunities in that market. So what we are seeing is that the Hercules brand is reaching now outside United States, and we're getting very nice interested in deal flow there, but because of our structure, we are limited to 30% of that assets being non-US assets. So we want to take a very select rifle shots, if you will of what those opportunities are, but we are seeing a growing demand whereby our current regulatory structure significantly impairs our ability to pursue such opportunities, but those are things that we're evaluating. And these are opportunities that may take place later on in 2017, early in 2018, but I think they're still very early in the exploratory process of evaluating these opportunities and to you initial question, ranking which ones to pursue until we have clarity on the regulatory front.

Yeah, that makes a lot of sense, and you did provide a comprehensive outlook for regulatory improvement in BDCs, but do you think may be included in that or not included that is whether the staff could include SEC staff changes to the definition of eligible portfolio companies?

That is the third rail. I think that the initial two-to-one BDC leverage bill initially included language to clarify exactly that issue. If I remember correctly, I don't have the bill in front to me. I believe that the bill that's moving forward today, I believe, omitted that clarification in that language. So I think that the financial choice act currently is moot on that issue and I don't think it's being addressed in initial passage of the bill, so no.

Okay. And then maybe this one here from Mark, you touched briefly on balance sheet leverage, but with changes in your balance sheet and comments about the pursue of a third SBIC license and then a strong investment track records, are there situations where you wouldn't want to take balance sheet leverage above that one-to-one that you've mentioned?

Well, look, I think the guidance I would like to give is that we're kind of again self-imposed on that one-to-one, 1.1 to 1. The answer to your question is by adding the SBA third license, remember, it's not an all or not, you can actually scale it as you deem fit, it doesn't all have to come in. For example, if we did the full 150 license to put all in at the same time, so it would give us the opportunity and still be able to monitor the position of our leverage through both adding debt as well as our equity program when we see it prudently in terms of the deals we're looking at, they are fit within the SBA license as well as other things that we're doing that would also fit onto our balance sheet. So it's very much something that you got to manage very carefully, but none that were too concerned with.

Yeah, I want to emphasize that - let's assume that the SBA staff acts efficiently and quickly, and let's say you get the license April-June-July, let's call it September to make it easy. By the time we get up and running and making that deployment, the third license will be marginally impactful, if at all, in 2017. I think that you'll see that really accretive nature of that third license really come into fruition at the beginning of 2018. So I think that we're not anticipating much leverage from the SBA in 2017.

Got it. So maybe somewhere maybe near-term one-to-one and potentially above that in 2018, you'd consider potentially going above the one-to-one that might be a situation that provides that.

If you remember what I said, the Financial Choice Act, if enacted by Congress, increases leverage two-to-one, and that will give us a lot more confidence and level on that flexibility to do that. So that's one of the gating items that we're looking at as well, which is why we're not in a rush. But I think Mark said absolutely correct that our comfort level is 1.1 and the fact that we are up 0.6 today regulatory leverage and on a GAAP basis, I think we're 0.8 or 0.78, I think that we have quite a nice headroom before that becomes an issue to consider. And as Mark probably articulated, we don't need any incremental significant growth to simply achieve our goals of $1.6 billion, $1.7 billion loan book by the end of the year without getting that higher leverage point anyway. So to say differently, we're kind of good right now with what we know and what we see.

Yes, makes a lot of sense. That’s it for me. Thanks for taking my questions.

Thanks, Chris.

Thank you. And our next question comes from the line of Aaron Deer with Sandler O'Neill. Your line is open. Please go ahead.

Hey, good afternoon, guys.

Hi, Aaron.

I just want to follow up on the core yield guidance question in your response. Your response led me to believe that you guys are willing to get as competitive as necessary to kind of keep your positioning in the market. And I realize that there is a decent amount of churn in your portfolio over the course of year. But I'm still just struggling with the idea behind the core yield coming down given your positive sensitivity to rate. So even if you're - if you've got a fair bit of churn in each subsequent quarter, if rates are going up and the vast majority of your portfolio is tied to primary LIBOR, why wouldn't we see this quarter yield going up, are you seeing that much, do you expect to see that much pricing pressure?

We don't know. We don't know how much of the overall yield can advance through to our companies and what is their own pricing elasticity, why they say I'm going to refinance or not. I mean, we all know mathematically the simple equation is that the rate you can change to a portfolio can bring greater than 3% in the first year and greater 2% in the second year as a natural trigger point for them to refinance the paper. To be verbally honest, if you look at our investor presentation on page 23, the historical core yields have navigated between a fairly tight band of 13.8 at the beginning of Q3 2014 and really have been a sustained level between 12.6 and 13.4 pretty consistently. So we're not really forecasting much change other than 25 basis points from our historical level of 12.5 to 13.5, now guiding down to 12.25 to 13.25, so not a really significant change. But I want to make sure that we also provide a perspective of that until we test pricing elasticity in a marketplace to your point, rise in rates, I don't know how much of those rates I'll be able to pass through, I don't know what the competitive landscape will be. And so I want to make sure that we have ample amount of margin and liquidity, which we do have, and if we find ourselves in an unexpectedly higher competitive environment, that we're happy to go out and do $200 million at 9%, $200 million at 10%, whatever that rate maybe. And so that is what the flexibility that we want to dial into our models, which we take into our own models to make sure that we have a competitive offering for our portfolio companies.

Okay. And then relatedly, Mark, in the rate sensitivity table where you kind of demonstrate $0.02 plus an EPS benefit from each 25 bp change from the fed, is that based on a static balance sheet?

So the rate, yes. So the rate table that we use is basically on the static balance sheet at the end of Q4. So that would be the impact as it would happen if the rate step up 25%, 50% or 75%. The other comment that I do want to make, though I think Manuel answered the question correctly. But I want to amplify on his answer a little bit also is when we give you our thoughts on where yields are, please remember, we do not embed future rates into that and we do it very easily. Because in 2016, as you might remember at the beginning, there was supposed to be a three rate increase year and it turned out to be one, and it turned out to be at the very end of 2016. So we find it prudent when we talk is to not even think about rate increases, we can't predict when it's going to happen and if we could, maybe a little bit differently. But again, it's accretive, that's the most important part is when it happens, fantastic, but we do not build that into any kind of thoughts in our models until it actually comes to fruition and then we do it.

Okay. So no rate hikes embedded in your core yield guidance?

No.

No. Absolutely, nothing.

Okay. Got it. Very good. Thank you, guys. Have a good evening.

Thank you.

Thank you. And our next question comes from the line of Robert Dodd with Raymond James. Your line is open. Please go ahead.

Hi, guys. If we go back to 2015, a lot of investments, which as you point out, paid off in NII growth, et cetera, et cetera, that showed up at the bottom line to shareholders benefit in 2016. So you're willing, I think, to invest ahead of opportunities that you see coming, and then, obviously, today, you eliminate, talking about potentially managing other pools of capital. The double leverage and opening up other asset classes, et cetera. So would you say it was prudent for us to think of this year maybe being an investment year again ahead of those opportunities coming later? Obviously, the double leverage, if it kicks in, there a one year waiting period before you're allowed to actually use it, it was two years before with the new bill is one year, so - but clearly, that could be an investment in personnel systems, et cetera, ahead of some of these opportunities manifesting in income. So what's the timing that we should be thinking about that, and is this year going to be an investment year?

Robert, thank you, an excellent question and great question for clarification. So the fact of matter is in the first half of the year, there is no real significant investment that we're making other than watchful waiting and getting clarity directional, which way we're going as administration, because, again, we invest in life science, we invest in renewable energy, we invest in tech companies. So I think it'll be really imprudent to continue to invest on the same hypothesis - some thesis, I should say, without having - without taking into account potential regulatory changes. However, to the second part of your question, any event that we do see favorable regulatory changes, i.e., the two-to-one bill or other provisions happening, we will obviously signal as we have done in the past that we are embarking on an increase in SG&A and doing that and yes, we will be adding additional staff to seek out these new opportunities and that would add to SG&A, to the process depending on which vehicles we so choose to potentially pursue. But I think that you would have and our investors would have a clear indication by us as we have did in 2015 that we are now going to go into a purposeful investment period for the benefit of long-term capital appreciation for the benefit of our shareholders. But the first half of the year, we're not anticipating that investment to take place, and until we have clarity, I don't think we will be doing - we will be signaling that until probably end of Q2 where we have more better directional understanding.

Okay. Got it. One more, if I could, Michael, you talked about the potential regulatory volatility and so you're holding back a little bit the foot of the accelerator, as I think Jonathan said, a touch to kind of see how regulations shake out, and obviously, it is easy, quotes around that because it is not, to avoid a potential incremental credit exposure by not making alone. How does that volatility and concerns you have affect the existing boot, because obviously, you've got an existing portfolio loans, many of which are potentially exposed to the same regulatory issues that you could be worried about changing and causing disruption. So do you have any contingency plans in place for addressing if those issues do come up and concern you about some verticals making incremental investments? What about the books that you already have that's exposed to potentially the same issues?

A great insightful questions. So our loans are short term maturities rapidly amortizing loans. The legacy portfolio would benefit dramatically because it looks you know, very ablated [ph] invested for at least 12 to 15 months. So you would see the average duration of our loans is only 18 to 22 months typically. So if I have a legacy portfolio its already on a weighted basis, invest 15, 18 months, it won't take long for me to re-tack the portfolio, and somewhat I did in 2008, 2009, where we can convert back to cash and go on to a defensive position by bolstering our cash position. So what we do quite attractive is that I don't have five-year bullet, sever-year bullet. What we do is a short-term amortizing loans. So the ability to change the outlook of our portfolio, better yet the construct of our portfolio. But as we're doing right now, rebalancing and pruning is exactly what we're doing is positioning the portfolio for factors we may not be fully clear on yet, but have a portfolio as dynamic enough and defensive enough that we can actually re-tack quite easily, and that's exactly what we're doing, similar to what we did in 2008, 2009.

Okay. Got it. Thank you.

Thank you.

Thank you. And I'm showing no further questions at this time, and I would like to turn the conference back over to Manuel Henriquez for any closing remarks.

Thank you, operator, and thank you everyone for joining us today on the call. We will be attending the RBC Capital Markets Conference in early March in New York City, and we anticipate continuing to do a selective group of non-deal roadshows throughout the first half of 2017. If you would like to schedule a meeting with Hercules while we are in New York or one of our non-deal roadshows, please contact Michael Hara at Hercules Capital or RBC directly to get yourself on the docket for the RBC Conference. And with that, thank you very much, and thank you, operator.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.