Jessica Baron - VP Finance and CFO Manuel Henriquez - Co-Founder, Chairman and CEO.

Troy Ward - KBW Ron Jewsikow - Wells Fargo Securities Chris York - JMP Securities Fin O'Shea - Raymond James Aaron Deer - Sandler O'Neill Christopher Nolan - MLV.

Good day, ladies and gentlemen. And thank you for standing-by. Welcome to the Hercules Technology Growth Capital Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder this conference call is being recorded. I would now like to introduce your host for today’s presentation Mrs. Jessica Baron, ma'am please begin..

Thank you, operator and good afternoon everyone. On the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and myself, VP of Finance and Chief Financial Officer. Hercules third quarter 2014 financial results were released just after today’s market closed. They can be accessed from the Company’s Web site at www.htgc.com.

We have arranged for a replay of the call at Hercules webpage or by using the telephone number and passcode provided in today’s earnings release. I would also like to call your attention to the Safe Harbor disclosures in our earnings release regarding forward-looking information.

Actual financial results filed with the Securities and Exchange Commission may differ from these contained herein due to timing delays between the date of this release and in the confirmation and final audit results. In addition, the 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 what these forward-looking statements are based are reasonable, any of the 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 these forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit the Web site, www.htgc.com.

I’d now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO.

Manuel?.

Thank you Jessica and good afternoon and thank you everyone for joining us today. I am once again extremely pleased to report another outstanding quarter of quarterly performance of Hercules on all fronts.

This achievement could not be realized if not for the dedication and the cohesive team of united workers and employees we have here who make this possible every quarter and every year.

In addition to our employee’s meaningful contribution, our growing brand awareness as the largest BDC providing to the venture capital backed companies and our reputation as a strong financial partner and growing relationship with the top-tier venture capitalist and entrepreneurs who continue to drive deal flow to us is something we are much grateful for.

We would like to thank you and thank these parties for their continued trust and confidence in Hercules as a source of capital provider for them.

Q3 was a extremely busy quarter, on many fronts we continued to expand our franchise and market penetration I am still interested in striking a balance shortening these calls and making it better for investors and analysts to ask calls during the Q&A session.

Many of the items we will cover today in this call are detailed in our earnings release and our 10-K so we’re going to once again attempt to shorten this call and try to not focus on everything we have stated in our earnings releases and dedicate more time for the question-and-answer session to make it more informative.

I once again ask for our shareholders to provide feedback on these calls as I want to continuously change and improve these calls of the benefit for our shareholders and our investors and the analysts who follow us. Now back to the call.

The agenda today will cover the following matters, a brief summary of our operating performance and results for Q3 and operating and overview of our current market conditions including the venture capital market activities, M&A and IPO activities in the market, our perspective and outlook for the remainder of 2014 specifically in Q4, and then I’ll turn the call over to Jessica who will cover more significant details on our operating performance and accomplishments.

Some key highlight on Hercules outstanding accomplishments and operating performance during Q3. I am once again very pleased to report that Hercules delivered another very strong third quarter financial performance. New commitments were extremely strong. I’d like to remind everyone that Q3 is typically our slowest period of time.

That said, we had approximately $194 million of closed commitments during the quarter.

Putting Hercules on pace for another record year of originations that could potentially top the $800 million-$900 million level in new commitments, unprecedented and just a fabulous achievement on our continued developing of our brand and in market prices in the marketplace.

We continue to pursue transactions throughout the year and I do remind everyone, that commitments do not necessarily translate into closed transactions.

We’ll work as hard as we can to make sure that we try to hit that $800 million-$900 million number and we still have good visibility to that pipeline today, but some of these transactions can and will slip before year-end.

I can’t express the importance to our partners in the venture community and our visionary and relentless entrepreneurs for trusting Hercules as their continued primary capital provider of choice.

Now the fundings, equally strong during the quarter, we had an unprecedented $129 million of fundings through the third quarter, which drove growth quarter-over-quarter and materially offsets our continued expectations of a portfolio decline in the third quarter with a continuing strong effort on fundings of new transactions and continued loan origination activities by our individuals.

This $129 million help us to offset our continuously rotating out of marginal lower performing loans as we continue and strive to improve our credit outlook and stabilize our portfolio for future growth as we’ve done time-over-time in past years.

We are committed and remain committed to a high quality credit underwriting shop and if that means sacrificing earnings for our quality asset growth, we will once again we will be willing to do that. We finished the quarter with very strong unfunded commitment or backlog of approximately $243 million.

I’d like to remind everybody, this represents potential future interest earning assets if and when these unfunded commitments get drawn.

This is a very important number and a growing figure, as we have purposely structured many of our unfunded commitments to only fund upon a borrower’s achieving specific value unlocking events or milestones that only serve to enhance our overall collateral position with these companies.

We continue to see funding to commitment ratios trending lower and currently are trending of approximate of 55%-65% level, which is traditionally lower, excuse me, historically lower than our norm of 75%-85%.

This will help explain our growing unfunded commitment driven and impart by our own self-doing by driving more milestones related to funding of our transactions.

During the quarter, a number of our existing convertible bondholders also have elected to exercise their right to convert their bonds, as part of this conversion and retirement of these bonds, we have realized an expense related to these bonds retirement and redemptions of approximately $1 million as a non-reoccurring expense due to the retirement and extinguishment of these bonds that will have an impact of approximately $0.02 in net investment income.

Our true GAAP NII on a GAAP basis was approximately $0.30 which takes into account the $1 million in expenses that we incurred during the quarter, meaning that our net investment income on a GAAP basis was actually $19 million or $0.30 when you actually deduct the $1 million expense attributed to the early redemption of these convertible bonds.

I also want to highlight, already in Q4, we continue to see many of our existing bondholders electing to convert the additional bonds and we expect potentially to see an additional $0.01 to $0.02 or approximately a $1 million or so in expenses in Q4 that maybe potentially related to additional early exercise of these convertible bonds.

Hercules’ stock continues to perform well in the market and consistent with the trading and meaningful premium over net asset value mainly of these bondholders have realized that the conversion option of the bonds is significantly in the money when these convertible bonds can be converted to equity of Hercules at a 11.42 a share while our stock is trading well north of that today.

These bondholders have the sole and only ability to exercise that conversion Hercules does not have the ability to exercise that conversion until we surpass a certain ratio of the conversion of the bonds trading at a premium.

On a DNOI basis, we also achieved an impressive $0.35 in Q3 DNOI representing approximately a $0.01 pick up from the previous quarter in 2014 that is June.

Now despite intense competition, Hercules continues to be a lender of choice for venture capital backed companies as demonstrated by our closed new commitments of nearly $200 million and maintaining an overall effective yield in its portfolio of 16.7% as of the third quarter.

This is solidly well ahead of many of our competitors in the sector and is only a testament to Hercules’ continued focus on pruning its portfolio to ensure high quality yield generation and maintaining a very high quality level of credit on its investment loan book.

We have been expecting to see a continued yield compression in the third quarter of at least 30 to 50 basis points, we only saw a 20% excuse me, a 20 basis points compression in that yield compression and we expect still to see that yield compression continue through Q4 and potentially continue at a 30 to 50 basis points level, but as we saw in Q3 we may be surprised plus or minus 20 basis points in other direction that could occur during the fourth quarter.

Now at the beginning of Q3, we successfully also accessed the debt capital markets. We went to the market in July and effectively raised our first ever 10-year bond offering that was a 10-year $103 million bond offering at a fix rate of 6.25%.

This bond offering helped us continue to enhance liquidity of our balance sheet, as well as have capital available in the event of the convertible bonds redemptions that started taking place allowed us to be well positioned in order to absorb the convertibility of the bond which in fact we’re well positioned to take advantage of by having this added liquidity to our balance sheet.

Now we’re standing an extremely busy and very active third quarter, and keeping with Hercules’ ability to execute on many levels we also achieved an extremely important corporate milestone one that I am particularly personally proud of having founded Hercules over 10 years ago.

Having received an investment grade rating from S&P of BBB minus served to only solidify and validate our cumulative team’s efforts and experience in building Hercules over the past 10 years.

This is a huge testament to our firm’s and our own ability to successfully underwrite high quality transactions and remain extremely selective in our underwriting process even if that means.

Potentially missing or purposely missing earnings because we not agree or see the high quality of assets that we demand to underwrite, that is a tenant of ours that we will always continue and to ensure that we maintain our historical credit performance as best as we possibly can by maintaining that disciplined approach.

Hercules is the first BDC that I am aware of that is focused primarily in the venture lending platform to receive an investment grade rating from S&P in this asset class.

We are extremely grateful and pleased to have earned this unique achievement as it allows us to access the debt capital markets and therefore allow us to lower our overall cost of financing further giving Hercules a significant competitive advantage over the many of our competitors.

We remain very committed to addressing the growing needs of the innovative disruptive technology life science companies that we serve. Hercules will continue to defend its franchise, its brand and its market presence by servicing the needs of our innovative venture growth stage companies as their capital provider of choice.

We have the balance sheet, we have the wherewithal, and we have the ability to use our yield coverage if and when needed to continue to expand our franchise and slow any encroachment that we see penetrating from any competitors and we intend to defend that position with our balance sheet.

To that end, we will continue to expand our financing solutions to innovative venture capital-backed companies at all stage of development.

This means from early stage to expansion stage or venture growth stage companies by offering a broad financing solution from asset base, revolving lines of credit based on accounts receivable or inventory, basically called ABL asset-based lending, the equipment-based only financing solutions, acquisition financing, senior stretch and growth loans.

We will not be undercut and we will intend and continue to grow our presence in the market.

With this largest suite of financial solutions and enhanced balance sheet of very liquid and access to debt capital markets, we are extremely well positioned to effectively compete with venture banks and other BDCs attempting to enter the venture lending marketplace.

We have the balance sheet as I said and the liquidity and intent and what I consider the most important element of that equation, the historical experience of working in this assets class to understand when and how best to underwrite these high quality assets.

We are well positioned to enter 2015 we are continuing to position our balance sheet for this continued growth in 2015 and you can expect to see continued growth in that investment portfolio as we enter the early part of 2015.

In addition to all that we have recently launched many new initiatives at the beginning of the year that will continue to enhance our balance sheet. We most recently completed another securitization during the fourth quarter.

This new securitization was achieved with an anticipated rating from Kroll upon pricing on the new securitization of a $129 million that occurred at a 3.5% to 4% was expected to close and settle on November 13th. As indicated during our Q2 earnings call, we remained extremely committed to a quality loan portfolio.

We are very committed to preserving our historical credit track-record and performance. I am very proud to say that nearly after 11 years of founding Hercules as of Q3 2014 our cumulative net GAAP loss is approximately $19 million cumulatively over 11 years on over a base of $4.6 billion of commitments over 300 companies.

That is a testament to our commitment to quality underwriting and not short-term earnings. During the third quarter, Hercules continued to proactively rotate our portfolio of marginal performing loans as I indicated earlier, even though this would be an impact on our short-term earnings.

I believe very strongly that this is the right thing to continue do as others are eager to encroach into this asset class we are able to rotate out marginal quality loans and enhance our own credit outlook, at the behest of others who may not be as familiar in this asset class as we are.

Early payouts during the third quarter were slightly higher than anticipated but within a manageable level. If you may recall we indicated that we expect to see approximately $80 million of early payouts in Q3 and effective reality is they came in at $84 million.

This is gives us some confidence on our ability to be able to forecast and manage our expectations of our own portfolio and balance sheet. Now let my turn my attention to exits and liquidity in our portfolio.

At the end of the quarter Hercules held equity warrant positions in six portfolio companies that had filed registrations in anticipation of an IPO offering. Those companies include, Box, Zosano, Good Technology, Dance, Dance subsequently withdrew its IPO filing in Q4 and two additional companies who have filed under the Charles act.

In addition and subsequent to quarter end, we had additional issuer file for an IPO registration. Although we have witnessed in increased market volatility much of which have been expected by us many potential life science and technology IPO candidates have chosen to delay their IPOs for early part of 2015.

As a result, we have indicated that in Q2 2014 earnings call our adjusted expectation for potential realized gains is now $15 million to $20 million with the Box IPO slipping down to sometime in 2015.

The Box IPO alone could potentially have represented as you see in our unrealized gains and our schedule of investments potentially $20 million to $40 million in gains has that IPO have been completed in fiscal 2014.

With that IPO being pushed out we remain confident in seeing liquidity of realized gains in the neighborhood of $50 million to $20 million between now and the remaining of the year. Now turning my attention to the venture capital community I have been absolutely surprised on the vibrancy and resiliency of the venture capital community.

On a fund raising level, the venture capitals have raised nearly $25 billion of capital through the first three quarters of 2014 topping all of the capital raised in 2013 of a total of 20 billion. This is a very-very solid and important time of health in the venture industry.

Not to be left behind, the venture capitals have been eagerly busy in making new venture capital investments during the third quarter. These teams continued their aggressive and impressive pace of new investments totaling nearly $11 billion invested in Q3.

What was more impressive is the year-to-date activity through the third quarter of 2014 with over $37 billion invested. That $37 billion exceeds the annual total levels of investments for each of the past eight years an unprecedented pace and one that we we’re obviously welcome to see in the marketplace.

Sectors of the venture capitals focused their time and attention on business and financial services companies received 29% of the capital. Followed strongly by healthcare and life sciences receiving approximately 26% of the capital, those two sectors tend to emulate our portfolio quite strongly.

By stage the venture capitals and Hercules are quite aligned again. Of the $37 billion that’s invested 60% of that capital was invested in later stage companies right in Hercules wheelhouse and our area focus and our area of desire where we want to defend and grow our franchise quite strongly.

On a year-to-date basis pre-IPO later stage venture capital companies have received 64% of all the capital that’s represents over 24 billion dollars of capital invested in fiscal 2014 to later stage companies right in our sweet spot of what we focused on.

By regions not to be left behind as a reminder Hercules has offices in Northern California, Boston, mid-Atlantic region, New York and Virginia which I will classify all together as Mid-Atlantic regions.

And Northern California received 43% of venture capital dollars, followed by the Mid-Atlantic region at 15% and New England at 8% all where we have regional offices and physical local presence to be part of the venture community and the entrepreneur community.

Lastly turning my attention to what we all care about, venture capital exits and liquidity events equally strong IPO activities continues to pick up steam with 22 companies going public during the third quarter raising $1.3 billion. This of course excludes the monstrous capital raise that Alibaba did of raising over $23 billion alone.

Year-to-date through Q3 85 companies has completed their IPO offerings surpassing eight of the last year’s annual IPO activity. With 2007 representing the nearest threshold for a total calendar year of 81 and we’ve completed 85 so far to the third quarter. I am strongly encouraged by these numbers.

On the M&A side equally impressive activities by the venture capitalists. M&A saw 139 companies complete their acquisition for a total of $21 billion in exit valuations for their companies. Year-to-date 407 companies have been acquired from venture capitalists for a total of $53 billion.

This are very-very good numbers and one that gives you very good confident in our continued pace of investment activity and growth in our portfolio as we turn into 2015.

Now turning my attention quickly back to our outlook for Q4 and the remainder of 2014, we began by making various critical long-term strategic changes to our organization effectively beginning in Q2.

We set the foundation for the next 10 years to growth these changes will continue throughout 2014 and most of 2015 as we continue to adopt and execute upon many of these strategic changes and directions that we’re doing. We expect to continue to grow our company. In fact we are actively seeking to hire eight to 10 additional investor professionals.

That process as lumpy as it may sound may take us nine to 15 months to do. We invest and hire under the same discipline, we’re slow, we’re methodical and we’re meticulous on who we want to hire and who really is worthy to continue to carry our origination activities and credit qualifications that we deemed necessary to be successful at Hercules.

We continue to expect we can leverage our balance sheet.

Although our balance sheet is modestly leveraged today, you can expect us to see us leverage the balance sheet further in fiscal 2015 to further drive growth, earnings growth, dividend growth and ROA and ROE on behalf of our shareholders if and when the quality of assets are there that we’ve deemed appropriate to leverage a portfolio in that direction.

We anticipate net portfolio growth for Q4 of approximately net up of $40 million to $60 million. This is by the way on top of an expected early pay-offs in our portfolio by our continuation of rotating out and pruning of additional $100 million to $140 million of loans that we expect to see as early pay-outs during the fourth quarter.

Notwithstanding that comment it’s quite important, we expect to see $100 million to $140 million of early pay-offs, but yet we are forecasting a portfolio to rise net up quarter-over-quarter between $40 million to $60 million that gives you a perspective of the confidence that we have in our pipeline.

However, that pipeline will continue to monetize itself later in the quarter so we expect to see most of that earnings impact to occur in Q1 of 2015 and not necessarily much in Q4 2014. We are expecting normal amortization to also change.

As our portfolio has gotten bigger, we expect normal amortization to rise from our historical levels of $25 million to $35 million a quarter to now a $37 million to $45 million level consistently on a per quarterly basis. During the third quarter as I indicated earlier, we also commenced and recently completed the $103 million 10-year bond offering.

These are important indications and I also shared with you earlier that we recently announced the near completion of $129 million new securitization giving Hercules a second time access to the securitization market, but this time with a very unique securitization instrument that now includes a front-end 18 month revolver that allows us to keep a duration of that securitization longer for potentially as long as 30 to 36 months which allow us to more cost effectively use and utilize that securitization and further lowering our overall cost to capital for the benefit of our shareholders.

Lastly, and repeating myself earlier, in early November we have received additional requests from our existing bondholders to elect to convert and retire so far approximately $23 million of the remaining balance of our convertible debt instrument, combining with the 34 million of convertible instruments have been retired in Q3.

This brings our total convertible debt retirement to approximately $57 million in conversions. We currently have approximately 18 or so million dollars left of our existing convert, although we do not control when and if those bondholders will convert.

We certainly expect to continue to see pace of conversion and hopefully full retirement of that convertible bond instrument sometime in Q4 or could be as early as late as Q1.

Again it is entirely out of our control because of that continued pace of convertible bond conversions and retirement, which only enhances our liquidity, we expect to see an impact to earnings in Q4 of anywhere between $0.01 to $0.02 attributed to the retirement of these bond instruments themselves.

Lastly and I apologize it’s been a very-very busy quarter, at the end of the quarter we finished with another robust pipeline of over $1.3 billion and approximately 210 million is in signed term sheets.

This is why we are looking to hire additional investor professionals, we are as busiest as we have ever been and we continue to grow our business and our franchise to that end. With that I will like then to turn the call over to Jessica Baron our CFO to continue to provide additional details regarding our financial performance..

Thanks Manuel and thanks everyone for listening. I would like to remind everyone that we filed our 10-Q as well as earnings press release after the market closed today and I’ll briefly discuss our financial results for the third quarter of ’14.

Turning to the operating results, we delivered total investment income or revenue of 37 million, a decrease of 9.8% when compared to the third quarter of ’13, the year-over-year decline was driven by the decrease in the weighted average loan portfolio outstanding and the mix of early pay-offs relative to the third quarter of ’13.

The all-in effective yields on our debt investments during the third quarter was 16.7%, as Manuel mentioned down approximately 20 basis points relative to the previous quarter.

The slight decrease again was due to the mix of portfolio companies that paid us off early in Q3 versus Q2, this is a function of the vintage of the early repayment the contextual prepayment penalty on the loans and the balance of unamortized fees for each investment and pay-off.

Interest expense and loan fees were approximately 7.9 million during the third quarter of ’14, that’s compared to 8.7 million during the third quarter 2013.

The year-over-year decrease is primarily attributed to the $34.8 million pay down of SBIC debentures that happened in the first quarter of ’14, the amortization of $34.5 million of asset-backed notes, since the third quarter of ’13 and due to the 34.1 million of convertible note redemptions as Manuel mentioned.

Interest expense decreased by approximately $950,000 related to the settlement of the convertible note and these decreases were offset by the addition of approximately 1.1 million of interest and fees attributed to the 2024 notes issued in the third quarter of 2014.

The weighted average cost of debt increased to 6.6% in the third quarter of ’14 versus 6% during the third quarter of ’13, this increase is due the acceleration of fee amortization triggered by the amortization of the asset-backed notes. Operating expenses for the quarter was 9.1 million as compared to 10.8 million in the third quarter of ’13.

This decrease was primarily due to a decrease in variable compensation expense period-over-period. Q3 of ’14 net investment income was 90 million compared to 21.6 million in the third quarter of ’13, representing a decrease of approximately 12%.

Net investment income per share was $0.30 for the third quarter of ’14 as compared to $0.35 for the same quarter ended ’13.

We recorded approximately 9.1 million of net unrealized depreciation on our investments during this quarter of that 9.1 million of depreciation 2.6 million of this depreciation was primarily attributable to net collateral based impairments on debt equity and warrant investments in three companies.

2.8 million of depreciation was due to market or yield adjustments in fair value determination and approximately 3.7 million of this depreciation was related to the reversal of prior period appreciation due to loan payoff sale and sales of warrants in equity investment.

We recorded 5.9 million of gross realized gains from the sale of one in equity investments in three portfolio companies and these gains were slightly offset by the right off of a couple of warrant investments and other portfolio companies.

We ended the third quarter of ’14 with total investment assets including warrants and equity at a cost basis of approximately $1 billion. This was net-up by about 16.7 million from our investment portfolio balance of 995.6 million as of June 30th.

This increase was primarily driven by our strong originations and funding activities of new investments, totaling approximately 129.7 million in debt equity and warrant investment. And this was offset again by approximately 117 million of principal payments and proceeds from the sales of investment.

The debt portfolio of company net count increased by three companies from 90 to 93 since June 30th, this change is due to six companies paying us off, offset by the addition of debt investment in nine new companies during the quarter.

As previously noted we also anticipate our debt investment portfolios to potentially increase in the fourth quarter by $40 million to $60 million.

Reminder that debt investment amortization typically commences nice months to 12 months after an interest-only period we have on our term loan and then amortization is scheduled to occur over a 36 to 42 months timeframe.

Apart from early repayments we currently have scheduled amortization of 30 million to 40 million on our portfolio on a quarterly basis. With respect to the credit quality of our portfolio, the credit quality remains very solid.

The weighted average loan rating on our portfolio was 2.07 as of September 30th reflecting a slight improvement from 2.10 reported at the end of the second quarter. We had three investments on non-accrual at the end of the quarter consistent with last quarter.

The cost basis of these three investments is 2% as a percentage of our total investment portfolio and the fair value 0.7% of the total investment portfolio.

On to liquidity again a summary, at the end of the third quarter we had approximately $309 million in total available liquidity which includes the $159 million of cash on-hand and the $150 million of credit facility availability.

As of September 30th, our debt-to-equity leverage ratio including our SBA debentures was 81%, slightly higher than the 72.9% as of June 30th and this was due to the $103 million bond offering we did in July. As a reminder, our $190.2 million of SBA debentures outstanding are excluded for regulatory leverage calculation purposes.

This exemption effectively allows us to leverage beyond a one-to-one debt-to-equity ratio to 1.29 to 1 which means that at the end of the third quarter we had additional capacity to add 314.9 million of leverage to our balance sheet. Our net leverage which is calculated based on total debt minus cash is approximately 56.8% at the end of September.

Subsequent to quarter end approximately 23.1 million of convertible senior notes converted and will be settled with the combination of cash and stock payment.

And as Manuel mentioned we anticipate a $0.01 to $0.02 non-cash impact on our Q4 earnings as the result of the acceleration of origination fees, amortization of the conversion features and issuance of shares attributed to this conversion. Also as Manuel highlighted, we are further bolstering our balance sheet for a sustainable long-term growth.

We priced reprise the term of that securitization of 129.3 million. This is expected to close next week on November 13th, the interest rate as we noted on the securitization was 3.5% to 4%. The present quarter impact of this net additional liquidity for our new asset-backed notes will be an additional $0.01 to $0.02 for the fourth quarter.

Our net asset value at September 30th was 656.2 million or $10.22 per share as compared to approximately 658.9 million or $10.42 per share as of June 30th.

The decrease was primarily due to the issuance of approximately 900,000 shares related to the settlement of the convertible notes in Q3 and secondarily due to slight fair value adjustments to the portfolio.

And finally and as previously noted we will be distributing a dividend of $0.31 to our shareholder and the payment is scheduled for November 24th.

So in closing as Manuel mentioned we are optimistic due to what we’re seeing in the venture debt marketplace we will continue to take a very cautious and steady approach to on boarding new assets in the fourth quarter and into 2015.

We remain committed to our strategy of controlled growth and we intend to continue to apply stringent under-writing standards which have resulted in our seller first 10 year performance and historically low historical lost rate. So with that operator we are now ready to open the call for questions..

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(Operator Instruction) Our first question or comment comes from the line of Troy Ward from KBW. Your line is open..

Troy Ward :.

KBW:.

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Your first part of your question broke up so I am sorry I don’t know the context if you don’t mind asking again we didn’t hear it..

I'm sorry.

You were talking about making changes to the overall platform over the next several quarters, some long term changes to Hercules and whether that includes any changes in the focus on the assets?.

I'm sorry.

You were talking about making changes to the overall platform over the next several quarters, some long term changes to Hercules and whether that includes any changes in the focus on the assets?.

No, no in fact there is absolutely zero interest in not focusing on the asset.

It is much more important to focus on the growing capital needs of a lot of our companies more and more of our companies are continuously pulling us into offering revolvers inventory lines traditional ABL type financings in lieu of the banking community challenges going on out there we are being asked and pulled in that direction so those are some of the things we are talking about doing that we have been kind of teasing the market with as we’ve been exploring those opportunities that are historically lower in margin if you will but also lower in risk.

So by adding the ability to tap the securitization market, for example, I’m able to now originate a lower yielding asset but maintain a nice spread in doing so.

So that one of the things that we’re effectively doing is using that balance sheet much more intelligently to preserve spread but then offer additional new products or capital financing vehicles for our underlying portfolio companies..

Okay, and then similar to that, as we work a lot in the middle market, the regulatory pressures on banks is very evident.

Could you speak to the regulatory pressures, potentially, on competitors in your market -- the tech banks? Do you see the tech banks being more aggressive? Do you see any regulatory changes coming that affect their ability to effectively participate in your markets?.

Okay, and then similar to that, as we work a lot in the middle market, the regulatory pressures on banks is very evident.

Could you speak to the regulatory pressures, potentially, on competitors in your market -- the tech banks? Do you see the tech banks being more aggressive? Do you see any regulatory changes coming that affect their ability to effectively participate in your markets?.

Yes all the above we are seeing a bloodbath of banks going after each other on credit that are typically sub $5 million range, it’s getting to the point of being very-very scary on how low each banks are lowing to go to each other on that pace the wonderful thing about that is because of the regulatory environment those same banks can’t do a large term loan to a cash flow negative company as well as an ABL line or line of credit of the same company and so we are definitely testing that threshold where I think banks having a $20 million-$25 million exposure to a cash flow negative company that is required subject around the venture capital dollars I think we are seeing a inability of banks to really fill that need and address that area in the market.

But anything below 5 million is just horrific. If you are an asset the class originator looking to do $2 million to $4 million loans I feel terrible for you..

Are you seeing any new competition start to gravitate towards that upper level, that $20 million term note? Are there new buckets of capital starting to focus on that market yet?.

Are you seeing any new competition start to gravitate towards that upper level, that $20 million term note? Are there new buckets of capital starting to focus on that market yet?.

No because low level market is even more sophisticated because to quote my mother-in-law, Big deals, big problems; little deals, small problems and so there is a big risk factor when you don’t know what you’re doing and start weighing into venture lending at a $20 million to $30 million level and you get it wrong in a matter 12 to 15 months you will realize you got it wrong and so the venture lending platform in the market is an asset class that typically affords to sell through the partnership process where you want to start small too big and if you want to dare to be big early on my answer is I have some companies I want to show you..

Okay. And then, I know, it’s one more for me. Historically, or more recently, I guess, you’ve talked about sectors that you stay away from. If I recall, clean tech is one of those.

What are you seeing in that particular slice of the market, especially considering the energy volatility that we’ve seen in, call it the last 6 months?.

Okay. And then, I know, it’s one more for me. Historically, or more recently, I guess, you’ve talked about sectors that you stay away from. If I recall, clean tech is one of those.

What are you seeing in that particular slice of the market, especially considering the energy volatility that we’ve seen in, call it the last 6 months?.

I wouldn’t say that Hercules is out or does not care about the energy sector that’s not necessarily at all remotely accurate.

I think that what we said openly is that I think that the energy space to your point is going through a bit of an adjustment right now and I think with the volatility of oil now trading as low as $70-$85 a barrel whatever you want to call it and OPEC now finally making a realization they may start putting back production little bit.

I think that people start getting quite panicky when you're looking at alternative energy space and loosing oil anywhere floating below $70 a barrel people will get nervous and there are some pundits out there they are talking about oil will go to $45 a barrel, I don’t share that view.

But the clean energy industries more than just a renewals and more than just simply looking at bio-fuels or new plastics it has to do with enabling semiconductor technology, enabling screen, in flexible screens, organic screens for iPod, iPhones those kind of things.

So it’s a much broader industry and that’s one that we are actually because of our balance sheet and lack of competition in an energy area, we’re seeing a fairly growing pipeline of opportunities there. And we are absolutely going to capitalize on the energy, the clean energy industry renewal.

So that’s an area that we are actively involve with, an area that has is still challenge and we like to see more capital thing invested in as communications, networking infrastructure those are areas that I think are still under served that I would like to see more capital flow, that’s an area of interest.

The medical device category has gone through some challenging times of like for regulatory point of view and so I think that the medical device industry is probably near-term challenged, but I think there is still has some interesting opportunities there, but you got to be very-very judicious on some of the devices that you're looking at..

Thank you. Our next question or comment comes from the line of Ron Jewsikow from Wells Fargo Securities. Your line is open.

Yes, thanks for taking my questions. Just a quick question on your 2019 bonds, could you remind us kind of what call protection is there on those as they sit today? Because we noticed that you were able to price 10-year bonds tighter than the current rate on those..

Yes, thanks for taking my questions. Just a quick question on your 2019 bonds, could you remind us kind of what call protection is there on those as they sit today? Because we noticed that you were able to price 10-year bonds tighter than the current rate on those..

Those are the 10-year bonds..

No, he is asking about the seven-year bond..

2019, sorry, yes..

2019, sorry, yes..

We have so many bonds now even I am getting confused with that..

But don’t worry I am not..

So the tranching of the seven-year bonds the ones that are done in 2012. Those are a three-year non-call and they start coming off the call projection in April and I think there is three tiers April, May or April, June, September I believe is when the call feature starts running off on those..

Right, about 85 million of the call protections come off in April..

Okay.

And then shifting focus a little bit towards the ABL investments, given that they carry lower yields and probably lower risk, should we expect more funding on the Union Bank facility you just, I believe, lowered your pricing on?.

Okay.

And then shifting focus a little bit towards the ABL investments, given that they carry lower yields and probably lower risk, should we expect more funding on the Union Bank facility you just, I believe, lowered your pricing on?.

Yes, we definitely view the ability of the ABL assets are one that lend themselves much more to a bank financing structure.

And ABL assets, in all earnest we just started a process late in Q2, I mean it shouldn’t take to take, to get a meaningful portfolio there it probably is going to take us a year to achieve like a $100 million, $150 million of ABL portfolio and yes there are lower yields, but as I said because of lower yields we can then match fund those against our bank lines and harvest that spread 300 to 500 basis points..

Yes, it makes total sense. And then just one housekeeping item.

On the Dance pharma withdrawal, was that fundamental, or was that market-driven?.

Yes, it makes total sense. And then just one housekeeping item.

On the Dance pharma withdrawal, was that fundamental, or was that market-driven?.

I refuse and nor will I ever speculate as to underlying portfolio companies will and what they went through to do the withdrawals, so that’s something entirely in a control of their Board of Directors and we have no say or perspective on that..

Thank you. Our next question or comment comes from the line of Chris York from JMP Securities. Your line is open..

I just wanted to touch on expenses a little bit. As you guys talked about in your prepared remarks, planning to continue some strategic changes, add maybe five to eight professionals.

How should we think about your SG&A and operating expenses, I guess, going forward in 2015?.

I just wanted to touch on expenses a little bit. As you guys talked about in your prepared remarks, planning to continue some strategic changes, add maybe five to eight professionals.

How should we think about your SG&A and operating expenses, I guess, going forward in 2015?.

Well, as we have always done and I am sure you're aware of our operating expenses will always lead revenue generation because it takes anywhere between six to nine months for a new originator and new hire to actually become productive, the first six months we are obsessively retraining or reconditioning to Hercules underwriting and so expenses will always lag revenues.

That said, as I indicated in my opening remarks, we expect the hiring process to take probably nine to 15 months. So I think you may see that expenses marginally upward kind of ballpark here, $0.25 million to several million dollars per quarter as we dial in those new hires.

But it's going to be only done as we may dial in two guys or two folks initially and as they become productive we’ll adopt two or three more in and we should step them in gradually not all at once..

Thank you. Our next question or comment comes from the line of Fin O'Shea from Raymond James. Your line is open..

Hi, guys thank you.

Aside from the ABL, on just more generally with leverage, should the market continue to get more aggressive versus your expectations or even call it the minus 20% or 20 basis points a quarter, would you guys be willing to increase leverage to up your earnings profile?.

Hi, guys thank you.

Aside from the ABL, on just more generally with leverage, should the market continue to get more aggressive versus your expectations or even call it the minus 20% or 20 basis points a quarter, would you guys be willing to increase leverage to up your earnings profile?.

Clearly the answer is yes. If the debt capital markets are open and predictable I mean, one of the things that people forget, as our own underwriting because of our competitor our own personal capital raises become also equally competitive on the down side.

So I would like investors being to focus on what is that NIM of the net interest margin of spread and that’s why I spend a lot of time looking at it preserving that because if our yields on the front-end are coming down or being compressed, our yields on the backend from a leverage point of view are equally going down as well.

So it’s kind of the win-win. And so we intend to continue to capitalize the leverage in the balance sheet and pursuing additional debt financing transactions if and when those debt capital markets are attractive and open..

Okay, great. And just one more follow-up related to your general thoughts.

We're seeing color here on a very robust VC market, but also very robust competition on the investing side, if you could just give us your thoughts on that?.

Okay, great. And just one more follow-up related to your general thoughts.

We're seeing color here on a very robust VC market, but also very robust competition on the investing side, if you could just give us your thoughts on that?.

Sure, there is absolutely no question that venture capitalists to venture capitalists are themselves seeing a pretty significant competition with each other and we want to jockeying to make a last run of equity capital investment in that next soon to be IPO pop or big IPO win out there.

So with we are dealing in an environment right now which is very pro-entrepreneurs both from a debt capital provider point of view from themselves as well as from the equity capital provider themselves which leads to higher valuations for their own company.

So if you are an entrepreneur this is a fantastic market to start a company in right now and build one..

Awesome and would you say it's a big positive, also, for the debt providers?.

Awesome and would you say it's a big positive, also, for the debt providers?.

It is because one of the most things that we look for is a fast liquidity turnaround. So as we put capital in this company and achieve an IPO or M&A event that IPO capital comes back to us with the nice capital gains and we recycle that invest in another crop of new company. So it’s a good environment across the board..

Thank you. Our next question or comment comes from the line of Aaron Deer from Sandler O'Neill. Your line is open..

Manuel, I would like to hear about the competitive nature of the market. Can you maybe talk specifically about how that's affecting rates on new originations and I guess let's exclude the ABL stuff since we know that that's lower rate.

But if you look, apples-to-apples, at credits that you're originating today versus a year ago, how much lower are the rates on those credits?.

Manuel, I would like to hear about the competitive nature of the market. Can you maybe talk specifically about how that's affecting rates on new originations and I guess let's exclude the ABL stuff since we know that that's lower rate.

But if you look, apples-to-apples, at credits that you're originating today versus a year ago, how much lower are the rates on those credits?.

So you would be fascinated by this analysis I just did earlier this week.

I went back and looked at the interest rate on our transactions I think it was 8 or 10 quarters, and the most interesting revelation was, from an interest rate point of view it’s absolutely flat for almost a 10 year period of time while the toggle or the differences that you're seeing and manifesting themselves are more surrounding around terms and conditions so that may lead to longer only interest only period, different amortization schedules, different warrant coverages but the rates themselves the coupon themselves are pretty much static.

We have not seen over the last 10 quarters I did analysis much changed in the coupon rates of our loans.

We have certainly seen anywhere between on a fully burdened yield basis you have probably seen a change between 60 to 120 basis points when you kind of look at on apples-to-apples driven primarily from an OID compression as less warrants have been issued..

Are you characterizing what is then a higher level of risk that you're taking on the balance sheet, given the different terms and structure?.

Are you characterizing what is then a higher level of risk that you're taking on the balance sheet, given the different terms and structure?.

Well I know you always like to look at risk that way. I think our risk profile is self evident by continuing historical performance. So the answer is I don’t think we are taking any more risk than we took 10 years ago seven years ago. So I think the risk profile of these companies one and the same and I don’t think it’s changed at all..

Aaron I think that the calibrating point there as mentioned on the call and the prepared remarks to that we have more milestones embedded into these commitments which we are making to these portfolio companies.

So I would say from a risk perspective through the length that we look at these companies the risk is the same or have been improved as we have fine tuned our structuring of tranching out these investments..

And we are walking away from a lot more transactions that we probably had in a long-time. I think when you look at our approval rating from initial interested company to us approving it a year or two years ago we may have been in a 15%, 20% overall approval rating.

I think today we are barely at 8% or 10% of those meaning for every 100 companies we look at we are only approving 8 to 10 of those while two years ago we were probably more like 12 to 15 of those companies as an example so our risk rating or risk approval process has gotten significantly tighter and more difficult..

So there’s other aspects to the credit that are actually getting better that offset maybe a longer IO period or something like that?.

So there’s other aspects to the credit that are actually getting better that offset maybe a longer IO period or something like that?.

Absolutely one of the gaining items of your question is very important is, as previous caller asked as you see a higher level of predictability from an exit.

Meaning that two or three years ago you may be forecasting an exit for that company either IPO or M&A that was three years out today you may be looking at a window that could be a short as 15 and 24 months for example.

And getting a great excess to the capital market the other element of that has to do the with other the two prior callers with the robustness of the venture capital market having $37 billion of invested means of venture community it is pretty much flushed with capital and therefore that capital helps us get our debt repaid and mitigate any downside risk at our companies specially underwrite the right ones..

Okay. And then you guys had some nice net realized gains the past couple of quarters. The unrealized losses, though, have been there as well. And I just want to get a little color on that.

Is that mostly tied to the non-accruals that you have currently? Or are there any specific warrant positions or maybe public companies where there are some marks that are being taken there?.

Okay. And then you guys had some nice net realized gains the past couple of quarters. The unrealized losses, though, have been there as well. And I just want to get a little color on that.

Is that mostly tied to the non-accruals that you have currently? Or are there any specific warrant positions or maybe public companies where there are some marks that are being taken there?.

In the warrant side you can look at our scheduled investment as well in the previous quarter. We all know that there was a lot of volatility around the measurement date of 930.

You’ll see that some of our holdings in some of the portfolio companies that we have in the life science basis have to appreciate a period of good they were a few loans that we did take some impairments on the current on cash pay et cetera. They’re just coming up on some pretty critical fund raising milestones for those particular companies.

And that it should be just both to the depreciation we booked for the quarter, but also as a remainder when we do have a realized gain there was of $4 million slipping out of unrealized depreciation. So we had to book to booking the realized gain so a part of that really just in effectible keeping yes..

Aaron as you know, we have got great lengths in our earnings to have this table that Jessica has really honed in on over the last couple of years which is quite helpful. And you’ll see that collateral based impairment meaning trouble credit impairment is only two point to actually the loan itself is only 2.1 million.

The total collateral impairment is $2.6 million of that. So we got a great length to make sure that investors are able to have a very high level of transparency you will see in this table that shows you the level one and two assets versus level three assets that are impaired on a fair value basis as opposed to credit related..

Thank you. Our next question or comment comes from the line of Christopher Nolan from MLV & Company. Your line is open..

I’ll be really quick here.

Does the strong IPO and M&A market impact your portfolio growth outlook for 2015 as people start thinking about using equity as an alternative to venture debt?.

I’ll be really quick here.

Does the strong IPO and M&A market impact your portfolio growth outlook for 2015 as people start thinking about using equity as an alternative to venture debt?.

Chris you will be surprised with my comment. It’s actually the opposite of that because if you were an entrepreneur and you believe that you can start your company six months from now or a year from now at a higher valuation. The last thing to do is take an equity round today.

So what is going on is when you have a very robust M&A and IPO market demand for debt actually increases quite dramatically which is why you’re seeing our portfolio or demand for capital from us has gone up so dramatically as entrepreneurs all want to preserve ownership with our company and anticipation of an exit or an exit occurring in six, 12, nine, 18 months for now that’s important.

So what we go out of our way to do is we are not there to compete with venture capital dollars or venture capital partners.

So we want to just compliment or supplement those equity dollars so we work diligently both the entrepreneurs and the venture capitalists to find their right balance but yes in a very robust exit market debt demand goes to the roof..

Great and my follow-up is given the robust, or developing venture market, any update to the realized gains that you guys gave guidance on earlier in the year? I believe that you gave guidance of $20 million to $30 million for 2014.

And just given the strong market trends in the venture market, wonder whether you can give any updated color on that?.

Great and my follow-up is given the robust, or developing venture market, any update to the realized gains that you guys gave guidance on earlier in the year? I believe that you gave guidance of $20 million to $30 million for 2014.

And just given the strong market trends in the venture market, wonder whether you can give any updated color on that?.

Sure one of the few things to realize is that often times when a company goes public we may be subject to what’s called a universal banker the investment bank lock up meaning you haven’t lockup and so we may be frozen from selling.

So sensibly any idea that takes place in Q4 we will not be able to monetize that because we’re going to be locked up but slightly through Q1 of 2015. So you have that phenomenon to deal with.

So a lot of the harvesting that you may see occurs in Q4 just so happens to be our public holdings that we have today is those are freely available to trace assuming that we hit the threshold venture valuation that we think is appropriate. So most of that gain is going to come in the form of those pre-existing public companies we have already today..

(Operator Instructions).

Howard I think we are ready to do the closing comments, and I think we're done.

Or do you have anybody else in the queue?.

I am sure no additional audio comments at this time, sir..

So let me make the closing comments, then. Thank you everybody and thank you operator for joining us today. We look forward to meeting with investors over the next couple of weeks. We are going to be in various conferences on the East Coast throughout the month of November.

Feel free, you can look at those conferences on our Web site if you like to meet with us, we have availability, more than happy to meet with our investors at any point of time. Feel free to contact our Investor Relations department. And again thank you for being a shareholder of Hercules.

And we look forward to our conference call on the fourth quarter. Thank you everybody..

Ladies and gentlemen, thank you participating in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day..