Aug 2, 2013
Executives
Manuel A. Henriquez - Co-founder, Chairman and Chief Executive Officer Jessica Baron - Chief Financial Officer, Vice President of Finance and Corporate Controller
Analysts
Greg Mason - KBW Kyle Joseph - Stephens Jonathan Bock – Wells Fargo Aaron Deer - Sandler O' Neill Robert Dodd - Raymond James Douglas Harter - Credit Suisse Kenneth James - Sterne Agee
Operator
Good day ladies and gentlemen and welcome to the Hercules Technology Growth Capital Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later, we'll have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Ms. Jessica Baron, CFO.
Ma'am, you may begin.
Jessica Baron
Thank you, operator, and good afternoon, everyone. On the call today are Manuel Henriquez, Hercules' Co-Founder, Chairman and CEO, and myself.
Hercules' second quarter 2013 financial results were released just after today's market close. They can be accessed from the Company's website 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. I would also like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information.
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 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 identified 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 can also 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 the website, www.htgc.com. I would now like to turn the call over to Manuel Henriquez, Hercules' Co-founder, Chairman and CEO.
Manuel?
Manuel A. Henriquez
Thank you, Jessica, and good afternoon everyone and thank you for joining us today. I'm very proud to report to our shareholders that Hercules had another strong record-high quarterly performance and results for the second quarter 2013.
As we generally do, the [indiscernible] today will include a brief summary of our operating performance and results for Q2, the discussion regarding market conditions including venture capital market activities, the outlook for the remaining of 2013 and of course I'll turn over the call to Jessica, our CFO, to review in more depth our financial performance and specific results of the quarter. Now we'll describe performance of the quarter in summary.
Here are a few highlights of our operating performance I would like to share with you from our strong quarterly results. We had an outstanding loan growth thanks to our continued success at expanding the Hercules brand and awareness to innovative venture capital backed companies by offering customized client solutions to address the needs of development stage companies and of our strong relationship and growing relationship with the venture capital and private equity community which continue to refer deal flow to Hercules.
We have surpassed in the first time in our history the $1 billion mark in total invested assets, this is a remarkable achievement for Hercules and a testimony to dedication of the organization and the hard work of our investment professionals on behalf of our shareholders. We delivered another strong record total investment for income of $34.5 million or an increase of over 44% year-over-year.
On a net NII basis, we achieved a 42% growth year-over-year in net NII of $17.6 million or $0.29 per share compared to [indiscernible] or $0.26 per share. In terms of DNOI, we also saw a strong increase in DNOI with DNOI increasing 42% to $19.2 million or $0.32 a share for the second quarter of 2013.
Because of our strong results, the Board of Directors opted to increase the dividend for the third consecutive time by $0.01 to $0.28 per share. And then finally, our IPO and M&A activities.
The second quarter represented a very strong and robust exit for our portfolio and on a yearly basis having achieved 14 announced liquid events in 2013 so far which compares to approximately 12 exit events that occurred in all of 2012. Not to be left behind, we finished the second quarter with four companies in IPO registration at the end of the second quarter.
These results reflect a continued commitment to managing our growth and solid performance across our business and very strong loan demand for our many portfolio companies. We are very grateful to our venture capital partners and entrepreneurs in their trust in Hercules as one of their capital partners and continue to fund their future growth needs.
Now I'll turn my attention to our portfolio growth. We had an outstanding loan growth thanks to the continued success in expanding the Hercules brand to both public and private technology and life sciences companies.
As part of this growth, we remain steadfast and disciplined in our underwriting of new companies during the quarter. New commitments for the quarter were approximately $253 million or an 82% increase over the same period last year.
This growth was primarily driven by our pulling in transactions that we would have otherwise closed in Q3 that we chose to close in Q2 in order to help some of the early payouts that we received during the quarter. In terms of fundings, fundings were equally strong during the quarter with approximately $202 million of fundings that took place during the quarter and interesting enough we saw return back to our funding ratios of approximately 75% funding ratios when we historically have been expecting a 55% to 65% funding ratio.
Although this is a departure from the most recent past, we suspect that this is still not a trend but one that we are watching as we may find ourselves returning back to historical levels of 70% to 75% funding rates. However I want to caution everyone that this does not necessarily mean that we are returning back to 75% funding ratio.
We are monitoring this ratio much more closely and we suspect that we should maintain a 55% to 65% funding ratio to commitment, and I'll expand on this further in the discussion as well. Total principal repayments, as we indicated earlier, we saw a very robust and very strong principal repayment.
In fact, during the quarter, we experienced $130 million of early principal repayments and this was mostly driven by us, Hercules, purging out most of the credit and more importantly rebalancing our portfolio as we continue to invest our cash, we've chosen to exit some of the more mature later stage companies that will lower margin yield, and by doing so, the effective portfolio yield go up as we exit those lower margin transactions that historically went in our books. On a net result basis, net portfolio growth for the quarter was approximately $72 million on a cost basis and represented about $30 million to $40 million higher than we anticipated as we pulled in additional transactions from Q3 to Q2 as we said to help stem some of the early payouts that we were experiencing.
As a reminder, the majority of these payments continue to fund at the end of the quarter and in fact most of these transactions that we referred to were pulled in from Q3 to Q2 actually closed in the last two weeks of the quarter which made little impact on earnings occurred with these assets being brought in into the second quarter. However the benefit of that is that we commenced the third quarter with a much stronger loan balance which means you have a higher weighted average dollars in the third quarter of assets originate assets that are earning interest income.
Now, let me take a moment to talk about our Q3 perspective as well as some of the views for 2013. I will expand on these pillars in discussions post my discussion on the venture capital community.
However let me take a few seconds here to speak about Q3. At this point, we just think Q3 to be flat to down between $40 million to $60 million in net new originations.
This is driven in part with our expectations on early payouts that we are anticipating during the quarter of Q3 coupled with the lower origination activity that we typically see in the third quarter in Hercules history. This is an important segment to note because as we're seeing this early payouts, this is another driver why we actually brought in transactions to the beginning of the quarter to help drive higher earning assets at the beginning of the quarter.
But it is important for the investors to know and the analyst community to realize, that right now we are forecasting flat to potentially down $40 million to $60 million in net new asset growth primarily driven by early payouts. If those early payouts were to manifest themselves, as expected, you could see proportionate increase in fee income which would simply offset any decline in that portfolio that may occur in that period of time.
Additionally, we are seeing an increase in net amortization in the quarter. We now expect to see amortization in the $35 million to $40 million level and we expect to see amortization also increase in the fourth quarter fairly above that level as well.
As I mentioned just a few seconds ago, early payouts in the third quarter are expected to be potentially $40 million to $70 million. However I need to stress the importance of this comment.
Most of those early payouts that we are aware of may or may not occur because they're triggered by the transactions that the underlying portfolio company may necessarily not accomplish on the expected period of time during Q3 such as an M&A event or an IPO event that would be leading some of these early payouts. I'll remind our shareholders that we do not control the timing of these early payouts and so these early payouts as I indicated will be driven by external events such as M&A and IPO events that may or may not occur.
In terms of investment portfolio, we continue to maintain a high bar and cautious on continuing to originate new assets. This is indicative of the [indiscernible] cash balances declining [$70 million] (ph) from that of Q1 of over $200 million.
We will continue to deploy our capital in a cautious and controlled manner and we're highly selective in the assets that we will originate and fund during the quarter. We are not in a rush to simply deploy all of our cash proceeds and to earning assets at this juncture.
We have positioned our portfolio for stronger growth in Q4 and Q1 of 2014 and as we convert this early cash which I'll speak to you later on in the call you'll see the impact on earnings as we convert the $130 million in cash into earning assets. I'd like to reinforce, I remain extremely optimistic and bullish by the outlook for 2013 through our new investment activities and in fact we had increasing our consensus in terms of guidance in terms of new originations.
We had previously stated that we expected 2015 to represent $500 million to $700 million a year in the originations and we are at this point increasing that guidance on the originations to $550 million to $750 million and that may also increase further at the end of 2013 as we re-evaluate the continued robustness of the market and demand for loan that we're seeing in the marketplace today. In terms of credit, our credit performance and credit outlook remains stable.
We remain very diligent in credit monitoring and we continue to track and monitor a handful of companies that are on our watchlist which are typically going through typical rounds of capital raising as part of the normal cycle. There is currently nothing in the credit side of the equation that is of much concern other than normal course in business as we watch and monitor our credit performance.
As we last outlined during our last earnings call in Q1, we're still seeing some early signs of [indiscernible] in the marketplace today. This is the reason why we remain cautious in our approach to deploying capital and we remained very steadfast in those conditions of credit that we will underwrite and any kind of considerations or margins that we would require in order to underwrite certain risk parameters that we're comfortable with.
We generally continue to remain on the sidelines on many early stage investments. We are also concerned about the technology companies outlook especially in terms of some of the rich and robust evaluations that we're seeing and also thin margins in underwriting that we are seeing in terms of technology investment opportunities in the marketplace today.
So because we perceive a high degree of risk than normal in some technology transaction that we're seeing today, we will remain underinvested in technology for most likely through 2013 and we should start seeing a pickup in technology investing most likely in Q1 of 2014. That said, valuations remain a challenge for us.
We continue to see a very rich and robust evaluation in many of the privately funded technology companies that we see. We are deriving the benefit of some of those higher valuations in our own warrant portfolio and equity portfolio as we've seen increases in asset values driven by some of those increases in valuation.
However, some of those valuations on some new investment opportunities give us pause as we think that some of the private companies may be slightly overvalued as compared to the public peer groups that exist on the marketplace today. Yields, unlike other [indiscernible] in the marketplace, Hercules continues to experience widening yield spread as we have seen our yield increase by 60 basis points over the last two quarters.
This is driven in part by our own doing as I indicated earlier as we turn to our portfolio and begin to purge marginal asset and we begin to cycle out more mature lower-margin assets the near effect as we expire those assets from our portfolio, you will see a natural lift in the aggregate yields in our overall portfolio as those larger credits that were lower yielding are actually paid off or refinanced away from our portfolio. I want to stress, the earlier repayments is in part driven by us as we help to purge some of those lower volume credits as we continue to employ and deploy our cash balances in the marketplace today.
These lower margin credits and lower yielding credits will most likely end up finalizing themselves at the end of Q3 at which point we don't expect to see much more margin expansion in our yields beyond Q3. I'd like to stress the importance of that.
Moving to the balance sheet, we have worked diligently over the last few years to successfully broaden and [indiscernible] our access to liquidity. Our balance sheet is a source of strength for Hercules and a strategically important part of our capital deployment model.
We have worked diligently to ensure that we have a balance sheet that's properly positioned for rising rate environment. Our entire left hand side of the balance sheet or assets, 98% of our assets are all floating rate loans with LIBOR or Prime based floors.
Commensurately, our right hand side of the balance sheet, our liabilities, are entirely all fixed rate in nature which also includes our securitization. We have received many phone calls and many questions regarding our securitization.
I need to emphasize and stress that our securitization is also a fixed rate in nature and not floating-rate. We have no outstanding liabilities today that are floating rate and the earliest maturity of our existing liability structure with [indiscernible] securitization is a convertible debt instrument and that convertible debt instrument has no principal payments due until April 2016.
This is an important integral part of our capital strategy and access to liquidity that we've put in place over the last two years. I'm proud to say that we finished the quarter with a source of strength of the balance sheet of about $239 million of liquidity which included approximately $130 million of cash at the end of the quarter.
As a matter of illustration, it is reminded to our shareholders and our analyst community we have enormous strength in our balance sheet as we continue to deploy our cash balances. As an example as a matter of illustration, a warrant would assume that $130 million of cash on the balance sheet were to be deployed or invested at 12% to 14% current cash yields.
That invested cash will be earning $0.25 to $0.30 in annual additional earnings growth per share by the mere fact of converting that cash balance into earning assets. I can assure you that is our goal and objective for the remainder of 2013 but we remain cautious in doing so and it is the expectation that you should see that cash conversion continue to take place in Q4 and early Q1 of 2014.
That fact alone will and should drive earnings further as we do that deployment. That $0.25 to $0.30 in earnings growth excludes any additional leverage that we utilize further that will also drive earnings in that model.
Turning my attention to leverage, a net GAAP leverage which is very important to note, the net GAAP leverage defined as total leverage today less cash on the balance sheet is approximately 71%. We have plenty of room to grow on our leverage in if we chose to with approximately another $269 million of additional debt capacity that we can borrow and leverage our balance sheet further driving earnings growth that could represent anywhere between $0.30 to $0.40 in additional earnings if we choose to do that and leverage our balance sheet, very strong balance sheet for earnings growth for our shareholders in position in the market today.
Now, let me turn my attention briefly to the action events in IPO activity and M&A activity in our portfolio. The second quarter of 2013 represented a pivotal accomplishment for Hercules.
We experienced a very robust M&A and IPO exit and healthy gains for our warrant and equity investments thanks to the improved exit markets for venture capital innovative companies. During the quarter, we realized increase in valuation in many of our 120 warrant positions as well as many of our 40 equity positions that we have to some of the best and most promising pre-IPO M&A venture capital backed innovative companies.
As I said in my opening comments, we've experienced a robust exit in our portfolio as well. We achieved 13 portfolio companies exits during the quarter and ironically with one company that did a [indiscernible], they did an IPO as well as completed an M&A event in less than 30 days I have not seen that since the late 90s and it was a testimony to our management team selected to liquid portfolio companies.
It is something that is interesting to see in the portfolio giving us 14 liquid events for 13 companies in the portfolio. As further evidence of this robust exit environment, in the first 30 days of the third quarter, meaning basically just July, we have all experienced and as you see outlined in our earnings press release and subsequent events, six additional M&A events that occurred so far in the first 30 days of the third quarter, very very strong exit being realized in our portfolio that I have not seen in quite some time, certainly not in the history of Hercules.
As I said earlier, we also completed two IPOs during the second quarter and the six announced M&A events that were previously announced in the second quarter, a very strong representation and a testimony to Hercules' continued selection of some of the best innovative companies in the venture capital community. As I said earlier on the IPO front, we had two IPOs, we had Omthera which is a company that both went public and shortly after going public, AstraZeneca announced that it's acquiring the company for over $443 million.
We all saw the completion of the IPO of [indiscernible] Pharmaceuticals. Again at the end of the quarter, or as of today I should say, we have four companies in IPO registration today, three of which are JOBS Act companies and we're seeing a much higher usage of the JOBS Act confidential filings that we expect to see an increase certainly going to Q3 and absolutely expecting to see an increase in IPO registration in Q4 for some of our companies.
I will not go through specifically all the transactions that occurred so far in the first 30 days of July, all those companies will be highlighted and showed in our subsequent events and disclosures in our earnings release giving you specific details of those six events that have taken place in the portfolio today as well. Turning my attention to our warrant portfolio, we finished the quarter with 120 different warrant positions which had an aggregate GAAP value of approximately $35 million.
I want to stress and emphasize to our shareholders that typically he have been experiencing exits in those warrant portfolios of 1x to 14x. We are not advocating nor do we say you should be modeling 1x or 14 X.
On a historical basis we have been averaging approximately 4x net realized in our current warrant portfolio on an historical basis and we'd like to remind our shareholders that we only expect 50% of that warrant portfolio to ever monetize. The nominal value of that warrant portfolio is approximately $75 million if it were to be exercised.
Turning my attention quickly and finally to the venture capital industry, I was pleasantly surprised and happy to see that the venture capital fundraising activity has picked up once again and in fact the venture capital fundraising, this is a venture capital [indiscernible] raising capital to deploying, raised $6.8 billion during the second quarter. This is compared to $4.6 billion in the first quarter of 2013, an impressive 48% increase in capital fundraising activities by the venture capitalist and more importantly at a run rate that currently exceed the capital raised in all of 2012 if they continue the pace which they are doing which equates to approximately $11.4 billion raised in the first half of 2013, a good start for the venture capital market place and a good recovery for Q1.
And in terms of investment activities, also closely surprised in the activities we're seeing there. We saw that the second quarter of 2013 saw investment capital increase by 7% to approximately $7.2 billion which were invested in 800 portfolio companies.
This compares favorably to the first quarter of 2013 where $6.7 million was invested ironically to same number of companies, 800 companies at the time. For the first half of 2013, total investment venture capital activities showed a nice sign of rebound at $13.9 billion to approximately 1600 companies.
Although we're seeing a nice pickup in the venture capital marketplace it is Hercules position and expectation that we are forecasting and expecting to see approximately 10% to 12% decline in venture capital activities in 2013 as compared to 2012 or said differently Hercules is expecting seeing $26 billion to $28 billion of venture capital dollars invested in calendar 2013 to innovative technology and life sciences companies. In terms of exit by sector or I should say capital deployed by sector, information technology remained the largest category receiving approximately 29% of the venture capital dollars, or $2.1 billion of the total capital invested in the second quarter.
Life sciences remains very brisk with $1.9 billion of the capital invested or 26% of all venture capital dollars going to life sciences or healthcare companies. We've all seen a nice pickup in business services and financial services companies which also received 18% of the capital or approximately $1.3 billion of the capital.
Not to go behind and not a surprise given the IPO market and given some of the appreciation that we've seen in some of the public Internet companies, consumer services which includes social media saw a very robust increase of 40% of the capital and represent 80% of all the capital dollars invested in venture capital or about $1.3 billion. Finally on assets, IPOs doubled from Q1 to Q2, 18 companies completed IPO offering, two of which were Hercules companies representing 11% of the IPO companies M&A event which was very strong for Hercules although saw a slightl decline in just the number of companies doing the exits, it saw an increase in valuations of those achieving exits in the second quarter of which 84 companies completed M&A events which compares favorably to only 87 companies in Q1 raising or achieving dollars of $4.8 billion versus the $8 billion of those that achieved exits in that period of time in the second quarter M&A event.
Lastly and finally, as I said earlier, our outlook for 2013 and the third quarter of 2013, we expect to see the quarter end up between flat to down $40 million to $60 million mostly driven by anticipated early payouts that may or may not take place. Clearly some of those payouts do not take place, the portfolio should render relatively flat to down slightly on just a normal amortization as occurred during the quarter.
It's very important to note. Our early payouts we're forecasting or aware of $40 million to $70 million in projected early payouts that may take place driven by M&A and IPO events as I disclosed earlier.
As a reminder again, [indiscernible] amortization is in the $30 million to $35 million range in the third quarter as we disclosed early on as well. And then again, re-summarizing this, we anticipate that the [indiscernible] funding ratio through our commitment to maintain it at 55% to 65% range and that we think at this point the 75% funding ratio in Q2 was an anomaly that we're going to watch very closely.
As I wrap up my summary overview, the pipeline at the end of July was quite robust. We have over $1.3 billion in investment opportunities that we are cycling through and analyzing.
We have over $187 million of unfunded commitments that we have potentially available to fund some portion of that continue to fund milestones being reached. We've already closed $39 million of commitments and we funded approximately $9 million to close all these second quarter thus far.
We have clearly $43 million in signed term sheets as we speak as of today and we are very optimistic in our outlook specifically for Q4 and we continue to be very bullish on the outlook of the venture capital marketplace as we see it today. 2013 is off to a very strong and healthy start.
I am very pleased with our performance, I'm very happy to see our team continue to commit to new asset organizations and I'm very pleasantly happy to report that we continue to be judicious in our selecting of companies and maintaining a strong credit book and credit outlook as we've guided in the history of Hercules today. We continue to expect to see an increase in pickup in venture capital marketplace exits and we are long enjoying an awaited pickup in those exit activities and you'll see that manifests itself further in Q4 and Q1 of 2014.
We expect to see some significant exits in our portfolio and our warrants that we have today of some high-profile companies in our portfolio that we are aware of that should or may complete IPOs in that period of time. We are very pleased to report strong execution across all business lines, we'll well positioned to the interest-rate increase, we have a well diversified balance sheet, we have a strong robust balance sheet, we have over $130 million of cash that we can deploy to earning assets that represent 25% to 35% earnings, and to continue to grow and expand the Hercules franchise we continue to evaluate and explore new strategic initiatives, we're continuing to evaluate multiple different new product offerings to [indiscernible] our financing solutions to help our portfolio companies grow further, we are engaged in active negotiations and discussions with strategic options as I said earlier, and as an important part of our strategy, we are committed to making Hercules one of the strongest specialty finance companies and the company of choice for innovation companies to finance themselves at all stages of development.
With that, I'll turn the call over to Jessica, our CFO. Ms Jessica?
Jessica Baron
Thanks Manuel and thanks everyone again for listening today. I'd like to remind everyone that we filed our 10-Q as well as our earnings press release after the market closed today.
I'll briefly discuss our financial results for the quarter and through June 30, 2013. Turning to the operating results, as Manuel mentioned, we delivered a record total investment income or revenues of $34.5 million, an increase of 44% when compared to the second quarter 2012.
This year-over-year growth was driven by increased interest income from higher average outstanding balances of yielding assets and an increased income attributable to loan fee accelerations compared to the same period a year ago. Note that our period and [indiscernible] have been done on a cost basis, so $967 million as of 6/30 of 2013, an increase of close to 50% from $661 million as of June 30 of 2012.
The GAAP effective yield on our debt investments during the second quarter was 15.7%. Excluding the income acceleration impact from early payouts and one-time events, the effective yield for the quarter was 14.2% up approximately 40 basis points relative to the previous quarter.
As Manuel mentioned we do not expect yields to trend higher much beyond Q3 assuming some of the anticipated early payouts occur as scheduled. Interest expense and loan fees were approximately $8.8 million during the second quarter of 2013 as compared to $5.2 million during the second quarter of 2012.
The increase was primarily related to interest and fee expenses related to the total $170 million of baby bonds issued in April and September and the $129.3 million of asset-backed notes issued in December of 2012. This is all partially offset by the decrease in interest and fees related to our refinancing of approximately $50 million of SBA debentures that transpired all over the course of last year as well.
Our weighted average cost of debt comprised of interest and fees was approximately 6% as of the second quarter of '13 versus 6.7% during the second quarter of '12. The lower weighted average cost of that is primarily attributed to the asset-backed notes which we issued with our securitization in December of '12 which [indiscernible] at 3.32%, obviously having a weighted average cost lower and that brings that total cost of debt down.
Operating expenses for the quarter totaled $8.2 million as compared to $6.3 million in the second quarter of 2012 and the increase is primarily due to increased headcount, variable compensation, accruals and additional restrictive stocks grants during the first quarter of '13. Q2 of '13 net investment income was $17.6 million compared to $12.3 million in the second quarter of '12 representing the increase of approximately 43%.
Net investment income per share was $0.29 for Q2 of '13 as compared to $0.25 for the same quarter ended 2012. Our net unrealized depreciation from our loans, warrants and equity investments for the second quarter was approximately $800,000, given by $5.9 million of warrant and equity net per value appreciation offset by approximately $5 million of net debt investment and realized depreciation.
Note that of this $5 million, fair value reduction incurred in the debt portfolio, $4.1 million of the total was due to yield based fair value adjustments and $1.2 million of his depreciation was attributable to collateral based impairments on investments in nine portfolio companies. Our net realized gains for the second quarter was approximately $2.2 million.
We recorded $6 million of gains from the sale of investments in seven portfolio companies offset by the liquidation of the company's investments in six portfolio companies for growth realized losses of approximately $3.8 million. Our net asset value as of June 30 was $621.8 million or $10.09 per share compared to approximately $650 million or $10 per share as of March 31 of '13.
As noted earlier, we have seen significant growth in our portfolio over the last year as a result of our debt investment origination activities. [indiscernible] second quarter of 2013, the total investment assets including warrants and equity at fair value of approximately $1.04 billion, an increase of $380 million or 44% from a year ago reflecting continued growth of our net new originations.
I'll remind everyone that amortization [indiscernible] after a 9 to 12 month interest only period on our term loan and is scheduled to occur over a 36 to 42 month timeframe. Given the recent growth of our investment portfolio, apart from earlier payments as we mentioned we now model $30 million to $40 million for normal principal amortization per quarter.
Moving on to credit quality, as Manuel mentioned, our loan portfolio credit quality remains very solid. The weighted average vote rating of our portfolio was 2.11 as of June 30 reflecting a slight increase from 2.03 at the end of the first quarter.
We had two investments on nonaccrual at the end of the quarter with one with a fair market value of approximately $5.5 million and a cost basis of $9.5 million and one loan with no fair market value and a cost basis of approximately $350,000. Now to liquidity, at the end of the second quarter, we had approximately $238.9 million in available liquidity which included $133.9 million of cash and $105 million in credit facility availability.
At June 30, our debt to equity ratio excluding our SBA leverage was 92.9% lower than 95.4% as of the end of March 31st, 2013 due to organic asset value growth and approximately $10 million of paydowns on our cost based securitization note. We also would like to remind everyone our $225 million of SBA debentures are excluded for regulatory leverage calculation purposes, thus the exemption effectively allows us to leverage beyond the one to one debt to equity limitation to 1.36 to 1 which means that at the end of the quarter we have capacity to add incremental debt of approximately $270 million.
Our net leverage was as calculated as total debt of approximately $578 million less approximately $134 million in cash, divided by total equity of approximately $622 million or net asset value of $622 million was 71% at the end of June. Finally as Manuel mentioned, we increased the quarterly dividend by $0.01 from $0.27 to $0.28 paid to our shareholders in August.
So in closing as Manuel mentioned we will continue to take a cautious and steady approach to onboarding assets in the third quarter. Note that we currently expect note portfolio for Q3 to be flat to down $40 million to $60 million driven by the potential for increased early payoffs anticipated in the third quarter as well as the typical calendar low of investment activities we see during the third quarter summer months.
We remain committed to our strategy of controlled growth and intend to continue to acquire stringent underwriting standards which have resulted in our exceptionally low loss historical rates as we enter the second half of 2013. Operator, we are now ready to open the call for questions.
Operator
(Operator Instructions) Our first question comes from Greg Mason from KBW. Your line is open.
Greg Mason - KBW
I wanted to see if we could first talk about the potential gains on the exit post quarter end, most namely iWatt, I believe the equity was written up from $1.1 million of fair value in the first quarter, it is now $5.3 million at the end of the second quarter, does that reflect kind of the final takeout value from dialog or could there be potential additional accretion in both iWatt as well as all of the post quarter end exits that you had?
Manuel A. Henriquez
Sure, let me address that first quarter end event, this is very important and this is reflective of what I've been advocating now [indiscernible] the value of Hercules which is at this juncture we always think that 50% of warrant portfolio may never monetize any real value meaningful value. And in the example of the six or so events that have happened now subsequent to the quarter end, iWatt being the outlier, the rest that was in that group represented little to no real gain to speak of and that's why most of them will see a scheduled investment, have historically been carried at relatively low value to no value on that.
So it's up in the case of some of these warrant positions that we have may not monetize in the 50% in non-monetization. Now clearly I wish all of them were iWatt or better but they are not going to be but iWatt is certainly an outlier and iWatt now, that realization in value that was indicated in subsequent disclosures section does represent the fully picked value and you will see that increase in the Q3 financials in any of these that we finally cut it.
As a reminder variably on the iWatt question, the iWatt was a bit of a surprise, iWatt is all the time is a case you saw that earlier with a company called NX Capital, a company that also had IPO registration, it too got acquired while there was the IPO registration very similar to what iWatt did and because that information is difficult, fair value becomes hard and ultimately go off of is generally the IPO fundings that they have with the company and iWatt got a premium even above that. So a good outcome there indeed.
Greg Mason - KBW
And is the potential premium above your current $5.3 million mark, is it meaningfully above that or just slightly?
Manuel A. Henriquez
No, because the accounting rules happen what then happens that occurred so quickly after the quarter, you have an accounting aspect which is you can market upwards such that that gap is going to get closed. So at quarter end when that actually happen, the gap between the value and the ultimate value being realized is pretty tight.
So it is fully recognized into the net asset value already.
Greg Mason - KBW
Great. And then I just wanted to talk about potentially where your focus is on maybe moving into some larger portfolio companies, I kind of looked a year ago when you had five loans with a size of over $20 million and I think that number is up to call it 10 loans today and four of them are over $30 million when we look at Box [indiscernible] Jab, can you talk about is there a shift to moving into larger deals, why would you do that and what's the attractiveness of doing that?
Manuel A. Henriquez
Sure, a couple of reasons. We're going up and as we go up, those people tend to forget that just in 2010, our net asset value our net assets were about $400 million and today they are north of that obviously, and what we have to do is that the short duration [indiscernible] focus in our business it is similar, steel companies observe 80% of their net asset values.
And so as we've got bigger, we were able to pursue those larger transactions as well and by pursuing those large transactions we're able to get widening spreads and better credits for underwriting positions. And so that's one of the reasons why we are doing it.
In terms of the investment book and the comparatives [indiscernible], most of you tend to forget and you'll see that in our 10-Q filing is that just in 2010, we ended up with $472 million industrial portfolio and today we're over $1 billion. So that gives you the indication that we're growing and as we grow we're able to kind of work with a $200,000 company that's looking for capital to a $40 million company that's looking for capital.
However when I look at margin credits, the underwriting prerequisites for larger credit, larger investment opportunity, are much more stringent, much more rigid, and because of that we see a lot more enterprise value and in doing so you'd see a better ED coverage on a more tangible basis when you're looking at large credits when we go into those larger transactions that we're doing today.
Greg Mason - KBW
I was curious about your comment that you could actually see wider spreads on those larger companies, it would seem intuitively that they are bigger, better, they should be able to get cheaper financing. Can you comment on why you can find wider spreads there?
Manuel A. Henriquez
Because these companies are not available on market credits, they are not capable of ABL lending and they are not capable lending on multiple of EBITDA, as often is the case which is most of what we do for living is that most of these companies do not have EBITDA and sometimes they only have revenues to begin with. So the art of what we do and the size of what we do is a combination of looking at extrapolating what the value is in the infrastructure of these companies and determining what is the enterprise value on the adjusted basis that we deem to be appropriate for those companies, so typical banking underwriting.
It doesn't necessarily lend itself to that area because you don't have traditional ABL or EBITDA multiples to go off of. It is much more of a specific craft that our team has here which like Hercules is the largest provider of capital in that segment of the market and it's a highly specialized team, you need to have experience in doing that and we currently are one of the few players that have the capabilities to do transactions of that size in those areas.
Operator
Our next question comes from Kyle Joseph from Stephens. Your line is open.
Kyle Joseph - Stephens
Can you give us the fair value of the company that have been sold or are in definitive agreements to be sold at this quarter end?
Manuel A. Henriquez
Most of those you'll see are scheduled [indiscernible] properly here at general value and most of them was invested, so as I said in the previous question, the majority with exception to iWatt are basically a good action event for a company, but because of these prices or the work that they may have, that [indiscernible] warrants maybe underwater, and we may be for example in a $100 million valuation, the company got sold for $90 million for example which is why we've been advocating for time immemorial that 50% of the warrant portfolio may never monetize and the other part that does will monetize handsomely as well.
Kyle Joseph - Stephens
But do those companies make up the majority of the $40 million to $70 million I think you said in expected repayments this quarter?
Manuel A. Henriquez
No, these are, the five disclosure events are warrant driven events, the $40 million to $60 million are M&A or IPO events that are different, that haven't been announced yet that we are potentially we are aware of but they are themselves are still in negotiations with the potential acquisition partners or filing their S-1 or going through the JOBS Act S-1 for example process.
Jessica Baron
If you look at the names of those companies, and [indiscernible] in fact for most of them you see we won't have a debt position outstanding. If you want to go back, you can see that we did have debt position to the majority of them that they were warrant position but we were paid off in full in previous years on those debt investments.
Manuel A. Henriquez
Most of these are quite old legacy investments.
Kyle Joseph - Stephens
Thank you for that clarification. Can you give us the yields on repayments in the quarter and yields on new commitments?
Jessica Baron
I can't give you the exact figures but we have pulled those analysis together as we've been asked that question previously and the exiting yields are between 150 to 200 basis points which is lower than the new investments which we're bringing on onboard.
Kyle Joseph - Stephens
That's helpful thank you. And then Manuel you have spoken in the past probably about potential investments in smaller type companies that have actually gone public but are still in need of funding, is that market opportunity still there and was a portion of the second quarter capital deployment into those companies?
Manuel A. Henriquez
No, we continue to study the so-called public orbit which is really been one of my thesis just as we started Hercules that we will go time to time looking at investing for those public orbits or those falling angels as they are also known which I previously mentioned about companies that are public. We're seeing dislocation in evaluations currently meaning in layman terms that we're seeing federal opportunities investing in some of those public technology basic companies that we're seeing in the private venture capital companies that we think are quite helpfully valued and we're kind of scratching our heads on the additional incremental returns that you can make on those investments both to the widening, wider or better returns that you can make for some of the public companies that are out there today.
So we have purposefully underinvested in technology. I think we'll continue to be underinvested in technology for most of the 2013, we have brought down the portfolio purposely so and you can expect to see the technology book begin to grow probably in Q1 2014, so steady-state in technology is probably what you should expect and we are still looking at some of those public opportunities out there, but as you may know many public companies have other challenges as well in the evaluating process on making investments that we are still going through our analysis on.
Kyle Joseph - Stephens
Got it, thank you. And then last question just on the securitization, it looks like it's running off about $10 million a quarter, is that a good run rate going forward or is it going to be more of a 10% range?
Jessica Baron
I think that's a good run rate for the next two quarters.
Manuel A. Henriquez
As you know eventually when we get to a certain threshold, they'll go into what's known as more super amortization which is don't take [indiscernible] but at least for the next two or three quarters, that's probably a good run rate.
Kyle Joseph - Stephens
And then are you guys looking at doing another one given the attractive cost of funds there?
Manuel A. Henriquez
I think that we are certainly looking at as I said in my opening comments or actually remarks, we're continuing to diversify our source of funding on the balance sheet, we're dramatically driving lower our cost of capital and so securitization is certainly one of the factors in doing that and one which we'll pursue quite diligently. So the answer is, certainly in the near-term the answer is yes, as to the near term being the next 3 to 9 months is probably the right window.
Kyle Joseph - Stephens
Alright, great. Thanks for answering my questions and congrats again on the great quarter.
Operator
Our next question comes from Jason Bock from Wells Fargo. Your line is open.
Jonathan Bock – Wells Fargo
This is Jonathan Bock, and just one quick question actually for you Manuel, interested in the higher yields that you're getting on the portfolio, can you walk us through I mean obviously the competitive dynamics is relatively favorable in terms of the interest in general in this space as well as activity, so would you say those yields it's better yields that you are getting on investments are a function of your willingness to take lower warrant coverage or a function of the fact that the environment is just generally better and spreads have widened a bit?
Manuel A. Henriquez
Let me correct a mistake that if you don't mind I apologize for that, we honestly advocate that we're getting a higher yield per se, what we're saying is that as we re-look down to portfolio moving away from a more mature established companies that we have legacy investment in that the mere fact that move is say 10% yield loan on our investment portfolio today, that say the $30 million loan and then I replaced it with two $10 million 13%, 14%. yield loans, the mere fact that as I lose those $30 million legacy loans that are 8%, 9%, 10% coupon rates, just by removing those away, my weighted average yield could go up naturally.
So it's not that I'm getting higher disproportionate new yields, it's that I'm not doing historically lower yield mature companies that I did in the past.
Jonathan Bock – Wells Fargo
Okay, I appreciate that. Now does that actually kind of comes into the general view of where value sets in and that Manuel I mean really a focus on later stage companies would you kind of say as you start to look at these kind of smaller perhaps newer stage companies that that proportionate value is just in early stage or is there may be a growth stage of a company that's not yet EBITDA positive but about to be and that's still a good sweet spot with which to make excess return?
Manuel A. Henriquez
I think certainly it's the latter versus the former on that comment, so yes I think it is more in that higher growth rate in the early stage. We think that some of the early-stage valuations are I'll say nonsensical, I don't understand, I did this for 30 years and I'm saying early-stage valuations that I just scratch my head and say okay let somebody else so it, I'm not going to do it.
They are just way too silly, they get to a point silliness. And so I'd rather wait it out on some of these companies that I think we need a little bit of a valuation correction in the market, or said differently, I need to see some of the public technology companies appreciate and value and I think you start seeing this week with the LinkedIns of the world, the Facebooks of the world, but then again [indiscernible].
So it's getting a mixed bag of valuations out there today. The technology as most of you will realize it, that the technology index has a disturbing [indiscernible] in the borrow market indexes today and that's what we have been looking at seeing this dislocation in the value in technology investing.
So this is why we are taking our time on technology investments, but people need to understand hurdles about market share operation. I don't really care if I own 20% market share or 80% market share, I have no idea what that means if we want an investment.
So we need to make sure that we are achieving the credit and risk profile that we are looking to underwrite to and gain the proportionate spread of yield that we need for our business. So we are maintaining the high levels of activity and be lesser concerned about volume in our business.
And so with that statement, we are kind of more sheepish on there, on tech private today, at least for the continued most of the 2013 and we're hoping that the realignment of valuations and that will occur in sometime in Q4 or early Q1 2014.
Jonathan Bock – Wells Fargo
I appreciate that, and then just a question about, perhaps I missed it I hopped on the call a little later, but looking at the substantive cash balance, what is the right amount of cash liquidity to have on the balance sheet, you've been very conservative and you always choose to protect the balance sheet first and that's obviously shown in the valuation but the question is we do have two facilities that have yet to be drawn on and so maybe can you walk through the need to deploy that cash versus also raise additional equity capital in advance of strong quarters of 4Q the latter half of 13?
Manuel A. Henriquez
So as I said in my remarks I want investors and the analyst community to really understand this, this is important, you [indiscernible] you want, if you assume $130 million of the current cash balance were to be deployed in earning assets between now and Q4, that mere act whether it's 12%, 10% or 14% interest rate you're looking at accretive earnings EPS growth of anywhere between conservatively 10% probably at $0.20 a share and at 14% probably close to $0.30 a share. So very, very impactful in our ability to convert that cash into earning assets that we will do.
And because we are internally managed, we won't have any incentives simply to go and originate assets and go raise capital and to lure our shareholders, we're very cognizant of that and very, very deliberate in not doing that act itself. So specific to your question is that how should you look at the minimum cash balance historically at Hercules I looked at the cash balances to be a bit of a cushion for the unfunded commitments.
It wasn't until fiscal 2011 that I moved that model to start staying that unfunded commitments will be mostly funded by our bank lines and that's why moved to the unfunded commitment ratios to be much more in line with our bank lines. Another point to note on how we treat our change in velocity on unfunded commitments is that historical ratio of commitments to funding ratio that over the nine years of Hercules lifespan typically average between 70% and 75% commitment to fund ratio.
What that means is for every $10 million of commitment I only expected to see $7.5 million to $8 million for $10 million actually get funded. Today the last three quarters, Q4 of 2012, Q1 of 2013 that ratio was more modulated downwards into the 60% to 65%, meaning for every $10 million we were only expecting $6.5 million to fund.
Why is that? Because as we move into work at certain outlook on credit, we have purposefully structured into our deals the commitment to funding ratio is driven now by performance-based milestones by which those performance milestones are met meaning unfunded commitment we'll fund, we're funding into a company that has much more risk to de-risk if you will because its enterprise value has been realized greater because these milestones are pivotal in making decisions on credit underwriting, and because of that we saw the unfunded commitment down and actually square up purposefully if we control that and we have as been disclosed about $160 million, $180 million of unfunded commitments, almost $90 million of that is certainly due to milestones, that mean that they can have funds.
So as we train to the second half of 2013, you'll see us drive down tax lower because we have also bank lines available of $105 million today and we will probably as one of the strategic comments that I said earlier you will probably see us announce here later on 2013 strategically we're also expanding our leverage point on our balance sheet and we expect to draw on our bank lines and leverage further into fiscal 2013 that would further drive our earnings growth as we start capping leverage and consider it in cash balances.
Jonathan Bock – Wells Fargo
Good, I appreciate it, and I guess you mentioned in that statement that would be predicated on not issuing new shares and so I appreciate that, and then just one last question as it relates to Greg's previous question I just found it quite interesting that Manuel you mentioned that obviously the crux of what you do is underwrite the underwriter say a hard value or understand credits where there is unique value maybe in the underlying collateral and there have been strong returns as a result but getting to the crux of the question, why is it that a bigger company gets a wider spread, maybe just one more time maybe I missed it but is it that specifically that a bigger company that you would loan more to, that likely is larger with an increase in total value, how is it possible for them to get wider spreads?
Manuel A. Henriquez
Sure. So a couple of things, I'll make sure that the previous note doesn't go unmitigated.
I did not say we will not be using equity capital raises in the near term, I said that we would prefer to use leverage in our balance sheet. We will always have the option to cap in the capital market, equity capital market, but you're actually spot on, it is not my preference to do that, nor do that in any meaningful way such as [indiscernible] the cash balance and balance sheet as well with access to additional leverage on the balance sheet and the capital line, so I just want to clarify that point.
As to widening spread, I don't mean to be [indiscernible] condescending in this comment, the notion is that the argument largely to be safer is a bit of a misnomer if you do not have tangible evidence of traction in that company and you see a lower amount of market credit i.e. EBITDA or EBITDA multiple that you're seeing on a purchase price exit.
So for example if you're looking at companies doing $10 million of EBITDA and the purchase cost are eight times multiple you will get a company that is worth $80 million as an example. The problem with that is in our universe and what we do because there is no tangible evidence of a revenue and in some cases EBITDA, it is a much more hard in what you are doing on deriving value and when you start getting to $40 million, $30 million credit exposure there are a few institutions in this country who have the wherewithal, the stamina and the expertise that we have to underwrite those credit when you don't have ABL or EBITDA multiples to point to, and because that world doesn't exist which is why Hercules thrives and grows in that environment, it is that you have to understand that credit underwriting parameters and you have to have the stomach and the stamina to understand those companies won't give up, those companies have to make capital every 9 to 14 months, if they don't you should be looking at a highly challenging credit situation that if you are a bank the regulators are going to let you have that type of asset on your books because you are not staffed nor are you able to be taking that kind of a credit risk profile.
So that universe exist where traditional banks don't necessarily operate in there because lending $40 million to a cash flow negative company that has no EBITDA and sometimes no revenues is not what they should be doing.
Jonathan Bock – Wells Fargo
I got it, so it is obviously the concentration risk for many other institutions that really this isn't their entire value, it's just in some cases too hard to handle and as a result the wider spread, understood, not majority of it all and thank you very much.
Operator
Our next question comes from Aaron Deer from Sandler O' Neill. Your line is open.
Aaron Deer - Sandler O' Neill
Most of my questions were addressed but I just wanted to follow-up, you guys have broken down a little bit the realized and unrealized gains in the quarter, just wanted to circle back on the net unrealized loss on loans, where that was centered and if you can give any additional color on that?
Jessica Baron
That's the result of our fair value yield analysis where we are required to mark to market every asset using ASP of 20 so we must drive the exit price out of the measurement date for the investment, so the $4.1 million of depreciation realized under that part of our process on the portfolio. So these are companies where we take a look at the yields that we have on them and then as we've indicated in our particular sales to yield curve, slightly gone up.
So that means that the yields that we originated in previous periods are less for the same quality credit let's say as the yields we could have originated in these investments for as of the measurement date. So that's what driving that $4.1 million of depreciation on the portfolio out of the measurement date.
Obviously that's not a yield to maturity or hold to maturity kind of an analysis, it's just applying fair value.
Manuel A. Henriquez
And this is an example why we are purging out some of these older lower margin assets for exactly this unrealized depreciation because we can actually in spite of those assets right now, because the beautiful part of the economy is that banks are so hungry for C&I lending that some of these credits are now mature enough because they are better suited for the bank, they have more traditional lending parameters and we're happy to have them graduate and move on.
Aaron Deer - Sandler O' Neill
So is that the type of credit where these adjustments were centered within the middle market?
Jessica Baron
This phenomena is certified right across the board, I mean yes lower than the market does represent a good chunk of our portfolio and we did happen to have a couple of credits in that space if you compare as to why from [indiscernible] on a couple of large or middle market position which did exit the portfolio and as typical those investments do have lower yields than our other sectors.
Aaron Deer - Sandler O' Neill
And then Manuel you had mentioned some strategic initiatives in new products that are being looked at and I guess you discussed a little bit the orphaned subject but are there other areas beyond that that you've been looking at that we should be thinking about?
Manuel A. Henriquez
Yes there are multiple different areas that we're looking at but the word we imply, strategic, and still in process I'm not going to tip my hat into what we are working on but I could assure that that we are working on multiple different strategic initiatives to expand the Hercules franchise and expand the product offering to our portfolio companies and beginning to grow our portfolio that may include strategic relationships as well. Given our size and given what we do in the marketplace, we are oftentimes being asked to would you do this would you do that and we historically have been saying, no, no, no, and having some of those product offerings go to banks and now we're a bit changing that color as we've got larger, we're looking at new initiatives to continue to provide additional products to existing legacy portfolio companies as well as companies that otherwise we have turned away and said no to we're now looking at product offerings that would actually allow us to capture that by product of our normal origination efforts.
And so that itself could further drive earnings growth in the future if we so choose to ultimately pursue some of these strategic initiatives that we are currently in a mix of evaluating and analyzing.
Aaron Deer - Sandler O' Neill
Would it just be like [indiscernible] or something like that where you're looking at hiring some additional lenders to add new lines?
Manuel A. Henriquez
I think that I rather not be responsive to your question but I won't get a strategic initiatives, I don't want either from my competitors or others to try to emulate what we're doing, I'll rather have the surprise if and when it happens and you'll see the logic behind what we are doing if and when we do it but there's certainly multiple different offerings beyond just the one you said that we are evaluating and looking at.
Operator
Our next question comes from Robert Dodd from Raymond James. Your line is open.
Robert Dodd - Raymond James
Just one quick on [indiscernible] I mean just on the competitive environment, we've heard a couple of other [indiscernible] that talk about entering the venture debt space, obviously it's very specialized as you pointed out, do you have concerns that the flow is being from other sources are going to further distort or distort the potential and it doesn't look like it was yields heading up at the moment but I mean what are your concerns about potentially inexperienced new actors in this space?
Manuel A. Henriquez
All are welcomed. The water is warm.
My comment on competition is just because you think you know we do doesn't mean you could do what we do, and many have tried and many can't scale. It's a very, very difficult business, it's a very labor-intensive business, it's a very time-consuming business, it is nowhere near like [indiscernible] market underwriting, it's highly specialized, it's vertical specialized, it's stage specialized.
The skills that you need for early-stage investing are majorly different from the skills that you need for later stage investing. The skills that we have for life sciences are dramatically different than that of technology or that of pre-technology.
So you have to have a wide diversified source of investment professionals like we have at Hercules and those investment specialists are not cheap, very expensive they are highly special at what they do and they want to be in an environment where the credit culture and the management itself has a high understanding and high knowledge of that area. The best we describe Hercules is that we are a bunch of geeks that have financial backgrounds as well as the technology and life sciences understanding that we are and we love the science of what we do and we love the structuring the finance professional of what we do as well.
It is the fusion of those two worlds that make us very unique. We're not just a development officer that you see typically in banks and we're not ratio lenders that you see in normal market organizations, not to be disparaging what they do.
it's a different world, it's a different underwriting and it's a lot more complex. I appreciate and I really welcome new players into the asset class, I have spent 10 years stumping and being the voice beast for venture lending and so I think it's phenomenal.
As I said in the past, I think the area in the asset class is terrific, I really welcome that calibre of industrial and investment class, I welcome the discipline of that type of investors. So no, I am not worried about it, I think it's actually a good additions to the asset class if you bring more sophistication and more quality underwriters into the asset class.
Operator
Our next question comes from Douglas Harter from Credit Suisse. Your line is open.
Douglas Harter - Credit Suisse
You talked about I know you guys expect to kind of get $30 million to $35 million of scheduled amortization a quarter, I guess now that you guys are a bigger company, what would you expect to just kind of a normalized quarter for early payoffs? I imagine you sort of continually see some, what would you say is like a range for a normalized type environment?
Manuel A. Henriquez
I mean there is the $60 million question of the hour. I would tell you that a normalized rate of $40 million a quarter is probably a good run rate to use.
The problem with that is that when you have a vibrant M&A and now I think we have IPO market, that in itself will cause the acceleration of additional payouts which is a working issue and this is a quality problem because what happens with early payoffs is you have acceleration of any unearned deferred revenue or income on your balance sheet, you may have a prepayment technology that keeps coming as well and so those two alone will cause a spike in the earnings that will drive it. On top of that, if these events are driven in M&A and IPO, you could also find yourself seeing a realized gain on your work portfolio or eventually an appreciation of unrealized value in your warranty and equity investments.
So in this current market that we're in and I don't see any sides of it materially happening that M&A and IPO activity should remain relatively robust for the remainder of the year which means that I think that need of the hour is you normalize rate on that probably $40 million to $70 million range and I can't handicap more than that because I just don't know.
Douglas Harter - Credit Suisse
Got it. So then combined with the normal amortization that would obviously not going to hold you to this on a quarter to quarter basis but $70 million to $100 million feels like a decent range for payoffs in a normalized tough environment, could be better could be worse on any particular quarter?
Manuel A. Henriquez
Yes, I think that number is probably fine with if you can allocate plus or minus $30 million to it, but yes.
Operator
Our next question comes from Kenneth James from Sterne Agee. Your line is open.
Kenneth James - Sterne Agee
I want to just talk about something you said about rising rate and floating rate loans and positioning for higher rates, do you have, I'm understanding I can look to your 10-Q here but I guess a certain level that the federal have the very short-term rate before it really kicks into the portfolio given where the floors are which they appear to be kind of in a lot of different areas but to someone it looks like we are benefiting right away for others it look like I would say 300 or 400 basis point of tact on the front of 3 before the loans itself was reset higher, am I looking at that right?
Manuel A. Henriquez
A very good question, I'm not sure 300 or 400 basis, I feel a bit wide, but certainly to your statement that some loans would definitely proportionately benefit earlier than not. I don't have the weighted average of what it is, we need to change but as we remind of the comment, yes, the issue, most people don't realize the index, majority of our loan unlike loan in our market credits, the majority of our index are [indiscernible] LIBOR.
So I have no idea of what your view or my views are on prime moving but the fact that we are investing off of prime and not LIBOR in majority of our portfolio, that yes you would have to see a prime rate move by about 50 basis points before we see any meaningful accretion into the overall portfolio on the prime, there are some LIBOR stuff but it is mostly prime.
Kenneth James - Sterne Agee
Okay, thank you very much. Most of my other questions have been answered.
Operator
I show no further questions at this time and would like to turn the conference back to Mr. Manuel Henriquez for closing remarks.
Manuel A. Henriquez
Thank you operator and thank you everyone for your continued interest in Hercules Technology Growth Capital. We look forward to meeting many of you in our upcoming investor conferences, we'll be at the RBC Financial Institutions Conference in September 17 and 18 in Boston and we'll be at the JMP Financial and Real Estate Conference in October in Manhattan in New York City and if you have to arrange a meeting in between those conferences or other type of travelling to visit our investors please let us know by contacting Investor Relations or Hercules directly.
Again thank you very much for being our shareholders, for being interested in Hercules story and for your continued support. Operator, thank you.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.