8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  February 5, 2018

CAPITAL SOUTHWEST CORPORATION

(Exact Name Of Registrant As Specified In Charter)

Texas	814-00061	75-1072796
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5400 Lyndon B. Johnson Freeway, Suite 1300

Dallas, Texas 75240

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (214) 238-5700

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02  Results of Operations and Financial Condition.

On February 5, 2018, Capital Southwest Corporation (the “Company”) issued a press release, a copy of which has been furnished as Exhibit 99.1 hereto.

The information furnished in this Current Report on Form 8-K under Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1934, except as shall be expressly set forth by reference in a future filing.

Item 7.01  Regulation FD Disclosure.

The Company expects to hold a conference call with analysts and investors on February 6, 2018.  A copy of the investor presentation slides to be used by the Company on such conference call is furnished as Exhibit 99.2 to this Form 8-K and incorporated herein by reference.

The information set forth under this Item 7.01, including Exhibit 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

Item 9.01  Financial Statements and Exhibits

(d)          Exhibits

Exhibit No.	Description
99.1	Press release issued by Capital Southwest Corporation on February 5, 2018
99.2	Investor presentation slides

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: February 5, 2018

By:	/s/ Bowen S. Diehl
	Name: Bowen S. Diehl
	Title:   Chief Executive Officer and President

EXHIBIT INDEX

Ugust 8
Exhibit No.	Description
99.1	Press release issued by Capital Southwest Corporation on February 5, 2018
99.2	Investor presentation slides

EX-99.1

Exhibit 99.1

Lincoln Centre Tower I 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 T 214.238.5700 F 214.238.5701

Capital Southwest Announces Financial Results for Third Fiscal Quarter Ended December 31,  2017

CSWC Reports Pre-Tax Net Investment Income of $0.27 Per Share and Net Asset Value of $18.44 Per Share

Dallas, Texas – February 5, 2018  – Capital Southwest Corporation (“Capital Southwest” or the “Company”; Nasdaq: CSWC), an internally managed Business Development Company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, today announced its financial results for the third fiscal quarter ended December 31,  2017.

Third Quarter Fiscal Year 2018 Financial Highlights

· Total Investment Portfolio increased to  $367.1 million from $321.9 million at the end of the prior quarter 

o No investments currently on non-accrual

o Total Credit Portfolio increased to  $226.4 million from $187.3 million at the end of the prior quarter

o $69.9 million in new committed credit investments

o $25.4 million in prepayments and amortization on credit investments

o Total Equity Portfolio, excluding investment in I-45 SLF, increased to  $73.5 million from $67.1 million at the end of the prior quarter

o $1.2 million in new equity co-investments

o Total CSWC investment in I-45 SLF -  $67.2 million 

o I-45 SLF portfolio had assets of  $218.0 million at quarter end

o Portfolio consists of 44 issuers: 96% 1st Lien Debt and 4% 2nd Lien Debt

o I-45 SLF paid a $2.3 million quarterly dividend to CSWC, an effective yield of 13.5% on CSWC investment in I-45 SLF

· Pre-Tax Net Investment Income of $4.3 million, or $0.27 per weighted average diluted share

· Declared and Paid Quarterly Dividend of  $0.26 per share 

· Net Realized and Unrealized Gains on Investments: $5.6 million

· Total Cash and Cash Equivalents: $20.5 million

· Total Net Assets increased to  $298.5 million from $292.5 million at the end of the prior quarter

· Net Asset Value per Share increased to  $18.44 from $18.26 at the end of the prior quarter

· Weighted Average Yield on Debt Investments: 11.0%

· Weighted Average Yield on all Portfolio Investments: 10.6%

In commenting on the Company's results, Bowen Diehl, President and Chief Executive Officer, stated, “This quarter was a strong quarter for both earnings and new investing activity, and our portfolio continues to perform well.  We also achieved several important milestones.  CSWC closed its first public offering since its initial IPO in 1961, raising $57.5 million at 5.95% in Baby Bonds with a five-year maturity of December 2022.  This transaction was substantially oversubscribed and our execution, at the time, had the tightest spread to applicable treasury among BDC baby bond issuers over the prior few years.  We also amended, extended and upsized our ING-led credit facility during the quarter.  We increased the facility by $65 million to $180 million from eight lenders, while reducing our spread and extending the maturity to the end of 2021.  These transactions provide our company the necessary capital to reach our target leverage, providing the potential to substantially increase our net investment income and dividends to our shareholders.”

Third Quarter Fiscal Year Portfolio and Investment Activities

During the quarter ended December 31,  2017, the Company originated five new investments and two follow-on investments totaling $71.1 million. New investment transactions which occurred during the quarter ended December 31,  2017 are summarized as follows:

Amware Fulfillment LLC, $1.1 million add-on to  1st Lien Senior Secured Debt: Amware provides logistics fulfillment services for business-to-consumer, business-to-business, and multi-channel verticals.

Elite SEM, Inc., $5.4 million add-on to 1st Lien Senior Secured Debt, $0.1 million add-on to preferred stock:  Elite SEM is a performance digital media agency.

Delphi Intermediate Healthco, LLC, $7.5 million 1st Lien Senior Secured Debt: Delphi Health is a behavioral health company specializing in providing chemical dependent and addiction treatment services to adults.

LGM Pharma, $10 million 1st Lien Senior Secured Debt, $1.1 million common stock, $3 million Revolver: LGM Pharma is a value-added distributor of active pharmaceutical ingredients to the pharmaceutical and biotech markets.

Clickbooth.com, LLC, $17.5 million 1st Lien Senior Secured Debt, $2 million Revolver:  Clickbooth.com is a performance-based digital marketing network that connects advertisers with publishers who promote their products primarily on a cost-per-action basis.

Capital Pawn Holdings, LLC, $12.9 million 1st Lien Senior Secured Debt: Capital Pawn owns and operates a network of pawn shops in the southeastern United States.

Research Now Group, Inc., $10.5 million 2nd Lien Senior Secured Debt: Research Now is a leader in data collection through online and mobile surveys using proprietary consumer and business panels.

During the quarter ended December 31,  2017, the Company received full prepayments on three investments totaling $21.1 million. The Company received a full prepayment on the following investments:

Redbox Automated Retail,  1st Lien Senior Secured Debt: Proceeds of $7.0 million, resulting in an IRR of 13.8%.

Research Now Group, Inc.,  2nd Lien Senior Secured Debt: Proceeds of $7.0 million, resulting in an IRR of 10.8%.

Digital Room Inc.,  2nd Lien Senior Secured Debt:  Proceeds of $7.1 million, resulting in an IRR of 15.1%.

Third Fiscal Quarter 2018 Operating Results

For the quarter ended December 31, 2017, Capital Southwest reported total investment income of $9.0 million, compared to $8.5 million in the prior quarter.  Interest income grew by $0.3 million over the prior quarter, driven by net portfolio growth.    

For the quarter ended December 31, 2017, total operating expenses (excluding interest expense) were $3.4 million, compared to $3.5 million in the prior quarter.  The decrease in operating expenses was due to a reduction in general and administrative expenses of $0.5 million offset by an increase in cash and share-based compensation of $0.4 million.

For the quarter ended December 31, 2017, total interest expense was  $1.3 million, compared to $0.9 million in the prior quarter. The increase in interest expense was due to an $8.9 million increase in average debt outstanding on the revolving credit facility during the quarter, as well as the addition of the December 2022 Notes. 

For the quarter ended December 31, 2017, total pre-tax net investment income was $4.3 million, compared to $4.1 million in the prior quarter.

For the quarter ended December 31, 2017, we recorded a tax benefit of $0.4 million, primarily due to the tax reform legislation enacted on December 22, 2017.

During the quarter ended December 31, 2017, Capital Southwest recorded total realized and unrealized gains on investments of $5.6 million, compared to $4.7 million in the prior quarter, primarily driven by strong portfolio company performance.  The net increase in net assets resulting from operations was $10.2 million for the quarter, compared to $8.6 million in the prior quarter.

The Company’s net asset value, or NAV, at December 31, 2017 was $18.44 per share, compared to $18.26 at September 30, 2017.  The increase in NAV from the prior quarter is primarily due to an increase in net realized and unrealized gains in the current quarter.

Liquidity and Capital Resources

At December 31, 2017, Capital Southwest had unrestricted cash and money market balances of approximately $20.5 million. 

In November 2017, the Company entered into Amendment No. 1 (the “Amendment”) to its credit facility. The Amendment (1) increased the total borrowing capacity under the credit facility to $180 million, (2) increased the credit facility’s accordion feature to allow for an increase in total commitments of up to $250 million, (3) reduced the interest rate on borrowings to LIBOR plus 3.00%, with a step-down to LIBOR plus 2.75% at the time the Company’s net worth exceeds $325 million, (4) reduced unused commitment fees to 0.50% to 1.0% per annum based on utilization, and (5) extended the revolving period that ended August 30, 2019 through November 16, 2020. Additionally, the final maturity of the credit facility was extended from August 30, 2020 to November 16, 2021. As of December 31,  2017, Capital Southwest had $35.0 million in borrowings outstanding under the credit facility. Regulatory leverage at the end of the quarter was 0.3 to 1.

In December 2017, the Company issued $57.5 million in aggregate principal amount of 5.95% Notes due 2022 (the “Notes”). The total net proceeds from the offering of the Notes was $55.8 million. The Notes mature on December 15, 2022 and may be redeemed in whole or in part at any time, or from time to time, at the Company’s option on or after December 15, 2019. The December 2022 Notes bear interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2018.    

Additionally, I-45 SLF has total commitments outstanding of $165 million from a group of four bank lenders in its Deutsche Bank led credit facility, which is scheduled to mature in July 2022. As of December 31, 2017, I-45 SLF had $134 million in borrowings outstanding under its credit facility.  

Share Repurchase Program

On January 25, 2016, Capital Southwest announced that its Board of Directors authorized the repurchase of up to $10 million of its common stock at prices significantly below the Company’s net asset value per share as reported in its most recent financial statements. The Board authorized the plan because it believes that the Company’s common stock may be undervalued from time to time due to market volatility. As of December 31, 2017, no shares had been purchased under the plan.

Third Quarter 2018 Earnings Results Conference Call and Webcast

Capital Southwest has scheduled a conference call on Tuesday, February 6, 2018, at 11:00 a.m. Eastern Time to discuss the third quarter 2018 financial results.  You may access the call by dialing (866)  502-8274 and using the Conference ID 2059388 at least 10 minutes before the call.  The call can also be accessed using the Investor Relations section of Capital Southwest's website at www.capitalsouthwest.com, or by using https://edge.media-server.com/m6/p/fjcnt2yo.  

A telephonic replay will be available through February 13, 2018 by dialing (855)  859-2056 and using the Conference ID 2059388.  An audio archive of the conference call will also be available on the Investor Relations section of Capital Southwest’s website.

For a more detailed discussion of the financial and other information included in this press release, please refer to the Capital Southwest Form 10-Q for the period ended December 31, 2017 to be filed with the Securities and Exchange Commission and Capital Southwest’s Third Fiscal Quarter 2018 Earnings Presentation to be posted on the Investor Relations section of Capital Southwest’s website at www.capitalsouthwest.com.

About Capital Southwest

Capital Southwest Corporation (Nasdaq: CSWC) is a Dallas, Texas-based,  internally managed Business Development Company with approximately $299 million in net assets as of December 31, 2017. As a middle-market lending firm focused on supporting the acquisition and growth of middle market businesses, Capital Southwest makes investments ranging from $5 to $20 million in securities across the capital structure, including first lien, unitranche, second lien, subordinated debt and non-control equity co-investments. As a public company with a permanent capital base, Capital Southwest has the flexibility to be creative in its financing solutions and to invest to support the growth of its portfolio companies over long periods of time.

Forward-Looking Statements

This press release contains historical information and forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 with respect to the business and investments of Capital Southwest. Forward-looking statements are statements that are not historical statements and can often be identified by words such as “will,” “may,” “could,” “believe,” “expect“ and similar expressions and variations or negatives of these words. These statements are based on management's current expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. These risks include risks related to changes in the markets in which Capital Southwest invests, changes in the financial and lending markets, regulatory changes, tax treatment and general economic and business conditions.

Readers should not place undue reliance on any forward-looking statements and are encouraged to review Capital Southwest's Annual Report on Form 10-K for the year ended March 31, 2017 and subsequent filings with the Securities and Exchange Commission for a more complete discussion of the risks and other factors that could affect any forward-looking statements. Except as required by the federal securities laws, Capital Southwest does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

Investor Relations Contact:

Michael S. Sarner, Chief Financial Officer

214-884-3829

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except shares and per share data)

	December 31,		March 31,
	2017		2017
	(Unaudited)
Assets
Investments at fair value:
Non-control/Non-affiliate investments (Cost: $237,833 and $172,437, respectively)	$	237,669	$	175,731
Affiliate investments (Cost: $5,936 and $5,925, respectively)		6,321		7,138
Control investments (Cost: $76,301 and $72,178, respectively)		123,130		104,011
Total investments (Cost: $320,070 and $250,540, respectively)		367,120		286,880
Cash and cash equivalents		20,527		22,386
Receivables:
Dividends and interest		4,110		3,137
Escrow		119		545
Other		467		626
Deferred tax asset		2,080		2,017
Debt issuance costs (net of accumulated amortization of $862 and $366, respectively)		2,755		2,137
Other assets		5,672		8,024
Total assets	$	402,850	$	325,752
Liabilities
Notes (Par value: $57,500 and $ -, respectively)	$	55,236	$	-
Credit facility		35,000		25,000
Other liabilities		7,594		5,996
Dividends payable		4,201		7,191
Accrued restoration plan liability		2,099		2,170
Deferred income taxes		190		323
Total liabilities		104,320		40,680
Commitments and contingencies (Note 11)
Net Assets
Common stock, $0.25 par value: authorized, 25,000,000 shares; issued, 18,526,493 shares at December 31, 2017 and 18,350,808 shares at March 31, 2017		4,632		4,588
Additional paid-in capital		261,614		261,472
Net investment income in excess of (less than) distributions		6,261		(1,457)
Accumulated undistributed net realized gain		3,100		8,390
Unrealized appreciation of investments, net of income taxes		46,860		36,016
Treasury stock - at cost, 2,339,512 shares		(23,937)		(23,937)
Total net assets		298,530		285,072
Total liabilities and net assets	$	402,850	$	325,752
Net asset value per share (16,186,981 shares outstanding at December 31, 2017 and 16,011,296 shares outstanding at March 31, 2017)	$	18.44	$	17.80

CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except shares and per share data)

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
	2017		2016		2017		2016
Investment income:
Interest income:
Non-control/Non-affiliate investments	$	5,420	$	3,384	$	14,858	$	7,839
Affiliate investments		142		141		423		422
Control investments		-		57		-		116
Dividend income:
Non-control/Non-affiliate investments		31		-		91		-
Control investments		3,118		3,078		9,221		6,843
Interest income from cash and cash equivalents		4		29		16		155
Fees and other income		304		176		643		373
Total investment income		9,019		6,865		25,252		15,748
Operating expenses:
Compensation		1,885		1,509		5,129		4,521
Spin-off compensation plan		172		172		517		517
Share-based compensation		479		321		1,231		815
Interest		1,275		343		2,924		446
Professional fees		245		404		1,205		1,255
Net pension expense		42		43		123		129
General and administrative		620		664		2,171		1,961
Total operating expenses		4,718		3,456		13,300		9,644
Income before taxes		4,301		3,409		11,952		6,104
Income tax (benefit) expense		(362)		536		(84)		1,495
Net investment income	$	4,663	$	2,873	$	12,036	$	4,609
Realized gain
Non-control/Non-affiliate investments	$	527	$	44	$	1,361	$	(216)
Affiliate investments		90		-		90		3,986
Control investments		-		28		-		28
Total net realized gain on investments before income tax		617		72		1,451		3,798
Change in unrealized appreciation of investments
Non-control/Non-affiliate investments		708		2,051		(3,458)		614
Affiliate investments		(173)		75		(827)		581
Control investments		4,500		2,839		14,995		8,445
Income tax (provision) benefit		(72)		(25)		133		(547)
Total net change in unrealized appreciation of investments, net of tax		4,963		4,940		10,843		9,093
Net realized and unrealized gains on investments	$	5,580	$	5,012	$	12,294	$	12,891
Net increase in net assets from operations	$	10,243	$	7,885	$	24,330	$	17,500
Pre-tax net investment income per share - basic and diluted	$	0.27	$	0.21	$	0.74	$	0.39
Net investment income per share – basic and diluted	$	0.29	$	0.18	$	0.75	$	0.29
Net increase in net assets from operations – basic and diluted	$	0.64	$	0.50	$	1.52	$	1.11
Weighted average shares outstanding – basic		16,104,806		15,868,977		16,041,696		15,755,480
Weighted average shares outstanding – diluted		16,176,436		15,931,501		16,109,122		15,832,487

EX-99.2

Exhibit 99.2

Capital Southwest Corporation Q3 2018 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 Dallas, Texas 75240 214.238.5700 capitalsouthwest.com February 6, 2018

This presentation contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 relating to, among other things, the business, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of Capital Southwest, and future market demand. Any statements that are not statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, preceded by, followed by, or include words such as "believe," "expect," "intend," "plan," "should" or similar words, phrases or expressions or the negative thereof. These statements are made on the basis of the current beliefs, expectations and assumptions of the management of Capital Southwest and speak only as of the date of this presentation. There are a number of risks and uncertainties that could cause Capital Southwest’s actual results to differ materially from the forward-looking statements included in this presentation. For a further discussion of some of the risks and uncertainties applicable to Capital Southwest and its business, see Capital Southwest’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017 and its subsequent filings with the Securities and Exchange Commission. Other unknown or unpredictable factors could also have a material adverse effect on Capital Southwest’s actual future results, performance, or financial condition. As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements. Capital Southwest does not assume any obligation to revise or to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, or otherwise, except as may be required by law. Forward-Looking Statements

Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Conference Call Participants

CSWC is a middle-market lending firm focused on supporting the acquisition and growth of middle-market companies across the capital structure CSWC was formed in 1961, and became a BDC in 1988 Publicly-traded on NASDAQ: Common Stock (“CSWC”) and Notes (“CSWCL”) Internally Managed BDC with RIC status for tax purposes December 2014 announced intent to spin-off of industrial growth company (“CSW Industrials”; Nasdaq: CSWI) tax free January 2015 launched credit investment strategy September 2015 completed tax free spin off of CSWI 18 employees based in Dallas, Texas Total Balance Sheet Assets of $403 MM as of December 31, 2017 Manage I-45 Senior Loan Fund (“I-45 SLF”) in partnership with Main Street Capital (Nasdaq: MAIN) CSWC Company Overview

Financial Highlights Q3 2018 Pre-Tax Net Investment Income (“NII”) of $4.3 MM or $0.27 per share Declared and Paid Quarterly Dividend of $0.26 per share Total Annualized Earnings Return on Equity of 13.9% for the quarter NAV per share increased to $18.44 from $18.26 Net Portfolio Growth of 14%, increasing portfolio assets to $367 MM from $322 MM in prior quarter $71.1 MM committed in five new originations and two add-ons $21.1 MM proceeds received from three portfolio exits Received $2.3 MM dividend from I-45 SLF, an effective yield of 13.5% at fair value $145 MM available on Credit Facility and $21 MM in cash and cash equivalents as of quarter end Q3 2018 Highlights

Capital Raising Highlights Amended ING Credit Facility Increased the facility commitments to $180 MM with an accordion to $250 MM Amended key terms, including reducing interest rate to L + 3.00% with a step-down and extending maturity to November 2021 Raised $57.5 MM in Notes Offering (“NASDAQ: CSWCL”) 5.95% coupon, maturity in December 2022 At the time of issuance, CSWCL coupon represented lowest spread to 5 Year US Treasury Rate compared to recent Notes Offerings Significant Progress in Capital Formation Select BDC Baby Bonds - Spreads at Issuance Pricing Date BDC Ticker Aggregate Value ($MM) Coupon 5Y UST Yield at Issuance Spread to 5Y UST Yield 1/30/2018 Fidus Investment Corp. FDUSL $43.5 5.875% 2.510% 3.365% 12/12/2017 Capital Southwest Corporation CSWCL $57.5 5.950% 2.180% 3.770% 7/11/2017 TriplePoint Venture Growth BDC Corp. TPVY $74.8 5.750% 1.920% 3.830% 8/16/2017 Stellus Capital Investment Corporation SCA $48.9 5.750% 1.790% 3.960% 11/8/2017 MVC Capital, Inc. MVCD $115.0 6.250% 2.010% 4.240% 8/9/2017 KCAP Financial, Inc. KCAPL $77.4 6.125% 1.810% 4.315% 8/21/2017 Harvest Capital Credit Corp. HCAPZ $28.8 6.125% 1.760% 4.365% 9/26/2017 Horizon Technology Finance Corporation HTFA $37.4 6.250% 1.870% 4.380% Median (Excl. CSWCL) $48.9 6.125% 1.870% 4.240%

Over the past four quarters, CSWC has generated $0.96 per share in Pre-Tax NII and paid out $0.90 per share in regular dividends LTM dividend coverage of 107% of Pre-Tax NII Eight consecutive quarters of dividend per share growth In addition, paid out a Special Dividend of $0.26 in Q4 2017 generated primarily from realized gains earned over prior 12 months Dividend Yield increased to 6.3% at 12/31/17 from 1.2% at 3/31/16 NAV has increased to $18.44 per share at 12/31/17 from $17.34 per share at 3/31/16 Track Record of Dividend and NAV Growth Continues (1) The Special Dividend of $0.26 is not included in the Dividend Yield calculation 1.2 % 1.8 % 3.0 % 4.2 % 4.5 %1 5.2 % 5.6 % 6.3% Dividend Yield – Annualized Quarterly Dividend / CSWC Share Price at Qtr. End

Capitalization in place today to achieve target leverage of 0.75x - 0.85x $145 MM currently undrawn on credit facility ($180 MM total committed) Significant potential NII growth without additional capital required to be raised Funded Path to Target Leverage Debt Outstanding ($MM) Credit Facility Drawn $35.0 December 2022 Notes Outstanding $55.2 Total Debt Outstanding $90.2 Current Leverage (12/31/17) 0.30X Committed Availability on Credit Facility $145.0 Pro Forma Leverage with Credit Availability Invested 0.79X Target Leverage 0.75X - 0.85X Current Capitalization (12/31/17)

CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals Companies with EBITDA between $3 MM and $15 MM Typical leverage of 2x – 4x Debt to EBITDA through CSWC debt Commitment size up to $20 MM with hold sizes generally $10 to $15 MM Both Sponsored and Non-sponsored deals Securities include first lien, unitranche, second lien and subordinated debt Frequently make equity co-investments alongside CSWC debt OPPORTUNISTIC: Upper Middle Market (“UMM”): Syndicated or Club, First and Second Lien Companies typically have in excess of $50 MM in EBITDA Typical leverage of 3x – 5.5x Debt to EBITDA through CSWC debt position Hold sizes generally $5 to $10 MM Floating Rate First and Second Lien debt securities More liquid assets relative to Lower Middle Market investments Provides flexibility to invest/divest opportunistically based on market conditions and liquidity position Two Pronged Investment Strategy

Strong Quarter of CSWC Originations $71.1 MM in new committed investments during the quarter ($66.1 MM funded) at a weighted average debt YTM of 11.4% At close, $3.0 MM Revolver was unfunded At close, $2.0 MM Revolver was unfunded The investment is structured as a first lien last out term loan Note: Market Segment refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Q3 2018 Portfolio Originations Name Industry Type Market Total Commitment (in $000s) Debt Spread Debt Yield to Maturity Amware Add-On Distribution 1st Lien LMM $1,111 9.50% 17.7% Elite SEM Add-On Media, Marketing, & Entertainment 1st Lien / Equity LMM $5,439 10.65% (3) 12.8% Delphi Health Solutions Healthcare Services 1st Lien LMM $7,500 7.50% 9.6% LGM Pharma (1) Healthcare Products Revolver / 1st Lien / Equity LMM $14,100 8.50% 10.7% Clickbooth (2) Media, Marketing, & Entertainment Revolver / 1st Lien LMM $19,500 8.50% 10.9% Capital Pawn Consumer Products and Retail 1st Lien LMM $12,922 9.50% 12.8% ResearchNow Business Services 2nd Lien UMM $10,500 9.50% 10.9% Total $71,072 11.4%

Q3 2018 CSWC Portfolio Prepayments Prepayments continue to demonstrate our track record of generating attractive risk adjusted returns on shareholders’ capital During the quarter, received $21.1 MM in proceeds from three Upper Middle Market exits with a weighted average IRR of 13% Since launch of credit strategy in 2015, received $97 MM in proceeds from 17 portfolio company exits with a weighted average IRR of 19.1% Note: Market Segment refers to Upper Middle Market (“UMM”) and Lower Middle Market (“LMM”) Q3 2018 Portfolio Exits Name Industry Type Market Proceeds (in $000s) Realized Gain (in $000s) IRR Redbox Gaming & Leisure 1st Lien UMM $7,000 $187 13.8% Digital Room Paper & Forest Products 2nd Lien UMM $7,070 $124 15.1% ResearchNow Business Services 2nd Lien UMM $7,000 $72 10.8% Total / Wtd. Avg. $21,070 $383 13.2%

CSWC Portfolio Asset Mix by Market Lower Middle Market 1st Lien portfolio growth continues Note: All metrics above exclude the I-45 Senior Loan Fund At December 31, 2017, we had equity ownership in approximately 70.6% of our LMM investments The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2017, including accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. As of December 31, 2017, there were no investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor. Weighted average metrics are calculated using investment cost basis weighting Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’s position, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Management uses this metric as a guide to evaluate relative risk of its position in each portfolio debt investment Investment Portfolio - Statistics at 12/31/17 US$ in 000s Lower Middle Market (1) Upper Middle Market Number of Portfolio Companies 17 11 Total Cost $185,821 $69,449 Total Fair Value $229,889 $70,074 Average Hold Size (at Cost) $10,931 $6,314 % First Lien Investments (at Cost) 73.4% 59.7% % Second Lien Investments (at Cost) 0.0% 40.3% % Subordinated Debt Investments (at Cost) 10.2% 0.0% % Equity (at Cost) 16.4% 0.0% Wtd. Avg. Yield (2)(3) 11.5% 10.2% Wtd. Avg. EBITDA of Issuer ($MM's) (3) $8.9 $88.1 Wtd. Avg. Leverage through CSWC Security (3) (4) 3.4x 4.3x

Robust Lower Middle Market First Lien Portfolio CSWC Balance Sheet Portfolio continues to migrate to LMM and 1st Lien Investments LMM Investments have increased to 69% of the credit portfolio at 12/31/17 from 18% at 6/30/16 First Lien Investments have increased to 79% of the credit portfolio at 12/31/17 from 42% at 6/30/16 Originations Heavily Weighted to First Lien Robust LMM Portfolio Growth

CSWC Portfolio Mix as of 12/31/17 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $367 MM continues to be granular and diverse

Interest Rate Sensitivity Fixed vs. Floating Portfolio Composition (1) Debt Portfolio Exposure at 12/31/17 Well-Positioned for Rising Interest Rate Environment Note: Illustrative change in NII is based on a projection of CSWC’s existing debt investments as of 12/31/17, adjusted only for changes in Base Rates. The results of this analysis include the I-45 Senior Loan Fund, which is comprised of 100% floating rate assets and liabilities. (1) Portfolio Composition includes I-45 assets pro rata as a % of CSWC’s equity investment in the fund Change in Base Interest Rates Illustrative NII Change ($'s) Illustrative NII Change (Per Share) 50 bps $1,214,016 $0.08 100bps $2,428,032 $0.15 150bps $3,642,047 $0.23 200bps $4,856,063 $0.30

I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $218 MM is 96% first lien with average hold size of 2.3% (1) Through I-45 Security Telecommunications Retail Capital Equipment Services: Business Healthcare & Pharmaceuticals Current I-45 Portfolio (By Type) 3/31/2017 6/30/2017 9/30/2017 12/31/2017 Total Debt Investments at Fair Value $200,243 $209,863 $223,807 $217,964 Number of Issuers 43 46 46 44 Wtd. Avg. Issuer EBITDA $81,417 $80,909 $79,009 $73,392 Avg. Investment Size as a % of Portfolio 2.3% 2.2% 2.2% 2.3% Wtd. Avg. Net Leverage on Investments (1) 3.0x 3.5x 3.5x 3.3x Wtd. Avg. Yield 7.9% 7.9% 7.7% 7.4% Wtd. Avg. Duration (Yrs) 4.3 4.9 4.8 4.7 I-45 Portfolio Statistics

Income Statement (In Thousands, except per share amounts) Quarter Ended 3/31/17 Quarter Ended 6/30/17 Quarter Ended 9/30/17 Quarter Ended 12/31/17 Investment Income Interest Income $4,113 $4,520 $5,282 $5,566 Dividend Income $3,002 $3,004 $3,088 $3,149 Fees and Other Income $611 $200 $139 $304 Total Investment Income $7,726 $7,724 $8,509 $9,019 Expenses Cash Compensation $1,704 $1,638 $1,606 $1,885 Share Based Compensation $382 $368 $384 $479 General & Administrative $1,360 $1,228 $1,364 $907 Spin-off Related Expenses $172 $172 $173 $172 Total Expenses (excluding Interest) $3,618 $3,406 $3,527 $3,443 Interest Expense $543 $738 $911 $1,275 Pre-Tax Net Investment Income $3,565 $3,580 $4,071 $4,301 Taxes and Gain / (Loss) Income Tax Benefit (Expense) ($284) ($144) ($134) $362 Net realized gain (loss) on investments $4,098 $624 $210 $617 Net increase (decrease) in unrealized appreciation of investments ($1,402) $1,384 $4,496 $4,963 Net increase (decrease) in net assets resulting from operations $5,977 $5,444 $8,643 $10,243 Weighted Average Diluted Shares Outstanding 16,044 16,072 16,078 16,176 Pre-Tax Net Investment Income Per Dil. Weighted Average Share $0.22 $0.22 $0.25 $0.27 Quarterly Dividends per Share $0.19 $0.21 $0.24 $0.26

Balance Sheet (In Thousands, except per share amounts) Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Assets Portfolio Investments $286,880 $306,582 $321,860 $367,120 Cash & Cash Equivalents $22,386 $12,359 $33,329 $20,527 Deferred Tax Asset $2,017 $1,858 $1,846 $2,080 Other Assets $14,469 $10,391 $11,635 $13,123 Total Assets $325,752 $331,190 $368,670 $402,850 Liabilities December 2022 Notes $0 $0 $0 $55,236 Credit Facility $25,000 $25,000 $56,000 $35,000 Payable for Unsettled Transaction $0 $9,263 $0 $0 Other Liabilities $15,680 $9,500 $20,156 $14,084 Total Liabilities $40,680 $43,763 $76,156 $104,320 Shareholders Equity Net Asset Value $285,072 $287,427 $292,514 $298,530 NAV per Share $17.80 $17.96 $18.26 $18.44 Debt to Equity 0.09x 0.09x 0.19x 0.30x Shares Outstanding at Period End 16,011 16,006 16,019 16,187

Portfolio Statistics CSWC utilizes an internal 1 - 4 investment rating system in which 1 represents material outperformance and 4 represents material underperformance. All new investments are initially set to 2 Includes dividends from Media Recovery, Inc. and I-45 Senior Loan Fund Excludes CSWC equity investment in I-45 Senior Loan Fund At Fair Value Continuing to build a well performing credit portfolio with no non-accruals Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Portfolio Statistics Fair Value of Debt Investments $167,447 $181,725 $187,316 $226,441 Average Debt Investment Hold Size $6,698 $7,269 $7,805 $8,709 Fair Value of Debt Investments as a % of Par 99% 99% 99% 99% % of Debt Portfolio on Non-Accrual (at Fair Value) 0.0% 0.0% 0.0% 0.0% Weighted Average Investment Rating (1) 1.9 2.0 2.0 2.0 Weighted Average Yield on Debt Investments 10.28% 10.51% 10.71% 10.95% Total Fair Value of Portfolio Investments $286,880 $306,582 $321,860 $367,120 Weighted Average Yield on all Portfolio Investments (2) 10.49% 10.43% 10.65% 10.55% Investment Mix (Debt vs. Equity) (3) (4) 75% / 25% 76% / 24% 74% / 26% 75% / 25% Investment Mix (Yielding vs. Non-Yielding) (4) 95% / 5% 95% / 5% 94% / 6% 94% / 6%

Significant Unused Debt Capacity with Long-Term Duration As of December 31, 2017, CSWC’s credit facility had $180.0 MM in total commitments, with an accordion feature which could increase total commitments up to $250.0 MM Based upon outstanding balances as of December 31, 2017 Issued in December 2017; redeemable at CSWC’s option beginning December 2019 Earliest Debt Maturity occurs in November 2021 Facility Total Commitments Interest Rate Maturity Principal Drawn Credit Facility (1) $180.0 MM L + 3.00% with Step-Down November 2021 $35.0 MM December 2022 Notes ("NASDAQ: CSWCL") $57.5 MM 5.95% December 2022 $57.5 MM

Investment Income Detail Constructing a portfolio of investments with recurring cash yield Non-Recurring income principally made up of acceleration of unamortized OID and prepayment fees Recurring cash interest income continues to grow quarter over quarter Higher non-recurring prepayment fees in Q3 2018 versus previous quarter PIK income remains a minor portion of NII (In Thousands) Quarter Ended 3/31/17 Quarter Ended 6/30/17 Quarter Ended 9/30/17 Quarter Ended 12/31/17 Investment Income Breakdown Cash Interest $3,913 $4,264 $5,082 $5,357 Cash Dividends $3,002 $3,004 $3,018 $3,076 PIK Income $63 $73 $70 $72 Amortization of purchase discounts and fees $136 $183 $200 $209 Management/Admin Fees $115 $128 $139 $146 Prepayment Fees & Other Income $497 $72 $0 $159 Total Investment Income $7,726 $7,724 $8,509 $9,019 Key Metrics Cash Income as a % of Investment Income 97% 97% 97% 97% % of Total Investment Income that is Recurring (1) 90% 93% 97% 95%

Financial Highlights Solid Earnings Growth as portfolio continues to perform Quarter Ended 3/31/2017 Quarter Ended 6/30/2017 Quarter Ended 9/30/2017 Quarter Ended 12/31/2017 Financial Highlights Pre-Tax Net Investment Income Per Wtd Avg Diluted Share $0.22 $0.22 $0.25 $0.27 Annualized Pre-Tax Net Investment Income Return on Equity (ROE) 4.97% 5.00% 5.64% 5.82% Realized Earnings Per Wtd Avg Diluted Share $0.46 $0.25 $0.26 $0.33 Annualized Realized Earnings ROE 10.29% 5.68% 5.75% 7.15% Earnings Per Wtd Avg Diluted Share $0.37 $0.34 $0.54 $0.63 Annualized Earnings Return on Equity (ROE) 8.33% 7.61% 11.97% 13.87% Quarterly Dividends Per Share $0.19 $0.21 $0.24 $0.26 Special Dividends per Share $0.26 $0.00 $0.00 $0.00 NAV Per Share $17.80 $17.96 $18.26 $18.44

Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors Bowen S. Diehl March 31 Bowen S. Diehl President & Chief Executive Officer Independent Auditor Independent Directors Michael S. Sarner David R. Brooks Chief Financial Officer, Secretary & Treasurer Jack D. Furst T. Duane Morgan William R. Thomas Investor Relations Corporate Counsel John H. Wilson Michael S. Sarner Capital Southwest 214-884-3829 Corporate Offices & Website msarner@capitalsouthwest.com 5400 LBJ Freeway Transfer Agent 13th Floor Securities Listing American Stock Transfer & Trust Company, LLC Dallas, TX 75240 NASDAQ: CSWC (Common Stock) 800-937-5449 http://www.capitalsouthwest.com NASDAQ: CSWCL (Notes) www.amstock.com Contact Information National Securities Corporation Christopher R. Testa Direct: 212-417-7447 Ladenburg Thalmann Mickey M. Schleien, CFA Direct: 305-572-4131 Janney Montgomery Scott, LLC Mitchel Penn, CFA Direct: 410-583-5976 Jones Day / Eversheds Sutherland RSM US Chicago, IL Industry Analyst Coverage Firm Analyst