Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2019

Commission File Number 001-38124

______________________________

GRANITE POINT MORTGAGE TRUST INC.

(Exact Name of Registrant as Specified in Its Charter)



Maryland		61-1843143
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)



3 Bryant Park, Suite 2400A New York, New York		10036
(Address of Principal Executive Offices)		(Zip Code)

(212) 364-3200

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
		Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

Securities Registered Pursuant to Section 12(b) of the Act:



Title of Each Class:	Trading Symbol(s)	Name of Exchange on Which Registered:
Common Stock, par value $0.01 per share	GPMT	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 3, 2019, there were 53,741,316 shares of outstanding common stock, par value $0.01 per share, issued and outstanding.

Table of Contents

GRANITE POINT MORTGAGE TRUST INC.

INDEX



		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018	2
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	4
	Notes to the Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	42
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
Index of Exhibits		44
Signatures		45

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE POINT MORTGAGE TRUST INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	March 31, 2019			December 31, 2018
ASSETS	(unaudited)
Loans held-for-investment	$	3,292,989		$	3,167,913
Available-for-sale securities, at fair value	12,798			12,606
Held-to-maturity securities	25,815			26,696
Cash and cash equivalents	65,384			91,700
Restricted cash	55,051			31,723
Accrued interest receivable	10,595			10,268
Deferred debt issuance costs	2,333			3,924
Prepaid expenses	764			1,055
Other assets	21,659			15,996
Total Assets⁽¹⁾	$	3,487,388		$	3,361,881
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Repurchase agreements	$	993,634		$	1,500,543
Securitized debt obligations	1,197,814			654,263
Revolving credit facilities	—			75,000
Convertible senior notes	268,484			268,138
Accrued interest payable	10,117			6,394
Unearned interest income	197			510
Dividends payable	21,938			18,346
Other liabilities	13,073			10,156
Total Liabilities	2,505,257			2,533,350
10% cumulative redeemable preferred stock, par value $0.01 per share; 50,000,000 shares authorized and 1,000 and 1,000 shares issued and outstanding, respectively	1,000			1,000
Stockholders’ Equity
Common stock, par value $0.01 per share; 450,000,000 shares authorized and 52,171,921 and 43,621,174 shares issued and outstanding, respectively	522			436
Additional paid-in capital	994,592			836,288
Accumulated other comprehensive loss	—			(192		)
Cumulative earnings	108,831			91,875
Cumulative distributions to stockholders	(122,814		)	(100,876		)
Total Stockholders’ Equity	981,131			827,531
Total Liabilities and Stockholders’ Equity	$	3,487,388		$	3,361,881

____________________

(1)

The condensed consolidated balance sheets include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations of these VIEs, and liabilities of the consolidated VIEs for which creditors do not have recourse to Granite Point Mortgage Trust Inc. At March 31, 2019 and December 31, 2018, assets of the VIEs totaled $1,547,626 and $829,147, and liabilities of the VIEs totaled $1,199,164 and $654,952, respectively. See Note 3 - Variable Interest Entities for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE POINT MORTGAGE TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(in thousands, except share data)



	Three Months Ended
	March 31,
	2019			2018
Interest income:
Loans held-for-investment	$	56,665		$	38,793
Available-for-sale securities	308			272
Held-to-maturity securities	661			885
Cash and cash equivalents	511			27
Total interest income	58,145			39,977
Interest expense:
Repurchase agreements	16,989			16,194
Securitized debt obligations	9,859			—
Convertible senior notes	4,465			2,179
Revolving credit facilities	695			—
Total interest expense	32,008			18,373
Net interest income	26,137			21,604
Other income:
Fee income	913			882
Total other income	913			882
Expenses:
Management fees	3,449			3,209
Incentive fees	244			—
Servicing expenses	773			458
General and administrative expenses	5,616			4,232
Total expenses	10,082			7,899
Income before income taxes	16,968			14,587
(Benefit from) provision for income taxes	(1		)	1
Net income	16,969			14,586
Dividends on preferred stock	25			25
Net income attributable to common stockholders	$	16,944		$	14,561
Basic earnings per weighted average common share	$	0.35		$	0.34
Diluted earnings per weighted average common share	$	0.34		$	0.33
Dividends declared per common share	$	0.42		$	0.38
Weighted average number of shares of common stock outstanding:
Basic	48,601,431			43,374,228
Diluted	62,256,595			50,467,978
Comprehensive income:
Net income attributable to common stockholders	$	16,944		$	14,561
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale securities	192			16
Other comprehensive income	192			16
Comprehensive income attributable to common stockholders	$	17,136		$	14,577

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE POINT MORTGAGE TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share data)



	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Cumulative Earnings			Cumulative Distributions to Stockholders			Total Stockholders’ Equity

Balance, December 31, 2017	43,235,103	$	432	$	829,704	$	—		$	28,800		$	(30,315	)	$	828,621
Net income	—	—		—		—			14,586			—			14,586
Other comprehensive income before reclassifications	—	—		—		16			—			—			16
Amounts reclassified from accumulated other comprehensive income	—	—		—		—			—			—			—
Net other comprehensive income	—	—		—		16			—			—			16
Common dividends declared	—	—		—		—			—			(16,506		)	(16,506		)
Preferred dividends declared	—	—		—		—			—			(25		)	(25		)
Non-cash equity award compensation	201,956	2		662		—			—			—			664
Balance, March 31, 2018	43,437,059	$	434	$	830,366	$	16		$	43,386		$	(46,846	)	$	827,356

Balance, December 31, 2018	43,621,174	$	436	$	836,288	$	(192	)	$	91,875		$	(100,876	)	$	827,531
Cumulative effect of adoption of new accounting principle	—	—		13		—			(13		)	—			—
Adjusted balance, January 1, 2019	43,621,174	436		836,301		(192		)	91,862			(100,876		)	827,531
Net income	—	—		—		—			16,969			—			16,969
Other comprehensive income before reclassifications	—	—		—		192			—			—			192
Amounts reclassified from accumulated other comprehensive income	—	—		—		—			—			—			—
Net other comprehensive income	—	—		—		192			—			—			192
Issuance of common stock, net of offering costs	8,291,829	83		157,145		—			—			—			157,228
Common dividends declared	—	—		—		—			—			(21,913		)	(21,913		)
Preferred dividends declared	—	—		—		—			—			(25		)	(25		)
Non-cash equity award compensation	258,918	3		1,146		—			—			—			1,149
Balance, March 31, 2019	52,171,921	$	522	$	994,592	$	—		$	108,831		$	(122,814	)	$	981,131

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE POINT MORTGAGE TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)



	Three Months Ended
	March 31,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	16,969		$	14,586
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discounts and net deferred fees on loans held-for-investment	(3,822		)	(2,707		)
Amortization of deferred debt issuance costs on convertible senior notes and securitized debt obligations	2,029			184
Equity based compensation	1,149			664
Depreciation of fixed assets	39			1
Net change in assets and liabilities:
Increase in accrued interest receivable	(327		)	(536		)
Decrease in prepaid expenses	291			192
Increase in other assets	(5,702		)	(696		)
Increase in accrued interest payable	3,723			2,161
Decrease in unearned interest income	(313		)	(140		)
Increase (decrease) in other liabilities	2,917			(580		)
Net cash provided by operating activities	16,953			13,129
Cash Flows From Investing Activities:
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees	(276,574		)	(154,101		)
Proceeds from repayment of loans held-for-investment	155,320			96,427
Principal payments on held-to-maturity securities	881			4,793
Net cash used in investing activities	(120,373		)	(52,881		)
Cash Flows From Financing Activities:
Proceeds from repurchase agreements	225,261			140,731
Principal payments on repurchase agreements	(732,170		)	(137,883		)
Proceeds from issuance of securitized debt obligations	646,868			—
Principal payments on securitized debt obligations	(105,000		)	—
Proceeds from convertible senior notes	—			18,247
Proceeds from revolving credit facilities	48,697			—
Repayment of revolving credit facilities	(123,697		)	—
Decrease in deferred debt issuance costs	1,591			1,404
Proceeds from issuance of common stock, net of offering costs	157,228			—
Dividends paid on preferred stock	(25		)	(25		)
Dividends paid on common stock	(18,321		)	(16,372		)
Net cash provided by financing activities	100,432			6,102
Net decrease in cash, cash equivalents and restricted cash	(2,988		)	(33,650		)
Cash, cash equivalents and restricted cash at beginning of period	123,423			110,718
Cash, cash equivalents and restricted cash at end of period	$	120,435		$	77,068
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	28,284		$	16,212
Cash paid (received) for taxes, net	$	—		$	1
Noncash Activities:
Dividends declared but not paid at end of period	$	21,938		$	16,588

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization and Operations

Granite Point Mortgage Trust Inc., or the Company, is a Maryland corporation that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. The Company is externally managed by Pine River Capital Management L.P., or the Manager. The Company’s common stock is listed on the New York Stock Exchange, or NYSE, under the symbol “GPMT”.

The Company was incorporated on April 7, 2017 and commenced operations as a publicly traded company on June 28, 2017, upon completion of an initial public offering, or the IPO. Concurrently with the closing of the IPO, the Company completed a formation transaction, or the Formation Transaction, pursuant to which the Company acquired the equity interests in TH Commercial Holdings LLC, or the Predecessor, from Two Harbors Investment Corp., or Two Harbors, a publicly traded hybrid mortgage real estate investment trust (NYSE: TWO). In exchange, the Company issued 33,071,000 shares of its common stock, representing approximately 76.5% of its outstanding common stock after the IPO, and 1,000 shares of its 10% cumulative redeemable preferred stock to Two Harbors. Upon the completion of the Formation Transaction, the Predecessor became the Company’s wholly owned indirect subsidiary. On November 1, 2017, Two Harbors distributed to its common stockholders the 33,071,000 shares of the Company’s common stock it had acquired in connection with the Formation Transaction, allowing the Company’s market capitalization to be fully floating.

The Company has elected to be treated as a real estate investment trust, or REIT, as defined under the Internal Revenue Code of 1986, as amended, or the Code, for U.S. federal income tax purposes. As long as the Company continues to comply with a number of requirements under federal tax law and maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income taxes to the extent that the Company distributes its taxable income to its stockholders on an annual basis and does not engage in prohibited transactions. However, certain activities that the Company may perform may cause it to earn income which will not be qualifying income for REIT purposes. The Company has designated one of its subsidiaries as a taxable REIT subsidiary, or TRS, as defined in the Code, to engage in such activities.

Note 2. Basis of Presentation and Significant Accounting Policies

Consolidation and Basis of Presentation

The interim unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted according to such SEC rules and regulations. However, management believes that the disclosures included in these interim condensed consolidated financial statements are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2019 and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2019 should not be construed as indicative of the results to be expected for future periods or the full year.

The condensed consolidated financial statements of the Company include the accounts of all subsidiaries; inter-company accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

All entities in which the Company holds investments that are considered VIEs for financial reporting purposes were reviewed for consolidation under the applicable consolidation guidance. Whenever the Company has both the power to direct the activities of an entity that most significantly impact the entity’s performance, and the obligation to absorb losses or the right to receive benefits of the entity that could be significant, the Company consolidates the entity.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of allowances for loan losses and impairments and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g., valuation changes to the underlying collateral of loans due to changes in capitalization rates, leasing, credit worthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, overall economic conditions, the broader commercial real estate market, local geographic sub-markets or other factors) will occur in the near term. The Company’s estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Significant Accounting Policies

Included in Note 2 to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 is a summary of the Company’s significant accounting policies.

Recently Issued and/or Adopted Accounting Standards

Lease Classification and Accounting

In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize on their balance sheets both a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, which changes the impairment model for most financial assets and certain other instruments. Allowances for credit losses on available-for-sale, or AFS, and held-to-maturity, or HTM, debt securities will be recognized, rather than direct reductions in the amortized cost of the investments. The new model also requires the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, HTM debt securities, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019, with early adoption permitted for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018. The Company is evaluating the adoption of this ASU to determine the impact it may have on its condensed consolidated financial statements, which at the date of adoption, is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

Accounting for Share-Based Payments to Nonemployees

In June 2018, the FASB issued ASU No. 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, equity-classified nonemployee awards will be measured on and fixed at the grant date, rather than measured at fair value at each reporting date until the date at which the nonemployee’s performance is complete. The ASU is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2018, with early adoption permitted. The Company’s adoption of this ASU was applied by recording a cumulative-effect adjustment to retained earnings as of January 1, 2019, which did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

SEC Disclosure Update and Simplification

In August 2018, the SEC adopted a final rule that amends certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment. However, the guidance also added requirements for entities to include in their interim financial statements a reconciliation of changes in stockholders’ equity for each period for which an income statement is required (both year-to-date and quarterly periods). The final rule is effective for all filings made on or after November 5, 2018. However, the SEC staff said it would not object to a registrant waiting to comply with the new interim disclosure requirement until the filing of its Form 10-Q for the quarter that begins after the effective date. As a result, the Company adopted the new interim disclosure requirement during the current period. The Company’s adoption of this final rule did not have a material impact on the Company’s financial condition, results of operations or financial statement disclosures.

Note 3. Variable Interest Entities

The Company finances pools of its commercial real estate loans through collateralized loan obligations, or CLOs, which are considered VIEs for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Because the Company has both the power to direct the activities of the CLOs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the CLOs.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents a summary of the assets and liabilities of all variable interest entities consolidated on the Company’s condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Loans held-for-investment	$	1,488,891	$	795,259
Restricted cash	47,076		26,136
Accrued interest receivable	4,634		2,622
Other assets	7,025		5,130
Total Assets	$	1,547,626	$	829,147
Securitized debt obligations	$	1,197,814	$	654,263
Accrued interest payable	1,341		689
Other liabilities	9		—
Total Liabilities	$	1,199,164	$	654,952

The Company is not required to consolidate VIEs for which it has concluded it does not have both the power to direct the activities of the VIEs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant. The Company’s investments in these unconsolidated VIEs include CMBS, which are classified within available-for-sale securities, at fair value, and held-to-maturity securities on the condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, the carrying value, which also represents the maximum exposure to loss, of all CMBS in unconsolidated VIEs was $38.6 million and $39.3 million, respectively.

Note 4. Loans Held-for-Investment

The Company originates and acquires commercial real estate debt and related instruments generally to be held as long-term investments. These assets are classified as loans held-for-investment on the condensed consolidated balance sheets. The Company also finances pools of its commercial real estate loans through CLOs, which are considered a VIEs for financial reporting purposes and, thus, are reviewed for consolidation under the applicable consolidation guidance. Because the Company has both the power to direct the activities of the CLOs that most significantly impact the entities’ performance, and the obligation to absorb losses or the right to receive benefits of the entities that could be significant, the Company consolidates the CLOs and classifies the underlying loans as loans held-for-investment. Loans held-for-investment are reported at cost, net of any unamortized acquisition premiums or discounts, loan fees and origination costs as applicable.

The following tables summarize the Company’s loans held-for-investment by asset type, property type and geographic location as of March 31, 2019 and December 31, 2018:



	March 31, 2019
(dollars in thousands)	Senior Loans ⁽¹⁾			Mezzanine Loans			B-Notes			Total
Unpaid principal balance	$	3,289,035		$	14,381		$	14,600		$	3,318,016
Unamortized (discount) premium	(138		)	—			—			(138		)
Unamortized net deferred origination fees	(24,889		)	—			—			(24,889		)
Carrying value	$	3,264,008		$	14,381		$	14,600		$	3,292,989
Unfunded commitments	$	624,244		$	—		$	—		$	624,244
Number of loans	95			2			1			98
Weighted average coupon	6.4		%	11.9		%	8.0		%	6.4		%
Weighted average years to maturity ⁽²⁾	1.9			3.0			7.8			1.9

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)



	December 31, 2018
(dollars in thousands)	Senior Loans ⁽¹⁾			Mezzanine Loans			B-Notes			Total
Unpaid principal balance	$	3,147,310		$	31,679		$	14,652		$	3,193,641
Unamortized (discount) premium	(151		)	—			—			(151		)
Unamortized net deferred origination fees	(25,577		)	—			—			(25,577		)
Carrying value	$	3,121,582		$	31,679		$	14,652		$	3,167,913
Unfunded commitments	$	626,155		$	—		$	—		$	626,155
Number of loans	88			3			1			92
Weighted average coupon	6.4		%	11.4		%	8.0		%	6.5		%
Weighted average years to maturity ⁽²⁾	2.0			1.9			8.1			2.0

____________________


(1)	Loans primarily secured by a first priority lien on commercial real property and related personal property and also includes, when applicable, any companion subordinate loans.

(2)

Based on contractual maturity date. Certain loans are subject to contractual extension options which may be subject to conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment fee. The Company may also extend contractual maturities in connection with loan modifications.



(dollars in thousands)	March 31, 2019				December 31, 2018
Property Type	Carrying Value		% of Loan Portfolio		Carrying Value		% of Loan Portfolio
Office	$	1,548,117	47.0	%	$	1,495,128	47.2	%
Multifamily	668,410		20.3	%	569,259		18.0	%
Hotel	483,553		14.7	%	427,611		13.5	%
Retail	329,430		10.0	%	324,447		10.2	%
Industrial	263,479		8.0	%	351,468		11.1	%
Total	$	3,292,989	100.0	%	$	3,167,913	100.0	%



(dollars in thousands)	March 31, 2019				December 31, 2018
Geographic Location	Carrying Value		% of Loan Portfolio		Carrying Value		% of Loan Portfolio
Northeast	$	1,126,245	34.3	%	$	1,171,691	37.0	%
West	707,379		21.5	%	694,223		21.9	%
Southwest	726,072		22.0	%	681,108		21.5	%
Southeast	360,193		10.9	%	369,961		11.7	%
Midwest	373,100		11.3	%	250,930		7.9	%
Total	$	3,292,989	100.0	%	$	3,167,913	100.0	%

At March 31, 2019 and December 31, 2018, the Company pledged loans held-for-investment with a carrying value of $3.0 billion and $2.9 billion, respectively, as collateral for repurchase agreements, revolving credit facilities and securitized debt obligations. See Note 10 - Repurchase Agreements, Note 12 - Revolving Credit Facilities and Note 13 - Securitized Debt Obligations.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table summarizes activity related to loans held-for-investment for the three months ended March 31, 2019 and December 31, 2018.



	Three Months Ended March 31,
(in thousands)	2019			2018
Balance at beginning of period	$	3,167,913		$	2,304,266
Originations, acquisitions and additional fundings	279,694			156,186
Repayments	(155,320		)	(96,427		)
Net discount accretion (premium amortization)	13			14
Increase in net deferred origination fees	(3,120		)	(2,085		)
Amortization of net deferred origination fees	3,809			2,693
Allowance for loan losses	—			—
Balance at end of period	$	3,292,989		$	2,364,647

The Company evaluates each loan for impairment at least quarterly by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, loan structure and exit plan, loan-to-value ratio, project sponsorship, and other factors deemed necessary. Risk ratings are defined as follows:


1 –	Lower Risk


2 –	Average Risk


3 –	Acceptable Risk


4 –	Higher Risk: A loan that has exhibited material deterioration in cash flows and/or other credit factors, which, if negative trends continue, could be indicative of future loss.


5 –	Impaired/Loss Likely: A loan that has a significantly increased probability of default or principal loss.

The following table presents the number of loans, unpaid principal balance and carrying value (amortized cost) by risk rating for loans held-for-investment as of March 31, 2019 and December 31, 2018:



(dollars in thousands)	March 31, 2019					December 31, 2018
Risk Rating	Number of Loans	Unpaid Principal Balance		Carrying Value		Number of Loans	Unpaid Principal Balance		Carrying Value
1	8	$	359,595	$	358,113	9	$	354,791	$	353,583
2	86	2,845,949		2,823,057		78	2,680,297		2,656,679
3	2	75,052		74,619		3	121,133		120,496
4	2	37,420		37,200		2	37,420		37,155
5	—	—		—		—	—		—
Total	98	$	3,318,016	$	3,292,989	92	$	3,193,641	$	3,167,913

The Company has not identified any impaired loans and it has not recorded any allowances for losses as it is not deemed probable that the Company will not be able to collect all amounts due pursuant to the contractual terms of the loans.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Note 5. Available-for-Sale Securities, at Fair Value

The following table presents the face value and carrying value (which approximates fair value) of AFS securities as of March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Face value	$	12,798	$	12,798
Gross unrealized gains	—		—
Gross unrealized losses	—		(192		)
Carrying value	$	12,798	$	12,606

On March 31, 2019, the Company’s AFS securities had contractual maturities of less than one year.

At March 31, 2019 and December 31, 2018, the Company pledged AFS securities with a carrying value of $12.8 million and $12.6 million, respectively, as collateral for repurchase agreements. See Note 10 - Repurchase Agreements.

At March 31, 2019, the Company’s AFS securities had a carrying value equal to their face value. At December 31, 2018, the Company’s AFS securities were in an unrealized loss position for less than twelve months.

Evaluating AFS Securities for Other-Than-Temporary Impairments

In evaluating AFS securities for other-than-temporary impairments, or OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security in an unrealized loss position against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred. If the Company does not intend to sell and will not be more likely than not required to sell the security, the credit loss is recognized in earnings and the balance of the unrealized loss is recognized in other comprehensive income. If the Company intends to sell the security or will be more likely than not required to sell the security, the full unrealized loss is recognized in earnings. The Company did not record any other-than-temporary credit impairments during the three months ended March 31, 2019 and 2018 as expected cash flows were greater than amortized cost for all AFS securities held.

Note 6. Held-to-Maturity Securities

The following table presents the face value and carrying value of HTM securities by collateral type as of March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Face value	$	25,815	$	26,696
Unamortized premium (discount)	—		—
Carrying value	$	25,815	$	26,696

On March 31, 2019, the Company’s HTM securities had contractual maturities of less than one year.

At March 31, 2019 and December 31, 2018, the Company pledged HTM securities with a carrying value of $25.8 million and $26.7 million, respectively, as collateral for repurchase agreements. See Note 10 - Repurchase Agreements.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Evaluating HTM Securities for Other-Than-Temporary Impairments

In evaluating HTM securities for OTTI, the Company determines whether there has been a significant adverse quarterly change in the cash flow expectations for a security. The Company compares the amortized cost of each security against the present value of expected future cash flows of the security. The Company also considers whether there has been a significant adverse change in the regulatory and/or economic environment as part of this analysis. If the amortized cost of the security is greater than the present value of expected future cash flows using the original yield as the discount rate, an other-than-temporary credit impairment has occurred and the credit loss is recognized in earnings. The Company did not record any other-than-temporary credit impairments during the three months ended March 31, 2019 and 2018, as expected cash flows were greater than amortized cost for all HTM securities held.

Note 7. Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash held in bank accounts and cash held in money market funds on an overnight basis.

The Company is required to maintain certain cash balances in restricted accounts as collateral for the Company’s repurchase agreements and with counterparties to support activities related to securities. As of March 31, 2019 and December 31, 2018, the Company had $8.0 million and $5.6 million, respectively, as collateral for repurchase agreements and by counterparties to support activities related to securities. In addition, as of March 31, 2019 and December 31, 2018, the Company held $47.1 million and $26.1 million, respectively, in restricted cash representing proceeds from principal paydowns of loans held in the CLOs.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Company’s condensed consolidated balance sheets as of March 31, 2019 and December 31, 2018 that sum to the total of the same such amounts shown in the statements of cash flows:



(in thousands)	March 31, 2019		December 31, 2018
Cash and cash equivalents	$	65,384	$	91,700
Restricted cash	55,051		31,723
Total cash, cash equivalents and restricted cash	$	120,435	$	123,423

Note 8. Accrued Interest Receivable

The following table presents the Company’s accrued interest receivable by collateral type as of March 31, 2019 and December 31, 2018:



(in thousands)	March 31, 2019		December 31, 2018
Loans held-for-investment	$	10,419	$	10,089
Available-for-sale securities	57		57
Held-to-maturity securities	119		122
Total	$	10,595	$	10,268

Note 9. Fair Value

Fair Value Measurements

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). Additionally, ASC 820 requires an entity to consider all aspects of nonperformance risk, including the entity’s own credit standing, when measuring fair value of a liability.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

ASC 820 establishes a three-level hierarchy to be used when measuring and disclosing fair value. An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. Following is a description of the three levels:


Level 1	Inputs are quoted prices in active markets for identical assets or liabilities as of the measurement date under current market conditions. Additionally, the entity must have the ability to access the active market and the quoted prices cannot be adjusted by the entity.


Level 2	Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full-term of the assets or liabilities.


Level 3	Unobservable inputs are supported by little or no market activity. The unobservable inputs represent the assumptions that market participants would use to price the assets and liabilities, including risk. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models and significant assumptions utilized.

Available-for-sale securities. The Company holds AFS securities that are carried at fair value on the condensed consolidated balance sheet and are comprised of CMBS. In determining the fair value of the Company’s CMBS AFS, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity, and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company classified its CMBS AFS as Level 2 fair value assets at March 31, 2019 and December 31, 2018.

Recurring Fair Value

The following tables display the Company’s assets measured at fair value on a recurring basis. The Company does not hold any liabilities measured at fair value on its condensed consolidated balance sheets.



	Recurring Fair Value Measurements
	March 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	12,798	$	—	$	12,798
Total assets	$	—	$	12,798	$	—	$	12,798



	Recurring Fair Value Measurements
	December 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale securities	$	—	$	12,606	$	—	$	12,606
Total assets	$	—	$	12,606	$	—	$	12,606

The Company may be required to measure certain assets or liabilities at fair value from time to time. These periodic fair value measures typically result from application of certain impairment measures under U.S. GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of March 31, 2019 and December 31, 2018, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

Transfers between Levels are deemed to take place on the first day of the reporting period in which the transfer has taken place. The Company did not incur transfers between Levels for the three months ended March 31, 2019 and 2018.

Fair Value of Financial Instruments

In accordance with ASC 820, the Company is required to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the condensed consolidated balance sheets, for which fair value can be estimated.

The following describes the Company’s methods for estimating the fair value for financial instruments.

•

Loans held-for-investment are carried at cost, net of any unamortized acquisition premiums or discounts, loan fees and origination costs as applicable. The Company estimates the fair value of its loans held-for-investment by assessing any changes in market interest rates, shifts in credit profiles and actual operating results for mezzanine loans and senior loans, taking into consideration such factors as underlying property type, property competitive position within its market, market and submarket fundamentals, tenant mix, nature of business plan, sponsorship, extent of leverage and other loan terms. The Company categorizes the fair value measurement of these assets as Level 3.


•	AFS securities are recurring fair value measurements; carrying value equals fair value. See discussion of valuation methods and assumptions within the Fair Value Measurements section of this footnote.

•

HTM securities, which are comprised of CMBS, are carried at cost, net of any unamortized acquisition premiums or discounts. In determining the fair value of the Company’s CMBS HTM, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers or broker quotes received using the bid price, which are both deemed indicative of market activity, and other applicable market data. The third-party pricing providers and brokers use pricing models that generally incorporate such factors as coupons, primary and secondary mortgage rates, rate reset period, issuer, prepayment speeds, credit enhancements and expected life of the security. The Company categorizes the fair value measurement of these assets as Level 2.


•	Cash and cash equivalents and restricted cash have a carrying value which approximates fair value because of the short maturities of these instruments. The Company categorizes the fair value measurement of these assets as Level 1.

•

The carrying value of repurchase agreements that mature in less than one year generally approximates fair value due to the short maturities. As of March 31, 2019, the Company held $0.6 billion of repurchase agreements that are considered long-term. The Company’s long-term repurchase agreements have floating rates based on an index plus a spread and the credit spread is typically consistent with those demanded in the market. Accordingly, the interest rates on these borrowings are at market and thus carrying value approximates fair value. The Company categorizes the fair value measurement of these liabilities as Level 2.

•

Securitized debt obligations are recorded at outstanding principal, net of any unamortized deferred debt issuance costs. In determining the fair value of its securitized debt obligations, management judgment may be used to arrive at fair value that considers prices obtained from third-party pricing providers, broker quotes received and other applicable market data. If observable market prices are not available or insufficient to determine fair value due principally to illiquidity in the marketplace, then fair value is based upon internally developed models that are primarily based on observable market-based inputs but also include unobservable market data inputs (including prepayment speeds, delinquency levels, and credit losses). The Company categorizes the fair value measurement of these liabilities as Level 2.


•	Convertible senior notes are carried at their unpaid principal balance, net of any unamortized deferred issuance costs. The Company estimates the fair value of its convertible senior notes using the market transaction price nearest to March 31, 2019. The Company categorizes the fair value measurement of these assets as Level 2.

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GRANITE POINT MORTGAGE TRUST INC.

Notes to the Condensed Consolidated Financial Statements (unaudited)

The following table presents the carrying values and estimated fair values of assets and liabilities that are required to be recorded or disclosed at fair value at March 31, 2019 and December 31, 2018.



	March 31, 2019				December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Loans held-for-investment	$	3,292,989	$	3,326,644	$	3,167,913	$	3,200,980
Available-for-sale securities	$	12,798	$	12,798	$	12,606	$	12,606
Held-to-maturity securities	$	25,815	$	25,995	$	26,696	$	26,611
Cash and cash equivalents	$	65,384	$	65,384	$	91,700	$	91,700
Restricted cash	$	55,051	$	55,051	$	31,723	$	31,723
Liabilities
Repurchase agreements	$	993,634	$	993,634	$	1,500,543	$	1,500,543
Securitized debt obligations	$	1,197,814	$	1,206,683	$	654,263	$	654,330
Revolving credit facilities	$	—	$	—	$	75,000	$	75,000
Convertible senior notes	$	268,484	$	277,025	$	268,138	$	270,731

Note 10. Repurchase Agreements

As of March 31, 2019 and December 31, 2018, the Company had outstanding $1.0 billion and $1.5 billion of repurchase agreements with a weighted average borrowing rate of 4.70% and 4.61% and weighted average remaining maturities of 0.8 and 0.9 years, respectively.

At March 31, 2019 and December 31, 2018, the repurchase agreement balances were as follows:



(in thousands)	March 31, 2019		December 31, 2018
Short-term	$	432,917	$	842,078
Long-term	560,717		658,465
Total	$	993,634	$	1,500,543

At March 31, 2019 and December 31, 2018, the repurchase agreements had the following characteristics and remaining maturities:



	March 31, 2019							December 31, 2018
	Collateral Type							Collateral Type
(dollars in thousands)	Loans			CMBS ⁽¹⁾		Total Amount Outstanding		Loans		CMBS ⁽¹⁾		Total Amount Outstanding
Within 30 days	$	—		$	—	$	—	$	—	$	—	$	—
30 to 59 days	133,600			24,391		157,991		—		25,854		25,854
60 to 89 days	274,926			—		274,926		—		—		—
90 to 119 days	—			—		—		—		—		—
120 to 364 days	—			—		—		816,224		—		816,224
One year and over	560,717			—		560,717		658,465		—		658,465
Total	$	969,243		$	24,391	$	993,634	$	1,474,689	$	25,854	$	1,500,543
Weighted average borrowing rate	4.70		%