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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, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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) 364-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
GPMT
 
New York Stock Exchange
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 No
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 No
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
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
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 8, 2020, there were 55,136,885 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
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 


i


Table of Contents



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
March 31,
2020
 
December 31,
2019
ASSETS
 
 
 
Loans held-for-investment
$
4,313,816

 
$
4,226,212

Allowance for credit losses
(62,565
)
 

Loans held-for-investment, net
4,251,251

 
4,226,212

Available-for-sale securities, at fair value
8,319

 
12,830

Held-to-maturity securities
10,836

 
18,076

Cash and cash equivalents
99,332

 
80,281

Restricted cash
8,533

 
79,483

Accrued interest receivable
11,215

 
11,323

Other assets
87,392

 
32,657

Total Assets (1)
$
4,476,878

 
$
4,460,862

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Repurchase agreements
$
2,072,099

 
$
1,924,021

Securitized debt obligations
982,312

 
1,041,044

Asset-specific financings
119,062

 
116,465

Revolving credit facilities
38,361

 
42,008

Convertible senior notes
270,031

 
269,634

Dividends payable
25

 
23,063

Other liabilities
32,929

 
24,491

Total Liabilities (1)
3,514,819

 
3,440,726

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 55,136,885 and 54,853,205 shares issued and outstanding, respectively
552

 
549

Additional paid-in capital
1,049,836

 
1,048,484

Accumulated other comprehensive (loss) income
(3,712
)
 
32

Cumulative earnings
106,413

 
162,076

Cumulative distributions to stockholders
(192,030
)
 
(192,005
)
Total Stockholders’ Equity
961,059

 
1,019,136

Total Liabilities and Stockholders’ Equity
$
4,476,878

 
$
4,460,862

____________________
(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, 2020 and December 31, 2019, assets of the VIEs totaled $1,310,887 and $1,387,148, and liabilities of the VIEs totaled $983,094 and $1,042,122, respectively. See Note 3 - Variable Interest Entities for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Table of Contents



GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except share data)
 
Three Months Ended
 
March 31,
 
2020
 
2019
Interest income:

Loans held-for-investment
$
63,259

 
$
56,665

Available-for-sale securities
280

 
308

Held-to-maturity securities
310

 
661

Cash and cash equivalents
326

 
511

Total interest income
64,175

 
58,145

Interest expense:
 
 
 
Repurchase agreements
19,675

 
16,989

Securitized debt obligations
9,434

 
9,859

Convertible senior notes
4,516

 
4,465

Asset-specific financings
1,122

 

Revolving credit facilities
242

 
695

Total interest expense
34,989

 
32,008

Net interest income
29,186

 
26,137

Other (loss) income:
 
 
 
Provision for credit losses
(53,336
)
 

Fee income
522

 
913

Total other (loss) income
(52,814
)
 
913

Expenses:
 
 
 
Management fees
3,907

 
3,449

Incentive fees

 
244

Servicing expenses
1,109

 
773

Other operating expenses
8,553

 
5,616

Total expenses
13,569

 
10,082

(Loss) income before income taxes
(37,197
)
 
16,968

Benefit from income taxes
(6
)
 
(1
)
Net (loss) income
(37,191
)
 
16,969

Dividends on preferred stock
25

 
25

Net (loss) income attributable to common stockholders
$
(37,216
)
 
$
16,944

Basic (loss) earnings per weighted average common share
$
(0.68
)
 
$
0.35

Diluted (loss) earnings per weighted average common share
$
(0.68
)
 
$
0.34

Dividends declared per common share
$

 
$
0.42

Weighted average number of shares of common stock outstanding:
 
 
 
Basic
55,056,411

 
48,601,431

Diluted
55,056,411

 
62,256,595

Comprehensive (loss) income:
 
 
 
Net (loss) income attributable to common stockholders
$
(37,216
)
 
$
16,944

Other comprehensive (loss) income, net of tax:
 
 
 
Unrealized (loss) gain on available-for-sale securities
(3,744
)
 
192

Other comprehensive (loss) income
(3,744
)
 
192

Comprehensive (loss) income attributable to common stockholders
$
(40,960
)
 
$
17,136

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

2


Table of Contents



GRANITE POINT MORTGAGE TRUST INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive (Loss) Income
 
Cumulative Earnings
 
Cumulative Distributions to Stockholders
 
Total Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
54,853,205

 
$
549

 
$
1,048,484

 
$
32

 
$
162,076

 
$
(192,005
)
 
$
1,019,136

Cumulative effect of adoption of new accounting principle

 

 

 

 
(18,472
)
 

 
(18,472
)
Adjusted balance, January 1, 2020
54,853,205

 
549

 
1,048,484

 
32

 
143,604

 
(192,005
)
 
1,000,664

Net loss

 

 

 

 
(37,191
)
 

 
(37,191
)
Other comprehensive loss before reclassifications

 

 

 
(4,511
)
 

 

 
(4,511
)
Amounts reclassified from accumulated other comprehensive income

 

 

 
767

 

 

 
767

Net other comprehensive loss

 

 

 
(3,744
)
 

 

 
(3,744
)
Preferred dividends declared

 

 

 

 

 
(25
)
 
(25
)
Non-cash equity award compensation
283,680

 
3

 
1,352

 

 

 

 
1,355

Balance, March 31, 2020
55,136,885

 
$
552

 
$
1,049,836

 
$
(3,712
)
 
$
106,413

 
$
(192,030
)
 
$
961,059

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

3


Table of Contents



GRANITE POINT MORTGAGE TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended
 
March 31,
 
2020
 
2019
Cash Flows From Operating Activities:
 
Net (loss) income
$
(37,191
)
 
$
16,969

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
Accretion of discounts and net deferred fees on loans held-for-investment
(4,774
)
 
(3,822
)
Amortization of deferred debt issuance costs on convertible senior notes and securitized debt obligations
1,665

 
2,029

Provision for credit losses
53,336

 

Equity based compensation
1,355

 
1,149

Net change in assets and liabilities:
 
 
 
Decrease (increase) in accrued interest receivable
108

 
(327
)
Increase in other assets
(54,735
)
 
(3,781
)
Increase in other liabilities
904

 
6,327

Net cash (used in) provided by operating activities
(39,332
)
 
18,544

Cash Flows From Investing Activities:
 
 
 
Originations, acquisitions and additional fundings of loans held-for-investment, net of deferred fees
(184,969
)
 
(276,574
)
Proceeds from repayment of loans held-for-investment
102,139

 
155,320

Principal payments on held-to-maturity securities
6,298

 
881

Net cash used in investing activities
(76,532
)
 
(120,373
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from repurchase agreements
237,344

 
225,261

Principal payments on repurchase agreements
(89,266
)
 
(732,170
)
Proceeds from issuance of securitized debt obligations

 
646,868

Principal payments on securitized debt obligations
(60,000
)
 
(105,000
)
Proceeds from asset-specific financings
2,597

 

Proceeds from revolving credit facilities
38,361

 
48,697

Repayment of revolving credit facilities
(42,008
)
 
(123,697
)
Proceeds from issuance of common stock, net of offering costs

 
157,228

Dividends paid on preferred stock
(25
)
 
(25
)
Dividends paid on common stock
(23,038
)
 
(18,321
)
Net cash provided by financing activities
63,965

 
98,841

Net decrease in cash, cash equivalents and restricted cash
(51,899
)
 
(2,988
)
Cash, cash equivalents, and restricted cash at beginning of period
159,764

 
123,423

Cash, cash equivalents, and restricted cash at end of period
$
107,865

 
$
120,435

Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash paid for interest
$
31,914

 
$
28,284

Cash paid for taxes
$

 
$

Noncash Activities:
 
 
 
Dividends declared but not paid at end of period
$
25

 
$
21,938

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

4


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GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

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 currently 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.”
On March 2, 2020, the Company announced that it has agreed to a process with the Manager to internalize the Company’s management function. If the internalization is completed, the Company will become a self-managed real estate investment trust, or REIT. There can be no assurance that the internalization will be consummated.
The Company has elected to be treated as a 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 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 unaudited 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, 2019. In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at March 31, 2020 and results of operations for all periods presented have been made. The results of operations for the three months ended March 31, 2020 should not be construed as indicative of the results to be expected for future periods or the full year.
The unaudited 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 GAAP requires management to make a number of significant estimates. These include estimates of amount and timing of allowances for credit losses, fair value of certain assets and liabilities, 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 market capitalization rates, leasing, credit worthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders, overall economic and capital markets conditions, the broader commercial real estate market, local geographic sub-markets or other factors) will occur in the near term. Over the course of the first quarter of 2020, a global outbreak of a novel strain of coronavirus (COVID-19), took place. The outbreak has spread around the world, including to every state in the United States. As a result of the pandemic, numerous countries, including the United States, have declared national emergencies. As the global impact of the outbreak has been rapidly evolving and as new cases of COVID-19 have quickly spread around the world, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel, and temporarily closing non-essential businesses. Many states in the U.S. instituted varying degrees of “shelter-in-place” guidelines or orders and other measures designed to contain the spread of COVID-19. Such actions are creating significant macroeconomic disruptions and adversely impacting many industries. The outbreak could have a continued adverse impact on macroeconomic and market conditions, and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on macroeconomic and market conditions. The Company believes the estimates and assumptions underlying

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GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

its consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2020. However, the significant degree of uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. The Company’s actual results could ultimately differ from its estimates and the differences may be material.
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, 2019 is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the Company’s consolidated financial condition and results of operations for the three months ended March 31, 2020.
Recently Issued and/or Adopted Accounting Standards
Measurement of Credit Losses on Financial Instruments
On January 1, 2020, the Company adopted Accounting Standard Update, or ASU, 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the incurred loss model under existing guidance with a Current Expected Credit Loss, or CECL, model for instruments measured at amortized cost, and also require entities to record allowances for available-for-sale, or AFS, debt securities rather than reduce the amortized cost, as they did under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. In addition, the new model applies to off-balance sheet credit exposures, such as unfunded loan commitments. ASU 2016-13 was adopted by the Company through a cumulative-effect adjustment to cumulative earnings of $18.5 million as of January 1, 2020.
The allowance for credit losses required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related loans and debt securities on the Company’s condensed consolidated balance sheets, and which reduces the Company’s total stockholders’ equity. The initial allowance for credit losses recorded on January 1, 2020 is reflected as a direct charge to cumulative earnings; however, going forward, changes to the allowance for credit losses are recognized through net income on the Company’s condensed consolidated statements of comprehensive (loss) income. While ASU 2016-13 does not require any particular method for determining the allowance for credit losses, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio, market conditions, and reasonable and supportable forecasts for the duration of each respective loan. In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the CECL model have some amount of expected loss to reflect the GAAP principal underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital or other mitigating factors.
The Company’s loans typically include commitments to fund incremental proceeds to its borrowers over the life of the loan. Those future funding commitments are also subject to an allowance for credit losses. The allowance for credit losses related to future loan fundings is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets, and not as an offset to the related loan balance. This allowance for credit losses is estimated using the same process outlined below for the Company’s outstanding loan balances, and changes in this component of the allowance for credit losses similarly flow through the Company’s condensed consolidated statement of comprehensive (loss) income.
The Company elected not to measure an allowance for credit losses on accrued interest receivable. The Company generally writes off accrued interest receivable balance when interest is 90 days or more past due unless the loan is both well secured and in the process of collection. Write-offs of accrued interest receivable are recognized within provision for credit losses in the condensed consolidated statements of comprehensive income. The Company did not write-off any accrued interest receivable during the three months ended March 31, 2020.
The Company’s implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast, and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the expected timing and amount of future loan fundings and repayments, (iii) the current credit quality of loans and operating performance of loan collateral and the Company’s expectations of performance and (iv) expectations for macroeconomic conditions over the relevant time period.
Considering the lack of historical company data related to any realized loan losses since its inception, the Company elected to estimate its allowance for credit losses by using a probability-weighted analytical model that considers the likelihood of default and loss-given-default for each individual loan. The analytical model incorporates a third-party licensed database with historical

6


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GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

loan losses from 1998 to 2019 for over 100,000 commercial real estate loans. At the time of adoption of ASU No. 2016-13, in determining its initial allowance for credit losses estimate, the Company employed a third-party licensed macroeconomic forecast that largely reflected management’s views at the time and projected a stable overall economic scenario over the reasonable projection period. Significant inputs to the Company’s estimate of the allowance for credit losses include the reasonable and supportable forecast period and loan specific factors such as DSCR, LTV, remaining loan term, property type, and others. In addition, the Company also considers relevant loan-specific qualitative factors to estimate its allowance for credit losses. In certain instances, for loans with unique risk characteristics, the Company may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
Upon adoption of ASU No. 2016-13 on January 1, 2020, based on the Company’s loan portfolio, pre-COVID-19 economic environment and management’s expectations for future economic and market conditions at the time, the Company recorded an initial allowance for credit losses, as a cumulative-effective adjustment to the cumulative earnings in its consolidated statement of equity, of approximately $18.5 million, or approximately $0.34 per share.
The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2020:
(in thousands)
ASSETS
Pre-ASU 2016-13 Adoption
 
Cumulative Effect of Adoption
 
As Reported Under ASU 2016-13
Loans and securities
$
4,257,086

 
$

 
$
4,257,086

Allowance for credit losses

 
(16,692
)
 
(16,692
)
Loans and securities, net
$
4,257,086

 
$
(16,692
)
 
$
4,240,394

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
Liability for off-balance sheet credit losses (1)
$

 
$
1,780

 
$
1,780

 

 

 

STOCKHOLDERS’ EQUITY
 
 
 
 
 
Cumulative earnings
$
162,076

 
$
(18,472
)
 
$
143,604

____________________
(1)
Represents expected loss on unfunded commitments.

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. 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, therefore, the Company consolidates the CLOs.
The following table presents a summary of the assets and liabilities of all VIEs consolidated on the Company’s condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31,
2020
 
December 31,
2019
Loans held-for-investment
$
1,317,406

 
$
1,301,369

Allowance for credit losses
(16,067
)
 

Loans held-for-investment, net
1,301,339

 
1,301,369

Restricted cash
900

 
76,093

Other assets
8,648

 
9,686

Total Assets
$
1,310,887

 
$
1,387,148

Securitized debt obligations
$
982,312

 
$
1,041,044

Other liabilities
782

 
1,078

Total Liabilities
$
983,094

 
$
1,042,122



7


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GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

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 commercial mortgage-backed securities, or CMBS, which are classified within AFS securities, at fair value, and held-to-maturity, or HTM, securities on the condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, the carrying value, which also represents the maximum exposure to loss, of all CMBS in unconsolidated VIEs was $19.2 million and $30.9 million, respectively.
Note 4. Loans Held-for-Investment, Net of Allowance for Credit Losses
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. Loans held-for-investment are reported at cost, net of any unamortized acquisition premiums or discounts, loan fees, origination costs and allowance for credit losses 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, 2020 and December 31, 2019:
 
March 31,
2020
(dollars in thousands)
Senior
    Loans (1)
 
Mezzanine Loans
 
B-Notes
 
Total
Unpaid principal balance
$
4,314,836

 
$
13,197

 
$
14,395

 
$
4,342,428

Unamortized (discount) premium
(115
)
 

 

 
(115
)
Unamortized net deferred origination fees
(28,498
)
 
1

 

 
(28,497
)
Allowance for credit losses
(61,261
)
 
(1,016
)
 
(288
)
 
(62,565
)
Carrying value
$
4,224,962

 
$
12,182

 
$
14,107

 
$
4,251,251

Unfunded commitments
$
762,756

 
$

 
$

 
$
762,756

Number of loans
119

 
2

 
1

 
122

Weighted average coupon
5.1
%
 
11.5
%
 
8.0
%
 
5.2
%
Weighted average years to maturity (2)
1.6

 
1.7

 
6.8

 
1.6


 
December 31,
2019
(dollars in thousands)
Senior
    Loans (1)
 
Mezzanine Loans
 
B-Notes
 
Total
Unpaid principal balance
$
4,229,194

 
$
13,503

 
$
14,448

 
$
4,257,145

Unamortized (discount) premium
(124
)
 

 

 
(124
)
Unamortized net deferred origination fees
(30,788
)
 
(21
)
 

 
(30,809
)
Carrying value
$
4,198,282

 
$
13,482

 
$
14,448

 
$
4,226,212

Unfunded commitments
$
748,878

 
$

 
$

 
$
748,878

Number of loans
117

 
2

 
1

 
120

Weighted average coupon
5.4
%
 
11.7
%
 
8.0
%
 
5.4
%
Weighted average years to maturity (2)
1.8

 
2.0

 
7.1

 
1.8

____________________
(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 with such conditions stipulated in the applicable loan documents. 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.

8


Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

(dollars in thousands)
 
March 31,
2020
 
December 31,
2019
Property Type
 
Carrying Value
 
% of Loan Portfolio
 
Carrying Value
 
% of Loan Portfolio
Office
 
$
1,788,377

 
42.0
%
 
$
1,779,173

 
42.0
%
Multifamily
 
1,063,785

 
25.0
%
 
1,058,708

 
25.1
%
Hotel
 
661,760

 
15.6
%
 
640,503

 
15.2
%
Retail
 
396,438

 
9.3
%
 
398,742

 
9.4
%
Industrial
 
304,133

 
7.2
%
 
312,637

 
7.4
%
Other
 
36,758

 
0.9
%
 
36,449

 
0.9
%
Total
 
$
4,251,251

 
100.0
%
 
$
4,226,212

 
100.0
%

(dollars in thousands)
 
March 31,
2020
 
December 31,
2019
Geographic Location
 
Carrying Value
 
% of Loan Portfolio
 
Carrying Value
 
% of Loan Portfolio
Northeast
 
$
1,148,560

 
27.1
%
 
$
1,196,767

 
28.4
%
Southwest
 
874,194

 
20.5
%
 
923,519

 
21.8
%
West
 
808,168

 
19.0
%
 
735,416

 
17.4
%
Midwest
 
701,781

 
16.5
%
 
700,778

 
16.6
%
Southeast
 
718,548

 
16.9
%
 
669,732

 
15.8
%
Total
 
$
4,251,251

 
100.0
%
 
$
4,226,212

 
100.0
%

At March 31, 2020 and December 31, 2019, the Company pledged loans held-for-investment with a carrying value, net of allowance for credit losses, of $4.2 billion and $4.1 billion, respectively, as collateral for repurchase agreements, an asset-specific financing facility, a revolving credit facility and securitized debt obligations. See Note 9 - Collateralized Borrowings and Note 10 - Securitized Debt Obligations.
The following table summarizes activity related to loans held-for-investment, net of allowance for credit losses, for the three months ended March 31, 2020 and 2019:
 
Three Months Ended
March 31,
(in thousands)
2020
 
2019
Balance at beginning of period
$
4,226,212

 
$
3,167,913

Originations, acquisitions and additional fundings
187,422

 
279,694

Repayments
(102,139
)
 
(155,320
)
Net discount accretion (premium amortization)
8

 
13

Increase in net deferred origination fees
(2,453
)
 
(3,120
)
Amortization of net deferred origination fees
4,766

 
3,809

Allowance for credit losses
(62,565
)
 

Balance at end of period
$
4,251,251

 
$
3,292,989


Subsequent to the adoption of ASU 2016-13 on January 1, 2020, to estimate and recognize an allowance for credit losses on loans held-for-investment and their related unfunded commitments, the Company continues to use a probability-weighted analytical model. Given the highly uncertain current macroeconomic environment and the lack of clarity on the near-term outlook for the overall U.S. economy as a result of the COVID-19 pandemic, in determining its allowance for credit losses estimate through March 31, 2020, the Company employed an updated third-party provided macroeconomic forecast over the reasonable projection period. This updated forecast reflects the impact of the COVID-19 pandemic on the overall U.S. economy, commercial real estate markets generally and is not specific to any loans in its portfolio. These estimates may change in future periods based on available future macro-economic data and might results in a material change in the Company’s future estimates of expected credit losses

9


Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

for its loan portfolio. See Note 2 - Use of Estimates for further discussion of COVID-19. Significant inputs to the Company’s estimate of the allowance for credit losses include loan specific factors such as DSCR, LTV, remaining loan term, property type and others. In certain instances, for loans with unique risk characteristics, the Company may instead elect to employ different methods to estimate loan losses that also conform to ASU 2016-13 and related guidance.
The allowance for credit losses related to the Company’s loans held-for-investment is deducted from the amortized cost basis of related loans, while the allowance for credit losses related to off-balance sheet future funding commitments is recorded as a component of other liabilities on the Company’s condensed consolidated balance sheets. As of March 31, 2020, the Company recognized $7.5 million in other liabilities related to the allowance for credit losses on unfunded commitments. Changes in the provision for credit losses for both loans held-for-investment and their related unfunded commitments are recognized through net income on the Company’s condensed consolidated statements of comprehensive (loss) income.
The following table presents the changes for the three months ended March 31, 2020 in the allowance for credit losses on loans held-for-investment:
 
Three Months Ended
March 31,
(in thousands)
2020
Balance at beginning of period
$
16,692

Provision for credit losses
45,873

Writeoffs

Recoveries of amounts previously written off

Balance at end of period
$
62,565


The Company’s primary credit quality indicators are its risk rankings. The Company evaluates the credit quality of each loan 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, LTV, 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 probability of default or principal loss.
5 –
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 by risk rating for loans held-for-investment as of March 31, 2020 and December 31, 2019:
(dollars in thousands)
 
March 31,
2020
 
December 31,
2019
Risk Rating
 
Number of Loans
 
Unpaid Principal Balance
 
Carrying Value
 
Number of Loans
 
Unpaid Principal Balance
 
Carrying Value
1
 
4

 
$
104,751

 
$
103,889

 
9

 
$
293,191

 
$
292,270

2
 
97

 
3,470,230

 
3,408,924

 
100

 
3,661,077

 
3,632,528

3
 
17

 
653,475

 
633,979

 
9

 
243,127

 
241,901

4
 
4

 
113,972

 
104,459

 
2

 
59,750

 
59,513

5
 

 

 

 

 

 

Total
 
122

 
$
4,342,428

 
$
4,251,251

 
120

 
$
4,257,145

 
$
4,226,212


As of December 31, 2019 (prior to the adoption of ASU 2016-13), the Company had not identified any impaired loans and it had not recorded any allowances for losses as it was not deemed probable that the Company would not be able to collect all amounts due pursuant to the contractual terms of the loans.

10


Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

The following table presents the carrying value of loans held-for-investment as of March 31, 2020 by risk rating and year of origination:
 
 
March 31, 2020
(dollars in thousands)
 
Origination Year
 
 
Risk Rating
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Total
1 (Low Risk)
 
$

 
$

 
$
49,269

 
$
21,290

 
$
33,330

 
$

 
$
103,889

2 (Average Risk)
 
122,649

 
1,513,409

 
892,526

 
584,385

 
186,142

 
109,813

 
3,408,924

3 (Acceptable Risk)
 

 
84,461

 
233,342

 
189,622

 

 
126,554

 
633,979

4 (High Risk)
 

 

 
38,793

 
65,666

 

 

 
104,459

5 (Loss Likely)
 

 

 

 

 

 

 

Total
 
$
122,649

 
$
1,597,870

 
$
1,213,930

 
$
860,963

 
$
219,472

 
$
236,367

 
$
4,251,251


As of March 31, 2020 and December 31, 2019, the Company had not identified any loans that were past-due, in nonaccrual status, or in maturity default. Additionally, during the three months ended March 31, 2020, the Company did not enter into any loan modifications which were classified as troubled debt restructuring.
Note 5. Available-for-Sale Securities
The following table presents the components of the carrying value of AFS securities as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31,
2020
 
December 31,
2019
Face value
$
12,798

 
$
12,798

Unamortized premium (discount)

 

Allowance for credit losses
(767
)
 

Gross unrealized gains

 
32

Gross unrealized losses
(3,712
)
 

Carrying value
$
8,319

 
$
12,830


On March 31, 2020, the Company’s AFS securities had contractual maturities of less than one year.
At March 31, 2020 and December 31, 2019, the Company pledged AFS securities with a carrying value of $8.3 million and $12.8 million, respectively, as collateral for repurchase agreements. See Note 9 - Collateralized Borrowings.
At March 31, 2020, the Company’s AFS securities were in an unrealized loss position for less than twelve months. At December 31, 2019, the Company’s AFS securities were in an unrealized gain position.
Note 6. Held-to-Maturity Securities
The following table presents the components of the carrying value of HTM securities as of March 31, 2020 and December 31, 2019:
(in thousands)
March 31,
2020
 
December 31,
2019
Face value
$
11,778

 
$
18,076

Unamortized premium (discount)

 

Allowance for credit losses
(942
)
 

Carrying value
$
10,836

 
$
18,076


On March 31, 2020, the Company’s HTM securities had contractual maturities of less than one year.
At March 31, 2020 and December 31, 2019, the Company pledged HTM securities with a carrying value of $10.8 million and $18.1 million, respectively, as collateral for repurchase agreements. See Note 9 - Collateralized Borrowings.

11


Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

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 investment activities. As of March 31, 2020 and December 31, 2019, the Company had $7.6 million and $3.4 million, respectively, as collateral for repurchase agreements and by counterparties to support investment activities. In addition, as of March 31, 2020 and December 31, 2019, the Company held $0.9 million and $76.1 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, 2020 and December 31, 2019 that sum to the total of the same such amounts shown in the statements of cash flows:
(in thousands)
March 31,
2020
 
December 31,
2019
Cash and cash equivalents
$
99,332

 
$
80,281

Restricted cash
8,533

 
79,483

Total cash, cash equivalents and restricted cash
$
107,865

 
$
159,764


Note 8. Fair Value
Fair Value Measurements
ASC 820, Fair Value Measurements, or 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.
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 sheets 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 credit and cash flow factors including, but not limited to, required market yields for comparable investments, coupons, expected life of the security, property type, LTV and debt yield. 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).

12


Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

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, 2020
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$

 
$
8,319

 
$

 
$
8,319

Total assets
$

 
$
8,319

 
$

 
$
8,319

 
Recurring Fair Value Measurements
 
December 31, 2019
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$

 
$
12,830

 
$

 
$
12,830

Total assets
$

 
$
12,830

 
$

 
$
12,830


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, 2020 and 2019.
Nonrecurring Fair Value
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 GAAP. These items would constitute nonrecurring fair value measures under ASC 820. As of March 31, 2020 and December 31, 2019, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis in the periods presented. 
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, origination costs and allowance for credit losses, 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 and allowance for credit losses. 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.

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Table of Contents

GRANITE POINT MORTGAGE TRUST INC.
Notes to the Condensed Consolidated Financial Statements

The carrying value of repurchase agreements, asset-specific financings and revolving credit facilities that mature in less than one year generally approximates fair value due to the short maturities. The Company’s long-term repurchase agreements and asset-specific financings have floating rates based on an index plus a credit 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, 2020. The Company categorizes the fair value measurement of these assets as Level 2.
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, 2020 and December 31, 2019:
 
March 31, 2020
 
December 31, 2019
(in thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Assets
 
 
 
 
 
 
 
Loans held-for-investment, net of allowance for credit losses
$
4,251,251

 
$
4,269,192

 
$
4,226,212

 
$
4,261,612

Available-for-sale securities
$
8,319

 
$
8,319

 
$
12,830

 
$
12,830

Held-to-maturity securities
$
10,836

 
$
4,711

 
$
18,076

 
$
18,076

Cash and cash equivalents
$
99,332

 
$
99,332

 
$
80,281

 
$
80,281

Restricted cash
$
8,533

 
$
8,533

 
$
79,483

 
$
79,483

Liabilities
 
 
 
 
 
 
 
Repurchase agreements
$
2,072,099

 
$
2,072,099

 
$
1,924,021

 
$
1,924,021

Securitized debt obligations
$
982,312

 
$
846,600

 
$
1,041,044

 
$
1,050,912