Granite Point Mortgage Trust Inc. (NYSE:GPMT) Q2 2021 Earnings Conference Call August 10, 2021 10:00 AM ET Company Participants Chris Petta - Investor Relations Jack Taylor - President and Chief Executive Officer Marcin Urbaszek - Chief Financial Officer Steve Alpart - Chief Investment Officer and Co-Head of Originations Peter Morral - Chief Development Officer and Co-Head of Originations Steve Plust - Chief Operating Officer Conference Call Participants Doug Harter - Credit Suisse Steve Delaney - JMP Secur ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Granite Point Mortgage Trust Inc [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) The unaudited financial statements for Q2 2021 show a decrease in total assets, a return to net income, and a slight increase in total equity [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets reflect changes in assets, liabilities, and equity, notably a reduction in loans and a shift in financing | | June 30, 2021 (in millions) | December 31, 2020 (in millions) | | :--- | :--- | :--- | | **Total Assets** | **$3,854.5** | **$4,219.6** | | Loans held-for-investment, net | $3,577.6 | $3,847.8 | | Cash and cash equivalents | $237.0 | $261.4 | | **Total Liabilities** | **$2,907.2** | **$3,284.8** | | Repurchase facilities | $717.2 | $1,708.9 | | Securitized debt obligations | $1,446.6 | $927.1 | | **Total Equity** | **$946.3** | **$933.8** | - Total assets decreased primarily due to a reduction in the net loan portfolio. On the liability side, borrowings under repurchase facilities were significantly reduced from **$1.71 billion** to **$717.2 million**, while securitized debt obligations increased from **$927.1 million** to **$1.45 billion**, reflecting a shift in financing strategy[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(loss)) The statements show a return to profitability in Q2 2021, driven by a benefit from credit losses and reduced expenses | (in millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net interest income | $22.8 | $34.4 | | Benefit from (provision for) credit losses | $0.2 | $(14.2) | | Total expenses | $8.7 | $15.0 | | **Net income (loss)** | **$14.3** | **$(1.7)** | | **Net income (loss) attributable to common stockholders** | **$14.2** | **$(1.8)** | | **Basic earnings (loss) per share** | **$0.26** | **$(0.03)** | | **Diluted earnings (loss) per share** | **$0.24** | **$(0.03)** | - The company returned to profitability in Q2 2021 compared to a loss in Q2 2020, primarily driven by a **$14.4 million** positive swing in the provision for credit losses and a **$6.3 million** reduction in total expenses, which more than offset an **$11.6 million** decrease in net interest income[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased due to net income, partially offset by dividends and share repurchases - For the six months ended June 30, 2021, total stockholders' equity increased by **$12.4 million**, with key changes including net income of **$42.3 million**, offset by common dividends declared of **$27.9 million** and common stock repurchases of **$4.3 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows reflect significant loan repayments, new originations, and a shift in financing activities | (in millions) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $30.7 | $32.3 | | Net cash provided by (used in) investing activities | $295.8 | $(131.8) | | Net cash used in financing activities | $(416.7) | $(0.8) | | **Net decrease in cash, cash equivalents and restricted cash** | **$(90.2)** | **$(100.3)** | - For the first six months of 2021, significant cash inflows from loan repayments (**$524.6 million**) were offset by loan originations (**$228.8 million**)[19](index=19&type=chunk) - Major financing activities included net repayments on repurchase facilities of nearly **$1 billion**, proceeds from new securitized debt of **$685.8 million**, and proceeds from a new term financing facility of **$349.3 million**[19](index=19&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical context on the company's operations as a REIT and significant accounting estimates - The company is an internally managed real estate finance company operating as a REIT, having transitioned from being externally managed on December 31, 2020[22](index=22&type=chunk)[24](index=24&type=chunk) - The financial statements are prepared under GAAP and include significant estimates, particularly for the allowance for credit losses, with uncertainty heightened by the COVID-19 pandemic[28](index=28&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2021 financial performance, portfolio changes, financing strategy shifts, and credit quality trends [Second Quarter 2021 Activity](index=31&type=section&id=Second%20Quarter%202021%20Activity) This section highlights key operational and financial achievements and transactions during Q2 2021 - Key operational and financial activities for Q2 2021 included: - GAAP net income of **$13.7 million**, or **$0.25** per basic share[146](index=146&type=chunk) - Distributable Earnings of **$15.7 million**, or **$0.29** per basic share[148](index=148&type=chunk) - Originated seven new loans with total commitments of **$203.8 million**[148](index=148&type=chunk) - Received **$423.0 million** in loan repayments and principal amortization[148](index=148&type=chunk) - Issued a new **$824 million** CRE CLO (GPMT 2021-FL3)[148](index=148&type=chunk) - Extended maturities on two repurchase financing facilities[148](index=148&type=chunk) - Repurchased **300,891** shares of common stock for **$4.3 million**[148](index=148&type=chunk) [Key Financial Measures and Indicators](index=33&type=section&id=Key%20Financial%20Measures%20and%20Indicators) This section presents core financial metrics including GAAP net income, Distributable Earnings, and book value per share | (in millions) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | GAAP net income attributable to common stockholders | $14.2 | $42.2 | | (Benefit from) provision for credit losses | $(0.2) | $(9.3) | | Non-cash equity compensation | $1.6 | $3.5 | | **Distributable Earnings** | **$15.7** | **$36.4** | | **Distributable Earnings per basic share** | **$0.29** | **$0.66** | - Book value per common share increased to **$17.27** as of June 30, 2021, from **$16.92** at December 31, 2020[157](index=157&type=chunk) - This book value includes an estimated allowance for credit losses of **$62.9 million**, or **$1.15** per common share[157](index=157&type=chunk) [Portfolio Overview and Credit Quality](index=36&type=section&id=Portfolio%20Overview%20and%20Credit%20Quality) This section details the loan portfolio composition, risk ratings, and specific credit quality concerns | Portfolio Summary | As of June 30, 2021 | | :--- | :--- | | Number of loans | 99 | | Total loan commitments | $4.1 billion | | Unpaid principal balance | $3.6 billion | | Weighted-average all-in yield | L+4.13% | | Stabilized LTV at origination | 63.5% | - The weighted average risk rating of the loan portfolio was **2.8**, an increase from **2.7** at March 31, 2021[160](index=160&type=chunk) - Three loans with a total unpaid principal balance of **$237.1 million** were downgraded to a risk rating of "**5**" (Loss Likely)[179](index=179&type=chunk) - Three loans were placed on nonaccrual status during the quarter: a hospitality asset in Minneapolis, a retail asset in Pasadena, and an office property in Washington D.C[181](index=181&type=chunk)[182](index=182&type=chunk) - The company recorded specific allowances for credit loss on these collateral-dependent loans totaling **$32.1 million**[184](index=184&type=chunk) [Portfolio and Corporate Financing](index=44&type=section&id=Portfolio%20and%20Corporate%20Financing) This section outlines the company's financing structure, including a shift towards non-mark-to-market sources - Approximately **70%** of the company's portfolio loan-level financing was from non-mark-to-market sources as of June 30, 2021, including CRE CLOs, a term financing facility, and an asset-specific financing facility[185](index=185&type=chunk) | Financing Type | June 30, 2021 (in millions) | December 31, 2020 (in millions) | | :--- | :--- | :--- | | CRE CLOs | $1,446.6 | $927.1 | | Term financing facility | $142.4 | $— | | Asset-specific financing facility | $82.8 | $123.1 | | Secured repurchase agreements | $717.2 | $1,708.9 | | **Total portfolio financing** | **$2,389.0** | **$2,759.1** | - The company was in compliance with all financial covenants as of June 30, 2021, including minimum unrestricted cash, tangible net worth, leverage ratios, and interest coverage[208](index=208&type=chunk) [Results of Operations](index=55&type=section&id=Results%20of%20Operations) This section analyzes the drivers of net interest income, expenses, and the provision for credit losses - Net interest income decreased to **$22.8 million** in Q2 2021 from **$34.4 million** in Q2 2020, primarily due to a smaller average loan portfolio and a significant decline in short-term interest rates[225](index=225&type=chunk)[218](index=218&type=chunk) - Total expenses decreased to **$8.7 million** in Q2 2021 from **$15.0 million** in Q2 2020, driven by the elimination of the **$4.0 million** external base management fee following the company's internalization, and lower advisory and legal fees[231](index=231&type=chunk)[235](index=235&type=chunk) - The company recorded a benefit from provision for credit losses of **$0.2 million** in Q2 2021, compared to a provision of **$14.2 million** in Q2 2020, reflecting moderately improved macroeconomic expectations and portfolio changes, offset by an increased allowance on certain collateral-dependent loans[236](index=236&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's available liquidity, capital structure, and primary cash needs | Source of Liquidity | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $237.0 | | Delayed draw on senior secured term loan facilities | $75.0 | | **Total** | **$312.0** | - The total debt-to-equity ratio (net of cash) decreased to **2.8:1.0** at June 30, 2021, from **3.0:1.0** at March 31, 2021[243](index=243&type=chunk) - Primary liquidity needs include interest and principal payments on **$2.9 billion** of borrowings, **$441.0 million** of unfunded loan commitments, and dividend distributions[254](index=254&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company discusses its exposure to credit, interest rate, and liquidity risks, including the impact of COVID-19 and LIBOR transition - The company faces significant credit risk from the COVID-19 pandemic's impact on property operations, particularly for its hotel and retail collateral, leading to an increase in loan modification requests and non-performing loans[275](index=275&type=chunk)[277](index=277&type=chunk) | Change in Interest Rates | Change in Annualized Net Interest Income (in millions) | | :--- | :--- | | +100 bps | $(20.1) | | +50 bps | $(10.6) | | -50 bps | $2.1 | | -100 bps | $2.1 | - The company is preparing for the discontinuation of LIBOR, with approximately **98.1%** of its loans and **100%** of its asset-level borrowings indexed to LIBOR as of June 30, 2021[286](index=286&type=chunk)[287](index=287&type=chunk) - The company is working with lenders and borrowers to amend agreements to include robust fallback language[287](index=287&type=chunk) [Controls and Procedures](index=69&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[296](index=296&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[297](index=297&type=chunk) [PART II - OTHER INFORMATION](index=70&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information on legal proceedings, risk factors, equity sales, and exhibits [Legal Proceedings](index=70&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently a party to any litigation or legal proceedings that would be expected to have a material adverse effect on its financial condition or results of operations - As of the filing date, the company is not party to any material litigation or legal proceedings[300](index=300&type=chunk) [Risk Factors](index=70&type=section&id=Item%201A.%20Risk%20Factors) There are no new risk factors presented in this report. The company refers to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - The report refers to the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2020, for information on factors that could affect its financial results[301](index=301&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 318,159 common shares at an average price of $14.20 during Q2 2021, with shares remaining for future repurchase | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2021 | — | — | — | | May 2021 | — | — | — | | June 2021 | 318,159 | $14.20 | 300,891 | | **Total Q2 2021** | **318,159** | **$14.20** | **300,891** | - As of June 30, 2021, **1,699,109** shares remained available for repurchase under the company's authorized plan[301](index=301&type=chunk) [Defaults Upon Senior Securities](index=70&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[302](index=302&type=chunk) [Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, indentures related to debt offerings, amendments to financing agreements, and officer certifications - Key exhibits filed include amendments to master repurchase agreements with Morgan Stanley Bank and Wells Fargo Bank, and various agreements related to the GPMT 2021-FL3 CRE CLO transaction[307](index=307&type=chunk)

G R A N I T E P O I N T MORTGAGE TRUST First Quarter 2021 Earnings Presentation May 7, 2021 Safe Harbor Statement This presentation contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, consequently, you should not rely ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the quarterly period ended March 31, 2021 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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. FORM 10-Q (Exact name of registrant as specified in its charter) Maryland 61-1843143 3 Bryant Park, Suite 24 ...

Granite Point Mortgage Trust Inc. (NYSE:GPMT) Q4 2020 Earnings Conference Call March 5, 2021 10:00 AM ET Company Participants Chris Petta - IRO John Taylor - President and CEO Stephen Alpart - VP, Chief Investment Officer and Co-Head of Originations Marcin Urbaszek - CFO and Head of IR Steven Plust - VP and COO Conference Call Participants Doug Harter - Credit Suisse Jade Rahmani - Keefe, Bruyette, & Woods, Inc. Charlie Arestia - JPMorgan Chase & Co. Stephen Laws - Raymond James Arren Cyganovich - Citi Grou ...

Fourth Quarter 2020 Earnings Presentation March 5, 2021 Safe Harbor Statement This presentation contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, consequently, you should not rely on these forward-looking statements ...

Granite Point Mortgage Trust Inc. (NYSE:GPMT) Q3 2020 Earnings Conference Call November 10, 2020 10:00 AM ET Company Participants Chris Petta - Investor Relations Officer John Taylor - President and Chief Executive Officer Stephen Alpart - Vice President, Chief Information Officer and Co-Head of Originations Marcin Urbaszek - Vice President, Chief Financial Officer and Head of Investor Relations Steven Plust - Vice President and Chief Operating Officer Conference Call Participants Douglas Harter - Credit Su ...

G ＲＡＮＩＴＥ ＰＯＩＮＴ MORTGAGE TRUST A Pine River Capital Managed Company Third Quarter 2020 Earnings Presentation November 10, 2020 Safe Harbor Statement This presentation contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates and projections and, ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) The unaudited Q3 2020 financial statements show a net loss and reduced equity, driven by CECL, loan losses, and a restructuring charge [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in millions/billions) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Loans held-for-investment, net | $3.979 billion | $4.226 billion | | Cash and cash equivalents | $353.7 million | $80.3 million | | **Total Assets** | **$4.403 billion** | **$4.461 billion** | | **Liabilities** | | | | Repurchase agreements | $1.851 billion | $1.924 billion | | Securitized debt obligations | $928.6 million | $1.041 billion | | Senior secured term loan facilities | $205.6 million | $— | | **Total Liabilities** | **$3.467 billion** | **$3.441 billion** | | **Total Stockholders' Equity** | **$934.5 million** | **$1.019 billion** | - The balance sheet reflects the adoption of the CECL accounting standard, with a new 'Allowance for credit losses' of **$73.3 million** reducing the net value of loans held-for-investment as of September 30, 2020[11](index=11&type=chunk) - The company entered into new senior secured term loan facilities during the period, with an outstanding balance of **$205.6 million** at quarter-end[11](index=11&type=chunk) [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) Statement of Comprehensive (Loss) Income Highlights (in millions, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $33.8 million | $27.1 million | $97.4 million | $80.8 million | | Provision for credit losses | $5.3 million | $— | $(62.2) million | $— | | Realized losses on sales | $(10.0) million | $— | $(16.9) million | $— | | Restructuring charges | $43.7 million | $— | $43.7 million | $— | | **Net (loss) income** | **$(24.7) million** | **$17.4 million** | **$(63.6) million** | **$52.5 million** | | **Net (loss) income attributable to common stockholders** | **$(24.7) million** | **$17.4 million** | **$(63.7) million** | **$52.5 million** | | **Diluted (loss) earnings per share** | **$(0.45)** | **$0.32** | **$(1.15)** | **$1.00** | | Dividends declared per common share | $0.20 | $0.42 | $0.20 | $1.26 | - The company reported a net loss of **$24.7 million** for Q3 2020, a significant shift from a net income of **$17.4 million** in Q3 2019. This was primarily driven by a **$43.7 million** restructuring charge and a **$10.0 million** realized loss on sales, partially offset by a **$5.3 million** reversal of provision for credit losses[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) - Total Stockholders' Equity decreased from **$1.019 billion** at December 31, 2019, to **$934.5 million** at September 30, 2020[16](index=16&type=chunk) - The decrease in equity was driven by a cumulative effect of adopting a new accounting principle (CECL) of **$18.5 million**, a net loss of **$63.6 million** for the nine months, and common dividends declared of **$11.0 million** in Q3[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for the Nine Months Ended September 30 (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36.0 million | $50.4 million | | Net cash provided by (used in) investing activities | $200.5 million | $(741.0) million | | Net cash (used in) provided by financing activities | $(37.3) million | $873.4 million | | **Net increase in cash, cash equivalents and restricted cash** | **$199.2 million** | **$182.7 million** | - For the nine months ended Sep 30, 2020, investing activities provided **$200.5 million** in cash, primarily due to proceeds from loan repayments (**$290.8 million**) and sales of loans (**$193.5 million**) exceeding new originations and fundings (**$314.7 million**)[19](index=19&type=chunk) - Financing activities used **$37.3 million** in cash, reflecting net repayments on repurchase agreements and revolving credit facilities, partially offset by **$205.6 million** in proceeds from new senior secured term loan facilities[19](index=19&type=chunk) [Notes to the Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) - The company will become an internally managed REIT effective December 31, 2020, terminating its external management agreement with Pine River Capital Management L.P[21](index=21&type=chunk)[31](index=31&type=chunk)[112](index=112&type=chunk) - On January 1, 2020, the company adopted the new CECL accounting standard (ASU 2016-13), resulting in a cumulative-effect adjustment to retained earnings of **$18.5 million**[33](index=33&type=chunk)[41](index=41&type=chunk) - On September 25, 2020, the company entered into a new five-year, **$300.0 million** senior secured term loan facility, drawing an initial **$225.0 million**. In conjunction, it issued warrants to purchase up to 6.07 million shares of common stock[99](index=99&type=chunk)[100](index=100&type=chunk) - A one-time restructuring charge of **$44.5 million** was recognized related to the cash payment to be made to the Manager for the internalization of the management function[112](index=112&type=chunk)[136](index=136&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses COVID-19 impacts, the management internalization, Q3 2020 net loss, liquidity, and loan portfolio credit quality [Key Financial Measures and Indicators](index=35&type=section&id=Key%20Financial%20Measures%20and%20Indicators) Key Metrics | Metric | Q3 2020 | Q2 2020 | | :--- | :--- | :--- | | GAAP Net Loss per Share | $(0.45) | $(0.03) | | Core Earnings per Share (Non-GAAP) | $0.27 | $0.25 | | Dividend Declared per Share | $0.20 | $— | | Book Value per Share | $16.93 | $17.47 | - Core Earnings, a non-GAAP measure, is used by management to evaluate performance. For Q3 2020, it was **$15.0 million**, adjusting the GAAP net loss of (**$24.7 million**) primarily for the **$43.7 million** restructuring charge and a **$5.3 million** reversal of credit loss provisions[173](index=173&type=chunk)[177](index=177&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) - Net interest income for Q3 2020 was **$33.8 million**, up from **$27.1 million** in Q3 2019. This was due to a significant decline in interest expense on borrowings (driven by lower short-term rates) that outpaced the decline in interest income[208](index=208&type=chunk)[214](index=214&type=chunk) - The company recorded a **$5.3 million** reversal of its provision for credit losses in Q3 2020, primarily due to changes in portfolio composition from loan sales and repayments. This contrasts with a cumulative provision of **$62.2 million** for the first nine months of 2020, reflecting the negative macroeconomic outlook from COVID-19[223](index=223&type=chunk) - Realized losses on loan sales were **$10.0 million** in Q3 2020 as the company strategically sold certain assets[224](index=224&type=chunk) [Portfolio Overview and Management](index=47&type=section&id=Portfolio%20Overview%20and%20Management) Loan Portfolio Summary as of Sep 30, 2020 | Metric | Value | | :--- | :--- | | Number of Investments | 110 | | Principal Balance | $4.07 billion | | Carrying Value | $3.98 billion | | Weighted Avg. Stabilized LTV | 63.6% | | % Senior Loans | 100% (by loan count) | | % Floating Rate | 98.4% (by carrying value) | - The company collected **99%** of contractual interest payments due in Q3 2020. Management has been actively working with borrowers impacted by COVID-19, modifying **12 loans** with a principal balance of **$319.6 million** during the quarter[238](index=238&type=chunk)[239](index=239&type=chunk) - Loan modifications typically involve temporary interest deferrals, use of reserves for debt service, and covenant waivers, often coupled with additional equity support from sponsors[239](index=239&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2020, the company had **$353.7 million** in available cash and cash equivalents[257](index=257&type=chunk)[258](index=258&type=chunk) - The debt-to-equity ratio (net of cash) decreased to **3.2:1.0** at September 30, 2020, from **3.5:1.0** at June 30, 2020[246](index=246&type=chunk)[257](index=257&type=chunk) - The company amended its financing facilities to exclude the impact of general CECL reserves from the calculation of tangible net worth and leverage ratio covenants, and was in compliance with all covenants as of quarter-end[263](index=263&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces magnified credit, interest rate, and liquidity risks due to COVID-19, managed through portfolio structure and active borrower support - Credit risk has increased due to COVID-19, leading to loan modification requests from borrowers in hard-hit sectors like hotels and retail. The company is actively managing these situations to protect its portfolio[279](index=279&type=chunk)[280](index=280&type=chunk) Interest Rate Sensitivity Analysis (in millions) | Change in Interest Rates | Change in Annualized Net Interest Income | | :--- | :--- | | +100 bps | $(23.3) million | | +50 bps | $(11.8) million | | -50 bps | $3.5 million | | -100 bps | $3.5 million | - The company is exposed to liquidity risk from its repurchase agreement financing, where lenders can make margin calls if collateral value declines. This risk is heightened by market volatility from the pandemic[294](index=294&type=chunk) - The company is monitoring the planned discontinuation of LIBOR after 2021, as the vast majority of its assets and liabilities are indexed to it. All agreements have fallback language for an alternative base rate[288](index=288&type=chunk) [Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of September 30, 2020, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[297](index=297&type=chunk) - No changes occurred in the internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[298](index=298&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) An arbitration with the external Manager concluded, setting a **$44.5 million** payment for management internalization, with no other material litigation pending - An arbitration with the company's Manager concluded on October 7, 2020, with an award setting the payable amount at **$44.5 million**, which relates to the internalization of management[301](index=301&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant new and heightened risks from the COVID-19 pandemic and the upcoming management internalization - The COVID-19 pandemic has caused severe disruptions and may continue to adversely impact the company's performance, borrower stability, collateral values, and liquidity[302](index=302&type=chunk) - Specific pandemic-related risks include potential defaults from borrowers, margin calls from lenders on repurchase agreements, and reduced availability of liquidity sources[303](index=303&type=chunk) - The company may not realize all the targeted benefits of the management internalization and faces risks in attracting and retaining key personnel post-transition[307](index=307&type=chunk)[308](index=308&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - No unregistered sales of equity securities were reported [Defaults Upon Senior Securities](index=62&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported [Exhibits](index=62&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including key financing agreements and documents related to the management internalization - A list of exhibits filed with the report is provided, including key agreements related to financing and the management internalization[313](index=313&type=chunk)[315](index=315&type=chunk)

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, equity, and cash flows, highlighting a $39.0 million net loss for the six months ended June 30, 2020, driven by credit loss provisions [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows total assets of $4.42 billion as of June 30, 2020, a slight decrease from $4.46 billion, with total stockholders' equity decreasing to $964.3 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$4,415,648** | **$4,460,862** | | Loans held-for-investment, net | $4,290,047 | $4,226,212 | | Allowance for credit losses | ($76,710) | — | | Cash and cash equivalents | $55,969 | $80,281 | | **Total Liabilities** | **$3,450,312** | **$3,440,726** | | Repurchase agreements | $2,030,916 | $1,924,021 | | Securitized debt obligations | $983,521 | $1,041,044 | | **Total Stockholders' Equity** | **$964,336** | **$1,019,136** | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a net loss of $1.8 million for Q2 2020 and $39.0 million for the six months ended June 30, 2020, primarily due to significant provisions for credit losses and realized losses on sales Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $34,382 | $27,627 | $63,568 | $53,764 | | Provision for credit losses | ($14,205) | — | ($67,541) | — | | Realized losses on sales | ($6,894) | — | ($6,894) | — | | **Net (loss) income attributable to common stockholders** | **($1,758)** | **$18,152** | **($38,974)** | **$35,096** | | **Diluted (loss) earnings per share** | **($0.03)** | **$0.33** | **($0.71)** | **$0.68** | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased to $964.3 million at June 30, 2020, primarily due to a $18.5 million cumulative effect adjustment from adopting ASU 2016-13 and a $38.9 million net loss - Upon adopting ASU 2016-13 on January 1, 2020, the company recorded a cumulative-effect adjustment that reduced cumulative earnings by **$18.5 million**[14](index=14&type=chunk)[36](index=36&type=chunk) - The net loss for the first six months of 2020 further reduced cumulative earnings by **$38.9 million** (net of preferred dividends)[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was $32.3 million for the six months ended June 30, 2020, while investing and financing activities resulted in a $100.3 million net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,305 | $28,662 | | Net cash used in investing activities | ($131,768) | ($379,631) | | Net cash (used in) provided by financing activities | ($835) | $396,533 | | **Net (decrease) increase in cash** | **($100,298)** | **$45,564** | | **Cash, cash equivalents and restricted cash at end of period** | **$59,466** | **$168,987** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the CECL standard adoption, a $1.5 billion loan portfolio downgrade due to COVID-19, financing arrangements, and the temporary suspension of common stock dividends - The company adopted the new credit loss standard (CECL) on January 1, 2020, recording an initial allowance for credit losses of **$18.5 million** as a cumulative-effect adjustment to equity[28](index=28&type=chunk)[36](index=36&type=chunk) - Due to the ongoing COVID-19 pandemic, the company downgraded **35 loans** with a total principal balance of **$1.5 billion** during Q2 2020, with the number of loans rated 'Higher Risk' increasing from 2 to **18**[55](index=55&type=chunk) - The company has agreed to a process with its Manager to internalize the management function, with a binding arbitration to determine any termination payment, and the hearing is expected in Q3 or Q4 2020[97](index=97&type=chunk)[98](index=98&type=chunk) - The company has temporarily suspended the payment of dividends on its common stock to conserve liquidity due to uncertainty from the COVID-19 pandemic[107](index=107&type=chunk) - Subsequent to quarter-end, on July 30, 2020, the company sold senior floating rate loans with a total unpaid principal balance of approximately **$190.9 million** for a sale price of **$181.4 million**[136](index=136&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant impact of the COVID-19 pandemic, reporting a $39.0 million GAAP net loss for the first six months of 2020, primarily due to credit loss provisions, and outlines actions to strengthen liquidity - The COVID-19 pandemic has caused significant macroeconomic disruptions, adversely impacting the commercial real estate sector, reducing borrower demand, and lowering transaction volume[143](index=143&type=chunk)[149](index=149&type=chunk) - The GAAP net loss for the six months ended June 30, 2020 was largely a result of an increase in the provision for credit losses recognized under the new CECL standard, magnified by the economic dislocation from the pandemic[172](index=172&type=chunk) - The company is focused on strengthening its balance sheet and enhancing liquidity by raising capital, selling assets, and changing its dividend policy, which includes the temporary suspension of the common stock dividend[215](index=215&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net interest income increased to $63.6 million for the six months ended June 30, 2020, but a $67.5 million provision for credit losses and increased operating expenses resulted in a $38.9 million pre-tax loss Key Operating Results (Six Months Ended June 30) | Metric (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Total Interest Income | $125.1 | $118.1 | | Total Interest Expense | $61.6 | $64.3 | | **Net Interest Income** | **$63.6** | **$53.8** | | Provision for credit losses | ($67.5) | — | | Realized losses on sales | ($6.9) | — | | Total expenses | $28.6 | $19.7 | | **(Loss) income before income taxes** | **($38.9)** | **$35.1** | - The decrease in yields on the investment portfolio was driven by a significant decline in short-term interest rates and repayments of higher-spread loans[185](index=185&type=chunk) - The increase in operating expenses was primarily from increased expenses related to personnel and infrastructure to support business growth[196](index=196&type=chunk) [Financial Condition](index=45&type=section&id=Financial%20Condition) As of June 30, 2020, the company's investment portfolio had a carrying value of $4.31 billion, primarily financed by $3.4 billion in debt, resulting in a 3.5:1.0 debt-to-equity ratio Portfolio Summary as of June 30, 2020 | Type | Principal Balance | Carrying Value | All-in Yield at Origination | | :--- | :--- | :--- | :--- | | Senior loans | $4,364.1M | $4,264.9M | L+4.19% | | Subordinated loans | $27.2M | $25.2M | L+9.84% | | CMBS | $24.5M | $23.3M | L+7.61% | | **Total/Wtd. Avg.** | **$4,415.8M** | **$4,313.4M** | **L+4.22%** | - As of June 30, 2020, the company had outstanding debt of **$2.0 billion** in repurchase agreements, **$983.5 million** in securitized debt obligations, and **$270.4 million** in convertible senior notes[206](index=206&type=chunk)[208](index=208&type=chunk) - The debt-to-equity ratio (total debt, net of cash, divided by equity) was **3.5 to 1.0** as of June 30, 2020[209](index=209&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company focuses on strengthening liquidity, holding $56.0 million in cash as of June 30, 2020, by suspending common stock dividends and actively managing financing facilities, while remaining compliant with all financial covenants - The company held **$56.0 million** in cash and cash equivalents as of June 30, 2020[219](index=219&type=chunk)[220](index=220&type=chunk) - The pace of loan repayments and prepayments, a key source of liquidity, is expected to slow meaningfully due to the economic impact of COVID-19[213](index=213&type=chunk) Financial Covenant Compliance as of June 30, 2020 | Covenant | Requirement | Actual | | :--- | :--- | :--- | | Unrestricted Cash | > $43.9M | $56.0M | | Tangible Net Worth | > $782.3M | $1.0B | | Total Leverage Ratio | < 80.0% | 78.2% | | Minimum Interest Coverage | > 1.5:1.0 | 2.3:1.0 | [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks, including credit, interest rate, capital markets, and liquidity, are heightened by COVID-19, with interest rate sensitivity showing a $24.6 million decrease in net interest income for a 100 bps rate increase - The company's primary risks include credit, interest rate, liquidity, and capital markets risk, all heightened by the COVID-19 pandemic[235](index=235&type=chunk) - Approximately **98.5%** of the loan portfolio earns a floating rate of interest, which helps mitigate interest rate risk as most borrowings are also floating-rate[239](index=239&type=chunk) Interest Rate Sensitivity Analysis (in thousands) | Change in Interest Rates | Change in Value of Net Assets | Change in Annualized Net Interest Income | | :--- | :--- | :--- | | +100 bps | $5,785 | ($24,615) | | +50 bps | $2,951 | ($12,699) | | -50 bps | ($2,568) | $4,223 | | -100 bps | ($5,000) | $4,223 | - The company is monitoring the expected discontinuation of LIBOR after 2021 and is working with lenders and borrowers to manage the transition, as nearly all floating-rate instruments are indexed to LIBOR[245](index=245&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[253](index=253&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[254](index=254&type=chunk) [PART II - OTHER INFORMATION](index=57&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is engaged in confidential arbitration with its Manager regarding termination payment for management internalization, with the hearing expected in Q3 or Q4 2020 - The company and its Manager are in a confidential, binding arbitration to determine amounts payable for the termination of the management agreement in connection with the planned internalization of the management function[258](index=258&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This section details heightened risks due to the COVID-19 pandemic, including negative impacts on collateral value, increased loan modification requests, margin call risks, reduced liquidity, and operational challenges - The ongoing COVID-19 pandemic is presented as a primary risk factor, causing severe disruptions to the global economy and the company's business, performance, and results of operations[261](index=261&type=chunk) - Specific pandemic-related risks include: - Negative impact on the value of collateral, particularly for hotel and retail assets - Increased borrower requests for loan modifications and potential for defaults - Risk of margin calls and defaults on repurchase agreements due to market volatility - Reduced liquidity and potential inability to meet funding obligations - Heightened cybersecurity risk due to extended remote working[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities or use of proceeds during the period - None reported[266](index=266&type=chunk) [Defaults Upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None reported[267](index=267&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports no mine safety disclosures as this item is not applicable - None reported[268](index=268&type=chunk) [Other Information](index=59&type=section&id=Item%205.%20Other%20Information) The company reports no other information for the period - None reported[269](index=269&type=chunk) [Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including amendments to financing agreements and CEO/CFO certifications - Lists filed exhibits, including amendments to master repurchase agreements and required CEO/CFO certifications[271](index=271&type=chunk)