Granite Point Mortgage Trust(GPMT) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION 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) 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 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] Condensed Consolidated Statements of Comprehensive Income (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] Condensed Consolidated Statements of Stockholders' Equity 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] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to the Condensed Consolidated Financial Statements 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][24] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2021 financial performance, portfolio changes, financing strategy shifts, and credit quality trends Second Quarter 2021 Activity 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] - Distributable Earnings of $15.7 million, or $0.29 per basic share[148] - Originated seven new loans with total commitments of $203.8 million[148] - Received $423.0 million in loan repayments and principal amortization[148] - Issued a new $824 million CRE CLO (GPMT 2021-FL3)[148] - Extended maturities on two repurchase financing facilities[148] - Repurchased 300,891 shares of common stock for $4.3 million[148] Key Financial Measures and Indicators 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] - This book value includes an estimated allowance for credit losses of $62.9 million, or $1.15 per common share[157] Portfolio Overview and Credit Quality 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] - Three loans with a total unpaid principal balance of $237.1 million were downgraded to a risk rating of "5" (Loss Likely)[179] - 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][182] - The company recorded specific allowances for credit loss on these collateral-dependent loans totaling $32.1 million[184] Portfolio and Corporate Financing 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] | 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] Results of Operations 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][218] - 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][235] - 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] Liquidity and Capital Resources 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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][277] | 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][287] - The company is working with lenders and borrowers to amend agreements to include robust fallback language[287] Controls and Procedures 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] - 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] PART II - OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[302] Exhibits 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]