Granite Point Mortgage Trust Inc. Q2 FY2024 earnings call

• Macroeconomic conditions: First half of 2024 was characterized by macroeconomic uncertainty with volatility in interest rates impacting commercial real estate transaction activity. More recently, improved expectations of Fed rate cuts have improved real estate market confidence.
• Non-accrual loan resolutions: Resolved 4 non-accrual loans over the last couple of months with aggregate principal balance over $135 million. Actively pursuing resolutions of remaining non-accrual loans with visibility on approximately $200 million to $300 million of more loan resolutions by end of 2024. Proactive approach to asset management with different strategies to drive best outcomes.
• Portfolio details: Ended second quarter with total loan portfolio commitments of $2.7 billion and outstanding principal balance of about $2.6 billion. Loan portfolio well diversified across regions and property types. Realized loan portfolio yield of about 7% net of non-accrual loans impact.
• Share repurchases and dividend: In June, Board reduced quarterly common dividend to $0.05 per share. Repurchased about 1.5 million common shares in second quarter at deep discount, benefiting book value by about $0.05 per share. About 3.6 million common shares remaining under share repurchase authorization.

The loan portfolio had total commitments of $2.7 billion and an outstanding principal balance of about $2.6 billion as of the second quarter. The realized loan portfolio yield for the second quarter was about 7% net of the impact of non-accrual loans. During the quarter, about $104 million of UPB loan repayments, pay downs, amortization and resolutions were realized. In the third quarter, about $143 million of loan repayments, pay downs and loan resolutions were realized. The loan portfolio remains well diversified across regions and property types with 68 loan investments, average size of about $38 million, and weighted average LTV stabilized LTV at origination of 63.7%.

• Expect volume of loan repayments and resolutions in second half of 2024 to be higher than first six months. Anticipate portfolio balance to trend lower by end of 2024. Run rate profitability expected to improve in coming quarters as progress is made on resolving non-earning assets though timing and magnitude uncertain. Expect CECL reserve balance to decline in coming quarters as market stabilizes and non-accrual loan resolutions progress.

• Credit migration risk: Risk remains for select additional credit migration and incremental credit loss provisions given volatile and unpredictable nature of the cycle.
• Market uncertainty: Uncertainties around path of interest rates and real estate market conditions could impact activity and performance of the commercial real estate floating rate loan market.

Q: The non-accruals in the 10-Q show up as $453 million while the collateral dependent loans are $545 million. What's the difference?

A: That may be carrying value under non-accruals ex the reserves aid. The balance of the non-accruals is about $660 million as mentioned in prepared remarks.

Q: As you think about the realized losses, is the preponderance of those already reflected in book value? Could you give a sense as to where you expect book value to trough?

A: The numbers cited are reserved for already. The realized losses are reserved for. It's hard to predict exactly where book value might trough. We feel pretty good about the reserves, but there may be some minor adjustments as loans get to the finish line. The cycle isn't over yet, but we're encouraged by slower pace of credit migration and expect CECL reserve balance to trend down from here, though there may be some one-offs going forward.