Granite Point Mortgage Trust Inc
For the period ended Dec 31, 2023. Filed Mar 1, 2024.
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FY2023 · Filed Mar 1, 2024
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Item 8. Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
of Granite Point Mortgage Trust Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Granite Point Mortgage Trust Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
| Allowance for Credit Losses - Loans held-for-investment | |
| Description of the Matter | As of December 31, 2023, the Company’s loans held-for-investment totaled $2.7 billion, and the associated allowance for credit losses (ACL) totaled $134.7 million. As disclosed in Notes 2 and 3 to the consolidated financial statements, the ACL is estimated on a quarterly basis and represents management’s estimate of current expected credit losses (CECL) in the Company’s loans held-for-investment portfolio, including unfunded loan commitments, using a probability-weighted analytical model (CECL model) that considers the likelihood of default and loss-given-default for each individual loan. Additionally, for certain loans deemed to be collateral-dependent, the Company determines the ACL by comparing its estimation of the fair value of the underlying collateral, less costs to sell, to the carrying value of the loan. To estimate the fair value of the underlying collateral, the Company generally used a discounted cash flow method of valuation. Management applies significant judgment in establishing inputs used to determine the ACL and a variety of subjective assumptions. Significant inputs and assumptions used in the CECL model include the relevant historical loan loss data sets, the expected timing and amount of future loan fundings and repayments, forecast for macroeconomic conditions, the reasonable and supportable forecast period and loan specific factors such as debt service coverage ratio (DSCR), loan-to-value (LTV) ratio, remaining contractual loan term, property type, and other loan-specific qualitative factors. Significant inputs and assumptions in determining the fair value of collateral include estimates of property net operating income, capitalization rates, and discount rates. Auditing management’s estimate of the ACL involved a high degree of subjectivity in evaluating the significant inputs and assumptions used to determine the ACL. Changes in these factors and assumptions can have a material effect on the measurement of the ACL. |
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| How We Addressed the Matter in Our Audit | Our audit procedures related to the ACL included the following, among others. We obtained an understanding of the process, evaluated the design, and tested the operating effectiveness of the Company’s controls over establishing the ACL, including management’s controls over the ACL methodology; the completeness and accuracy of significant inputs and assumptions used in the CECL model; and the estimated fair value of collateral for collateral-dependent loans. With respect to the CECL model, with the support of specialists, we performed a model methodology review, assessed the Company’s model documentation and governance, assessed the conceptual soundness and the model output. We also involved our specialists in assessing the macroeconomic forecasts, reasonable and supportable forecast periods, DSCR, LTV, and loan-specific qualitative factors. Our procedures included, amongst others, the assessment by comparing information to external sources, peer information, and reviewing the results of managements’ specialists. For all collateral-dependent loans, with the support of specialists, we independently developed a fair value estimate of the underlying collateral, less costs to sell and compared those to management’s estimate of fair value. We also tested the appropriateness and accuracy of significant inputs used in the CECL model by reperforming the stratification of historical loan loss data, agreeing a sample of inputs to source documents, including among others, loan agreements and third-party servicer reports. We evaluated the overall ACL amount, and whether the recorded ACL appropriately reflected the expected credit losses on the loans held-for-investment and unfunded loan commitments. We also reviewed subsequent events and peer company information, and we considered whether they corroborate or contradict the Company’s conclusion with respect to its measurement of the ACL. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Minneapolis, Minnesota
March 1, 2024
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.