Inpoint Commercial Real Estate Income (ICR-PA) 10-K/A 2018 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A(Amendment No. 1)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

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 000-55782

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

(Exact name of registrant as specified in its charter)

Maryland	32-0506267
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2901 Butterfield Road Oak Brook, Illinois	60523
(Address of principal executive offices)	(Zip Code)

(800) 826-8228

(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
None

Securities registered pursuant to Section 12(g) of the Exchange Act:

Class P Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    

Yes  ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    

Yes  ☐    No  ☒

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 the 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 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 ☒

While there is no established market for the registrant’s shares of common stock, the registrant currently is conducting a private offering of its shares of common stock pursuant to which it is selling shares of its Class P Common Stock for $25.00 per share, plus applicable selling commissions, dealer manager fees and organization and offering expenses, with discounts available for certain categories of purchasers. The aggregate value of the registrant’s Class P Common Stock held by non-affiliates as of June 29, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter) was $81,158,328 based on a price of $25.00 per share of Class P Common Stock. As of March 11, 2019, there were 7,197,665 shares of the registrant’s Class P Common Stock outstanding.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) amends InPoint Commercial Real Estate Income, Inc.’s (the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019 (the “Original Filing”), solely to provide a revised version of KPMG LLP’s (“KPMG”) report that includes a statement KPMG inadvertently omitted from the previously filed version that confirms KPMG did not audit the Company’s internal control over financial reporting. In accordance with rules adopted by the SEC, the Company is not required to have an audit of its internal control over financial reporting.

This Amendment No. 1 consists solely of the preceding cover page, this explanatory note, Part II, Item 8. “Financial Statements and Supplementary Data,” in its entirety, Part IV, Item 15. “Exhibits, Financial Statement Schedules,” in its entirety, the signature page, and new certifications.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Amendment No. 1 includes new certifications from the Company’s principal executive officer and principal financial officers dated as of the filing date of this Amendment No. 1.  

Amendment No. 1 speaks as of the date of the Original Filing, does not reflect events that may have occurred after the date of the Original Filing and does not modify or update in any way the disclosures made in the Original Filing, except as described above.  Amendment No. 1 should be read in conjunction with the Original Filing.

PART II

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	4
Consolidated Balance Sheets as of December 31, 2018 and 2017	5
Consolidated Statements of Operations for the Years ended December 31, 2018 and 2017, and for the Period from September 13, 2016 (Inception) through December 31, 2016	6
Consolidated Statement of Changes in Stockholders’ Equity for the Years ended December 31, 2018 and 2017, and for the Period from September 13, 2016 (Inception) through December 31, 2016	7
Consolidated Statements of Cash Flows for the Years ended December 31, 2018 and 2017, and for the Period from September 13, 2016 (Inception) through December 31, 2016	8
Notes to Consolidated Financial Statements	9

3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Stockholders and Board of Directors

InPoint Commercial Real Estate Income, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of InPoint Commercial Real Estate Income, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two‑year period ended December 31, 2018 and for the period from September 13, 2016 (inception) through December 31, 2016, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2018, and for the period from September 13, 2016 (inception) through December 31, 2016, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company's auditor since 2016.

Chicago, Illinois

March 12, 2019

4

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

	December 31, 2018			December 31, 2017
ASSETS
Cash and cash equivalents	$	27,530		$	1,311
Restricted cash		967			95
Real estate securities at fair value		91,218			25,993
Commercial mortgage loans at cost, net of allowance for loan loss of $0		249,573			32,094
Deferred debt finance costs		518			—
Deferred offering costs		1,201			1,503
Accrued interest receivable		994			142
Prepaid expenses and other assets		22			4
Total assets	$	372,023		$	61,142
LIABILITIES AND EQUITY
Liabilities:
Repurchase agreements - real estate securities		61,871			17,113
Repurchase agreements - commercial mortgage loans		164,333			—
Loan fees payable		100			40
Due to related parties		1,680			1,512
Interest payable		427			24
Distributions payable		941			258
Accrued expenses		399			210
Total liabilities		229,751			19,157
Stockholders' Equity:
Class P common stock, $0.001 par value, 450,000,000 shares authorized, 5,940,744    and 1,733,392 shares issued and outstanding as of December 31, 2018 and 2017,    respectively		6			2
Additional paid in capital (net of offering costs of $11,724 and $2,918 as of    December 31, 2018 and 2017, respectively)		148,650			43,428
Distributions in excess of earnings		(6,384	)		(1,445	)
Total stockholders' equity		142,272			41,985
Total liabilities and stockholders’ equity	$	372,023		$	61,142

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

5

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share amounts)

	Year Ended December 31, 2018			Year Ended December 31, 2017			Period from September 13, 2016 (inception) through December 31, 2016
Interest income:
Interest income	$	11,033		$	979		$	22
Less: Interest expense		(4,091	)		(156	)		—
Net interest income		6,942			823			22
Operating expenses:
Advisory fee		2,540			—			—
Debt finance costs		456			—			—
Administration expense		—			96			19
Directors compensation		84			82			21
Professional service fees		356			453			—
Other expenses		243			94			8
Total operating expenses		3,679			725			48
Other (loss) income:
Unrealized (loss) gain in value of real estate securities		(1,279	)		41			(5	)
Other interest income		72			—			—
Total other (loss) income		(1,207	)		41			(5	)
Net income (loss) before income taxes		2,056			139			(31	)
Income tax (benefit) provision		(13	)		58			—
Net income (loss)	$	2,069		$	81		$	(31	)
Net income (loss) per share, basic and diluted	$	0.57		$	0.11		$	(0.22	)
Weighted average number of shares
Basic		3,638,407			757,025			142,443
Diluted		3,638,574			757,025			142,443

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

6

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollar amounts in thousands)

	Common Stock
	Number of Shares			Par Value		Additional Paid in Capital			Distributions in Excess of Earnings			Total Stockholders’ Equity
Balance as of September 13, 2016 (inception)		—		$	—	$	—		$	—		$	—
Proceeds from issuance of common stock		237,700			—		5,942			—			5,942
Net loss		—			—		—			(31	)		(31	)
Distributions declared		—			—		—			(33	)		(33	)
Balance as of December 31, 2016		237,700			—		5,942			(64	)		5,878
Proceeds from issuance of common stock		1,495,692			2		40,404			—			40,406
Offering costs		—			—		(2,918	)		—			(2,918	)
Net income		—			—		—			81			81
Distributions declared		—			—		—			(1,462	)		(1,462	)
Balance as of December 31, 2017		1,733,392			2		43,428			(1,445	)		41,985
Proceeds from issuance of common stock		4,209,178			4		114,066			—			114,070
Offering costs		—			—		(8,806	)		—			(8,806	)
Net income		—			—		—			2,069			2,069
Distributions declared		—			—		—			(7,008	)		(7,008	)
Redemptions		(1,826	)		—		(46	)		—			(46	)
Equity based compensation		—			—		8			—			8
Balance as of December 31, 2018		5,940,744		$	6	$	148,650		$	(6,384	)	$	142,272

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

7

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

	Year Ended December 31, 2018			Year Ended December 31, 2017			Period from September 13, 2016 (inception) through December 31, 2016
Cash flows from operating activities
Net income (loss)	$	2,069		$	81		$	(31	)
Adjustments to reconcile net income (loss) to cash provided by operations:
Net unrealized loss (gain) on real estate securities		1,279			(41	)		5
Amortization of equity based compensation		8			—			—
Amortization of debt finance costs		456			—			—
Amortization of debt finance costs to interest expense		56			—			—
Amortization of bond (discount) premium		(369	)		164			2
Amortization of deferred exit fees		(144	)		—			—
Changes in assets and liabilities:
Accrued interest receivable		(852	)		(128	)		(13	)
Accrued expenses		(515	)		191			19
Due to related parties		1,174			(19	)		28
Prepaid expenses and other assets		(18	)		(4	)		—
Other liabilities		463			63			—
Net cash provided by operating activities		3,607			307			10
Cash flows from investing activities:
Origination of commercial loans		(217,334	)		(32,094	)		—
Purchase of real estate securities		(69,767	)		(31,079	)		(5,440	)
Real estate securities sold		2,996			10,396			—
Real estate securities principal pay-down		636			—			—
Net cash used in investing activities		(283,469	)		(52,777	)		(5,440	)
Cash flows from financing activities:
Proceeds from issuance of common stock		114,070			40,406			5,942
Redemptions of common stock		(46	)		—			—
Payment of offering costs		(8,806	)		(2,918	)		—
Proceeds from repurchase agreements		668,045			82,130			—
Principal repayments of repurchase agreements		(458,877	)		(65,017	)		—
Debt finance costs		(1,107	)		—			—
Distributions paid		(6,326	)		(1,237	)		—
Net cash provided by financing activities		306,953			53,364			5,942
Net change in cash, cash equivalents and restricted cash		27,091		894			512
Cash, cash equivalents and restricted cash at beginning of period		1,406		512				—
Cash, cash equivalents and restricted cash at end of period	$	28,497		$	1,406		$	512
Supplemental disclosure of cash flow information:
Change in deferred offering costs and accrued offering expenses, included in due to related parties	$	(1,005	)	$	535		$	967
Interest paid	$	3,688		$	133		$	—
Distributions payable	$	941		$	258		$	33

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

8

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Note 1 – Organization and Business Operations

InPoint Commercial Real Estate Income, Inc. (the “Company”) was incorporated in Maryland on September 13, 2016 to originate, acquire and manage a diversified portfolio of commercial real estate (“CRE”) investments primarily comprised of (i) CRE debt, including first mortgage loans, subordinate mortgage and mezzanine loans, and participations in such loans and (ii) CRE securities, such as commercial mortgage-backed securities (“CMBS”), that primarily will be floating rate and senior unsecured debt of publicly traded real estate investment trusts (“REITs”). The Company may also invest in select equity investments in single-tenant, net leased properties. Substantially all of the Company’s business is conducted through InPoint REIT Operating Partnership, LP (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner and directly or indirectly holds all of the limited partner interests in the Operating Partnership.  The Company has elected to be taxed as a REIT for U.S. federal income tax purposes.

The Company is externally managed by Inland InPoint Advisor, LLC (the “Advisor”), a Delaware limited liability company formed in August 2016 that is a wholly-owned indirect subsidiary of Inland Real Estate Investment Corporation, a member of The Inland Real Estate Group of Companies, Inc. The Advisor is responsible for coordinating the management of the day-to-day operations and originating, acquiring and managing the Company’s CRE investment portfolio, subject to the supervision of the Company’s board of directors. The Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an advisory agreement dated October 25, 2016 among the Company, the Advisor and the Operating Partnership (the “Advisory Agreement”).

The Advisor has delegated certain of its duties to SPCRE InPoint Advisors, LLC (the “Sub-Advisor”), a Delaware limited liability company formed in September 2016 that is a wholly-owned subsidiary of Sound Point CRE Management, LP, pursuant to a Sub-Advisory agreement between the Advisor and the Sub-Advisor. Among other duties, the Sub-Advisor has the authority to identify, negotiate, acquire and originate the Company’s investments and provide portfolio management, disposition, property management and leasing services to the Company. Notwithstanding such delegation to the Sub-Advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the Advisory Agreement, including those duties which the Advisor has not delegated to the Sub-Advisor such as (i) valuation of the Company’s assets and calculation of the Company’s net asset value; (ii) management of the Company’s day-to-day operations; (iii) preparation of stockholder reports and communications and arrangement of the Company’s annual stockholder meeting; and (iv) advising the Company regarding its initial qualification as a REIT for U.S. federal income tax purposes and monitoring its ongoing compliance with the REIT qualification requirements thereafter.

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements and related footnotes have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reported periods. Actual results could differ from such estimates.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation.

Principles of Consolidation

The Company consolidates all entities that the Company controls through either majority ownership or voting rights. The accompanying consolidated financial statements include the accounts of the Company and the Operating Partnership. All intercompany accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company has

9

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

determined the Operating Partnership is a VIE of which the Company is the primary beneficiary. Substantially all of the Company’s assets and liabilities are held by the Operating Partnership.  

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions with original maturities of three months or less. The account balance may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage limits and, as a result, there could be a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage limits. The Company believes that the risk will not be significant, as the Company does not anticipate the financial institutions’ non-performance.

Restricted cash represents cash the Company is required to hold in a segregated account.  As of December 31, 2018 and 2017, the restricted cash was held as additional collateral on real estate securities repurchase agreements.  

The following table provides a reconciliation of cash, cash equivalents and restricted cash in our consolidated balance sheets to the total amount shown in our consolidated statements of cash flows:

	December 31,
	2018		2017
Cash and cash equivalents	$	27,530	$	1,311
Restricted cash		967		95
Total cash, cash equivalents, and restricted cash	$	28,497	$	1,406

Real Estate Securities at Fair Value

The Company’s real estate securities are comprised of CMBS and are accounted for in accordance with ASC Topic 320, Investments — Debt and Equity Securities (“ASC 320”). The Company has chosen to make a fair value option election pursuant to ASC Topic 825, Financial Instruments ("ASC 825") for its securities and, therefore, its real estate securities are recorded at fair market value on the consolidated balance sheets. The periodic changes in fair market value are recorded in current period earnings on the consolidated statements of operations as a component of net unrealized gain (loss) in value of real estate securities. These investments generally meet the requirements to be classified as available-for-sale under ASC 320, which requires the securities to be carried at fair value on the balance sheet with changes in fair value recorded to other comprehensive income on the Company’s consolidated statement of changes in stockholders’ equity. Electing the fair value option permits the Company to record changes in fair value of its investments in the consolidated statements of operations which, in management’s view, more appropriately reflects the results of operations for a particular reporting period.

The Company records its transactions in securities on a trade date basis and recognizes realized gains and losses on securities transactions on an identified cost basis.

Commercial Mortgage Loans Held for Investment and Allowance for Loan Losses

Commercial mortgage loans are held for investment purposes and are anticipated to be held until maturity. Accordingly, they are carried at cost, net of unamortized loan fees and origination costs, and premiums or discounts. Commercial mortgage loans that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses. Interest income is recorded on the accrual basis and related discounts, premiums and net deferred fees or costs on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the Company’s consolidated statements of operations. Upon measurement of impairment, the Company records an allowance for loan losses to reduce the carrying value of the loan with a corresponding charge through the provision for loan losses on the Company’s consolidated statements of operations.

The allowance for loan losses reflects management's estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The Company uses a uniform process for determining its allowance for loan losses. The allowance for loan losses includes an asset-specific component and may include a general, formula-based component when the portfolio is determined to be of sufficient size to warrant such a reserve.

10

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

The asset-specific reserve component relates to reserves for losses on individual impaired loans. The Company considers a loan to be impaired when, based upon current information and events, it believes that it is probable that the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. This assessment is made on an individual loan basis each quarter based on such factors as payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. A reserve is established for an impaired loan when the present value of payments expected to be received, observable market prices or the estimated fair value of the collateral (for loans that are dependent on the collateral for repayment) is lower than the carrying value of that loan.

For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and they are updated if circumstances indicate that a significant change in value has occurred. The Advisor generally will use the income approach through internally developed valuation models to estimate the fair value of the collateral for such loans. In more limited cases, the Advisor will obtain external “as is” appraisals for loan collateral, generally when third party participations exist.

General reserves are recorded when (i) available information as of each balance sheet date indicates that it is probable a loss has occurred in the portfolio and (ii) the amount of the loss can be reasonably estimated. The Company’s policy is to estimate loss rates based on actual losses experienced, if any, or based on historical realized losses experienced in the industry if the Company has not experienced any losses. Current collateral and economic conditions affecting the probability and severity of losses are taken into account when establishing the allowance for loan losses.

The Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability. The Company considers, among other things, payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Ratings range from “1” to “5” with “1” representing the lowest risk of loss and “5” representing the highest risk of loss.

Loans are generally placed on non-accrual status when principal or interest payments are past due 90 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed against interest income in the period the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment regarding the borrower's ability to make pending principal and interest payments. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current. The Company may make exceptions to placing a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.

As of December 31, 2018 and 2017, the Company had $249,573 and $32,094 of commercial mortgage loans held for investment, respectively. The Company has not recorded any allowance for loan losses as the Company did not consider a loan loss to be probable.

Interest Income

Interest income on CMBS, which includes accretion of discounts and amortization of premiums on such CMBS, and on commercial loans, which includes origination fees paid by borrowers, is recognized over the life of the investment using the effective interest method. Management estimates, at the time of purchase, the future expected cash flows and determines the effective interest rate based on these estimated cash flows and the Company’s purchase price. As needed, these estimated cash flows are updated and a revised yield is computed based on the current amortized cost of the investment. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate and interest rate fluctuations. In addition, management must use its judgment to estimate interest payment shortfalls due to delinquencies on the underlying mortgage loans. These uncertainties and contingencies are difficult to predict and are subject to future events that may impact management’s estimates and the Company’s interest income.

11

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Fair Value Measurements

The Company estimates fair value using available market information and valuation methodologies it believes to be appropriate for these purposes. The Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820, Fair Value Measurements ("ASC 820") establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

• Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II - Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

• Level III - Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The determination of where an asset or liability falls in the above hierarchy requires judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.

Real estate securities are valued utilizing both observable and unobservable market inputs. These factors include projected future cash flows, ratings, subordination levels, vintage, remaining lives, credit issues, recent trades of similar real estate securities and the spreads used in the prior valuation. The Company obtains current market spread information where available and uses this information in evaluating and validating the market price of all real estate securities. Depending upon the significance of the fair value inputs used in determining these fair values, these real estate securities are classified in either Level II or Level III of the fair value hierarchy. As of December 31, 2018 and 2017, the Company received third-party quotes on each real estate security used in determining the fair value, all of which have been classified as Level II due to the observable nature of all significant inputs.

The Company is required by GAAP to disclose fair value information about financial instruments that are not otherwise reported at fair value in our consolidated balance sheets, to the extent it is practicable to estimate a fair value for those instruments.  These disclosure requirements exclude certain financial instruments and all non-financial instruments.

Organization and Offering Expenses

The Company is conducting a private offering that commenced on October 25, 2016 (the “Offering”) of up to $500,000 in Class P Shares of common stock (the “Class P Shares”), pursuant to a private placement memorandum. The purchase price per Class P Share is equal to $25.00 (the “Transaction Price”) plus applicable selling commissions, dealer manager fees and organization and offering expenses, resulting in a total purchase price of $27.38 per Class P Share if maximum selling commissions, dealer manager fees and organization and offering expenses are paid. Inland Securities Corporation (the “Dealer Manager”), an affiliate of the Advisor, is the dealer manager for the Offering.

Organization and offering expenses include all expenses incurred in connection with the Offering. Organization and offering expenses (other than selling commissions and the dealer manager fee) of the Company may be paid by the Advisor, Sub-Advisor, the Dealer Manager, or their respective affiliates on behalf of the Company and subsequently reimbursed by the Company. Offering expenses are deferred and a payable to the Advisor or Sub-Advisor until shares are sold in the Offering, at which point the expense reimbursement is paid from additional paid-in capital. These expenses include but are not limited to: (i) reimbursing the Dealer Manager and participating broker-dealers for bona fide out-of-pocket, itemized and detailed due diligence expenses incurred by these entities, (ii) expenses for printing and mailing, charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts, and (iii) expenses of qualifying the sale of the shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees and expenses.

12

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

The Company is obligated to reimburse the Advisor, the Sub-Advisor and their respective affiliates, as applicable, for organization and offering expenses paid by them on behalf of the Company to the extent organization and offering expenses (excluding selling commissions and the dealer manager fee) incurred by the Company in the Offering do not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering. As a result, these expenses are only a liability of the Company to the extent aggregate organization and offering expenses do not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering, determined at the end of the Offering.

Repurchase Agreements

The Company enters into Master Repurchase Agreements (each, an “MRA”) that allow the Company to sell real estate loans and securities while providing a fixed repurchase price for the same real estate loans and securities in the future.  Repurchase agreements are being accounted for as secured borrowings since the Company maintains effective control of the financed assets. Under the MRAs, the respective lender retains the right to mark the underlying collateral to fair value.  

Equity-Based Compensation

In accordance with the Company’s Independent Director Restricted Share Plan (the “RSP”), restricted shares are issued to independent directors as compensation. The Company recognizes expense related to the fair value of equity-based compensation awards as operating expense in the consolidated statements of operations. The Company recognizes expense based on the fair value at the grant dated on a straight-line basis over the vesting period representing the requisite service period.  See Note 10 – “Equity-Based Compensation” for further information.

Income Taxes

The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2017 and qualifies for taxation as a REIT. The Company generally will not be subject to federal income tax to the extent it distributes its REIT taxable income, subject to certain adjustments, to its stockholders. Subsequently, if the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.

The Company had no uncertain tax positions as of December 31, 2018 or 2017. The Company expects no significant increases or decreases in uncertain tax positions due to changes in tax positions within one year of December 31, 2018. The Company had no interest or penalties relating to income taxes recognized in the consolidated statements of operations for the years ended December 31, 2018, and 2017 or for the period from September 13, 2016 (inception) through December 31, 2016. As of December 31, 2018, returns for the calendar years 2016 and 2017 remain subject to examination by U.S. and various state and local tax jurisdictions.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences and are attributable to (1) differences between the financial statement carrying amounts and their respective tax bases, and (2) net operating losses.

As of December 31, 2017, the Company had reversed a deferred tax asset and valuation allowance related to its activities. As a REIT, the Company is not expected to pay federal income tax at the REIT level, but instead a dividends paid deduction will generally offset its taxable income. As a result, while the Company will still be permitted to use net operating losses to offset its REIT taxable income, the Company generally does not expect to pay taxes on its REIT taxable income, and therefore does not expect to be able to realize such deferred tax assets.

For the year ended December 31, 2017 the Company has incurred $58 in current income tax expense in a consolidated taxable REIT subsidiary.  This tax is comprised of $42 in federal and $16 in state income tax expense.  The majority of this expense was related to the receipt of a one-time prepayment penalty interest received on the early pay-off of one investment.

For the year ended December 31, 2018, the Company has recognized $13 as a current income tax benefit in a consolidated taxable REIT subsidiary.  This benefit is primarily comprised of a $13 refund in state income tax.

For the period from September 13, 2016 (inception) through December 31, 2016, no income tax expense or benefit was recorded.

13

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Distributions Payable

Distributions payable represent distributions declared as of the balance sheet date which are payable to stockholders.

Per Share Data

The Company calculates basic and diluted earnings per share by dividing net income attributable to the Company for the period by the weighted-average number of shares of common stock outstanding for that period. Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents.  For further information about the Company’s calculation of EPS, see Note 7 – “Net Income (Loss) Per Share.”

Accounting Pronouncements Recently Issued but Not Yet Effective

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes how entities measure credit losses for financial assets carried at amortized cost. ASU 2016-13 eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. ASU 2016-13 is effective for SEC filers for reporting periods beginning after December 15, 2019. The amendments may be adopted early for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact ASU 2016-13 will have on its allowance for loan losses estimate.

Note 3 – Commercial Mortgage Loans Held for Investment

The following is a summary of the Company’s commercial mortgage loans held for investment as of December 31, 2018:

	Number of Loans		Principal Balance		Unamortized (fees)/costs, net			Carrying Value		Weighted Average Coupon			Weighted Average Years to Maturity
First mortgage loans		16	$	241,225	$	(2,152	)	$	239,073		6.4	%		2.2
Credit loans		2		10,500		—			10,500		9.2	%		7.5
Total and average		18	$	251,725	$	(2,152	)	$	249,573		6.5	%		2.5

The following is a summary of the Company’s commercial mortgage loans held for investment as of December 31, 2017:  

	Number of Loans		Principal Balance		Unamortized (fees)/costs, net			Carrying Value		Weighted Average Coupon			Weighted Average Years to Maturity
First mortgage loans		2	$	24,951	$	(357	)	$	24,594		6.1	%		3.0
Credit loans		1		7,500		—		$	7,500		9.2	%		9.8
Total and average		3	$	32,451	$	(357	)	$	32,094		6.8	%		4.6

14

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Credit Characteristics

As part of the Company’s process for monitoring the credit quality of its investments, it performs a quarterly asset review of the investment portfolio and assigns risk ratings to each of its loans and CMBS. Risk factors include payment status, lien position, borrower financial resources and investment in collateral, collateral type, project economics and geographic location, as well as national and regional economic factors. To determine the likelihood of loss, the loans are rated on a 5-point scale as follows:

Investment Grade	Investment Grade Definition
1	Investment exceeding fundamental performance expectations and/or capital gain expected. Trends and risk factors since time of investment are favorable.
2	Performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3	Performing investment requiring closer monitoring.  Trends and risk factors show some deterioration. Collection of principal and interest is still expected.
4	Underperforming investment with the potential of some interest loss but still expecting a positive return on investment. Trends and risk factors are negative.
5	Underperforming investment with expected loss of interest and some principal.

All investments are assigned an initial risk rating of 2 at origination.

As of December 31, 2018, 17 loans had a risk rating of 2 and one had a risk rating of 3. As of December 31, 2017, all loans had a risk rating of 2. The Company has not recorded any allowance for loan losses as the Company did not consider a loan loss to be probable.  

Note 4 – Real Estate Securities

The Company classified its real estate securities as available-for-sale. These investments are reported at fair value in the consolidated balance sheets with changes in fair value recorded in other income or loss in the consolidated statements of operations.

The table below shows the securities as of December 31, 2018 and 2017:

December 31, 2018

Number of Positions	External Credit Rating	Collateral	Weighted Average Coupon			Weighted Average Years to Maturity	Par Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
2	AAA	Hospitality		3.4	%	0.7	$	20,310	$	20,310	$	—	$	(277	)	$	20,033
1	AA-	Hospitality		3.5	%	1.4		2,000		1,998		—		(31	)		1,967
5	BB-	Retail, Hospitality		5.3	%	1.6		38,512		38,438		—		(460	)		37,978
2	Unrated	Hospitality		7.7	%	1.4		32,700		31,715		—		(475	)		31,240
10				5.7	%	1.3	$	93,522	$	92,461	$	—	$	(1,243	)	$	91,218

December 31, 2017

Number of Positions	External Credit Rating	Collateral	Weighted Average Coupon			Weighted Average Years to Maturity	Par Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
1	BB-	Retail		4.9	%	1.5	$	5,079	$	5,079	$	—	$	(1	)	$	5,078
2	AAA	Hospitality		2.4	%	1.7		20,879		20,879		36		—			20,915
3				2.9	%	1.7	$	25,958	$	25,958	$	36	$	(1	)	$	25,993

15

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

At December 31, 2018, the Company held 10 CMBS with a total carrying value of $91,218 with a total unrealized loss of $1,243. As of December 31, 2018, the amortized cost was $1,061 less than the par value of $93,522 due to three real estate securities purchased at a discount. As of December 31, 2017, the Company held three CMBS with a total carrying value of $25,993 with a net unrealized gain of $35. As of December 31, 2017, amortized cost equaled par value since there were no discounts or premiums on real estate securities. As of December 31, 2018 and 2017, no position had an unrealized loss for a period greater than 12 months. The Company did not have any realized gains or losses during the years ended December 31, 2018 and 2017.

As of December 31, 2018, each of the CMBS were assigned an internal risk rating of 2.  While the CMBS were reviewed for credit quality, the Company did not begin assigning a risk rating until December 31, 2018.

Note 5 – Repurchase Agreements

Commercial Mortgage Loans

On February 15, 2018, a wholly-owned subsidiary ofthe Company entered into an MRA (the “Repo Facility”) with Column Financial, Inc. as administrative agent for certain of its affiliates.  In August 2018, the Repo Facility increased from a $100,000 maximum advance amount to a $175,000 maximum advance amount, subject to adjustment up to $250,000, which the Company expects to use to finance the acquisition or origination of eligible loans. The Repo Facility acts in the manner of a revolving credit facility that can be repaid as the Company's assets are paid off and re-drawn as advances against new assets.  Advances under the Repo Facility accrue interest at a per annum rate equal to LIBOR plus 2.25%. In November 2018, the maturity date of the Repo Facility was extended to November 2019and in January 2019, the Repo Facility was further amended, amongst other adjustments, to increase the maximum advance amount to $250,000.  In addition, the Repo Facility is generally subject to certain financial covenants.  The Company was in compliance with all financial covenant requirements as of December 31, 2018.  The details of the Repo Facility as of December 31, 2018 are as follows:

								Weighted Average
Committed Financing		Amount Outstanding (1)		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
$	175,000	$	164,410	$	299	$	225,075		4.71	%		317

(1) Excluding $77 of unamortized debt issuance costs

The Company had not entered into the Repo Facility or any MRA for commercial mortgage loans as of  December 31, 2017.

Real Estate Securities

The Company entered into two MRAs for real estate securities with separate counterparties and had the following balances outstanding as described in the table below:   

							Weighted Average
	Amount Outstanding		Accrued Interest Payable		Collateral Pledged		Interest Rate			Days to Maturity
As of December 31, 2018	$	61,871	$	128	$	84,646		3.79	%		9
As of December 31, 2017	$	17,113	$	24	$	19,946		2.27	%		7

In addition, the MRAs are generally subject to certain financial covenants.  The Company was in compliance with all financial covenant requirements as of December 31, 2018.

16

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Note 6 – Stockholders’ Equity

During the year ended December 31, 2018, pursuant to the Offering, the Company issued 4,209,178 Class P Shares at an average price of $27.10 per share with total net proceeds of $105,264 after offering costs of $8,806.  In addition, the Company incurred $562 in reimbursable deferred offering costs that are payable to the Advisor and Sub-Advisor from future stock issuances.

During the year ended December 31, 2017, the Company issued 1,495,692 Class P Shares at an average price of $27.01 per share with total net proceeds of $37,488 after offering costs of $2,918. In addition, the Company incurred $997 in reimbursable deferred offering costs that are payable to the Advisor and Sub-Advisor from future stock issuances.

Distributions

The Company’s board of directors has declared cash distributions payable to stockholders of record on each calendar day from December 5, 2016 through December 31, 2016, in an amount per share equal to 1/366th of $1.92, and from January 1, 2017 through December 31, 2018, in an amount per share equal to 1/365th of $1.92. It is anticipated that the board of directors will continue to authorize, and we will continue to declare and pay, distributions with a daily record date, paid monthly in arrears, on the Class P Shares with an aggregate annual distribution of $1.92 per Class P Share. The table below presents the distributions paid and declared during the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, distributions declared but not yet paid amounted to $941 and $258, respectively.

	Year Ended December 31, 2018		Year Ended December 31, 2017		Period from September 13, 2016 (inception) through December 31, 2016
Distributions paid	$	6,326	$	1,237	$	—
Distributions declared	$	7,008	$	1,462	$	33

Note 7 – Net Income (Loss) Per Share

Basic earnings (loss) per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents.  The Company’s common share equivalents are unvested restricted shares.  For the year ended December 31, 2018, 167 additional shares related to restricted shares were included in the computation of diluted earnings per share, because the effect of those common share equivalents were dilutive. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted earnings per share. There were no antidilutive restricted shares for the year ended December 31, 2018. For the year ended December 31, 2017 and for the period from September 13, 2016 (inception) through December 31, 2016, no restricted shares were issued or outstanding, respectively. For further information about the Company’s restricted shares, see Note 10 – “Equity Based Compensation.”  

The following table is a summary of the basic and diluted net income (loss) per share computation for the years ended December 31, 2018 and 2017, and for the period from September 13, 2016 (inception) through December 31, 2016:

	Year Ended December 31, 2018		Year Ended December 31, 2017		Period from September 13, 2016 (inception) through December 31, 2016
Net income (loss)	$	2,069	$	81	$	(31	)
Weighted average shares outstanding, basic		3,638,407		757,025		142,443
Weighted average shares outstanding, diluted		3,638,574		757,025		142,443
Net income (loss) per share, basic and diluted	$	0.57	$	0.11	$	(0.22	)

17

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Note 8 – Commitments and Contingencies

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.

The Company has made a commitment to advance additional funds under certain of its real estate loans if the borrower meets certain conditions.  As of December 31, 2018 and 2017, the Company had thirteen and two commercial mortgage loans, respectively, with a total remaining future funding commitment of $30,343 and $9,700, respectively. The Company would advance future funds at its discretion if requested by the borrower and the borrower meets certain requirements as specified in individual loan agreements.

Note 9 – Transactions with Related Parties

As of December 31, 2018 and 2017, the Advisor had invested $1,000 in the Company through the purchase of 40,040 Class P Shares. The purchase price per Class P Share for the Advisor’s investment was the Transaction Price, with no payment of selling commissions, dealer manager fees or organization and offering expenses. The Advisor has agreed pursuant to its subscription agreement that, for so long as it or its affiliate is serving as the Advisor, (i) it will not sell or transfer at least 8,000 of the Class P Shares that it has purchased, accounting for $200 of its investment, to an unaffiliated third party; (ii) it will not be eligible to submit a request for these 40,040 Class P Shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such shares were purchased; and (iii) repurchase requests made for these shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

As of December 31, 2018, Sound Point Capital Management, LP (“Sound Point”), an affiliate of the Sub-Advisor, had invested $3,000 in the Company through the purchase of 120,000 Class P Shares. The purchase price per Class P Share for this investment was the Transaction Price, with no payment of selling commissions, dealer manager fees or organization and offering expenses. Sound Point has agreed pursuant to its subscription agreement that, for so long as the Sub-Advisor or its affiliate is serving as the Sub-Advisor, (i) it will not be eligible to submit a request for the repurchase of these 120,000 shares pursuant to the Company’s share repurchase program prior to the fifth anniversary of the date on which such shares were purchased; and (ii) repurchase requests made for these shares will only be accepted (a) on the last business day of a calendar quarter, (b) after all repurchase requests from all other stockholders for such quarter have been accepted and (c) to the extent that such repurchases do not cause total repurchases in the quarter in which they are being repurchased to exceed that quarter’s repurchase cap.

The following table summarizes the Company’s related party transactions for the years ended December 31, 2018 and 2017 and the period from September 13, 2016 (inception) through December 31, 2016.:

	Year Ended		Year Ended		Period from September 13, 2016 (inception) through		Payable as of December 31,
	December 31, 2018		December 31, 2017		December 31, 2016		2018		2017
Organization and offering expense reimbursement (1)	$	562	$	997	$	975	$	512	$	1,503
Selling commissions and dealer manager fee (2)		7,259		2,457		—		—		—
Advisory fee (3)		2,540		—		—		1,161		—
Operating expense reimbursement (4)		14		224		21		7		9
Total	$	10,375	$	3,678	$	996	$	1,680	$	1,512

(1) The Company reimburses the Advisor, the Sub-Advisor and their respective affiliates for costs and other expenses related to the Offering, provided that aggregate reimbursements of such costs and expenses shall not exceed the organization and offering expenses paid by investors in connection with the sale of Class P Shares in the Offering. Offering costs are offset against stockholders’ equity when paid. Unpaid amounts are recorded as deferred offering costs and included in due to related parties in these consolidated balance sheets.

(2) The Dealer Manager, an affiliate of the Advisor, receives selling commissions up to 5%, and a dealer manager fee up to 3%, of the Transaction Price for each Class P Share sold in the Offering, the majority of which is paid to third-party broker-dealers.

18

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

(3) The Company pays the Advisor an advisory fee comprised of (1) a fixed component and (2) a performance component. The fixed component of the advisory fee is paid quarterly in arrears in an amount equal to 1/4th of 1.5% of the average aggregate value of the Company’s assets over such quarter, where the value of each asset shall be the value determined in accordance with the Company’s valuation policies or, if such value has not yet been determined, the book value of the asset. The performance component of the advisory fee is calculated and paid annually with respect to the Class P Shares, such that for any year in which the Company’s total return per Class P Share exceeds 7% per annum, the Advisor will receive 20% of the excess total return allocable to the Class P Shares; provided that in no event will the performance component of the advisory fee exceed 15% of the aggregate total return allocable to Class P Shares for such year. The Advisor waived the advisory fee for all periods prior to April 1, 2018.  As a result, there was no advisory fee for the year ended December 31, 2017 and for the period from September 13, 2016 (inception) through December 31, 2016.

(4) The Company reimburses the Advisor or its affiliates for out-of-pocket expenses that it incurs in connection with providing services to the Company, provided that the Company does not reimburse overhead costs, including rent and utilities or personnel costs (including salaries, bonuses, benefits and severance payments).

Note 10 – Equity-Based Compensation

On March 1, 2018, the Company granted each of its three independent directors 400 restricted Class P Shares for a total of 1,200 Class P Shares with a total value of $30.  The restricted Class P Shares will vest in equal one-third increments on March 1, 2019, 2020 and 2021.  

Under the RSP, restricted shares generally vest over a three-year vesting period from the date of the grant, subject to the specific terms of the grant. Restricted shares are included in common stock outstanding on the date of vesting. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. Compensation expense associated with the restricted shares issued to the independent directors was $8 for the year ended December 31, 2018. As of December 31, 2018, the Company had $22 of unrecognized compensation expense related to the unvested restricted shares, in the aggregate. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 2.17 years. There were no restricted shares issued under the RSP in 2017 or 2016.

A summary table of the status of the restricted shares is presented below:

	Restricted Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at December 31, 2017		—	$	—	$	—
Granted		1,200		30		30
Vested		—		—		—
Converted		—		—		—
Forfeited		—		—		—
Outstanding at December 31, 2018		1,200		30		30

Note 11 – Fair Value of Financial Instruments

The following table presents the Company’s financial instruments carried at fair value in the consolidated balance sheets by its level in the fair value hierarchy (see Note 2 – “Summary of Significant Accounting Policies”):

	December 31, 2018								December 31, 2017
	Total		Level I		Level II		Level III		Total		Level I		Level II		Level III
Real estate securities	$	91,218		—	$	91,218		—	$	25,993		—	$	25,993		—

The Company did not transfer any assets within fair value levels during the years ended December 31, 2018 and 2017.

19

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

As discussed in Note 2, GAAP requires the disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value.  The following table details the carrying amount and fair value of the financial instruments described in Note 2:

	December 31, 2018				December 31, 2017
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets
Cash and cash equivalents	$	27,530	$	27,530	$	1,311	$	1,311
Restricted cash		967		967		95		95
Commercial mortgage loans, net		249,573		250,156		32,094		32,094
Total	$	278,070	$	278,653	$	33,500	$	33,500
Financial liabilities
Repurchase agreements - real estate securities	$	61,871	$	61,871	$	17,113	$	17,113
Repurchase agreements - commercial mortgage loans		164,333		164,333		—		—
Total	$	226,204	$	226,204	$	17,113	$	17,113

The following describes our methods for estimating the fair value for financial instruments:

• The estimated fair value of cash and cash equivalents was based on the bank balance and was a Level 1 fair value measurement.

• The estimated fair value of commercial mortgage loans, net is a Level 3 fair value measurement.  The Sub-Advisor estimates the fair values of commercial loans based on a discounted cash flow methodology that analyzes various factors including capitalization rates, occupancy rates, sponsorship, geographic concentration, collateral type, market conditions and actions of other lenders.

• The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates we determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.

Note 12 – Subsequent Events

The Company has evaluated subsequent events through March 12, 2019, the date the consolidated financial statements were issued, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following transactions:

Director Stock Awards

On January 7, 2019, the Company granted each of its three independent directors 400 restricted Class P Shares for a total of 1,200 Class P Shares with a total value of $30.  The Class P Shares will vest in equal one-third increments on January 7, 2020, 2021 and 2022.  The Class P Shares were issued under the Company’s independent directors’ compensation plan.

Sale of Common Stock

As of March 11, 2019, the Company had 7,197,665 shares of common stock outstanding and had raised proceeds from the Offering since December 31, 2018 and since inception as follows:

Source of Capital	January 1, 2019 through March 11, 2019		Total
Class P Shares	$	33,851	$	194,268

20

InPoint Commercial Real Estate Income, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

(Dollar amounts in thousands, except per share amounts)

Distributions

The Company’s board of directors declared distributions payable to stockholders of record of Class P Shares each day beginning on the close of business December 1, 2018 through the close of business March 31, 2019.  Through that date distributions were declared in a daily amount equal to $0.005260274 per Class P Share, based on a 365-day period.

The table below sets forth the distributions declared for Class P Shares.

Distributions Declared Per Share
Distribution Period	Month Distribution Paid	Distribution Amount
December 2018	January 2019	$	941
January 2019	February 2019	$	1,004
February 2019	March 2019	$	976

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) Financial Statements: The financial statements are contained herein on pages 5 - 21 of this Annual Report on Form 10-K/A.

(a)(2) Financial Statement Schedules: Refer to Index to Consolidated Financial Statements contained herein on page 3 of this Annual Report on Form 10-K/A.

(a)(3) Exhibits: Refer to Exhibit Index on page 23 of this Annual Report on Form 10-K/A.

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Amendment and Restatement of InPoint Commercial Real Estate Income, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
3.2	Bylaws of InPoint Commercial Real Estate Income, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
10.1	Advisory Agreement, dated October 25, 2016, by and between InPoint Commercial Real Estate Income, Inc., InPoint REIT Operating Partnership, LP and Inland InPoint Advisor, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
10.2	Sub-Advisory Agreement, dated October 25, 2016, by and between Inland InPoint Advisor, LLC and SPCRE InPoint Advisors, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
10.3	Independent Director Compensation Plan, effective October 25, 2016 (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on March 12, 2019)
10.4	Independent Director Restricted Share Plan of InPoint Commercial Real Estate Income, Inc., effective October 6, 2016 (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
10.5	Form of Restricted Stock Award Agreement for Independent Directors (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on March 12, 2019)
10.6	Form of Indemnification Agreement, between InPoint Commercial Real Estate Income, Inc. and each of its officers and directors (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form 10 (File No. 000-55782) filed on May 2, 2017)
10.7	Master Repurchase Agreement, dated as of February 15, 2018, by and among Column Financial, Inc., as administrative agent, Credit Suisse AG, acting through its Cayman Islands Branch, Alpine Securitization LTD, and InPoint CS Loan, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K filed February 16, 2018)
10.8	Guaranty, dated as of February 15, 2018, by InPoint Commercial Real Estate Income, Inc. in favor of Column Financial, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report Form 8-K filed February 16, 2018)
21.1	List of Subsidiaries of InPoint Commercial Real Estate Income, Inc. (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on March 12, 2019)
31.1*	Certification of the Principal Executive Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2*	Certification of the Principal Financial Officer of the Company, pursuant to Securities Exchange Act Rule 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1*	Certification of the Principal Executive Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2*	Certification of the Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101**	The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements (tagged as blocks of text)

* Filed as part of this Annual Report on Form 10-K/A

** Previously submitted with the Company’s Annual Report on Form 10-K filed on March 12, 2019

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.

INPOINT COMMERCIAL REAL ESTATE INCOME, INC.
By:	/s/ Catherine L. Lynch
Name:	Catherine L. Lynch
Title:	Chief Financial Officer and Treasurer
Date:	November 14, 2019

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