Great Ajax Corp. (NYSE:AJX) Q2 2023 Earnings Conference Call August 3, 2023 5:00 PM ET

Company Participants

Lawrence Mendelsohn – Chief Executive Officer

Conference Call Participants

Operator

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Great Ajax Corp. Second Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Lawrence Mendelsohn, Chief Executive Officer, you may begin your conference.

Lawrence Mendelsohn

Thank you very much, operator. Thank you everybody for joining the Great Ajax Corp’s second quarter conference call. Along with me on this call are Russell Schaub, our President; Mary Doyle, our CFO. Before we get started, I want to point you to Page 2 of the presentation with the safe harbor disclosure.

In the second quarter of 2023, loan performance continued to increase, as did low cash flow velocity from reinstatements on delinquent loans and from sales of homes, particularly in the months of April and May. This has continued into the third quarter of 2023 as well. Prepayments from borrowers refinancing their mortgages continued their slower pace as you would expect, given current mortgage rates. The regular payment performance of our mortgage loans and mortgage loans in our joint venture structures in excess of our model of expectations at the time of acquisition for loans and purchases at a discount, effectively, which are credit reserve recapture has increased previous GAAP income by accelerating purchase discount because of the required application of CECL. This then reduces forward GAAP interest income and return on equity thereafter.

However, the increase in cash flow velocity in Q2, particularly in April and May, has increased even the all-in post-CECL GAAP yields a bit for the second quarter. At June 30, we had approximately $40 million of cash as well as significant amount of unencumbered securities loans. We currently have approximately $55 million of cash.

In Page 3, the business overview. Our managers’ data science guides the analysis of loan characteristics and geographic market metrics for performance and resolution pathway probabilities and its ability to source these mortgage loans through longstanding relationships has enabled us to acquire loans that we believe have material probability of prepayment and/or long-term continuing reperformance. We acquired loans in 381 different transactions since 2014, including three transactions in the second quarter of 2023.