Great Ajax Corp. (NYSE:AJX) Q4 2022 Earnings Conference Call March 2, 2023 5:00 PM ET

Company Participants

Larry Mendelsohn - Chief Executive Officer

Conference Call Participants

Brad Capuzzi - Piper Sandler

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Great Ajax Corp. Fourth Quarter and Year-End Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will -- question-and-answer session. [Operator Instructions]

Thank you. It is now my pleasure to turn today's call over to Mr. Larry Mendelsohn, Chief Executive Officer. Please, go ahead.

Larry Mendelsohn

Thank you, Brent. Thank you, everyone, for joining us for Great Ajax’s fourth quarter and year-end 2022 conference call. Before we get started, I'd like to point out page two on the presentation and the safe harbor disclosure. With me here is Mary Doyle, our CFO; and also on the line is Russell Schaub, our President.

A quick introduction before we get in. There's couple of things to note, before we get into the details. In Q4 2022, loan performance continued to increase and loan cash flow velocity from sales of homes by certain delinquent borrowers continued and has also continued in the first quarter of 2023.

Prepayments from borrowers, refinancing continues to be slower, as you would probably expect. The regular payment performance of our mortgage loans and our mortgage loan JV structures in excess of our modeled expectations at the time of acquisition, for loans purchased at a discount to UPB, has increased previous GAAP income by accelerating purchase discount accretion, because of the required application of CECL. This then reduces forward GAAP interest income and ROE thereafter, but not taxable income.

At September 30, we had approximately $47 million of cash as well as a significant amount of unencumbered securities loans, and I will go through that in more detail later on this call.

With that, we jump to page three, for 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 long-standing relationships enables us to require loans that we believe have a material probability of prepayment and/or long-term continuing reperformance.

We've acquired loans in 375 different transactions since 2014 in 3 transactions and one larger ones in Q4 of 2022. We own 19.8% of the equity of our manager at a zero basis, and we do not mark-to-market our ownership interest on our balance sheet. As a result, our book value does not reflect the market value of our 19.8% interest in our manager. However, should we ever internalize the management of Great Ajax would record a material GAAP capital gain from the 19.8% interest.