Great Ajax(AJX) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Interim Financial Statements Unaudited consolidated interim financial statements for Q2 2020, detailing financial position, performance, and cash flows Consolidated Balance Sheets | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Total assets | $1,639,924 | $1,576,841 | | Total liabilities | $1,141,054 | $1,192,757 | | Total equity | $498,870 | $384,084 | | Cash and cash equivalents | $163,422 | $64,343 | | Mortgage loans, net | $1,080,617 | $1,151,469 | | Secured borrowings, net | $609,812 | $652,747 | | Convertible senior notes, net | $111,773 | $118,784 | - Mortgage loans, net, include $14.5 million and $2.0 million of allowance for loan credit losses at June 30, 2020 and December 31, 2019, respectively[7] - Investments at fair value include net unrealized losses of $3.9 million at June 30, 2020, compared to unrealized gains of $1.3 million at December 31, 2019[7] Consolidated Statements of Income | Metric (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $23,705 | $28,128 | $50,991 | $57,580 | | Net interest income | $10,647 | $12,689 | $24,863 | $26,456 | | Provision for credit benefit/(losses) | $4,328 | $(85) | $(781) | $(239) | | Total revenue, net | $16,327 | $20,703 | $24,364 | $35,887 | | Total expense | $7,389 | $6,857 | $13,841 | $13,849 | | Consolidated net income attributable to Company | $8,083 | $13,027 | $8,483 | $20,357 | | Basic earnings per common share | $0.27 | $0.67 | $0.29 | $1.06 | | Diluted earnings per common share | $0.27 | $0.56 | $0.29 | $0.93 | - The Company sold no mortgage loans during the three months ended June 30, 2020, compared to 962 loans sold for a gain of $7.0 million in the prior year period[8] Consolidated Statements of Comprehensive Income | Metric (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Consolidated net income attributable to common stockholders | $6,242 | $13,027 | $6,642 | $20,357 | | Net unrealized gain/(loss) on investments in available-for-sale debt securities | $23,231 | $710 | $(5,213) | $1,107 | | Comprehensive income | $29,473 | $13,737 | $1,429 | $21,464 | Consolidated Statements of Cash Flows | Metric (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash from operating activities | $(10,232) | $(9,951) | | Net cash from investing activities | $56,983 | $112,528 | | Net cash from financing activities | $52,498 | $(101,997) | | Net change in cash, cash equivalents, and cash held in trust | $99,249 | $580 | | Cash, cash equivalents and cash held in trust, end of period | $163,612 | $55,750 | - Cash paid for interest was $22.8 million for the six months ended June 30, 2020, down from $28.2 million in the prior year period[15] - Proceeds from issuance of preferred stock and warrants, net of offering costs, totaled $124.977 million for the six months ended June 30, 2020[15] Consolidated Statements of Changes in Equity | Metric (in thousands) | Balance at Dec 31, 2019 | Net income | Preferred Stock | Issuance of shares under dividend reinvestment plan | Stock-based compensation expense | Dividends declared and distributions | Other comprehensive income | Treasury stock | Balance at June 30, 2020 | | :-------------------- | :---------------------- | :--------- | :-------------- | :-------------------------------------------------- | :------------------------------- | :----------------------------------- | :------------------------- | :------------- | :----------------------- | | Total Stockholders' Equity | $359,882 | $8,083 | $115,144 | $41 | $214 | $(5,748) | $23,231 | $(38) | $472,987 | | Noncontrolling Interest | $24,202 | $735 | — | — | — | $(66) | — | — | $25,883 | | Total Equity | $384,084 | $8,818 | $115,144 | $41 | $214 | $(5,814) | $23,231 | $(38) | $498,870 | - During Q2 2019, all 624,106 Operating Partnership units held by an unaffiliated holder were exchanged for common stock, resulting in the Operating Partnership being 100% owned by the Company at June 30, 2020[34] Note 1 — Organization and Basis of Presentation - Great Ajax Corp. is an externally managed real estate company formed on January 30, 2014, operating as a mortgage REIT, primarily targeting acquisitions of re-performing loans (RPLs) and small balance commercial loans (SBC loans)[25] - The Company also invests in single-family and smaller commercial properties directly and opportunistically acquires non-performing loans (NPLs)[25] - The Company owns 19.8% of its Manager (Thetis Asset Management LLC) and 8.0% of Great Ajax FS LLC (parent of the Servicer, Gregory Funding LLC), both affiliated companies[25] Note 2 — Summary of Significant Accounting Policies - The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (CECL), on January 1, 2020, requiring recording expected credit losses over the life of loans and beneficial interests[87] - Upon CECL adoption, a $10.2 million reclassification occurred between loan discount and allowance for purchased credit impaired loans, and a $4.2 million reclassification for beneficial interests, with no net impact on the balance sheet or equity[88] - The Company issued $125.0 million (net of offering costs) of preferred stock and warrants in private placements during Q2 2020, recognizing an $11.1 million put option liability for the warrants[54] Note 3 — Mortgage Loans | Loan Type (in thousands) | June 30, 2020 | December 31, 2019 | | :----------------------- | :------------ | :---------------- | | Residential RPLs loans | $1,048,146 | $1,085,514 | | SBC/commercial loans | $4,240 | $35,086 | | Residential NPL loans | $28,231 | $30,869 | | Total | $1,080,617 | $1,151,469 | - The Company recognized a recovery of **$