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Ladder Capital Corp - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
 
(Mark One)
 
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2023
 
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:
001-36299
 
Ladder Capital Corp
ladrlogo3312017a27.jpg
(Exact name of registrant as specified in its charter)
 
Delaware80-0925494
(State or other jurisdiction of
incorporation or organization)		(IRS Employer
Identification No.)
320 Park Avenue,New York,NY10022
(Address of principal executive offices)(Zip Code)
(212) 715-3170
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A common stock, $0.001 par valueLADRNew York Stock Exchange


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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 such 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 the 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 ☒
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Class Outstanding at July 21, 2023
Class A common stock, $0.001 par value 126,931,553
Class B common stock, $0.001 par value —
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LADDER CAPITAL CORP
 
FORM 10-Q
June 30, 2023
IndexPage
 
 
 
 
 
 


 



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely,” “continue,” “design,” and other words and terms of similar expressions are intended to identify forward-looking statements.
 
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:
 
•risks discussed under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2022 (“the Annual Report”), as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report and our other filings with the United States Securities and Exchange Commission (the “SEC”);
•labor shortages, supply chain imbalances, continuing military actions between Russia and Ukraine, inflation, and the potential for a global economic recession;
•changes in general economic conditions and in the commercial finance and the real estate markets;
•changes to our business and investment strategy;
•our ability to obtain and maintain financing arrangements;
•the financing and advance rates for our assets;
•our actual and expected leverage and liquidity;
•the adequacy of collateral securing our loan portfolio and a decline in the fair value of our assets;
•interest rate mismatches between our assets and our borrowings used to fund such investments;
•changes in interest rates affecting the market value of our assets and the related impacts on our borrowers, including the potential effects of the transition to Secured Overnight Financing Rate (“SOFR”) rates from London Interbank Offered Rate (“LIBOR”);
•changes in prepayment rates on our mortgages and the loans underlying our commercial mortgage-backed and other asset-backed securities;
•the effects of hedging instruments and the degree to which our hedging strategies may or may not protect us from interest rate and credit risk volatility;
•the increased rate of default or decreased recovery rates on our assets;
•the adequacy of our policies, procedures and systems for managing risk effectively;
•a potential downgrade in the credit ratings assigned to Ladder or our investments;
•our compliance with, and the impact of, and changes in laws, governmental regulations, tax laws and rates, accounting guidance and similar matters;
•our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and our ability and the ability of our subsidiaries to operate in compliance with REIT requirements;
•our ability and the ability of our subsidiaries to maintain our and their exemptions from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”);
•the effects of climate change or the potential liability relating to environmental matters that impact the value of properties we may acquire or the properties underlying our investments;
•the inability of insurance covering real estate underlying our loans and investments to cover all losses;
•the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities;
•fraud by potential borrowers;
•our ability to attract and retain qualified employees;
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•the impact of any tax legislation or IRS guidance;
•volatility in the equity capital markets and the impact on our Class A common stock;
•the degree and nature of our competition; and
•the market trends in our industry, interest rates, real estate values and the debt securities markets.
 
You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements contained in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update or supplement any forward-looking statements.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

The consolidated financial statements of Ladder Capital Corp and the notes related to the foregoing consolidated financial statements are included in this Item.
 
Index to Consolidated Financial Statements (Unaudited)
 



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Ladder Capital Corp
Consolidated Balance Sheets
(Dollars in Thousands)
 June 30,
2023(1)		December 31,
2022(1)
(Unaudited)
Assets  
Cash and cash equivalents$777,078 $609,078 
Restricted cash96,856 50,524 
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loans receivable3,501,235 3,885,746 
Allowance for credit losses(32,248)(20,755)
Mortgage loan receivables held for sale26,901 27,391 
Securities458,224 587,519 
Real estate and related lease intangibles, net686,701 700,136 
Investments in and advances to unconsolidated ventures6,553 6,219 
Derivative instruments1,853 2,038 
Accrued interest receivable23,646 24,938 
Other assets81,852 78,339 
Total assets$5,628,651 $5,951,173 
Liabilities  
Debt obligations, net$3,958,095 $4,245,697 
Dividends payable31,289 32,000 
Accrued expenses49,308 68,227 
Other liabilities58,459 71,688 
Total liabilities4,097,151 4,417,612 
Commitments and contingencies (Note 17)
— — 
Equity  
Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 128,027,478 and 128,027,478 shares issued and 126,931,553 and 126,502,049 shares outstanding as of June 30, 2023 and December 31, 2022, respectively.
127 127 
Additional paid-in capital1,839,003 1,826,833 
Treasury stock, 1,095,925 and 1,525,429 shares, at cost
(105,738)(95,600)
Retained earnings (dividends in excess of earnings)(184,769)(177,005)
Accumulated other comprehensive income (loss)(16,524)(21,009)
Total shareholders’ equity1,532,099 1,533,346 
Noncontrolling interests in consolidated ventures(599)215 
Total equity1,531,500 1,533,561 
Total liabilities and equity$5,628,651 $5,951,173 
(1)Includes amounts relating to consolidated variable interest entities. Refer to Note 2 and Note 9.

Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Net interest income    
Interest income$101,829 $65,268 $205,625 $121,473 
Interest expense61,342 42,705 122,092 89,741 
Net interest income (expense)40,487 22,563 83,533 31,732 
Provision for (release of) loan loss reserves, net6,881 (1,002)11,617 (128)
Net interest income (expense) after provision for (release of) loan losses33,606 23,565 71,916 31,860 
Other income (loss)    
Real estate operating income25,887 28,646 49,086 54,999 
Net result from mortgage loan receivables held for sale(296)(1,930)(490)(2,879)
Realized gain (loss) on securities8 12 (299)(84)
Unrealized gain (loss) on securities(95)(49)22 (32)
Realized gain (loss) on sale of real estate, net— 28,554 — 57,708 
Fee and other income3,327 2,345 5,158 9,539 
Net result from derivative transactions4,149 2,679 1,907 5,814 
Earnings from investment in unconsolidated ventures217 356 434 790 
Gain on extinguishment of debt462 685 9,679 685 
Total other income (loss)33,659 61,298 65,497 126,540 
Costs and expenses    
Compensation and employee benefits14,242 15,495 36,326 45,358 
Operating expenses4,987 4,651 10,243 10,159 
Real estate operating expenses9,766 9,867 19,615 18,859 
Investment related expenses2,661 1,486 4,181 3,474 
Depreciation and amortization7,471 7,558 15,000 16,900 
Total costs and expenses39,127 39,057 85,365 94,750 
Income (loss) before taxes28,138 45,806 52,048 63,650 
Income tax expense (benefit)46 2,594 1,767 1,284 
Net income (loss)28,092 43,212 50,281 62,366 
Net (income) loss attributable to noncontrolling interests in consolidated ventures71 (8,164)288 (8,286)
Net income (loss) attributable to Class A common shareholders$28,163 $35,048 $50,569 $54,080 
Earnings per share:    
Basic$0.23 $0.28 $0.41 $0.43 
Diluted$0.23 $0.28 $0.41 $0.43 
Weighted average shares outstanding:    
Basic124,731,195 124,593,171 124,612,821 124,452,339 
Diluted124,827,596 125,265,707 124,742,506 125,738,758 

Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)

 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Net income (loss)$28,092 $43,212 $50,281 $62,366 
Other comprehensive income (loss)    
Unrealized gain (loss) on securities, net of tax:    
Unrealized gain (loss) on securities, available for sale1,008 (7,065)4,181 (13,803)
Reclassification adjustment for (gain) loss included in net income (loss)(8)(37)304 60 
Total other comprehensive income (loss)1,000 (7,102)4,485 (13,743)
Comprehensive income (loss)29,092 36,110 54,766 48,623 
Comprehensive (income) loss attributable to noncontrolling interest in consolidated ventures71 (8,164)288 (8,286)
Comprehensive income (loss) attributable to Class A common shareholders$29,163 $27,946 $55,054 $40,337 

Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)

 Shareholders’ Equity    
 
Class A Common Stock
 
Additional Paid-
in-Capital
 
Treasury Stock
Retained Earnings (Dividends in Excess of Earnings)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling Interests
 
Total Equity
Shares
 
Par
 
 
 
 
Consolidated
Ventures
 
Balance, March 31, 2023126,948 $127 $1,835,957 $(105,738)$(183,755)$(17,524)$(513)$1,528,554 
Distributions— — — — — — (15)(15)
Amortization of equity based compensation— — 3,046 — — — — 3,046 
Forfeitures(16)— — — — — — — 
Dividends declared— — — — (29,177)— — (29,177)
Net income (loss)— — — — 28,163 — (71)28,092 
Other comprehensive income (loss)— — — — — 1,000 — 1,000 
Balance, June 30, 2023126,932 $127 $1,839,003 $(105,738)$(184,769)$(16,524)$(599)$1,531,500 

Refer to the accompanying notes to consolidated financial statements.























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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)

 Shareholders’ Equity    
 
Class A Common Stock
 
Additional Paid-
in-Capital
 
Treasury Stock
Retained Earnings (Dividends in Excess of Earnings)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling Interests
 
Total Equity
Shares
 
Par
 
 
 
 
Consolidated
Ventures
 
Balance, March 31, 2022127,223 $127 $1,815,661 $(88,258)$(214,084)$(10,753)$6,464 $1,509,157 
Contributions— — — — — — 186 186 
Distributions— — — — — — (7,451)(7,451)
Amortization of equity based compensation— — 3,637 — — — — 3,637 
Grants of restricted stock34 — — — — — — — 
Purchase of treasury stock(400)— — (4,044)— — — (4,044)
Forfeitures(23)— — — — — — — 
Dividends declared— — — — (27,886)— — (27,886)
Net income (loss)— — — — 35,048 — 8,164 43,212 
Other comprehensive income (loss)— — — — — (7,102)— (7,102)
Balance, June 30, 2022126,834 $127 $1,819,298 $(92,302)$(206,922)$(17,855)$7,363 $1,509,709 

Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)

 Shareholders’ Equity    
 
Class A Common Stock
Additional Paid-
in-Capital
Treasury Stock
Retained Earnings (Dividends in Excess of Earnings)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling  Interests
Total Equity
Shares
Par
Consolidated
Ventures
Balance, December 31, 2022126,502 $127 $1,826,833 $(95,600)$(177,005)$(21,009)$215 $1,533,561 
Distributions— — — — — — (526)(526)
Amortization of equity based compensation— — 12,170 — — — — 12,170 
Grants of restricted stock988 1 — (1)— — — — 
Purchase of treasury stock(250)— — (2,285)— — — (2,285)
Re-issuance of treasury stock430 — — — — — — — 
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock(689)(1)— (7,852)— — — (7,853)
Forfeitures(49)— — — — — — — 
Dividends declared— — — — (58,333)— — (58,333)
Net income (loss)— — — — 50,569 — (288)50,281 
Other comprehensive income (loss)— — — — — 4,485 — 4,485 
Balance, June 30, 2023126,932 $127 $1,839,003 $(105,738)$(184,769)$(16,524)$(599)$1,531,500 

Refer to the accompanying notes to consolidated financial statements.



















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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)

 Shareholders’ Equity  
 
Class A Common Stock
Additional Paid-
in-Capital
Treasury Stock
Retained Earnings (Dividends in Excess of Earnings)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling Interests
Total Equity
Shares
Par
Consolidated
Ventures
Balance, December 31, 2021125,453 $126 $1,795,249 $(76,324)$(207,802)$(4,112)$6,482 $1,513,619 
Contributions— — — — — — 186 186 
Distributions— — — — — — (7,591)(7,591)
Amortization of equity based compensation— — 24,049 — — — — 24,049 
Grants of restricted stock2,282 2 — (2)— — — — 
Purchase of treasury stock(455)— — (4,655)— — — (4,655)
Re-issuance of treasury stock595 — — (1)— — — (1)
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock (952)(1)— (11,320)— — — (11,321)
Forfeitures(89)— — — — — — — 
Dividends declared— — — — (53,200)— — (53,200)
Net income (loss)— — — — 54,080 — 8,286 62,366 
Other comprehensive income (loss)— — — — — (13,743)— (13,743)
Balance, June 30, 2022126,834 $127 $1,819,298 $(92,302)$(206,922)$(17,855)$7,363 $1,509,709 

Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
 Six Months Ended June 30,
 20232022
Cash flows from operating activities:  
Net income (loss)$50,281 $62,366 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: 
(Gain) loss on extinguishment of debt(9,679)(685)
Depreciation and amortization15,000 16,900 
Non-cash operating lease expense1,076 — 
Unrealized (gain) loss on derivative instruments(9)691 
Unrealized (gain) loss on equity securities(11)16 
Unrealized (gain) loss on Agency interest-only securities(11)16 
Provision for (release of) loan loss reserves11,617 (128)
Amortization of equity based compensation12,170 24,049 
Amortization of deferred financing costs included in interest expense6,562 9,212 
Amortization of premium/discount on mortgage loan financing included in interest expense(300)(500)
Amortization of above- and below-market lease intangibles(907)(881)
(Accretion)/amortization of discount, premium and other fees on loans(11,819)(10,253)
(Accretion)/amortization of discount, premium and other fees on securities(707)(176)
Net result from mortgage loan receivables held for sale490 2,879 
Realized (gain) loss on securities299 84 
Realized (gain) loss on sale of real estate, net— (57,708)
Realized (gain) loss on sale of derivative instruments269 — 
       (Earnings) loss from investments in unconsolidated ventures in excess of distributions received(334)(165)
Insurance proceeds for remediation work due to property damage473 — 
Insurance proceeds used for remediation work due to property damage(366)(329)
Origination of mortgage loan receivables held for sale— (61,318)
Repayment of mortgage loan receivables held for sale— 68 
Proceeds from sales of mortgage loan receivables held for sale— 22,522 
Change in deferred tax asset (liability)940 1,725 
Changes in operating assets and liabilities:  
Accrued interest receivable1,292 (3,200)
Other assets553 1,855 
Accrued expenses and other liabilities(32,790)6,907 
Net cash provided by (used in) operating activities44,089 13,947 
Cash flows from investing activities:  
Origination of mortgage loan receivables held for investment(44,216)(1,004,314)
Repayment of mortgage loan receivables held for investment433,705 524,979 
Purchases of securities(17,920)(45,223)
Repayment of securities135,338 102,194 
Basis recovery of interest-only securities1,990 2,586 
Proceeds from sales of securities14,231 4,730 
Capital improvements of real estate(1,496)(3,858)
Proceeds from sale of real estate— 163,616 
Capital distribution from investment in unconsolidated ventures— 2,284 
Proceeds from FHLB stock1,710 — 
Purchase of derivative instruments(75)— 
Net cash provided by (used in) investing activities523,267 (253,006)
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 Six Months Ended June 30,
 20232022
Cash flows from financing activities:  
Deferred financing costs paid(1,655)(1,740)
Proceeds from borrowings under debt obligations738,206 886,648 
Repayment and repurchase of borrowings under debt obligations(1,019,868)(909,999)
Cash dividends paid to Class A common shareholders(59,044)(51,086)
Capital contributed by noncontrolling interests in consolidated ventures— 186 
Capital distributed to noncontrolling interests in consolidated ventures(526)(7,591)
Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock(7,852)(11,321)
Purchase of treasury stock(2,285)(4,656)
Issuance of common stock— 3 
Net cash provided by (used in) financing activities(353,024)(99,556)
Net increase (decrease) in cash, cash equivalents and restricted cash214,332 (338,615)
Cash, cash equivalents and restricted cash at beginning of period659,602 621,546 
Cash, cash equivalents and restricted cash at end of period$873,934 $282,931 
Non-cash investing and financing activities:  
Securities and derivatives purchased, not settled— 1 
Securities and derivatives sold, not settled12 10 
Repayments in transit of securities (other assets)392 8,193 
Repayment in transit of mortgage loans receivable held for investment (other assets)25,761 51,773 
Real estate acquired in former unconsolidated venture agreement— 15,436 
Transfer of real estate, net into real estate held for sale— (55,412)
Dividends declared, not paid31,289 29,705 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows ($ in thousands):
June 30, 2023June 30, 2022
Cash and cash equivalents$777,078 $217,361 
Restricted cash96,856 65,570 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$873,934 $282,931 

Refer to the accompanying notes to consolidated financial statements.


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Ladder Capital Corp
Notes to Consolidated Financial Statements
(Unaudited)
 
1. ORGANIZATION AND OPERATIONS
 
Ladder Capital Corp (“Ladder,” “Ladder Capital,” and the “Company”) is an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. The Company originates and invests in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. The Company’s investment activities include: (i) the Company’s primary business of originating senior first mortgage fixed and floating rate loans collateralized by commercial real estate with flexible loan structures; (ii) owning and operating commercial real estate, including net leased commercial properties; and (iii) investing in investment grade securities secured by first mortgage loans on commercial real estate. Ladder Capital Corp, as the general partner of Ladder Capital Finance Holdings LLLP (“LCFH” or the “Operating Partnership”), operates the Ladder Capital business through LCFH and its subsidiaries. As of June 30, 2023, Ladder Capital Corp has a 100% economic interest in LCFH and controls the management of LCFH as a result of its ability to appoint its board members. Accordingly, Ladder Capital Corp consolidates the financial results of LCFH and its subsidiaries. In addition, Ladder Capital Corp, through certain subsidiaries which are treated as taxable REIT subsidiaries (each a “TRS”), is indirectly subject to U.S. federal, state and local income taxes. Other than such indirect U.S. federal, state and local income taxes, there are no material differences between Ladder Capital Corp’s consolidated financial statements and LCFH’s consolidated financial statements.

Ladder Capital Corp was formed as a Delaware corporation on May 21, 2013. The Company conducted its initial public offering (“IPO”) which closed on February 11, 2014. The Company used the net proceeds from the IPO to purchase newly-issued limited partnership units (“LP Units”) from LCFH. In connection with the IPO, Ladder Capital Corp also became a holding corporation and the general partner of, and obtained a controlling interest in, LCFH. Ladder Capital Corp’s only business is to act as the general partner of LCFH, and, as such, Ladder Capital Corp indirectly operates and controls all of the business and affairs of LCFH and its subsidiaries. The IPO transactions described herein are referred to as the “IPO Transactions.”




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2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Principles of Consolidation
 
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim periods presented in this report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, which are included in the Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

The consolidated financial statements include the Company’s accounts and those of its subsidiaries that are majority-owned and/or controlled by the Company and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated.
 
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 — Consolidation (“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. Refer to Note 9, Consolidated Variable Interest Entities, for further information on the Company’s consolidated variable interest entities. Investments in and advances to unconsolidated ventures represents the Company’s investment in Grace Lake LLC, a VIE. The Company determined that it was not the primary beneficiary of this VIE because the Company has a passive investment and no control of this entity and therefore does not have controlling financial interests in this VIE. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this unconsolidated VIE that it was not previously contractually required to provide.

Provision for Loan Losses

The Company uses a current expected credit loss model (“CECL”) for estimating the provision for loan losses on its loan portfolio. The CECL model requires the consideration of possible credit losses over the life of an instrument and includes a portfolio-based component and an asset-specific component. In compliance with the CECL reporting requirements, the Company supplemented its existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. The Company engages a third-party service provider to provide market data and a credit loss model. The credit loss model is a forward-looking, econometric, commercial real estate (“CRE”) loss forecasting tool. It is comprised of a probability of default (“PD”) model and a loss given default (“LGD”) model that, layered together with the Company’s loan-level data, fair value of collateral, net operating income of collateral, selected forward-looking macroeconomic variables, and pool-level mean loss rates, produces life of loan expected losses (“EL”) at the loan and portfolio level. Where management has determined that the credit loss model does not fully capture certain external factors, including portfolio trends or loan-specific factors, a qualitative adjustment to the reserve, is recorded. In addition, interest receivable on loans is not included in the Company’s CECL calculations as the Company performs timely write off of aged accounts receivable. The Company has made a policy election to write off aged receivables through interest income as opposed to through the CECL provision on its statements of income.

Loans for which the borrower or sponsor is experiencing financial difficulty, and where repayment of the loan is expected substantially through the operation or sale of the underlying collateral, are considered collateral dependent loans.

For collateral dependent loans the Company measures expected losses based on the difference between the collateral’s fair value and the amortized cost basis of the loan. When the repayment or satisfaction of the loan is dependent on a sale, rather than operations, of the collateral, the fair value is adjusted for the estimated costs to sell the collateral.

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The Company may use the direct capitalization rate valuation methodology, the discounted cash flow methodology, or the sales comparison approach to estimate the fair value of the collateral for collateral dependent loans and in certain cases will obtain external appraisals and take into account potential sale bids. Determining fair value of the collateral may take into account a number of assumptions including, but not limited to, cash flow projections, market capitalization rates, discount rates and data regarding recent comparable sales of similar properties. Such assumptions are generally based on current market conditions and are subject to economic and market uncertainties.

The Company’s loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess: (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan at maturity; and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic submarket in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management and underwriting personnel, who utilize various data sources, including: (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and other market data and ultimately presented to management for approval.

When a debtor is experiencing financial difficulties and a loan is modified, the effect of the modification will be included in the Company’s assessment of the CECL allowance for loan losses. If the Company provides principal forgiveness, the amortized cost basis of the loan is written off against the allowance for loan losses. Generally, when modifying loans, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and, in some cases, lookback features or equity interests to offset the effects of modifications granted should conditions impacting the loan improve.

The Company designates a loan as a non-accrual loan generally when: (i) the principal or coupon interest components of loan payments become 90-days past due; or (ii) in the opinion of the Company, it is doubtful the Company will be able to collect all principal and coupon interest due according to the contractual terms of the loan. Interest income on non-accrual loans in which the Company reasonably expects a full recovery of the loan’s outstanding principal balance is recognized when received in cash. Otherwise, income recognition will be suspended and any cash received will be applied as a reduction to the amortized cost basis. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and future principal and coupon interest are reasonably assured to be received in accordance with the contractual loan terms. A loan will be written off when management has determined principal and coupon interest is no longer realizable and deemed non-recoverable.

Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, (“ASU 2022-02”). ASU 2022-02 eliminated the recognition and measurement guidance for troubled debt restructuring for creditors that have adopted ASC 326 and requires them to make enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The standard is effective for fiscal years beginning after December 15, 2022. The adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Pending Adoption

Any new accounting standards that have been issued or proposed by FASB and that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

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3. MORTGAGE LOAN RECEIVABLES
 
June 30, 2023 ($ in thousands)

Outstanding
Face Amount		Carrying
Value		Weighted
Average
Yield (1)(2)		Remaining
Maturity
(years)(2)(3)
Mortgage loan receivables held for investment, net, at amortized cost:
First mortgage loans$3,475,384 $3,463,826 9.54 %0.9
Mezzanine loans37,467 37,409 11.54 %1.4
Total mortgage loans receivable3,512,851 3,501,235 9.56 %0.9
Allowance for credit losses N/A (32,248)
Total mortgage loan receivables held for investment, net, at amortized cost3,512,851 3,468,987 
Mortgage loan receivables held for sale:
First mortgage loans31,350 26,901 (4)4.57 %8.7
Total$3,544,201 $3,495,888 (5)9.52 %1.0
(1)Includes the impact from interest rate floors. June 30, 2023 SOFR rates are used to calculate weighted average yield for floating rate loans.
(2)Excludes non-accrual loans of $88.9 million. Refer to “Non-Accrual Status” below for further details.
(3)The remaining maturity is calculated based on the initial maturity. The weighted average extended maturity for all loans is 2.3 years.
(4)As a result of rising prevailing rates, the Company recorded a lower of cost or market adjustment as of June 30, 2023. The adjustment was calculated using a 5.49% rate.
(5)Net of $11.6 million of deferred origination fees and other items as of June 30, 2023.

As of June 30, 2023, $3.1 billion, or 87.3%, of the outstanding face amount of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates linked to SOFR. Of this $3.1 billion, 100.0% of these variable interest rate mortgage loan receivables were subject to interest rate floors. As of June 30, 2023, $31.4 million, or 100%, of the outstanding face amount of our mortgage loan receivables held for sale were at fixed interest rates.
 
In February 2023, the Company modified a first mortgage loan with an amortized cost basis of $51.5 million. The modification included an extension of the contractual maturity to October 2026, a modification of the interest rate from LIBOR + 2.8% to a fixed rate of 7% (5% current pay, 2% deferred rate) as well as a principal paydown of $3.5 million and the funding of $6.5 million of reserves. As of June 30, 2023, the Company is not accruing the 2% deferred interest component. As of June 30, 2023, the loan is current and has an amortized cost basis of $48.0 million.

December 31, 2022 ($ in thousands)
Outstanding
Face Amount		Carrying
Value		Weighted
Average
Yield (1)(2)(3)		Remaining
Maturity
(years)(2)(3)
Mortgage loan receivables held for investment, net, at amortized cost:
First mortgage loans$3,841,315 $3,819,860 8.83 %1.3
Mezzanine loans65,950 65,886 10.62 %1.6
Total mortgage loans receivable3,907,265 3,885,746 8.85 %1.3
Allowance for credit lossesN/A(20,755)
Total mortgage loan receivables held for investment, net, at amortized cost3,907,265 3,864,991 
Mortgage loan receivables held for sale:
First mortgage loans31,350 27,391 (4)4.57 %9.2
Total$3,938,615 $3,892,382 (5)8.82 %1.3
(1)Includes the impact from interest rate floors. December 31, 2022 LIBOR rates are used to calculate weighted average yield for floating rate loans.
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(2)Excludes non-accrual loans of $53.8 million.
(3)Includes the impact of one loan with a principal balance of $51.5 million, which was extended through 2026 in January 2023.
(4)As a result of rising prevailing rates, the Company recorded a lower of cost or market adjustment as of December 31, 2022. The adjustment was calculated using a 5.16% rate.
(5)Net of $21.5 million of deferred origination fees and other items as of December 31, 2022.
 
As of December 31, 2022, $3.4 billion, or 87.2%, of the outstanding face amount of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates with $2.3 billion linked to LIBOR and $1.1 billion linked to SOFR. Of this $3.4 billion, 99% of these variable rate mortgage loan receivables were subject to interest rate floors. As of December 31, 2022, $31.4 million, or 100%, of the outstanding face amount of our mortgage loan receivables held for sale were at fixed interest rates.

For the six months ended June 30, 2023 and 2022, the activity in our loan portfolio was as follows ($ in thousands):
Mortgage loan receivables held for investment, net, at amortized cost:
 Mortgage loans receivableAllowance for credit lossesMortgage loan 
receivables held
for sale
Balance, December 31, 2022$3,885,746 $(20,755)$27,391 
Origination of mortgage loan receivables (1)44,216 — — 
Repayment of mortgage loan receivables(440,546)— — 
Net result from mortgage loan receivables held for sale (2)— — (490)
Accretion/amortization of discount, premium and other fees11,819 — — 
Release (addition) of provision for current expected credit loss, net (3)— (11,493)— 
Balance, June 30, 2023$3,501,235 $(32,248)$26,901 
(1)Includes funding of commitments on existing mortgage loans.
(2)Includes unrealized lower of cost or market adjustment and realized gain/loss on loans held for sale.
(3)Refer to “Allowance for Credit Losses” table below for further detail.

Mortgage loan receivables held for investment, net, at amortized cost:
 Mortgage loans receivableAllowance for credit lossesMortgage loan 
receivables held
for sale
Balance, December 31, 2021$3,553,737 $(31,752)$— 
Origination of mortgage loan receivables (1)1,004,314 — 61,318 
Repayment of mortgage loan receivables(550,116)— (67)
Proceeds from sales of mortgage loan receivables— — (22,485)
Net result from mortgage loan receivables held for sale (2)— — (2,816)
Accretion/amortization of discount, premium and other fees10,253 — — 
Charge offs(14,395)14,395 — 
Release (addition) of provision for current expected credit loss, net (3)— 397 — 
Balance, June 30, 2022$4,003,793 $(16,960)$35,950 
(1)Includes funding of commitments on existing mortgage loans.
(2)Represents unrealized lower of cost or market adjustment on loans held for sale.
(3)Refer to “Allowance for Credit Losses” table below for further detail.



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Allowance for Credit Losses and Non-Accrual Status ($ in thousands)
Three Months Ended June 30,Six Months Ended June 30,
Allowance for Credit Losses2023202220232022
Allowance for credit losses at beginning of period$25,499 $32,332 $20,755 $31,752 
Provision for (release of) current expected credit loss, net (1)6,749 2,128 11,493 2,708 
Charge-offs— (14,395)— (14,395)
Recoveries(2)— (3,105)— (3,105)
Allowance for credit losses at end of period$32,248 $16,960 $32,248 $16,960 
(1)There were no asset specific reserves recorded for the six months ended June 30, 2023 or 2022.
(2)Recoveries are recognized within the consolidated statements of income through “Provision for (release of) loan loss reserves.”

Non-Accrual StatusJune 30, 2023(1)December 31, 2022(2)
Amortized cost basis of loans on non-accrual status, net of asset-specific reserve (3)$88,933 $53,809 
(1)Includes two mixed-use loans with an amortized cost basis of $65.8 million, for which the Company determined no asset specific reserve was necessary.
(2)Includes one mixed-use loan with an amortized cost basis of $30.5 million, for which the Company determined no asset specific reserve was necessary.
(3)As of June 30, 2023 and December 31, 2022 the loans on non-accrual status were greater than 90 days past due and are considered collateral dependent.

Current Expected Credit Loss (“CECL”)

As of June 30, 2023, the Company has a $33.1 million allowance for current expected credit losses, of which $32.2 million pertains to mortgage loan receivables and $0.9 million relates to unfunded commitments. This allowance includes $2.7 million of asset-specific reserves relating to two retail loans with an amortized cost basis of $25.8 million as of June 30, 2023. The Company concluded that none of its other loans are individually impaired as of June 30, 2023.

As of December 31, 2022, the Company had a $21.5 million allowance for current expected credit losses, of which $20.8 million pertained to mortgage loan receivables and $0.7 million related to unfunded commitments. This allowance included $2.7 million of asset-specific reserves relating to two retail loans with an amortized cost basis of $26.0 million as of December 31, 2022. The Company concluded that none of its other loans are individually impaired as of December 31, 2022.

The total change in provision for loan loss reserves for the three and six months ended June 30, 2023 was an increase of the provision of $6.9 million and $11.6 million, respectively. The net increase for the three and six months ended June 30, 2023 represents an increase in the general reserve of loans held for investment of $6.7 million and $11.5 million, respectively, and a decrease related to unfunded loan commitments of $132 thousand and $124 thousand, respectively. The increase in provision associated with the general reserve during the three and six months ended June 30, 2023 is primarily due to adverse changes in macroeconomic market conditions affecting commercial real estate.

The total change in provision for loan loss reserves for the three and six months ended June 30, 2022 was a release of the provision of $1.0 million and $0.1 million, respectively. The release for the three months ended June 30, 2022 represents a $3.1 million recovery of provision offset by an increase in the general reserve of loans held for investment of $2.1 million and a decrease related to unfunded loan commitments of $25 thousand. The release for the six months ended June 30, 2022 represents a $3.1 million recovery of provision offset by an increase in the general reserve of loans held for investment of $2.7 million and an increase related to unfunded loan commitments $0.3 million. The increase in the general reserve during the three and six months ended June 30, 2022 was primarily due to an overall increase in the size of our balance sheet first mortgage portfolio as a result of net originations during that time and adverse changes in macroeconomic conditions.

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Loan Portfolio by Geographic Region, Collateral Type and Vintage (amortized cost $ in thousands)
June 30,December 31,
Geographic Region20232022
Northeast$1,065,395 $1,191,337 
South1,097,538 1,080,132 
Southwest520,023 675,069 
Midwest446,086 496,640 
West346,366 416,556 
Subtotal mortgage loans receivable3,475,408 3,859,734 
Individually impaired loans25,827 26,012 
Total mortgage loans receivable$3,501,235 $3,885,746 
Management’s method for monitoring credit is the performance of a loan. The primary credit quality indicator management utilizes to assess its current expected credit loss reserve is by viewing the Company’s mortgage loan portfolio by collateral type. The primary credit quality indicator is reviewed and updated by management on a quarterly basis. The following tables summarize the amortized cost of the mortgage loan portfolio by collateral type as of June 30, 2023 and December 31, 2022, respectively ($ in thousands):
Amortized Cost Basis by Origination Year as of June 30, 2023
Collateral Type20232022202120202019 and EarlierTotal (1)
Multifamily$14,381 $563,042 $664,835 $— $— $1,242,258 
Office — 78,972 675,221 — 161,381 915,574 
Mixed Use— 199,962 358,551 — 92,066 650,579 
Industrial— 38,245 97,473 — 115,028 250,746 
Retail— 12,912 108,106 — 21,785 142,803 
Manufactured Housing— 32,596 82,814 — 2,928 118,338 
Hospitality— — 18,560 — 92,229 110,789 
Other— 32,340 11,981 — — 44,321 
Subtotal mortgage loans receivable14,381 958,069 2,017,541 — 485,417 3,475,408 
Individually Impaired loans— — — — 25,827 25,827 
Total mortgage loans receivable (2)$14,381 $958,069 $2,017,541 $— $511,244 $3,501,235 
Amortized Cost Basis by Origination Year as of December 31, 2022
Collateral Type20222021202020192018 and EarlierTotal (1)
Multifamily$702,125 $722,862 $— $— $— $1,424,987 
Office78,754 676,431 29,650 58,684 136,512 980,031 
Mixed Use201,777 351,291 26,500 120,300 — 699,868 
Industrial37,616 96,486 — 115,545 — 249,647 
Retail60,089 107,305 — 12,953 9,126 189,473 
Hospitality— 45,416 — 13,843 78,364 137,623 
Manufactured Housing32,515 82,618 — 2,921 — 118,054 
Other32,353 19,898 — 7,800 — 60,051 
Subtotal mortgage loans receivable1,145,229 2,102,307 56,150 332,046 224,002 3,859,734 
Individually Impaired loans— — — — 26,012 26,012 
Total mortgage loans receivable (3)$1,145,229 $2,102,307 $56,150 $332,046 $250,014 $3,885,746 
(1)As of June 30, 2023 and December 31, 2022, there were no write offs.
(2)Not included above is $21.9 million of accrued interest receivable on all loans at June 30, 2023.
(3)Not included above is $23.2 million of accrued interest receivable on all loans at December 31, 2022.
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4. SECURITIES
 
The Company invests in primarily AAA-rated real estate securities, typically front pay securities, with relatively short duration and significant credit subordination. We continue to actively monitor the impacts of current market conditions on our securities portfolio.

Commercial mortgage-backed securities (“CMBS”), CMBS interest-only securities, U.S. Agency securities, corporate bonds and U.S. Treasury securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. As of June 30, 2023, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

Government National Mortgage Association (“GNMA”) interest-only, Federal Home Loan Mortgage Corp (“FHLMC”) and equity securities are recorded at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at June 30, 2023 and December 31, 2022 ($ in thousands):

June 30, 2023
    Gross Unrealized  Weighted Average
Asset TypeOutstanding
Face Amount		 Amortized Cost BasisGainsLosses (7)Carrying
Value		# of
Securities		Rating (1)Coupon %Yield %Remaining
Duration
(years)
CMBS$457,491  $457,043 $33 $(16,735)$440,341 (2)67 AAA6.33%6.25 %1.40
CMBS interest-only(3)893,846 (3)8,546 154 (143)8,557 (4)9 AAA0.44%6.73 %1.28
GNMA interest-only(5)44,506 (3)247 45 (38)254 14 AAA0.31%5.69 %3.57
Agency securities28  28 — (1)27 1 AAA4.00%2.70 %1.30
U.S. Treasury securities9,000 8,953 — (18)8,935 2 AAAN/A3.56 %0.15
Total debt securities$1,404,871 $474,817 $232 $(16,935)$458,114 (6)93 2.36 %6.26 %1.39
Equity securitiesN/A160 — (30)130 1 N/AN/AN/AN/A
Allowance for current expected credit lossesN/A— — (20)(20)
Total securities$1,404,871  $474,977 $232 $(16,985)$458,224 94  

December 31, 2022
    Gross Unrealized  Weighted Average
Asset TypeOutstanding
Face Amount		 Amortized
Cost Basis		GainsLosses (7)Carrying
Value		# of
Securities		Rating (1)Coupon %Yield %Remaining
Duration
(years)
CMBS$562,839  $562,246 $— $(20,913)$541,333 (2)71 AAA5.22 %5.32 %1.06
CMBS interest-only(3)1,026,195 (3)10,498 121 (176)10,443 (4)10 AAA0.41 %3.65 %1.45
GNMA interest-only(5)45,369 (3)285 17 (21)281 14 AAA0.31 %4.23 %3.30
Agency securities36  36 — (1)35 1 AAA4.00 %2.70 %1.54
U.S. Treasury securities36,000 35,374 6 (52)35,328 10 AAAN/A4.17 %0.60
Total debt securities$1,670,439 $608,439 $144 $(21,163)$587,420 (6)106 2.06 %5.29 %1.07
Equity securitiesN/A160 — (41)119 1 N/AN/AN/AN/A
Allowance for current expected credit lossesN/A— — (20)(20)
Total real estate securities$1,670,439  $608,599  $144  $(21,224) $587,519  107   
(1)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. The ratings provided were determined by third-party rating agencies. The rates may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)As of June 30, 2023 and December 31, 2022, includes $9.0 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (“Dodd-Frank Act”) and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(3)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
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(4)As of June 30, 2023 and December 31, 2022, includes $0.4 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(5)GNMA interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s GNMA interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company has elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on securities in the consolidated statements of income.
(6)The Company’s investments in debt securities represents an ownership interest in unconsolidated VIEs. The Company’s maximum exposure to loss from these unconsolidated VIEs is the amortized cost basis of the securities which represents the purchase price of the investment adjusted by any unamortized premiums or discounts as of the reporting date.
(7)Based on the Company’s analysis, including review of interest rate changes and current levels of subordination, among other factors, the unrealized loss positions are determined to be due to market factors other than credit.
 
The following summarizes the carrying value of the Company’s debt securities by remaining maturity based upon expected cash flows at June 30, 2023 and December 31, 2022 ($ in thousands):
 
June 30, 2023
Asset TypeWithin 1 year1-5 years5-10 yearsAfter 10 yearsTotal
CMBS$227,715 $212,626 $— $— $440,341 
CMBS interest-only3,375 5,182 — — 8,557 
GNMA interest-only112 5 137 — 254 
Agency securities— 27 — — 27 
U.S. Treasury securities8,935 — — — 8,935 
Allowance for current expected credit losses— — — — (20)
Total securities (1)$240,137 $217,840 $137 $— $458,094 
(1)Excluded from the table above are $0.1 million of equity securities.
 
December 31, 2022
Asset TypeWithin 1 year1-5 years5-10 yearsAfter 10 yearsTotal
CMBS$346,272 $195,061 $— $— $541,333 
CMBS interest-only937 9,506 — — 10,443 
GNMA interest-only40 111 130 — 281 
Agency securities— 35 — — 35 
U.S. Treasury securities32,451 2,877 — — 35,328 
Allowance for current expected credit losses— — — — (20)
Total securities (1)$379,700 $207,590 $130 $— $587,400 
(1)Excluded from the table above are $0.1 million of equity securities.

During the three and six months ended June 30, 2023, the Company did not sell any equity securities. During the three and six months ended June 30, 2022, the Company sold $0.4 million and $0.5 million of equity securities, respectively.

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5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

The Company’s real estate assets were comprised of the following ($ in thousands):
June 30, 2023December 31, 2022
Land$158,802 $158,802 
Building627,149 625,655 
In-place leases and other intangibles114,690 114,687 
Undepreciated real estate and related lease intangibles900,641 899,144 
Less: Accumulated depreciation and amortization(213,940)(199,008)
Real estate and related lease intangibles, net(1)$686,701 $700,136 
Below market lease intangibles, net (other liabilities)(2)$(29,844)$(30,892)
(1)There was unencumbered real estate of $75.1 million and $140.3 million as of June 30, 2023 and December 31, 2022, respectively.
(2)Below market lease intangibles is net of $14.7 million and $13.6 million of accumulated amortization as of June 30, 2023 and December 31, 2022, respectively.

At June 30, 2023 and December 31, 2022, the Company held foreclosed properties included in real estate and related lease intangibles, net with carrying values of $100.6 million and $103.1 million, respectively.

The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Depreciation expense(1)$6,144 $5,997 $12,344 $13,085 
Amortization expense1,327 1,561 2,656 3,815 
Total real estate depreciation and amortization expense$7,471 $7,558 $15,000 $16,900 
(1)Depreciation expense on the consolidated statements of income also includes $0.1 million and $0.2 million of depreciation on corporate fixed assets for the three and six months ended June 30, 2023, respectively, and $8 thousand for the three and six months ended June 30, 2022.

The Company’s intangible assets are comprised of in-place leases, above market leases and other intangibles. The following tables present additional detail related to our intangible assets ($ in thousands):
 June 30, 2023December 31, 2022
Gross intangible assets(1)$114,690 $114,687 
Accumulated amortization52,524 49,725 
Net intangible assets$62,166 $64,962 
(1)Includes $2.7 million and $2.8 million of unamortized above market lease intangibles, which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

The following table presents increases/reductions in operating lease income related to the amortization of above or below market leases recorded by the Company ($ in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Reduction in operating lease income for amortization of above market lease intangibles acquired$(72)$(76)$(143)$(153)
Increase in operating lease income for amortization of below market lease intangibles acquired525 513 1,050 1,034 
Total$453 $437 $907 $881 

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The following table presents expected adjustment to operating lease income and expected amortization expense during the next five years and thereafter related to the above and below market leases and acquired in-place lease and other intangibles for property owned as of June 30, 2023 ($ in thousands):
Period Ending December 31,Increase/(Decrease) to Operating Lease IncomeAmortization Expense
2023 (last six months)$486 $2,265 
2024973 4,531 
2025973 4,391 
2026976 3,740 
2027976 3,554 
Thereafter22,758 40,985 
Total$27,142 $59,466 

Rent Receivables

There were $1.2 million and $1.3 million of rent receivables included in other assets on the consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

Operating Lease Income & Tenant Reimbursements

The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at June 30, 2023 ($ in thousands):
Period Ending December 31,Amount
2023 (last six months)$29,626 
202454,201 
202549,229 
202647,851 
202745,933 
Thereafter196,855 
Total$423,695 

Tenant reimbursements, which consist of real estate taxes and other municipal charges paid by the Company, which were reimbursable by our tenants pursuant to the terms of the lease agreements, were $1.0 million and $2.1 million for the three and six months ended June 30, 2023, respectively, and $0.9 million and $2.5 million for the three and six months ended June 30, 2022, respectively. Tenant reimbursements are included in operating lease income on the Company’s consolidated statements of income.
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Acquisitions

The Company did not have any acquisitions during the six months ended June 30, 2023 and acquired the following properties during the six months ended June 30, 2022 ($ in thousands):
Acquisition DateTypePrimary Location(s)Purchase Price/Fair Value on the Date of ForeclosureOwnership Interest (1)
February 2022(2)ApartmentsNew York, NY$15,436 100.0%
Total real estate acquisitions$15,436 
(1)Properties were consolidated as of acquisition date.
(2)In February 2022, the Company acquired, via change in control, a previously held interest in a non-controlling equity investment in a mixed use property with one remaining residential condo unit and one remaining retail condo unit in New York, New York. The carrying value of the property at the time of change in control was $15.4 million, which was determined to be fair value. The fair value of the remaining condo unit was determined based on comparable sales in the building and the value of the remaining retail unit was valued utilizing a direct capitalization rate of 5.5%. The key inputs used to determine fair value were determined to be Level 3 inputs.

The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the six months ended June 30, 2022, all acquisitions were determined to be asset acquisitions.

Sales

The Company did not have any sales during the six months ended June 30, 2023 and sold the following properties during the six months ended June 30, 2022 ($ in thousands):

Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)Properties
March 2022OfficeEwing, NJ$38,694 $24,175 $14,519 1 
March 2022WarehouseConyers, GA40,752 26,116 14,636 1 
June 2022ApartmentsStillwater, OK23,314 18,032 5,283 1 
June 2022ApartmentsMiami, FL60,856 37,585 23,270 1 
Totals(1)$163,616 $105,908 $57,708 
(1)Includes $3.7 million of defeasance costs upon repayment of the mortgage financing in connection with the sales that is recorded within interest expense on the consolidated statement of income, such amount was correspondingly paid by the buyer and received by the Company as part of the sale and recorded in fee and other income on the consolidated statement of income.
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6. DEBT OBLIGATIONS, NET

The details of the Company’s debt obligations at June 30, 2023 and December 31, 2022 are as follows ($ in thousands):
 
June 30, 2023
Debt ObligationsCommitted /
Principal Amount		Carrying Value of Debt Obligations Committed but UnfundedInterest Rate at June 30, 2023(1)Current Term MaturityRemaining Extension OptionsEligible CollateralCarrying Amount of CollateralFair Value of Collateral
Committed Loan Repurchase Facility$500,000 $318,983 $181,017 6.83%—7.33%9/27/2025(2)(3)$431,039 $430,724 
Committed Loan Repurchase Facility300,000 142,731 157,269 6.94%—8.09%12/19/2023(4)(5)222,604 219,033 
Committed Loan Repurchase Facility142,000 139,162 2,838 6.85%—7.35%4/30/2024(6)(3)64,557 64,557 
Committed Loan Repurchase Facility100,000 77,959 22,041 6.57%—7.07%1/2/2024(7)(3)103,706 103,706 
Committed Loan Repurchase Facility100,000 — 100,000 —%—%1/22/2024(8)(5)— — 
Committed Loan Repurchase Facility100,000 — 100,000 —%——%7/14/2023(9)(10)— — 
Total Committed Loan Repurchase Facilities1,242,000 678,835 563,165 821,906 818,020 
Committed Securities Repurchase Facility100,000 — 100,000 —%——%5/27/2024 N/A (11)— — 
Uncommitted Securities Repurchase Facility N/A (12) 6,126  N/A (12)5.83%—7.13%7/19/2023 N/A (11)7,502 7,502 (13)
Total Repurchase Facilities1,342,000 684,961 663,165 829,408 825,522 
Revolving Credit Facility323,850 — 323,850 —%——%7/27/2023(14) N/A (15) N/A (15)N/A (15)
Mortgage Loan Financing468,868 469,076 — 4.39%—8.84%2024-2031
(16)		 N/A (17)518,355 668,011 (18)
CLO Debt1,064,365 1,060,502 (19)— 6.39%—8.84%2024-2026
(20)		N/A(3)1,241,295 1,241,295 
Borrowings from the FHLB175,000 175,000 —  2.74% —5.54%2023-2024 N/A (21)206,716 206,716 (22)
Senior Unsecured Notes1,581,939 1,568,556 (23)— 4.25%—5.25%2025-2029 N/A  N/A (24)N/A (24)N/A (24)
Total Debt Obligations, Net$4,956,022 $3,958,095 $987,015 $2,795,774 $2,941,544 
(1)LIBOR and Term SOFR rates in effect as of June 30, 2023 are used to calculate interest rates for floating rate debt, as applicable.
(2)Two 12-month extension periods at Company’s option. No new advances are permitted after the initial maturity date.
(3)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(4)Two additional 364-day periods at Company’s option.
(5)First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(6)Three additional 12-month extension periods at Company’s option.
(7)One additional 12-month extension periods at Company’s option. No new advances are permitted.
(8)Two additional 12-month extension periods at Company's option. No new advances permitted during the final 12-month period.
(9)The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination.
(10)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
(11)Commercial real estate securities. It does not include the first mortgage commercial real estate loans collateralizing such securities.
(12)Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
(13)Includes $1.9 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(14)Four additional 12-month periods at Company’s option. Subsequent to quarter end, the Company exercised its initial option to extend for one year.
(15)The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
(16)Anticipated repayment dates.
(17)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(18)Using undepreciated carrying value of commercial real estate to approximate fair value.
(19)Presented net of unamortized debt issuance costs of $3.9 million at June 30, 2023.
(20)Represents the estimated maturity date based on the remaining reinvestment period and underlying loan maturities.
(21)Investment grade commercial real estate securities and U.S. Treasury securities. It does not include the first mortgage commercial real estate loans collateralizing such securities.
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(22)Includes $6.5 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(23)Presented net of unamortized debt issuance costs of $13.4 million at June 30, 2023.
(24)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

December 31, 2022
Debt ObligationsCommitted /
Principal Amount		Carrying Value of Debt Obligations Committed but UnfundedInterest Rate at December 31, 2022(1)Current Term MaturityRemaining Extension OptionsEligible CollateralCarrying Amount of CollateralFair Value of Collateral
Committed Loan Repurchase Facility(2)$500,000 $318,983 $181,017 6.07%—6.57%9/27/2025(2)(3)$428,477 $429,276 
Committed Loan Repurchase Facility100,000 — 100,000 —%——%2/26/2023(4)(5)— — 
Committed Loan Repurchase Facility300,000 157,558 142,442 6.19%—7.07%12/19/2023(6)(7)244,102 244,102 
Committed Loan Repurchase Facility100,000 47,415 52,585 6.00%—6.00%4/30/2024(8)(3)63,307 63,307 
Committed Loan Repurchase Facility100,000 77,959 22,041 5.74%—6.24%1/3/2023(2)(3)103,393 103,393 
Committed Loan Repurchase Facility100,000 — 100,000 —%—%1/22/2024(9)(7)— — 
Committed Loan Repurchase Facility100,000 14,979 85,021 7.07%—7.07%7/14/2023(10)(11)21,206 21,206 
Total Committed Loan Repurchase Facilities1,300,000 616,894 683,106 860,485 861,284 
Committed Securities Repurchase Facility(2)100,000 8,640 91,360 5.04%—5.29%5/27/2023N/A(12)10,023 10,023 
Uncommitted Securities Repurchase FacilityN/A (13)222,328 N/A (13)4.73%—6.00%3/2/2023N/A(12)247,351 247,351 (14)
Total Repurchase Facilities1,400,000 847,862 774,466 1,117,859 1,118,658 
Revolving Credit Facility323,850 — 323,850 —%——%7/27/2023(15)N/A (16)N/A (16)N/A (16)
Mortgage Loan Financing497,454 497,991 — 4.25%—8.03%2023 - 2031(17)N/A(18)559,885 710,977 (19)
CLO Debt1,064,365 1,058,462 (20)— 5.52%—7.97%2024 - 2026(21)N/A(3)1,308,654 1,308,654 
Borrowings from the FHLB213,000 213,000 — 2.74%—4.70%2023 - 2024N/A(22)248,806 248,806 (23)
Senior Unsecured Notes1,643,794 1,628,382 (24)— 4.25%—5.25%2025 - 2029N/AN/A (25)N/A (25)N/A (25)
Total Debt Obligations, Net$5,142,463 $4,245,697 $1,098,316 $3,235,204 $3,387,095 
(1)LIBOR and Term SOFR rates in effect as of December 31, 2022 are used to calculate interest rates for floating rate debt, as applicable.
(2)Two 12-month extension periods at Company’s option. No new advances are permitted after the initial maturity date.
(3)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(4)One additional 12-month period at Company’s option.
(5)First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
(6)Two additional 364-day periods at Company’s option.
(7)First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(8)Three additional 12-month extension periods at Company’s option.
(9)Two additional 12-month extension periods at Company's option. No new advances are permitted during the final 12-month period.
(10)The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination.
(11)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
(12)Commercial real estate securities. It does not include the first mortgage commercial real estate loans collateralizing such securities.
(13)Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
(14)Includes $2.0 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(15)Four additional 12-month periods at Company’s option.
(16)The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
(17)Anticipated repayment dates.
(18)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(19)Using undepreciated carrying value of commercial real estate to approximate fair value.
(20)Presented net of unamortized debt issuance costs of $5.9 million at December 31, 2022.
(21)Represents the estimated maturity date based on the remaining reinvestment period and underlying loan maturities.
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(22)Investment grade commercial real estate securities. It does not include the first mortgage commercial real estate loans collateralizing such securities.
(23)Includes $6.6 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(24)Presented net of unamortized debt issuance costs of $15.4 million at December 31, 2022.
(25)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

Committed Loan and Securities Repurchase Facilities

The Company has entered into six committed master repurchase agreements, as outlined in the June 30, 2023 table above, totaling $1.2 billion of credit capacity in order to finance its lending activities. Assets pledged as collateral under these facilities are limited to whole mortgage loans or participation interests in mortgage loans collateralized by first liens on commercial properties and mezzanine debt. The Company also has a term master repurchase agreement with a major U.S. bank to finance CMBS totaling $100 million. The Company’s repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, maximum leverage ratios, and minimum fixed charge coverage ratios. The Company was in compliance with all covenants as of June 30, 2023 and December 31, 2022.

The Company has the option to extend some of the current facilities subject to a number of conditions, including satisfaction of certain notice requirements, the absence of an event of default, and the absence of a margin deficit, all as defined in the repurchase facility agreements. The lenders have sole discretion with respect to the inclusion of collateral in these facilities and the determination of the market value of the collateral on a daily basis, to be exercised on a good faith basis, and have the right in certain cases to require additional collateral, a full and/or partial repayment of the facilities (margin call), or a reduction in unused availability under the facilities, sufficient to rebalance the facilities if the estimated market value of the included collateral declines.

As of June 30, 2023, the Company had total debt obligations of $685.0 million outstanding pursuant to repurchase agreements with six counterparties. As of June 30, 2023 no counterparties held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $153.2 million, or 10% of our total equity. As of June 30, 2023, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 17%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.

Revolving Credit Facility

The Company’s Revolving Credit Facility provides for an aggregate maximum borrowing amount of $323.9 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On July 27, 2022, the Company amended its Revolving Credit Facility to increase the maximum borrowing amount to $323.9 million, extend the final maturity date to July 27, 2027, and reduce the interest rate to the sum of one-month Term SOFR plus a fixed margin of 2.50%. The amendment also provides for reductions in the fixed margin upon the achievement of investment grade credit ratings. As of June 30, 2023, the Company had no outstanding borrowings on the Revolving Credit Facility, but still maintains the ability to draw $323.9 million. After the end of the quarter, the Company exercised one of the four remaining one-year extension options, which extended the maturity date of the Revolving Credit Facility to July 27, 2024.

The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
 
The Company is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions. In addition, the Company is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. The Company’s ability to borrow is dependent on, among other things, compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.

Debt Issuance Costs

As of June 30, 2023 and December 31, 2022, the amounts of unamortized costs relating to our master repurchase facilities and Revolving Credit Facility were $4.2 million and $5.0 million, respectively, and are included in other assets in the consolidated balance sheets.
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Uncommitted Securities Repurchase Facilities
 
The Company has also entered into multiple uncommitted master repurchase agreements collateralized by real estate securities with several counterparties. The borrowings under these agreements have typical advance rates between 75% and 95% of the fair value of collateral, which is primarily AAA-rated securities.

Mortgage Loan Financing
 
These non-recourse debt agreements provide for secured financing at rates ranging from 4.39% to 8.84%, and, as of June 30, 2023, have anticipated maturity dates between 2024-2031, with an average term of 3.24 years. These mortgage loans have carrying amounts of $469.1 million and $498.0 million, net of unamortized premiums of $2.1 million and $2.4 million as of June 30, 2023 and December 31, 2022, respectively, representing proceeds received upon financing greater than the contractual amounts due under these agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. The Company recorded $0.3 million and $0.3 million of premium amortization, which decreased interest expense for the six months ended June 30, 2023 and 2022, respectively. The mortgage loans are collateralized by real estate and related lease intangibles, net, of $518.4 million and $559.9 million as of June 30, 2023 and December 31, 2022, respectively. During each of the six months ended June 30, 2023 and June 30, 2022, the Company did not execute any new term debt agreements to finance properties in its real estate portfolio.

Collateralized Loan Obligations (“CLO”) Debt

On July 13, 2021, a consolidated subsidiary of the Company completed a privately-marketed CLO transaction, which generated $498.2 million of gross proceeds to Ladder, financing $607.5 million of loans (“Contributed July 2021 CLO Loans”) at an 82% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 18% subordinate and controlling interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the Contributed July 2021 CLO Loans, including the right to appoint and replace the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidated the VIE - Refer to Note 9, Consolidated Variable Interest Entities.

On December 2, 2021, a consolidated subsidiary of the Company completed a privately marketed CLO transaction, which generated $566.2 million of gross proceeds to Ladder, financing $729.4 million of loans (“Contributed December 2021 CLO Loans”) at a maximum 77.6% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 15.6% subordinate and controlling interest in the CLO. The Company also held two additional tranches as investments totaling 6.8% interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the Contributed December 2021 CLO Loans, including the right to appoint and replace the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidated the VIE - Refer to Note 9, Consolidated Variable Interest Entities.

As of June 30, 2023, the Company had $1.1 billion of matched term, non-mark-to-market and non-recourse CLO debt included in debt obligations on its consolidated balance sheets, which includes unamortized debt issuance costs of $3.9 million.

Borrowings from the Federal Home Loan Bank (“FHLB”)

On July 11, 2012, Tuebor, a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. As of February 19, 2021, pursuant to a final rule adopted by the Federal Housing Finance Agency (the “FHFA”) regarding the eligibility of captive insurance companies, Tuebor’s membership in the FHLB has been terminated, although outstanding advances may remain outstanding until their scheduled maturity dates. Funding for future advance paydowns is expected to be obtained from the natural amortization and/or sales of securities collateral, or from other financing sources. There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s existing advances. 

As of June 30, 2023, Tuebor had $175.0 million of borrowings outstanding, with terms of 0.2 years to 1.25 (with a weighted average of 0.89), and interest rates of 2.74% to 5.54% (with a weighted average of 5.34%). As of June 30, 2023, collateral for the borrowings was comprised of $206.7 million of CMBS and U.S. Agency securities (with advance rates of 71.7% to 95.7%).

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Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, approximately $855.4 million of Tuebor’s member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at June 30, 2023. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

Senior Unsecured Notes
As of June 30, 2023, the Company had $1.6 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of $327.8 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”), $612.4 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes”) and $641.7 million in aggregate principal of 4.75% senior notes due 2029 (the “2029 Notes,” collectively with the 2025 Notes and the 2027 Notes, the “Notes”).

During the three months ended June 30, 2023, the Company repurchased $2.0 million of the 2027 Notes and recognized a net gain of $0.3 million on extinguishment of debt, and repurchased $1.1 million of the 2029 Notes and recognized a net gain of $0.2 million on extinguishment of debt.

During the six months ended June 30, 2023, the Company repurchased $16.2 million of the 2025 Notes and recognized a net gain of $1.3 million on extinguishment of debt, repurchased $38.4 million of the 2027 Notes and recognized a net gain of $6.7 million on extinguishment of debt, and repurchased $7.3 million of the 2029 Notes and recognized a net gain of $1.6 million on extinguishment of debt.

LCFH issued the Notes with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company was in compliance with all covenants of the Notes as of June 30, 2023 and 2022.

The Notes require interest payments semi-annually in cash in arrears, are unsecured, and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the Notes prior to their stated maturity, in whole or in part, at any time or from time to time, with required notice and at a redemption price as specified in each respective indenture governing the Notes, plus accrued and unpaid interest, if any, to the redemption date. The board of the directors has authorized the Company to repurchase any or all of the Notes from time to time without further approval.



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Combined Maturity of Debt Obligations

The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands): 
Period ending December 31,Borrowings by
Maturity(1)
2023 (last six months)$16,648 
2024468,611 
2025725,989 
202689,161 
2027898,742 
Thereafter711,616 
Subtotal2,910,767 
Debt issuance costs included in senior unsecured notes(13,383)
Debt issuance costs included in mortgage loan financings(1,912)
Premiums included in mortgage loan financings(2)2,120 
Total (3)$2,897,592 
(1)The allocation of repayments under our committed loan repurchase facilities is based on the earlier of: (i) the maturity date of each agreement; or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower.
(2)Represents deferred gains on intercompany mortgage loans, secured by our own real estate, sold into securitizations. These premiums are amortized as a reduction to interest expense.
(3)Total does not include $1.1 billion of consolidated CLO debt obligations and the related debt issuance costs of $3.9 million, as the satisfaction of these liabilities will be paid through cash flow from loan collateral including amortization and will not require cash outlays from us.

Financial Covenants

The Company’s debt facilities are subject to covenants that require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately $871.4 million of the total equity is restricted from payment as a dividend by the Company at June 30, 2023.

The Company was in compliance with all covenants as of June 30, 2023.

LIBOR Transition

We have implemented fallback language for our LIBOR-based mortgage loans, bi-lateral committed repurchase facilities and revolving credit facility, including adjustments as applicable to maintain the anticipated economic terms of the existing contracts. As of June 30, 2023, 91.7% of our floating rate debt obligations bear interest indexed to Term SOFR. Our remaining LIBOR-based debt obligations will transition to a rate based on SOFR on their next reset dates.




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7. DERIVATIVE INSTRUMENTS
 
The Company primarily uses derivative instruments to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of June 30, 2023 and December 31, 2022 ($ in thousands):
 
June 30, 2023
  Fair ValueRemaining
Maturity
(years)
Contract TypeNotionalAsset(1)Liability(1)
Caps    
1 Month Term SOFR$90,000 $1,815 $— 1.3
Futures    
5-year Treasury-Note Futures31,000 5 — 0.25
10-year Treasury-Note Futures54,200 9 — 0.25
Total futures85,200 14 —  
Options    
OptionsN/A(2)24 — 0.31
Total derivatives$175,200 $1,853 $—  
(1)Shown as derivative instruments in the accompanying consolidated balance sheets.
(2)The Company held 167 options contracts as of June 30, 2023.

December 31, 2022
  Fair ValueRemaining
Maturity
(years)
Contract TypeNotionalAsset(1)Liability(1)
Caps    
1 Month Term SOFR$90,000 $1,804 $— 1.68
Futures    
5-year Treasury-Note Futures44,200 51 — 0.25
10-year Treasury-Note Futures61,400 71 — 0.25
Total futures105,600 122 —  
Options    
OptionsN/A(2)112 — 0.20
Total derivatives$195,600 $2,038 $—  
(1)Shown as derivative instruments in the accompanying consolidated balance sheets.
(2)The Company held 91 options contracts as of December 31, 2022.
 
The following table summarizes the net realized gains (losses) and unrealized gains (losses) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of income for the three and six months ended June 30, 2023 and 2022 ($ in thousands):
 Three Months Ended June 30, 2023Six Months Ended June 30, 2023
Contract TypeUnrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions		Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions
Caps$344 $347 $691 $10 $584 $594 
Futures64 3,444 3,508 (107)1,583 1,476 
Options(25)(25)(50)106 (269)(163)
Total$383 $3,766 $4,149 $9 $1,898 $1,907 
 
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 Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Contract TypeUnrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions		Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions
Caps$(6)$649 $643 $(11)$648 $637 
Futures(460)2,496 2,036 (622)5,799 5,177 
Total$(466)$3,145 $2,679 $(633)$6,447 $5,814 

Futures

Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a futures commission merchant. Interest rate futures that are governed by an International Swaps and Derivatives Association (“ISDA”) agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.

The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures. The Company’s counterparties held $2.1 million and $2.5 million of cash margin as collateral for derivatives as of June 30, 2023 and December 31, 2022, respectively, which is included in restricted cash in the consolidated balance sheets.

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8. OFFSETTING ASSETS AND LIABILITIES
 
The following tables present both gross information and net information about derivatives and other instruments eligible for offset in the statement of financial position as of June 30, 2023 and December 31, 2022. The Company’s accounting policy is to record derivative asset and liability positions on a gross basis; therefore, the following tables present the gross derivative asset and liability positions recorded on the balance sheets, while also disclosing the eligible amounts of financial instruments and cash collateral to the extent those amounts could offset the gross amount of derivative asset and liability positions. The actual amounts of collateral posted by or received from counterparties may be in excess of the amounts disclosed in the following tables as the following only disclose amounts eligible to be offset to the extent of the recorded gross derivative positions.

The following table represents offsetting of financial assets and derivative assets as of June 30, 2023 ($ in thousands): 
DescriptionGross amounts of
recognized assets		Gross amounts
offset in the
balance sheet		Net amounts of
assets presented
in the balance
sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments		Cash collateral
received/(posted)(1)
Derivatives$1,853 $— $1,853 $— $(2,114)$(262)
Total$1,853 $— $1,853 $— $(2,114)$(262)
(1)Included in restricted cash on consolidated balance sheets.

The following table represents offsetting of financial liabilities and derivative liabilities as of June 30, 2023 ($ in thousands): 
DescriptionGross amounts of
recognized
liabilities		Gross amounts
offset in the
balance sheet		Net amounts of
liabilities
presented in the
balance sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments
collateral		Cash collateral
posted/(received)(1)
Repurchase agreements$684,960 $— $684,960 $684,960 $— $684,960 
Total$684,960 $— $684,960 $684,960 $— $684,960 
(1)Included in restricted cash on consolidated balance sheets.

The following table represents offsetting of financial assets and derivative assets as of December 31, 2022 ($ in thousands):
DescriptionGross amounts of
recognized assets		Gross amounts
offset in the
balance sheet		Net amounts of
assets presented
in the balance
sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments		Cash collateral
received/(posted)(1)
Derivatives$2,038 $— $2,038 $— $(2,505)$(467)
Total$2,038 $— $2,038 $— $(2,505)$(467)
(1)Included in restricted cash on consolidated balance sheets.

The following table represents offsetting of financial liabilities and derivative liabilities as of December 31, 2022 ($ in thousands):
DescriptionGross amounts of
recognized
liabilities		Gross amounts
offset in the
balance sheet		Net amounts of
liabilities
presented in the
balance sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments
collateral		Cash collateral
posted/(received)(1)
Repurchase agreements$847,863 $— $847,863 $847,863 $19,128 $828,735 
Total$847,863 $— $847,863 $847,863 $19,128 $828,735 
(1)Included in restricted cash on consolidated balance sheets.

Master netting agreements that the Company has entered into with its derivative and repurchase agreement counterparties allow for netting of the same transaction, in the same currency, on the same date. Assets, liabilities, and collateral subject to master netting agreements as of June 30, 2023 and December 31, 2022 are disclosed in the tables above. The Company does not present its derivative and repurchase agreements net on the consolidated financial statements as it has elected gross presentation. 
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9. CONSOLIDATED VARIABLE INTEREST ENTITIES

The Company consolidates on its balance sheet two CLOs that are considered VIEs as of June 30, 2023 and December 31, 2022 ($ in thousands):

June 30, 2023December 31, 2022
Restricted cash$69,197 $4,902 
Mortgage loan receivables held for investment, net, at amortized cost1,241,295 1,308,654 
Accrued interest receivable8,400 8,313 
Other assets23,582 17,505 
Total assets$1,342,474 $1,339,374 
Debt obligations, net$1,060,502 $1,058,462 
Accrued expenses3,285 3,029 
Other liabilities64 65 
Total liabilities1,063,851 1,061,556 
Net equity in VIEs (eliminated in consolidation)278,623 277,818 
Total equity278,623 277,818 
Total liabilities and equity$1,342,474 $1,339,374 

Refer to Note 6, Debt Obligations, Net - Collateralized Loan Obligations (“CLO”) Debt for further details.
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10. EQUITY STRUCTURE AND ACCOUNTS

Stock Repurchases

On July 27, 2022, the board of directors authorized the repurchase of $50.0 million of the Company’s Class A common stock from time to time without further approval. This authorization increased the remaining outstanding authorization per the August 4, 2021 authorization from $39.5 million to $50.0 million. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. As of June 30, 2023, the Company has a remaining amount available for repurchase of $44.5 million, which represents 3.2% in the aggregate of its outstanding Class A common stock, based on the closing price of $10.85 per share on such date.

The following tables summarize the Company’s repurchase activity of its Class A common stock during the six months ended June 30, 2023 and 2022 ($ in thousands):
SharesAmount(1)
Authorizations remaining as of December 31, 2022$46,737 
Repurchases paid:
March 1, 2023 - March 31, 2023 250,000 (2,285)
Authorizations remaining as of June 30, 2023$44,452 
(1)Amount excludes commissions paid associated with share repurchases.
SharesAmount(1)
Authorizations remaining as of December 31, 2021$44,122 
Repurchases paid455,000 (4,655)
Authorizations remaining as of June 30, 2022$39,467 
(1)Amount excludes commissions paid associated with share repurchases.

Dividends

The following table presents dividends declared (on a per share basis) of Class A common stock for the six months ended June 30, 2023 and 2022:
Declaration DateDividend per Share
March 15, 2023$0.23 
June 15, 20230.23 
Total$0.46 
March 15, 2022$0.20 
June 15, 20220.22 
Total$0.42 

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Changes in Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income related to the cumulative difference between the fair market value and the amortized cost basis of securities classified as available for sale for the six months ended June 30, 2023 and 2022 ($ in thousands):
Accumulated Other Comprehensive Income (Loss)
December 31, 2022$(21,009)
Other comprehensive income (loss)4,485 
June 30, 2023$(16,524)
Accumulated Other Comprehensive Income (Loss)
December 31, 2021$(4,112)
Other comprehensive income (loss)(13,743)
June 30, 2022$(17,855)


11. NONCONTROLLING INTERESTS

Noncontrolling Interests in Consolidated Ventures

As of June 30, 2023, the Company consolidates two ventures and in each, there are different noncontrolling investors, which own between 10.0% - 25.0% of such ventures. These ventures hold investments in a 40-building student housing portfolio in Isla Vista, CA with a book value of $79.2 million, and a single-tenant office building in Oakland County, MI with a book value of $8.6 million. The Company makes distributions and allocates income from these ventures to the noncontrolling interests in accordance with the terms of the respective governing agreements.

Sales

During the six months ended June 30, 2023, there were no sales of assets with noncontrolling interests. During the six months ended June 30, 2022, the Company sold two consolidated ventures: (i) an apartment complex in Stillwater, OK; and (ii) an apartment complex in Miami, FL. Refer to Note 5, Real Estate and Related Lease Intangibles, Net for further details.

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12. EARNINGS PER SHARE
 
The Company’s net income (loss) and weighted average shares outstanding for the three and six months ended June 30, 2023 and 2022 consist of the following:
Three Months Ended June 30,Six Months Ended June 30,
($ in thousands except share amounts)2023202220232022
Basic and Diluted Net income (loss) available for Class A common shareholders$28,163 $35,048 $50,569 $54,080 
Weighted average shares outstanding:    
Basic124,731,195 124,593,171 124,612,821 124,452,339 
Diluted124,827,596 125,265,707 124,742,506 125,738,758 
 
The calculation of basic and diluted net income (loss) per share amounts for the three and six months ended June 30, 2023 and 2022 consist of the following:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands except share and per share amounts) (1)2023202220232022
Basic Net Income (Loss) Per Share of Class A Common Stock    
Numerator:
    
Net income (loss) attributable to Class A common shareholders$28,163 $35,048 $50,569 $54,080 
Denominator:
    
Weighted average number of shares of Class A common stock outstanding124,731,195 124,593,171 124,612,821 124,452,339 
Basic net income (loss) per share of Class A common stock$0.23 $0.28 $0.41 $0.43 
Diluted Net Income (Loss) Per Share of Class A Common Stock  
Numerator:  
Net income (loss) attributable to Class A common shareholders$28,163 $35,048 $50,569 $54,080 
Diluted net income (loss) attributable to Class A common shareholders28,163 35,048 50,569 54,080 
Denominator:  
Basic weighted average number of shares of Class A common stock outstanding124,731,195 124,593,171 124,612,821 124,452,339 
Add - dilutive effect of:    
Incremental shares of unvested Class A restricted stock(1)96,401 672,536 129,685 1,286,419 
Diluted weighted average number of shares of Class A common stock outstanding (2)124,827,596 125,265,707 124,742,506 125,738,758 
Diluted net income (loss) per share of Class A common stock$0.23 $0.28 $0.41 $0.43 
(1)The Company is using the treasury stock method.
(2)There were 628,240 and 509,276 anti-dilutive shares for the three and six months ended June 30, 2023.



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13. STOCK-BASED AND OTHER COMPENSATION PLANS
 
Summary of Stock and Shares Unvested/Outstanding

The following table summarizes the impact on the consolidated statements of income of the various stock-based compensation plans and other compensation plans ($ in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Stock-based compensation expense$3,046 $3,637 $12,170 $24,049 
Total Stock-Based Compensation Expense$3,046 $3,637 $12,170 $24,049 

A summary of the grants is presented below:
 Three Months Ended June 30,Six Months Ended June 30,
 2023202220232022
Number
of Shares/Options		Weighted
Average
Fair Value
Per Share		Number
of Shares		Weighted
Average
Fair Value
Per Share		Number
of Shares		Weighted
Average
Fair Value
Per Share		Number
of Shares		Weighted
Average
Fair Value
Per Share
Grants - Class A Common Stock— $— 33,784 $11.10 1,417,561 $11.58 2,877,124 $11.88 

The table below presents the number of unvested shares of Class A common stock and outstanding stock options at June 30, 2023 and changes during 2023 of the Class A common stock and stock options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
Restricted StockWeighted Average Grant Date Fair ValueStock Options
Nonvested/Outstanding at December 31, 20222,529,571 $12.62 623,788 
Granted1,417,561 11.58 — 
Vested(1,697,349)12.14 — 
Forfeited(49,425)10.43 — 
Nonvested/Outstanding at June 30, 20232,200,358 $12.37 623,788 
Exercisable at June 30, 2023 (1)623,788 
(1)The weighted average exercise price of outstanding options is $14.84 at June 30, 2023.

At June 30, 2023, there was $15.9 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 32.1 months, with a weighted average remaining vesting period of 24.0 months.

2014 Omnibus Incentive Plan
 
In connection with the IPO Transactions, the 2014 Ladder Capital Corp Omnibus Incentive Equity Plan (the “2014 Omnibus Incentive Plan”) was adopted by the board of directors on February 11, 2014, and provided certain members of management, employees and directors of the Company or its affiliates with additional incentives including grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards.

2023 Omnibus Incentive Plan

At the Company’s Annual Meeting held on June 6, 2023, the stockholders of the Company approved the Ladder Capital Corp 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”), effective as of the date of the Annual Meeting (the “Effective Date”). The 2023 Omnibus Incentive Plan superseded and replaced the 2014 Omnibus Incentive Plan in its entirety as of the Effective Date.

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The aggregate number of shares of the Company’s Class A common stock that will be available for issuance to employees, non-employee directors and consultants of the Company and its affiliates under the 2023 Omnibus Incentive Plan will not exceed 3,000,000 shares of Class A common stock, plus an additional amount, not to exceed 10,253,867 shares of Class A common stock, remaining available for new awards under the 2014 Omnibus Incentive Plan as of the Effective Date, subject to the terms and conditions set forth in the 2023 Omnibus Incentive Plan.

The material terms of the 2023 Omnibus Incentive Plan are summarized in the Company’s definitive proxy statement on Schedule 14A, filed with the SEC on April 21, 2023 (the “Proxy Statement”), under the heading “Proposal 3—Approval of the Ladder Capital Corp 2023 Omnibus Incentive Plan.” The summary of the 2023 Omnibus Incentive Plan in the Proxy Statement is qualified in its entirety by reference to the full text of the 2023 Omnibus Incentive Plan, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 7, 2023.

Annual Incentive Awards Granted in 2023 with respect to 2022 Performance

For 2022 performance, certain employees received stock-based incentive equity in February 2023. Restricted stock subject to time-based vesting criteria will vest in three installments on February 18 of each of 2024, 2025 and 2026, subject to continued employment on the applicable vesting dates. The Company has elected to recognize the compensation expense related to the time-based vesting of the annual restricted stock awards for the entire award on a straight-line basis over the requisite service period for the entire award. Restricted stock subject to performance criteria is eligible to vest in three equal installments upon the compensation committee’s confirmation that the Company achieves a pre-tax return on average equity, based on distributable earnings divided by the Company’s average shareholders’ equity, equal to or greater than 8% for such year (the “Performance Target”) for the years ended December 31, 2023, 2024 and 2025, respectively. If the Company misses the Performance Target during either the first or second calendar year but meets the Performance Target for a subsequent year during the three-year performance period and the Company’s return on equity for such subsequent year and any years for which it missed its Performance Target equals or exceeds the compounded pre-tax return on average equity of 8% based on distributable earnings divided by the Company’s average shareholders’ equity, the performance-vesting restricted stock which failed to vest because the Company previously missed its Performance Target will vest subject to continued employment on the applicable vesting date (the “Catch-Up Provision”). Approximately 2/3 of all the shares subject to attainment of the Performance Target are also subject to the Catch-Up Provision, as the Catch-Up Provision is not available for the missed performance during the third performance year and has the effect of requiring the Company to achieve an average 8% return over the full three-year performance plan in order to be effective. Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved. The probability of meeting the performance outcome is assessed quarterly.

On February 18, 2023, in connection with 2022 performance, annual stock awards were granted to management employees (each, a “Management Grantee”), with an aggregate grant date fair value of $8.5 million, which represents 733,607 shares of Class A common stock. The grant to Mr. Harris and approximately half of the grants to each of Ms. McCormack and Mr. Perelman were unrestricted. The other half of incentive equity granted to each of Ms. McCormack and Mr. Perelman is restricted stock subject to attainment of the Performance Target for the applicable years and is also subject to the Catch-Up Provision described above. For the grants to Mr. Miceli and Ms. Porcella (a total of 101,344 shares with an aggregate fair value of $1.2 million), approximately half of the awards are subject to time-based vesting criteria and the remaining half are subject to attainment of the Performance Target for the applicable years.

On February 18, 2023, in connection with 2022 performance, annual stock awards were granted to certain non-management employees (“Non-Management Grantees”) with an aggregate grant date fair value of $7.5 million, which represents 651,429 shares of Class A common stock. Of these awards, 19,558 shares were unrestricted, 306,162 shares are subject to time-based vesting criteria and the remaining 325,709 shares are subject to the attainment of the Performance Target, including the Catch-Up Provision, for the applicable years.

Other 2023 Restricted Stock Awards

On February 18, 2023, certain members of the board of directors received annual restricted stock awards with a grant date fair value of $0.4 million, representing 32,525 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one-year vesting period.

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Annual Incentive Awards Granted in 2022 with respect to 2021 Performance

For 2021 performance, certain employees received stock-based incentive equity in January 2022. Restricted stock subject to time-based vesting criteria will vest in three installments on February 18 of each of 2023, 2024 and 2025, subject to continued employment on the applicable vesting dates. The Company has elected to recognize the compensation expense related to the time-based vesting of the annual restricted stock awards for the entire award on a straight-line basis over the requisite service period for the entire award. Restricted stock subject to performance criteria is eligible to vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2022, 2023 and 2024, respectively. Approximately 2/3 of all the shares subject to attainment of the Performance Target are also subject to the Catch-Up Provision. Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved. The probability of meeting the performance outcome is assessed quarterly.

On January 31, 2022, in connection with 2021 performance, annual stock awards were granted to management employees (each, a “Management Grantee”), with an aggregate grant date fair value of $18 million, which represents 1,517,627 shares of Class A common stock. The grant to Mr. Harris and approximately 2/3 of the grants to each of Ms. McCormack and Mr. Perelman were unrestricted. The other 1/3 of incentive equity granted to each of Ms. McCormack and Mr. Perelman is restricted stock subject to attainment of the Performance Target for the applicable years and is also subject to the Catch-Up Provision described above. For the grants to Mr. Miceli and Ms. Porcella (a total of 210,662 shares with an aggregate fair value of $2.5 million), approximately 1/3 of the awards were unrestricted, with another 1/3 of the awards subject to time-based vesting criteria, and the remaining 1/3 subject to attainment of the Performance Target for the applicable years.

On January 31, 2022, in connection with 2021 performance, annual stock awards were granted to certain non-management employees (“Non-Management Grantees”) with an aggregate grant date fair value of $15.4 million, which represents 1,293,853 shares of Class A common stock. Of these awards, 264,704 shares were unrestricted, 497,169 shares are subject to time-based vesting criteria, and the remaining 531,980 shares are subject to attainment of the Performance Target, including the Catch-Up Provision, for the applicable years.

Other Incentive Awards Granted in 2022

On May 10, 2022, a new employee of the Company received a restricted stock award with a grant date fair value of $0.4 million, representing 33,784 shares of restricted Class A common stock. Fifty percent of the restricted stock award is subject to time-based vesting criteria, and the remaining 50% of the restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in three installments on February 18 of each of 2023, 2024 and 2025, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in three equal installments upon the Compensation Committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2022, 2023 and 2024, respectively. The Catch-Up Provision applies to the performance vesting portion of this award, provided that a termination has not occurred. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards on a straight-line basis over the requisite service period.

Other 2022 Restricted Stock Awards

On February 18, 2022, certain members of the board of directors received annual restricted stock awards with a grant date fair value of $0.4 million, representing 31,860 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one-year vesting period.

Change in Control

Upon a change in control (as defined in the respective award agreements), restricted stock awards to Mr. Miceli, Ms. McCormack, Mr. Perelman, and one Non-Management Grantee will become fully vested if: (1) such Grantee continues to be employed through the closing of the change in control; or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, such Grantee’s employment is terminated without cause or due to death or disability or the Grantee resigns for Good Reason, as defined in each Grantee’s employment agreement. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock awards granted.

In the event Ms. Porcella or a Non-Management Grantee, except for the one mentioned above, is terminated by the Company without cause within six months of certain changes in control, all unvested time shares shall vest on the termination date and all unvested performance shares shall remain outstanding and be eligible to vest (or be forfeited) in accordance with the performance conditions.
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14. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Fair value is based upon internal models, using market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.
 
Fair Value Summary Table
 
The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at June 30, 2023 and December 31, 2022 are as follows ($ in thousands):
 
June 30, 2023
      Weighted Average
 Principal Amount Amortized Cost Basis/Purchase PriceFair ValueFair Value MethodYield
%		Remaining
Maturity/Duration (years)
Assets:       
CMBS(1)$457,491  $457,043 $440,341 Internal model, third-party inputs6.25 %1.40
CMBS interest-only(1)893,846 (2)8,546 8,557 Internal model, third-party inputs6.73 %1.28
GNMA interest-only(3)44,506 (2)247 254 Internal model, third-party inputs5.69 %3.57
Agency securities(1)28  28 27 Internal model, third-party inputs2.70 %1.30
U.S. Treasury securities(1)9,000 8,935 8,935 Internal model, third-party inputs3.56 %0.15
Equity securities(3) N/A 160 129 Observable market pricesN/A N/A
Mortgage loan receivables held for investment, net, at amortized cost(4)3,512,850  3,501,235 3,459,089 Discounted Cash Flow(5)9.56 %0.95
Mortgage loan receivables held for sale31,350  26,901 26,901 Internal model, third-party inputs(6)4.57 %8.69
FHLB stock(7)7,875  7,875 7,875 (7)6.75 % N/A
Nonhedge derivatives(1)(10)175,200  1,853 1,853 Counterparty quotationsN/A1.27
Liabilities:       
Repurchase agreements - short-term365,977  365,977 365,977 Cost plus Accrued Interest (8)6.49 %0.29
Repurchase agreements - long-term318,983  318,983 318,983 Discounted Cash Flow(9)6.09 %2.25
Mortgage loan financing468,868  469,076 447,307 Discounted Cash Flow5.74 %3.06
CLO debt1,064,365 1,060,502 1,060,502 Discounted Cash Flow(9)7.28 %2.39
Borrowings from the FHLB175,000  175,000 174,959 Discounted Cash Flow2.26 %0.89
Senior unsecured notes1,581,939  1,568,556 1,364,823 Internal model, third-party inputs4.66 %4.28
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Balance does not include impact of allowance for current expected credit losses of $32.2 million at June 30, 2023.
(5)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)For repurchase agreements - short term, the value approximates the cost plus accrued interest.
(9)For repurchase agreements - long term and CLO debt, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(10)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.






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December 31, 2022
      Weighted Average
 Principal Amount Amortized Cost Basis/Purchase PriceFair ValueFair Value MethodYield
%		Remaining
Maturity/Duration (years)
Assets:       
CMBS(1)$562,839 $562,246 $541,333 Internal model, third-party inputs5.32 %1.06
CMBS interest-only(1)1,026,195 (2)10,498 10,443 Internal model, third-party inputs3.65 %1.45
GNMA interest-only(3)45,369 (2)285 281 Internal model, third-party inputs4.23 %3.30
Agency securities(1)36 36 35 Internal model, third-party inputs2.70 %1.54
U.S. Treasury securities(1)36,000 35,328 35,328 Internal model, third-party inputs4.17 %0.60
Equity securities(3)N/A160 118 Observable market pricesN/AN/A
Mortgage loan receivables held for investment, net, at amortized cost(4)3,907,295 3,885,746 3,875,708 Discounted Cash Flow(5)8.85 %1.26
Mortgage loan receivables held for sale31,350 27,391 27,391 Internal model, third-party inputs(6)4.57 %9.19
FHLB stock(7)9,585 9,585 9,585 (7)4.75 %N/A
Nonhedge derivatives(1)(10)204,700 2,038 2,038 Counterparty quotationsN/A1.52
Liabilities:       
Repurchase agreements - short-term481,465 481,465 481,465 Cost plus Accrued Interest (8)4.04 %0.37
Repurchase agreements - long-term366,398 366,398 366,398 Discounted Cash Flow(9)4.06 %2.56
Mortgage loan financing497,454 497,991 477,101 Discounted Cash Flow5.51 %3.36
CLO debt1,064,365 1,058,462 1,058,462 Discounted Cash Flow(9)6.35 %15.92
Borrowings from the FHLB213,000 213,000 213,055 Discounted Cash Flow1.61 %1.25
Senior unsecured notes1,643,794 1,628,382 1,397,977 Internal model, third-party inputs4.66 %4.75
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Balance does not include impact of allowance for current expected credit losses of $20.8 million at December 31, 2022.
(5)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(9)Fair value for repurchase agreement liabilities - short term borrowings under the Secured Financing Facility and borrowings under the Revolving Credit Facility is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(10)For repurchase agreements - long term and CLO debt, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(11)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.

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The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at June 30, 2023 and December 31, 2022 ($ in thousands):
 
June 30, 2023
 
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial ConditionPrincipal
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:      
CMBS(1)$448,142  $— $— $431,349 $431,349 
CMBS interest-only(1)885,452 (2)— — 8,195 8,195 
GNMA interest-only(3)44,506 (2)— — 254 254 
Agency securities(1)28  — — 27 27 
U.S. Treasury securities9,000 8,935 — — 8,935 
Equity securities N/A 129 — — 129 
Nonhedge derivatives(4)175,200 — 1,853 — 1,853 
$9,064 $1,853 $439,825 $450,742 
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial ConditionPrincipal
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost(5)$3,512,850  $— $— $3,459,089 $3,459,089 
Mortgage loan receivable held for sale(6)31,350  — — 26,901 26,901 
CMBS(7)9,349 — — 8,991 8,991 
CMBS interest-only(7)8,394 — — 362 362 
FHLB stock7,875  — — 7,875 7,875 
$— $— $3,503,218 $3,503,218 
Liabilities:     
Repurchase agreements - short-term$365,977  $— $— $365,977 $365,977 
Repurchase agreements - long-term318,983  — — 318,983 318,983 
Mortgage loan financing468,868  — — 447,307 447,307 
CLO debt1,064,365 — — 1,060,502 1,060,502 
Borrowings from the FHLB175,000  — — 174,959 174,959 
Senior unsecured notes1,581,939  — — 1,364,823 1,364,823 
$— $— $3,732,551 $3,732,551 
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Balance does not include impact of allowance for current expected credit losses of $32.2 million at June 30, 2023.
(6)A lower of cost or market adjustment was recorded as of June 30, 2023.
(7)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, are classified as held-to-maturity and reported at amortized cost.

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December 31, 2022
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial ConditionPrincipal
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:      
CMBS(1)$553,424 $— $— $532,304 $532,304 
CMBS interest-only(1)1,017,735 (2)— — 10,026 10,026 
GNMA interest-only(3)45,369 (2)— — 281 281 
Agency securities(1)36 — — 35 35 
Equity securitiesN/A118 — — 118 
U.S. Treasury securities36,000 35,328 — — 35,328 
Nonhedge derivatives(4)204,700 — 2,038 — 2,038 
$35,446 $2,038 $542,646 $580,130 
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial ConditionPrincipal
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost(5)$3,907,295 $— $— $3,875,708 $3,875,708 
Mortgage loan receivable held for sale(6)31,350 — — 27,391 27,391 
CMBS(7)9,415 — — 9,030 9,030 
CMBS interest-only(7)8,460 — — 417 417 
FHLB stock9,585 — — 9,585 9,585 
$— $— $3,922,131 $3,922,131 
Liabilities:     
Repurchase agreements - short-term$481,465 $— $— $481,465 $481,465 
Repurchase agreements - long-term366,398 — — 366,398 366,398 
Mortgage loan financing497,454 — — 477,101 477,101 
CLO debt1,064,365 — — 1,058,462 1,058,462 
Borrowings from the FHLB213,000 — — 213,055 213,055 
Senior unsecured notes1,643,794 — — 1,397,977 1,397,977 
$— $— $3,994,458 $3,994,458 
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Balance does not include impact of allowance for current expected credit losses of $20.8 million at December 31, 2021.
(6)A lower of cost or market adjustment was recorded as of December 31, 2022.
(7)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, are classified as held-to-maturity and reported at amortized cost.  


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The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the six months ended June 30, 2023 and 2022 ($ in thousands):
Six Months Ended June 30,
Level 320232022
Balance at January 1,$542,646 $692,864 
Transfer from level 2— — 
Purchases14,953 44,090 
Sales(11,324)(4,261)
Paydowns/maturities(108,663)(109,804)
Amortization of premium/discount(1,770)(2,371)
Unrealized gain/(loss)4,287 (13,759)
Realized gain/(loss) on sale(304)(103)
Balance at June 30,$439,825 $606,656 

The following is quantitative information about significant unobservable inputs in our Level 3 measurements for those assets and liabilities measured at fair value on a recurring basis ($ in thousands):

June 30, 2023
Financial InstrumentCarrying ValueValuation TechniqueUnobservable InputMinimumWeighted AverageMaximum
CMBS(1)$431,349 Discounted cash flowYield (4)2.70 %6.25 %17.55 %
CMBS interest-only(1)8,195 (2)Discounted cash flowYield (4)2.72 %6.87 %17.93 %
GNMA interest-only(3)254 (2)Discounted cash flowYield (4)1.28 %7.99 %10.00 %
Agency securities(1)27 Discounted cash flowYield (4)2.70 %2.70 %2.70 %
Total$439,825 

December 31, 2022
Financial InstrumentCarrying ValueValuation TechniqueUnobservable InputMinimumWeighted AverageMaximum
CMBS(1)$532,304 Discounted cash flowYield (4)2.89 %5.29 %17.47 %
CMBS interest-only(1)10,026 (2)Discounted cash flowYield (4)1.39 %3.72 %19.66 %
GNMA interest-only(3)281 (2)Discounted cash flowYield (4)1.28 %5.50 %10.00 %
Agency securities(1)35 Discounted cash flowYield (4)2.70 %2.70 %2.70 %
Total$542,646 
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities, U.S. Treasury securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(3)GNMA interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs
        
(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may be impaired. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of assets value due to impairment. Refer to Note 3, Mortgage Loan Receivables for disclosure of level 3 inputs.

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15. INCOME TAXES
 
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the taxable year ended December 31, 2015 (the REIT Election”). As such, the Company’s income is generally not subject to U.S. federal, state and local corporate income taxes other than as described below.

Certain of the Company’s subsidiaries have elected to be treated as TRSs. TRSs permit the Company to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, the Company will continue to maintain its qualification as a REIT. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in TRSs. Current income tax expense (benefit) was $(0.1) million and $0.8 million for the three and six months ended June 30, 2023 and $0.5 million and $(0.4) million for the three and six months ended June 30, 2022.

As of June 30, 2023 and December 31, 2022, the Company’s net deferred tax assets (liabilities) were $(2.7) million and $(1.8) million, respectively, and are included in other assets (other liabilities) in the Company’s consolidated balance sheets. Deferred income tax expense (benefit) included within the provision for income taxes was $0.1 million and $2.1 million for the three months ended June 30, 2023 and June 30, 2022, respectively. Deferred income tax expense (benefit) included within the provision for income taxes was $0.9 million and $1.7 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The Company’s net deferred tax liability is comprised of deferred tax assets and deferred tax liabilities. The Company believes it is more likely than not that the deferred tax assets (aside from the exception noted below) will be realized in the future. Realization of the deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
 
As of June 30, 2023, the Company had a deferred tax asset of $4.1 million relating to capital losses which it may only use to offset capital gains. These tax attributes will begin to expire if unused by December 31, 2024. As the realization of these assets are not more likely than not to be realized before their expiration, the Company provided a full valuation allowance against this deferred tax asset. Additionally, as of June 30, 2023, the Company had $1.5 million of deferred tax asset related to Code Section 163(j) interest expense limitation. As the Company is uncertain if this asset will be realized in the future, the Company provided a full valuation allowance against this deferred tax asset.

The Company’s tax returns are subject to audit by taxing authorities. Generally, as of June 30, 2023, the tax years 2019-2022 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. One of the Company’s subsidiary entities is currently under an IRS audit for tax year 2020 and also under audit in New York City for tax years 2014-2020. The Company does not expect these audits to result in any material changes to the Company’s financial position. In April 2023, a settlement was reached for $2.6 million with New York City pertaining to an audit of the Company for the years 2012-2013 resulting in an incremental income tax expense of $0.2 million for the three months ended March 31, 2023. The Company does not expect tax expense to have an impact on either short, or long-term liquidity or capital needs.

As of June 30, 2023, the Company did not have any unrecognized tax benefit. As of December 31, 2022, the Company’s unrecognized tax benefit was a liability of $2.4 million, and was included in the accrued expenses in the Company’s consolidated balance sheets. This unrecognized tax benefit, if recognized, would have a favorable impact on the Company’s effective income tax rate in future periods. As of June 30, 2023, the Company has not recognized a significant amount of any interest or penalties related to uncertain tax positions. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months.

Under U.S. GAAP, a tax benefit related to an income tax position may be recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities based on the technical merits of the position. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months.
 
16. RELATED PARTY TRANSACTIONS

The Company has no material related party relationships to disclose.

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17. COMMITMENTS AND CONTINGENCIES
 
Leases

As of June 30, 2023, the Company had a $16.5 million lease liability and a $15.2 million right-of-use asset on its consolidated balance sheets recorded within other liabilities and other assets, respectively. The right-of-use lease asset relates to the Company's operating lease of office space. Right-of use lease assets initially equal the lease liability. The Company recognized $0.5 million and $1.1 million for the three and six months ended June 30, 2023 and $0.3 million and $0.6 million for the three and six months ended June 30, 2022 in operating expenses in its consolidated statements of income relating to operating leases.

Future minimum lease payments under non-cancelable operating leases as of June 30, 2023 are as follows ($ in thousands):

2023 (last 6 months)$788 
20242,171 
20252,207 
20262,219 
20272,232 
Thereafter13,344 
Total undiscounted cash flows22,961 
Present value discount (1)(6,458)
Lease liabilities$16,503 
(1)Lease liabilities were discounted at the Company's weighted average incremental borrowing rate for similar collateral, which is estimated to be 6.62%, and the remaining lease term is 10.1 years.

Unfunded Loan Commitments
 
As of June 30, 2023, the Company’s off-balance sheet arrangements consisted of $272.2 million of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing over the next three years at rates to be determined at the time of funding, 58% of which additional funds relate to the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, 2022, the Company’s off-balance sheet arrangements consisted of $321.8 million of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing.

Commitments are subject to our loan borrowers’ satisfaction of certain financial and nonfinancial covenants and may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring. The Company carefully monitors the progress of work at properties that serve as collateral underlying its commercial mortgage loans, including the progress of capital expenditures, construction, leasing and business plans in light of current market conditions. These commitments are not reflected on the consolidated balance sheets. 


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18. SEGMENT REPORTING
 
The Company has determined that it has three reportable segments based on how the chief operating decision makers review and manage the business. These reportable segments include loans, securities, and real estate. The loans segment includes mortgage loan receivables held for investment (balance sheet loans) and mortgage loan receivables held for sale (conduit loans).  The securities segment is composed of all of the Company’s activities related to securities, which include investments in CMBS, U.S. Agency securities, corporate bonds, equity securities and U.S. Treasury securities. The real estate segment includes net leased properties, office buildings, student housing portfolios, hotels, industrial buildings, a shopping center and condominium units. Corporate/other includes certain of the Company’s investments in ventures, other asset management activities and operating expenses.

The Company evaluates performance based on the following financial measures for each segment ($ in thousands):

Three months ended June 30, 2023LoansSecuritiesReal Estate (1)Corporate/Other(2)Company 
Total
Interest income$88,134 $7,825 $2 $5,868 $101,829 
Interest expense(30,907)(464)(7,723)(22,248)(61,342)
Net interest income (expense)57,227 7,361 (7,721)(16,380)40,487 
(Provision for) release of loan loss reserves(6,881)— — — (6,881)
Net interest income (expense) after provision for (release of) loan reserves50,346 7,361 (7,721)(16,380)33,606 
Real estate operating income— — 25,887 — 25,887 
Net result from mortgage loan receivables held for sale(296)— — — (296)
Realized gain (loss) on securities— 8 — — 8 
Unrealized gain (loss) on securities— (95)— — (95)
Fee and other income3,163 4 — 160 3,327 
Net result from derivative transactions2,784 674 691 — 4,149 
Earnings (loss) from investment in unconsolidated ventures— — 217 — 217 
Gain (loss) on extinguishment of debt— — — 462 462 
Total other income (loss)5,651 591 26,795 622 33,659 
Compensation and employee benefits— — — (14,242)(14,242)
Operating expenses— — — (4,987)(4,987)
Real estate operating expenses— — (9,766)— (9,766)
Investment related expenses(1,787)(48)(481)(345)(2,661)
Depreciation and amortization— — (7,363)(108)(7,471)
Total costs and expenses(1,787)(48)(17,610)(19,682)(39,127)
Income tax (expense) benefit— — — (46)(46)
Segment profit (loss)$54,210 $7,904 $1,464 $(35,486)$28,092 
Total assets as of June 30, 2023$3,495,888 $458,224 $693,253 $981,286 $5,628,651 
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Three months ended June 30, 2022LoansSecuritiesReal Estate (1)Corporate/Other(2)Company 
Total
Interest income$61,244 $3,880 $1 $143 $65,268 
Interest expense(12,702)(650)(8,075)(21,278)(42,705)
Net interest income (expense)48,542 3,230 (8,074)(21,135)22,563 
(Provision for) release of loan loss reserves1,002 — — — 1,002 
Net interest income (expense) after provision for (release of) loan reserves49,544 3,230 (8,074)(21,135)23,565 
Real estate operating income— — 28,646 — 28,646 
Net result from mortgage loan receivables held for sale(1,930)— — — (1,930)
Realized gain (loss) on securities— 12 — — 12 
Unrealized gain (loss) on securities— (49)— — (49)
Realized gain on sale of real estate, net— — 28,554 — 28,554 
Fee and other income2,226 18 — 101 2,345 
Net result from derivative transactions1,587 449 643 — 2,679 
Earnings (loss) from investment in unconsolidated ventures— — 356 — 356 
Gain (loss) on extinguishment of debt— — — 685 685 
Total other income (loss)1,883 430 58,199 786 61,298 
Compensation and employee benefits— — — (15,495)(15,495)
Operating expenses39 (50)— (4,640)(4,651)
Real estate operating expenses— — (9,867)— (9,867)
Investment related expenses1 (50)(133)(1,304)(1,486)
Depreciation and amortization— — (7,558)— (7,558)
Total costs and expenses40 (100)(17,558)(21,439)(39,057)
Income tax (expense) benefit— — — (2,594)(2,594)
Segment profit (loss)$51,467 $3,560 $32,567 $(44,382)$43,212 
Total assets as of December 31, 2022$3,892,382 $587,519 $706,355 $764,917 $5,951,173 
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Six months ended June 30, 2023LoansSecuritiesReal Estate (1)Corporate/Other(2)Company 
Total
Interest income$179,008 $16,154 $4 $10,459 $205,625 
Interest expense(59,635)(3,097)(14,376)(44,984)(122,092)
Net interest income (expense)119,373 13,057 (14,372)(34,525)83,533 
(Provision for) release of loan loss reserves(11,617)— — — (11,617)
Net interest income (expense) after provision for (release of) loan reserves107,756 13,057 (14,372)(34,525)71,916 
Real estate operating income— — 49,086 — 49,086 
Net result from mortgage loan receivables held for sale(490)— — — (490)
Realized gain (loss) on securities— (299)— — (299)
Unrealized gain (loss) on securities— 22 — — 22 
Fee and other income4,841 8 2 307 5,158 
Net result from derivative transactions941 372 594 — 1,907 
Earnings (loss) from investment in unconsolidated ventures— — 434 — 434 
Gain (loss) on extinguishment of debt— — — 9,679 9,679 
Total other income (loss)5,292 103 50,116 9,986 65,497 
Compensation and employee benefits— — — (36,326)(36,326)
Operating expenses— — — (10,243)(10,243)
Real estate operating expenses— — (19,615)— (19,615)
Investment related expenses(2,755)(96)(575)(755)(4,181)
Depreciation and amortization— — (14,788)(212)(15,000)
Total costs and expenses(2,755)(96)(34,978)(47,536)(85,365)
Income tax (expense) benefit— — — (1,767)(1,767)
Segment profit (loss)$110,293 $13,064 $766 $(73,842)$50,281 
Total assets as of June 30, 2023$3,495,888 $458,224 $693,253 $981,286 $5,628,651 





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Six months ended June 30, 2022LoansSecuritiesReal Estate (1)Corporate/Other(2)Company 
Total
Interest income$114,361 $6,945 $2 $165 $121,473 
Interest expense(26,986)(1,102)(19,554)(42,099)(89,741)
Net interest income (expense)87,375 5,843 (19,552)(41,934)31,732 
(Provision for) release of loan loss reserves128 — — — 128 
Net interest income (expense) after provision for (release of) loan reserves87,503 5,843 (19,552)(41,934)31,860 
Real estate operating income— — 54,999 — 54,999 
Net result from mortgage loan receivables held for sale(2,879)— — — (2,879)
Realized gain (loss) on securities— (84)— — (84)
Unrealized gain (loss) on securities— (32)— — (32)
Realized gain on sale of real estate, net— — 57,708 — 57,708 
Fee and other income5,602 34 3,704 199 9,539 
Net result from derivative transactions3,925 1,252 637 — 5,814 
Earnings (loss) from investment in unconsolidated ventures— — 790 — 790 
Gain (loss) on extinguishment of debt— — — 685 685 
Total other income (loss)6,648 1,170 117,838 884 126,540 
Compensation and employee benefits— — — (45,358)(45,358)
Operating expenses56 (50)— (10,165)(10,159)
Real estate operating expenses— — (18,859)— (18,859)
Investment related expenses(798)(98)(299)(2,279)(3,474)
Depreciation and amortization— — (16,892)(8)(16,900)
Total costs and expenses(742)(148)(36,050)(57,810)(94,750)
Income tax (expense) benefit— — — (1,284)(1,284)
Segment profit (loss)$93,409 $6,865 $62,236 $(100,144)$62,366 
Total assets as of December 31, 2022$3,892,382 $587,519 $706,355 $764,917 $5,951,173 
(1)Includes the Company’s investment in unconsolidated ventures that held real estate of $6.6 million and $6.2 million as of June 30, 2023 and December 31, 2022, respectively.
(2)Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This segment also includes the Company’s investment in FHLB stock of $7.9 million as of June 30, 2023 and $9.6 million as of December 31, 2022, and the Company’s senior unsecured notes of $1.6 billion at June 30, 2023 and December 31, 2022.

19. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the issuance date of the financial statements and determined that no additional disclosure is necessary.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of Ladder Capital Corp included within this report and the Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” within this Quarterly Report and “Risk Factors” within the Annual Report for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements as a result of various factors, including but not limited to, those in “Risk Factors” set forth within the Annual Report.
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References to “Ladder,” the “Company,” and “we,” “our” and “us” refer to Ladder Capital Corp, a Delaware corporation incorporated in 2013, and its consolidated subsidiaries. 

Overview

Ladder Capital Corp is an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. We originate and invest in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. Our investment activities include: (i) our primary business of originating senior first mortgage fixed and floating rate loans collateralized by commercial real estate with flexible loan structures; (ii) owning and operating commercial real estate, including net leased commercial properties; and (iii) investing in investment grade securities secured by first mortgage loans on commercial real estate. We believe that our in-house origination platform, ability to flexibly allocate capital among complementary product lines, credit-centric underwriting approach, access to diversified financing sources, and experienced management team position us well to deliver attractive returns on equity to our shareholders through economic and credit cycles.

Our businesses, including balance sheet lending, conduit lending, securities investments, and real estate investments, provide for a stable base of net interest and rental income. We have originated $29.7 billion of commercial real estate loans from our inception in October 2008 through June 30, 2023. During this timeframe, we also acquired $13.1 billion of predominantly investment grade-rated securities secured by first mortgage loans on commercial real estate and $2.0 billion of selected net leased and other real estate assets.

As part of our commercial mortgage lending operations, we originate conduit loans, which are first mortgage loans on stabilized, income producing commercial real estate properties that we intend to make available for sale in commercial mortgage-backed securities (“CMBS”) securitizations. From our inception in October 2008 through June 30, 2023, we originated $16.9 billion of conduit loans, of which $16.8 billion were sold into 71 CMBS securitizations, making us, by volume, the second largest non-bank contributor of loans to CMBS securitizations in the United States in such period. Our sales of loans into securitizations are generally accounted for as true sales, not financings, and we generally retain no ongoing interest in loans which we securitize unless we are required to do so as issuer pursuant to the risk retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, (the “Dodd-Frank Act”). The securitization of conduit loans enables us to reinvest our equity capital into new loan originations or allocate it to other investments.

As of June 30, 2023, we had $5.6 billion in total assets and $1.5 billion of total equity. Our assets primarily included $3.5 billion of loans, $686.7 million of real estate, $458.2 million of securities and $777.1 million of unrestricted cash.

We maintain a diversified and flexible financing strategy supporting our investment strategy and overall business operations, including the use of unsecured corporate bonds, non-recourse, non-mark-to-market CLO debt issuances and committed term financing from leading financial institutions. Refer to “Our Financing Strategies” and “Liquidity and Capital Resources” for further information.

Ladder was founded in October 2008 and we completed our IPO in February 2014. We are led by a disciplined and highly aligned management team. As of June 30, 2023, our management team and directors held interests in our Company comprising over 10% of our total equity. On average, our management team members have over 27 years of experience in the industry. Our management team includes Brian Harris, Chief Executive Officer; Pamela McCormack, President; Paul J. Miceli, Chief Financial Officer; Robert Perelman, Head of Asset Management; and Kelly Porcella, Chief Administrative Officer & General Counsel. Anthony V. Esposito, Chief Accounting Officer, is an additional officer of Ladder.

We continue to actively manage the liquidity and operations of the Company in light of market conditions, including rising interest rates and potential recessionary conditions. The Company has disclosed the impact of current market conditions on our business throughout this Quarterly Report.





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Our Businesses

We invest primarily in loans, securities and other interests in U.S. commercial real estate, with a focus on senior secured assets. Our complementary business segments are designed to provide us with the flexibility to opportunistically allocate capital in order to generate attractive risk-adjusted returns under varying market conditions. The following table summarizes the carrying value of our investment portfolio as reported in our consolidated financial statements as of the dates indicated below ($ in thousands):
 June 30, 2023December 31, 2022
Loans  
Balance sheet loans:
Balance sheet first mortgage loans$3,463,826 61.5 %$3,819,860 64.1 %
Other commercial real estate-related loans37,409 0.7 %65,886 1.1 %
Allowance for credit losses(32,248)(0.6)%(20,755)(0.3)%
Total balance sheet loans3,468,987 61.6 %3,864,991 64.9 %
Conduit first mortgage loans26,901 0.5 %27,391 0.5 %
Total loans3,495,888 62.1 %3,892,382 65.4 %
Real Estate
Real estate and related lease intangibles, net686,701 12.2 %700,136 11.8 %
Total real estate686,701 12.2 %700,136 11.8 %
Securities  
CMBS investments448,898 8.0 %551,776 9.3 %
U.S. Treasury securities8,935 0.2 %35,328 0.6 %
U.S. Agency securities investments281 — %316 — %
Equity securities130 — %118 — %
Allowance for credit losses(20)— %(20)— %
Total securities458,224 8.2 %587,518 9.9 %
Other Investments  
Investments in and advances to unconsolidated ventures6,553 0.1 %6,219 0.1 %
Total other investments6,553 0.1 %6,219 0.1 %
Total investments4,647,366 82.6 %5,186,255 87.1 %
Cash, cash equivalents and restricted cash873,934 15.5 %659,602 11.1 %
Other assets107,351 1.9 %105,316 1.8 %
Total assets$5,628,651 100 %$5,951,173 100 %
 
Loans
 
Balance Sheet First Mortgage Loans.  We originate and invest in balance sheet first mortgage loans secured by commercial real estate properties that are typically undergoing transition, including lease-up, sell-out, and renovation or repositioning. These mortgage loans are structured to fit the needs and business plans of the property owners, and generally have SOFR-based floating rates and terms (including extension options) ranging from one to five years. Our loans are directly originated by an internal team that has longstanding and strong relationships with borrowers and mortgage brokers throughout the United States. We follow a rigorous investment process, which begins with an initial due diligence review; continues through a comprehensive legal and underwriting process incorporating multiple internal and external checks and balances; and culminates in approval or disapproval of each prospective investment by our Investment Committee. Balance sheet first mortgage loans in excess of $50.0 million also require the approval of our board of directors’ Risk and Underwriting Committee.

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We generally seek to hold our balance sheet first mortgage loans for investment although we also maintain the flexibility to contribute such loans into a collateralized loan obligation (“CLO”) or similar structure, sell participation interests or “b-notes” in our mortgage loans or sell such mortgage loans as whole loans. Our balance sheet first mortgage loans have been typically repaid at or prior to maturity (including by being refinanced by us into a new conduit first mortgage loan upon property stabilization). As of June 30, 2023, we held a portfolio of 125 balance sheet first mortgage loans with an aggregate book value of $3.5 billion. Based on the loan balances and the “as-is” third-party Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) appraised values at origination, the weighted average loan-to-value ratio of this portfolio was 66.9% at June 30, 2023.
 
Other Commercial Real Estate-Related Loans.  We selectively invest in note purchase financings, subordinated debt, mezzanine debt and other structured finance products related to commercial real estate that are generally held for investment. As of June 30, 2023, we held a portfolio of 10 other commercial real estate-related loans with an aggregate book value of $37.4 million. Based on the loan balance and the “as-is” third-party FIRREA appraised values at origination, the weighted average loan-to-value ratio of the portfolio was 77.7% at June 30, 2023.

Conduit First Mortgage Loans.  We also originate conduit loans, which are first mortgage loans that are secured by cash-flowing commercial real estate and are available for sale to securitizations. These first mortgage loans are typically structured with fixed interest rates and generally have five- to ten-year terms. Conduit first mortgage loans are originated, underwritten, approved and funded using the same comprehensive legal and underwriting approach, process and personnel used to originate our balance sheet first mortgage loans. Conduit first mortgage loans in excess of $50.0 million also require approval of our board of directors’ Risk and Underwriting Committee. We held one conduit loan with an aggregate carrying value of $26.9 million at June 30, 2023.

Although our primary intent is to sell our conduit first mortgage loans to CMBS trusts, we generally seek to maintain the flexibility to keep them on our balance sheet, sell participation interests or “b-notes” in such loans or sell the loans as whole loans. The Company holds these conduit loans in its taxable REIT subsidiary (“TRS”) upon origination. As of June 30, 2023, we held one conduit first mortgage loan that was available for contribution into securitizations. Based on the loan balances and the “as-is” third-party FIRREA appraised values at origination, loan-to-value ratio of this loan was 84.7% at June 30, 2023.

The following charts set forth our total outstanding balance sheet first mortgage loans, other commercial real estate-related loans, and conduit first mortgage loans as of June 30, 2023, and a breakdown of our loan portfolio by loan size and geographic location and asset type of the underlying real estate by loan balance.




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Loan pie charts (2023-06-30).jpg

Real Estate

Net Leased Commercial Real Estate Properties. As of June 30, 2023, we owned 156 single tenant net leased properties with an aggregate book value of $487.8 million. These properties are fully leased on a net basis where the tenant is generally responsible for payment of real estate taxes, property, building and general liability insurance and property and building maintenance expenses. As of June 30, 2023, our net leased properties comprised a total of 3.8 million square feet, 100% leased with an average age since construction of 18.6 years and a weighted average remaining lease term of 9.5 years. Commercial real estate investments in excess of $20.0 million require the approval of our board of directors’ Risk and Underwriting Committee. The majority of the tenants in our net leased properties are necessity-based businesses. During the three months ended June 30, 2023, we collected 100% of rent on these properties.
 
Diversified Commercial Real Estate Properties. As of June 30, 2023, we owned 48 diversified commercial real estate properties throughout the U.S with an aggregate book value of $198.9 million. During the three months ended June 30, 2023, we collected 100% of rent on these properties.

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The following charts summarize the composition of our real estate investments as of June 30, 2023 ($ in millions):
Real Estate pie charts (2023-06-30).jpg
We continue to actively monitor our commercial real estate properties in light of the current market conditions, including consideration of any long-term impacts on the buildings, tenants, business plans and the ability to execute those business plans.

Securities
 
We invest primarily in CMBS, including CLOs, secured by first mortgage loans on commercial real estate and own predominantly AAA-rated securities. These investments provide a stable and attractive base of net interest income and help us manage our liquidity. We have significant in-house expertise in the evaluation and trading of these securities, due in part to our experience in originating and underwriting mortgage loans that comprise assets within CMBS trusts, as well as our experience in structuring CMBS transactions. AAA-rated CMBS or U.S. Agency securities investments in excess of $76.0 million and all other investment grade CMBS or U.S. Agency securities investments in excess of $51.0 million, each in any single class of any single issuance, require the approval of our board of directors’ Risk and Underwriting Committee. The Risk and Underwriting Committee also must approve any investments in non-rated or sub-investment grade CMBS or U.S. Agency securities in any single class of any single issuance in excess of the lesser of (x) $21.0 million and (y) 10% of the total net asset value of the respective Ladder subsidiary or other entity for which Ladder has authority to make investment decisions.

The Company invests in primarily AAA-rated real estate securities, typically front pay securities, with relatively short duration and significant subordination. The hyperamortization features included in many of the securities positions we own help mitigate potential credit losses in the event of adverse market conditions.

As of June 30, 2023, the estimated fair value of our portfolio of CMBS investments totaled $448.9 million in 76 CUSIPs ($5.9 million average investment per CUSIP). Included in the $448.9 million of CMBS securities are $9.4 million of CMBS securities designated as risk retention securities under the Dodd-Frank Act, which are subject to transfer restrictions over the term of the securitization trust. The following chart summarizes our securities investments by market value, 99.4% of which were rated investment grade by Standard & Poor’s Ratings Group, Moody’s Investors Service, Inc. or Fitch Ratings Inc. as of June 30, 2023:
Securities pie charts (2023-06-30).jpg

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In the future, we may invest in CMBS securities or other securities that are unrated. As of June 30, 2023, our CMBS investments had a weighted average duration of 1.4 years. The commercial real estate collateral underlying our CMBS investment portfolio is located throughout the United States. As of June 30, 2023, by property count and market value, respectively, 62.6% and 65.4% of the collateral underlying our CMBS investment portfolio was distributed throughout the top 25 metropolitan statistical areas (“MSAs”) in the United States, with 5.6% and 20.1%, by property count and market value, respectively, of the collateral located in the New York-Newark-Jersey City MSA, and the concentrations in each of the remaining top 24 MSAs ranging from 0.1% to 7.9% by property count and 0.1% to 8.0% by market value.

Other Investments

Unconsolidated Venture.  In connection with the origination of a loan in April 2012, we received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, we refinanced the loan, and we converted our equity interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”). As of June 30, 2023, Grace Lake LLC owned an office building campus with a carrying value of $48.4 million, which is net of accumulated depreciation of $48.5 million, that is financed by $39.2 million of long-term debt. Debt of Grace Lake LLC is non-recourse to the limited liability company members, except for customary non-recourse carve-outs for certain actions and environmental liability. As of June 30, 2023, the book value of our investment in Grace Lake LLC was $6.6 million.

United States Treasury Securities. From time to time we invest in short-term U.S. Treasury securities that are classified as cash and cash equivalents on our consolidated balance sheet. As of June 30, 2023, we held $609.3 million of U.S. Treasury securities.

Our Financing Strategies
 
Our financing strategies are critical to the success and growth of our business. We manage our financing to complement our asset composition and to diversify our exposure across multiple capital markets and counterparties. In addition to cash flow from operations, we fund our operations and investment strategy through a diverse array of funding sources, including:

•Unsecured corporate bonds
•CLO transactions
•Secured loan and securities repurchase facilities
•Non-recourse mortgage debt
•Revolving credit facility
•Loan sales and securitizations
•Unencumbered assets available for financing
•Equity
 
From time to time, we may add financing counterparties that we believe will complement our business, although the agreements governing our indebtedness may limit our ability and the ability of our present and future subsidiaries to incur additional indebtedness. Our amended and restated charter and by-laws do not impose any threshold limits on our ability to use leverage. Refer to our discussion below and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 6 Debt Obligations, Net in our consolidated financial statements included elsewhere in this Quarterly Report for more information about our financing arrangements.

Unsecured Corporate Bonds

As of June 30, 2023, we had $1.6 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of $327.8 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”), $612.4 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes”) and $641.7 million in aggregate principal amount of 4.75% senior notes due 2029 (the “2029 Notes,” and collectively with the 2025 Notes and the 2027 Notes, the “Notes”).

Due in large part to devoting such a large portion of the Company’s capital structure to equity and unsecured corporate bond debt, Ladder maintains a $2.9 billion pool of unencumbered assets, comprised primarily of first mortgage loans and unrestricted cash as of June 30, 2023.

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CLO Debt

On July 13, 2021, a consolidated subsidiary of the Company completed a privately marketed CLO transaction, which generated $498.2 million of gross proceeds to Ladder, financing $607.5 million of loans (“Contributed July 2021 Loans”) at an 82% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 18% subordinate and controlling interest in the CLO. The Company retained control over major decisions made with respect to the administration of the Contributed July 2021 Loans, including broad discretion in managing these loans, and has the ability to appoint the special servicer under the CLO.

On December 2, 2021, a consolidated subsidiary of the Company completed a privately marketed CLO transaction, which generated $566.2 million of gross proceeds to Ladder, financing $729.4 million of loans (“Contributed December 2021 Loans”) at a 77.6% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 15.6% subordinate and controlling interest in the CLO. The Company also held two additional tranches as investments totaling 6.8% interest in the CLO. The Company retained control over major decisions made with respect to the administration of the Contributed December 2021 Loans, including broad discretion in managing these loans, and has the ability to appoint the special servicer under the CLO.

As of June 30, 2023, the Company had $1.1 billion of matched term, non-mark-to-market and non-recourse CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.9 million were included in CLO debt as of June 30, 2023. The CLOs are considered variable interest entities (“VIEs”) of which the Company is the primary beneficiary and, therefore, consolidated the VIEs - See Note 9, Consolidated Variable Interest Entities.

Committed Loan Financing Facilities
 
We are parties to multiple committed loan repurchase agreement facilities, totaling $1.2 billion of credit capacity. As of June 30, 2023, the Company had $678.8 million of borrowings outstanding, with an additional $563.2 million of committed financing available. Assets pledged as collateral under these facilities are generally limited to first mortgage whole mortgage loans, mezzanine loans and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios.
 
We have the option to extend some of our existing facilities subject to a number of customary conditions. The lenders have sole discretion to include collateral in these facilities and to determine the market value of the collateral on a daily basis, and, if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call) sufficient to rebalance the facilities. Typically, the lender establishes a maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum, leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.

Securities Repurchase Facilities

We are a party to a committed term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $100.0 million of credit capacity. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentage of the collateral asset’s value than the maximum, leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis. As of June 30, 2023, the Company had no borrowings outstanding, with an additional $100.0 million of committed financing available.

Additionally, we are a party to multiple uncommitted master repurchase agreements with several counterparties to finance our investments in CMBS and U.S. Agency securities. The securities that serve as collateral for these borrowings are typically AAA-rated CMBS with relatively short duration and significant subordination. The lenders have sole discretion to determine the market value of the collateral on a daily basis, and, if the estimated market value of the collateral declines, the lenders have the right to require additional cash collateral. If the estimated market value of the collateral subsequently increases, we have the right to call back excess cash collateral.
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Mortgage Loan Financing
 
We generally finance our real estate using long-term non-recourse mortgage financing. During the six months ended June 30, 2023, we did not execute any long term debt agreement to finance real estate. Our mortgage loan financings have primarily fixed rates ranging from 4.39% to 8.84%, mature between 2024-2031 and total $469.1 million as of June 30, 2023. These long-term non-recourse mortgages include net unamortized premiums of $2.1 million at June 30, 2023, representing proceeds received upon financing greater than the contractual amounts due under the agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. We recorded $0.3 million of premium amortization, which decreased interest expense, for the six months ended June 30, 2023. The loans are collateralized by real estate and related lease intangibles, net, of $518.4 million as of June 30, 2023.

Revolving Credit Facility
 
The Company’s revolving credit facility (the “Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $323.9 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. The Revolving Credit Facility has a final maturity date, assuming all extension options are exercised, of July 2027. The interest rate on Eurodollar advances is the sum of one-month Term SOFR plus a fixed margin of 2.50%, with reductions in the fixed margin upon the achievement of investment grade credit ratings. As of June 30, 2023, the Company had no outstanding borrowings on the Revolving Credit Facility.
 
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
 
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities.

FHLB Financing
 
We became a member of the FHLB in 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). In 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February 2021. The Company has complied with such targeted paydowns. As of June 30, 2023, Tuebor had $175.0 million of borrowings outstanding from the FHLB, with terms of 0.2 years to 1.3 years, interest rates of 2.74% to 5.54%, and advance rates of 71.7% to 95.7% on eligible collateral, including cash collateral. As of June 30, 2023, collateral for the borrowings was comprised of $206.7 million of CMBS and U.S. Agency securities.

Hedging Strategies

We may enter into interest rate and credit spread derivative contracts to mitigate our exposure to changes in interest rates and credit spreads. We generally seek to hedge the interest rate risk on the financing of assets that have a duration longer than five years, including newly-originated conduit first mortgage loans, securities in our CMBS portfolio if long enough in duration, and most of our U.S. Agency securities portfolio. We monitor our asset profile and our hedge positions to manage our interest rate and credit spread exposures, and we seek to match fund our assets according to the liquidity characteristics and expected holding periods of our assets.

Financial Covenants

We generally seek to maintain a debt-to-equity ratio of approximately 3.0:1.0 or below. We expect this ratio to fluctuate during the course of a fiscal year due to the normal course of business. This ratio may also fluctuate as a result of our conduit lending operations, in which we generally securitize our inventory of conduit loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. We generally seek to match fund our assets according to their liquidity characteristics and expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen.
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We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75:1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary.

Our borrowings under certain financing agreements and our committed repurchase facilities are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from 3.5:1.0 to 4.0:1.0, or a maximum ratio based on our asset composition at the time of determination), minimum net worth requirements (ranging from $400.0 million to $871.4 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. Leverage ratio limits exclude CLO financing for purposes of this covenant calculation. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.

Further, certain of our financing arrangements and loans on our real property are secured by the assets of the Company, including pledges of the equity of certain subsidiaries or the assets of certain subsidiaries. From time to time, certain of these financing arrangements and loans may prohibit certain of our subsidiaries from paying dividends to the Company, from making distributions on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or other assets to the Company or other subsidiaries of the Company.

We are in compliance with all covenants as described in this Quarterly Report as of June 30, 2023.


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Results of Operations

A discussion regarding our results of operations for the three months ended June 30, 2023 compared to the three months ended March 31, 2023 is presented below.

Three months ended June 30, 2023 compared to the three months ended March 31, 2023

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
 Three Months Ended
 June 30, 2023March 31, 2023Difference
Net interest income 
Interest income$101,829 $103,796 $(1,967)
Interest expense61,342 60,749 593 
Net interest income (expense)40,487 43,047 (2,560)
Provision for (release of) loan loss reserves, net6,881 4,736 2,145 
Net interest income (expense) after provision for (release of) loan losses33,606 38,311 (4,705)
Other income (loss) 
Real estate operating income25,887 23,199 2,688 
Net result from mortgage loan receivables held for sale(296)(194)(102)
Realized gain (loss) on securities8 (307)315 
Unrealized gain (loss) on securities(95)117 (212)
Fee and other income3,327 1,831 1,496 
Net result from derivative transactions4,149 (2,242)6,391 
Earnings from investment in unconsolidated ventures217 217 — 
Gain on extinguishment of debt462 9,217 (8,755)
Total other income (loss)33,659 31,838 1,821 
Costs and expenses 
Compensation and employee benefits14,242 22,084 (7,842)
Operating expenses4,987 5,256 (269)
Real estate operating expenses9,766 9,849 (83)
Investment related expenses2,661 1,520 1,141 
Depreciation and amortization7,471 7,529 (58)
Total costs and expenses39,127 46,238 (7,111)
Income (loss) before taxes28,138 23,911 4,227 
Income tax expense (benefit)46 1,720 (1,674)
Net income (loss)28,09222,1915,901 
Net (income) loss attributable to noncontrolling interests in consolidated ventures71 217 (146)
Net income (loss) attributable to Class A common shareholders$28,163 $22,408 $5,755 
Investment Overview

Activity for the three months ended June 30, 2023 included originating and funding $11.6 million in principal value of commercial mortgage loans and $309.3 million of principal repayments, which contributed to a net decrease in our loan portfolio of $396.5 million. Activity for the three months ended June 30, 2023 included securities purchases of $14.4 million, sales of $0.6 million and $75.5 million of amortization and paydowns, which contributed to a net decrease in our securities portfolio of $61.8 million. In addition, we purchased $1.1 billion of short-term U.S. treasury securities during the three months ended June 30, 2023, of which $948.0 million matured during the three months ended June 30, 2023.
 
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Activity for the three months ended March 31, 2023 included originating and funding $32.6 million in principal value of commercial mortgage loans, which was partially offset by $131.3 million of principal repayments. We acquired $3.5 million of new securities, which was partially offset by $13.6 million of sales and $60.2 million of amortizations and paydowns in the portfolio, which partially contributed to a net decrease in our securities portfolio of $67.5 million during the three months ended March 31, 2023. In addition, we purchased $1.0 billion of short-term U.S. treasury securities during the three months ended March 31, 2023, of which $574.0 million matured during the three months ended March 31, 2023.

Net Interest Income
 
The $2.0 million decrease in interest income was primarily attributable to a reduction in our outstanding loan balances as a result of net paydowns partially offset by an increase in prevailing interest rates. For the three months ended June 30, 2023, the amortized cost of loan investments averaged $3.7 billion and the amortized cost of securities investments averaged $0.5 billion. For the three months ended March 31, 2023, the amortized cost of loan investments averaged $3.9 billion and the amortized cost of securities investments averaged $0.5 billion. There was a $62.3 million decrease in average securities investments, and a $147.1 million decrease in average loan investments.

The $0.6 million increase in interest expense is primarily a result of rising prevailing interest rates and an increase in our loan repurchase facility utilization, partially offset by a reduction in our security repurchase facilities as well as a reduction in expense as a result of redemptions of our Notes.

The decrease in net interest income before provision for loan losses of $2.6 million as explained above is primarily driven by a reduction in interest income as a result of net payoffs partially offset by a rise in prevailing interest rates.

As of June 30, 2023, the weighted average yield on our mortgage loan receivables was 9.5%, compared to 9.1% as of March 31, 2023. The weighted average yield increased as a result of increases in the prevailing interest rates. As of June 30, 2023, the weighted average interest rate on borrowings against our mortgage loan receivables was 7.2%, compared to 6.5% as of March 31, 2023. The increase in the rate on borrowings against our mortgage loan receivables from March 31, 2023 to June 30, 2023 was primarily due to increases in prevailing interest rates. As of June 30, 2023, we had outstanding borrowings secured by our mortgage loan receivables equal to 49.3% of the carrying value of our mortgage loan receivables, compared to 45.1% as of March 31, 2023.

As of June 30, 2023, the weighted average yield on our securities was 6.2%, compared to 5.6% as of March 31, 2023. The weighted average yield increased as a result of increases in the prevailing interest rates. As of June 30, 2023, the weighted average interest rate on borrowings against our securities was 5.4%, compared to 5.2% as of March 31, 2023. The increase in the rate on borrowings against our securities from March 31, 2023 to June 30, 2023 was primarily due to higher prevailing market borrowing rates as of June 30, 2023 compared to March 31, 2023. As of June 30, 2023, we had outstanding borrowings secured by our securities equal to 39.5% of the carrying value of our securities, compared to 63.7% as of March 31, 2023.
 
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of June 30, 2023, and March 31, 2023, the weighted average interest rate on mortgage borrowings against our real estate was 5.7%. As of June 30, 2023, we had outstanding borrowings secured by our real estate equal to 68.3% of the carrying value of our real estate, compared to 67.8% as of March 31, 2023.

Provision for (release of) Loan Loss Reserves

The provision for the three months ended June 30, 2023 was $6.9 million, primarily due to adverse changes in macroeconomic conditions.

The provision for the three months ended March 31, 2023 was $4.7 million primarily due to adverse changes in macroeconomic conditions. For additional information, refer to Note 3, Mortgage Loan Receivables, in the consolidated financial statements.

Real Estate Operating Income

The increase of $2.7 million in real estate operating income was primarily attributable to improved hotel operations at our real estate assets as compared to the three months ended March 31, 2023.

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Net Result from Mortgage Loan Receivables Held for Sale

Net result from mortgage loan receivables held for sale, includes all loan sales, whether by securitization, whole loan sales or other means. Net result from mortgage loan receivables held for sale also includes unrealized losses on loans related to lower of cost or market adjustments. During the three months ended June 30, 2023, we did not transfer any balance sheet first mortgage or conduit loans and recorded a lower of cost or market adjustment of $0.3 million. During the three months ended March 31, 2023, we did not transfer any balance sheet mortgage loans or conduit loans and recorded $0.2 million net in lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter.

Fee and Other Income
 
We generate fee income on the loans we originate and in which we invest, and dividend income on our FHLB stock. The $1.5 million increase in fee and other income was primarily due to fees earned in connection with the payoff of our mortgage loan debt for the three months ended June 30, 2023 as compared to the three months ended March 31, 2023.

Net Result from Derivative Transactions
 
Net gain from derivative transactions of $4.1 million is composed of a realized gain of $3.7 million and an unrealized gain of $0.4 million for the three months ended June 30, 2023, compared to a net loss from derivative transactions of $2.2 million which is composed of a realized loss of $1.8 million and an unrealized loss of $0.4 million for the three months ended March 31, 2023. The hedge positions primarily relate to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of five and ten year U.S. treasury rate futures that we employed in an effort to hedge the interest rate risk primarily on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gain in 2023 was primarily related to movement in interest rates during the three months ended June 30, 2023. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
 
Earnings (Loss) from Investment in Unconsolidated Ventures
 
Earnings from our investment in unconsolidated ventures totaled $0.2 million for the three months ended June 30, 2023 and March 31, 2023. Our maximum exposure to loss from these investments is limited to the carrying value of our investment.

Gain (Loss) on Extinguishment of Debt

During the three months ended June 30, 2023, there was $0.5 million of gain on extinguishment of debt as the Company retired: (1) $2.0 million of principal of the 2027 Notes for a repurchase price of $1.7 million, recognizing a $0.3 million net gain on extinguishment of debt after recognizing $(15) thousand of unamortized debt issuance costs associated with the retired debt and (2) $1.1 million of principal of the 2029 Notes for a repurchase price of $0.9 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(13) thousand of unamortized debt issuance costs associated with the retired debt.

During the three months ended March 31, 2023, there was $9.2 million of gain on extinguishment of debt as the Company retired: (1) $16.2 million of principal of the 2025 Notes for a repurchase price of $14.8 million, recognizing a $1.4 million net gain on extinguishment of debt after recognizing $(72) thousand of unamortized debt issuance costs associated with the retired debt, (2) $36.4 million of principal of the 2027 Notes for a repurchase price of $29.7 million, recognizing a $6.4 million net gain on extinguishment of debt after recognizing $(288) thousand of unamortized debt issuance costs associated with the retired debt and (3) $6.1 million of principal of the 2029 Notes for a repurchase price of $4.6 million, recognizing a $1.4 million net gain on extinguishment of debt after recognizing $(76) thousand of unamortized debt issuance costs associated with the retired debt.

Compensation and Employee Benefits

Compensation and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $(7.8) million in compensation expense was primarily attributable to the timing of our annual equity based compensation, which was granted during three months ended March 31, 2023 whereas there was no equity based compensation granted during the three months ended June 30, 2023.

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Operating Expenses

Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The decrease during the three months ended June 30, 2023 compared to the three months ended March 31, 2023 of $(0.3) million was primarily related to a decrease in professional expenses.
 
Investment Related Expenses
 
Investment related expenses are comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase during the three months ended June 30, 2023 compared to the three months ended March 31, 2023 of $1.1 million was primarily attributable to an increase in professional fees.
 
Income Tax (Benefit) Expense
 
Most of our consolidated income tax provision related to the business units held in our TRSs. The decrease in expense during the three months ended June 30, 2023 compared to the three months ended March 31, 2023 is primarily a result of changes in our GAAP income in our TRSs.
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Results of Operations

A discussion regarding our results of operations for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 is presented below.

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
Six Months Ended June 30,
20232022Difference
Net interest income
Interest income$205,625 $121,473 $84,152 
Interest expense122,092 89,741 32,351 
Net interest income (expense)83,533 31,732 51,801 
Provision for (release of) loan loss reserves, net11,617 (128)11,745 
Net interest income (expense) after provision for (release of) loan losses71,916 31,860 40,056 
Other income (loss)
Real estate operating income49,086 54,999 (5,913)
Net result from mortgage loan receivables held for sale(490)(2,879)2,389 
Realized gain (loss) on securities(299)(84)(215)
Unrealized gain (loss) on securities22 (32)54 
Realized gain (loss) on sale of real estate, net— 57,708 (57,708)
Fee and other income5,158 9,539 (4,381)
Net result from derivative transactions1,907 5,814 (3,907)
Earnings from investment in unconsolidated ventures434 790 (356)
Gain on extinguishment of debt9,679 685 8,994 
Total other income (loss)65,497 126,540 (61,043)
Costs and expenses
Compensation and employee benefits36,326 45,358 (9,032)
Operating expenses10,243 10,159 84 
Real estate operating expenses19,615 18,859 756 
Investment related expenses4,181 3,474 707 
Depreciation and amortization15,000 16,900 (1,900)
Total costs and expenses85,365 94,750 (9,385)
Income (loss) before taxes52,048 63,650 (11,602)
Income tax expense (benefit)1,767 1,284 483 
Net income (loss)$50,281 $62,366 $(12,085)
Net (income) loss attributable to noncontrolling interests in consolidated ventures288 (8,286)8,574 
Net income (loss) attributable to Class A common shareholders$50,569 $54,080 $(3,511)

Investment Overview
 
Activity for the six months ended June 30, 2023 included originating and funding $44.2 million in principal value of commercial mortgage loans and $440.5 million of principal repayments, which contributed to a net decrease in our loan portfolio of $299.9 million. Activity for the three months ended June 30, 2023 included securities purchases of $17.9 million, sales of $14.2 million and $135.7 million of amortization and paydowns, which contributed to a net decrease in our securities portfolio of $129.3 million. In addition, we purchased $2.1 billion of short-term U.S. treasury securities during the six months ended June 30, 2023, of which $1.5 billion matured during the six months ended June 30, 2023.
 
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Activity for the six months ended June 30, 2022 included originating and funding $1.1 billion in principal value of commercial mortgage loans, which was offset by $0.6 billion of principal repayments and $22.5 million of proceeds of sales of loans. We acquired $45.2 million of new securities, which was offset by $4.7 million of sales and $110.4 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $86.2 million during the six months ended June 30, 2022. We acquired $15.4 million in real estate and received proceeds from the sale of real estate of $163.6 million as a result of the sale of four investments.

Net Interest Income
 
The $84.2 million increase in interest income was primarily attributable to increases in prevailing interest rate benchmarks on our floating rate balance sheet loan and securities portfolios partially offset by net payoffs. For the six months ended June 30, 2023, the amortized cost of loan investments averaged $3.8 billion and the amortized cost of securities investments averaged $0.5 billion. For the six months ended June 30, 2022, the amortized cost of loan investments averaged $3.9 billion and the amortized cost of securities investments averaged $0.7 billion. There was a $(0.1) billion decrease in average loan investments and a $(0.2) billion decrease in average securities investments.

The $32.4 million increase in interest expense is primarily related to higher prevailing rates on our floating rate debt and higher outstanding balances on our loan repurchase facilities. The increase in interest expense was partially offset by the payoff of our Secured Financing Facility and reductions in the outstanding balances of our long-term mortgage loan debt, securities repurchase financing, and FHLB borrowings as well as a reduction in expense as a result of redemptions of our Notes.

The increase in net interest income before provision for loan losses of $51.8 million as explained above is also attributable to a higher percentage of our owned assets being variable rate as compared to certain financing sources such as our unsecured bonds and our mortgage loan financing being fixed rate.

As of June 30, 2023, the weighted average yield on our mortgage loan receivables was 9.5%, compared to 6.1% as of June 30, 2022. The weighted average yield increased as a result of increases in the prevailing interest rates. As of June 30, 2023, the weighted average interest rate on borrowings against our mortgage loan receivables was 7.2%, compared to 3.0% as of June 30, 2022. The increase in the rate on borrowings against our mortgage loan receivables from June 30, 2022 to June 30, 2023 was primarily due to the increase in prevailing interest rates. As of June 30, 2023, we had outstanding borrowings secured by our mortgage loan receivables equal to 49.3% of the carrying value of our mortgage loan receivables, compared to 37.7% as of June 30, 2022.

As of June 30, 2023, the weighted average yield on our securities was 6.2%, compared to 2.9% as of June 30, 2022. The weighted average yield increased as a result of increases in the prevailing interest rates. As of June 30, 2023, the weighted average interest rate on borrowings against our securities was 5.4%, compared to 2.0% as of June 30, 2022. The increase in the rate on borrowings against our securities from June 30, 2022 to June 30, 2023 was primarily due to higher prevailing market borrowing rates as of June 30, 2023 compared to June 30, 2022. As of June 30, 2023, we had outstanding borrowings secured by our securities equal to 39.5% of the carrying value of our real estate securities, compared to 73.3% as of June 30, 2022.
 
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of June 30, 2023, the weighted average interest rate on mortgage borrowings against our real estate was 5.7%, compared to 4.9% as of June 30, 2022. As of June 30, 2023, we had outstanding borrowings secured by our real estate equal to 68.3% of the carrying value of our real estate, compared to 77.6% as of June 30, 2022.

Provision for (release of) Loan Loss Reserves

The provision for the six months ended June 30, 2023 was $11.6 million. The increase in provision associated with the general reserve during the six months ended June 30, 2023 is primarily due to adverse changes in macroeconomic conditions.

The net release of provision for the six months ended June 30, 2022 was $0.1 million. The release represents a $3.1 million recovery of provision offset by an increase in the general reserve of loans held for investment of $2.7 million and an increase related to unfunded loan commitments of $0.3 million. The increase in provision associated with the general reserve during the six months ended June 30, 2022 is primarily due to an overall increase in the size of our balance sheet first mortgage portfolio as a result of net originations during that time and adverse changes in macroeconomic conditions.

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Real Estate Operating Income

The decrease of $5.9 million in real estate operating income was primarily a result of the timing of four real estate sales that occurred after June 30, 2022.

Net Result from Mortgage Loan Receivables Held for Sale

Net result from mortgage loan receivables held for sale, includes all loan sales, whether by securitization, whole loan sales or other means. Net result from mortgage loan receivables held for sale also includes unrealized losses on loans related to lower of cost or market adjustments. During the six months ended June 30, 2023, we did not sell any conduit loans and recorded $0.5 million of unrealized losses on loans related to lower of cost or market adjustments on our conduit loans. During the six months ended June 30, 2022, we sold one conduit loan for a realized loss of $0.9 million and recorded $2.0 million of unrealized losses on loans related to lower of cost or market adjustments on our conduit loans. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter.
 
Realized Gain (Loss) on Securities
 
The realized loss on securities for the six months ended June 30, 2023 was $(0.3) million compared to a realized loss of $(0.1) million for June 30, 2022, which resulted in a net negative change of $(0.2) million. For the six months ended June 30, 2023, we sold $11.3 million of CMBS securities. For the six months ended June 30, 2022, we sold $4.2 million of CMBS securities and $0.5 million of equity securities.
 
Realized Gain (Loss) on Sale of Real Estate, Net
 
There was a decrease of $57.7 million in realized gain (loss) on the sale of real estate, which was a result of the timing of real estate sales. There were no sales of real estate during the six months ended June 30, 2023 and a sale of one office property for a realized gain of $14.5 million, one warehouse property for a realized gain of $14.6 million, and two apartment buildings for a combined realized gain of $28.6 million for the six months ended June 30, 2022.

Fee and Other Income
 
We generate fee income on the loans we originate and in which we invest, and dividend income on our FHLB stock. The $4.4 million decrease in fee and other income was primarily driven by a decrease in fees as a result of the sale of real estate, partially offset by an increase in dividends from FHLB stock.

Net Result from Derivative Transactions
 
Net result from derivative transactions of $1.9 million is composed of a realized gain of $1.9 million for the six months ended June 30, 2023, compared to a net gain of $5.8 million for the six months ended June 30, 2022, which was comprised of a realized gain of $6.4 million and a $0.6 million unrealized loss resulting in a negative change of $3.9 million. The hedge positions primarily relate to fixed rate conduit loans, and securities investments. The derivative positions that generated these results were a combination of five and ten year U.S. treasury rate futures and interest rate swap futures that we employed in an effort to hedge the interest rate risk primarily on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gain in 2023 was primarily related to movement in interest rates during the six months ended June 30, 2023. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
 
Earnings (Loss) from Investment in Unconsolidated Ventures
 
Earnings from our investment in unconsolidated ventures totaled $0.4 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively.

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Gain (Loss) on Extinguishment of Debt

Gain (loss) on extinguishment of debt totaled $9.7 million for the six months ended June 30, 2023. During the six months ended June 30, 2023, the Company retired: (1) $16.2 million of principal of the 2025 Notes for a repurchase price of $14.8 million, recognizing a $1.3 million net gain on extinguishment of debt after recognizing $(72) thousand of unamortized debt issuance costs associated with the retired debt; (2) $38.4 million of principal of the 2027 Notes for a repurchase price of $31.4 million, recognizing a $6.7 million net gain on extinguishment of debt after recognizing $(303) thousand of unamortized debt issuance costs associated with the retired debt; and (3) $7.3 million of principal of the 2029 Notes for a repurchase price of $5.5 million, recognizing a $1.6 million net gain on extinguishment of debt after recognizing $(89) thousand of unamortized debt issuance costs associated with the retired debt.

Gain (loss) on extinguishment of debt totaled $0.7 million for the six months ended June 30, 2022. During the six months ended June 30, 2022, the Company retired: (1) $4.0 million of principal of the 2025 Notes for a repurchase price of $3.7 million, recognizing a $0.3 million net gain on extinguishment of debt after recognizing $(23) thousand of unamortized debt issuance costs associated with the retired debt, (2) $1.0 million of principal of the 2027 Notes for a repurchase price of $0.8 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(9) thousand of unamortized debt issuance costs associated with the retired debt and (3) $1.0 million of principal of the 2029 Notes for a repurchase price of $0.8 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(14) thousand of unamortized debt issuance costs associated with the retired debt.

Compensation and Employee Benefits

Compensation and employee benefits are comprised primarily of salaries, bonuses, equity-based compensation and other employee benefits. The decrease of $9.0 million in compensation expense is primarily due to a decrease in equity-based compensation.

Operating Expenses

Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The increase during the six months ended June 30, 2023 as compared to June 30, 2022 of $0.1 million was primarily related to an increase in legal and administrative expenses partially offset by a decrease in other professional fees.

Real Estate Operating Expenses

The increase during the six months ended June 30, 2023 as compared to June 30, 2022 of $0.8 million in real estate operating expense is primarily the result of increased hotel operations and the timing of one acquisition that occurred after June 30, 2022, partially offset by the timing of the four real estate sales that occurred after June 30, 2022.
 
Investment Related Expenses
 
Investment related expenses are comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase during the six months ended June 30, 2023 as compared to June 30, 2022 of $0.7 million was primarily attributable to an increase in deal related expenses.
 
Depreciation and Amortization
 
The $1.9 million decrease during the six months ended June 30, 2023 as compared to June 30, 2022 in depreciation and amortization is primarily attributable to the timing of the four real estate sales and one acquisition that occurred after June 30, 2022.
 
Income Tax (Benefit) Expense
 
Most of our consolidated income tax provision related to the business units held in our TRSs. The increase in expense of $0.5 million during the six months ended June 30, 2023 as compared to June 30, 2022 is primarily a result of changes to GAAP income in our TRSs.

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Liquidity and Capital Resources
 
The management of our liquidity and capital diversity and allocation strategies is critical to the success and growth of our business. We manage our sources of liquidity to complement our asset composition and to diversify our exposure across multiple capital markets and counterparties.
 
We require substantial amounts of capital to support our business. The management team, in consultation with our board of directors, establishes our overall liquidity and capital allocation strategies. A key objective of those strategies is to support the execution of our business strategy while maintaining sufficient ongoing liquidity throughout the business cycle to service our financial obligations as they become due. When making funding and capital allocation decisions, members of our senior management consider: business performance; the availability of, and costs and benefits associated with, different funding sources; current and expected capital markets and general economic conditions; our asset composition and capital structure; and our targeted liquidity profile and risks relating to our funding needs.

To ensure that Ladder can effectively address the funding needs of the Company on a timely basis, we maintain a diverse array of liquidity sources including: (1) cash and cash equivalents; (2) cash generated from operations; (3) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; (5) principal repayments on investments including mortgage loans and securities; (6) borrowings under our Revolving Credit Facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of CLO debt and other non-mark-to-market loan financing; and (11) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis and have the ability to use our significant unencumbered asset base to further finance our business.

Our primary uses of liquidity are for: (1) the funding of loan, real estate-related and securities investments; (2) the repayment of short-term and long-term borrowings and related interest; (3) the funding of our operating expenses; and (4) distributions to our equity investors to comply with the REIT distribution requirements. We require short-term liquidity to fund loans that we originate and hold on our consolidated balance sheet pending sale, including through whole loan sale, participation, or securitization. We generally require longer-term funding to finance the loans and real estate-related investments that we hold for investment. We have historically used the aforementioned funding sources to meet the operating and investment needs as they have arisen and have been able to do so by applying a rigorous approach to long and short-term cash and debt forecasting.

In addition, as a REIT, we are also required to make sufficient dividend payments to our shareholders in amounts at least sufficient to maintain our REIT status. Under IRS guidance, we may elect to pay a portion of our dividends in stock, subject to a cash/stock election by our shareholders, to optimize our level of capital retention. Accordingly, our cash requirement to pay dividends to maintain REIT status could be substantially reduced at the discretion of the board.
 
Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds; (2) CLO issuances; (3) committed secured funding provided by banks and other lenders; (4) long term non-recourse mortgage financing; (5) uncommitted secured funding sources, including asset repurchase agreements with a number of banks; and (6) secured advances from the FHLB through our captive insurance company.
 
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments.

Refer to “Financial Covenants” and “Our Financing Strategies” for further disclosure of our diverse financing sources and, for a summary of our financial obligations, refer to the Contractual Obligations table below. All of our existing financial obligations due within the following year can be extended for one or more additional years at our discretion, refinanced or repaid at maturity or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).

Cash, Cash Equivalents and Restricted Cash
 
We held cash, cash equivalents and restricted cash of $873.9 million at June 30, 2023, of which $777.1 million was unrestricted cash and cash equivalents and $96.9 million was restricted cash. We held cash and cash equivalents of $609.1 million and restricted cash of $50.5 million as of December 31, 2022.

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Cash Flows

The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash ($ in thousands):
 Six Months Ended June 30,
 20232022
Net cash provided by (used in) operating activities$44,089 $13,947 
Net cash provided by (used in) investing activities523,267 (253,006)
Net cash provided by (used in) financing activities(353,024)(99,556)
Net increase (decrease) in cash, cash equivalents and restricted cash$214,332 $(338,615)

Six months ended June 30, 2023

We experienced a net increase in cash, cash equivalents and restricted cash of $214.3 million for the six months ended June 30, 2023, reflecting cash provided by operating activities of $44.1 million, cash provided by investing activities of $523.3 million and cash used in financing activities of $(353.0) million.

Net cash provided by operating activities of $44.1 million was primarily driven by net interest income and increases in net operating income on our real estate portfolio.

Net cash provided by investing activities of $523.3 million was driven by $433.7 million of repayment from mortgage loan receivables, $135.3 million in repayments on securities, and $14.2 million of proceeds from sale of securities, partially offset by $(44.2) million of origination of mortgage loans held for investment and $(17.9) million in purchases of securities.

Net cash used in financing activities of $(353.0) million was primarily as a result of net repayments of borrowings of $(281.7) million, $(59.0) million of dividend payments, $(7.9) million of shares acquired to satisfy minimum federal and state tax withholdings on restricted stock, $(2.3) million purchase of treasury stock, and $(1.7) million in deferred financing cost.

Six months ended June 30, 2022

We experienced a net decrease in cash, cash equivalents and restricted cash of $(338.6) million for the six months ended June 30, 2022 reflecting cash used in operating activities of $13.9 million, cash used by investing activities of $(253.0) million and cash used in financing activities of $(99.6) million.

Net cash provided by operating activities of $13.9 million was primarily driven by $22.5 million in proceeds from sale of loans and increases in net interest income and increases in net operating income on our real estate portfolio partially offset by $(61.3) million of originations of mortgage loans held for sale.

Net cash used in investing activities of $(253.0) million was driven by usage of $(1.0) billion of origination of mortgage loans held for investment and $(45.2) million in purchases of real estate securities. These uses were partially offset by $525.0 million of repayment from mortgage loan receivables, $163.6 million proceeds from the sale of real estate, $102.2 million in repayments on securities, and $4.7 million of proceeds from sale of real estate securities.

Net cash used in financing activities of $(99.6) million was primarily as a result of net repayments of borrowings of $(23.4) million, $(51.1) million of dividend payments, $(11.3) million of shares acquired to satisfy minimum federal and state tax withholdings on restricted stock, $(7.6) million of capital distributed to noncontrolling interests in consolidated ventures, $(4.7) million purchase of treasury stock, and $(1.7) million in deferred financing costs.

Unencumbered Assets

As of June 30, 2023, we held unencumbered cash of $777.1 million, unencumbered loans of $1.5 billion, unencumbered securities of $244.0 million, unencumbered real estate of $75.1 million and $360.5 million of other assets not secured by any portion of secured indebtedness. As of December 31, 2022, we held unencumbered cash of $609.1 million, unencumbered loans of $1.7 billion, unencumbered securities of $97.5 million, unencumbered real estate of $140.3 million and $351.6 million of other assets not secured by any portion of secured indebtedness.

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Borrowings under various financing arrangements

Our financing strategies are critical to the success and growth of our business. We manage our leverage policies to complement our asset composition and to diversify our exposure across multiple counterparties. Our borrowings under various financing arrangements as of June 30, 2023 are set forth in the table below ($ in thousands):
June 30, 2023
Committed loan repurchase facilities$678,835 
Committed securities repurchase facility— 
Uncommitted securities repurchase facilities6,126 
Total repurchase facilities684,961 
Revolving credit facility— 
Mortgage loan financing(1)469,076 
CLO debt(2)1,060,502 
Borrowings from the FHLB175,000 
Senior unsecured notes(3)1,568,556 
Total debt obligations, net$3,958,095 
(1)Presented net of unamortized debt issuance costs of $1.9 million as of June 30, 2023.
(2)Presented net of unamortized debt issuance costs of $3.9 million as of June 30, 2023.
(3)Presented net of unamortized debt issuance costs of $13.4 million as of June 30, 2023.

The Company’s repurchase facilities include covenants covering minimum net worth requirements (ranging from $400.0 million to $871.4 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), maximum leverage ratios (calculated in various ways based on specified definitions of indebtedness and net worth) and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. We were in compliance with all covenants as of June 30, 2023 and December 31, 2022. Further, certain of our financing arrangements and loans on our real property are secured by the assets of the Company, including pledges of the equity of certain subsidiaries or the assets of certain subsidiaries. From time to time, certain of these financing arrangements and loans may prohibit certain of our subsidiaries from paying dividends to the Company, from making distributions on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or other assets to the Company or other subsidiaries of the Company.

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Committed loan facilities

We are a party to multiple committed loan repurchase agreement facilities, totaling $1.2 billion of credit capacity as of June 30, 2023. As of June 30, 2023, the Company had $678.8 million of borrowings outstanding, with an additional $563.2 million of committed financing available. As of December 31, 2022, the Company had $616.9 million of borrowings outstanding, with an additional $683.1 million of committed financing available. Assets pledged as collateral under these facilities are generally limited to whole mortgage loans collateralized by first liens on commercial real estate, mezzanine loans collateralized by equity interests in entities that own commercial real estate, and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios. We believe we were in compliance with all covenants as of June 30, 2023.

We have the option to extend some of our existing facilities subject to a number of customary conditions. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, and, if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call), sufficient to rebalance the facilities. Typically, the facilities are established with stated guidelines regarding the maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.

Committed securities facility
 
We are a party to a term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $100.0 million of credit capacity. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentage of the collateral asset’s value than the maximum, leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis. As of June 30, 2023, the Company had no borrowings outstanding, with an additional $100.0 million of committed financing available. As of December 31, 2022, the Company had $8.6 million of borrowings outstanding, and an additional $91.4 million of committed financing available.

Uncommitted securities facilities

We are a party to multiple master repurchase agreements with several counterparties to finance our investments in CMBS and U.S. Agency securities. The securities that served as collateral for these borrowings are highly liquid and marketable assets that are typically of relatively short duration.

Revolving Credit Facility

The Company’s revolving credit facility (“Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $323.9 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On July 27, 2022, the Company amended its Revolving Credit Facility to increase the maximum borrowing amount to $323.9 million, extend the maturity date to July 27, 2027, and reduce the interest rate to the sum of one-month Term SOFR plus a fixed margin of 2.50%. The amendment also provides for reductions in the fixed margin upon the achievement of investment grade credit ratings. As of June 30, 2023, the Company had no outstanding borrowings on the Revolving Credit Facility, but still maintains the ability to draw $323.9 million. There were no outstanding draws on the facility at December 31, 2022. After the end of the quarter, we exercised one of the four remaining one-year extension options, which extended the maturity date of the Revolving Credit Facility to July 27, 2024.

The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.

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The Company is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions. In addition, the Company is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. The Company’s ability to borrow is dependent on, among other things, compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.

Mortgage Loan Financing
 
We generally finance our real estate using long-term non-recourse mortgage financing. During the six months ended June 30, 2023, we did not execute any term debt agreement to finance real estate. Our non-recourse debt agreements provide for primarily fixed rate financing at rates ranging from 4.39% to 8.84%, with anticipated maturity dates between 2024-2031 and an average term of 3.2 years as of June 30, 2023. These loans have carrying amounts of $469.1 million and $498.0 million, net of unamortized premiums of $2.1 million and $2.4 million as of June 30, 2023 and December 31, 2022, respectively, representing proceeds received upon financing greater than the contractual amounts due under these agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. The Company recorded $0.3 million of premium amortization, which decreased interest expense for the three and six months ended June 30, 2023 and June 30, 2022. The mortgage loans are collateralized by real estate and related lease intangibles, net, of $518.4 million and $559.9 million as of June 30, 2023 and December 31, 2022, respectively.

Collateralized Loan Obligations (“CLO”) Debt

On July 13, 2021, a consolidated subsidiary of the Company completed a privately-marketed CLO transaction, which generated $498.2 million of gross proceeds to Ladder, financing $607.5 million of loans (“Contributed July 2021 Loans”) at an 82% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 18% subordinate and controlling interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the Contributed July 2021 Loans, including the right to appoint and replace the special servicer under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 9, Consolidated Variable Interest Entities.

On December 2, 2021, a consolidated subsidiary of the Company completed a privately marketed CLO transaction, which generated $566.2 million of gross proceeds to Ladder, financing $729.4 million of loans (“Contributed December 2021 Loans”) at a maximum 77.6% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 15.6% subordinate and controlling interest in the CLO. The Company also held two additional tranches as investments totaling 6.8% interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the Contributed December 2021 Loans, including the right to appoint and replace the special servicer under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 9, Consolidated Variable Interest Entities.

As of June 30, 2023, the Company had $1.1 billion of matched term, non-mark-to-market and non-recourse CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.9 million were included in CLO debt as of June 30, 2023.

As of December 31, 2022, the Company had $1.1 billion of matched term, non-mark-to-market and non-recourse CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $5.9 million were included in CLO debt as of December 31, 2022.

Borrowings from the Federal Home Loan Bank (“FHLB”)

On July 11, 2012, Tuebor, a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. As of February 19, 2021, pursuant to a final rule adopted by the Federal Housing Finance Agency (the “FHFA”) regarding the eligibility of captive insurance companies, Tuebor’s membership in the FHLB has been terminated, although outstanding advances may remain outstanding until their scheduled maturity dates. Funding for future advance paydowns is expected to be obtained from the natural amortization and/or sales of securities collateral, or from other financing sources. There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s existing advances. 

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As of June 30, 2023, Tuebor had $175.0 million of borrowings outstanding, with terms of 0.2 years to 1.3 years (with a weighted average of 0.9 years), interest rates of 2.74% to 5.54% (with a weighted average of 5.34%), and advance rates of 71.7% to 95.7% on eligible collateral. As of June 30, 2023, collateral for the borrowings was comprised primarily of $206.7 million of CMBS.

As of December 31, 2022, Tuebor had $213.0 million of borrowings outstanding, with terms of 0.6 years to 1.75 years (with a weighted average of 1.25 years), and interest rates of 2.74% to 4.70% (with a weighted average of 4.52%). As of December 31, 2022, collateral for the borrowings was comprised of $248.8 million of CMBS and U.S. Agency securities (with advance rates of 71.7% to 95.7%, respectively).

Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, approximately $0.9 billion of Tuebor’s member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at June 30, 2023. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

Senior unsecured notes

As of June 30, 2023, the Company had $1.6 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of $327.8 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”), $612.4 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes”) and $641.7 million in aggregate principal of 4.75% senior notes due 2029 (the “2029 Notes,” and collectively with the 2025 Notes and the 2027 Notes, the “Notes”).

As of December 31, 2022, the Company had $1.6 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of $344.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”), $650.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes”) and $649.0 million in aggregate principal of 4.75% senior notes due 2029 (the “2029 Notes,” and collectively with the 2025 Notes and the 2027 Notes, the “Notes”).

LCFH issued the Notes with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company believes it was in compliance with all covenants of the Notes as of June 30, 2023 and 2022. The Notes are presented net of unamortized debt issuance costs of $13.4 million and $15.4 million as of June 30, 2023 and December 31, 2022, respectively.

The Notes require interest payments semi-annually in cash in arrears, are unsecured, and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the Notes, in whole or in part, at any time, or from time to time, prior to their stated maturity upon not less than 10 nor more than 60 days’ notice, at a redemption price as specified in each respective indenture governing the Notes, plus accrued and unpaid interest, if any, to the redemption date. The board of the directors has authorized the Company to repurchase any or all of the Notes from time to time without further approval.

During the six months ended June 30, 2023, the Company repurchased $16.2 million of the 2025 Notes and recognized a net gain of $1.3 million on extinguishment of debt, $38.4 million of the 2027 Notes and recognized a net gain of $6.7 million on extinguishment of debt, and $7.3 million of the 2029 Notes and recognized a net gain of $1.6 million on extinguishment of debt.

Stock Repurchases

On July 27, 2022, the board of directors authorized the repurchase of $50.0 million of the Company’s Class A common stock from time to time without further approval. This authorization increased the remaining outstanding authorization per the August 4, 2021 authorization from $39.5 million to $50.0 million. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. As of June 30, 2023, the Company has a remaining amount available for repurchase of $44.5 million, which represents 3.2% in the aggregate of its outstanding Class A common stock, based on the closing price of $10.85 per share on such date. Refer to Item 1—“Financial Statements—Note 11, Equity Structure and Accounts” for disclosure of the Company’s repurchase activity.
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The following table is a summary of the Company’s repurchase activity of its Class A common stock during the six months ended June 30, 2023 ($ in thousands):

SharesAmount(1)
Authorizations remaining as of December 31, 2022$46,737 
Repurchases paid:
March 1 - March 31, 2023250,000 (2,285)
Authorizations remaining as of June 30, 2023$44,452 
(1)Amount excludes commissions paid associated with share repurchases.

Dividends

In order for the Company to maintain its qualification as a REIT under the Code, it must annually distribute at least 90% of its taxable income. The Company has paid and in the future intends to declare regular quarterly distributions to its shareholders in aggregating to an amount approximating at least 90% of the REIT’s annual net taxable income. Refer to Item 1 —“Financial Statements and Supplemental Data—Note 10, Equity Structure and Accounts” for disclosure of dividends declared.

Principal repayments on investments

We receive principal amortization on our loans and securities as part of the normal course of our business. Repayment of mortgage loan receivables provided net cash of $433.7 million for the six months ended June 30, 2023 and $525.0 million for the six months ended June 30, 2022. Repayment of real estate securities provided net cash of $135.3 million for the six months ended June 30, 2023, and $102.2 million for the six months ended June 30, 2022.

Proceeds from securitizations and sales of loans

We sell our conduit mortgage loans to securitization trusts and to other third parties as part of our normal course of business and from time to time will sell balance sheet mortgage loans. There were no proceeds from sales of mortgage loans for the six months ended June 30, 2023, and there were $22.5 million of proceeds from sales of mortgage loans for the six months ended June 30, 2022.

Proceeds from the sale of securities

We sell our investments in CMBS, U.S. Agency securities, corporate bonds, U.S. Treasury securities, and equity securities as a part of our normal course of business. Proceeds from sales of securities provided net cash of $14.2 million for the six months ended June 30, 2023, and $4.7 million for the six months ended June 30, 2022.

Proceeds from the sale of real estate
 
There were no proceeds from sales of real estate for the six months ended June 30, 2023, and $163.6 million for the six months ended June 30, 2022.

Other potential sources of financing
 
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments.

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Contractual obligations
 
Contractual obligations as of June 30, 2023 were as follows ($ in thousands):
Contractual Obligations (1)
Less than 1 Year1-3 Years3-5 YearsMore than 5 YearsTotal
Secured financings(2)$16,648 $866,844 $375,464 $69,872 $1,328,828 
Senior unsecured notes— 327,756 612,439 641,744 1,581,939 
Interest payable(3)102,009 179,049 100,555 33,706 415,319 
Other funding obligations(4)86,579 28,546 — 115,125 
Operating lease obligations788 4,378 4,450 13,344 22,960 
Total$206,024 $1,406,573 $1,092,908 $758,666 $3,464,171 
(1)As more fully disclosed in Note 6, Debt Obligations, Net, the allocation of repayments under our committed loan repurchase facilities and Secured Financing Facility is based on the earlier of: (i) the maturity date of each agreement; or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower.
(2)Total does not include $1.1 billion of consolidated CLO debt obligations and the related debt issuance costs of $3.9 million, as the satisfaction of these liabilities will not require cash outlays from us.
(3)Comprised of interest on secured financings and on senior unsecured notes. For borrowings with variable interest rates, we used the rates in effect as of June 30, 2023 to determine the future interest payment obligations.
(4)Comprised primarily of our off-balance sheet unfunded commitment to provide additional first mortgage loan financing as of June 30, 2023. The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the final maturity date, however, we may be obligated to fund these commitments earlier than such date. This amount excludes $157.3 million of future funding commitments that require the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching a pre-determined net operating income which may or may not be achieved.

The table above does not include amounts due under our derivative agreements as those contracts do not have fixed and determinable payments. Our contractual obligations will be refinanced and/or repaid from earnings as well as amortization and sales of our liquid collateral. We have made investments in various unconsolidated ventures of which our maximum exposure to loss from these investments is limited to the carrying value of our investments.

Future Liquidity Needs

In addition to the future contractual obligations above, the Company, in the coming year and beyond, as a part of its normal course of business will require cash to fund unfunded loan commitments and new investments in a combination of balance sheet mortgage loans, conduit loans, real estate investments and securities as it deems appropriate as well as necessary expenses as a part of general corporate purposes. These new investments and general corporate expenses may be funded with existing cash, proceeds from loan and securities payoffs, through financing using our Revolving Credit Facility or loan and security financing facilities, or through additional debt or equity facility raises. The Company has no known material cash requirements other than its contractual obligations in the above table, unfunded commitments and future general corporate expenses.

Unfunded Loan Commitments

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our borrowers. These commitments are not reflected on the consolidated balance sheets. As of June 30, 2023, our off-balance sheet arrangements consisted of $272.2 million of unfunded commitments of mortgage loan receivables held for investment, 58% of which additional funds relate to the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, 2022, our off-balance sheet arrangements consisted of $321.8 million of unfunded commitments of mortgage loan receivables held for investment to provide additional first mortgage loan financing. Such commitments are subject to our borrowers’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. Commitments are subject to our loan borrowers’ satisfaction of certain financial and nonfinancial covenants and may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring.
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LIBOR Transition

We have implemented fallback language for our LIBOR-based mortgage loans, bi-lateral committed repurchase facilities and revolving credit facility, including adjustments as applicable to maintain the anticipated economic terms of the existing contracts. As of June 30, 2023, all of our floating rate loans earn interest at a rate indexed Term SOFR; and 91.7% of our floating rate debt obligations bear interest indexed to Term SOFR. Our remaining LIBOR-based debt obligations will transition to a rate based on SOFR on their next reset dates.

Interest Rate Environment
 
The nature of the Company’s business exposes it to market risk arising from changes in interest rates. Changes, both increases and decreases, in the rates the Company is able to charge its borrowers, the yields the Company is able to achieve in its securities investments, and the Company’s cost of borrowing directly impacts its net income. The Company’s net interest income includes interest from both fixed and floating-rate debt. The percentage of the Company’s assets and liabilities bearing interest at fixed and floating rates may change over time, and asset composition may differ materially from debt composition. Refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk for further disclosures surrounding the impact of rising or falling interest rate on our earnings.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on historical corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances. The Company’s critical accounting policies are those which require assumptions to be made about matters that are highly uncertain. Different estimates could have a material effect on the Company’s financial results. For all of these estimates, we caution that future events rarely develop exactly as forecasted, and therefore, routinely require adjustment.

During 2023, management reviewed and evaluated these critical accounting estimates and believes they are appropriate. Our significant accounting policies are described in Item 1—“Financial Statements and Supplemental Data—Note 2.” The following is a list of accounting policies that require more significant estimates and judgments:

•Current expected credit losses
•Acquisition of real estate
•Impairment or disposal of long lived assets
•Identified intangible assets and liabilities
•Variable interest entities
•Valuation of financial instruments

The following is a summary of accounting policies that require more significant management estimates and judgments:

Provision for Loan Losses

The Company uses a current expected credit loss model (“CECL”) for estimating the provision for loan losses on its loan portfolio. The CECL model requires the consideration of possible credit losses over the life of an instrument and includes a portfolio-based component and an asset-specific component. In compliance with the CECL reporting requirements, the Company supplemented its existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. The Company engages a third-party service provider to provide market data and a credit loss model. The credit loss model is a forward-looking, econometric, commercial real estate (“CRE”) loss forecasting tool. It is comprised of a probability of default (“PD”) model and a loss given default (“LGD”) model that, layered together with the Company’s loan-level data, fair value of collateral, net operating income of collateral, selected forward-looking macroeconomic variables, and pool-level mean loss rates, produces life of loan expected losses (“EL”) at the loan and portfolio level. Where management has determined that the credit loss model does not fully capture certain external factors, including portfolio trends or loan-specific factors, a qualitative adjustment to the reserve is recorded. In addition, interest receivable on loans is not included in the Company’s CECL calculations as the Company performs timely write offs of aged accounts receivable. The Company has made a policy election to write off aged receivables through interest income as opposed to through the CECL provision on its statements of income.

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Loans for which the borrower or sponsor is experiencing financial difficulty, and where repayment of the loan is expected substantially through the operation or sale of the underlying collateral, are considered collateral dependent loans.

For collateral dependent loans the Company measures expected losses based on the difference between the collateral’s fair value and the amortized cost basis of the loan. When the repayment or satisfaction of the loan is dependent on a sale, rather than operations, of the collateral, the fair value is adjusted for the estimated costs to sell the collateral.

The Company generally will use the direct capitalization rate valuation methodology or the sales comparison approach to estimate the fair value of the collateral for collateral dependent loans and in certain cases will obtain external appraisals. Determining fair value of the collateral may take into account a number of assumptions including, but not limited to, cash flow projections, market capitalization rates, discount rates and data regarding recent comparable sales of similar properties. Such assumptions are generally based on current market conditions and are subject to economic and market uncertainties.

The Company’s loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess: (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan at maturity; and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic submarket in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management and underwriting personnel, who utilize various data sources, including: (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and other market data and ultimately presented to management for approval.

When a debtor is experiencing financial difficulties and a loan is modified, the effect of the modification will be included in the Company’s assessment of the CECL allowance for loan losses. If the Company provides principal forgiveness, the amortized cost basis of the loan is written off against the allowance for loan losses. Generally, when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and, in some cases, lookback features or equity interests to offset concessions granted should conditions impacting the loan improve.

The Company designates a loan as a non-accrual loan generally when: (i) the principal or coupon interest components of loan payments become 90-days past due; or (ii) in the opinion of the Company, it is doubtful the Company will be able to collect all principal and coupon interest due according to the contractual terms of the loan. Interest income on non-accrual loans in which the Company reasonably expects a full recovery of the loan’s outstanding principal balance is recognized when received in cash. Otherwise, income recognition will be suspended and any cash received will be applied as a reduction to the amortized cost basis. A non-accrual loan is returned to accrual status at such time as the loan becomes contractually current and future principal and coupon interest are reasonably assured to be received in accordance with the contractual loan terms. A loan will be written off when management has determined principal and coupon interest is no longer realizable and deemed non-recoverable.

The CECL accounting estimate is subject to uncertainty as a result of changing macro-economic market conditions, as well as the vintage and location of the underlying assets as disclosed in Note 3. Mortgage Loans Receivable. The provision for (release of) loan losses for the three months ended June 30, 2023 and June 30, 2022 was $6.9 million and $(1.0) million, respectively, and $11.6 million and $(0.1) million for the six months ended June 30, 2023 and June 30, 2022, respectively.

Acquisition of real estate

We generally acquire real estate assets or land and development assets through purchases and may also acquire such assets through foreclosure or deed-in-lieu of foreclosure in full or partial satisfaction of defaulted loans. Purchased properties are classified as real estate, net or land and development, net on our consolidated balance sheets. When we intend to hold, operate or develop the property for a period of at least 12 months, the asset is classified as real estate, net, and if the asset meets the held-for-sale criteria, the asset is classified as real estate held for sale. Upon purchase, the properties are recorded at cost. Foreclosed assets classified as real estate and land and development are initially recorded at their estimated fair value and assets classified as held for sale are recorded at their estimated fair value less costs to sell. The excess of the carrying value of the loan over these amounts is charged-off against the reserve for loan losses. In both cases, upon acquisition, tangible and intangible assets and liabilities acquired are recorded at their relative fair values.


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Impairment or disposal of long-lived assets

Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell and are included in real estate held for sale on our consolidated balance sheets. The difference between the estimated fair value less costs to sell and the carrying value will be recorded as an impairment charge. Impairment for real estate assets are included in impairment of assets in our consolidated statements of operations. Once the asset is classified as held for sale, depreciation expense is no longer recorded.

We periodically review real estate to be held and used, and land and development assets for impairment in value, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The asset’s value is impaired only if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate and land and development assets are recorded in impairment of assets in our consolidated statements of operations.

There were no properties classified as held for sale as of June 30, 2023 and December 31, 2022. We did not record any impairments of real estate for the three and six months ended June 30, 2023 or June 30, 2022.

Identified intangible assets and liabilities

We record intangible assets and liabilities acquired at their relative fair values, and determine whether such intangible assets and liabilities have finite or indefinite lives. As of June 30, 2023 and December 31, 2022, all such acquired intangible assets and liabilities have finite lives. We amortize finite lived intangible assets and liabilities over the period which the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of the asset acquired. We review finite lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If we determine the carrying value of an intangible asset is not recoverable, we will record an impairment charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangibles are recorded in impairment of assets in our consolidated statements of income.

Variable interest entities

We evaluate our investments and other contractual arrangements to determine if our interests constitute variable interests in a variable interest entity (“VIE”) and if we are the primary beneficiary. There is a significant amount of judgment required to determine if an entity is considered a VIE and if we are the primary beneficiary. We first perform a qualitative analysis, which requires certain subjective decisions regarding our assessment, including, but not limited to, which interests create or absorb variability, the contractual terms, the key decision-making powers, impact on the VIE’s economic performance and related party relationships. An iterative quantitative analysis is required if our qualitative analysis proves inconclusive as to whether the entity is a VIE or we are the primary beneficiary and consolidation is required.

Fair value of assets and liabilities

The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial and nonfinancial assets and liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Pending Adoption

Our recently adopted accounting pronouncements and recent accounting pronouncements pending adoption are described in Item 1—“Financial Statements and Supplemental Data—Note 2. Significant Accounting Policies.”
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Reconciliation of Non-GAAP Financial Measures
 
Distributable earnings
 
The Company utilizes distributable earnings, a non-GAAP financial measure, as a supplemental measure of our operating performance. We believe distributable earnings assists investors in comparing our operating performance and our ability to pay dividends across reporting periods on a more relevant and consistent basis by excluding from GAAP measures certain non-cash expenses and unrealized results as well as eliminating timing differences related to securitization gains and changes in the values of assets and derivatives. In addition, we use distributable earnings: (i) to evaluate our earnings from operations because management believes that it may be a useful performance measure; and (ii) because our board of directors considers distributable earnings in determining the amount of quarterly dividends.

We define distributable earnings as income before taxes adjusted for: (i) real estate depreciation and amortization; (ii) the impact of derivative gains and losses related to the hedging of assets on our balance sheet as of the end of the specified accounting period; (iii) unrealized gains/(losses) related to our investments in fair value securities and passive interest in unconsolidated ventures; (iv) economic gains on loan sales not recognized under GAAP accounting for which risk has substantially transferred during the period and the exclusion of resultant GAAP recognition of the related economics during the subsequent periods; (v) unrealized provision for loan losses and unrealized real estate impairment; (vi) realized provisions for loan losses and realized real estate impairment; (vii) non-cash stock-based compensation; and (viii) certain transactional items. For the purpose of computing distributable earnings, management recognizes loan and real estate losses as being realized generally in the period in which the asset is sold or the Company determines a decline in value to be non-recoverable and the loss to be nearly certain.

For distributable earnings, we include adjustments for economic gains on loan sales not recognized under GAAP accounting for which risk has substantially transferred during the period and exclude the resultant GAAP recognition of the related economics during the subsequent periods. This adjustment is reflected in distributable earnings when there is a true risk transfer on the mortgage loan transfer and settlement. Historically, this adjustment has represented the impact of economic gains/(discounts) on intercompany loans secured by our own real estate which we had not previously recognized because such gains were eliminated in consolidation. Conversely, if the economic risk was not substantially transferred, no adjustments to net income would be made relating to those transactions for distributable earnings purposes. Management believes recognizing these amounts for distributable earnings purposes in the period of transfer of economic risk is a reasonable supplemental measure of our performance.

As discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, we do not designate derivatives as hedges to qualify for hedge accounting and, therefore, any net payments under, or fluctuations in the fair value of, our derivatives are recognized currently in our GAAP income statement. However, fluctuations in the fair value of the related assets are not included in our income statement. We consider the gain or loss on our hedging positions related to assets that we still own as of the reporting date to be “open hedging positions.” While recognized for GAAP purposes, we exclude the results on the hedges from distributable earnings until the related asset is sold and/or the hedge position is considered “closed,” whereupon they would then be included in distributable earnings in that period. These are reflected as “Adjustments for unrecognized derivative results” for purposes of computing distributable earnings for the period. We believe that excluding these specifically identified gains and losses associated with the open hedging positions adjusts for timing differences between when we recognize changes in the fair values of our assets and changes in the fair value of the derivatives used to hedge such assets.
 
As more fully discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, our investments in Agency interest-only securities and equity securities are recorded at fair value with changes in fair value recorded in current period earnings. We believe that excluding these specifically identified gains and losses associated with the fair value securities adjusts for timing differences between when we recognize changes in the fair values of our assets. With regard to securities valuation, distributable earnings includes a decline in fair value deemed to be an impairment for GAAP purposes only if the decline is determined to be nearly certain to be eventually realized. In those cases, an impairment is included in distributable earnings for the period in which such determination was made. Set forth below is an unaudited reconciliation of income (loss) before taxes to distributable earnings (in thousands):
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Three Months Ended
June 30,March 31,
20232023
Income (loss) before taxes$28,138 $23,911 
Net (income) loss attributable to noncontrolling interests in consolidated ventures (GAAP)71 217 
Our share of real estate depreciation, amortization and gain adjustments (1)6,591 6,754 
Adjustments for derivative results (2)(3,161)2,698 
Unrealized (gain) loss on fair value securities95 (117)
Adjustment for economic gain on loan sales not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization(150)(150)
Adjustment for impairment (3)6,881 4,736 
Non-cash stock-based compensation3,046 9,124 
Distributable earnings$41,511 $47,173 
(1)The following is a reconciliation of GAAP depreciation and amortization to our share of real estate depreciation, amortization and gain adjustments ($ in thousands):
Three Months Ended
June 30,March 31,
20232023
Total GAAP depreciation and amortization$7,471 $7,529 
Less: Depreciation and amortization related to non-rental property fixed assets(108)(103)
Less: Non-controlling interests in consolidated ventures’ share of depreciation and amortization and adjustment for passive interest in unconsolidated ventures(319)(218)
Our share of real estate depreciation and amortization7,044 7,208 
Realized gain from accumulated depreciation and amortization on real estate sold— — 
Less: Non-controlling interests in consolidated ventures’ share of accumulated depreciation and amortization on real estate sold— — 
Our share of accumulated depreciation and amortization on real estate sold (a)— — 
Less: Our share of operating lease income on above/below market lease intangible amortization(453)(454)
Our share of real estate depreciation, amortization and gain adjustments$6,591 $6,754 
(2)The following is a reconciliation of GAAP net results from derivative transactions to our derivative result presented in the computation of distributable earnings ($ in thousands):
Three Months Ended
June 30,March 31,
20232023
Net results from derivative transactions$(4,149)$2,242 
Hedging interest income (expense)380 252 
Other hedging related activity (a)608 204 
Adjustments for derivative results$(3,161)$2,698 
(a) Includes unrealized lower of cost or market adjustments of $0.3 million and $0.2 million for the three months ended June 30, 2023 and March 31, 2023, respectively.
(3)
The adjustment reflects the portion of the loan loss provision that management determined to be recoverable. Additional provisions and releases of those provisions are excluded from distributable earnings as a result.







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Distributable earnings has limitations as an analytical tool. Some of these limitations are:
 
•Distributable earnings does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations and is not necessarily indicative of cash necessary to fund cash needs; and
 
•Other companies in our industry may calculate distributable earnings differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, distributable earnings should not be considered in isolation or as a substitute for net income (loss) attributable to shareholders or any other performance measures calculated in accordance with GAAP, or as an alternative to cash flows from operations as a measure of our liquidity.

In addition, distributable earnings should not be considered to be the equivalent to REIT taxable income calculated to determine the minimum amount of dividends the Company is required to distribute to shareholders to maintain REIT status. In order for the Company to maintain its qualification as a REIT under the Code, we must annually distribute at least 90% of our REIT taxable income. The Company has declared, and intends to continue declaring, regular quarterly distributions to its shareholders in an amount approximating the REIT’s net taxable income.
 
In the future we may incur gains and losses that are the same as or similar to some of the adjustments in this presentation. Our presentation of distributable earnings should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
For a discussion of current market conditions, refer to Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A. “Risk Factors.”

Interest Rate Risk
 
The nature of the Company’s business exposes it to market risk arising from changes in interest rates. Changes, both increases and decreases, in the rates the Company is able to charge its borrowers, the yields the Company is able to achieve in its securities investments, and the Company’s cost of borrowing directly impacts its net income. The Company’s net interest income includes interest from both fixed and floating-rate debt. The percentage of the Company’s assets and liabilities bearing interest at fixed and floating rates may change over time, and asset composition may differ materially from debt composition. Another component of interest rate risk is the effect changes in interest rates will have on the market value of the assets the Company acquires. The Company faces the risk that the market value of its assets will increase or decrease at different rates than that of its liabilities, including its hedging instruments. The Company mitigates interest rate risk through utilization of hedging instruments, primarily interest rate swap and futures agreements. Interest rate swap and futures agreements are utilized to hedge against future interest rate increases on the Company’s borrowings and potential adverse changes in the value of certain assets that result from interest rate changes. The Company generally seeks to hedge assets that have a duration longer than five years, including newly originated conduit first mortgage loans, securities in the Company’s CMBS portfolio if long enough in duration, and most of its U.S. Agency securities portfolio.

The following table summarizes the change in net income for a 12-month period commencing June 30, 2023 and the change in fair value of our investments and indebtedness assuming an increase or decrease of 100 basis points in the relevant benchmark interest rates on June 30, 2023, both adjusted for the effects of our interest rate hedging activities ($ in thousands):
Projected change
in net income(1)		Projected change
in portfolio
value
Change in interest rate:
Decrease by 1.00%$(26,718)$2,673 
Increase by 1.00%26,892 (2,662)
(1)    Subject to limits for floors on our floating rate investments and indebtedness.
 
Market Risk
 
As market volatility increases or liquidity decreases, the market value of the Company’s assets may be adversely impacted.

The Company’s securities investments are reflected at their estimated fair value. The change in estimated fair value of securities available-for-sale is reflected in accumulated other comprehensive income. The change in estimated fair value of Agency interest-only securities is recorded in current period earnings. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase.

The Company’s fixed rate mortgage loan portfolio is subject to the same risks. However, to the extent those loans are classified as held for sale, they are reflected at the lower of cost or market. Otherwise, held for investment mortgage loans are reflected at values equal to the unpaid principal balances net of certain fees, costs and loan loss allowances.

Concentrations of market risk may exist with respect to the Company’s investments. Market risk is a potential loss the Company may incur as a result of change in the fair values of its investments. The Company may also be subject to risk associated with concentrations of investments in geographic regions and industries.

 
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Liquidity Risk
 
Market disruptions may lead to a significant decline in transaction activity in all or a significant portion of the asset classes in which the Company invests and may at the same time lead to a significant contraction in short-term and long-term debt and equity funding sources. A decline in liquidity of real estate and real estate-related investments, as well as a lack of availability of observable transaction data and inputs, may make it more difficult to sell the Company’s investments or determine their fair values. As a result, the Company may be unable to sell its investments, or only be able to sell its investments at a price that may be materially different from the fair values presented. Also, in such conditions, there is no guarantee that the Company’s borrowing arrangements or other arrangements for obtaining leverage will continue to be available or, if available, will be available on terms and conditions acceptable to the Company. In addition, a decline in market value of the Company’s assets may have particular adverse consequences in instances where it borrowed money based on the fair value of its assets. A decrease in the market value of the Company’s assets may result in the lender requiring it to post additional collateral or otherwise sell assets at a time when it may not be in the Company’s best interest to do so. The Company’s captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends may only be made with regulatory approval, limiting the Company’s ability to utilize cash held by Tuebor.
 
Credit Risk

The Company is subject to varying degrees of credit risk in connection with its investments. The Company seeks to manage credit risk by performing deep credit fundamental analyses of potential assets and through ongoing asset management. The Company’s investment guidelines do not limit the amount of its equity that may be invested in any type of its assets; however, investments greater than a certain size are subject to approval by the Risk and Underwriting Committee of the board of directors.

Our portfolio’s low weighted average loan-to-value of 67.2% as of June 30, 2023 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

Credit Spread Risk

Credit spread risk is the risk that interest rate spreads between two different financial instruments will change. In general, fixed-rate commercial mortgages and CMBS are priced based on a spread to Treasury or interest rate swaps. The Company generally benefits if credit spreads narrow during the time that it holds a portfolio of mortgage loans or CMBS investments, and the Company may experience losses if credit spreads widen during the time that it holds a portfolio of mortgage loans or CMBS investments. The Company actively monitors its exposure to changes in credit spreads and the Company may enter into credit total return swaps or take positions in other credit-related derivative instruments to moderate its exposure against losses associated with a widening of credit spreads.

Risks Related to Real Estate

Real estate and real estate-related assets, including loans and commercial real estate-related securities, are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; environmental conditions; competition from comparable property types or properties; changes in tenant mix or performance and retroactive changes to building or similar codes and rent regulations. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause the Company to suffer losses.

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Covenant Risk

In the normal course of business, the Company enters into loan and securities repurchase agreements and credit facilities with certain lenders to finance its real estate investment transactions. These agreements contain, among other conditions, events of default and various covenants and representations. If such events are not cured by the Company or waived by the lenders, the lenders may decide to curtail or limit extension of credit, and the Company may be forced to repay its advances or loans. In addition, the Company’s Notes are subject to covenants, including maintenance of unencumbered assets, limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. The Company’s failure to comply with these covenants could result in an event of default, which could result in the Company being required to repay these borrowings before their due date.

We were in compliance with all covenants as described in this Quarterly Report as of June 30, 2023.

Diversification Risk

The assets of the Company are concentrated in the commercial real estate sector. Accordingly, the investment portfolio of the Company may be subject to more rapid change in value than would be the case if the Company were to maintain a wide diversification among investments or industry sectors. Furthermore, even within the commercial real estate sector, the investment portfolio may be relatively concentrated in terms of geography and type of real estate investment. This lack of diversification may subject the investments of the Company to more rapid change in value than would be the case if the assets of the Company were more widely diversified.
 
Regulatory Risk
 
Tuebor is subject to state regulation as a captive insurance company. If Tuebor fails to comply with regulatory requirements, it could be subject to loss of its licenses and registration and/or economic penalties.
 
Effective as of July 16, 2021, LCAM is a registered investment adviser under the Investment Advisors Act of 1940, as amended and currently provides investment advisory services solely to Ladder-sponsored collateralized loan obligation trusts (“CLO Issuers”). The CLO Issuers invest primarily in first mortgage loans secured by commercial real estate originated or acquired by Ladder and in participation interests in such loans. LCAM is entitled to receive a management fee connection with the advisory, administrative and monitoring services it performs for the CLO Issuer as the collateral manager; however, LCAM has waived this fee for so long as it or any of its affiliates serves as collateral manager for the CLO Issuers.

A registered investment adviser is subject to U.S. federal and state laws and regulations primarily intended to benefit its clients. These laws and regulations include requirements relating to, among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, record keeping and reporting requirements, disclosure requirements, custody arrangements, limitations on agency cross and principal transactions between an investment adviser and its advisory clients and general anti-fraud prohibitions. In addition, these laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict us from conducting our advisory activities in the event we fail to comply with those laws and regulations. Sanctions that may be imposed for a failure to comply with applicable legal requirements include the suspension of individual employees, limitations on our engaging in various advisory activities for specified periods of time, disgorgement, the revocation of registrations, and other censures and fines.
 
We may become subject to additional regulatory and compliance burdens if our investment adviser subsidiary expands its product offerings and investment platform.
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Item 4. Controls and Procedures

Disclosure Controls and Procedures
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act as of June 30, 2023. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of June 30, 2023, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II
Item 1. Legal Proceedings
From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Further, certain of our subsidiaries, such as our registered investment adviser and captive insurance company, are subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any material enforcement proceedings, litigation related to regulatory compliance matters or any other type of material litigation matters. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.

Item 1A. Risk Factors
There have been no material changes during the three months ended June 30, 2023 to the risk factors in Item 1A in our Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a) Sales of Unregistered Securities

None.

c) Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
EXHIBIT INDEX
EXHIBIT
NO.		 DESCRIPTION
 
 
 
 
101101.SCH* iXBRL Schema Document.
101.CAL* iXBRL Calculation Linkbase Document.
101.DEF* iXBRL Definition Linkbase Document.
101.LAB* iXBRL Label Linkbase Document.
101.PRE* iXBRL Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)
*                                        The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing.

# Management contract or compensatory plan or arrangement.


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 LADDER CAPITAL CORP
 (Registrant)
Date: July 28, 2023By:/s/ BRIAN HARRIS
  Brian Harris
  Chief Executive Officer
Date: July 28, 2023By:/s/ PAUL J. MICELI
  Paul J. Miceli
  Chief Financial Officer

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