Ladder Capital(LADR) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Ladder Capital Corp, including the Balance Sheets, Statements of Income, Comprehensive Income, Changes in Equity, and Cash Flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial instrument details Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Assets | | | | | | Cash and cash equivalents | $777,078 | $609,078 | $168,000 | 27.58% | | Total assets | $5,628,651 | $5,951,173 | $(322,522) | -5.42% | | Liabilities | | | | | | Debt obligations, net | $3,958,095 | $4,245,697 | $(287,602) | -6.77% | | Total liabilities | $4,097,151 | $4,417,612 | $(320,461) | -7.25% | | Equity | | | | | | Total shareholders' equity | $1,532,099 | $1,533,346 | $(1,247) | -0.08% | | Total equity | $1,531,500 | $1,533,561 | $(2,061) | -0.13% | Consolidated Statements of Income Consolidated Statements of Income Highlights (Dollars in Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $101,829 | $65,268 | $205,625 | $121,473 | | Interest expense | $61,342 | $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, net | $6,881 | $(1,002) | $11,617 | $(128) | | Net income (loss) | $28,092 | $43,212 | $50,281 | $62,366 | | Net income (loss) attributable to Class A common shareholders | $28,163 | $35,048 | $50,569 | $54,080 | | Basic EPS | $0.23 | $0.28 | $0.41 | $0.43 | | Diluted EPS | $0.23 | $0.28 | $0.41 | $0.43 | - Net interest income for the three months ended June 30, 2023, increased by $17.9 million (79.7%) compared to the same period in 2022, primarily due to higher interest income[24] - Net income attributable to Class A common shareholders decreased by $6.885 million (-19.6%) for the three months ended June 30, 2023, compared to the same period in 2022[24] - For the six months ended June 30, 2023, net interest income increased by $51.8 million (163.2%) compared to the same period in 2022, while net income attributable to Class A common shareholders decreased by $3.511 million (-6.5%)[24] Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (Dollars in Thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $28,092 | $43,212 | $50,281 | $62,366 | | Unrealized gain (loss) on securities, net of tax | $1,008 | $(7,065) | $4,181 | $(13,803) | | Total other comprehensive income (loss) | $1,000 | $(7,102) | $4,485 | $(13,743) | | Comprehensive income (loss) attributable to Class A common shareholders | $29,163 | $27,946 | $55,054 | $40,337 | - Total other comprehensive income (loss) significantly improved, moving from a loss of $(7,102) thousand in Q2 2022 to a gain of $1,000 thousand in Q2 2023, primarily due to unrealized gains on securities[26] - Comprehensive income attributable to Class A common shareholders increased by $14.717 million (36.5%) for the six months ended June 30, 2023, compared to the same period in 2022[26] Consolidated Statements of Changes in Equity Consolidated Statements of Changes in Equity Highlights (Dollars in Thousands) | Metric | Balance, December 31, 2022 | Balance, June 30, 2023 | Change (Absolute) | | :----------------------------------- | :------------------------- | :--------------------- | :---------------- | | Class A Common Stock (Par Value) | $127 | $127 | $0 | | Additional Paid-in Capital | $1,826,833 | $1,839,003 | $12,170 | | Treasury Stock | $(95,600) | $(105,738) | $(10,138) | | Retained Earnings | $(177,005) | $(184,769) | $(7,764) | | Accumulated Other Comprehensive Income (Loss) | $(21,009) | $(16,524) | $4,485 | | Noncontrolling Interests | $215 | $(599) | $(814) | | Total Equity | $1,533,561 | $1,531,500 | $(2,061) | - Additional paid-in capital increased by $12.17 million, primarily due to amortization of equity-based compensation[35] - Treasury stock increased by $10.138 million, reflecting purchases and shares acquired for tax withholding[35] - Retained earnings decreased by $7.764 million, driven by dividends declared ($58.333 million) partially offset by net income ($50.569 million)[35] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Dollars in Thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (Absolute) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :---------------- | | Net cash provided by (used in) operating activities | $44,089 | $13,947 | $30,142 | | Net cash provided by (used in) investing activities | $523,267 | $(253,006) | $776,273 | | Net cash provided by (used in) financing activities | $(353,024) | $(99,556) | $(253,468) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $214,332 | $(338,615) | $552,947 | | Cash, cash equivalents and restricted cash at end of period | $873,934 | $282,931 | $591,003 | - Net cash from operating activities increased by $30.142 million, driven by net income and adjustments for non-cash items[41] - Net cash from investing activities saw a significant positive swing of $776.273 million, moving from a net outflow in 2022 to a substantial inflow in 2023, primarily due to higher repayments of mortgage loan receivables and securities[41] - Net cash used in financing activities increased by $253.468 million, mainly due to higher net repayments of debt obligations and increased dividend payments[42] Notes to Consolidated Financial Statements Note 1. Organization and Operations Ladder Capital Corp operates as an internally-managed REIT, specializing in commercial real estate finance, originating and investing in a diverse portfolio of senior secured commercial real estate and related assets, and consolidating its operating partnership and subsidiaries - Ladder Capital Corp is an internally-managed REIT focused on commercial real estate finance[45] - The company's investment activities include originating senior first mortgage loans, owning and operating commercial real estate, and investing in investment-grade securities secured by commercial real estate[45] - Ladder Capital Corp holds a 100% economic interest in and controls Ladder Capital Finance Holdings LLLP (LCFH), consolidating its financial results[45] Note 2. Significant Accounting Policies This note outlines the company's accounting practices, including GAAP compliance, consolidation principles, the Current Expected Credit Loss (CECL) model, and the treatment of collateral-dependent and non-accrual loans - The consolidated financial statements are prepared in accordance with GAAP and include majority-owned/controlled subsidiaries and VIEs where the Company is the primary beneficiary[48][49][50] - The Company uses a Current Expected Credit Loss (CECL) model for loan loss provisions, considering possible credit losses over the life of an instrument, with both portfolio-based and asset-specific components[51] - Collateral-dependent loans measure expected losses based on the difference between collateral's fair value and the loan's amortized cost, adjusted for selling costs if repayment depends on sale[52][53] - Loans are designated as non-accrual when payments are 90-days past due or collection is doubtful; interest income is suspended and applied to amortized cost unless full recovery is reasonably expected[57] Note 3. Mortgage Loan Receivables The company's mortgage loan receivables portfolio decreased to $3.501 billion at June 30, 2023, with a significant increase in allowance for credit losses and non-accrual loans due to adverse macroeconomic conditions Mortgage Loan Receivables (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :------------------------------------------------ | :------------ | :---------------- | :---------------- | :--------- | | Mortgage loan receivables held for investment, net, at amortized cost | $3,501,235 | $3,885,746 | $(384,511) | -9.90% | | Allowance for credit losses | $(32,248) | $(20,755) | $(11,493) | 55.33% | | Mortgage loan receivables held for sale | $26,901 | $27,391 | $(490) | -1.79% | | Total mortgage loan receivables | $3,495,888 | $3,892,382 | $(396,494) | -10.19% | | Weighted Average Yield (Held for Investment) | 9.56% | 8.85% | 0.71% | 8.02% | | Non-Accrual Status (Amortized Cost Basis) | $88,933 | $53,809 | $35,124 | 65.28% | - The increase in provision for loan loss reserves for the six months ended June 30, 2023, was $11.6 million, primarily due to adverse changes in macroeconomic market conditions affecting commercial real estate[76] - As of June 30, 2023, 87.3% of mortgage loan receivables held for investment were at variable interest rates linked to SOFR, all subject to interest rate floors[62] Note 4. Securities The company's securities portfolio, primarily AAA-rated real estate securities, decreased to $458.2 million at June 30, 2023, consisting mainly of CMBS, CMBS interest-only, GNMA interest-only, Agency, and U.S. Treasury securities Securities Portfolio Summary (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | CMBS (Carrying Value) | $440,341 | $541,333 | $(100,992) | -18.66% | | CMBS interest-only (Carrying Value) | $8,557 | $10,443 | $(1,886) | -18.06% | | U.S. Treasury securities (Carrying Value) | $8,935 | $35,328 | $(26,393) | -74.71% | | Total debt securities (Carrying Value) | $458,114 | $587,420 | $(129,306) | -22.01% | | Total securities (Carrying Value) | $458,224 | $587,519 | $(129,295) | -22.01% | | Weighted Average Yield (Debt Securities) | 6.26% | 5.29% | 0.97% | 18.34% | | Remaining Duration (Debt Securities, years) | 1.39 | 1.07 | 0.32 | 29.91% | - The company invests primarily in AAA-rated real estate securities, typically front pay securities, with relatively short duration and significant credit subordination[80] - Unrealized losses on securities are determined to be due to market factors other than credit, based on the company's analysis of interest rate changes and subordination levels[89] Note 5. Real Estate and Related Lease Intangibles, Net The company's real estate and related lease intangibles, net, decreased to $686.7 million at June 30, 2023, primarily due to accumulated depreciation and amortization, with no real estate acquisitions or sales in the first six months of 2023 Real Estate and Related Lease Intangibles, Net (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :------------------------------------------ | :------------ | :---------------- | :---------------- | :--------- | | Undepreciated real estate and related lease intangibles | $900,641 | $899,144 | $1,497 | 0.17% | | Less: Accumulated depreciation and amortization | $(213,940) | $(199,008) | $(14,932) | 7.50% | | Real estate and related lease intangibles, net | $686,701 | $700,136 | $(13,435) | -1.92% | | Unencumbered real estate | $75,100 | $140,300 | $(65,200) | -46.47% | Total Real Estate Depreciation and Amortization Expense (Dollars in Thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total real estate depreciation and amortization expense | $7,471 | $7,558 | $15,000 | $16,900 | - No real estate acquisitions or sales occurred during the six months ended June 30, 2023, in contrast to $15.4 million in acquisitions and $163.6 million in sales during the same period in 2022[99][102] Note 6. Debt Obligations, Net The company's total debt obligations, net, decreased by 6.77% to $3.958 billion at June 30, 2023, driven by net repayments across various facilities, while remaining in compliance with all debt covenants Total Debt Obligations, Net (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Committed Loan Repurchase Facilities | $678,835 | $616,894 | $61,941 | 10.04% | | Total Repurchase Facilities | $684,961 | $847,862 | $(162,901) | -19.21% | | Mortgage Loan Financing | $469,076 | $497,991 | $(28,915) | -5.81% | | CLO Debt | $1,060,502 | $1,058,462 | $2,040 | 0.19% | | Borrowings from the FHLB | $175,000 | $213,000 | $(38,000) | -17.84% | | Senior Unsecured Notes | $1,568,556 | $1,628,382 | $(59,826) | -3.67% | | Total Debt Obligations, Net | $3,958,095 | $4,245,697 | $(287,602) | -6.77% | - The company repurchased $61.9 million of Senior Unsecured Notes during the six months ended June 30, 2023, recognizing a net gain of $9.679 million on extinguishment of debt[129][322] - As of June 30, 2023, 91.7% of the company's floating rate debt obligations bear interest indexed to Term SOFR, with remaining LIBOR-based debt transitioning to SOFR on their next reset dates[136] - The company was in compliance with all debt covenants as of June 30, 2023, including those for repurchase facilities, revolving credit facility, and senior unsecured notes[112][117][130][135] Note 7. Derivative Instruments The company uses derivative instruments, primarily interest rate caps, Treasury futures, and options, to manage interest rate and market risk, with a total notional amount of $175.2 million at June 30, 2023, and a net gain of $1.907 million from transactions for the six months ended June 30, 2023 Derivative Instruments Summary (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Total derivatives (Notional) | $175,200 | $195,600 | $(20,400) | -10.43% | | Total derivatives (Fair Value Asset) | $1,853 | $2,038 | $(185) | -9.08% | Net Result from Derivative Transactions (Dollars in Thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Result from Derivative Transactions | $4,149 | $2,679 | $1,907 | $5,814 | - 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[137] - Collateral posted with futures counterparties is segregated, and the company is required to post initial and daily variation margin for centrally cleared interest rate futures[142][143] Note 8. Offsetting Assets and Liabilities The company's accounting policy is to record derivative asset and liability positions on a gross basis, even though master netting agreements allow for offset. This note provides a detailed breakdown of gross and net amounts of derivatives and repurchase agreements, along with associated cash collateral, as of June 30, 2023, and December 31, 2022 Offsetting of Financial Assets and Derivative Assets (Dollars in Thousands) | Description | Gross amounts of recognized assets (June 30, 2023) | Net amount (June 30, 2023) | | :---------- | :--------------------------------- | :------------------------- | | Derivatives | $1,853 | $(262) | Offsetting of Financial Liabilities and Derivative Liabilities (Dollars in Thousands) | Description | Gross amounts of recognized liabilities (June 30, 2023) | Net amount (June 30, 2023) | | :------------------ | :------------------------------------ | :------------------------- | | Repurchase agreements | $684,960 | $684,960 | - The company elects gross presentation for derivative and repurchase agreements on its consolidated financial statements, despite having master netting agreements that allow for netting[150] Note 9. Consolidated Variable Interest Entities The company consolidates two CLO transactions as Variable Interest Entities (VIEs), where it is identified as the primary beneficiary. As of June 30, 2023, these VIEs held total assets of $1.342 billion, primarily mortgage loan receivables, and total liabilities of $1.064 billion, mainly CLO debt Consolidated Variable Interest Entities (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :------------------------------------------------ | :------------ | :---------------- | :---------------- | :--------- | | Restricted cash | $69,197 | $4,902 | $64,295 | 1311.61% | | Mortgage loan receivables held for investment, net, at amortized cost | $1,241,295 | $1,308,654 | $(67,359) | -5.15% | | Total assets | $1,342,474 | $1,339,374 | $3,100 | 0.23% | | Debt obligations, net | $1,060,502 | $1,058,462 | $2,040 | 0.19% | | Total liabilities | $1,063,851 | $1,061,556 | $2,295 | 0.22% | | Net equity in VIEs (eliminated in consolidation) | $278,623 | $277,818 | $805 | 0.29% | - The company consolidates two CLOs as VIEs, retaining subordinate and controlling interests and consent rights over major servicing decisions[121][122][151] Note 10. Equity Structure and Accounts The company's board authorized a $50.0 million Class A common stock repurchase program, with $44.5 million remaining as of June 30, 2023. Dividends declared for the six months ended June 30, 2023, totaled $0.46 per share, an increase from $0.42 in the prior year. Accumulated other comprehensive income (loss) improved significantly, moving from a loss of $(21.0) million to $(16.5) million Stock Repurchase Activity (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | | :----------------------------------- | :------------ | :---------------- | :---------------- | | Authorizations remaining | $44,452 | $46,737 | $(2,285) | | Repurchases paid (shares) | 250,000 | N/A | N/A | | Repurchases paid (amount) | $(2,285) | N/A | N/A | Dividends Declared per Class A Common Stock | Period | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (Absolute) | Change (%) | | :------------------------------------ | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Total Dividend per Share | $0.46 | $0.42 | $0.04 | 9.52% | Changes in Accumulated Other Comprehensive Income (Loss) (Dollars in Thousands) | Metric | December 31, 2022 | June 30, 2023 | Change (Absolute) | | :------------------------------------------ | :---------------- | :------------ | :---------------- | | Accumulated Other Comprehensive Income (Loss) | $(21,009) | $(16,524) | $4,485 | Note 11. Noncontrolling Interests The company consolidates two ventures with noncontrolling investors holding 10.0% to 25.0% interests. These ventures primarily hold investments in a student housing portfolio and a single-tenant office building. No sales of assets with noncontrolling interests occurred during the first six months of 2023, unlike the prior year which saw sales of two consolidated ventures - As of June 30, 2023, the company consolidates two ventures with noncontrolling investors owning between 10.0% and 25.0% of each[159] - These ventures hold investments in a 40-building student housing portfolio in Isla Vista, CA ($79.2 million book value) and a single-tenant office building in Oakland County, MI ($8.6 million book value)[159] - No sales of assets with noncontrolling interests occurred during the six months ended June 30, 2023, compared to the sale of two consolidated ventures (apartment complexes in Stillwater, OK and Miami, FL) during the same period in 2022[160] Note 12. Earnings Per Share Basic and diluted earnings per share (EPS) for Class A common shareholders were $0.23 for the three months ended June 30, 2023, and $0.41 for the six months ended June 30, 2023. This represents a decrease from the prior year's EPS, despite a slight increase in weighted average shares outstanding Earnings Per Share (Except Per Share Amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Class A common shareholders | $28,163 | $35,048 | $50,569 | $54,080 | | Basic net income (loss) per share | $0.23 | $0.28 | $0.41 | $0.43 | | Diluted net income (loss) per share | $0.23 | $0.28 | $0.41 | $0.43 | | Basic weighted average shares outstanding | 124,731,195 | 124,593,171 | 124,612,821 | 124,452,339 | | Diluted weighted average shares outstanding | 124,827,596 | 125,265,707 | 124,742,506 | 125,738,758 | - Basic and diluted EPS decreased from $0.28 to $0.23 for the three months ended June 30, 2023, and from $0.43 to $0.41 for the six months ended June 30, 2023, compared to the respective prior periods[161] Note 13. Stock-Based and Other Compensation Plans Stock-based compensation expense decreased significantly from $24.0 million in the first six months of 2022 to $12.1 million in the same period of 2023. The company adopted the 2023 Omnibus Incentive Plan, replacing the 2014 plan, with 3.0 million new shares available for issuance, plus remaining shares from the prior plan. Awards granted in 2023 for 2022 performance include both time-based and performance-based restricted stock, with a 'Catch-Up Provision' for performance targets Stock-Based Compensation Expense (Dollars in Thousands) | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $3,046 | $3,637 | $12,170 | $24,049 | - The 2023 Omnibus Incentive Plan superseded the 2014 plan, making 3.0 million new shares of Class A common stock available for issuance, plus an additional 10.25 million shares remaining from the 2014 plan[167][168] - Awards granted in February 2023 for 2022 performance included restricted stock subject to time-based vesting (over three years) and performance criteria (8% pre-tax return on average equity), with a 'Catch-Up Provision' for missed performance targets[170][171][172] - As of June 30, 2023, there was $15.9 million of total unrecognized compensation cost related to share-based awards, expected to be recognized over a weighted average remaining vesting period of 24.0 months[165] Note 14. Fair Value of Financial Instruments The company provides fair value measurements for its financial instruments, categorizing them into Level 1, 2, or 3 based on observability of inputs. As of June 30, 2023, Level 3 assets, primarily CMBS, totaled $439.8 million, showing a decrease from December 31, 2022, due to paydowns/maturities and sales, partially offset by purchases and unrealized gains Fair Value of Financial Instruments (Dollars in Thousands) - June 30, 2023 | Category | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------------------ | :------ | :------ | :------ | :------ | | Financial Instruments Reported at Fair Value | | | | | | Assets | $9,064 | $1,853 | $439,825 | $450,742 | | Financial Instruments Not Reported at Fair Value | | | | | | Assets | $0 | $0 | $3,503,218 | $3,503,218 | | Liabilities | $0 | $0 | $3,732,551 | $3,732,551 | Changes in Level 3 Financial Instruments (Dollars in Thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Balance at January 1, | $542,646 | $692,864 | | Purchases | $14,953 | $44,090 | | Sales | $(11,324) | $(4,261) | | Paydowns/maturities | $(108,663) | $(109,804) | | Unrealized gain/(loss) | $4,287 | $(13,759) | | Balance at June 30, | $439,825 | $606,656 | - The fair value of mortgage loan receivables held for investment is estimated to approximate the outstanding face amount for floating rate loans due to short interest rate reset risk, while fixed rate loans use a discounted cash flow model[184][191] - Significant unobservable inputs in Level 3 measurements, such as yield, are sensitive to changes, where an increase (decrease) in yield would result in significantly lower (higher) fair value measurement[208] Note 15. Income Taxes The company maintains its REIT status, generally exempting it from federal income taxes, except for its Taxable REIT Subsidiaries (TRSs). Net deferred tax assets (liabilities) shifted from $(1.8) million at December 31, 2022, to $(2.7) million at June 30, 2023. The company has full valuation allowances against deferred tax assets related to capital losses and Code Section 163(j) interest expense limitation due to uncertainty of realization - The company elected to be taxed as a REIT, generally exempting its income from U.S. federal, state, and local corporate income taxes, except for its Taxable REIT Subsidiaries (TRSs)[210][211] Net Deferred Tax Assets (Liabilities) (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | | :----------------------------------- | :------------ | :---------------- | :---------------- | | Net deferred tax assets (liabilities) | $(2,700) | $(1,800) | $(900) | - Full valuation allowances are provided against deferred tax assets of $4.1 million for capital losses (expiring by December 31, 2024) and $1.5 million for Code Section 163(j) interest expense limitation, due to uncertainty of realization[213] - The company settled an audit with New York City for $2.6 million in April 2023, resulting in an incremental income tax expense of $0.2 million for Q1 2023[214] Note 16. Related Party Transactions The company states that there are no material related party relationships to disclose - The Company has no material related party relationships to disclose[217] Note 17. Commitments and Contingencies As of June 30, 2023, the company had a lease liability of $16.5 million and a corresponding right-of-use asset of $15.2 million for its office space. Unfunded loan commitments totaled $272.2 million, with 58% contingent on 'good news' events, representing a decrease from $321.8 million at December 31, 2022 Lease Liabilities (Dollars in Thousands) | Metric | June 30, 2023 | | :----------------------------------- | :------------ | | Lease liability | $16,503 | | Right-of-use asset | $15,200 | Unfunded Loan Commitments (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :----------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Unfunded commitments on mortgage loan receivables held for investment | $272,200 | $321,800 | $(49,600) | -15.41% | - 58% of unfunded loan commitments are contingent on 'good news' events, such as major tenant lease agreements or achieving pre-determined net operating income[220] Note 18. Segment Reporting The company operates through three reportable segments: loans, securities, and real estate, plus a corporate/other category. For the six months ended June 30, 2023, the loans segment generated the highest segment profit at $110.293 million, followed by securities at $13.064 million, while the real estate segment had a profit of $0.766 million. Corporate/Other reported a loss of $(73.842) million - The company has three reportable segments: loans (including mortgage loan receivables held for investment and held for sale), securities (CMBS, U.S. Agency, corporate bonds, equity, U.S. Treasury), and real estate (net leased properties, office buildings, student housing, hotels, industrial, shopping centers, condos)[222] Segment Profit (Loss) (Dollars in Thousands) - Six Months Ended June 30, 2023 | Segment | Segment Profit (Loss) | | :-------------- | :-------------------- | | Loans | $110,293 | | Securities | $13,064 | | Real Estate | $766 | | Corporate/Other | $(73,842) | | Total | $50,281 | Total Assets by Segment (Dollars in Thousands) - June 30, 2023 | Segment | Total Assets | | :-------------- | :----------- | | Loans | $3,495,888 | | Securities | $458,224 | | Real Estate | $693,253 | | Corporate/Other | $981,286 | | Total | $5,628,651 | Note 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 - The Company has evaluated subsequent events through the issuance date of the financial statements and determined that no additional disclosure is necessary[229] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion and analysis of Ladder Capital Corp's financial condition and results of operations, highlighting its business model, diverse investment portfolio, flexible financing strategies, and performance for the three and six months ended June 30, 2023 Overview Ladder Capital Corp is an internally-managed REIT specializing in commercial real estate finance, with a diversified portfolio of senior secured assets including loans, real estate, and investment-grade securities, leveraging in-house origination and flexible capital allocation - Ladder Capital Corp is an internally-managed REIT focused on originating and investing in a diverse portfolio of commercial real estate and real estate-related assets, primarily senior secured[232] - Since its inception in October 2008 through June 30, 2023, the company originated $29.7 billion of commercial real estate loans, acquired $13.1 billion of investment-grade securities, and $2.0 billion of net leased and other real estate assets[233] - As of June 30, 2023, total assets were $5.6 billion, with $1.5 billion in total equity, comprising $3.5 billion in loans, $686.7 million in real estate, $458.2 million in securities, and $777.1 million in unrestricted cash[235] Our Businesses The company's $4.647 billion investment portfolio as of June 30, 2023, is diversified across loans (62.1%), real estate (12.2%), and securities (8.2%), with the loan segment including balance sheet and conduit first mortgage loans, and the securities segment focusing on AAA-rated CMBS and U.S. Treasury securities Investment Portfolio Carrying Value (Dollars in Thousands) | Investment Type | June 30, 2023 | % of Total | December 31, 2022 | % of Total | | :------------------------------------------ | :------------ | :--------- | :---------------- | :--------- | | Total loans | $3,495,888 | 62.1% | $3,892,382 | 65.4% | | Total real estate | $686,701 | 12.2% | $700,136 | 11.8% | | Total securities | $458,224 | 8.2% | $587,518 | 9.9% | | Total investments | $4,647,366 | 82.6% | $5,186,255 | 87.1% | - As of June 30, 2023, the company held 125 balance sheet first mortgage loans with an aggregate book value of $3.5 billion, and a weighted average loan-to-value ratio of 66.9% at origination[241] - The real estate portfolio includes 156 single tenant net leased properties ($487.8 million book value, 100% leased, 9.5 years weighted average remaining lease term) and 48 diversified commercial properties ($198.9 million book value)[248][249] - The securities portfolio, with an estimated fair value of $448.9 million, is 99.4% rated investment grade (AAA-rated CMBS) and has a weighted average duration of 1.4 years[253][255] Our Financing Strategies The company employs a diversified and flexible financing strategy, utilizing unsecured corporate bonds ($1.6 billion), CLO debt ($1.1 billion), committed loan and securities repurchase facilities ($678.8 million outstanding), non-recourse mortgage debt ($469.1 million), and a revolving credit facility (undrawn $323.9 million). This strategy supports its investment activities and maintains a $2.9 billion pool of unencumbered assets, ensuring compliance with all debt covenants - The company's financing strategies include unsecured corporate bonds, CLO transactions, secured loan and securities repurchase facilities, non-recourse mortgage debt, a revolving credit facility, loan sales and securitizations, unencumbered assets, and equity[258] - As of June 30, 2023, the company had $1.6 billion of unsecured corporate bonds outstanding, $1.1 billion of matched term, non-mark-to-market, and non-recourse CLO debt, and $678.8 million outstanding under committed loan repurchase facilities[259][263][264] - The company maintains a $2.9 billion pool of unencumbered assets, primarily first mortgage loans and unrestricted cash, as of June 30, 2023[260] - The company was in compliance with all debt covenants as of June 30, 2023, including those related to net worth, liquidity, and leverage ratios[278] Results of Operations For the three months ended June 30, 2023, net income attributable to Class A common shareholders increased by $5.755 million QoQ to $28.163 million, driven by higher real estate operating income and net derivative gains, despite a decrease in net interest income. For the six months ended June 30, 2023, net interest income significantly increased by $51.8 million YoY to $83.533 million, primarily due to rising interest rates, but net income attributable to Class A common shareholders decreased by $3.511 million YoY to $50.569 million, largely due to a higher provision for loan losses and lower realized gains on real estate sales Consolidated Results of Operations (Dollars in Thousands) - QoQ Comparison | Metric | Three Months Ended June 30, 2023 | Three Months Ended March 31, 2023 | Difference | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :--------- | | Net interest income (expense) | $40,487 | $43,047 | $(2,560) | | Provision for (release of) loan loss reserves, net | $6,881 | $4,736 | $2,145 | | Real estate operating income | $25,887 | $23,199 | $2,688 | | Net result from derivative transactions | $4,149 | $(2,242) | $6,391 | | Gain on extinguishment of debt | $462 | $9,217 | $(8,755) | | Compensation and employee benefits | $14,242 | $22,084 | $(7,842) | | Net income (loss) attributable to Class A common shareholders | $28,163 | $22,408 | $5,755 | Consolidated Results of Operations (Dollars in Thousands) - YoY Comparison | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Difference | | :------------------------------------------------ | :----------------------------- | :----------------------------- | :--------- | | Net interest income (expense) | $83,533 | $31,732 | $51,801 | | Provision for (release of) loan loss reserves, net | $11,617 | $(128) | $11,745 | | Real estate operating income | $49,086 | $54,999 | $(5,913) | | Realized gain (loss) on sale of real estate, net | $0 | $57,708 | $(57,708) | | Net result from derivative transactions | $1,907 | $5,814 | $(3,907) | | Gain on extinguishment of debt | $9,679 | $685 | $8,994 | | Compensation and employee benefits | $36,326 | $45,358 | $(9,032) | | Net income (loss) attributable to Class A common shareholders | $50,569 | $54,080 | $(3,511) | - The weighted average yield on mortgage loan receivables increased from 6.1% (June 30, 2022) to 9.5% (June 30, 2023), and on securities from 2.9% to 6.2%, primarily due to rising interest rates[310][311] - The provision for loan loss reserves increased significantly by $11.745 million YoY for the six months ended June 30, 2023, primarily due to adverse macroeconomic conditions[313] Liquidity and Capital Resources The company maintains robust liquidity and capital diversity through various sources, including cash, operating cash flow, unsecured bonds, repurchase agreements, and equity. As of June 30, 2023, cash, cash equivalents, and restricted cash totaled $873.9 million, with $777.1 million being unrestricted. Net cash provided by operating activities was $44.1 million, and investing activities provided $523.3 million for the six months ended June 30, 2023. The company also holds $2.9 billion in unencumbered assets and manages $272.2 million in unfunded loan commitments - The company's liquidity sources include cash and cash equivalents, cash from operations, unsecured bonds, repurchase agreements, principal repayments on investments, Revolving Credit Facility, securitizations/loan sales, securities sales, real estate sales, CLO debt, and equity capital[332] Cash, Cash Equivalents and Restricted Cash (Dollars in Thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (Absolute) | Change (%) | | :------------------------------------------ | :------------ | :---------------- | :---------------- | :--------- | | Cash, cash equivalents and restricted cash | $873,934 | $659,602 | $214,332 | 32.49% | | Unrestricted cash and cash equivalents | $777,100 | $609,100 | $168,000 | 27.58% | Net Cash Flow Activities (Dollars in Thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (Absolute) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :---------------- | | Net cash provided by (used in) operating activities | $44,089 | $13,947 | $30,142 | | Net cash provided by (used in) investing activities | $523,267 | $(253,006) | $776,273 | | Net cash provided by (used in) financing activities | $(353,024) | $(99,556) | $(253,468) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $214,332 | $(338,615) | $552,947 | - As of June 30, 2023, the company held $2.9 billion in unencumbered assets, including $777.1 million in cash, $1.5 billion in loans, $244.0 million in securities, and $75.1 million in real estate[348] Contractual Obligations (Dollars in Thousands) - June 30, 2023 | Obligation Type | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | | :---------------------- | :--------------- | :-------- | :-------- | :---------------- | :------ | | Secured financings | $16,648 | $866,844 | $375,464 | $69,872 | $1,328,828 | | Senior unsecured notes | $0 | $327,756 | $612,439 | $641,744 | $1,581,939 | | Interest payable | $102,009 | $179,049 | $100,555 | $33,706 | $415,319 | | Other funding obligations | $86,579 | $28,546 | $0 | $0 | $115,125 | | Operating lease obligations | $788 | $4,378 | $4,450 | $13,344 | $22,960 | | Total | $206,024 | $1,406,573 | $1,092,908 | $758,666 | $3,464,171 | - Unfunded loan commitments totaled $272.2 million as of June 30, 2023, with 58% contingent on 'good news' events[385] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant management estimates and judgments, particularly for the Current Expected Credit Loss (CECL) model, which assesses credit losses over the life of a loan using a forward-looking econometric model. Other critical areas include the acquisition and impairment of real estate, identified intangible assets and liabilities, variable interest entities (VIEs), and the valuation of financial instruments, especially when observable market data is limited - Critical accounting policies include current expected credit losses, acquisition of real estate, impairment or disposal of long-lived assets, identified intangible assets and liabilities, variable interest entities, and valuation of financial instruments[389] - The CECL model for loan loss provisions uses a forward-looking, econometric commercial real estate (CRE) loss forecasting tool, comprising probability of default (PD) and loss given default (LGD) models, supplemented by qualitative adjustments for external or loan-specific factors[389] - Fair value determination for assets and liabilities involves significant management judgment, especially when quoted market prices or observable market parameters are not fully available, requiring the use of valuation techniques with more subjective estimates[403] Reconciliation of Non-GAAP Financial Measures The company uses 'distributable earnings' as a non-GAAP financial measure to supplement GAAP operating performance, excluding non-cash expenses, unrealized results, and timing differences related to securitization gains and asset/derivative value changes. For the three months ended June 30, 2023, distributable earnings were $41.511 million, compared to $47.173 million for the three months ended March 31, 2023 - Distributable earnings is a non-GAAP financial measure used to compare operating performance and dividend-paying ability by excluding non-cash expenses, unrealized results, and timing differences[405] - Distributable earnings are defined as income before taxes adjusted for real estate depreciation/amortization, derivative gains/losses on open hedges, unrealized gains/losses on fair value securities, economic gains on loan sales, unrealized/realized loan loss provisions, non-cash stock-based compensation, and certain transactional items[406] Reconciliation of Income (Loss) Before Taxes to Distributable Earnings (Dollars in Thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended March 31, 2023 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | | Income (loss) before taxes | $28,138 | $23,911 | | Our share of real estate depreciation, amortization and gain adjustments | $6,591 | $6,754 | | Adjustments for derivative results | $(3,161) | $2,698 | | Adjustment for impairment | $6,881 | $4,736 | | Non-cash stock-based compensation | $3,046 | $9,124 | | Distributable earnings | $41,511 | $47,173 | PART II - OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to various market risks, including interest rate risk, market risk, liquidity risk, credit risk, credit spread risk, real estate risks, covenant risk, diversification risk, and regulatory risk. It outlines how changes in interest rates could impact net income and portfolio value, and the measures taken to mitigate these risks, such as hedging instruments and credit analyses - The company is exposed to interest rate risk, where a 100 basis point decrease in interest rates is projected to decrease net income by $26.718 million and increase portfolio value by $2.673 million over 12 months. Conversely, a 100 basis point increase is projected to increase net income by $26.892 million and decrease portfolio value by $2.662 million[419] - The company mitigates interest rate risk through hedging instruments, primarily interest rate swap and futures agreements, focusing on assets with durations longer than five years[418] - Credit risk is managed through deep credit fundamental analyses and ongoing asset management, with a portfolio weighted average loan-to-value of 67.2% as of June 30, 2023[425][426] - The company's assets are concentrated in the commercial real estate sector, leading to diversification risk, and its captive insurance subsidiary, Tuebor, is subject to state regulatory risk[432][433] Item 4. Controls and Procedures The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance that financial information is accurately recorded, processed, and reported. There were no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance for accurate and timely financial reporting[437] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[438] Item 1. Legal Proceedings The company is not currently a party to any material enforcement proceedings, litigation related to regulatory compliance matters, or any other type of material litigation. It maintains adequate insurance policies for its business risks - The company is not presently a party to any material enforcement proceedings, litigation related to regulatory compliance matters, or any other type of material litigation matters[440] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022, during the three months ended June 30, 2023 - No material changes occurred during the three months ended June 30, 2023, to the risk factors in the Annual Report on Form 10-K for the year ended December 31, 2022[441] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and no issuer purchases of equity securities during the three months ended June 30, 2023 - No unregistered sales of equity securities occurred during the three months ended June 30, 2023[442] - No issuer purchases of equity securities occurred during the three months ended June 30, 2023[443] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the three months ended June 30, 2023 - No defaults upon senior securities occurred during the three months ended June 30, 2023[444] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[445] Item 5. Other Information No director or officer of the company adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[446] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amendments to the Certificate of Incorporation, the 2023 Omnibus Incentive Plan, employment agreements, and certifications required by the Sarbanes-Oxley Act - Exhibits include amendments to the Certificate of Incorporation, the 2023 Omnibus Incentive Plan, employment agreements, and certifications (e.g., Sarbanes-Oxley Act Section 302 and 906)[450]