our first question comes from timothy descettino with b riley hi thank you taking the questions today congrats on the quarter um it seems like the the rotation from securities into loan portfolio picked up this quarter and if i'm reading slide nine correctly it seems like most of the security sold came from three to five year duration and so i i guess thinking about as that rotation continues through year-end, like, how do you go about selecting what securities to sell? Just trying to get a better understanding of, you know, why it might be longer duration. Thank you.

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All right, awesome. Yeah, so it seems like the shift from securities to the loan portfolio picked up this quarter. And it seems, if I'm reading slide nine correctly, that most of that rotation came from longer duration securities in the three or five years. So, I was just wondering, how do you think about, you know, the selection of what securities to sell as you rotate that capital?

We just, this is Brian, by the way, we generally just group them into, you know, what is the objective of the day? And if the objective is simply to fund a new loan that we're originating and we need the cash for it, we'll generally sell something that is paid down quite a bit with a low factor, because we've owned it for several years. So the, while it's quite safe, the instrument, it might be a 20% LTV across a pool of assets, it's going to pay off in your term. So anything that looks like it's about to pay off is what we select first when we're just trying to generate cash to close loans. Sometimes, you know, when markets get, especially when rates rise a little bit, spreads can tighten. And so we did see some attractive pricing too. And everything we sold was a floater. So when you say, you know, longer duration, it's still kind of, it's very hard to make a lot of money on a floating rate AAA because it just doesn't swing around a lot in price. But we were able to sell quite a few at a gain of about a half a point. And that added, I think, $1.8 million to the quarter. So, the selection criteria is usually what's about to be cash first. Secondly, what are we up and maybe feel mispriced about that we might be selling at a high price? And then last, we've never gotten to that, But if we ever got to it, we would then start taking larger positions to generate capital quickly. But the beauty of that AAA sale complex is that you get your cash 24 hours later.

And then I guess with that rotation, obviously, the two percentage points you pick up from 5% security to 7% loans. I guess, could you help us quantify maybe the cost associated with that rotation just to get a better understanding of the process? Thank you.

I may be misunderstanding the question, but there is no cost to it, to my knowledge. We simply sell the securities, get cash, and then fund the loan. For instance, in April, I believe we got paid off on $215 million in the Miami office loan. And I think two days later, we made another loan for $268 million. So I don't know what kind of cost you're talking about. You mean breakage costs or hedge costs?

No, I was thinking more of, you know, like originate, like cost to originate that next Obviously, you're picking up the 2%, but, you know, in the meantime, as you originate the loan and put that money to work, I was thinking, you know, how much does that cost you kind of maybe corporate overhead origination costs that might eat into it in that quarter?

Yeah, given we have that large revolver that has a same day delivery on cash, we don't travel with a lot of cash overnight anymore. We also have such low leverage that the idea of a margin call would be pretty surprising, too, because half of the assets are unencumbered completely. But so the cost, the opportunity cost, if you will, would be, you know, we take the amount of securities at 5%. We might stick it overnight into a money market fund at 375, and then whenever the loan closes.

But we usually sell those securities in tandem with loans closing. we don't they're not random events they take place together okay great thank you so much for taking the questions today sure our next question we'll hear from john nicodemius with btig hi good morning thanks for taking the questions um in the past your team has said the concentration risk with respect to your origination decisions including the origination year now that about if i have my numbers right 37 of your loan book has been originated this year and 85 across 2025 and 2026 how is that average vintage setup affecting your deployment

plans for the back half of the year thanks uh in very rough numbers we try to set the company up to originate four to five hundred million dollars a quarter uh we're not particularly concerned if we don't originate that much nor are we concerned if we originate twice as much but um so the So we're not going to experience a lot of paydowns after now. Most of our legacy loan portfolio has paid off. So I think we were experiencing some large payoff quarters, which I'm sure you saw. And we were redeploying that capital, and sometimes that took a little while. But we're past that point now. So I would say if we're going to fund additional loans, and we will, and that 85%, you know, But when we do that, we'll probably either access the corporate revolver that is undrawn, or else we'll just sell AAA securities. I think we have about 900 million of those with no leverage on them. So it's 24-hour turnaround for cash. I don't know if I'm answering you right there, but I think the message is that paydowns are slowing down dramatically, but not because of the credit reason, just because they got older and they're hitting maturities.

Got it. No, that's very helpful, Brian. And then other one for me, during last quarter's call, you discussed how much borrower appetite can quickly shift due to either a change in rates or macro volatility with rates markedly up since then. And, you know, volatility still present. Obviously, we've seen what's gone in the past couple of days. How have you been seeing borrowers react, you know, both late in the second quarter and now that we're into the third quarter here?

Thank you. yeah well higher rates will deter all but the most ardent borrowers that need to get something done so i think the first thing you'll see with the higher rates is uh there's an actually an initial push to close loans because those that are under application want to get them closed because they're afraid rates might move even higher but after that there's usually a gap and and things slow down and you'll see this in mortgage servicers and you know how the the residential market works. But borrower appetite is very picky right now. So it is a rather competitive environment. And they are, at least in our floating rate book, our spreads have been rising. That sounds like I contradicted myself. But what we're doing now that we're getting more deployed and we have less headroom to go on our maximum asset base that we'll optimize over time. And so, as of now, we've kind of stiffened on price and also on credit conditions. So, whereas we might have been a little aggressively competing on any given multifamily loan a year ago, we're a lot less so now. We pretty much set our prices and if borrowers want to close, they will. What we are seeing more of, though, and I don't think it has anything to do with interest rates, is there's a lot of price discovery popping up as office buildings are being sold by lenders, either who had foreclosed or else who are selling the notes at a deep discount in cooperation with the next buyer and the old borrower. So that's happening. But there seems to be this sense in the United States that the office market is recovering, and it is to some degree. But I would point out that it's really just two cities that are really doing well, and that's san francisco and new york um there is i don't see any recovery whatsoever in chicago or uh los angeles or or washington dc where the government drives a lot of that business so what but you do see a lot of activity in those cities and what's happening is lenders on legacy assets are thrown in the towel and they're they're finally just they're just taking their medic medicine and and taking the loss so you'll see a lot of prints but i don't want you to think there's a lot of borrowing going on there. It's usually very challenged assets that are going to take quite a while to stabilize. We're happy to do some of those with the right party who can execute their business plan. But when it's a refinance of somebody who is already having a problem and he's had a loan for five years, I would not expect much to change in the next couple of years with the same owner. So I think the long story there is the market is, ladder is getting fuller on its inventory, so latter is charging more for a smaller amount of liquidity remaining to redeploy.

Great. Appreciate all the color. That's all for me.

And next, I'll move to Chris Mueller with Citizens Capital.

Hey, guys. Thanks for taking the questions, and congrats on a solid quarter here. So I guess picking up on a prior line of questioning here, you guys have talked about pretty extensively being able to flip capital from the securities portfolio to the bridge portfolio. But bridge portfolio is up about a billion year over year, and securities portfolio is pretty flat. So that gives you plenty of capacity to grow the bridge portfolio going forward. I guess, how do you think that dynamic plays out in the back half of the year? Could we see the securities portfolio get down to like a billion-ish type number, or is that too aggressive of a pace?

No, I think that's very possible. I've been asked a couple of times on these calls, you know, how many securities do you intend to own forever? That's almost like asking me how much cash do you want to hold on a regular basis, because I kind of view them the same way, especially short AAA floaters. But I think we will be cutting into that inventory of securities between now and year end. And I think that number will go down, and it could go down quite a bit, depending on how active the origination arm is.

Got it. It's good to hear. And then I ask you guys this one all the time, but on the conduit business, nice to see a little bit of that in the quarter. I think that's the second quarter in a row, but still well below what you guys used to do pre-COVID. So is that business going to start ramping up, do you think, in the back half of the year, or is our interest rates really too choppy for that to really ramp?

Yeah, I probably would have answered that question differently a month ago, but I think it is too choppy right now. And if you actually take a look, never mind the latter, but if you just take a look at the CMBS business and the issuance over the years, there has been a steady decline in issuance, and it's only recently started to pick up. But the amount of eligible assets that can get into a five-year or a 10-year fixed rate loan right now after the downturn since 2021 on, there's just not a lot. So that's why you're actually seeing a lot of CMBS deals with sometimes eight, nine originators, you know, because everyone's trying to amass a critical mass to go with their deal. But I don't really see the volume picking up. And a cautionary note there that most of the loans in the conduit business, the CMBS origination arm, are cash out refinances. and a cash out refinance in this market after what we went through in zero interest rates and expenses through inflation is in my opinion a rare animal. So I get a little bit concerned when almost everything is a refinance and nothing is an acquisition. To me, that's a flag. And I think all it really is, it's not a danger flag, it's just a flag that says we're happy to go slow on this product because we're going to be very picky and also um that it's it's going to be slow uh and these rates it just today's rate movements will you'll see a lot of uh cmbs deals in the pipeline that are going to move a month or two and might even just go further than that but we're at the point anything i would say once we cross the 450 on the 10-year and and i i think that slowed things down and i think that'll come through you'll see that on the residential side too in those REITs that have a lot of, you know, inter-sensitive home loans.

Got it. It's all very helpful. I appreciate you guys taking the questions today.

Sure.

And next we'll move to Jade Rahmani with KBW.

Hi. Hi. This is Jason Sapram for Jade. Thanks for taking the questions. So in your corporate presentation, you outlay a distributable EPS target of 26 to 27 cents. Just curious, what's the target timeframe for achieving that? And do you see ways to grow beyond that?

Yeah, this is Paul. That's just reflective of what we've historically stated, which is we think our business can achieve a high single-digit, low double-digit ROE. And if you just simply apply that to our book value per share, that's what generates that So the timeframe of which is always subject to timing of when our loan portfolio closes and the generation of gains in our multi-cylinder business. But, you know, it's something we've historically stated. We just put some numbers to it in our presentation.

Got it. To hit on multifamily, it'd be great to hear about what you're seeing. Has the supply headwind started to abate some, and is rent growth still muted?

Rent growth definitely still muted. Although settling, the concessions offered by the landlord to achieve certain term leases in multifamily, yeah, the whole story about the sunbelt being a little overbuilt and in particular maybe Austin, Texas, that's true. and i think the ice situation for a c bit class low b high c type properties is probably more impacted you'll see some quick vacancies drops that i personally in my career have never seen in a two-week period in time but i think that that'll largely correct itself and i would say rents are nearly done falling but the expense side is still a little tricky with a lot of municipalities raising taxes. So I still think it's a bit of a dangerous business, to tell you the truth, because you're selling something shelter to a party that is pinched for cash generally and getting more pinched as other expenses go up. So that can become a little bit problematic. We try to avoid that not by trying to be better than anybody else. We just try to avoid anything other than newer properties with lower leverage and sponsors who have hung in for a while. And you can really get a chance to see that now because a lot of these borrowers have just been through a very difficult period of time. So you get a forensic look at what they did during 2023 and 2024 when they had some problems. We also are seeing some loans where people are going under application with us, say, for $80 million and they're coming to the closing with 20 million cash in that's a refinance cash in refi but it feels like a purchase to me and we we really do like those things and and we also still favor new properties especially ones coming off construction because the um you're just watching a lease up take place and you've got to borrow with plenty equity in those deals got it thank you and as a reminder to everyone if you would like to ask a question please press star one on your telephone keypad

Next, we'll move to Gabe Pogge with Raymond James.

Hey, good morning, and thanks for taking the question. So, ladder's a few quarters into kind of rotating the portfolio, right? Much higher loan origination from the securities book. And, Pamela, you talked about, you know, picking up 200 basis points in that rotation. How should we think about net interest income, right, from just a loan book inflecting higher at some point on your borrowing base, right? Because NII has been flat for the last three quarters as you've kind of gone through this. Is that a timing issue? Is there a point in time where that influx higher? Just help us think about that.

I don't think there's a straight line answer on that. I think the answer is it depends on the portfolio. So we have a couple, as Brian said earlier, we're being very selective and picky about our assets. We're trying to originate about $400 to $500 million a quarter. And the weighted average spread can range from 275 to 350, depending on the asset and the lumpiness and how we've done one or two larger loans. So it really is a blend and the timing will depend on the closing right now. As I said, we have about 500 million in pipeline for this coming quarter. And, you know, candidly, the spreads on the higher side of that. But if one of the loans don't pan out in diligence, it could quickly drop back into line with the average of $315 that we've been doing. So a long way of saying that I think if you want to project out, you should take about $400 to $500 million a quarter at somewhere roughly, call it $300 spread.

Yeah, and so I think the bottom line that you asked about on the net interest income, it should continue to rise. I don't think it'll take off dramatically, but I do think we'll see our distributable earnings going up because of other things that we don't – our dividend is not fully covered by its net interest income. We have the other barrels that we use where we allocate capital, and I do believe those will be performing pretty nicely between now and year end.

I think you talked about a combination of both net rental income on our real estate assets, but also, as we alluded to on the call, we expect to monetize a few equity positions, and then if we do a one-off conduit. So what we're really trying to remind the market is that we have these – people will call a one-time gain on sale, and any individual gain is a one-time gain, but collectively adds up over the year. And Brian has long held we should be looking at Ladder as an annual year-over-year analysis rather than quarter-over-quarter because of that lumpiness.

Gabe, I want to revisit something, too, that actually Ladder was out in front of when the Fed went on their hiking campaign when they raised rates 550 basis points. On one of our earnings calls, we said if rates go up by 50 or 100 basis points, here's what happens to our earnings. Today, Paul, I think, correct me if I have this wrong, but if I don't know what will happen at the Fed, he's going to play it a lot closer to the Vest. But generally, I think he leans towards higher rates, but he might have jawboned this market into higher rates without actually moving. But I do think if, let's say they raise rates 25 or 50 basis points, this is an advantage for Ladder because we have a large fixed rate component on our liability side that doesn't go up. So, and Paul, how many dollars per, what's the cents per share if they raise it by 25 and 50? Two cents per share quarterly. And I bring that up because, you know, the SOFR was at 365 for a long time. I think it's at 370-something this morning. And it does look to be pointing higher. I don't think there's any general direction that the Fed is going to take and continue raising rates. But I do think, I think Warsh would like to pull back one of those recent cuts. And I suspect he will, but I don't think he's going to do it in July. He doesn't have to.

Thank you for those comments. It was more just, and that was all very helpful. The real estate, the hard assets at Ladder are adding to the bottom line. I fully appreciate that as well as, you know, to Pamela's point, the other kind of gain on sales that add up over time.

It was just kind of an idea from the loan book, parsing out the loan book perspective, but that that commentary itself i i think that unique not unique but there are times when um all of our products are green light and and it's unusual because they're meant to be stressed in in certain environments but right now with the other than the fact that there's a volume challenge going on as to finding high quality real estate to lend on i think all of our silos are going to be kicking in and um and certainly i think your initial question net interest income that should be rising thank you very much okay and at this time there are no further questions that will conclude the question and answer session i would like to turn it back over to brian harris for any additional or closing remarks sure thanks operator and thank you uh for joining us today those of you who call in later thanks too uh but just uh we'll see you again soon things are going pretty well here i think we've got some some positive surprises that uh you know should benefit everybody all the shareholders near term. And, you know, we're somehow sailing along here and feel pretty comfortable where we are. The question I get asked a lot of times on interest rates, would I rather have rates up or down as a lender? I'd rather have them up because there's simply more dollars of interest being paid through the system. So I'll leave it at that and look forward to the next one. Thank you.

And that will conclude today's call. We thank you for your participation. You may now disconnect.