Good afternoon and welcome to Ladder Capital Corp's earnings call for the third quarter of 2015. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Ladder's Associate General Counsel, Ms. Kelly Porcella. Please go ahead, Ms. Porcella.

Thank you and good afternoon, everyone. I would like to welcome you to Ladder Capital Corp's earnings call for the third quarter of 2015. With me this afternoon are Brian Harris, the company's Chief Executive Officer and Marc Fox, the company's Chief Financial Officer. This afternoon we released our financial results for the quarter ended September 30, 2015. The earnings release is available in the Investor Relations section of the company's website and our Quarterly Report will be filed with the SEC later this week. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. I refer you to Ladder Capital Corp's Form 10-K for the year ended December 31, 2014 for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are contained in our earnings release. With that, I will turn the call over to our Chief Executive Officer, Brian Harris.

Thanks, Kelly. I will walk you through some high level parts of the quarter and then turn you over to Marc for a more detailed review of our results. Our core earnings in the third quarter were $41.2 million or $0.40 per share. Our after-tax annualized return on equity for the quarter was 10.6% and our annualized year-to-date after-tax ROAE is 12.1%. We paid a cash dividend of $0.275 per share to shareholders of record on September 10. Market conditions in the third quarter were about as difficult to operate in as I can recall in recent memory. While stock indices around the world fell rapidly wiping out trillions of dollars in shareholder value after China devalued its currency in August, already somewhat illiquid markets due to the summer season in the U.S. became even more illiquid sending credit spreads wider and wider as the quarter wore on. While sellers of all kinds of financial instruments look for buyers, prices in our mortgage market declined rapidly. During this period, we contributed $860 million of loans into three CMBS securitizations with profit margins declining as each month went by. To put a little context around these results, let me go back to the first half of the year. In the first six months of the year, we participated in a total of four securitizations with AAA 10-year classes being sold in a range of 85 to 92 basis points over the 10-year swap. In our three securitizations in the third quarter, this class sold at progressively wider spreads of 102, 116 and 122 basis points over the curve in July, August and September, as investors demanded higher returns as market conditions deteriorated. These wider credit spreads had the effect of causing us to realize an asset average profit margin of 1.42%…

Thank you, Brian. I will now review Ladder Capital's financial results for the quarter ended September 30, 2015. For the third quarter 2015, core earnings was $41.2 million compared to $49.2 million in the third quarter last year. Overall the year-over-year difference reflects the impact of compressed securitization margins, primarily due to volatile market conditions. For the first nine months of the year, core earnings was $141.3 million compared to $166.4 million for the first nine months of 2014. These results reflect a 12.5% year-to-date pretax return on average equity and an after-tax return on average equity of 12.1% based on an average shareholders equity balance of approximately $1.5 billion. Core EPS for the third quarter of 2015 was $0.40 per share, compared to $0.31 per share in the same period last year. Core EPS for the first nine months of 2015 was $1.40 per share versus $1.04 a share in the same period in 2014. For the three months ended September 30, 2015, GAAP net income was $2.8 million reflecting the impact of declining interest rates on our hedge derivative positions. GAAP net income was $89.5 million for the first nine months of this year. This compares to net income of $37.2 million and $85.8 million for the comparable periods in 2014, respectively. The largest GAAP to core earnings adjustments related to timing of the recognition of hedge results to coincide with the realization of gains and losses on the disposition of hedged assets and real estate depreciation. With regard to our loan origination and securitization activities, during the three months ended September 30, we originated $836.1 million of loans, bringing year-to-date loan production to $2.6 billion. At the end of the quarter, our portfolio of loans held for investment stood at $1.8 billion, up $273.8 million since the…

We will now turn it over to Q&A, operator.

[Operator Instructions]. Our first question comes from the line of Steve DeLaney with JMP Securities. Please proceed with your question.

Thanks. Good evening, everyone. Brian, for starters, I appreciate your very candid comments and telling it like it is as far as the difficult market conditions. I was pleased to hear you say that when AAA investors demand a wider spread to swaps, that lenders are able to some degree to pass that on to borrowers. Could you comment a little further? We have temporary spikes, maybe in deals, how long does that process take? How long does spreads have to be wide before borrowers will accept the reality that they are going an pay extra quarter point or so on their coupon? And how long does it take and how much of the actual widening do you think have you experienced that you can actually share with the borrowers?

Okay. Hi, Steve. I will have start by telling you that the third quarter was, so think of spreads widening out by 30 or so basis points, that almost understates the move in 90 days. That's a fairly epic move that took place in the third quarter. That is not something that you will witness a lot. It's not like it can't happen but it's not so much that spreads can't move 30 basis points, to have them move that much in one direction in 90 days is quite unusual. Because for the prior year-and-a-half, we have pretty much sat in a range of 85 to 90, I think it was. So it was a fairly quick move. The volatility that we experienced in the third quarter to put it into a context for you, large loan transactions that are taking place now, call it transactions where there is one asset for say, $800 million or $1billion, immediately they are accepting flex pricing, meaning that when you give that borrower a given spread or rate, it is viewed as a good idea as opposed to a fact. And when they try to sell those bonds, if the experience that the seller has in selling those bonds is negative, as if it had been in that third quarter, the borrowers understand that the price is going up even while the loan has been securitized. So I think that's a roundabout way of answering you when you say how long does it take. That price elasticity gets passed out immediately. So you can't go backwards on loans that you have closed, but you can immediately adjust the following day for spreads that have widened out that much. So it is a pass-through depending on what absolute rates move, pipelines more than spreads. So while spreads may have widened, absolute rates right now are still reasonably low on a historic basis. So the -through is fairly, a few people grumble about it, but it's a reality. Everybody knows it. So it is a pass-through.

That's helpful to know. There is a price of money and borrowers are not price setters usually. We have also noticed that so far in October or so far in the fourth quarter, you guys have not yet contributed to any of the 10 or so deals that have come and also we note wells has not brought a deal yet. Just thinking, is this just timing of when your targeted securitizations are likely to come to market? Or are you intentionally maybe holding back paper in the hopes of some improvement in the market?

No. It's no intention on our part. We believe we are in the business of securitizing loans all the time. We don't get overly complicated in that thinking. While I might wish spreads were tighter when we were holding large inventories, I don't really control it. And so we will always move to derisk our positions for securitized classes. If we happen to think bonds are particularly cheap because spreads are wide, we will simply buy bonds. But we will where we defer securitization of illiquid whole loans in that we would express that view in ownership of investment grade securities rather than ownership of illiquid whole loans. However, I can tell you that we are planning to securitize it at a pretty good pace in the fourth quarter. We happen to be in the market presently right now. So I can't say too much about that, but we are in the market right now with the transaction.

Can you comment on whether, given the suddenness of the market widening in the third quarter in the 140 basis point margin, should we expect some incremental improvement in the margin? Maybe not back to your 300 bip level but some improvement in 4Q over 3Q? Are you comfortable commenting on that?

I can't.

Understood. Respect that. Thanks for the comments, Brian.

Okay.

Thank you. Your next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Thanks for taking my questions. Just a technical one regarding special dividends. Given GAAP earnings were close to breakeven, can you just discuss whether there is any impact to the timing and magnitude of special dividends anticipated? And also what you would anticipate distributing based on what you know today in terms of magnitude and also confirming that you would declare something in 4Q and a payment would be in early 1Q?

I think we have done a pretty good job of outlining and explaining what our plans are with respect to cash dividends and also with respect to the potential for a stock dividend to the extent that we are required to make one to meet the REIT requirement. We haven't gone and provided any kind of guidance regarding the amount of any E&P dividend or what we think the extra stock dividend, if there is any, would be. And so we just haven't done that. And we are not going to do that at this point in time.

Okay. Should we interpret those comments to be basically there is no change to the initial expectations you set or based on where REIT taxable income is year-to-date, there could potentially not be a special stock dividend leaving aside the E&P?

Jade, I would think that the cash component will remain where it is through year-end. And of course, to comply with REIT rules, we will make the appropriate distributions as required. But I wouldn't interpret anything more than that.

Okay. Just regarding an issue that was in the trade recently with respect to senior officers having to take on personal liability on certain transactions and I think there were certain disclosures in that having to push back smaller originators. I would hardly consider you guys as smaller originated, but have you seen any impact from that?

I haven't seen any direct impact to the market. I can tell you that the phones are ringing and there has been a lot of consternation around it. So I can imagine that will be a helpful situation, but the question is how negative will it be. I tend to think they will get worked out because the realities in a worst-case scenario are such that I think it would become a very difficult thing to implement. Although I think that there is a workable model that's being expressed right now. I am not an attorney. I haven't checked all those things. But my people internally have told me that the they think that there is a workable solution to it.

Okay. Just regarding spread volatility in CMBS. Leaving aside the correlation to overall fixed income conditions, what's your interpretation about the health of the CMBS market overall and how much of that volatility relates to the supply of issuance? Concerns about the deteriorating underwriting credit quality, sloppyness in the CRE markets, because there has been a market differentiation in pricing between certain transactions.

Sure. I think two parts to this answer. One is the external force. I think one of the things that is causing the persistence of wide spreads without much recovery is not so much anything going on in the CMBS market, but really the condition of the hedge funds. There is a lot of hedge fund theme right now in the oil and gas industries. Sometimes in the high-yield market and that in turn can cause stress in other spread product markets. So for instance, your typical hedge funds that might buy BBB or BBB minus paper and if it gets cheap, it will buy more, those hedge funds are oftentimes not there right now, mainly because they are having such difficulty. And you are hearing about the losses. So that's what I would call the exogenous event that's taking place. So the high-yield market is impacting the CMBS business, because some of the buyers of our products exist in both places. So that is the first part. The second part is the tiering that's taking place and it is taking place for sure. You can see large differentiation between AAA 10-years on the same day in two different transactions. And when I say large, it could be 10 basis points apart, which is unusual for AAAs. In theory, the rating agencies are supposed to sort out the differences between the collateral and the difference in the quality should show up in the level of subordination to the AAA. So they all AAAs in theory should be equal. That is not at all how it's working though. I can tell you that it is a very unforgiving market for minor indiscretions. So if you happen to have a fairly large loan, call it $30 million or $40 million in $1 billion pool, if it is particularly offensive for some reason to investors, they will simply turn their back on the entire $1 billion pool. And they won't figure out a way to put a price on it. They will simply walk away from it and they will go to the other transaction. Having said that, I think, underwriting standards, I think I have been saying now for a while, they are deteriorating on some level. And I think that the third quarter probably sobered up some of those lending standards. So I think it tends to, while it's painful to go through these quarters, they tend to be helpful in the long run.

Great. Thanks very much for taking my questions.

Sure.

Thank you. Our next question comes from the line of Dan Altscher with FBR. Please proceed with your question.

Thanks and good evening, everybody. Wanted to kind of follow-up a little bit on Jade's question, but maybe in a little different way about some of the smaller players, 35 or 40 conduits or total [indiscernible]. Have you seen any presence deteriorated or presence decline, folks going away because of the rapid spread volatility, not looking backwards in very, very quick way?

Yes, in a word. Without naming names, yes, there has been some pain in some of those positions. And I think the regulatory environment will make it harder for some smaller originators. It will make it smaller for us too, by the way. We are not exempt from that. But I think that we are large enough to be and also I think our credit criteria and our reputations are such that I think we are welcome into most transactions. We are viewed as a position of strength in credit as opposed to, I think the days of lenders with one or two loans in a pool and both of them are very high interest rate loans and can be spotted from a simple review of a loan list, I think that those will be weeded out.

Okay. Thanks for that, Brian. When I think about your famous triangle slide or representation, I think about your ability to shift capital in a relatively fast manner to different parts of the company when the opportunities present themselves. So in thinking about the conduit business, clearly velocity is your friend and a great hedge, you clearly achieved that. After the first kind of deal went and probably went below expectations and spreads continue to widen out further, why not just shut it down for the quarter and allocate that capital out of that and almost entirely into securities or just sit on it instead of trying to go further and further and further?

When you have a lending origination business and you are holding a large inventory of spread sensitive mortgages, you just grow to a point where you when you think things are attractive. So for instance, let's say AAA spreads were at 120. I believe that they have a better chance of going to 90 than they do of going to 150. So contrary to what you might think, you actually would become more aggressive in that scenario, but you have to first determine one thing. When you see that kind of volatility, you have to look yourself in the mirror and ask yourself, is this a credit event taking place in my market or is this a technical event? So going back to 1998 with long-term capital, going back to 2011 when the U.S. downgraded and you heard about Greece, those were technical events and while this I think we largely view as a technical event, we have a U.S. based real estate lending operations, the U.S. economy is okay. It's doing reasonably well. Most fundamentals are okay. There hasn't been a lot of construction. So the commercial real estate inventory of the U.S. doesn't seem to be at all at risk of a credit event in any wide scale. However, there is clearly credit events taking place in the petroleum belt as well as other sectors of the industry. Some of the commodity-based currencies and what you are seeing in China, those are real credit events. So we may be experienced at technical event because it's affecting our supply and demand because of other products are causing problems and those credit events can become credit events in the U.S. So for instance, parts of Texas and Houston are experiencing credit events, North Dakota is well into a credit event.…

Okay. Thank you for the comprehensive answer to that. I just want to make one technical or clarification question, a housekeeping item. I didn't see in the press release any sort of buyback language indicating the cash flow statement. Is that correct that there were no share buybacks in the quarter? And if not, why and how are you thinking about that maybe post quarter and/or post earnings now?

There were no share buybacks in the quarter. The main reason for that, I think we were staring at a difficult liquidity market, not from our standpoint, but others. So we were actually selling some securities making sure we had plenty of cash on hand, first of all to keep our lenders comfortable and our bondholders, but also to take advantage of the dislocation in the marketplace. And I think one of the other points I would like to make is, if we buy $10 million worth of stock we take a dividend off the market. We further exacerbate what I think is our biggest problem in the stock is below float and in addition to that, that's pretty much $40 million worth of assets we can't buy and given that our stock, as it trades today around book value, we actually are able to find more attractive investments right now. And so to us, purchasing our stock or purchasing other investments is really just an allocation of capital exercise.

Okay. I got that. And then one final one. Interesting that you mentioned and I saw it on the balance sheet was the new JV investment. I think maybe you could provide some color, that was maybe a conduit development in the city. Can you give us a little more context around that?

Sure. One of the questions we get asked a lot is, can we expect Las Vegas to simply go away and Miami to ultimately run off. Of course the answer is yes, those will go away, but hopefully if we are good at what we do, we will find replacement investments. This was a transaction. It was acquisition of the property on the lower east side of Manhattan. It's not the in the $20 million per unit category up on Central Park. So it's very basic. There is no giant penthouses. All the units are normal sized and the clientele who will buy these is not the international oligarch. It's the student from NYU, whose parents want them have a place or somebody that works in midtown or downtown Manhattan and younger who likes to live on lower east side. So it doesn't have a very high price point in that it has two commas in it. So I don't want to get ahead of myself on what's expensive, but by relative New York standards, these are not considered to be the highest price instruments. The product will probably be delivered to the market in 18 months and it's all about 34 units.

Okay. And who is your JV partner?

We will advertise that when they go with their condo plan with the Attorney General.

Okay. Got it. Thanks.

Thank you. And our next question comes from the line of Rick Shane with JPMorgan. Please proceed with your question.

Hi guys. Thanks for taking my question. My primary question was really about the true-up related to the taxes at the end of the year, but I don't think we will get anything additional there. The one other question, Brian, everybody talked about the three quarters. You made the comment about within conduit execution that loans that are a little bit, let's call it, outside the box are getting kicked out of pools. Or people are looking or just walking away from those transactions. It strikes to me that historically that is the type of story loan that Ladder and your team is most comfortable with. Is there enough pricing opportunities or enough widening there that you are going to meaningfully increase what you are putting on balance sheet?

Okay. I think I have got to start with, Rick, I don't think we are coming from it at the right way there. I think the view that we have wider profit margins than a lot of our competitors, translating to mean we take a lot more credit risk or we deal with a scratch and dent product is completely inaccurate. I think over a couple of decades, organizations run by myself and the people that work here, have the best credit statistics in the United States over a long period of time. So I do think that we have wider margins, but I often times try to tell to people we don't get paid more because we take more risk. We get paid more because we move faster. And in the real estate business, sometimes you get paid a lot to do that. In addition to that, I think that we cross our products so that often times we have got bridge loans on our balance sheet that simply convert to another part of the balance sheet, just like that condominium project we talked about that, that went from a bridge loan to an equity investment. If that was an apartment building, that was not going to be sold, that would have converted to a CMBS exit and it would have had slightly outsize profit margins associated with it. So what is not so obvious in a quarter like we went through, is there is a lot of volatility there and when other lenders get into some trouble and the markets get a little bit illiquid, what very oftentimes happens is the other parts of our business do very well, because we are able to buy securities very cheaply and the bridge loan business really picks up because you have less liquidity and given that it's a short-term loan business, borrowers are much less sensitive to rate there because it's only for a short period of time. So that's why we try to run a business that will suffer through some of these market interruptions, but also not only suffer through it in the conduit business, but ultimately benefit in other businesses. So I don't know if I have answered you correctly, but I think the view that smaller lenders being pushed out of the market because their loans are being kicked out will benefit Ladder right, I don't think that has anything to do with us.

Okay. That's a good clarification and I appreciate it.

Okay.

Thanks, Brain.

Thank you. And our next question comes from the line of Charles Nabhan with Wells Fargo. Please proceed with your question.

Hi. Thank you. I apologize if you touched on this in your commentary already. But I was wondering, are you seeing a carry through the volatility in the CMBS market into the bridge loan market? In other words, have you been able to pass on more of the risk premium in the credit that you are writing on the balance sheet portfolio thus far in the second half of the year?

Yes. I think that our bridge loan portfolio, we are able to charge more for it because there is just less liquidity. And that's what I think has been repriced, as I did say. Liquidity has been largely repriced here and when there is a lack of liquidity in the conduit business, deals have gotten smaller, the lenders are a little more hesitant. Plus there is another thing happening and it's the year-end situation. In year-end, things always get a little bit less liquid. So yes, we have been able to charge more, not necessarily across the board higher rates, but we are able to possibly do higher quality transactions with lower LTVs at rates that maybe look the same as the fist half but they are just safer loans.

Okay.

Hope I answered you.

Got it. And just a big picture questions as a follow-up. I know, as you have mentioned, you are not lending to Russian oligarchs, but you have some visibility into the New York market as well as some of the other gateway cities. Could you comment if you have seen a change in behavior as a result of some of above macro volatility we have seen over the past few months?

There has definitely been a change of behavior. I think you will see it coming up in the next year or so, especially in the high-end condominium market because a lot of that market that was purchasing real estate at uncommon prices was coming, I call it flight capital, coming out of South America, was in Miami quite a bit, Central Park South has Russian, Chinese and Brazilian money. But let's just take a look at the currencies for one second. So if you have a Brazilian citizen buying a $4 million condominium in Miami and he puts $1 million down, a lender tends to look at that and say, that's pretty safe. He has got $1 million at risk. And if the Brazilian gentlemen had to sell assets to come up with $3 million last year, he now has to sell twice as much assets in order to come up with the $3 million to close the transaction. So I think you see some rather large deposits being back on the table.

Okay. Great. I appreciate the color. Thank you.

Sure.

Thank you. [Operator Instructions]. And I am going to turn the floor back over to management for any closing comments.

You can take that last call if you want. We are happy to help.

Okay. No problem. And our last question comes from the line of Ken Bruce with Bank of America Merrill Lynch. Please proceed to question.

Yes. Hi. It's Mihir for Ken. Just had a quick question on that last point about your bridge loan market and rates asset yields you are seeing in there. I think one of the comments you had made earlier and I guess this is true even for the CMBS loans that you make, had been about, as you get later in the year, you start seeing a little bit less competition for loans. So I was just wondering if you could just give us quick update on just the competitive market you are seeing here heading into Q4 and maybe early Q1 on just the commercial real estate market in general and how you all are thinking about asset allocation between, I guess equity allocation between the lending business and some of them are equity type investments that you all have been making of late? Thank you.

Sure. Our equity business is primarily, I would call, an opportunistic business. I don't think it necessarily flows with the ebb and flow of the debt markets. Although in extreme situations, when no one can get a loan, such as what Detroit went through in the auto crisis, but I think that what we are doing is allocating quite a bit of capital into securities as we typically do during periods of volatility and accompanied by wide spreads under the belief that things will revert to the mean over the long-term. And we are also being, I would tell you we are being aggressive in the conduit origination business. I will tell you the inventory of loans that we are looking at is not as high quality as we would like. So while I would say we are pretty comfortable and I think our competitors in many cases are a little bit less courageous than they used to be, because of what's gone on recently in the third quarter, well I don't think we fear that at all. But we are militant in our removal of poor assets and we will not introduce those into the market, even if there are wide spreads.

Great. Thank you.

Okay.

Thank you. And I will turn the call back over to management for any closing comments.

Nothing for us other than I will see you next time and hopefully with a more robust situation. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. We thank all of you for your participation.