Pamela McCormack - Chief Strategy Officer and General Counsel Brian Harris - CEO Marc Fox - CFO.

Steve DeLaney - JMP Securities Jade Rahmani - KBW Dan Altscher - FBR Capital Markets & Co Charles Nabhan - Wells Fargo Securities, LLC.

Good evening. My name is Courtney and I'll be your conference operator today. At this time I'd like to welcome everyone to the Ladder Capital Corp. Third Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.

(Operator Instructions) Pamela McCormack, Chief Strategy Officer and General Counsel, you may begin your conference..

Thank you, and good evening everyone. I'd like to welcome you to Ladder Capital Corp. earnings call for the third quarter 2014. With me this evening 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, 2014.

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 shortly. Before the call begins, I'd 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, 2013 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 during 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'll turn the call over to our Chief Executive Officer, Brian Harris..

Thanks, Pamela and thanks to all for listening to our earnings call today. During the third quarter, Ladder had core earnings of $49.2 million, core earnings per share of $0.31 per share and GAAP earnings per share of $0.30 per share. I'll start with an overview of the key financial highlights in the quarter.

On the production side of Ladder, we originated $736 million conduit loans, $347 million of bridge loans which we expect to hold on our balance sheet and $29.4 million of mezzanine loans also to be held on our balance sheet. Total loan originations in the quarter were $1.1 billion. This is a pretty strong quarter for us in loan originations.

During the quarter we participated in two CMBS securitizations contributing a total of $680 million of loans and earning a profit of $23.3 million. This brings our year-to-date securitizations to seven in the first nine months of 2014.

Ladder has contributed loans with a face value of $2.34 billion in the year generating a profit of $99.9 million year-to-date.

In our real estate segment, during the third quarter we acquired a total of $127 million of commercial real estate assets comprised of $32.5 million of industrial property, $12.3 million of retail properties, and $82.2 million of office properties.

Of the $127 million in acquisitions, we invested a total of $29.7 million of our own equity and we borrowed a total of $97.3 million of 10 year fixed rate non recourse mortgages approximately 76.5% of our purchase price.

During the quarter we also sold four net lease retail properties and had ongoing sales at our condominium properties in Las Vegas and Miami. We realized growth proceeds from these sales of $38.6 million and recognized a core gain of $7.2 million of these real estate sales in the quarter representing a 23% core gain over our cost basis.

Turning now to securities, Ladder invested a total of $758.6 million in securities during the quarter. Of these investments roughly two-thirds had an average life of less than five years. The balance was split roughly between securities with an average life between five and seven years and seven to 10 years.

With respect to the right side of the balance sheet, I would characterize the quarter as one in which we took a step back and did a lot of required housekeeping and planning's to the long term. At the end of the third quarter, our total assets stood at $4.7 billion up from $3.5 billion at the end of 2013.

Total debt was $3.1 billion representing 2.1 to 1 leverage. We consider ourselves to be conservatively levered all the more so because almost 80% of our total assets are comprised of senior secured assets and cash. During the third quarter, Ladder completed a $300 million unsecured corporate bond issuance with proceeds received in early August.

Returns of this issue were seven years non-callable for three years at a rate of 5.875%. This compares with an issuance of $325 million of non-callable five year bonds issued two years earlier at a rate of 7.375%. We are currently deploying the additional capital we raised in early August.

We also extended our maturity profile with respect to our FHLB financing. As a result of this extension, as well as our new seven year bonds and placing new 10 year mortgage debt on properties acquired during the quarter, our fixed interest cost rose by approximately $5 million per quarter.

Also in the quarter the Federal Home Loan Bank regulator announced a request for comment on a new regulatory proposal relating to captive insurance company members of the Federal Home Loan Bank. The public common period on a propose changes has now been extended to January 12.

If the proposal is enacted in its current form, it would limit our Federal Home Loan Bank membership to five years from the date enactment.

Our captive insurance subsidiary remains a Federal Home Loan Bank member in good standing and we continue to originate the significant volume of loans that are consistent with the FHLB's mission including financing of urban workforce properties throughout the country.

As we begin the fourth quarter, I can report that we are currently in the market with our eight securitization to which we are contributing $293 million worth of loans. We also closed our large loan last week for $450 million secured by an apartment complex in San Francisco California. The loan to value ratio on this asset is approximately 30%.

Let me now briefly discuss market conditions during the third quarter and what we are seeing thus far into the fourth quarter. The third quarter saw the credit markets experience several instances of increased volatility. In early August the Russia Ukraine conflict intensified, the U.S.

resumed air strikes in Iraq and in attempt to address problems relating to ISIS while the Israeli-Palestinian conflict flared out. Liquidity was also seasonally effected as the summer came to a close and markets were quite thin and market moves were somewhat exaggerated.

In our own securitizations, we saw credit spreads on AAA 10 year securities widen from 78 basis points in June, to 90 basis points in August with the widest levels on non Ladder transactions at about 93 basis points in August. On BBB trenches, prices fell by several percentage points. These wider spreads made profit margins thinner.

Our second securitization of the quarter in September saw a AAA 10 year credit spreads improve to 83 basis points over 10 year swaps. So there was some marginal improvement as volatility fell. This fluctuation in spread is normal and is expected.

We believe these normal fluctuations provide healthy discipline to the industry, quarterly results will vary but we view the origination to securitization business as a long term business with high ROEs and significant barriers to entry.

Competitive pressure on margins continues in a more consistent manner than we expected and we think the business may shake out some of the weaker participants in the years ahead. One of the catalysts to these changes could be the recently released and long waited risk retention rules as they applied to commercial mortgage securitizations.

Ladder with its permanent equity structure is well positioned to take advantage of its status as both the seasoned loan originator and acquirer of securities. We believe we should be readily able to comply with the risk retention rules that will take effect in two years, while other may not be.

Another factor that causes headwinds in profit margins is a flattening of the yield curve. A flat yield curve is not a welcome site to any bank or mortgage vendor. In the beginning of 2014, the treasury bond was yielding a little over 3%, having moved up rapidly in the second half of 2013 after Ben Bernanke said the word taper in late May.

Today, now with the taper completed and done with the 10 year yield fits near decidedly lower 2.3%. So the interest rate curve has flattened quite a bit during 2014 and this hurts profitability. A recovering U.S. economy can turn this flattening trend around but we will watch this closely and price new loans accordingly.

While credit spreads widened and competitive pressures exist, we are still happy to report that even during difficult market conditions, we were still originating loans at a very robust pace with over $1.1 billion in the third quarter alone, albeit at somewhat lower but still acceptable profit margins.

With our actual production for the first nine months of 2014, on-pace with our expectations. With that, I'll turn you over to Marc Fox, our Chief Financial Officer who will review our financial results for the third quarter in more detail..

Thank you, Brian. I will now review Ladder Capital's financial results for the quarter ended September 30, 2014.

The $49.2 million of core earnings for the third quarter reflects the impact of strong origination volumes and asset growth offset by compressed securitization margins and higher interest charges related to the August issuance of $300 million of seven year unsecured corporate bonds and the extension of other debt maturities.

For the first nine months of the year, core earnings were $166.4 million. Based on an average shareholders' equity balance of approximately $1.4 billion, this result reflects a 15.8% year-to-date return on average equity. GAAP net income was $37.2 million and $85.8 million for the three and nine months ended September 30, 2014 respectively.

This compares to $21.2 million and $169 million for the comparable periods in 2013 respectively. The largest GAAP to core earnings adjustments related to the adjustment of the 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 appreciation.

The competitions of historic core earnings were recently revisited and it was determined that core earnings should be adjusted downward by just under 1% for the 2013 calendar year and by approximately 1.7% downward for the first six months of 2014. Additional information regarding these adjustments can be found in the press release and Form 10-Q.

During the third quarter, Ladder's investment activities focused on loan originations and securitization. In addition, Ladder completed its first real estate acquisitions of the year.

During the three months ended September 30, we originated $1.1 billion dollars of loans, bringing year-to-date loan production to $2.98 billion or 65% more than we originated in all of 2013.

The relatively low balance of commercial mortgage loans held for sale at the end of the quarter was attributable to the securitization of $403.9 million of loans that settled in September.

As noted, in August Ladder completed its second issuance of unsecured corporate bonds, the seven year bonds can be called after three years and carry a coupon that is 1.5% lower than the coupon Ladder pays on a five year bonds it issued two years ago. After receiving the bond proceeds on August 1, Ladder proceeded to commence deployment of new funds.

The most expedient, accretive way to deploy the funding was via the acquisition of securities. During the third quarter the securities portfolio was extended by $342.1 million net.

Securities transactions during the quarter included purchases of $758.6 million, offset by $335.2 million in security sales and $43 million of proceeds from the repayments of securities, resulting in an increase in our securities portfolio to $2.2 billion by the end of the quarter.

While securities purchases are expedient, Ladder's longer term investment plan will ultimately result in portions of the incremental liquidity capacity created by the bond issuance, being used to increase Ladder's investments in balance sheet loans and real estate as well.

During the quarter, Ladder originated $376.1 million of balance sheet loans and the portfolio increased by $297 million to $1.3 billion. After two quarters in which Ladder executed no real estate transactions, Ladder acquired five properties for the total purchase price of $127.3 million.

The acquired properties we discussed earlier and increase the total square footage of our portfolio to $5.4 million square feet. We also continued the sales of Condominium inventory at solid profit margins. Within that result was real estate investments grew by $91.4 million or 16.3% net during the quarter.

In our review of the trends reflected in the third quarter income statement, a number of items stand out. Consistent with past quarters, Ladder maintained a steady stream of net interest income.

We have continued to expand our base of interest baring investments to approximately $3.71 billion at the end of the quarter, 25% higher than the level at the end of the prior quarter. The firm has also maintained a steady stream of operating lease income from its real estate investments.

Operating lease income was $12.8 million for the quarter unchanged from the prior quarter. Securitization activity in the third quarter of 2014 resulted in income statement gains of $20.4 million from the sale of securitized loans net.

After factoring in related hedging results, the sale of servicing income and deal expenses, the net economic benefit was $23.3 million or 3.43% of the $680 million of loans contributed.

Expenses for the quarter were $42.2 million, $3.1 million less than in the second quarter, reflecting lower compensation expense tied to lower than planned profitability. Our income tax provision for the third quarter was $10.3 million reflecting an effective combined rate of $21.6 million.

This represents the tax provision on the 51.9% of Ladder’s income attributable to Class A shareholders of Ladder Capital Corp. A 51.8% ownership is up slightly as the result of the conversion of approximately 874,000 partnered units into shares of Class A common stock by Ladder partners.

In terms of the key balance sheet metrics, as of September 30, 2014, total assets were approximately $4.7 billion after peaking at approximately $5 billion in September, and up almost $1 billion from a $3.8 billion at the end of the prior quarter.

At the end of the quarter, approximately 96% of our debt investment assets were senior secured, including first mortgage loans and commercial mortgage backed securities, secured by first mortgage loans which is consistent with the senior secured focus of the company. Our senior secured assets plus cash comprised 79% of our total asset base.

Total unencumbered assets including cash, was $1.2 million at quarter end, reflecting a 1.8 to 1 ratio to unsecured debt outstanding which increased from $325 million to $625 million during the quarter.

Turning to the right side of the balance sheet, total equity capital was $1.5 billion at quarter end, and the debt to equity ratio was 2.1 times, up from 1.5 times at the end of the second quarter, reflecting the impact of the bond issuance and growth of the asset base.

During the quarter, we issued long term bonds, increased our 10 year nonrecourse mortgage debt, and added other maturities of long term secured debt. The result is that the weighted average time to maturity of Ladder's debt increased by nine months to 3.4 years.

Although Ladder will incur incremental interest expense of approximately $5 million per quarter as a result of this financing, we value the mitigation of debt rollover, interest rate, and a variety of other liquidity related risks that this funding provides. I’ll now move to a discussion of our investment activities during the quarter.

We previously referenced our loan production and securitization volumes in terms of asset yields.

The average coupon on loans held for sale that were originated in the third quarter was approximately 4.7%, and the average coupon on the loans that were held for investment originated in the quarter reflected a weighted average spread of approximately 6.2% over one month LIBOR.

The weighted average loan to value ratio, the commercial real-estate loans on our balance sheet was approximately 69% unchanged from the prior quarter. 84% of our securities positions were rated AAA or backed by agencies of the U.S. government, 98% were rated investment grade.

The weighted average duration of our securities portfolio was 3.8 years as of September 30, slightly lower than the average duration at the end of the prior quarter. Finally, I would like to discuss our financing highlights from the quarter.

We’ve continued to enhance the maturity profile of our debt while maintaining a diverse set of funding sources and access to a significant amount of additional financing availability. As of September 30, we had $3.1 billion of debt outstanding, a committed financing availability of over $1.6 billion of additional investments.

In the third quarter of 2014, we increased our FHLB borrowings to almost $1.3 billion compared to $903 million at the end of the second quarter. The increase in FHLB borrowings was required to support the growth in Ladder's securities and loan portfolios during the latter part of the quarter.

As of September 30, 2014, $790 million of the funds borrowed from the Federal Home Loan Bank had remaining terms of over one year. We continue to follow developments regarding the proposed rule making by the Federal Housing Finance Administration, the FHLB's regulator. Since our subsidiary, FHLB member has been a member for over two years.

We have been able to continue to participate as an FHLB member in the same manner as we have historically. Based on the Notice of Proposed Rulemaking, we expect to be able to continue to do so for at least five years.

In the meantime, we continue to originate loans that are supportive of the FHLB’s mission to support housing finance in the U.S., and to date we have financed over $1 billion of multi-family mortgage loans via the FHLB.

Long term nonrecourse mortgage loan financing increased by $84 million during the quarter to $398.3 million as a result of the securitization of inter-company mortgage loans originated by Ladder to it’s real-estate special purpose entities during the quarter.

In conclusion, we’re pleased to turn in a profitable quarter in which we solidified our borrowing base with the addition of $300 million of seven year unsecured bonds and other longer term FHLB borrowings and mortgage debt, as we continue to build up our predominantly senior secured asset base to position Ladder for success in future quarters.

With that, I’ll turn it over to questions-and-answers..

(Operator Instructions) Your first question comes from the line of Steve DeLaney with JMP. Your line is open..

Thanks. Good evening everyone. Brian, you cited a loan closed last week -- I guess, the late October $450 million.

Should we assume -- is this going to be a conduit loan, is the first part of the question; and if so, is it possible that you'll look to do a single borrower execution, similar to what you did with your New York office loan in the second quarter? Thanks. .

Hi, Steve..

Hi, Brian. .

It's not - I don’t think I would call it a conduit loan because we would have to break it up into probably seven pieces of -.

Got it..

But in all likelihood there, a very likely scenario was a single asset securitization, but given that it's a five year loan, there is also a possibility we can hang on it for a while. So, we have an undetermined edges at this point..

Okay. And the third quarter origination volume -- obviously fine. You commented on the margins. Seasonally, fourth quarter is usually a big quarter for commercial real estate lenders.

Can you make any general comments as to your expectations for how total fourth quarter volume may compare to the third quarter?.

Fourth quarter typically is a very active quarter, usually driven by tax deadlines. People are trying to get transactions completed before year-end for tax reasons. So, little early for that right now although it should - the fun should start pretty soon. I will tell you that interest rates have been low and lower than where they are right now.

If you took a look at where the 10 year was maybe about six weeks or so ago, it was probably around 2.5% and then it went down to 1.90% for about five minutes on October 15, so now it's back up there again around 2.30% or so. So, I think that unless its tax motivated, I would not expect any extraordinary activity.

I can also comment that the September activity in the CMBS world was extraordinary. I am not quite sure why that is but I will tell you that was an unusually heavy calendar of issuance. And I guess because people just didn’t want to do the transactions in August, with the thin staff on the financial desks.

But I think that typically it's a pretty big quarter, but I am not seeing any unusual activity just yet, but nor would I expect to in the early part of November..

Are you concerned that September could have pulled forward something -- pulled some business forward, maybe, that normally would have just been - because September was so big, it may impact 4Q..

It's possible. I think that the bigger problem if there is one in the market right now is really this flat yield curve. And in that five year and 10 year rates are pretty similar.

So, how all mortgage lenders work, I mean there is some component of short term financing against longer term assets, and right now that component of profitability is suffering.

And in addition to that though I do generally feel, I don't have any evidence to support it, but I generally feel that because of what went on in the early part of - in the middle of October there with that little crash that took place when oil fell, I think that there is a lot of money in fixed income that has not been deployed yet, because I think a lot of money flood the stock markets and unfortunately as retail tends to do it, it’s led at the wrong time.

But often times we will see a pickup after stock market downturn like that because a lot of money finds the fixed income markets. But we're not seeing any difficulty in selling bonds right now, although I don't see any extraordinary demand that’s causing spreads to tighten either..

Okay. Got it. Thanks. And just lastly, to close out, Brian, a lot of investors are focused on the Ladder structure and how that might change to make the company more tax-efficient, but -- considering the $10 million in taxes that Marc referenced.

Should we assume at this point -- you haven't made any comments as to that, that if there is going to be any news, that you would possibly just schedule another conference call to handle that before the end of the year?.

I think that would be a good assumption. There is clearly a large component of our asset base, and that could be handled in a more tax efficient manner, and that certainly is not lost on us. However it's not just that simple to make these decisions and the company is certainly looking into all of that right now.

And we’ve always targeted a year end likelihood when we would make a decision to that effect. And I think that's probably the case now also..

Thanks for the comments, Brian..

Sure..

Your next question comes from the line of Jade Rahmani with KBW. Your line is open..

Thanks very much for taking the question. Brian, on that last point, I was wondering if you could comment on how you would view the limitations of the REIT structure on Ladder's opportunistic strategy. I mean, I think this quarter highlighted some of the opportunistic gains that were taken, whether it's on the securities side or the real estate side.

So, is the REIT structure really viable for the Ladder strategy?.

Sure. We think about this quite a bit. And as I said, the decision doesn't simply get made in a vacuum regarding tax efficiency, it's not the only component of it. You touch on something that I think about all the time, you have to remember the company was set up as a C corp and the hardwiring of the organization is really built for safety.

And we actually like to go on offence during periods of rough weather in markets, and REITs don't intuitively set up comfortably for that, if you were to pursue that in a tax strategy.

So, I think what I struggle with sometimes is, it certainly would limit some of our flexibility, but the real question is, do we have to go to a much more inflexible model? Or could we have instead of a black and white situation where one day we're C corp and the next day we have one more tax efficient 100%.

Or is there not a transition period, - call it a gray period, where we're probably not – we’re more tax efficient than we are now, but not quite as tax efficient as we could be. And then as time goes by after we do some retained earnings and we're still living in a very volatile market.

You can see this periodically it flares up and many of the problems of the same problems that flared up two years ago and six years ago. So, I think we’re still little cautious around volatility and we certainly like to be very well capitalized.

I think we probably issued our second corporate debt issuance in the summer maybe a little bit earlier than we might have, although market conditions seem pretty favorable.

And so as a result of that if we made a mistake there, we probably made the mistake of taking $300 million at a time where we weren't quite ready to deploy it but we felt that for seven year scenario, we were going to be well served over the long term there.

So, I don't know if have answered your question there, but I think you have to keep in mind from our perspective it's not likely that we’ll try to convert to the lowest possible tax rate available.

I think we're thinking more along the lines of an optimal tax rate and that would entail something probably that would allow us to continue to build book value as well as having plenty of cash on hand..

Okay. Great. That's helpful.

Just turning to the volatility that you just cited, do you think there's -- have you seen an abatement, quarter to date? And also, has any of the volatility caused some of these smaller, newer entrants in the conduit market -- less liquid players than yourselves, or players with less access to capital than yourselves -- has it caused any of those players to retreat somewhat? And in addition, have you changed any of your indicated loan yields on some of the loans planned for securitization?.

The comment regarding the other players in the market, the smaller ones, I really don’t know. We’re not generally an aggregator of names like that. We tend to be one of the contributors to a loan portfolio that gets securitized and we tend to be much larger than some of the smaller names.

But I don't think that any bout of volatility makes anybody comfortable when you’re smaller sized. So, institutively it makes sense to me, I don’t think anybody welcomes those situations when you’re undersized. I don't even welcome them when we're at our size.

But as far as our loan yields go, we - I think our major component of what we think about when we think a about loan yield, when we're lending to somebody, is it so much where the execution is presently. We try to look forward and try to figure out where we think spreads will be when we come to market.

We were also looking at the mid-term elections last night. There is a scenario there where corporate taxes could be a little bit friendlier, I don't know that’ll happen but we will see, but these are all things that come into play but we’re really dealing in 90 to 120 day short term cycles.

And we have a view that we are historically on the right side of spreads right now. And so we're originating accordingly. You’ll see scenarios with us where you’ll instead of making three points in change, you'll see us make 5.5 points, those are the times where we originated thinking spreads might tighten and they did.

You might see us on the lower end of the spectrum when we think spreads are going to tightened and they don’t or they widen. And I would argue that's arguably what happened in this quarter..

Great. Thanks very much for taking the question..

You’re welcome..

Your next question comes from the line of Dan Altscher with FBR Capital Markets. Your line is open..

Thanks. Good afternoon. I appreciate you taking my questions. I was wondering if you can maybe help quantify a little bit of how much the volatility and spreads contributed to the gain on sale.

In other words, is it possible to parse out, if spreads had not changed, what the gain on sale may have actually looked like?.

Sure, Dan. We actually tried to detail some of that in the verbal part of the announcement today.

In that - in general and I don’t want to get too deep in the weeds here with the callers but if you consider 15 basis points in spread equal to 1% of profit - I showed you that if spreads widen from 78% to 90% at one point and 86% in the second securitization, I would think shotgun math about a point on the quarter, and so call it $700 million probably we did a point less than we had hoping for.

As you know, we target the number that's just north of four points, we try to anyway. And didn't work out exactly as we had planned but the fact that that's generally what we try to do, is to - is that one spreads widen we don’t go into the loss column, we go into the less profitable column..

That's perfect. That's exactly the -- kind of, the metric or the color I was looking for. So, that's really helpful.

Maybe switching to a new -- a different topic, with risk retention, quite a still two years away, and there's a lot of preparations that probably need to be done, is there any expectations at this point that there could be maybe a rush or a flurry of new issuance activity ahead of that, where people are trying to get grandfathered in before that maybe happening?.

Yes - I've been asked this - we asked this question today in the office.

I don't think so, although I will tell you I am in the minority in the room, but I think that the biggest impact of risk retention is really going to show up and there's going to be a cost component because the so called B-piece, our first loss piece is going to become 40% to 50% larger.

So, there’s going to be some double B's in that first loss piece now, and the first loss piece can trade at 15%, so, whereas double B’s are not newly that wide. So, I think the overall effect will be cost to borrowers will go up because of that component, and I also think that from a bank standpoint, it’s a difficult asset to hold.

I think credit is going to become paramount, because - let’s take an example, I’ll talk about us, because it's the one I know about.

If we were able to team up with a bank and contribute 50% of the assets to a pool and they contributed 50% of the assets, we could acquire that first loss piece that risk retention requirement and with our permanent equity base able - we’re able to hold it for five years. So, I think that we become a more strategic partner.

Now, this also entails us rendering an opinion on our partner's collateral. Because those are loans that we didn’t originate and now we’re going to have to understand them basically from a first loss perspective if this is a business we choose to follow. I think this is an option for Ladder.

I don’t think this is an option for a lot of people, because I don’t think a lot of the participants in this space are designed to hold first loss risk for five years because of their capital base and the way it's structured..

Okay. And maybe just one other one. It's regarding the FHLB line. A, I'm sorry if I missed before, about how much capacity is still available on the facility.

And then secondly, while we're kind of in this gray period of unknown rule changes, are you kind of locked out from expanding that line any further, or can you still pledge new collateral to upsize that -- the advances there?.

We're able to continue to borrow from FHLB as we have historically. We’ve got a limit that’s equal to the lesser of $1.9 billion or 33% of Ladder’s total assets. So we’ve got plenty of capacity considering we’re at $1.29 billion of borrowings at the end of the third quarter.

In terms of future size expansion, this going to depend on variety of factors, right now for the foreseeable future, feel like we’ve got adequate capacity..

And let me just add one thing there, the lines at the Federal Home Loan Bank presently are operating quite normally. We currently have excess capacity, I think presently as of today anyway we have about $1.3 billion drawn, and as Marc said, we have up to about $.1.9 billion available to meet some tests.

But what might be important to note is that we're - there is a discussion the current change that's been contemplated is a sunset provision, where captives would be phased out from borrowing over a five year period of time. And so we currently have and have recently extended our maturities well past five years.

So, I don’t think that anything is contemplated where we would have to pay off any advances that have been made, that has eight or nine or 10 years in tenure. But I think that if that worked, if it really were to hold the way it is, then we probably from that day forward wouldn't be allowed to borrow past five years in maturity.

However, we have many dollars borrowed longer than five years presently, and that’s actually one of the things that added to our fixed interest costs in the quarter, not only did we add $1.5 million per month in the corporate bond area on the $300 million we borrowed but we also extended our maturities of Federal Home Loan Bank, and that’s probably going to cost us another few $100,000 per month also.

But we think long term well worth it. Short term, interest rates fell immediately. So, probably wasn't the happiest moment to do it, but over a long period of time, over an eight year period of time, I think we’ll be happy with it..

Okay. Great, thanks for all the color, Brian, and Marc. I really appreciate it..

(Operator Instructions) Your next question comes from the line of Charles Nabhan with Wells Fargo. Your line is open..

Hi, thanks for taking my question. I was wondering if you could comment on the competitive environment, specifically as it pertains to CMBS issuance.

Would you attribute the pickup in activity during September to a pullback on the part of insurance companies and banks? And also, are you -- you had commented last quarter on some borderline irrational underwriting that you're seeing from maybe some of the non-bank financials.

And I was wondering if you're still seeing those trends in the transitional space..

In the transitional space, we're not seeing it. That's a balance sheet item that’s usually held and vetted pretty closely. I also would say that I am seeing - we are experiencing what I would consider to be a bit of turn here in the credit cycle.

And that some - whereas I think the initial phase of that was that people were putting a lot of capital at risk without any intention of making a lot of profit, it was making loans instead of making money, and I think as I said in the past, I think that’s really an unintended consequences of regulation and how banks pay people.

However, I would point out, I would not limit the sloppy underwriting to non-banks. There are plenty of banks that are making loans that are clearly made for sale, as opposed to for balance sheet, but I am not really seeing too much in the transitional phase as a problem.

And I do think that in the competitive space generally, it’s quite competitive right now, and I've been scratching my head as to why some of the larger players are doing some of the transactions they're doing, and I think it has to do with the fact that so many of the banks products that have traditionally made money during this part of the cycle are not really available to them any more.

So, as a result of that, even though these transactions don’t make that much money, they do make some money, and from an ROE perspective I wouldn’t be surprised if there’s some of the best products in the bank.

But I do think if this risk retention rule is going to be impactful because I think it’s going to turn into a very credit sensitive business, it’s no longer going to be big pools going at the rating agencies with eight originators in the deal. I think it’s going to be a lot tighter on the number of originators in the deal.

And I think it’s going to be a deeply personal relationship between the partners and the transaction because the risk is going to be moving to probably one of them. I hope that helps..

Yeah. I appreciate the color. Thank you very much..

Sure..

(Operator Instructions) There are no further questions at this time. This concludes today's conference call. You may now disconnect..