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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
 
(Mark One)
 
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 20192020
 
Or
 
☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from      to      
 
Commission file number:
001-36299
 
Ladder Capital Corp
ladr-20200930_g1.jpg
(Exact name of registrant as specified in its charter)
 
Delaware80-0925494
(State or other jurisdiction of
incorporation or organization)		(IRS Employer
Identification No.)
Delaware80-0925494
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
345 Park Avenue,New York,NY10154
(Address of principal executive offices)(Zip Code)
(212) (212) 715-3170
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A common stock, $0.001 par valueLADRNew York Stock Exchange


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): 
Yes ☐  No ☒
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
ClassOutstanding at October 31, 201915, 2020
Class A common stock, $0.001 par value107,573,820120,267,457
Class B common stock, $0.001 par value12,158,9330




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LADDER CAPITAL CORP
 
FORM 10-Q
September 30, 2019

2020
IndexPage
5
5
6
7
9
10
14
17
8572
127104
130107
130108
130108
130108
130109
131109
131109
131109
132110
133111




 




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely,” “continue,” “design,” and other words and terms of similar expressions are intended to identify forward-looking statements.
 
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:
 
•risks discussed under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 20182019 (“Annual Report”), as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report and our other filings with the United States Securities and Exchange Commission (“SEC”);
•the ongoing impact of the COVID-19 pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties;
•the impact of the upcoming U.S. elections on the regulatory landscape, capital markets, and the response to, and management of, the COVID-19 pandemic;
•changes in general economic conditions, in our industry and in the commercial finance and the real estate markets;
•changes to our business and investment strategy;
•our ability to obtain and maintain financing arrangements;
•the financing and advance rates for our assets;
•our actual and expected leverage and liquidity;
•the adequacy of collateral securing our loan portfolio and a decline in the fair value of our assets;
•interest rate mismatches between our assets and our borrowings used to fund such investments;
•changes in interest rates and the market value of our assets;
•changes in prepayment rates on our mortgages and the loans underlying our mortgage-backed and other asset-backed securities;
•the effects of hedging instruments and the degree to which our hedging strategies may or may not protect us from interest rate and credit risk volatility;
•the increased rate of default or decreased recovery rates on our assets;
•the adequacy of our policies, procedures and systems for managing risk effectively;
•a potential downgrade in the credit ratings assigned to Ladder or our investments;
•our compliance with, and the impact of and changes in laws, governmental regulations, tax laws and rates, accounting guidance and similar matters;
•our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and our ability and the ability of our subsidiaries to operate in compliance with REIT requirements;
•our ability and the ability of our subsidiaries to maintain our and their exemptions from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”);
•potential liability relating to environmental matters that impact the value of properties we may acquire or the properties underlying our investments;
•the inability of insurance covering real estate underlying our loans and investments to cover all losses;
•the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities;
•fraud by potential borrowers;
2
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•the availability of qualified personnel;
•the impact of any tax legislation or IRS guidance;
•the degree and nature of our competition; and
•the market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.
 

You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements contained in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update or supplement any forward-looking statements.

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REFERENCES TO LADDER CAPITAL CORP
 
Ladder Capital Corp is a holding company, and its primary assets are a controlling equity interest in Ladder Capital Finance Holdings LLLP (“LCFH” or the “Operating Partnership”) and in each series thereof, directly or indirectly. Unless the context suggests otherwise, references in this report to “Ladder,” “Ladder Capital,” the “Company,” “we,” “us” and “our” refer (1) prior to the February 2014 initial public offering (“IPO”) of the Class A common stock of Ladder Capital Corp and related transactions, to LCFH (“Predecessor”) and its consolidated subsidiaries and (2) after our IPO and related transactions, to Ladder Capital Corp and its consolidated subsidiaries.


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Table of Contents
Part I - Financial Information
 
Item 1. Financial Statements (Unaudited)
 
The consolidated financial statements of Ladder Capital Corp and the notes related to the foregoing consolidated financial statements are included in this Item.
 
Index to Consolidated Financial Statements (Unaudited)
 
6
7
9
10
14
17
17
1718
2322
2728
3031
3536
3839
4645
4847
5049
5150
5452
5653
5855
6858
7564
7765
7965
8067
8471





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Ladder Capital Corp
Consolidated Balance Sheets
(Dollars in Thousands)
 September 30, 2019(1) December 31, 2018(1)
 (Unaudited)  
Assets 
  
Cash and cash equivalents$83,097
 $67,878
Restricted cash38,656
 30,572
Mortgage loan receivables held for investment, net, at amortized cost:   
Mortgage loans held by consolidated subsidiaries3,231,443
 3,318,390
Provision for loan losses(18,500) (17,900)
Mortgage loan receivables held for sale174,214
 182,439
Real estate securities1,911,456
 1,410,126
Real estate and related lease intangibles, net981,333
 998,022
Investments in and advances to unconsolidated joint ventures51,419
 40,354
FHLB stock61,619
 57,915
Derivative instruments22
 —
Due from brokers3,962
 —
Accrued interest receivable22,699
 27,214
Other assets78,454
 157,862
Total assets$6,619,874
 $6,272,872
Liabilities and Equity 
  
Liabilities 
  
Debt obligations, net$4,860,687
 $4,452,574
Due to brokers7,000
 1,301
Derivative instruments82
 975
Amount payable pursuant to tax receivable agreement1,559
 1,570
Dividends payable2,384
 37,316
Accrued expenses45,761
 82,425
Other liabilities63,151
 53,076
Total liabilities4,980,624
 4,629,237
Commitments and contingencies (Note 18)—
 —
Equity 
  
Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 110,693,832 and 106,642,335 shares issued and 107,573,820 and 103,941,173 shares outstanding108
 105
Class B common stock, par value $0.001 per share, 100,000,000 shares authorized; 12,158,933 and 13,117,419 shares issued and outstanding12
 13
Additional paid-in capital1,529,599
 1,471,157
Treasury stock, 3,120,012 and 2,701,162 shares, at cost(41,556) (32,815)
Retained earnings (dividends in excess of earnings)(39,860) 11,342
Accumulated other comprehensive income (loss)10,367
 (4,649)
Total shareholders’ equity1,458,670
 1,445,153
Noncontrolling interest in operating partnership171,731
 188,427
Noncontrolling interest in consolidated joint ventures8,849
 10,055
Total equity1,639,250
 1,643,635
    
Total liabilities and equity$6,619,874
 $6,272,872
 September 30, 2020(1)December 31, 2019(1)
(Unaudited)
Assets  
Cash and cash equivalents$875,839 $58,171 
Restricted cash41,897 297,575 
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries2,731,254 3,257,036 
Allowance for credit losses(47,084)(20,500)
Mortgage loan receivables held for sale30,553 122,325 
Real estate securities1,447,625 1,721,305 
Real estate and related lease intangibles, net990,583 1,048,081 
Investments in and advances to unconsolidated joint ventures49,155 48,433 
FHLB stock61,619 61,619 
Derivative instruments449 693 
Accrued interest receivable18,259 21,066 
Other assets159,314 53,348 
Total assets$6,359,463 $6,669,152 
Liabilities and Equity  
Liabilities  
Debt obligations, net$4,714,510 $4,859,873 
Dividends payable26,236 38,696 
Accrued expenses36,179 72,397 
Other liabilities60,744 59,209 
Total liabilities4,837,669 5,030,175 
Commitments and contingencies (Note 18)0 0 
Equity  
Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 122,852,765 and 110,693,832 shares issued and 120,267,457 and 107,509,563 shares outstanding120 108 
Class B common stock, par value $0.001 per share, 100,000,000 shares authorized; 0 and 12,158,933 shares issued and outstanding0 12 
Additional paid-in capital1,726,339 1,532,384 
Treasury stock, 2,585,308 and 3,184,269 shares, at cost(54,543)(42,699)
Retained earnings (dividends in excess of earnings)(126,965)(35,746)
Accumulated other comprehensive income (loss)(28,448)4,218 
Total shareholders’ equity1,516,503 1,458,277 
Noncontrolling interest in operating partnership0 172,054 
Noncontrolling interest in consolidated joint ventures5,291 8,646 
Total equity1,521,794 1,638,977 
Total liabilities and equity$6,359,463 $6,669,152 
(1)
Includes amounts relating to consolidated variable interest entities. See Note 10.
(1)Includes amounts relating to consolidated variable interest entities. See Note 1 and Note 10.
 
The accompanying notes are an integral part of these consolidated financial statements.

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Ladder Capital Corp
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share and Dividend Data)
(Unaudited)

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net interest income    
Interest income$54,621 $82,251 $189,306 $254,040 
Interest expense56,398 51,397 176,225 155,015 
Net interest income(1,777)30,854 13,081 99,025 
Provision for/(release of) loan loss reserves(2,512)0 23,340 600 
Net interest income (expense) after provision for/(release of) loan losses735 30,854 (10,259)98,425 
Other income (loss)    
Operating lease income25,464 24,405 75,565 81,106 
Sale of loans, net1,127 11,247 1,387 38,589 
Realized gain (loss) on securities(303)3,396 (12,089)10,726 
Unrealized gain (loss) on equity securities0 254 (132)1,341 
Unrealized gain (loss) on Agency interest-only securities9 16 183 38 
Realized gain (loss) on sale of real estate, net21,588 2,082 32,116 963 
Impairment of real estate0 0 0 (1,350)
Fee and other income3,051 5,166 8,075 17,047 
Net result from derivative transactions260 (9,465)(15,988)(35,956)
Earnings (loss) from investment in unconsolidated joint ventures447 1,094 1,359 3,617 
Gain (loss) on extinguishment/defeasance of debt1,167 0 22,244 (1,070)
Total other income (loss)52,810 38,195 112,720 115,051 
Costs and expenses    
Salaries and employee benefits7,858 14,319 31,880 52,800 
Operating expenses3,938 5,314 15,957 16,727 
Real estate operating expenses8,060 6,270 22,041 17,776 
Fee expense2,476 2,056 5,892 4,951 
Depreciation and amortization9,817 9,030 29,642 29,192 
Total costs and expenses32,149 36,989 105,412 121,446 
Income (loss) before taxes21,396 32,060 (2,951)92,030 
Income tax expense (benefit)14 1,112 (5,078)478 
Net income (loss)21,382 30,948 2,127 91,552 
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures(4,149)(64)(5,417)691 
Net (income) loss attributable to noncontrolling interest in operating partnership(45)(3,308)561 (10,247)
Net income (loss) attributable to Class A common shareholders$17,188 $27,576 $(2,729)$81,996 
The accompanying notes are an integral part of these consolidated financial statements.
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 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Net interest income 
  
  
  
Interest income$82,251
 $90,386
 $254,040
 $253,822
Interest expense51,397
 51,476
 155,015
 144,606
Net interest income30,854
 38,910
 99,025
 109,216
Provision for loan losses—
 10,300
 600
 13,600
Net interest income after provision for loan losses30,854
 28,610
 98,425
 95,616
        
Other income (loss) 
  
  
  
Operating lease income24,405
 24,997
 81,106
 79,306
Sale of loans, net11,247
 1,861
 38,589
 12,893
Realized gain (loss) on securities3,396
 (2,554) 10,726
 (4,896)
Unrealized gain (loss) on equity securities254
 —
 1,341
 —
Unrealized gain (loss) on Agency interest-only securities16
 142
 38
 456
Realized gain (loss) on sale of real estate, net2,082
 63,704
 963
 96,341
Impairment of real estate—
 —
 (1,350) —
Fee and other income5,166
 4,851
 17,047
 17,579
Net result from derivative transactions(9,465) 7,115
 (35,956) 29,156
Earnings (loss) from investment in unconsolidated joint ventures1,094
 401
 3,617
 466
Gain (loss) on extinguishment/defeasance of debt—
 (4,323) (1,070) (4,392)
Total other income (loss)38,195
 96,194
 115,051
 226,909
Costs and expenses 
  
  
  
Salaries and employee benefits14,319
 15,792
 52,800
 46,754
Operating expenses5,314
 5,464
 16,727
 16,608
Real estate operating expenses6,270
 7,152
 17,776
 23,806
Fee expense2,056
 1,311
 4,951
 2,953
Depreciation and amortization9,030
 10,417
 29,192
 31,896
Total costs and expenses36,989
 40,136
 121,446
 122,017
Income (loss) before taxes32,060
 84,668
 92,030
 200,508
Income tax expense (benefit)1,112
 1,204
 478
 5,679
Net income (loss)30,948
 83,464
 91,552
 194,829
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures(64) (7,843) 691
 (16,132)
Net (income) loss attributable to noncontrolling interest in operating partnership(3,308) (8,991) (10,247) (22,786)
Net income (loss) attributable to Class A common shareholders$27,576
 $66,630
 $81,996
 $155,911
        
The accompanying notes are an integral part of these consolidated financial statements.
        
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Earnings per share:    
Basic$0.15 $0.26 $(0.02)$0.78 
Diluted$0.14 $0.26 $(0.02)$0.77 
Weighted average shares outstanding:    
Basic117,481,812 106,004,152 110,233,748 105,264,752 
Diluted118,791,927 106,603,713 110,233,748 106,232,581 
Dividends per share of Class A common stock$0.200 $0.340 $0.740 $1.020 

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Earnings per share: 
  
  
  
Basic$0.26
 $0.69
 $0.78
 $1.62
Diluted$0.26
 $0.67
 $0.77
 $1.61
        
Weighted average shares outstanding: 
  
  
  
Basic106,004,152
 96,935,986
 105,264,752
 96,317,513
Diluted106,603,713
 110,650,253
 106,232,581
 110,482,991
        
Dividends per share of Class A common stock (Note 11)$0.340
 $0.325
 $1.020
 $0.965

The accompanying notes are an integral part of these consolidated financial statements.

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Ladder Capital Corp
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income (loss)$21,382 $30,948 $2,127 $91,552 
Other comprehensive income (loss)    
Unrealized gain (loss) on securities, net of tax:    
Unrealized gain (loss) on real estate securities, available for sale18,439 1,389 (46,282)27,414 
Reclassification adjustment for (gain) loss included in net income (loss)302 (3,398)13,139 (10,639)
Total other comprehensive income (loss)18,741 (2,009)(33,143)16,775 
Comprehensive income (loss)40,123 28,939 (31,016)108,327 
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures(4,149)(64)(5,417)691 
Comprehensive income (loss) of combined Class A common shareholders and Operating Partnership unitholders35,974 28,875 (36,433)109,018 
Comprehensive (income) loss attributable to noncontrolling interest in operating partnership(190)(3,104)5,769 (12,087)
Comprehensive income (loss) attributable to Class A common shareholders$35,784 $25,771 $(30,664)$96,931 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Net income (loss)$30,948
 $83,464
 $91,552
 $194,829
        
Other comprehensive income (loss) 
  
  
  
Unrealized gain (loss) on securities, net of tax: 
  
  
  
Unrealized gain (loss) on real estate securities, available for sale1,389
 (1,109) 27,414
 (14,554)
Reclassification adjustment for (gain) loss included in net income (loss)(3,398) 2,554
 (10,639) 4,896
        
Total other comprehensive income (loss)(2,009) 1,445
 16,775
 (9,658)
        
Comprehensive income (loss)28,939
 84,909
 108,327
 185,171
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures(64) (7,843) 691
 (16,132)
Comprehensive income (loss) of combined Class A common shareholders and Operating Partnership unitholders28,875
 77,066
 109,018
 169,039
Comprehensive (income) loss attributable to noncontrolling interest in operating partnership(3,104) (9,160) (12,087) (21,358)
Comprehensive income (loss) attributable to Class A common shareholders$25,771
 $67,906
 $96,931
 $147,681




The accompanying notes are an integral part of these consolidated financial statements.

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

 Shareholders’ Equity      
 Class A Common Stock Class B Common Stock 
Additional Paid-
in-Capital
 Treasury StockRetained Earnings (Dividends in Excess of Earnings) 
Accumulated
Other
Comprehensive
Income (Loss)
 Noncontrolling Interests Total Equity
Shares Par Shares Par    
Operating
Partnership
 
Consolidated
Joint Ventures
 
 
Balance, June 30, 2020115,015 $116 5,381 $5 $1,649,170 $(53,619)$(120,082)$(45,080)$70,968 $6,902 $1,508,380 
Contributions— — — — — — — — — 208 208 
Distributions— — — — — — — — (332)(5,968)(6,300)
Amortization of equity based compensation— — — — 4,219 — — — — — 4,219 
Purchase of treasury stock(124)— — — — (895)— — — — (895)
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(4)— — — — (29)— — — — (29)
Dividends declared— — — — — — (24,071)— — — (24,071)
Exchange of noncontrolling interest for common stock5,381 4 (5,381)(5)73,247 — — (2,037)(71,050)— 159 
Net income (loss)— — — — — — 17,188 — 45 4,149 21,382 
Other comprehensive income (loss)— — — — — — — 18,595 146 — 18,741 
Rebalancing of ownership percentage between Company and Operating Partnership— — — — (297)— — 74 223 — 0 
Balance, September 30, 2020120,268 $120 0 $0 $1,726,339 $(54,543)$(126,965)$(28,448)$0 $5,291 $1,521,794 

 Shareholders’ Equity      
 
Class A Common Stock 
  
Class B Common Stock 
  
Additional Paid- 
in-Capital 
  
Treasury Stock 
 
Retained Earnings (Dividends in Excess of Earnings) 
  
Accumulated 
Other 
Comprehensive 
Income (Loss) 
  
Noncontrolling Interests 
  
Total Equity 
Shares 
  
Par 
  
Shares 
  
Par 
  
  
 
  
  
Operating 
Partnership 
  
Consolidated 
Joint Ventures 
  
  
  
  
  
  
    
  
  
  
  
Balance, June 30, 2019107,551
 $108
 12,159
 $12
 $1,526,469
 $(41,535) $(30,847) $12,171
 $172,466
 $9,230
 $1,648,074
Contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 306
 306
Distributions—
 —
 —
 —
 —
 —
 —
 —
 (4,283) (751) (5,034)
Amortization of equity based compensation—
 —
 —
 —
 3,575
 —
 —
 —
 —
 —
 3,575
Re-issuance of treasury stock24
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(1) —
 —
 —
 —
 (21) —
 —
 —
 —
 (21)
Dividends declared—
 —
 —
 —
 —
 —
 (36,589) —
 —
 —
 (36,589)
Net income (loss)—
 —
 —
 —
 —
 —
 27,576
 —
 3,308
 64
 30,948
Other comprehensive income (loss)—
 —
 —
 —
 —
 —
 —
 (1,804) (205) —
 (2,009)
Rebalancing of ownership percentage between Company and Operating Partnership—
 —
 —
 —
 (445) —
 —
 —
 445
 —
 —
Balance, September 30, 2019107,574
 $108
 12,159
 $12
 $1,529,599
 $(41,556) $(39,860) $10,367
 $171,731
 $8,849
 $1,639,250

The accompanying notes are an integral part of these consolidated financial statements.

10

Table of Contents

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

 Shareholders’ Equity      
 Class A Common Stock Class B Common Stock 
Additional Paid-
in-Capital
 Treasury StockRetained Earnings (Dividends in Excess of Earnings) 
Accumulated
Other
Comprehensive
Income (Loss)
 Noncontrolling Interests Total Equity
Shares Par Shares Par    
Operating
Partnership
 
Consolidated
Joint Ventures
 
                    
Balance, June 30, 2019107,551 $108 12,159 $12 $1,526,469 $(41,535)$(30,847)$12,171 $172,466 $9,230 $1,648,074 
Contributions— — — — — — — — — 306 306 
Distributions— — — — — — — — (4,283)(751)(5,034)
Amortization of equity based compensation— — — — 3,575 — — — — — 3,575 
Re-issuance of treasury stock24 — — — — — — — — — — 
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(1)— — — — (21)— — — — (21)
Dividends declared— — — — — — (36,589)— — — (36,589)
Net income (loss)— — — — — — 27,576 — 3,308 64 30,948 
Other comprehensive income (loss)— — — — — — — (1,804)(205)— (2,009)
Rebalancing of ownership percentage between Company and Operating Partnership— — — — (445)— — 0 445 — — 
Balance, September 30, 2019107,574 $108 12,159 $12 $1,529,599 $(41,556)$(39,860)$10,367 $171,731 $8,849 $1,639,250 
 Shareholders’ Equity      
 
Class A Common Stock 
  
Class B Common Stock 
  
Additional Paid- 
in-Capital 
  
Treasury Stock 
 
Retained Earnings (Dividends in Excess of Earnings) 
  
Accumulated 
Other 
Comprehensive 
Income (Loss) 
  
Noncontrolling Interests 
  
Total Equity 
Shares 
  
Par 
  
Shares 
  
Par 
  
  
 
  
  
Operating 
Partnership 
  
Consolidated 
Joint Ventures 
  
  
  
  
  
  
    
  
  
  
  
Balance, June 30, 201897,938
 $99
 13,318
 $13
 $1,370,092
 $(32,793) $(12,106) $(9,855) $185,158
 $11,854
 $1,512,462
Contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 739
 739
Distributions—
 —
 —
 —
 —
 —
 —
 —
 (4,292) (10,608) (14,900)
Amortization of equity based compensation—
 —
 —
 —
 2,162
 —
 —
 —
 —
 —
 2,162
Grants of restricted stock5
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Dividends declared—
 —
 —
 —
 —
 —
 (31,931) —
 —
 —
 (31,931)
Exchange of noncontrolling interest for common stock200
 —
 (200) —
 3,000
 —
 —
 (24) (2,774) —
 202
Net income (loss)—
 —
 —
 —
 —
 —
 66,630
 —
 8,991
 7,843
 83,464
Other comprehensive income (loss)—
 —
 —
 —
 —
 —
 —
 1,276
 169
 —
 1,445
Rebalancing of ownership percentage between Company and Operating Partnership—
 —
 —
 —
 (238) —
 —
 21
 217
 —
 —
Balance, September 30, 201898,143
 $99
 13,118
 $13
 $1,375,016
 $(32,793) $22,593
 $(8,582) $187,469
 $9,828
 $1,553,643

The accompanying notes are an integral part of these consolidated financial statements.



11
Table of Contents
Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)

 Shareholders’ Equity      
 Class A Common StockClass B Common Stock
Additional Paid-
in-Capital
Treasury StockRetained Earnings (Dividends in Excess of Earnings)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling InterestsTotal Equity
SharesParSharesPar
Operating
Partnership
Consolidated
Joint Ventures
  
Balance, December 31, 2019107,509 $108 12,160 $12 $1,532,384 $(42,699)$(35,746)$4,218 $172,054 $8,646 $1,638,977 
Contributions— — — — — — — — — 860 860 
Distributions— — — — — — — — (6,664)(9,632)(16,296)
Amortization of equity based compensation— — — — 20,957 — — — — — 20,957 
Issuance of Purchase Right— — — — 8,425 — — — — — 8,425 
Purchase of treasury stock(334)— — — — (2,583)— — — — (2,583)
Re-issuance of treasury stock1,466 1 — — (1)— — — — — — 
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(509)(1)— — — (9,261)— — — — (9,262)
Forfeitures(24)— — — — — — — — — — 
Dividends declared— — — — — — (82,693)— — — (82,693)
Exchange of noncontrolling interest for common stock12,160 12 (12,160)(12)165,788 — — (6,953)(158,613)— 222 
CECL Adoption
— — — — — — (5,797)— — — (5,797)
Net income (loss)— — — — — — (2,729)— (561)5,417 2,127 
Other comprehensive income (loss)— — — — — — — (27,935)(5,208)— (33,143)
Rebalancing of ownership percentage between Company and Operating Partnership— — — — (1,214)— — 2,222 (1,008)— — 
Balance, September 30, 2020120,268 $120 0 $0 $1,726,339 $(54,543)$(126,965)$(28,448)$0 $5,291 $1,521,794 

 Shareholders’ Equity      
 
Class A Common Stock 
  
Class B Common Stock 
  
Additional Paid- 
in-Capital 
  
Treasury Stock 
 
Retained Earnings (Dividends in Excess of Earnings) 
  
Accumulated 
Other 
Comprehensive 
Income (Loss) 
  
Noncontrolling Interests 
  
Total Equity 
Shares 
  
Par 
  
Shares 
  
Par 
  
  
 
  
  
Operating 
Partnership 
  
Consolidated 
Joint Ventures 
  
  
  
  
  
  
    
  
  
  
  
Balance, December 31, 2018103,941
 $105
 13,118
 $13
 $1,471,157
 $(32,815) $11,342
 $(4,649) $188,427
 $10,055
 $1,643,635
Contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 498
 498
Distributions—
 —
 —
 —
 —
 —
 —
 —
 (12,821) (1,013) (13,834)
Amortization of equity based compensation—
 —
 —
 —
 18,336
 —
 —
 —
 —
 —
 18,336
Grants of restricted stock1,478
 1
 —
 —
 (1) —
 —
 —
 —
 —
 —
Purchase of treasury stock(40) —
 —
 —
 —
 (637) —
 —
 —
 —
 (637)
Re-issuance of treasury stock92
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(462) —
 —
 —
 —
 (8,104) —
 —
 —
 —
 (8,104)
Forfeitures(9) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Dividends declared—
 —
 —
 —
 —
 —
 (109,375) —
 —
 —
 (109,375)
Stock dividends1,434
 1
 181
 —
 23,822
 —
 (23,823) —
 —
 —
 —
Exchange of noncontrolling interest for common stock1,140
 1
 (1,140) (1) 16,449
 —
 —
 64
 (16,109) —
 404
Net income (loss)—
 —
 —
 —
 —
 —
 81,996
 —
 10,247
 (691) 91,552
Other comprehensive income (loss)—
 —
 —
 —
 —
 —
 —
 14,935
 1,840
 —
 16,775
Rebalancing of ownership percentage between Company and Operating Partnership—
 —
 —
 —
 (164) —
 —
 17
 147
 —
 —
Balance, September 30, 2019107,574
 $108
 12,159
 $12
 $1,529,599
 $(41,556) $(39,860) $10,367
 $171,731
 $8,849
 $1,639,250

The accompanying notes are an integral part of these consolidated financial statements.

12

Table of Contents

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

 Shareholders’ Equity      
 Class A Common Stock Class B Common Stock
Additional Paid-
in-Capital
Treasury StockRetained Earnings (Dividends in Excess of Earnings)
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling InterestsTotal Equity
SharesParSharesPar
Operating
Partnership
Consolidated
Joint Ventures
 
Balance, December 31, 2018103,941 $105 13,118 $13 $1,471,157 $(32,815)$11,342 $(4,649)$188,427 $10,055 $1,643,635 
Contributions— — — — — — — — — 498 498 
Distributions— — — — — — — — (12,821)(1,013)(13,834)
Amortization of equity based compensation— — — — 18,336 — — — — — 18,336 
Grants of restricted stock1,478 1 — — (1)— — — — — — 
Purchase of treasury stock(40)— — — — (637)— — — — (637)
Re-issuance of treasury stock92 — — — — — — — — — — 
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(462)— — — — (8,104)— — — — (8,104)
Forfeitures(9)— — — — — — — — — — 
Dividends declared— — — — — — (109,375)— — — (109,375)
Stock dividends1,434 1 181 — 23,822 — (23,823)— — — — 
Exchange of noncontrolling interest for common stock1,140 1 (1,140)(1)16,449 — — 64 (16,109)— 404 
Net income (loss)— — — — — — 81,996 — 10,247 (691)91,552 
Other comprehensive income (loss)— — — — — — — 14,935 1,840 — 16,775 
Rebalancing of ownership percentage between Company and Operating Partnership— — — — (164)— — 17 147 — — 
Balance, September 30, 2019107,574 $108 12,159 $12 $1,529,599 $(41,556)$(39,860)$10,367 $171,731 $8,849 $1,639,250 
 Shareholders’ Equity      
 
Class A Common Stock 
  
Class B Common Stock 
  
Additional Paid- 
in-Capital 
  
Treasury Stock 
 
Retained Earnings (Dividends in Excess of Earnings) 
  
Accumulated 
Other 
Comprehensive 
Income (Loss) 
  
Noncontrolling Interests 
  
Total Equity 
Shares 
  
Par 
  
Shares 
  
Par 
  
  
 
  
  
Operating 
Partnership 
  
Consolidated 
Joint Ventures 
  
  
  
  
  
  
    
  
  
  
  
Balance, December 31, 201793,641
 $94
 17,668
 $18
 $1,306,136
 $(31,956) $(39,112) $(212) $240,861
 $12,317
 $1,488,146
Contributions—
 —
 —
 —
 —
 —
 —
 —
 —
 5,779
 5,779
Distributions—
 —
 —
 —
 —
 —
 —
 —
 (13,191) (24,400) (37,591)
Amortization of equity based compensation—
 —
 —
 —
 6,667
 —
 —
 —
 —
 —
 6,667
Grants of restricted stock34
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units(56) —
 —
 —
 —
 (837) —
 —
 —
 —
 (837)
Forfeitures(26) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Dividends declared—
 —
 —
 —
 —
 —
 (94,206) —
 —
 —
 (94,206)
Exchange of noncontrolling interest for common stock4,550
 5
 (4,550) (5) 63,109
 —
 —
 (167) (62,428) —
 514
Net income (loss)—
 —
 —
 —
 —
 —
 155,911
 —
 22,786
 16,132
 194,829
Other comprehensive income (loss)—
 —
 —
 —
 —
 —
 —
 (8,230) (1,428) —
 (9,658)
Rebalancing of ownership percentage between Company and Operating Partnership—
 —
 —
 —
 (896) —
 —
 27
 869
 —
 —
Balance, September 30, 201898,143
 $99
 13,118
 $13
 $1,375,016
 $(32,793) $22,593
 $(8,582) $187,469
 $9,828
 $1,553,643

The accompanying notes are an integral part of these consolidated financial statements.



13

Table of Contents
Ladder Capital Corp
Consolidated Statements of Cash Flows
(Dollars in Thousands)
 (Unaudited)
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities:  
Net income (loss)$2,127 $91,552 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: 
(Gain) loss on extinguishment/defeasance of debt(22,244)1,070 
Depreciation and amortization29,642 29,192 
Unrealized (gain) loss on derivative instruments119 (889)
Unrealized (gain) loss on equity securities132 (1,341)
Unrealized (gain) loss on Agency interest-only securities(183)(38)
Unrealized (gain) loss on investment in mutual fund(95)(308)
Provision for (release of) loan loss reserves23,340 600 
Impairment of real estate0 1,350 
Amortization of equity based compensation20,957 18,336 
Amortization of deferred financing costs included in interest expense13,451 8,460 
Amortization of premium on mortgage loan financing(866)(1,300)
Amortization of above- and below-market lease intangibles(1,720)(867)
Amortization of premium/(accretion) of discount and other fees on loans(12,467)(14,405)
Amortization of premium/(accretion) of discount and other fees on securities472 82 
Realized (gain) loss on sale of mortgage loan receivables held for sale(8,052)(38,589)
Realized (gain) loss on sale of mortgage loan receivables held for investment6,665 0 
Realized (gain) loss on disposition of loan51 0 
Realized (gain) loss on securities12,815 (10,726)
Realized (gain) loss on sale of real estate, net(32,116)(963)
Realized gain on sale of derivative instruments(211)84 
Origination of mortgage loan receivables held for sale(212,845)(554,115)
Repayment of mortgage loan receivables held for sale369 492 
Proceeds from sales of mortgage loan receivables held for sale312,300 574,303 
(Income) loss from investments in unconsolidated joint ventures in excess of distributions received(1,359)(3,617)
Distributions from operations of investment in unconsolidated joint ventures0 3,067 
Deferred tax asset (liability)6,822 7,405 
Changes in operating assets and liabilities:  
Accrued interest receivable2,807 4,275 
Other assets(12,503)(5,921)
Accrued expenses and other liabilities(39,399)(33,010)
Net cash provided by (used in) operating activities88,009 64,245 
 Nine Months Ended September 30,
 2019 2018
    
Cash flows from operating activities: 
  
Net income (loss)$91,552
 $194,829
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:   
(Gain) loss on extinguishment/defeasance of debt1,070
 4,392
Depreciation and amortization29,192
 31,896
Unrealized (gain) loss on derivative instruments(889) (1,356)
Unrealized (gain) loss on equity securities(1,341) —
Unrealized (gain) loss on Agency interest-only securities(38) (456)
Unrealized (gain) loss on investment in mutual fund(308) (204)
Provision for loan losses600
 13,600
Impairment of real estate1,350
 —
Amortization of equity based compensation18,336
 6,667
Amortization of deferred financing costs included in interest expense8,460
 8,020
Amortization of premium on mortgage loan financing(1,300) (762)
Amortization of above- and below-market lease intangibles(867) (1,286)
Amortization of premium/(accretion) of discount and other fees on loans(14,405) (13,795)
Amortization of premium/(accretion) of discount and other fees on securities82
 2,944
Realized (gain) loss on sale of mortgage loan receivables held for sale(38,589) (12,893)
Realized (gain) loss on securities(10,726) 4,896
Realized (gain) loss on sale of real estate, net(963) (96,341)
Realized gain on sale of derivative instruments84
 192
Origination of mortgage loan receivables held for sale(554,115) (1,115,218)
Purchases of mortgage loan receivables held for sale(9,934) —
Repayment of mortgage loan receivables held for sale492
 1,324
Proceeds from sales of mortgage loan receivables held for sale574,303
 926,889
(Income) loss from investments in unconsolidated joint ventures in excess of distributions received(3,617) (466)
Distributions from operations of investment in unconsolidated joint ventures3,067
 —
Deferred tax asset (liability)7,405
 (4,484)
Changes in operating assets and liabilities: 
  
Accrued interest receivable4,275
 (1,968)
Other assets(5,921) 7,503
Accrued expenses and other liabilities(33,010) (5,262)
Net cash provided by (used in) operating activities64,245
 (51,339)
    
14
Table of Contents
 Nine Months Ended September 30,
 20202019
Cash flows from investing activities:  
Origination of mortgage loan receivables held for investment(343,216)(985,825)
Repayment of mortgage loan receivables held for investment568,151 1,191,908 
Proceeds from sale of mortgage loan receivables held for investment, at amortized cost172,412 0 
Purchases of real estate securities(439,584)(1,192,852)
Repayment of real estate securities105,446 178,468 
Basis recovery of Agency interest-only securities5,976 9,339 
Proceeds from sales of real estate securities566,452 534,249 
Purchases of real estate(6,239)(13,905)
Capital improvements of real estate(2,489)(3,606)
Proceeds from sale of real estate62,596 10,794 
Capital contributions and advances to investment in unconsolidated joint ventures0 (56,393)
Capital distribution from investment in unconsolidated joint ventures636 46,019 
Capitalization of interest on investment in unconsolidated joint ventures0 (142)
Purchase of FHLB stock0 (3,704)
Purchase of derivative instruments(110)(210)
Sale of derivative instruments447 101 
Net cash provided by (used in) investing activities690,478 (285,759)
Cash flows from financing activities:  
Deferred financing costs paid(17,515)(4,453)
Proceeds from borrowings under debt obligations9,132,914 10,186,669 
Repayment of borrowings under debt obligations(9,217,889)(9,771,014)
Cash dividends paid to Class A common shareholders(95,152)(144,306)
Capital distributed to noncontrolling interests in operating partnership(6,664)(12,821)
Capital contributed by noncontrolling interests in consolidated joint ventures860 498 
Capital distributed to noncontrolling interests in consolidated joint ventures(9,632)(1,013)
Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock(9,261)(8,106)
Purchase of treasury stock(2,583)(637)
Issuance of Purchase Right8,425 0 
Net cash provided by (used in) financing activities(216,497)244,817 
Net increase (decrease) in cash, cash equivalents and restricted cash561,990 23,303 
Cash, cash equivalents and restricted cash at beginning of period355,746 98,450 
Cash, cash equivalents and restricted cash at end of period$917,736 $121,753 
15
Table of Contents
 Nine Months Ended September 30,
 20202019
Supplemental information:  
Cash paid for interest, net of amounts capitalized$164,722 $164,429 
Cash paid (received) for income taxes3,044 4,817 
Non-cash investing and financing activities:  
Securities and derivatives purchased, not settled0 7,000 
Securities and derivatives sold, not settled21 3,962 
Repayment in transit of mortgage loans receivable held for investment (other assets)107,652 6,120 
Repayment of mortgage loans receivable held for sale0 128 
Settlement of mortgage loan receivable held for investment by real estate, net(25,177)(17,851)
Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, net, at amortized cost0 35,940 
Real estate acquired in settlement of mortgage loan receivable held for investment, net25,435 17,851 
Net settlement of sale of real estate, subject to debt - real estate(31,768)(11,943)
Net settlement of sale of real estate, subject to debt - debt obligations31,768 11,943 
Exchange of noncontrolling interest for common stock158,625 16,110 
Change in deferred tax asset related to exchanges of noncontrolling interest for common stock223 0 
Increase in amount payable pursuant to tax receivable agreement0 (11)
Rebalancing of ownership percentage between Company and Operating Partnership(1,008)147 
Dividends declared, not paid26,236 2,384 
Stock dividends0 23,824 


 Nine Months Ended September 30,
 2019 2018
    
Cash flows from investing activities: 
  
Origination of mortgage loan receivables held for investment(985,825) (1,240,894)
Repayment of mortgage loan receivables held for investment1,191,908
 755,404
Purchases of real estate securities(1,192,852) (303,021)
Repayment of real estate securities178,468
 93,185
Basis recovery of Agency interest-only securities9,339
 14,898
Proceeds from sales of real estate securities534,249
 306,109
Purchases of real estate(13,905) (113,903)
Capital improvements of real estate(3,606) (4,822)
Proceeds from sale of real estate10,794
 153,398
Capital contributions and advances to investment in unconsolidated joint ventures(56,393) (370)
Capital distribution from investment in unconsolidated joint ventures46,019
 1,250
Capitalization of interest on investment in unconsolidated joint ventures(142) (1,074)
Purchase of FHLB stock(3,704) —
Proceeds from sale of FHLB stock—
 20,000
Purchase of derivative instruments(210) (305)
Sale of derivative instruments101
 114
Net cash provided by (used in) investing activities(285,759) (320,031)
Cash flows from financing activities: 
  
Deferred financing costs paid(4,453) (2,975)
Proceeds from borrowings under debt obligations10,186,669
 4,401,648
Repayment of borrowings under debt obligations(9,771,014) (3,969,654)
Cash dividends paid to Class A common shareholders(144,306) (122,770)
Capital distributed to noncontrolling interests in operating partnership(12,821) (13,191)
Capital contributed by noncontrolling interests in consolidated joint ventures498
 5,779
Capital distributed to noncontrolling interests in consolidated joint ventures(1,013) (24,400)
Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock(8,106) (837)
Purchase of treasury stock(637) —
Net cash provided by (used in) financing activities244,817
 273,600
Net increase (decrease) in cash, cash equivalents and restricted cash23,303
 (97,770)
Cash, cash equivalents and restricted cash at beginning of period98,450
 182,683
Cash, cash equivalents and restricted cash at end of period$121,753
 $84,913
    
    


 Nine Months Ended September 30,
 2019 2018
    
Supplemental information: 
  
Cash paid for interest, net of amounts capitalized$164,429
 $151,868
Cash paid (received) for income taxes4,817
 5,718
    
Non-cash investing and financing activities: 
  
Securities and derivatives purchased, not settled7,000
 14
Securities and derivatives sold, not settled3,962
 —
Repayment in transit of mortgage loans receivable held for investment (other assets)6,120
 31,764
Repayment of mortgage loans receivable held for sale128
 —
Settlement of mortgage loan receivable held for investment by real estate, net(17,851) —
Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, net, at amortized cost35,940
 55,403
Proceeds from sale of real estate—
 1,421
Real estate acquired in settlement of mortgage loan receivable held for investment, net17,851
 —
Net settlement of sale of real estate, subject to debt - real estate(11,943) —
Net settlement of sale of real estate, subject to debt - debt obligations11,943
 —
Reduction in proceeds from sales of real estate—
 62,417
Assumption of debt obligations by real estate buyer/defeasance of debt and related costs—
 (62,417)
Exchange of noncontrolling interest for common stock16,110
 62,433
Change in deferred tax asset related to exchanges of noncontrolling interest for common stock—
 428
Increase in amount payable pursuant to tax receivable agreement(11) (86)
Rebalancing of ownership percentage between Company and Operating Partnership147
 869
Dividends declared, not paid2,384
 1,964
Stock dividends23,824
 —


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows ($ in thousands):
September 30, 2020September 30, 2019December 31, 2019
Cash and cash equivalents$875,839 $83,097 $58,171 
Restricted cash41,897 38,656 297,575 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$917,736 $121,753 $355,746 
 September 30, 2019 September 30, 2018 December 31, 2018
      
Cash and cash equivalents$83,097
 $49,625
 $67,878
Restricted cash38,656
 35,288
 30,572
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$121,753
 $84,913
 $98,450



The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents
Ladder Capital Corp
Notes to Consolidated Financial Statements
(Unaudited)
 
1. ORGANIZATION AND OPERATIONS
 
Ladder Capital Corp is an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. Ladder originates and invests in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. Ladder’s investment activities include: (i) direct origination of commercial real estate first mortgage loans; (ii) investments in investment grade securities secured by first mortgage loans on commercial real estate; and (iii) investments in net leased and other commercial real estate equity. Ladder Capital Corp, as the general partner of Ladder Capital Finance Holdings LLLP (“LCFH,” “Predecessor” or the “Operating Partnership”), operates the Ladder Capital business through LCFH and its subsidiaries. As of September 30, 2019,2020, Ladder Capital Corp has a 89.8%100.0% economic interest in LCFH and controls the management of LCFH as a result of its ability to appoint its board members. Accordingly, Ladder Capital Corp consolidates the financial results of LCFH and its subsidiaries and records a noncontrolling interest for the economic interest in LCFH held by certain existing owners of LCFH, who were limited partners of LCFH prior Ladder Capital Corp’s initial public offering (“IPO”) and continue to hold an economic interest in LCFH and voting shares of Ladder Capital Corp Class B common stock (the “Continuing LCFH Limited Partners”).subsidiaries. In addition, Ladder Capital Corp, through certain subsidiaries which are treated as taxable REIT subsidiaries (each a “TRS”), is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and such indirect U.S. federal, state and local income taxes, there are no material differences between Ladder Capital Corp’s consolidated financial statements and LCFH’s consolidated financial statements.

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

Pursuant to LCFH’s Third Amended and Restated LLLP Agreement, dated as of December 31, 2014 and as amended, from time to time, and subject to the applicable minimum retained ownership requirements and certain other restrictions, including notice requirements, from timelimited partners of LCFH prior to time, ContinuingLadder Capital Corp’s initial public offering (“IPO”) who hold an economic interest in LCFH and voting shares of Ladder Capital Corp Class B common stock (the “Continuing LCFH Limited PartnersPartners”) (or certain transferees thereof)
may, from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications. However, such exchange for shares of Ladder Capital Corp Class A common stock will not affect the exchanging owners’ voting power since the votes represented by the canceled shares of Ladder Capital Corp Class B common stock will be replaced with the votes represented by the shares of Class A common stock for which such Series Units, including TRS Shares as applicable, will be exchanged. As of September 30, 2020, all shares of Class B common stock had been exchanged for shares of Class A common stock and the Company held a 100.0% interest in LCFH.
 
As a result of the Company’s ownership interest in LCFH and LCFH’s election under Section 754 of the Code, the Company expects to benefithistorically benefited from depreciation and other tax deductions reflecting LCFH’s tax basis for its assets. Those deductions will be allocated to the Company and will be taken into account in reporting the Company’s taxable income.

COVID-19 Impact on the Organization

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As of the date of this filing, the majority of our employees continue to work remotely. We continue to actively manage the liquidity and operations of the Company in light of the market disruption caused by, and the overall financial impact of, the COVID-19 pandemic across most industries in the United States. Due to the uncertainty related to the severity and duration of the pandemic, its ultimate impact on our revenues, profitability and financial position is difficult to assess at this time. Refer to the Notes to the Consolidated Financial Statements for further disclosure on the current and potential impact of the COVID-19 global pandemic on our business.

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2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company conducted a more extensive going concern analysis as a result of market conditions at September 30, 2020.
 
As the COVID-19 crisis evolved, management implemented a plan to increase liquidity resources and pay down debt. The Company maintained an unrestricted cash position of $875.8 million as of September 30, 2020 to mitigate uncertainty in liquidity needs in light of market conditions. The Company was in compliance with all financial covenants as of September 30, 2020 (refer to Note 7, Debt Obligations, Net). As of March 31, 2020, partly as a result of maintaining higher levels of cash, the Company was not in compliance with its 3.5x covenant ratio with certain of its lenders; however, the Company cured such non-compliance through pay downs of debt with various counterparties during the cure period. Management has evaluated current market conditions and expects that the Company’s current cash resources, operating cash flows and ability to obtain financing will be sufficient to sustain operations for a period greater than one year from the issuance date of this Quarterly Report. During the three months ended June 30, 2020, the Company incurred $2.1 million of professional fees, included in operating expenses, and $0.2 million of severance costs, included in salaries and employee benefits, due to measures implemented in direct response to the COVID-19 pandemic.

Basis of Accounting and Principles of Consolidation
 
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim periods presented in this report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018,2019, which are included in the Company’s Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The interim consolidated

financial statements have been prepared, without audit, and do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with GAAP.

The consolidated financial statements include the Company’s accounts and those of its subsidiaries which are majority-owned and/or controlled by the Company and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 — Consolidation (“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. See Note 10

Provision for further information on the Company’s consolidated variable interest entities.Loan Losses


Noncontrolling interests in consolidated subsidiaries are defined as “the portion of the equity (net assets) in the subsidiaries not attributable, directly or indirectly, to a parent.” Noncontrolling interests are presented as a separate component of equity in the consolidated balance sheets. In addition, the presentation of net income attributes earnings to shareholders/unitholders (controlling interest) and noncontrolling interests.

Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of resulting changes are reflected in the consolidated financial statements in the period the changes are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to the following:
valuation of real estate securities;
valuation of mortgage loan receivables held for sale;
allocation of purchase price for acquired real estate;
impairment, and useful lives, of real estate;
useful lives of intangible assets;
valuation of derivative instruments;
valuation of deferred tax asset (liability);
amounts payable pursuant to the Tax Receivable Agreement;
determination of effective yield for recognition of interest income;
adequacy of provision for loan losses includingreflects the valuationCompany’s estimate of underlying collateralloan losses inherent in the loan portfolio as of the balance sheet date. The provision for collateral dependent loans;
determinationloan losses includes a portfolio-based, current expected credit loss (“CECL”) component and an asset-specific component. In compliance with the new CECL reporting requirements, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of other than temporary impairmentthe CECL reserves. As part of that effort, the Company has engaged a third-party service provider to provide market data and a credit loss model. The credit loss model is a forward-looking, econometric, commercial real estate securities(“CRE”) loss forecasting tool. It is comprised of a probability of default (“PD”) model and investments ina loss given default (“LGD”) model that, layered together with user’s loan-level data, selected forward-looking macroeconomic variables, and advancespool-level mean loss rates, produces life of loan expected losses (“EL”) at the loan and portfolio level.

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The asset-specific reserve component relates to unconsolidated joint ventures;
certain estimates and assumptions used inreserves for losses on individually impaired loans. The Company evaluates each loan for impairment at least quarterly. Impairment occurs when it is deemed probable that the accrualCompany will not be able to collect all amounts due according to the contractual terms of incentive compensation and calculationthe loan. If the loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan to the present value of the expected future cash flows discounted at the loan’s effective rate or the fair value of equity compensation issuedthe collateral, less the estimated costs to employees;
determinationsell, if recovery of the effective tax rate for income tax provision; and
certain estimates and assumptions used inCompany’s investment is expected solely from the allocation of revenue and expenses for our segment reporting.


Cash and Cash Equivalents

collateral. The Company considers all investments with original maturities of three monthsgenerally will use the direct capitalization rate valuation methodology or less, at the time of acquisition,sales comparison approach to be cash equivalents. The Company maintains cash accounts at several financial institutions, which are insured up to a maximum of $250,000 per account as of September 30, 2019 and December 31, 2018. At September 30, 2019 and December 31, 2018, and at various times duringestimate the years, the balances exceeded the insured limits.
Restricted Cash

Restricted cash is comprised of accounts the Company maintains with brokers to facilitate financial derivative and repurchase agreement transactions in support of its loan and securities investments and risk management activities. Based on thefair value of the positionscollateral for such loans and in these accountscertain cases will obtain external appraisals. Determining fair value of the collateral may take into account a number of assumptions including, but not limited to, cash flow projections, market capitalization rates, discount rates and the associated margin requirements, the Company may be required to deposit additional cash into these broker accounts. The cash collateral held by broker is considered restricted cash. Restricted cash also includes tenant security deposits, deposits related to real estatedata regarding recent comparable sales and acquisitions and required escrow balancesof similar properties. Such assumptions are generally based on credit facilities. Prior to January 1, 2017, these amounts were previously recorded in other assets on the Company’s consolidated balance sheets.

Recognition of Operating Lease Incomecurrent market conditions and Tenant Recoveries

The Company adopted ASC Topic 842 on January 1, 2019. The primary impact of applying ASC Topic 842 was the initial recognition of a $3.5 million lease liability and a $3.3 million right-of-use asset (including previously accrued straight line rent) on the Company’s consolidated financial statements, for leases classified as operating leases under ASC Topic 840, primarily for the Company’s corporate headquarters and other identified leases. There is no cumulative effect on retained earnings or other components of equity recognized as of January 1, 2019.

Certain arrangements may contain both lease and non-lease components. The Company determines if an arrangement is, or contains, a lease at contract inception. Only the lease components of these contractual arrangements are subject to economic and market uncertainties.

The Company’s loans are typically collateralized by real estate directly or indirectly. As a result, the provisionsCompany regularly evaluates the extent and impact of ASC Topic 842. Any non-lease components are subject to other applicable accounting guidance. We have elected, however, to adoptany credit deterioration associated with the optional practical expedient not to separate lease components from non-lease components for accounting purposes. This policy election has been adopted for eachperformance and/or value of the Company’s leased asset classes existingunderlying collateral property as well as the financial and operating capability of the effective dateborrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and subjectany cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the transition provisionsdebt service requirements currently and into the future, (ii) the ability of ASC Topic 842, will be appliedthe borrower to all new refinance the loan at maturity, and/or modified leases executed on or after January 1, 2019. For contractual arrangements executed(iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in subsequent periods involving a new leased asset class,managing and operating the properties. In addition, the Company will determine at contract inception whether it will applyconsiders the optional practical expedientoverall economic environment, real estate sector, and geographic submarket in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management and underwriting personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data and ultimately presented to management for approval.

A loan is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). A TDR occurs when a concession is granted and the new leased asset class.

Leasesdebtor is experiencing financial difficulties. Impairments on TDR loans are evaluated for classification as operating or finance leases at the commencement date of the lease. Right-of-use assets and corresponding liabilities are recognized on the Company’s consolidated balance sheetgenerally measured based on the present value of expected future lease payments relating tocash flows discounted at the useeffective interest rate of the underlying asset during the lease term. Future lease payments include fixed lease payments as well as variable lease payments that depend upon an index or rate using the index or rate at the commencement date and probable amounts owed under residual value guarantees. The amount of future lease payments may be increased to include additional payments related to lease extension, termination, and/or purchase optionsoriginal loans. Generally, when granting concessions, the Company has determined, atwill seek to protect its position by requiring incremental pay downs, additional collateral or subsequentguarantees and, in some cases, lookback features or equity interests to lease commencement, generally due to limited asset availability or operating commitments, itoffset concessions granted should conditions impacting the loan improve. The Company’s determination of credit losses is reasonably certain of exercising such options.

The Company uses its incremental borrowing rate as the discount rate in determining the present value of future lease payments, unless the interest rate implicit in the lease arrangement is readily determinable. Lease paymentsimpacted by TDRs whereby loans that vary based on future usage levels, the nature of leased asset activities, or certain other contingencies,have gone through TDRs are considered impaired, assessed for specific reserves, and are not included in the measurementCompany’s assessment of lease right-of-use assetsthe CECL reserve. Loans previously restructured under TDRs that subsequently default are reassessed to incorporate the Company’s current assumptions on expected cash flows and corresponding liabilities. additional provision expense is recorded to the extent necessary.

The Company has elected notdesignates non-accrual loans at such time as (i) loan payments become 90-days past due or (ii) in the opinion of the Company, it is probable the Company will be unable to record assets and liabilities on its consolidated balance sheet for lease arrangements withcollect all amounts due according to the contractual terms of 12 months or less. Tenant recoveries relatedthe loan. Income recognition will be suspended when a loan is designated non-accrual and resumed only when the suspended loan becomes contractually current and performance is demonstrated to reimbursement of real estate taxes, insurance, utilities, repairs and maintenance, and other operating expenses are recognizedhave resumed. Any interest received for loans on non-accrual status will be applied as revenue in the period during which the applicable expenses are incurred.

Out-of-Period Adjustments

During the first quarter of 2018, the Company recorded an out-of-period adjustment to increase tenant real estate tax recoveries on a net lease property by $1.1 million, which was not billed until the three month period ended March 31, 2018, but related to prior periods. The Company has concluded that this adjustment was not materialreduction to the financial position or resultsunpaid principal balance. A loan will be written off when it is no longer realizable and legally discharged.

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Table of operations for the three months ended March 31, 2018 or any prior periods; accordingly, the Company recorded the related adjustment in the three month period ended March 31, 2018.Contents

Recently Adopted Accounting Pronouncements

In FebruaryJune 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,2016-13 LeasesFinancial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 842) 326)(“ (“ASU 2016-02”2016-13”) and in April 2019, the FASB issued ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which sets outcollectively, the principles“CECL Standard.” These updates change how entities measure potential credit losses for most financial assets and certain other instruments that are not measured at fair value. The CECL Standard replaced the recognition, measurement, presentation“incurred loss” approach under previous guidance with an “expected loss” model for instruments measured at amortized cost. The net carrying value of an asset under the CECL Standard is intended to represent the amount expected to be collected on such asset and disclosure of leasesrequires entities to deduct allowances for both partiespotential losses on mortgage loan receivables held for investment, net and held-to-maturity debt securities. The Company will continue to record asset-specific reserves consistent with our existing accounting policy. In addition, the Company will now record a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either operating leases or financing leases basedgeneral reserve in accordance with the CECL Standard on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the termremainder of the lease. A lessee is also requiredloan portfolio (“CECL Reserve”). At adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to record a right-of-use asset0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded 3 loans that previously had an aggregate of $14.7 million of asset-specific reserves and a lease liability for all leases with a term greater than 12 months regardlesscarrying value of their classification. Leases with a term$39.8 million as of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sale-type leases, direct financing leases and operating leases. ASU 2016-02 supersedesJanuary 1, 2020. Upon adoption, the previous lease standard, aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).
Leases (Topic 840)
. In JulyAugust 2018, the FASB issued ASU 2018-10,2018-13, Codification Improvements to Topic 842 (Leases) (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new leasing standard. In July 2018, the FASB also issued ASU 2018-11, LeasesFair Value Measurement, (Topic 842)820): Targeted Improvements (“ASU 2018-11”), which provides a new transition method at the adoption date through a cumulative-effect adjustmentDisclosure Framework—Changes to the opening balance of retained earnings, prior periods will not require restatement. Disclosure Requirements for Fair Value Measurement, (“ASU 2018-11 also provides a new practical expedient for lessors adopting the new lease standard. Lessors have the option to aggregate nonlease components with the related lease component upon adoption of the new standard if the following conditions are met: (1) the timing2018-13”). ASU 2018-13 eliminates, adds and pattern of transfer for the nonlease component and the related lease component are the same and (2) the stand-alone lease component would be classified as an operating lease if accounted for separately. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) (“ASU 2018-20”), which provides narrow amendments to clarify how to applymodifies certain aspects of the new leasing standard. Each of the standards are effective for the Company on January 1, 2019, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”), which aligns the guidancedisclosure requirements for fair value measurements as part of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied. ASU 2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.

disclosure framework project. The Company adopted ASU 2016-02, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, collectively FASB ASC Topic 842, Leases (“ASC Topic 842”), beginning January 1, 2019. The Company adopted ASU Topic 842 using the modified retrospective approach and elected to utilize the Optional Transition Method, which permits the Company to apply the provisions of ASC Topic 842 to leasing arrangements existing at or entered into after January 1, 2019, and present in its financial statements comparative periods prior to January 1, 2019 under the historical requirements of ASC Topic 840. In addition, the Company elected to adopt the package of optional transition-related practical expedients, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. Furthermore, the Company elected not to record assets and liabilities on its consolidated balance sheets for new or existing lease arrangements with terms of 12 months or less.

In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), (“ASU 2017-08”). The ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Historically, entities generally amortized the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08standard is effective for interim and annual reporting periodsall entities for financial statements issued for fiscal years beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.2019, and interim periods within those fiscal years. The adoption of ASU 2017-08 on January 1, 20192018-13 had no material impact on the Company’s consolidated financial statements.


In July 2017,October 2018, the FASB issued ASU 2017-11,2018-17, Earnings Per ShareConsolidation (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815)810): I. AccountingTargeted Improvements to Related Party Guidance for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain NonpublicVariable Interest Entities, and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (“(“ASU 2017-11”2018-17”). Part IASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of this update addresses the complexity of accountinga direct interest in its entirety for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending contentdetermining whether a decision-making fee is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.a variable interest. The amendments in Part II of this update do not have an accounting effect. This ASUstandard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those years,fiscal years. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning after December 15, 2018.of the earliest period presented. The adoption of ASU 2017-11 on January 1, 20192018-17 had no material impact on the Company’s consolidated financial statements.

In January 2018,April 2019, the FASB issued ASU 2018-01,2019-04, Land Easement Practical Expedient for TransitionCodification Improvements to Topic 842,326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, (“(“ASU 2018-01”2019-04”). This ASU provides an optional transition practical expedient that, if elected, would not require companies2019-04 clarifies and improves areas of guidance related to reconsiderthe recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their accountingrelated standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for existing or expired land easements before adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. This ASU will be effective January 1,fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The Company previously adopted ASU 2016-01. The adoption of ASU 2018-01 on January 1, 2019,2019-04 had no material impact on the Company’s consolidated financial statements.

In February 2018,March 2020, the FASB issued ASU 2018-02,2020-03, Income Statement - Reporting Comprehensive Income (Topic 220),Codification Improvements to Financial Instruments, (“ASU 2018-02”2020-03”). This ASU allows an entity2020-03 improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to electGAAP, intended to reclassifymake the stranded tax effectsstandards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4 and Issue 5 were effective upon issuance of ASU 2020-03. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. This ASU will be effectiveCompany beginning on January 1, 2019, and early adoption is permitted.2020. The adoption of ASU 2018-02 on January 1, 20192020-03 had no material impact on the Company’s consolidated financial statements.

In July 2018,March 2020, the FASB issued ASU 2018-09,2020-04, Codification ImprovementsReference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,, (“ASU 2018-09”2020-04”). This standardASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective upon issuance of ASU 2020-04 for contract modifications and hedging relationships on a prospective basis. While the Company is currently assessing the impact of ASU 2020-04, the Company does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide forexpect the adoption to have a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The adoption of ASU 2018-09 had no material impact on the Company’sits consolidated financial statements.
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Recent Accounting Pronouncements Pending Adoption

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”). The guidance changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. In November 2018, the FASB issued ASU 2018-19 to clarify that operating lease receivables recorded by lessors are explicitly excluded from the scope of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05 to provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The Company must apply the amendments in these updates through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently assessing the impact of this standard on the consolidated financial statements. In general, the allowance for credit losses is expected to increase when changing from an incurred loss to expected loss methodology. The models and methodologies that are currently used in estimating the allowance for credit losses are being evaluated to identify the changes necessary to meet the requirements of the new standard.2019-12,


In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement,Income Taxes (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,815), (“ASU 2018-13”2019-12”). ASU 2018-13 eliminates, adds2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves the consistent application of, and modifies certain disclosure requirementssimplifies, GAAP for fair value measurements as partother areas of its disclosure framework project.Topic 740 by clarifying and amending existing guidance. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019,2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-02 to have a material impact on its financial statements and related disclosures.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, (“ASU 2019-04”). ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The Company previously adopted ASU 2016-01 and does not expect the amendments of ASU 2019-042019-12 to have a material impact on its consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables–Nonrefundable Fees and Other Costs, (“ASU 2020-08”). This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. All entities should apply ASU 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company is assessing ASU 2020-08 and its impact its accounting and disclosures.

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

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3. MORTGAGE LOAN RECEIVABLES
 
September 30, 20192020 ($ in thousands)
 
 
Outstanding
Face Amount
 
Carrying
Value
 
Weighted
Average
Yield (1)
 
Remaining
Maturity
(years)
        
Mortgage loan receivables held for investment, net, at amortized cost:       
Mortgage loans held by consolidated subsidiaries:       
First mortgage loans(2)$3,116,050
 $3,098,241
 7.14% 1.27
Mezzanine loans133,661
 133,202
 10.87% 3.76
Total mortgage loans held by consolidated subsidiaries3,249,711
 3,231,443
 7.29% 1.37
Provision for loan lossesN/A
 (18,500)    
Total mortgage loan receivables held for investment, net, at amortized cost3,249,711
 3,212,943
    
Mortgage loan receivables held for sale:       
First mortgage loans173,957
 174,214
 4.59% 9.68
Total$3,423,668
 $3,387,157
 7.19% 1.81
Outstanding
Face Amount		Carrying
Value		Weighted
Average
Yield (1)		Remaining
Maturity
(years)
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries:
First mortgage loans$2,622,120 $2,608,933 6.59 %1.03
Mezzanine loans122,604 122,321 10.90 %2.65
Total mortgage loans held by consolidated subsidiaries2,744,724 2,731,254 6.81 %1.10
Allowance for credit lossesN/A(47,084)
Total mortgage loan receivables held for investment, net, at amortized cost2,744,724 2,684,170 
Mortgage loan receivables held for sale:
First mortgage loans30,513 30,553  4.05 %9.43
Total$2,775,237 $2,714,723  6.99 %1.22
(1)September 30, 2019 London Interbank Offered Rate (“LIBOR”) rates are used to calculate weighted average yield for floating rate loans.
(2)
Includes amounts relating to consolidated variable interest entities. See
(1)September 30, 2020 LIBOR rates are used to calculate weighted average yield for floating rate loans.

Note 10.

As of September 30, 2019, $2.52020, $2.2 billion, or 78.4%81.1%, of the outstanding face amount of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates, linked to LIBOR. Of this $2.5$2.2 billion, 100% of these variable interest rate mortgage loan receivables were subject to interest rate floors. As of September 30, 2019, $174.02020, $30.5 million, or 100%, of the outstanding face amount of our mortgage loan receivables held for sale were at fixed interest rates.
 
December 31, 20182019 ($ in thousands)
 
 
Outstanding
Face Amount
 
Carrying
Value
 
Weighted
Average
Yield (1)
 
Remaining
Maturity
(years)
        
Mortgage loan receivables held for investment, net, at amortized cost:       
Mortgage loans held by consolidated subsidiaries:       
First mortgage loans(2)$3,192,160
 $3,170,788
 7.70% 1.18
Mezzanine loans148,221
 147,602
 10.89% 4.35
Total mortgage loans held by consolidated subsidiaries3,340,381
 3,318,390
 7.84% 1.32
Provision for loan lossesN/A
 (17,900)    
Total mortgage loan receivables held for investment, net, at amortized cost3,340,381
 3,300,490
    
Mortgage loan receivables held for sale:       
First mortgage loans181,905
 182,439
 5.46% 9.75
Total$3,522,286
 $3,482,929
 7.76% 1.77
Outstanding
Face Amount		Carrying
Value		Weighted
Average
Yield (1)		Remaining
Maturity
(years)
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries:
First mortgage loans$3,147,275 $3,127,173 6.77 %1.35
Mezzanine loans130,322 129,863 10.97 %3.26
Total mortgage loans held by consolidated subsidiaries3,277,597 3,257,036 6.94 %1.43
Allowance for credit lossesN/A(20,500)
Total mortgage loan receivables held for investment, net, at amortized cost3,277,597 3,236,536 
Mortgage loan receivables held for sale:
First mortgage loans122,748 122,325  4.20 %9.99
Total$3,400,345 $3,358,861  6.88 %1.75
(1)December 31, 2018 LIBOR rates are used to calculate weighted average yield for floating rate loans.

(1)December 31, 2019 LIBOR rates are used to calculate weighted average yield for floating rate loans.
(2)
Includes amounts relating to consolidated variable interest entities. See Note 10.

22
As of December 31, 2018,2019, $2.5 billion, or 75.4%77.2%, of the outstanding principal of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates, linked to LIBOR.LIBOR or a replacement index generally determined in our discretion. Of this $2.5 billion, 100% of these variable rate mortgage loan receivables were subject to interest rate floors. As of December 31, 2018, $182.42019, $122.7 million, or 100%, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.

For the nine months ended September 30, 20192020 and 2018,2019, the activity in our loan portfolio was as follows ($ in thousands):
 Mortgage loan receivables held for investment, net, at amortized cost:  
 Mortgage loans held by consolidated subsidiaries Mortgage loans transferred but not considered sold Provision for loan losses 
Mortgage loan 
receivables held
for sale
        
Balance, December 31, 2018$3,318,390
 $—
 $(17,900) $182,439
Origination of mortgage loan receivables985,825
 —
 —
 554,115
Purchases of mortgage loan receivables—
 —
 —
 9,934
Repayment of mortgage loan receivables(1,105,506) —
 —
 (620)
Proceeds from sales of mortgage loan receivables(1)—
 (15,504) —
 (558,799)
Non-cash disposition of loans via foreclosure(2)(17,611) —
 —
 —
Sale of loans, net—
 —
 —
 38,589
Transfer between held for investment and held for sale(1)35,940
 15,504
 —
 (51,444)
Accretion/amortization of discount, premium and other fees14,405
 —
 —
 —
Provision for loan losses—
 —
 (600) —
Balance, September 30, 2019$3,231,443
 $—
 $(18,500) $174,214
Mortgage loan receivables held for investment, net, at amortized cost:
 Mortgage loans held by consolidated subsidiariesProvision for current expected credit lossMortgage loan 
receivables held
for sale
Balance, December 31, 2019$3,257,036 $(20,500)$122,325 
Origination of mortgage loan receivables343,216 — 212,845 
Repayment of mortgage loan receivables(675,281)— (369)
Proceeds from sales of mortgage loan receivables(172,412)— (312,300)
Non-cash disposition of loans via foreclosure(1)(27,107)— — 
Sale of loans, net(6,665)— 8,052 
Accretion/amortization of discount, premium and other fees12,467 — — 
Release of asset-specific loan loss provision via foreclosure(1)— 2,000 — 
Provision for current expected credit loss (implementation impact)(2)— (4,964)— 
Provision for current expected credit loss, net (impact to earnings)(2)— (15,620)— 
Asset-specific provision for loan loss reserve— (8,000)— 
Balance, September 30, 2020$2,731,254 $(47,084)$30,553 
(1)During the three months ended March 31, 2019, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, net, at amortized cost, one loan with an outstanding face amount of $15.4 million, a book value of $15.5 million (fair value at the date of reclassification) and a remaining maturity of 9.8 years, which was sold to the WFCM 2019-C49 securitization trust. Subsequently, the controlling loan interest was sold to the UBS 2019-C16 securitization trust, and as a result, the loan previously sold during the three months ended March 31, 2019 was accounted for as a sale during the six months ended June 30, 2019.
(2)
(1)Refer to Note 5 Real Estate and Related Lease Intangibles, Net for further detail on foreclosure of real estate.

 Mortgage loan receivables held for investment, net, at amortized cost:  
 Mortgage loans held by consolidated subsidiaries Provision for loan losses 
Mortgage loan
receivables held
for sale
      
Balance, December 31, 2017$3,282,462
 $(4,000) $230,180
Origination of mortgage loan receivables1,240,894
 —
 1,115,218
Repayment of mortgage loan receivables(787,167) —
 (1,324)
Proceeds from sales of mortgage loan receivables—
 —
 (926,402)
Sale of loans, net(1)—
 —
 12,893
Transfer between held for investment and held for sale(2)55,403
 —
 (55,403)
Accretion/amortization of discount, premium and other fees13,795
 —
 —
Provision for loan losses(3)—
 (13,600) —
Balance, September 30, 2018$3,805,387
 $(17,600) $375,162
(1)Includes $0.5 million of realized losses on loans related to lower of cost or market adjustments for the nine months ended September 30, 2018.

(2)During the nine months ended September 30, 2018, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, net, at amortized cost, three loans with a combined outstanding face amount of $57.6 million, a combined book value of $55.4 million (fair value at date of reclassification) and a remaining maturity of 2.5 years. The loans had been recorded at lower of cost or market prior to their reclassification. The discount to fair value is the result of an increase in market interest rates since the loans’ origination and not a deterioration in credit of the borrowers or collateral coverage and the Company expects to collect all amounts due under the loans.
(3)As further discussed below, during the three and nine months ended September 30, 2018, the Company recorded asset-specific provisions on collateral dependent loans of $10.0 million and $12.7 million, respectively. In addition. the Company records a portfolio-based, general loan loss provision to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment. During the three and nine months ended September 30, 2018, the Company recorded an additional general reserve of $0.3 million and $0.9 million, respectively.

(2)During the nine months ended September 30, 2019 and2020, the initial impact of the implementation of the CECL accounting standard as of January 1, 2020 is recorded against retained earnings. Subsequent remeasurement thereafter, including the period to date change for the nine months ended September 30, 2018,2020, is accounted for as provision for current expected credit loss in the consolidated statements of income.
Mortgage loan receivables held for investment, net, at amortized cost:
 Mortgage loans held by consolidated subsidiariesMortgage loans transferred but not considered soldProvision for loan lossesMortgage loan
receivables held
for sale
Balance, December 31, 2018$3,318,390 $— $(17,900)$182,439 
Origination of mortgage loan receivables985,825 — — 554,115 
Purchases of mortgage loan receivables— — — 9,934 
Repayment of mortgage loan receivables(1,105,506)— — (620)
Proceeds from sales of mortgage loan receivables(1)— (15,504)— (558,799)
Non-cash disposition of loan via foreclosure(2)(17,611)— — — 
Sale of loans, net— — — 38,589 
Transfer between held for investment and held for sale(1)35,940 15,504 — (51,444)
Accretion/amortization of discount, premium and other fees14,405 — — — 
Provision for/(release of) loan loss reserves— — (600)— 
Balance, September 30, 2019$3,231,443 $0 $(18,500)$174,214 
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(1)We sell certain loans into securitizations; however, for a transfer of financial assets to be considered a sale, the transfer must meet the sale criteria of ASC 860 under which the Company must surrender control over the transferred assets which must qualify as recognized financial assets at the time of transfer. The assets must be isolated from the Company, even in bankruptcy or other receivership, the purchaser must have the right to pledge or sell the assets transferred and the Company may not have an option or obligation to reacquire the assets. If the sale criteria are not met, the transfer is considered to be a secured borrowing, the assets remain on the Company’s consolidated balance sheets and the sale proceeds are recognized as a liability. During the three months ended March 31, 2019, the Company reclassified from mortgage loan receivables held for sale to mortgage loans transferred but not considered sold, at amortized cost, one loan with an outstanding face amount of $15.4 million, a book value of $15.5 million (fair value at the date of reclassification) and a remaining maturity of 9.8 years, which was sold to the WFCM 2019-C49 securitization trust. Subsequent to March 31, 2019, the controlling loan interest was sold to the UBS 2019-C16 securitization trust, and as a result, the loan previously sold during the three months ended March 31, 2019 was accounted for as a sale during the nine months ended September 30, 2019.
(2)Refer to Note 5, Real Estate and Related Lease Intangibles, Net for further detail on real estate acquired via foreclosure.

During the three and nine months ended September 30, 2020, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing. During the three and nine months ended September 30, 2019, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing, except for the one loan discussed above.

As of September 30, 20192020 and December 31, 2018,2019, there was $0.1$0.4 million and $0.5 million, respectively, of unamortized discounts included in our mortgage loan receivables held for investment, net, at amortized cost, on our consolidated balance sheets. 

ProvisionAllowance for LoanCredit Losses and Non-Accrual Status ($ in thousands)

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Allowance for loan losses at beginning of period$18,500
 $7,300
 $17,900
 $4,000
Provision for loan losses—
 10,300
 600
 13,600
Allowance for loan losses at end of period$18,500
 $17,600
 $18,500
 $17,600
        
     September 30, 2019 December 31, 2018
        
Principal balance of loans on non-accrual status(1)    $37,161
 $36,850

Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Allowance for credit losses at beginning of period$49,102 $18,500 $20,500 $17,900 
Provision for current expected credit loss (implementation impact)0 0 4,964 0 
Provision for current expected credit loss, net (impact to earnings)(2,018)0 15,620 600 
Additional asset-specific reserve0 0 8,000 0 
Foreclosure of loans subject to asset-specific reserve0 0 (2,000)0 
Allowance for credit losses at end of period$47,084 $18,500 $47,084 $18,500 
September 30, 2020December 31, 2019
Carrying value of loans on non-accrual status, net of asset-specific reserve$201,517 (1)$86,025 (2)
(1)Represents 2 of the Company’s loans, which were originated simultaneously as part of a single transaction and had a carrying value of $26.9 million and one loan with a carrying value of $45.0 million, as further discussed below.
(1)Represents 2 of the Company’s loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $24.2 million, 2 loans with a combined carrying value of $27.8 million, 1 loan with a carrying value of $61.5 million, 1 loan with a carrying value of $3.6 million, 1 loan with a carrying value of $44.9 million and 1 loan with a carrying value of $39.5 million as further discussed below.
(2)Represents 2 of the Company’s loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $24.2 million, 1 loan with a carrying value of $0.4 million and 1 loan with a carrying value of $61.5 million, as further discussed below.

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Current Expected Credit Loss (“CECL”)

In compliance with the new CECL reporting requirements, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded 3 loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).

As of September 30, 2020, the Company has a $47.6 million allowance for credit losses. This includes five loans that previously had an aggregate of $20.7 million of asset-specific reserves and a carrying value of $76.3 million as of September 30, 2020.

The change of $(2.5) million in the three months ended September 30, 2020 is reflected as a decrease to provision for/(release of) loan loss reserves of $(2.0) million, and a decrease in reserve on unfunded commitments of $(0.5) million. These decreases are primarily due to the decrease in the size of our loan portfolio, partially offset by an update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter.

The change of $15.3 million in the nine months ended September 30, 2020 is reflected as an increase of reserve to provision of $15.6 million, and a decrease in reserve on unfunded commitments of $(0.3) million. These increases/decreases are primarily due to the update of the macro economic assumptions used in the Company’s CECL evaluation to reflect a recessionary macro economic scenario due to current market conditions instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the January 1, 2020 CECL reserve analysis, partially offset by a decrease in unfunded commitments. In addition to the CECL reserve, the Company evaluates eachdetermined that an asset-specific reserve of its$8.0 million was required relating to 2 of the Company’s loans for potential losses at least quarterly. Its loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data.


nine months ended September 30, 2020.
As a result of this analysis, the
The Company has concluded that none of its loans, other than the 34 loans discussed below, are individually impaired as of September 30, 20192020.

Loan Portfolio by Geographic Region, Property Type and December 31, 2018. ItVintage ($ in thousands)

Amortized Cost
Geographic Region
Northeast$779,956 
Southwest575,969 
South485,643 
Midwest469,497 
West343,909 
Subtotal loans2,654,974 
Individually impaired loans(1)76,280 
Total loans$2,731,254 

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Management’s method for monitoring credit is probable, however,the performance of a loan. A loan is impaired or not impaired based on the expectation that all amounts contractually due under a loan will be collected when due. The primary credit quality indicator management utilizes to assess its current expected credit loss reserve is by viewing Ladder’s loan portfolio by collateral type. The following table summarizes the assessed amortized cost of the loan portfolio by property type ($ in thousands).
Vintage
Property Type20202019201820172016 and EarlierTotal
Multifamily$65,380 $299,648 $66,006 $24,562 $0 $455,596 
Office0 67,317 137,530 67,378 123,639 395,864 
Hospitality52,971 203,285 389,172 150,585 51,935 847,948 
Mixed Use52,572 101,571 0 14,367 0 168,510 
Retail0 134,826 19,786 0 65,784 220,396 
Other52,030 131,087 79,813 0 0 262,930 
Industrial52,046 116,579 0 0 6,470 175,095 
Manufactured Housing4,549 57,261 11,710 0 3,966 77,486 
Self-Storage0 35,960 15,189 0 0 51,149 
Subtotal loans279,548 1,147,534 719,206 256,892 251,794 2,654,974 
Individually Impaired loans (1)0 0 4,143 0 72,137 76,280 
Total loans$279,548 $1,147,534 $723,349 $256,892 $323,931 $2,731,254 
(1)Included in individually impaired loans are 2 loans, which were originated in 2016 simultaneously as part of a whole incurred an impairment due to common characteristics and shared inherent riskssingle transaction with a combined amortized cost of $26.9 million, collateralized by a mixed use property located in the portfolio.Northeast region, 1 loan, which was originated in 2016 and subsequently restructured into 2 loans in 2018, with a combined amortized cost of $45.3 million, collateralized by a mixed use property located in the Northeast region, and 1 loan, originated in 2018, with a amortized cost of $4.1 million, collateralized by a hotel located in the Midwest region. The Company determined that a provision expense for loan losses of $0.6 million was required for the nine months ended September 30, 2019. This provision consisted of a portfolio-based, general loan loss provision of $0.6 million to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment, and no additionalabove individually impaired loans’ amortized cost basis excludes asset-specific reserves.provisions totaling $20.7 million.

Individually Impaired Loans

As of September 30, 2019,2020, 2 of the Company’s loans, collateralized by a mixed use property, which were originated simultaneously as part of a single transaction and had a carrying value of $26.9 million, were in default. These loans are directly and indirectly secured by the same property and are considered collateral dependent because repayment is expected to be provided solely by the underlying collateral.property. The Company placed these loans on non-accrual status in July 2017. In assessing these collateral dependentcollateral-dependent loans for impairment, the most significant consideration is the fair value of the underlying real estate collateral, which includes an in-place long-dated retail lease. The value of such property is most significantly affected by the contractual lease terms and the appropriate market capitalization rates, which are driven by the property’s market strength, the general interest rate environment and the retail tenant’s creditworthiness. In view of these considerations, the Company uses a direct capitalization rate valuation methodology to calculate the fair value of the underlying real estate collateral. These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy. During the three months ended March 31, 2018, management believed these loans to be potentially impaired, reflecting a decline in collateral value attributable to: (i) on-going bankruptcy proceedings; (ii) rising interest rates; and (iii) the retail tenant’s creditworthiness. As a result, on March 31, 2018, the Company recorded aan asset-specific provision for loss on 1 of these loans, with a carrying value of $2.7$5.9 million, of $2.7 million to reduce the carrying value of these loans to the fair value of the property less the cost to foreclose and sell the property utilizing direct capitalization rates of 4.70% to 5.00%. As of September 30, 2019,2020, the Company believed no additional loss provision was necessary based on the application of direct capitalization rates of 4.60% to 4.90%.


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During the year ended December 31, 2018, management identified a loan, secured by a mixed-use office and hospitality property, with a carrying value of $45.0 million as potentially impaired, reflecting a decline in collateral value attributable to: (i) recent and near term tenant vacancies at the property; (ii) new information available during the three months ended September 30, 2018 regarding the addition of supply that will increase the local submarket vacancy rate; and (iii) declining market conditions. As part of the Company’s evaluation, it obtained an external appraisal of the loan collateral. Based on this review, aA reserve of $10.0 million was recorded for this potentially impaired loan in the three months ended September 30, 2018 to reduce the carrying value of the loan to the estimated fair value of the collateral, less the estimated costs to sell. The Company has placed this loan on non-accrual status as of September 30, 2018. During the quarter ended December 31, 2018, this loan experienced a maturity default and its terms were modified in a Troubled Debt Restructuring (“TDR”) on October 17, 2018. The terms of the TDR provided for, among other things, the restructuring of the Company’s existing $45.0 million first mortgage loan into a $35.0 million A-Note and a $10.0 million B-Note and a 19.0% equity interest which is not subject to dilution and that can be increased to 25% under certain conditions. Under certain conditions, the B-Note may be forgiven or reduced. The restructured loanreserve of $10.0 million was extended for upapplied to 12 months, including extensions. There have been no additional changesthe B-Note and the B-Note was placed on non-accrual status on October 17, 2018. During the quarter ended March 31, 2020, management identified that the A-Note was impaired, reflecting a decline in collateral value due to: (i) new information available during the ninethree months ended September 30, 2019. On October 4, 2019,March 31, 2020 regarding two recent non-distressed sales of office buildings in the loan was extended for an additional one month period withWilmington, DE central business district; (ii) a November 6, 2019 maturity. On November 6, 2019change in market conditions driven by COVID-19 as capital flow to the loan was extended for an additional three month period withtertiary markets shifted given increased opportunities in primary markets; and (iii) the closure of the corporate housing component of the property. As a February 6,result, on March 31, 2020, maturity.

Generally when granting concessions, the Company will seekrecorded an asset-specific provision for loss on the A-Note of $7.5 million to protect its position by requiring incremental pay downs, additional collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impactingreduce the loan improve. The Company's determinationcarrying value of credit losses is impacted by TDRs whereby loans that have gone through TDRs are considered impaired, assessed for specific reserves, and are not included in the Company's assessment of generalthis loan loss reserves. Loans previously restructured under TDRs that subsequently default are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary.fair value of the property less the cost to foreclose and sell the property utilizing direct capitalization rates of 7.50% to 8.60%. The Company placed the A-Note on non-accrual status as of March 31, 2020. As of September 30, 2020, the combined carrying value of the A-Note and the B-Note was $45.3 million.

As of September 30, 2020, one of the Company’s loans, collateralized by a hotel property, with a carrying value of $4.1 million, was in default. The Company placed this loan on non-accrual status in March 2020. The Company filed for foreclosure in December 2019 and did not believe there was an impairment at that time. In assessing this collateral-dependent loan for impairment, the most significant consideration is the fair value of the underlying real estate collateral. During the quarter ended March 31, 2020, management identified that the loan was impaired, reflecting a decline in collateral value due to indications of value from market participants with knowledge of the asset and the temporary closure of the nearby university and local businesses due to COVID-19. As a result, on March 31, 2020, the Company recorded an asset-specific provision for loss of $0.5 million to reduce the carrying value of this loan to the fair value of the property less the cost to foreclose and sell the property. As of September 30, 2020, the Company believed no additional loss provision was necessary based on the current value of the underlying collateral.

As of September 30, 2020, there were no unfunded commitments associated with modified loans considered TDRs.

AsThese non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.

Loans on Non-Accrual Status

During the three months ended December 31, 2019, 1 of the Company’s loans, which had a carrying value of $61.5 million, was placed on non-accrual status. The Company performed a review of the loan collateral. The review consisted of conversations with market participants familiar with the property location as well as reviewing market data and comparables. Based on this review, the Company determined that no asset-specific impairment was required for this loan. The Company will continue to monitor for impairment.

During the three months ended June 30, 2020, 1 of the Company’s loans, which had a carrying value of $39.5 million, was placed on non-accrual status. The Company performed a review of the loan collateral. The review consisted of conversations with market participants familiar with the property location as well as reviewing market data and comparables. Based on this review, the Company determined that no asset-specific impairment was required for this loan. The Company will continue to monitor for impairment.

During the three months ended September 30, 20192020, 1 of the Company’s loans, which had a carrying value of $44.9 million, was placed on non-accrual status. The Company performed a review of the loan collateral. The review consisted of conversations with market participants familiar with the property location as well as reviewing market data and December 31, 2018 there werecomparables. Based on this review, the Company determined that no asset-specific impairment was required for this loan. The Company will continue to monitor for impairment.

There are 0 other loans on non-accrual status.status other than those discussed in Individually Impaired Loans and Loans on Non-Accrual Status above as of September 30, 2020.

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4. REAL ESTATE SECURITIES
 
Commercial mortgage backedThe Company invests in primarily AAA-rated real estate securities, (“CMBS”),typically front pay securities, with relatively short duration and significant subordination. The hyperamortization features included in many of the securities positions we own help mitigate potential credit losses even in the current market conditions. At the onset of the COVID-19 pandemic in March 2020, there was a significant decrease in liquidity and trading activity for the real estate securities we own. During the three months ended September 30, 2020, liquidity and trading activity continued to return to the market and the value of our securities portfolio as of September 30, 2020 had an unrealized mark-to-market gain of $18.4 million. As of September 30, 2020 there was an unrealized mark-to-market loss of $45.2 million related to the nine months ended September 30, 2020.

CMBS, CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. Equity securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at September 30, 20192020 and December 31, 20182019 ($ in thousands):

September 30, 20192020
    Gross Unrealized  Weighted Average
Asset TypeOutstanding
Face Amount		 Amortized Cost Basis/Purchase Price
GainsLossesCarrying
Value		# of
Securities		Rating (1)Coupon %Yield %Remaining
Duration
(years)
CMBS(2)$1,420,752  $1,420,537 $1,018 $(30,993)$1,390,562 (3)102 AAA1.49 %1.54 %2.10
CMBS interest-only(2)(4)1,506,152 23,063 723 (45)23,741 (5)13 AAA0.44 %3.32 %2.28
GNMA interest-only(4)(6)87,917 1,175 216 (163)1,228 11 AA+0.44 %3.90 %3.27
Agency securities(2)595  603 16 0 619 2 AA+2.57 %1.66 %1.40
GNMA permanent securities(2)30,542  30,662 832 0 31,494 6 AA+3.88 %3.49 %2.20
Total debt securities$3,045,958 $1,476,040 $2,805 $(31,201)$1,447,644 134 0.96 %1.62 %2.11
Provision for current expected credit lossesN/A— — (19)(19)
Total real estate securities$3,045,958  $1,476,040 $2,805 $(31,220)$1,447,625 134  
(1)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)Includes $11.1 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (the “Dodd-Frank Act”) and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)Includes $0.7 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company has elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.
  
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      Gross Unrealized     Weighted Average
Asset Type 
Outstanding
Face Amount
 
Amortized Cost Basis/Purchase Price

 Gains Losses 
Carrying
Value
 
# of
Securities
 Rating (1) Coupon % Yield % 
Remaining
Duration
(years)
                     
CMBS(2) $1,779,458
 $1,780,233
 $9,012
 $(533) $1,788,712
(3)139
 AAA 3.27% 3.14% 2.38
CMBS interest-only(2)(4) 2,139,357
 39,961
 1,491
 (12) 41,440
(5)18
 AAA 0.49% 3.65% 2.61
GNMA interest-only(4)(6) 113,096
 2,202
 119
 (295) 2,026
 12
 AA+ 0.51% 9.65% 2.73
Agency securities(2) 641
 652
 2
 —
 654
 2
 AA+ 2.67% 1.74% 1.97
GNMA permanent securities(2) 31,760
 31,984
 811
 —
 32,795
 6
 AA+ 3.92% 3.27% 4.55
Corporate bonds(2) 32,088
 31,604
 768
 —
 32,372
 1
 BB- 3.63% 4.81% 1.31
Total debt securities $4,096,400
 $1,886,636
 $12,203
 $(840) $1,897,999
 178
   1.75% 3.17% 2.39
Equity securities(7) N/A
 13,720
 125
 (388) 13,457
 3
 N/A N/A
 N/A
 N/A
Total real estate securities $4,096,400
 $1,900,356
 $12,328
 $(1,228) $1,911,456
 181
        
December 31, 2019
    Gross Unrealized  Weighted Average
Asset TypeOutstanding
Face Amount		 Amortized
Cost Basis		GainsLossesCarrying
Value		# of
Securities		Rating (1)Coupon %Yield %Remaining
Duration
(years)
CMBS(2)$1,640,597  $1,640,905 $4,337 $(920)$1,644,322 (3)125 AAA3.06 %3.08 %2.41
CMBS interest-only(2)(4)1,559,160 28,553 630 (37)29,146 (5)15 AAA0.60 %3.04 %2.53
GNMA interest-only(4)(6)109,783 1,982 123 (254)1,851 11 AA+0.49 %4.59 %2.77
Agency securities(2)629  640 1 (4)637 2 AA+2.65 %1.73 %1.83
GNMA permanent securities(2)31,461  31,681 688 0 32,369 6 AA+3.91 %3.17 %1.93
Total debt securities$3,341,630 $1,703,761 $5,779 $(1,215)$1,708,325 159 1.84 %3.06 %2.39
Equity securities(7)N/A12,848 292 (160)12,980 2 N/AN/AN/AN/A
Total real estate securities$3,341,630  $1,716,609 $6,071 $(1,375)$1,721,305 161  
(1)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)Includes $11.6 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)Includes $0.8 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company has elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)
(1)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating.  For each security rated by multiple rating agencies, the highest rating is used.  Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)Includes $11.6 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)Includes $0.8 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.

December 31, 2018
 
      Gross Unrealized     Weighted Average
Asset Type 
Outstanding
Face Amount
 
Amortized
Cost Basis
 Gains Losses 
Carrying
Value
 
# of
Securities
 Rating (1) Coupon % Yield % 
Remaining
Duration
(years)
                     
CMBS(2) $1,258,819
 $1,257,801
 $2,477
 $(7,638) $1,252,640
(3)138
 AAA 3.32% 3.14% 2.33
CMBS interest-only(2)(4) 2,373,936
 55,534
 428
 (271) 55,691
(5)19
 AAA 0.57% 2.80% 2.69
GNMA interest-only(4)(6) 135,932
 2,862
 93
 (307) 2,648
 12
 AA+ 0.51% 6.30% 4.11
Agency securities(2) 668
 682
 —
 (20) 662
 2
 AA+ 2.73% 1.83% 2.36
GNMA permanent securities(2) 32,633
 32,889
 420
 (245) 33,064
 6
 AA+ 3.94% 3.76% 5.03
Corporate bonds(2) 55,305
 54,257
 —
 (386) 53,871
 2
 BB 4.08% 5.04% 2.51
Total debt securities $3,857,293
 $1,404,025
 $3,418
 $(8,867) $1,398,576
 179
   1.54% 3.19% 2.40
Equity securities(7) N/A
 13,154
 —
 (1,604) 11,550
 3
 N/A N/A
 N/A
 N/A
Total real estate securities $3,857,293
 $1,417,179
 $3,418
 $(10,471) $1,410,126
 182
        
(1)Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating.  For each security rated by multiple rating agencies, the highest rating is used.  Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
(2)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(3)Includes $11.3 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(4)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(5)Includes $0.9 million of restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost.
(6)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
(7)The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings.

The following is a breakdown of the carrying value of the Company’s debt securities by remaining maturity based upon expected cash flows at September 30, 20192020 and December 31, 20182019 ($ in thousands):
 
September 30, 20192020
Asset TypeWithin 1 year1-5 years5-10 yearsAfter 10 yearsTotal
CMBS$289,889 $1,052,832 $47,841 $0 $1,390,562 
CMBS interest-only1,889 21,852 0 0 23,741 
GNMA interest-only64 886 278 0 1,228 
Agency securities0 619 0 0 619 
GNMA permanent securities137 31,357 0 0 31,494 
Total debt securities$291,979 $1,107,546 $48,119 $0 $1,447,644 
 
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Asset Type Within 1 year 1-5 years 5-10 years After 10 years Total
           
CMBS(1) $395,377
 $1,212,074
 $181,261
 $—
 $1,788,712
CMBS interest-only(1) 645
 40,795
 —
 —
 41,440
GNMA interest-only(2) 250
 1,515
 261
 —
 2,026
Agency securities(1) —
 654
 —
 —
 654
GNMA permanent securities(1) 344
 32,451
 —
 —
 32,795
Corporate bonds(1) —
 32,372
 —
 —
 32,372
Total debt securities $396,616
 $1,319,861
 $181,522
 $—
 $1,897,999
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
December 31, 20182019
 
Asset TypeWithin 1 year1-5 years5-10 yearsAfter 10 yearsTotal
CMBS$177,193 $1,389,392 $77,737 $0 $1,644,322 
CMBS interest-only1,439 27,707 0 0 29,146 
GNMA interest-only91 1,504 256 0 1,851 
Agency securities0 637 0 0 637 
GNMA permanent securities416 31,953 0 0 32,369 
Total debt securities$179,139 $1,451,193 $77,993 $0 $1,708,325 
Asset Type Within 1 year 1-5 years 5-10 years After 10 years Total
           
CMBS(1) $342,121
 $772,594
 $137,925
 $—
 $1,252,640
CMBS interest-only(1) 1,145
 54,546
 —
 —
 55,691
GNMA interest-only(2) 17
 2,276
 353
 2
 2,648
Agency securities(1) —
 662
 —
 —
 662
GNMA permanent securities(1) 551
 1,048
 31,465
 —
 33,064
Corporate bonds(1) —
 53,871
 —
 —
 53,871
Total debt securities $343,834
 $884,997
 $169,743
 $2
 $1,398,576
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

During the three and nine months ended September 30, 2019,2020, the Company realized a gain (loss) on the sale of equity securities of NaN0 and $0.1$1.1 million, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income. During the three and nine months ended September 30, 2018,2019, the Company realized a gain (loss) on the sale of equity securities of NaN0 and $0.1 million, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income.

There were $0.1 millionDuring the three and nine months ended September 30, 2020, the Company realized losses on securities recorded as other than temporary impairments for the threeof 0 and nine months ended September 30, 2019. During the three and nine months ended September 30, 2018 there were $0.6 million and $2.2$0.3 million, respectively, of realized losses on securities recorded as other than temporary impairments, which isare included in realized gain (loss) on securities on the Company’s consolidated statements of income.


During the three and nine months ended September 30, 2019 the Company realized $0.1 million losses on securities recorded as other than temporary impairments.

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5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

The market conditions due to the COVID-19 pandemic and the resulting economic disruption have broadly impacted the commercial real estate sector. As expected, the net leased commercial real estate properties, which comprise the majority of our portfolio, have remained minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based businesses and have remained open and stable during the COVID-19 pandemic. We continue to actively monitor the diversified commercial real estate properties for both the immediate and long term impact of the pandemic on the buildings, the tenants, the business plans and the ability to execute those business plans.

The following tables present additional detail related to our real estate portfolio, net, including foreclosed properties ($ in thousands):

 September 30, 2020December 31, 2019
Land$220,465 $209,955 
Building834,630 883,005 
In-place leases and other intangibles157,011 161,203 
Less: Accumulated depreciation and amortization(221,523)(206,082)
Real estate and related lease intangibles, net$990,583 $1,048,081 
Below market lease intangibles, net (other liabilities)$(37,500)$(39,067)
 September 30, 2019 December 31, 2018
    
Land$197,682
 $195,644
Building820,783
 814,314
In-place leases and other intangibles159,721
 162,002
Less: Accumulated depreciation and amortization(196,853) (173,938)
Real estate and related lease intangibles, net$981,333
 $998,022
    
Below market lease intangibles, net (other liabilities)$(39,087) $(40,367)


At September 30, 20192020 and December 31, 2018,2019, the Company held foreclosed properties included in real estate and related lease intangibles, net with a carrying value of $23.9$107.7 million and $6.3$89.5 million, respectively.

The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Depreciation expense(1)$7,394
 $8,063
 $22,776
 $24,058
Amortization expense1,612
 2,336
 6,342
 7,782
Total real estate depreciation and amortization expense$9,006
 $10,399
 $29,118
 $31,840
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Depreciation expense(1)$8,138 $7,394 $24,571 $22,776 
Amortization expense1,679 1,612 5,071 6,342 
Total real estate depreciation and amortization expense$9,817 $9,006 $29,642 $29,118 
(1)Depreciation expense on the consolidated statements of income also includes $24 thousand and $18 thousand of depreciation on corporate fixed assets for the three months ended September 30, 2019 and 2018, respectively, and $74 thousand and $56 thousand of depreciation on corporate fixed assets for the nine months ended September 30, 2019 and 2018, respectively.
(1)Depreciation expense on the consolidated statements of income also includes $25 thousand and $74 thousand of depreciation on corporate fixed assets for the three and nine months ended September 30, 2020, respectively. Depreciation expense on the consolidated statements of income also includes $24 thousand and $74 thousand for the three and nine months ended September 30, 2019, respectively.

The Company’s intangible assets are comprised of in-place leases, favorable leases compared toabove market leases and other intangibles. The following tables present additional detail related to our intangible assets ($ in thousands):

 September 30, 2019 December 31, 2018
    
Gross intangible assets(1)$159,721
 $162,002
Accumulated amortization61,056
 57,712
Net intangible assets$98,665
 $104,290
 September 30, 2020December 31, 2019
Gross intangible assets(1)$157,010 $161,203 
Accumulated amortization64,260 62,773 
Net intangible assets$92,750 $98,430 
(1)Includes $4.6 million and $5.5 million of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.

(1)Includes $4.3 million and $4.5 million of unamortized above market lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively.

 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Reduction in operating lease income for amortization of above market lease intangibles acquired$(94) $(155) $(727) $(535)
Increase in operating lease income for amortization of below market lease intangibles acquired564
 500
 1,594
 1,821




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The following table presents increases/reductions in operating lease income recorded by the Company ($ in thousands):

 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Reduction in operating lease income for amortization of above market lease intangibles acquired$(92)$(94)$(275)$(727)
Increase in operating lease income for amortization of below market lease intangibles acquired624 564 1,995 1,594 

The following table presents expected adjustment to operating lease income and expected amortization expense during the next five years and thereafter related to the above and below market leases and acquired in-place lease and other intangibles for property owned as of September 30, 20192020 ($ in thousands):
Period Ending December 31,Adjustment to Operating Lease IncomeAmortization Expense
2020 (last 3 months)$268 $1,491 
20211,070 5,504 
20221,070 5,504 
20231,070 5,504 
20241,070 5,504 
Thereafter28,692 64,932 
Total$33,240 $88,439 
Period Ending December 31, Adjustment to Operating Lease Income Amortization Expense
     
2019 (last 3 months) $263
 $1,601
2020 1,054
 6,403
2021 1,054
 6,232
2022 1,054
 6,232
2023 1,054
 6,232
Thereafter 29,981
 67,233
Total $34,460
 $93,933


Lease Prepayment by Lessor, Retirement of Related Mortgage Loan Financing and Impairment of Real Estate

On January 10, 2019, the Company received $10.0 million prepayment of a lease on a single-tenant two-story office building in Wayne, NJ. As of March 31, 2019, this property had a book value of $5.6 million, which is net of accumulated depreciation and amortization of $2.7 million. The Company recognized the $10.0 million of operating lease income on a straight-line basis over the revised lease term. On February 6, 2019, the Company paid off $6.6 million of mortgage loan financing related to the property, recognizing a loss on extinguishment of debt of $1.1 million. During the three months ended March 31, 2019, the Company recorded a $1.4 million impairment of real estate to reduce the carrying value of the real estate to the estimated fair value of the real estate. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a net loss of $20 thousand. See Note 15, Fair Value of Financial Instruments for further detail.

There were $1.0$0.4 million and $0.8$0.9 million of rent receivables included in other assets on the consolidated balance sheets as of September 30, 20192020 and December 31, 2018,2019, respectively.

There was unencumbered real estate of $90.8$71.3 million and $58.6$59.2 million as of September 30, 20192020 and December 31, 2018,2019, respectively.

During the three and nine months ended September 30, 2020, the Company recorded $2.0 million and $4.5 million, respectively, of real estate operating income, which is included in operating lease income in the consolidated statements of income. During the three and nine months ended 2019, the Company recorded $1.1 million and $2.1 million, respectively, of real estate operating income, respectively, which is included in operating lease income in the consolidated statements of income.
 

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The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at September 30, 20192020 ($ in thousands):
Period Ending December 31, AmountPeriod Ending December 31,Amount
  
2019 (last 3 months) $21,347
2020 80,401
2020 (last 3 months)2020 (last 3 months)$31,209 
2021 69,055
202172,872 
2022 65,936
202264,975 
2023 64,106
202364,206 
2024202463,220 
Thereafter 520,897
Thereafter495,607 
Total $821,742
Total$792,089 


Acquisitions

During the nine months ended September 30, 2020, the Company acquired the following properties ($ in thousands):
Acquisition DateTypePrimary Location(s)Purchase Price/Fair Value on the Date of ForeclosureOwnership Interest (1)
Purchases of real estate
Aggregate purchases of net leased real estate$6,239 100.0%
Real estate acquired via foreclosure
March 2020DiversifiedLos Angeles, CA21,535 100.0%
June 2020DiversifiedWinston Salem, NC3,900 100.0%
Total real estate acquired via foreclosure25,435 
Total real estate acquisitions$31,674 
(1)Properties were consolidated as of acquisition date.

The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the nine months ended September 30, 2020, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the asset acquisitions during the nine months ended September 30, 2020, as follows ($ in thousands):
Purchase Price Allocation
Land$23,524 
Building7,244 
Intangibles1,201 
Below Market Lease Intangibles(295)
Total purchase price$31,674

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The weighted average amortization period for intangible assets acquired during the nine months ended September 30, 2020 was 39.8 years. The Company recorded $0.1 million and $0.3 million in revenues from its 2020 acquisitions for the three and nine months ended September 30, 2020, respectively, which is included in its consolidated statements of income. The Company recorded $0.5 million and $(0.4) million in earnings (losses) from its 2020 acquisitions for the three and nine months ended September 30, 2020, respectively, which is included in its consolidated statements of income.

During the nine months ended September 30, 2019, the Company acquired the following properties ($ in thousands):

Acquisition Date Type Primary Location(s) Purchase Price/Fair Value on the Date of Foreclosure Ownership Interest (1)
         
Purchases of real estate      
February 2019 Net Lease Houghton Lake, MI $1,242
 100.0%
February 2019 Net Lease Trenton, MO 1,164
 100.0%
April 2019 Net Lease Centralia, IL 1,242
 100.0%
June 2019 Net Lease Fayette, MO 1,423
 100.0%
July 2019 Net Lease Dexter, MO 1,150
 100.0%
July 2019 Net Lease Caledonia, MI 1,199
 100.0%
August 2019 Net Lease Poseyville, IN 1,220
 100.0%
September 2019 Net Lease Chillicothe, IL 1,445
 100.0%
September 2019 Net Lease Sullivan, IL 1,496
 100.0%
September 2019 Net Lease Becker, MN 1,185
 100.0%
September 2019 Net Lease Adrian, MO 1,138
 100.0%
Total purchases of real estate   13,904
  
         
Real estate acquired via foreclosure    
February 2019 Diversified Omaha, NE 18,200
 100.0%
Total real estate acquired via foreclosure 18,200
  
         
Total real estate acquisitions   $32,104
  
Acquisition DateTypePrimary Location(s)Purchase Price/Fair Value on the Date of ForeclosureOwnership Interest (1)
Purchases of real estate
Aggregate purchases of net leased real estate$13,904 100.0%
Real estate acquired via foreclosure
February 2019DiversifiedOmaha, NE18,200 100.0%
Total real estate acquired via foreclosure18,200 
Total real estate acquisitions$32,104 
(1)Properties were consolidated as of acquisition date.
During the nine months ended September 30, 2019, the Company acquired title to real estate in a foreclosure. The real estate had a fair value of $18.2 million and previously served as collateral for a mortgage loan receivable held for investment, which was previously on non-accrual status. This loan had an amortized cost of $17.8 million, accrued interest of $0.2 million and an unamortized discount of $0.1 million. The acquisition was accounted for in real estate, net, at fair value on the date of foreclosure. There was no gain or loss resulting from the foreclosure of the loan.


On October 1, 2016, the(1)Properties were consolidated as of acquisition date.

The Company early adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). As a result of this adoption, acquisitions of real estate may not meet the revised definition of a business and may be treated as asset acquisitions rather than business combinations. The measurement of assets and liabilities acquired will no longer be recorded at fair value and the Company will now allocateallocates purchase consideration based on relative fair values. Realvalues, and real estate acquisition costs which are no longer expensed as incurred, will be capitalized as a component of the cost of the assets acquired.acquired for asset acquisitions. During the nine months ended September 30, 2019, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the asset acquisitions during the nine months ended September 30, 2019, as follows ($ in thousands):
Purchase Price Allocation
Land$4,969 
Building25,571 
Intangibles2,309 
Below Market Lease Intangibles(745)
Total purchase price$32,104
  Purchase Price Allocation
   
Land $4,969
Building 25,571
Intangibles 2,309
Below Market Lease Intangibles (745)
Total purchase price $32,104


The weighted average amortization period for intangible assets acquired during the nine months ended September 30, 2019 was 38.3 years. The Company recorded $167$167.4 thousand and $246$246.3 thousand in revenues from its 2019 acquisitions for the three and nine months ended September 30, 2019, respectively, which is included in its consolidated statements of income. The Company recorded $(1.0) million and $(2.5) million in earnings (losses) from its 2019 acquisitions for the three and nine months ended September 30, 2019, respectively, which is included in its consolidated statements of income.

During the nine months ended September 30, 2018,Acquisitions via Foreclosure

In June 2020, the Company acquired a hotel in Winston Salem, NC via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $3.8 million. The Company obtained a third-party appraisal of the property. The $3.9 million fair value was determined using the ground lease approach and the income approach to value. The appraiser utilized a terminal capitalization rate of 9.50% and a discount rate of 13.50%. There was 0 gain or loss resulting from the foreclosure of the loan.

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In March 2020, the Company acquired a development property in Los Angeles, CA, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a basis of $21.6 million, net of an asset-specific loan loss provision of $2.0 million. The Company obtained a third-party appraisal of the property. Substantially all of the fair value was attributed to land. The $21.5 million fair value was determined using the sales comparison approach to value. Using this approach, the appraiser developed an opinion of the fee simple value of the underlying land by comparing the property to similar, recently sold properties in the surrounding or competing area. The Company recorded a $0.1 million loss resulting from the foreclosure of the loan.

In February 2019, the Company acquired a hotel in Omaha, NE, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $17.9 million. The Company obtained a third-party appraisal of the property. The $18.2 million fair value was determined using the income approach to value. The appraiser utilized a terminal capitalization rate of 8.75% and a discount rate of 10.25%. There was 0 gain or loss resulting from the foreclosure of the loan.

These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.

Sales

The Company sold the following properties ($ in thousands):

Acquisition Date Type Primary Location(s) Purchase Price Ownership Interest (1)
         
March 2018 Diversified(2) Lithia Springs, GA $24,466
 70.6%
April 2018 Net Lease Kirbyville, MO 1,156
 100.0%
April 2018 Net Lease Gladwin, MI 1,171
 100.0%
April 2018 Net Lease Foley, MN 1,176
 100.0%
April 2018 Net Lease Moscow Mills, MO 1,237
 100.0%
April 2018 Net Lease Wonder Lake, IL 1,255
 100.0%
May 2018 Diversified(3) Isla Vista, CA 85,087
 75.0%
         
Total real estate acquisitions   $115,548
  
(1)Properties were consolidated as of acquisition date.
(2)Joint venture partner contributed $2.9 million to the partnership.
(3)
Joint venture partner contributed $4.6 million to the partnership.


The purchase prices were allocated to the asset acquisitions during the nine months ended September 30, 2018, as follows2020 ($ in thousands):
  Purchase Price Allocation
   
Land $40,019
Building 73,794
Intangibles 2,065
Below Market Lease Intangibles (330)
Total purchase price $115,548

Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)(1)PropertiesUnits SoldUnits Remaining
VariousCondominiumMiami, FL$1,199 $1,174 $25 0 4 2 
March 2020DiversifiedRichmond, VA22,527 14,829 7,698 7 0 0 
March 2020DiversifiedRichmond, VA6,932 4,109 2,823 1 0 0 
August 2020Net LeaseBellport, NY19,434 15,012 4,422 1 — — 
September 2020DiversifiedLithia Springs, GA39,491 23,187 16,304 1 — — 
September 2020DiversifiedWinston Salem, NC4,647 3,803 844 1 — — 
Totals$94,230 $62,114 $32,116 

The weighted average amortization period(1)Realized gain (loss) on the sale of real estate, net on the consolidated statements of income also includes $0.1 million of realized gain (loss) on the disposal of fixed assets for intangible assets acquired during the nine months ended September 30, 2018 was 18.5 years. The Company recorded $2.0 million and $3.4 million revenues from its 2018 acquisitions for the three and nine months ended September 30, 2018, respectively. The Company recorded $0.7 million and $1.5 million in earnings (losses) from its 2018 acquisitions for the three and nine months ended September 30, 2018, respectively, which is included in its consolidated statements of income.2020.

Sales

The Company sold the following properties during the nine months ended September 30, 2019 ($ in thousands):

Sales DateTypePrimary Location(s)Net Sales ProceedsNet Book ValueRealized Gain/(Loss)PropertiesUnits SoldUnits Remaining
N/ACondominiumLas Vegas, NV$0 $0 $0 0 0 1 
VariousCondominiumMiami, FL4,195 3,796 399 0 14 8 
April 2019DiversifiedWayne, NJ1,729 4,799 (3,070)1 0 0 
May 2019DiversifiedGrand Rapids, MI10,019 8,254 1,765 1 0 0 
August 2019DiversifiedGrand Rapids, MI6,970 4,920 2,050 1 — — 
Totals$22,913 $21,769 $1,144 
Sales Date Type Primary Location(s) Net Sales Proceeds Net Book Value Realized Gain/(Loss) Properties Units Sold Units Remaining
                 
N/A Condominium Las Vegas, NV $—
 $—
 $—
 —
 —
 1
Various Condominium Miami, FL 4,195
 3,796
 399
 —
 14
 8
April 2019 Diversified Wayne, NJ 1,729
 4,799
 (3,070) 1
 —
 —
May 2019 Diversified Grand Rapids, MI 10,019
 8,254
 1,765
 1
 —
 —
August 2019 Diversified Grand Rapids, MI 6,970
 4,920
 2,050
 1
 —
 —
Totals     $22,913
 $21,769
 $1,144
      

The Company sold(1)Realized gain (loss) on the following properties duringsale of real estate, net on the consolidated statements of income also includes $1.0 million of realized loss on the disposal of fixed assets for the nine months ended September 30, 2018 ($ in thousands):

2019.
35
Sales Date Type Primary Location(s) Net Sales Proceeds Net Book Value Realized Gain/(Loss) Properties Units Sold Units Remaining
                 
Various Condominium Las Vegas, NV $6,228
 $3,116
 $3,112
 —
 8
 5
Various Condominium Miami, FL 4,844
 3,987
 857
 —
 18
 30
March 2018 Diversified El Monte, CA 71,807
 52,610
 19,197
(1)1
 —
 —
March 2018 Diversified Richmond, VA 20,966
 11,370
 9,596
(2)1
 —
 —
September 2018 Diversified St. Paul, MN 109,275
 47,627
 61,648
(3)4
 —
 —
Totals     $213,120
 $118,710
 $94,410
      
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(1)This property had a third party investor. The third party investor has been allocated $7.0 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the nine months ended September 30, 2018, on the consolidated statements of income.
(2)This property had a third party investor. The third party investor has been allocated $0.4 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the nine months ended September 30, 2018, on the consolidated statements of income.
(3)This property had a third party investor. The third party investor has been allocated $7.9 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the nine months ended September 30, 2018, on the consolidated statements of income.


6. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
 
The following is a summary of the Company’s investments in and advances to unconsolidated joint ventures, which we account for using the equity method, as of September 30, 20192020 and December 31, 20182019 ($ in thousands):
 
Entity September 30, 2019 December 31, 2018
     
Grace Lake JV, LLC $3,799
 $5,316
24 Second Avenue Holdings LLC 47,620
 35,038
Investment in unconsolidated joint ventures $51,419
 $40,354

EntitySeptember 30, 2020December 31, 2019
Grace Lake JV, LLC$3,732 $3,047 
24 Second Avenue Holdings LLC45,423 45,386 
Investment in unconsolidated joint ventures$49,155 $48,433 
 
The following is a summary of the Company’s allocated earnings (losses) based on its ownership interests from investment in unconsolidated joint ventures for the three and nine months ended September 30, 20192020 and 20182019 ($ in thousands):
 
 Three Months Ended September 30,Nine Months Ended September 30,
Entity2020201920202019
Grace Lake JV, LLC$236 $517 $685 $1,549 
24 Second Avenue Holdings LLC211 577 674 2,068 
Earnings (loss) from investment in unconsolidated joint ventures$447 $1,094 $1,359 $3,617 
  Three Months Ended September 30, Nine Months Ended September 30,
Entity 2019 2018 2019 2018
         
Grace Lake JV, LLC $517
 $605
 $1,549
 $1,138
24 Second Avenue Holdings LLC 577
 (204) 2,068
 (672)
Earnings (loss) from investment in unconsolidated joint ventures $1,094
 $401
 $3,617
 $466


Grace Lake JV, LLC
 
In connection with the origination of a loan in April 2012, the Company received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, the loan was refinanced, and the Company converted its interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”), which holds an investment in an office building complex. After taking into account the preferred return of 8.25% and the return of all equity remaining in the property to the Company’s operating partner, the Company is entitled to 25% of the distribution of all excess cash flows and all disposition proceeds upon any sale. The Company is not legally required to provide any future funding to Grace Lake JV.LLC. The Company accounts for its interest in Grace Lake JVLLC using the equity method of accounting, as it has a 19% investment, compared to the 81% investment of its operating partner and does not control the entity.

The Company’s investment in Grace Lake LLC is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on the fact there are disproportionate voting and economic rights within the joint venture. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has a passive investment and no control of this entity and therefore does not have controlling financial interests in this VIE. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this VIE that it was not previously contractually required to provide.

During the nine months ended September 30, 2020, the Company received 0 distributions from its investment in Grace Lake LLC. During the nine months ended September 30, 2019, the Company had received $3.1 million of distributions from its investment in Grace Lake JV, LLC. During the nine months ended September 30, 2018, the

The Company received $1.3 million of distributions fromholds its investment in Grace Lake JV, LLC.LLC in a TRS.

24 Second Avenue Holdings LLC

On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an operating partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium development and construction project located at 24 Second Avenue, New York, NY. The Company accounted for its interest in 24 Second Avenue using the equity method of accounting as its joint venture partner was the managing member of 24 Second Avenue and had substantive management rights.


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During the three months ended March 31, 2019, the Company converted its existing $35.0 million common equity interest into a $35.0 million priority preferred equity position. The Company also provided $50.4 million in first mortgage financing in order to refinance the existing $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the new $50.4 million first mortgage loan, the Company also funded a $6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and all additional capital for necessary expenses.

Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company accounts for the new loans as additional investments in the joint venture.

During the three and nine months ended September 30, 2020, the Company recorded $0.2 million and $0.7 million, respectively, in income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During the three and nine months ended September 30, 2019, the Company recorded $0.6 million and $2.1 million, respectively, in income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During the three and nine months ended September 30, 2018, the Company recorded $(0.2) million and $(0.7) million, respectively, in income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During 2018,2019, the Company capitalized interest related to the cost of its investment in 24 Second Avenue, as 24 Second Avenue had activities in progress necessary to construct and ultimately sell condominium units. During the nine months ended September 30, 2019, the Company capitalized $0.1 million of interest expense, using a weighted average interest rate. During the three and nine months ended September 30, 2018, the Company recorded $0.4 million and $1.1 million, respectively, of interest expense, using a weighted average interest rate. The capitalized interest expense was recorded in investment in unconsolidated joint ventures in the consolidated balance sheets. As a result of the transactions described above, duringsubsequent to the three months ended March 31, 2019, the Company no longer capitalizes interest related to this investment, and income generated from the new loans is accounted for as earnings from investment in unconsolidated joint ventures.

As of December 31, 2018,September 30, 2020, 24 Second Avenue had $46.7$11.3 million of loans payable to a third partythird-party lender. 24 Second Avenue consists of 30 residential condominium units and 1 commercial condominium unit. 24 Second Avenue started closing on the existing sales contracts during the quarter ended March 31, 2019, upon receipt of New York City Building Department approvals and a temporary certificate of occupancy for a portion of the project. As of September 30, 2019,2020, 24 Second Avenue sold 1719 residential condominium units for $47.3$49.6 million in total gross sale proceeds, and 1 residential condominium unit was under contract for sale for $1.2$3.8 million in gross sales proceeds. As of September 30, 2019,2020, 24 Second Avenue is holding a 15% deposit on the sales contract. As of September 30, 2019,2020, the Company had 0 additional remaining capital commitment to 24 Second Avenue.

The Company’s investment in 24 Second Avenue is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on (i) the fact that the total equity investment at risk (inclusive of the additional financing the Company provided through the first mortgage and mezzanine loans) is sufficient to permit the entities to finance activities without additional subordinated financial support provided by any parties, including equity holders; and (ii) the voting and economic rights are not disproportionate within the joint venture. The Company determined that it was not the primary beneficiary of this VIE because it does not have a controlling financial interest.

The Company holds its investment in 24 Second Avenue in a TRS.

Combined Summary Financial Information for Unconsolidated Joint Ventures

The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of September 30, 20192020 and December 31, 20182019 ($ in thousands):
 
 September 30, 2020December 31, 2019
Total assets$114,110 $118,727 
Total liabilities76,477 78,762 
Partners’/members’ capital$37,633 $39,965 

37
  September 30, 2019 December 31, 2018
     
Total assets $123,871
 $167,837
Total liabilities 80,333
 116,667
Partners’/members’ capital $43,538
 $51,170
Table of Contents


The following is a summary of the combined results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three and nine months ended September 30, 20192020 and 20182019 ($ in thousands):
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Total revenues$4,339 $3,915 $13,109 $14,945 
Total expenses3,458 4,595 10,882 12,029 
Net income (loss)$881 $(680)$2,227 $2,916 
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Total revenues $3,915
 $4,351
 $14,945
 $13,671
Total expenses 4,595
 3,415
 12,029
 9,788
Net income (loss) $(680) $936
 $2,916
 $3,883
38

Table of Contents

7. DEBT OBLIGATIONS, NET

The details of the Company’s debt obligations at September 30, 20192020 and December 31, 20182019 are as follows ($ in thousands):
 
September 30, 20192020
Debt Obligations Committed Financing Debt Obligations Outstanding Committed but Unfunded Interest Rate at September 30, 2019(1) Current Term Maturity Remaining Extension Options Eligible Collateral Carrying Amount of Collateral Fair Value of Collateral 
                    
Committed Loan Repurchase Facility $600,000
 $191,031
 $408,969
  3.78% - 4.28% 2/24/2022 (2) (3) $283,517
 $283,746
 
Committed Loan Repurchase Facility 350,000
 63,996
 286,004
  4.25% - 4.60% 5/24/2020 (4) (5) 100,354
 102,616

Committed Loan Repurchase Facility 300,000
 211,350
 88,650
  4.00% - 4.53% 4/10/2020 (6) (7) 343,448
 343,448

Committed Loan Repurchase Facility 300,000
 116,043
 183,957
  3.81% - 4.06% 5/6/2021 (8) (3) 174,001
 174,353

Committed Loan Repurchase Facility 100,000
 87,174
 12,826
 4.02% - 4.28% 7/20/2021 (9) (3) 135,373
 135,606
 
Committed Loan Repurchase Facility 100,000
 90,927
 9,073
 4.03% 3/26/2020 (10) (11) 121,899
 121,899
 
Total Committed Loan Repurchase Facilities 1,750,000
 760,521
 989,479
         1,158,592
 1,161,668
 
Committed Securities Repurchase Facility 400,000
 85,457
 314,543
  2.38% - 2.87% 3/4/2021  N/A (12) 103,547
 103,547
 
Uncommitted Securities Repurchase Facility  N/A (12)
 940,070
  N/A (13)
  2.45% - 3.78% 10/2019 - 12/2019  N/A (12) 1,047,663
 1,047,663
(14)
Total Repurchase Facilities 2,150,000
 1,786,048
 1,304,022
         2,309,802
 2,312,878
 
Revolving Credit Facility 266,430
 —
 266,430
  NA 2/11/2020 (15)  N/A (16) N/A (16)
 N/A (16)
 
Mortgage Loan Financing 723,313
 723,313

—
   4.25% - 6.75% 2020 - 2029(17)  N/A (18) 902,656
 1,093,952
(19)
CLO Debt 117,760
 117,760
(20)—
 3.40% - 5.62% 2021-2034 N/A (21) 274,149
 274,523
 
Borrowings from the FHLB 1,945,795
 1,076,449
 869,346
  1.47% - 2.95% 2019 - 2024  N/A (22) 1,411,022
 1,422,246
(23)
Senior Unsecured Notes 1,166,201
 1,157,117
(24)—
  5.250% - 5.875% 2021 - 2025  N/A  N/A (25) N/A (25)
 N/A (25)
 
Total Debt Obligations, Net $6,369,499
 $4,860,687
 $2,439,798
         $4,897,629
 $5,103,599
 
Debt ObligationsCommitted FinancingDebt Obligations OutstandingCommitted but UnfundedInterest Rate at September 30, 2020(1)Current Term MaturityRemaining Extension OptionsEligible CollateralCarrying Amount of CollateralFair Value of Collateral
Committed Loan Repurchase Facility(2)$500,000 $114,679 $385,321 1.9%—2.15%12/19/2022(3)(4)$179,523 $179,523 
Committed Loan Repurchase Facility250,000 0 250,000 0%—0%2/26/2021(5)(6)0 0 
Committed Loan Repurchase Facility300,000 141,750 158,250 1.9%—2.9%12/19/2020(7)(8)183,851 183,851 
Committed Loan Repurchase Facility300,000 41,292 258,708 1.94%—2.19%11/6/2022(9)(4)76,193 76,193 
Committed Loan Repurchase Facility100,000 38,158 61,842 2.28%—2.4%12/31/2022(10)(4)64,711 64,752 
Committed Loan Repurchase Facility100,000 17,901 82,099 3.5%—3.5%3/24/2021(11)(12)30,600 30,600 
Total Committed Loan Repurchase Facilities1,550,000 353,780 1,196,220 534,878 534,919 
Committed Securities Repurchase Facility(2)785,321 352,197 433,124 0.86%—2.41%12/23/2021 N/A(13)418,604 418,604 
Uncommitted Securities Repurchase Facility N/A (13)470,989  N/A (14)0.91%—3.5%10/2020 - 12/2020 N/A(13)583,353 583,353 (15)
Total Repurchase Facilities1,950,000 1,176,966 1,244,023 1,536,835 1,536,876 
Revolving Credit Facility266,430 266,430 0 3.15%—3.16%2/11/2021(16) N/A (17)N/A (17)N/A (17)
Mortgage Loan Financing769,968 769,968 0 3.75%—6.75%2020 - 2030(17) N/A(19)919,286 1,136,208 (20)
Secured Financing Facility206,350 190,582 (21)0 10.75%—10.75%5/6/2023N/A(22)335,674 336,055 
CLO Debt285,040 281,625 (23)— 5.5%—5.5%5/16/2024N/A(24)434,519 434,519 
Borrowings from the FHLB1,500,000 326,000 1,174,000  0.41%—3%2020 - 2024 N/A(24)473,556 477,407 (25)
Senior Unsecured Notes1,716,994 1,702,939 (26)0 4.25%—5.88%2021 - 2027 N/A N/A (27)N/A (27)N/A (27)
Total Debt Obligations, Net$6,694,782 $4,714,510 $2,418,023 $3,699,870 $3,921,065 
(1)September 2019 LIBOR rates are used to calculate interest rates for floating rate debt.
(2)NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date.
(3)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(4)NaN additional 12-month period at Company’s option.
(5)First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
(6)NaN additional 364-day period with Bank’s consent.
(7)First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(8)NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.
(9)NaN additional 12-month extension period at Company’s option. No new advances are permitted after the initial maturity date.
(10)
(1)September 2020 LIBOR rates are used to calculate interest rates for floating rate debt.
(2)The combined committed amounts for the loan repurchase facility and the securities repurchase facility total $900.0 million, with maximum capacity on the loan repurchase facility of $500.0 million, and maximum capacity on the securities repurchase facility of $900.0 million less outstanding commitments on the loan repurchase facility.
(3)NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date.
(4)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(5)NaN additional 12-month periods at Company’s option.
(6)First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
(7)NaN additional 364-day periods.
(8)First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(9)NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.
(10)NaN additional 12-month extension periods at Company’s option. No new advances are permitted after the initial maturity date.
(11)The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination.
(11)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
(12)Commercial real estate securities. It does not include the real estate collateralizing such securities.
(13)Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.

(14)Includes $2.3 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(15)NaN additional 12-month periods at Company’s option.
(16)The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
(17)Anticipated repayment dates.
(18)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(19)Using undepreciated carrying value of commercial real estate to approximate fair value.
(20)Presented net of unamortized debt issuance costs of $0.4 million at September 30, 2019.
(21)First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans.
(22)First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
(23)Includes $9.9 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(24)Presented net of unamortized debt issuance costs of $9.1 million at September 30, 2019.
(25)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

December 31, 2018
Debt Obligations Committed Financing Debt Obligations Outstanding Committed but Unfunded Interest Rate at December 31, 2018(1) Current Term Maturity Remaining Extension Options Eligible Collateral Carrying Amount of Collateral Fair Value of Collateral 
                    
Committed Loan Repurchase Facility $600,000
 $180,597
 $419,403
 4.21% - 4.96% 10/1/2020 (2) (3) $262,642
 $261,602
 
Committed Loan Repurchase Facility 350,000
 63,679
 286,321
 4.68% - 4.98% 5/24/2019 (4) (5) 87,385
 88,762
 
Committed Loan Repurchase Facility 300,000
 120,631
 179,369
 4.46% - 4.96% 4/7/2019 (6) (7) 204,747
 205,219

Committed Loan Repurchase Facility 300,000
 79,886
 220,114
 4.44% - 4.94% 5/6/2021 (8) (3) 117,382
 117,366
 
Committed Loan Repurchase Facility 100,000
 52,738
 47,262
 4.58% - 4.96% 7/20/2021 (9) (3) 72,154
 72,154

Committed Loan Repurchase Facility 100,000
 —
 100,000
 NA 12/26/2019 (10) (11) —
 —
 
Total Committed Loan Repurchase Facilities 1,750,000
 497,531
 1,252,469
         744,310
 745,103
 
Committed Securities Repurchase Facility 400,000
 —
 400,000
 NA 9/30/2019 N/A (12) —
 —
 
Uncommitted Securities Repurchase Facility N/A (12)
 166,154
  N/A (13)
 2.99% - 4.55% 1/2019 - 3/2019 N/A (12) 187,803
 187,803
(14)(15)
Total Repurchase Facilities 2,150,000
 663,685
 1,652,469
         932,113
 932,906
 
Revolving Credit Facility 266,430
 —
 266,430
 NA 2/11/2019 (16) N/A (17) N/A (17)
 N/A (17)
 
Mortgage Loan Financing 743,902
 743,902
 —
 4.25% - 7.00% 2020 - 2028(18) N/A (19) 939,362
 1,108,968
(20)
CLO Debt 601,543
 601,543
(21)—
 3.34% - 6.06% 2021-2034 N/A (22) 710,502
 710,737
 
Participation Financing - Mortgage Loan Receivable 2,453
 2,453
 —
 17.00% 6/6/2019 N/A (3) 2,453
 2,453
 
Borrowings from the FHLB 1,933,522
 1,286,000
 647,522
 1.18% - 3.01% 2019 - 2024 N/A (23) 1,652,952
 1,655,150
(24)
Senior Unsecured Notes 1,166,201
 1,154,991
(25)—
 5.250% - 5.875% 2021 - 2025 N/A N/A (26) N/A (26)
 N/A (26)
 
Total Debt Obligations $6,864,051
 $4,452,574
 $2,566,421
         $4,237,382
 $4,410,214
 
(1)December 31, 2018 LIBOR rates are used to calculate interest rates for floating rate debt.

(2)NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date.
(3)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(4)NaN additional 12-month periods at Company’s option.
(5)First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
(6)NaN additional 364-day periods at Company’s option and 1 additional 364-day period with Bank’s consent.
(7)First mortgage and mezzanine commercial real estate loans and senior pari passu interests therein. It does not include the real estate collateralizing such loans.
(8)NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.
(9)NaN additional 12-month extension period at Company’s option. No new advances are permitted after the initial maturity date.
(10)The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination.
(11)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
(12)Commercial real estate securities. It does not include the real estate collateralizing such securities.
(13)Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
(14)Includes $3.0 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(15)
Includes $6.0 million of securities purchased in the secondary market of the Company’s October 2017 CLO issuance. These securities are not included in real estate securities but were rather considered a partial retirement of CLO debt.
(16)NaN additional 12-month periods at Company’s option.
(17)The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
(18)Anticipated repayment dates.
(19)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(20)Using undepreciated carrying value of commercial real estate to approximate fair value.
(21)Presented net of unamortized debt issuance costs of $2.6 million at December 31, 2018.
(22)First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans.
(23)First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
(24)Includes $9.7 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(25)Presented net of unamortized debt issuance costs of $11.2 million at December 31, 2018.
(26)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

Committed Loan and Securities Repurchase Facilities
The Company has entered into multiple committed master repurchase agreements in order to finance its lending activities. The Company has entered into 6 committed master repurchase agreements, as outlined in the September 30, 2019 table above, totaling $1.8 billion of credit capacity. Assets pledged as collateral under these facilities are limited to whole mortgage loans or participation interests in mortgage loans collateralized by first liens on commercial properties and mezzanine debt. The Company also has a term master repurchase agreement with a major U.S. bank to finance CMBS totaling $400.0 million. The Company’s repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, maximum leverage ratios, and minimum fixed charge coverage ratios. The Company believes it was in compliance with all covenants as of September 30, 2019 and December 31, 2018.
The Company has the option to extend some of the current facilities subject to a number of conditions, including satisfaction of certain notice requirements, no event of default exists, and no margin deficit exists, all as defined in the repurchase facility agreements. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, to be exercised on a good faith basis, and have the right in certain cases to require additional collateral, a full and/or partial repayment of the facilities (margin call), or a reduction in unused availability under the facilities, sufficient to rebalance the facilities if the estimated market value of the included collateral declines.

On January 4, 2018, the Company exercised its option to extend one of its committed loan repurchase facilities with a major banking institution for a term of one year.

On April 3, 2018, the Company exercised its option to extend one of its credit facilities with a major banking institution for a term of one year and agreed with such banking institution to decrease the maximum funding capacity under such facility from $450 million to $350 million together with other related modifications, all of which will be memorialized in definitive documentation.


On May 7, 2018, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to May 6, 2023 and increasingexceed 364 days from the maximum funding capacity to $300.0 million.date of determination.

On July 20, 2018, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to July 20, 2021 and decreasing the interest rate spreads thereunder by 25 basis points.

On December 27, 2018, the Company executed a new $100.0 million committed loan repurchase facility with a major banking institution to finance first(12)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
(13)Commercial real estate securities. It does not include the real estate collateralizing such securities.
(14)Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
(15)Includes $2.2 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(16)NaN additional 12-month periods at Company’s option.
(17)The facility has a one-yearobligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
(18)Anticipated repayment dates.
(19)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(20)Using undepreciated carrying value of commercial real estate to approximate fair value.
39
Table of Contents
(21)Presented net of unamortized debt issuance costs of $8.5 million and an unamortized discount of $7.3 million related to the Purchase Right (described in detail under Secured Financing Facility below) at September 30, 2020.
(22)First mortgage commercial real estate loans. Substitution of collateral and conversion of loan collateral to mortgage collateral are permitted with Lender’s approval.
(23)Presented net of unamortized debt issuance costs of $3.4 million at September 30, 2020.
(24)First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
(25)Includes $9.4 million of restricted securities under the risk retention rules of the Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(26)Presented net of unamortized debt issuance costs of $14.1 million at September 30, 2020.
(27)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

December 31, 2019
Debt ObligationsCommitted FinancingDebt Obligations OutstandingCommitted but UnfundedInterest Rate at December 31, 2019(1)Current Term MaturityRemaining Extension OptionsEligible CollateralCarrying Amount of CollateralFair Value of Collateral
Committed Loan Repurchase Facility$600,000 $183,828 $416,172 3.24%—3.74%12/19/2022(2)(3)$287,974 $288,210 
Committed Loan Repurchase Facility350,000 70,697 279,303 3.71%—3.81%5/24/2020(4)(5)101,590 103,868 
Committed Loan Repurchase Facility300,000 248,182 51,818 3.49%—3.74%12/19/2020(6)(7)382,778 382,778 
Committed Loan Repurchase Facility300,000 98,678 201,322 3.50%—3.75%11/6/2022(8)(3)175,000 175,270 
Committed Loan Repurchase Facility100,000 9,952 90,048 3.96%—3.99%1/3/2023(9)(3)75,628 75,813 
Committed Loan Repurchase Facility100,000 90,927 9,073 3.74%—3.80%12/24/2020(10)(11)126,311 126,311 
Total Committed Loan Repurchase Facilities1,750,000 702,264 1,047,736 1,149,281 1,152,250 
Committed Securities Repurchase Facility400,000 42,751 357,249 2.50%—2.56%12/23/2021N/A(12)52,691 52,691 
Uncommitted Securities Repurchase FacilityN/A (12)1,070,919  N/A (13)2.17%—3.54%1/2020 - 3/2020N/A(12)1,188,440 1,188,440 (14)
Total Repurchase Facilities2,150,000 1,815,934 1,404,985 2,390,412 2,393,381 
Revolving Credit Facility266,430 0 266,430 NA2/11/2020(15)N/A (16)N/A (16)N/A (16)
Mortgage Loan Financing812,606 812,606 0 3.75%—6.75%2020 - 2029(17)N/A(18)988,857 1,192,106 (19)
Borrowings from the FHLB1,945,795 1,073,500 872,295 1.47%—2.95%2020 - 2024N/A(20)1,107,188 1,113,811 (21)
Senior Unsecured Notes1,166,201 1,157,833 (22)0 5.25%—5.88%2021 - 2025N/AN/A (23)N/A (23)N/A (23)
Total Debt Obligations$6,341,032 $4,859,873 $2,543,710 $4,486,457 $4,699,298 
(1)December 31, 2019 LIBOR rates are used to calculate interest rates for floating rate debt.
(2)NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial termmaturity date.
(3)First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.
(4)NaN additional 12-month period at Company’s option.
(5)First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
(6)NaN additional 364-day periods.
(7)First mortgage and mezzanine commercial real estate loans and senior pari passu interests therein. It does not include the real estate collateralizing such loans.
(8)NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.
(9)NaN additional 12-month extension periods at Company’s option. No new advances are permitted after the initial maturity date.
(10)The Company may extend periodically with lender’s consent, but atconsent. At no time can the maturity of the facility exceed 364 days from the date of determination.

(11)First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.
On February 26, 2019,(12)Commercial real estate securities. It does not include the Company executed an amendment of one of its committed loanreal estate collateralizing such securities.
(13)Represents uncommitted securities repurchase facilities with a major banking institution, providing for among other things,which there is no committed amount subject to future advances.
(14)Includes $2.2 million of restricted securities under the extensionrisk retention rules of the initial term of the facility to February 24, 2022. The facility has 2Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(15)NaN additional 12-month extension periods at the Company’s option. No new advances are permitted after the initial maturity date.

On March 4, 2019, the Company executed an amendment of its committed securities repurchase facility with a major banking institution, providing for, among other things, the extension of the initial term of the facility to March 4, 2021.

On May 1, 2019, the Company amended the pricing side letter related to one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the initial term of the facility to March 26, 2020.

On May 24, 2019, the Company exercised its option to extend one of its committed loan repurchase facilities with a major banking institution for a term of one year.

As of September 30, 2019, the Company had repurchase agreements with 10 counterparties, with total debt obligations outstanding of $1.8 billion. As of September 30, 2019, 2 counterparties, JP Morgan and Wells Fargo, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $82.0 million, or 5% of our total equity. As of September 30, 2019, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 22.8%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.

Revolving Credit Facility

The Company’s revolving credit facility (the “Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $266.4 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On January 15, 2019, the Company extended the maturity date of the Revolving Credit Facility to February 11, 2020. The Company has additional one-year extension options to extend the final maturity date to February 2023. Interest on the Revolving Credit Facility is one-month LIBOR plus 3.25% per annum payable monthly in arrears.
(16)The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility issubsidiaries and secured by a pledgeequity pledges in certain Company subsidiaries.
(17)Anticipated repayment dates.
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(18)Certain of our real estate investments serve as collateral for our mortgage loan financing.
(19)Using undepreciated carrying value of commercial real estate to approximate fair value.
(20)First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans.
(21)First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
(22)Includes $9.9 million of restricted securities under the risk retention rules of the sharesDodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis.
(23)Presented net of (orunamortized debt issuance costs of $8.4 million at December 31, 2019.
(24)The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

Combined Maturity of Debt Obligations

The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands):
Period ending December 31,Borrowings by
Maturity(1)
  
2020 (last 3 months)$919,876 
2021914,964 
2022622,297 
2023351,620 
2024580,986 
Thereafter1,353,554 
Subtotal4,743,297 
Debt issuance costs included in senior unsecured notes(14,055)
Debt issuance costs included in secured financing facility(8,514)
Discount on secured financing facility related to Purchase Right(7,254)
Debt issuance costs included in CLO debt(3,416)
Debt issuance costs included in mortgage loan financing(393)
Premiums included in mortgage loan financing(2)4,845 
Total$4,714,510 
(1)Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for 2020 (last 3 months) relate to debt obligations that are subject to existing Company controlled extension options for one or more additional one year periods or could be refinanced by other ownership orexisting facilities as of September 30, 2020.
(2)Deferred gains on intercompany loans, secured by our own real estate, sold into securitizations. These premiums are amortized as a reduction to interest expense.

The Company’s debt facilities are subject to covenants which require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately $849.0 million of the total equity interests in) certain subsidiariesis restricted from payment as a dividend by the Company at September 30, 2020.

Committed Loan and Securities Repurchase Facilities
On February 14, 2020, the Company amended one of its committed loan repurchase facilities with a major U.S. bank to reduce the maximum capacity of the facility from $600.0 million to $500.0 million.

On February 26, 2020, the Company amended one of its committed loan repurchase facilities with a major U.S. bank, extending the term of the facility. The current maturity date is now February 26, 2021, and the Company has 3 one-year extension options for a final maturity date of February 26, 2024. The Company also reduced the maximum size of the facility from $350.0 million to $250.0 million.

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On March 23, 2020, the Company amended one of its committed loan and securities repurchase facilities with a major U.S. bank to allow for an increase in the capacity on the securities repurchase facility, to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitationsCompany has excess capacity on the incurrenceloan repurchase facility. Prior to the amendment, the committed amounts on the facility were $500.0 million and $400.0 million on the loan and securities repurchase facilities, respectively. After the amendment, the committed amounts continue to total $900.0 million, with maximum capacity on the loan repurchase facility of additional debt, liens, restricted payments, sales$500.0 million, and maximum capacity on the securities repurchase facility of assets and affiliate transactions. In addition, under$900.0 million less outstanding commitments on the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. The Company’s ability to borrow under the Revolving Credit Facility is dependent on, among other things, LCFH’s compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments againstloan repurchase facility.

Effective June 16, 2020, the Company or certainamended the pricing side letter related to one of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.


Debt Issuance Costs

As discussed in Note 2, Significant Accounting Policies in the Annual Report, the Company considers its committed loan master repurchase facilitiesfacility with a major U.S. bank to extend the current maturity date to March 24, 2021. The Company also temporarily increased the leverage covenant to 4.0x through and Revolving Creditincluding December 31, 2020.

Secured Financing Facility to be revolving debt arrangements. As such,

On April 30, 2020, the Company continuesentered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to deferfund transitional and present costs associatedland loans. The Secured Financing Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature on May 6, 2023, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with these facilitiesa minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Secured Financing Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Senior Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Senior Financing Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, the Lender also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

The Purchase Right was classified as an asset,equity. The $200.9 million of net proceeds from the original issuance were allocated $192.5 million to the originally issued debt obligation and $8.4 million to the Purchase Right using the relative fair value method. The commitment to issue shares will not be subsequently amortizing those costs ratablyremeasured. The $8.4 million allocated to the Purchase Right is being treated as a discount to the debt and amortized over the termlife of each revolving debt arrangement. the Purchase Right to interest expense.

Pursuant to the Purchase Right, the Lender has agreed to a customary standstill until December 31, 2020 or the date on which the Lender has exercised the Purchase Right in full, if earlier. In addition, the Lender has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender.

As of September 30, 2019 and December 31, 2018,2020, the amountCompany had $190.6 million of unamortized costs relating to such facilities are $6.8 million and $6.3 million, respectively, and areborrowings outstanding under the secured financing facility included in other assets in thedebt obligations on its consolidated balance sheets.

Uncommitted Securities Repurchase Facilities
The Company has also entered into multiple master repurchase agreements with several counterparties collateralized by real estate securities. The borrowings under these agreements have typical advance rates between 75% and 95% of the fair value of collateral.

Mortgage Loan Financing
These non-recourse debt agreements provide for fixed rate financing at rates, ranging from 4.25% to 6.75%, with anticipated maturity dates between 2020 - 2029 as of September 30, 2019. These loans have carrying amounts of $723.3 million and $743.9 million,sheets, net of unamortized premiumsdebt issuance costs of $5.3$8.5 million and $5.8an $7.3 million as of September 30, 2019 and December 31, 2018, respectively, representing proceeds received upon financing greater thanunamortized discount related to the contractual amounts due under these agreements. The premiums are being amortized over the remaining lifePurchase Right.

Collateralized Loan Obligation (“CLO”) Debt

On April 27, 2020, a consolidated subsidiary of the respective debt instruments usingCompany completed a private CLO transaction with a major U.S. bank which generated $310.2 million of gross proceeds to Ladder, financing $481.3 million of loans (“Contributed Loans���) at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the effectiveCompany retained a 35.5% subordinate and controlling interest method.in the CLO. The Company recorded $0.5 millionretained control over major decisions made with respect to the administration of the Contributed Loans, including broad discretion in managing these loans in light of the COVID-19 pandemic, and $1.3 million of premium amortization, which decreased interest expense, forhas the threeability to appoint the special servicer under the CLO. The CLO is a VIE and nine months ended September 30, 2019, respectively. The Company recorded $0.3 million and $0.8 million of premium amortization, which decreased interest expense, for the three and nine months ended September 30, 2018, respectively. The loans are collateralized by real estate and related lease intangibles, net, of $902.7 million and $939.4 million as of September 30, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company executed 9was the primary beneficiary and, 11 termtherefore, consolidated the VIE - See Note 10, Consolidated Variable Interest Entities. Proceeds from the transaction were used to pay off other secured debt agreements, respectively,including bank and FHLB financing that was subject to finance properties in its real estate portfolio.mark-to-market provisions.

On February 6, 2019, the Company paid off $6.6 million
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CLO Debt

The Company completed CLO issuances in the two transactions described below. As of September 30, 2019 and December 31, 2018,2020, the Company had a total$281.6 million of $117.8 millionmatched term, non-mark-to-market and $601.5 million, respectively, of floating rate, non-recourse basis CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $0.4$3.4 million and $2.6 million arewere included in CLO debt as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, the CLO debt has interest rates of 3.4% to 5.62% (with a weighted average of 4.97%). As of September 30, 2019, collateral for the CLO debt comprised $274.1 million of first mortgage commercial mortgage real estate loans. In October 2019, the Company redeemed all outstanding debt obligations related to the two CLO transactions.2020.

On October 17, 2017, a consolidated subsidiary of the Company consummated a securitization of floating-rate commercial mortgage loans through a static CLO structure. Over $456.9 million of balance sheet loans (“Contributed Loans”) were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a consolidated subsidiary of the Company in the form of a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s consolidated subsidiary. A consolidated subsidiary of the Company retained an approximately 18.5% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO. The Company retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE - See Note 10.


On December 21, 2017, a subsidiary of the Company consummated a securitization of fixed and floating-rate commercial mortgage loans through a static CLO structure. Over $431.5 million of Contributed Loans were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a consolidated subsidiary of the Company in the form of a participation interest or separate note. However, the CLO may acquire portions of the future fundings from the Company’s consolidated subsidiary, as long as certain requirements are met. A consolidated subsidiary of the Company retained an approximately 25% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO. The Company retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE - See Note 10.

Participation Financing - Mortgage Loan Receivable

During the three months ended March 31, 2017, the Company sold a participating interest in a first mortgage loan receivable to a third party. The sales proceeds of $4.0 million were considered non-recourse secured borrowings and were recognized in debt obligations on the Company’s consolidated balance sheets with $2.5 million outstanding as of December 31, 2018. There were 0 non-recourse secured borrowings recognized in debt obligations on the Company’s consolidated balance sheets as of September 30, 2019, as the loan matured and was repaid during the three months ended June 30, 2019. The Company recorded $0.2 million of interest expense for the nine months ended September 30, 2019. The Company recorded $0.1 million and $0.4 million of interest expense for the three and nine months ended September 30, 2018, respectively.

Borrowings from the Federal Home Loan Bank (“FHLB”)
On July 11, 2012, Tuebor Captive Insurance Company LLC (“Tuebor”), a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. On December 6, 2017, Tuebor’s advance limit was updated by the FHLB to the lowest of a Set Dollar Limit ($2.0 billion), 40% of Tuebor’s total assets or 150% of the Company’s total equity. Beginning April 1, 2020 through December 31, 2020, the Set Dollar Limit will be $1.5 billion. Beginning January 1, 2021 through February 19, 2021, the Set Dollar Limit will be $750.0 million. Tuebor is well-positioned to meet its obligations and pay down its advances in accordance with the scheduled reduction in the Set Dollar Limit, which remains subject to revision by the FHLB or as a result of any future changes in applicable regulations. 

As of September 30, 2019, Tuebor had $1.1 billion of borrowings outstanding (with an additional $869.3 million of committed term financing available from the FHLB), with terms of overnight to 5.0 years (with a weighted average of 2.3 years), interest rates of 1.47% to 2.95% (with a weighted average of 2.50%), and advance rates of 61.0% to 95.7% of the collateral. As of September 30, 2019, collateral for the borrowings was comprised of $721.5 million of CMBS and U.S. Agency Securities and $689.5 million of first mortgage commercial real estate loans.

As of December 31, 2018, Tuebor had $1.3 billion of borrowings outstanding (with an additional $647.5 million of committed term financing available from the FHLB), with terms of overnight to 5.75 years (with a weighted average of 2.5 years), interest rates of 1.18% to 3.01% (with a weighted average of 2.55%), and advance rates of 56.4% to 95.2% of the collateral. As of December 31, 2018, collateral for the borrowings was comprised of $1.0 billion of CMBS and U.S. Agency Securities and $637.2 million of first mortgage commercial real estate loans.
Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, approximately $1.9 billion of the member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at September 30, 2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.


Effective February 19, 2016, the Federal Housing Finance Agency (the “FHFA’’), regulator of the FHLB, adopted a final rule amending its regulation regarding the eligibility of captive insurance companies for FHLB membership. According to the final rule, Ladder’s captive insurance company subsidiary, Tuebor may remain as a member of the FHLB through February 19, 2021 (the “Transition Period”). During the Transition Period, Tuebor is eligible to continue to draw new additional advances, extend the maturities of existing advances, and pay off outstanding advances on the same terms as non-captive insurance company FHLB members with the following two exceptions:

1.New advances (including any existing advances that are extended during the Transition Period) will have maturity dates on or before February 19, 2021; and
2.The FHLB will make new advances to Tuebor subject to a requirement that Tuebor’s total outstanding advances do not exceed 40% of Tuebor’s total assets.

Tuebor has executed new advances since the effective date of the new rule in the ordinary course of business.

FHLB advances amounted to 22.1% of the Company’s outstanding debt obligations as of September 30, 2019. The Company does not anticipate that the FHFA’s final regulation will materially impact its operations as it will continue to access FHLB advances during the five-year Transition Period.

There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s membership in the FHLB and continuing access to new or existing advances prior to February 19, 2021.

Senior Unsecured Notes
LCFH issued the 2025 Notes, the 2022 Notes, the 2021 Notes and the 2017 Notes (each as defined below, and collectively, the “Notes”) with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary of Series TRS of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company is the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business.
As of September 30, 2019,2020, the Company has a 89.8% economic and voting interest in LCFH and controls the managementhad $1.7 billion of LCFH as a resultunsecured corporate bonds outstanding. These unsecured financings were comprised of its ability to appoint board members. Accordingly, the Company consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners. In addition, the Company, through certain subsidiaries which are treated as TRSs, is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and federal, state and local income taxes, there are no material differences between the Company’s consolidated financial statements and LCFH’s consolidated financial statements. The Company believes it was in compliance with all covenants of the Notes as of September 30, 2019 and December 31, 2018.
Unamortized debt issuance costs of $9.1 million and $11.2 million are included in senior unsecured notes as of September 30, 2019 and December 31, 2018, respectively, in accordance with GAAP.

2021 Notes

On August 1, 2014, LCFH issued $300.0$251.4 million in aggregate principal amount of 5.875% senior notes due August 1, 2021 (the “2021 Notes”), $465.9 million in aggregate principal amount of 5.25% senior notes due 2022 (the “2022 Notes”), $348.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”) and $651.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes,” collectively with the 2021 Notes, the 2022 Notes and the 2025 Notes, the “Notes”). As a result of the Company’s financing and liquidity measures implemented to date as a direct response to the COVID-19 pandemic, Ladder repurchased an aggregate principal of the Notes of $139.1 million, recognizing a gain on extinguishment of debt of $19.0 million, offset by accelerated deferred financing cost amortization of $1.5 million during the three months ended June 30, 2020.

2027 Notes

On January 30, 2020, LCFH and Ladder Capital Finance Corporation (“LCFC”), a wholly-owned subsidiary of LCFH, issued $750.0 million in aggregate principal amount of 4.25% senior notes due February 1, 2027. The 20212027 Notes require interest payments semi-annually in cash in arrears on FebruaryAugust 1 and AugustFebruary 1 of each year, beginning on FebruaryAugust 1, 2015.2020. The 20212027 Notes will mature on AugustFebruary 1, 2021.2027. The 20212027 Notes are unsecured and are subject to incurrence-based covenants, including limitations onan unencumbered assets to unsecured debt covenant. The Company may redeem the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type.2027 Notes, in whole, at any time, or from time to time, prior to their stated maturity. At any time on or after AugustFebruary 1, 2017,2023, the Company may redeem the 20212027 Notes in whole or in part, upon not less than 3015 nor more than 60 days’ notice, at a redemption pricesprice defined in the indenture governing the 20212027 Notes, plus accrued and unpaid interest, if any, to the redemption date. On February 24, 2016, the board of directors authorized the Company to make up to $100.0 million in repurchasesNet proceeds of the 2021 Notes from timeoffering were used to time without further approval. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2021 Notes from time to time without further approval.

repay secured indebtedness. During the yearnine months ended December 31, 2016,September 30, 2020, the Company retired $33.8$98.2 million of principal of the 20212027 Notes for a repurchase price of $28.2$83.9 million, recognizing a $5.1$12.9 million net gain on extinguishment of debt after recognizing $(0.4)$(1.3) million of unamortized debt issuance costs associated with the retired debt. As of September 30, 2019,2020, the remaining $266.2$651.8 million in aggregate principal amount of the 20212027 Notes is due AugustFebruary 1, 2021.2027.


2025 Notes

On September 25, 2017, LCFH and LCFC issued $400.0 million in aggregate principal amount of 5.25% senior notes due October 1, 2025. During the nine months ended September 30, 2020, the Company retired $52.0 million of principal of the 2025 Notes for a repurchase price of $45.1 million, recognizing a $6.4 million net gain on extinguishment of debt after recognizing $(0.5) million of unamortized debt issuance costs associated with the retired debt. As of September 30, 2020, the remaining $348.0 million in aggregate principal amount of the 2025 Notes is due October 1, 2025.

2022 Notes

On March 16, 2017, LCFH issued $500.0 million in aggregate principal amount of 5.250% senior notes due March 15, 2022 (the “2022 Notes”). The 2022 Notes require interest payments semi-annually in cash in arrears on March 15 and2022. During the nine months ended September 15 of each year, beginning on September 15, 2017. The 2022 Notes will mature on March 15, 2022. The 2022 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. At any time on or after September 15, 2021, the 2022 Notes are redeemable at the option of30, 2020, the Company in whole or in part, upon not less than 15 nor more than 60 days’ notice, without penalty. On May 2, 2018, the boardretired $34.2 million of the directors authorized the Company to repurchase any or allprincipal of the 2022 Notes from time to time without further approval.

2025 Notes

Onfor a repurchase price of $33.2 million, recognizing a $0.7 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt. As of September 25, 2017, LCFH issued $400.030, 2020, the remaining $465.9 million in aggregate principal amount of 5.250%the 2022 Notes is due March 15, 2022.

2021 Notes

On August 1, 2014, LCFH and LCFC issued $300.0 million in aggregate principal amount of 5.875% senior notes due OctoberAugust 1, 2025 (the “2025 Notes”). The 2025 Notes require interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on April 1, 2018. The 2025 Notes will mature on October 1, 2025. The 2025 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem2021. During the 2025 Notes, in whole, at any time, or from time to time, prior to their stated maturity. At any time after October 1,nine months ended September 30, 2020, the Company may redeemretired $14.9 million of principal of the 20252021 Notes for a repurchase price of $14.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(34.0) thousand of unamortized debt issuance costs associated with the retired debt. As of September 30, 2020, the remaining $251.4 million in whole aggregate principal amount of the 2021 Notes is due August 1, 2021.

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Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a financial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million unsecured revolving credit facility, which continues to be fully-drawn, and the proceeds continue to be held as unrestricted cash on the Company’s balance sheet as of October 29, 2020.   

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term maturity repurchase agreements with various bank counterparties. The Company has been able to continue to access securities repurchase funding and the pricing of such borrowings has improved during the three months ended September 30, 2020 as liquidity continued to return to the market and pricing for the securities that serve as collateral improved. Furthermore, during the three months ended September 30, 2020, the Company paid down $90.8 million of securities repurchase financing, primarily through sales of securities.

Federal Home Loan Bank (“FHLB”) Financing:  As discussed in the Company’s Annual Report, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February of 2021.

During the three months ended September 30, 2020, the Company paid down FHLB borrowings of $34.8 million. The remaining maturities are staggered out through 2024. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral. During the three months ended June 30, 2020, the Company paid down FHLB borrowings of $646.8 million and incurred $6.5 million in part, upon not less than 15 nor more than 60 days’ notice,prepayment penalties related to this paydown.

Loan Repurchase Financing:  The Company has maintained a consistent dialogue with its loan financing counterparties since the COVID-19 crisis unfolded in late March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, during the three months ended September 30, 2020, the Company paid down over $27.3 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a CLO financing transaction (see above). The Company continues to maintain an active dialogue with its bank counterparties as it expects loan collateral on each of their lines to experience some measure of forbearance.

Secured Financing Facility:  On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans (see above).

Completion of Private CLO: On April 27, 2020, the Company completed a private CLO financing transaction with a major U.S. bank which generated $310.2 million of gross proceeds, financing $481.3 million of loans at a redemption prices defined64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis (see above).

Based on the financing actions described above, the Company has significantly decreased its exposure to mark-to-market financing.

Financial Covenants

We were in compliance with all covenants described in the indenture governing the 2025 Notes, plus accrued and unpaid interest, if any, to the redemption date. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2025 Notes from time to time without further approval.

Combined Maturity of Debt Obligations

The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands):
Period ending December 31, 
Borrowings by
Maturity(1)
   
2019 (last 3 months) $1,039,597
2020 1,052,894
2021 876,649
2022 655,706
2023 559,422
Thereafter 680,935
Subtotal 4,865,203
Debt issuance costs included in senior unsecured notes (9,084)
Debt issuance costs included in CLO debt (394)
Debt issuance costs included in mortgage loan financing (380)
Premiums included in mortgage loan financing(2) 5,342
Total $4,860,687
(1)Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for 2019 relate to debt obligations that are subject to existing Company controlled extension options for one or more additional one year periods or could be refinanced by other existing facilitiesAnnual Report, as of September 30, 2019.
(2)Deferred gains on intercompany loans, secured by our own real estate, sold into securitizations. These premiums are amortized as a reduction to interest expense.

The Company’s debt facilities are subject to covenants which require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately $829.3 million of the total equity is restricted from payment as a dividend by the Company at September 30, 2019.


2020.




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8. DERIVATIVE INSTRUMENTS
 
The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of September 30, 20192020 and December 31, 20182019 ($ in thousands):
 
September 30, 20192020
 
    Fair Value 
Remaining
Maturity
(years)
Contract Type Notional Asset(1) Liability(1) 
         
Caps  
  
  
  
1 Month LIBOR $69,571
 $—
 $—
 0.61
Futures  
  
  
  
5-year Swap 49,200
 —
 20
 0.25
10-year Swap 149,500
 —
 61
 0.25
5-year U.S. Treasury Note 2,200
 —
 1
 0.25
Total futures 200,900
 —
 82
  
Credit derivatives  
  
  
  
S&P 500 Put Options 6,000
 22
 —
 0.30
Total credit derivatives 6,000
 22
 —
  
Total derivatives $276,471
 $22
 $82
  
  Fair ValueRemaining
Maturity
(years)
Contract TypeNotionalAsset(1)Liability(1)
Caps    
1 Month LIBOR$69,571 $0 $0 0.61
Futures    
5-year Swap24,400 164 0 0.25
10-year Swap42,400 285 0��0.25
Total futures66,800 449 0  
Total derivatives$136,371 $449 $0  
(1)Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.


December 31, 20182019
 
    Fair Value 
Remaining
Maturity
(years)
Contract Type Notional Asset(1) Liability(1) 
         
Caps  
  
  
  
1MO LIBOR $69,571
 $—
 $—
 1.35
Futures  
  
  
�� 
5-year Swap $274,900
 $—
 $526
 0.25
10-year Swap 227,700
 —
 436
 0.25
5-year U.S. Treasury Note 6,800
 —
 13
 0.25
Total futures 509,400
 —
 975
  
Total derivatives $578,971
 $—
 $975
  
  Fair ValueRemaining
Maturity
(years)
Contract TypeNotionalAsset(1)Liability(1)
Caps    
1Month LIBOR$69,571 $0 $0 0.36
Futures    
5-year Swap46,000 158 0 0.25
10-year Swap149,800 516 0 0.25
5-year U.S. Treasury Note1,100 4 0 0.25
Total futures196,900 678 0  
Credit Derivatives    
S&P 500 Put Options143,300 15 0 0.05
Total credit derivatives143,300 15 0  
Total derivatives$409,771 $693 $0  
(1)Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
 

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The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of operations for the three and nine months ended September 30, 20192020 and 20182019 ($ in thousands):
 
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions		Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions
 
  
  
  
  
  
      
Contract Type           Contract Type
Futures$(618) $(8,868) $(9,486) $892
 $(36,761) $(35,869)Futures$69 $191 $260 $(229)$(16,081)$(16,310)
Credit Derivatives(3) 24
 21
 (3) (84) (87)Credit Derivatives0 0 0 111 211 322 
Total$(621) $(8,844) $(9,465) $889
 $(36,845) $(35,956)Total$69 $191 $260 $(118)$(15,870)$(15,988)
 
 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
 Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions		Unrealized
Gain/(Loss)		Realized
Gain/(Loss)		Net Result
from
Derivative
Transactions
      
Contract Type
Futures$(618)$(8,868)$(9,486)$892 $(36,761)$(35,869)
Credit Derivatives(3)24 21 (3)(84)(87)
Total$(621)$(8,844)$(9,465)$889 $(36,845)$(35,956)
 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
  
  
  
  
  
  
Contract Type           
Futures$(940) $8,099
 $7,159
 $(52) $28,985
 $28,933
Swaps—
 —
 —
 1,403
 (848) 555
Credit Derivatives(44) —
 (44) 5
 (337) (332)
Total$(984) $8,099
 $7,115
 $1,356
 $27,800
 $29,156


The Company’s counterparties held $4.2$0.9 million and $5.0$3.5 million of cash margin as collateral for derivatives as of September 30, 20192020 and December 31, 2018,2019, respectively, which is included in restricted cash in the consolidated balance sheets.
 
Futures

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

The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.

Credit Risk-Related Contingent Features
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The Company has agreements with certain of its derivative counterparties that contain a provision whereby, if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives. As of September 30, 2019 and December 31, 2018, the Company was in compliance with these requirements and not in default on its indebtedness. As of September 30, 2019 and December 31, 2018, there was 0 cash collateral held by the derivative counterparties for these derivatives, included in restricted cash in the consolidated statements of financial condition. No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.


9. OFFSETTING ASSETS AND LIABILITIES
 
The following tables present both gross information and net information about derivatives and other instruments eligible for offset in the statement of financial position as of September 30, 20192020 and December 31, 2018.2019. The Company’s accounting policy is to record derivative asset and liability positions on a gross basis,basis; therefore, the following tables present the gross derivative asset and liability positions recorded on the balance sheets, while also disclosing the eligible amounts of financial instruments and cash collateral to the extent those amounts could offset the gross amount of derivative asset and liability positions. The actual amounts of collateral posted by or received from counterparties may be in excess of the amounts disclosed in the following tables as the following only disclose amounts eligible to be offset to the extent of the recorded gross derivative positions.

As of September 30, 20192020
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
 
Description 
Gross amounts of
recognized assets
 
Gross amounts
offset in the
balance sheet
 
Net amounts of
assets presented
in the balance
sheet
 
Gross amounts not offset in the
balance sheet
 Net amount
    
Financial
instruments
 
Cash collateral
received/(posted)(1)
 
             
Derivatives $22
 $—
 $22
 $—
 $—
 $22
Total $22
 $—
 $22
 $—
 $—
 $22
DescriptionGross amounts of
recognized assets		Gross amounts
offset in the
balance sheet		Net amounts of
assets presented
in the balance
sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments		Cash collateral
received/(posted)(1)
Derivatives$449 $0 $449 $0 $0 $449 
Total$449 $0 $449 $0 $0 $449 
(1)Included in restricted cash on consolidated balance sheets.


As of September 30, 20192020
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
 
Description 
Gross amounts of
recognized
liabilities
 
Gross amounts
offset in the
balance sheet
 
Net amounts of
liabilities
presented in the
balance sheet
 
Gross amounts not offset in the
balance sheet
 Net amountDescriptionGross amounts of
recognized
liabilities		Gross amounts
offset in the
balance sheet		Net amounts of
liabilities
presented in the
balance sheet		Gross amounts not offset in the
balance sheet		Net amount
 
Financial
instruments
collateral
 
Cash collateral
posted/(received)(1)
 Financial
instruments
collateral		Cash collateral
posted/(received)(1)
            
Derivatives $82
 $—
 $82
 $—
 $82
 $—
Repurchase agreements $1,786,048
 $—
 $1,786,048
 $1,786,048
 $—
 $—
Repurchase agreements$1,176,966 $0 $1,176,966 $1,176,966 $0 $0 
Total $1,786,130
 $—
 $1,786,130
 $1,786,048
 $82
 $—
Total$1,176,966 $0 $1,176,966 $1,176,966 $0 $0 

(1)
(1) Included in restricted cash on consolidated balance sheets.






As of December 31, 20182019
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
DescriptionGross amounts of
recognized assets		Gross amounts
offset in the
balance sheet		Net amounts of
assets presented
in the balance
sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments		Cash collateral
received/(posted)(1)
Derivatives$693 $0 $693 $0 $0 $693 
Total$693 $0 $693 $0 $0 $693 
(1)Included in restricted cash on consolidated balance sheets.
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As of December 31, 2019
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
 
Description 
Gross amounts of
recognized
liabilities
 
Gross amounts
offset in the
balance sheet
 
Net amounts of
liabilities
presented in the
balance sheet
 
Gross amounts not offset in the
balance sheet
 Net amount
    
Financial
instruments
collateral
 
Cash collateral
posted/(received)
 
             
Derivatives $975
 $—
 $975
 $—
 $975
 $—
Repurchase agreements 663,685
 —
 663,685
 663,685
 —
 —
Total $664,660
 $—
 $664,660
 $663,685
 $975
 $—
DescriptionGross amounts of
recognized
liabilities		Gross amounts
offset in the
balance sheet		Net amounts of
liabilities
presented in the
balance sheet		Gross amounts not offset in the
balance sheet		Net amount
Financial
instruments
collateral		Cash collateral
posted/(received)
Repurchase agreements$1,815,934 $0 $1,815,934 $1,815,934 $0 $0 
Total$1,815,934 $0 $1,815,934 $1,815,934 $0 $0 
(1)Included in restricted cash on consolidated balance sheets.
 
Master netting agreements that the Company has entered into with its derivative and repurchase agreement counterparties allow for netting of the same transaction, in the same currency, on the same date. Assets, liabilities, and collateral subject to master netting agreements as of September 30, 20192020 and December 31, 20182019 are disclosed in the tables above. The Company does not present its derivative and repurchase agreements net on the consolidated financial statements as it has elected gross presentation.
 

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10. CONSOLIDATED VARIABLE INTEREST ENTITIES

FASB ASC Topic 810 — Consolidation (“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Operating Partnership is a VIE and as such, substantially all of the consolidated balance sheet is a consolidated VIE. In addition, the Operating PartnershipCompany consolidates twoone collateralized loan obligation (“CLO”) VIEsVIE with the following aggregate balance sheetssheet ($ in thousands):

 September 30, 2019 December 31, 2018
 Notes 3 & 7 Notes 3 & 7
    
Mortgage loan receivables held for investment, net, at amortized cost$274,149
 $710,502
Accrued interest receivable1,363
 3,921
Other assets(1)—
 81,390
Total assets$275,512
 $795,813
    
Senior and unsecured debt obligations$117,760
 $607,440
Accrued expenses306
 1,471
Other liabilities2
 2
Total liabilities118,068
 608,913
    
Net equity in VIEs (eliminated in consolidation)157,444
 186,900
Total equity157,444
 186,900
    
Total liabilities and equity$275,512
 $795,813
September 30, 2020
Notes 3 & 7
(1)Primarily consists of
Restricted cash$8,649 
Mortgage loan repaymentsreceivables held for investment, net, at amortized cost434,519 
Accrued interest receivable1,620 
Other assets5,451 
Total assets$450,239
Debt obligations, net$281,625 
Accrued expenses653 
Total liabilities282,278 
Net equity in transit as of December 31, 2018.VIEs (eliminated in consolidation)167,961 
Total equity167,961 
Total liabilities and equity$450,239



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11. EQUITY STRUCTURE AND ACCOUNTS
 
The Company has 2 classes of common stock, Class A and Class B, which are described as follows:

Exchange for Class A Common Stock
 
Voting RightsPursuant to the Third Amended and Restated LLLP Agreement of LCFH, the Continuing LCFH Limited Partners may from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS I LLC Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications. As of September 30, 2020, all shares of Class B common stock, Series REIT LP Units and Series TRS LP Units have been exchanged for shares of Class A common stock.

Holders ofDuring the nine months ended September 30, 2020, 12,160,000 Series REIT LP Units and 12,160,000 Series TRS LP Units were collectively exchanged for 12,160,000 shares of Class A common stock and 12,160,000 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges. As of September 30, 2020, the Company held a 100.0% interest in LCFH.

During the nine months ended September 30, 2019, 1,140,000 Series REIT LP Units and 1,140,000 Series TRS LP Units were collectively exchanged for 1,140,000 shares of Class A common stock; and 1,140,000 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges. As of September 30, 2019, the Company held a 89.8% interest in LCFH.

Stock Repurchases

On October 30, 2014, the board of directors authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are entitled to 1 votegenerally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. As of September 30, 2020, the Company has a remaining amount available for repurchase of $38.6 million, which represents 4.5% in the aggregate of its outstanding Class A common stock, based on the closing price of $7.12 per share on all matters to be voted upon bysuch date.

The following table is a summary of the shareholders. Company’s repurchase activity of its Class A common stock during the nine months ended September 30, 2020 and 2019 ($ in thousands):
SharesAmount(1)
Authorizations remaining as of December 31, 2019$41,132 
Additional authorizations0 
Repurchases paid334,251 (2,578)
Repurchases unsettled0 
Authorizations remaining as of September 30, 2020$38,554 
(1)Amount excludes commissions paid associated with share repurchases.
SharesAmount(1)
Authorizations remaining as of December 31, 2018$41,769 
Additional authorizations0 
Repurchases paid40,065 (637)
Repurchases unsettled0 
Authorizations remaining as of September 30, 2019$41,132 
(1)Amount excludes commissions paid associated with share repurchases.

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Dividends

The holdersfollowing table presents dividends declared (on a per share basis) of Class A common stock do not havefor the nine months ended September 30, 2020 and 2019:
Declaration DateDividend per Share
February 27, 2020$0.340 
May 28, 20200.200 
August 31, 20200.200 
Total$0.740
February 27, 2019$0.340 
May 30, 20190.340 
August 22, 20190.340 
Total$1.020

Changes in Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income related to the cumulative voting rightsdifference between the fair market value and the amortized cost basis of securities classified as available for sale for the nine months ended September 30, 2020 and 2019 ($ in thousands):
Accumulated Other Comprehensive Income (Loss)Accumulated Other Comprehensive Income (Loss) of Noncontrolling InterestsTotal Accumulated Other Comprehensive Income (Loss)
December 31, 2019$4,218 $477 $4,695 
Other comprehensive income (loss)(27,935)(5,208)(33,143)
Exchange of noncontrolling interest for common stock(6,953)6,953 0 
Rebalancing of ownership percentage between Company and Operating Partnership2,222 (2,222)0 
September 30, 2020$(28,448)$0 $(28,448)
Accumulated Other Comprehensive Income (Loss)Accumulated Other Comprehensive Income (Loss) of Noncontrolling InterestsTotal Accumulated Other Comprehensive Income (Loss)
December 31, 2018$(4,649)$(588)$(5,237)
Other comprehensive income (loss)14,935 1,840 16,775 
Exchange of noncontrolling interest for common stock64 (64)0 
Rebalancing of ownership percentage between Company and Operating Partnership17 (17)0 
September 30, 2019$10,367 $1,171 $11,538 

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12. NONCONTROLLING INTERESTS

There are two main types of noncontrolling interest reflected in the election of directors.Company’s consolidated financial statements (i) noncontrolling interest in the operating partnership and (ii) noncontrolling interest in consolidated joint ventures.

Dividend RightsNoncontrolling Interest in the Operating Partnership

Subject to the rightsAs more fully described in Note 1, certain of the holderspredecessor equity owners held interests in the Operating Partnership as modified by the IPO Transactions. These interests were subsequently further modified by the REIT Structuring Transactions (also described in Note 1). These interests, along with the Class B shares held by these investors, were exchangeable for Class A shares of any preferredthe Company. The roll-forward of the Operating Partnership’s LP Units followed the Class B common stock that may be outstanding and any contractual or statutory restrictions, holdersof the Company as disclosed in the consolidated statements of changes in equity. As of September 30, 2020, all shares of Class AB common stock are entitled to receive equally and ratably, sharehave been exchanged for share, dividends as may be declared by the board of directors out of funds legally available to pay dividends. Dividends upon Class A common stock may be declared by the board of directors at any regular or special meeting and may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds available for dividends, such sums as the board of directors deems proper as reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any of the Company’s property, or for any proper purpose, and the board of directors may modify or abolish any such reserve.
Liquidation Rights
Upon liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the shareholders after payment of liabilities and the liquidation preference of any outstanding shares of preferred stock.
Other Matters
The shares of Class A common stock, have no preemptive or conversion rights and are notthe Company held a 100% interest in LCFH.

Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary), while the parent retains its controlling interest in its subsidiary, should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of Continuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the Company’s Class A shareholders and the noncontrolling interests in the Operating Partnership that occurred during the nine months ended September 30, 2020, the Company has increased noncontrolling interests in the Operating Partnership and accumulated other comprehensive income and increased additional paid-in capital in the Company’s shareholders’ equity by $1.0 million as of September 30, 2020.

Distributions to Noncontrolling Interest in the Operating Partnership

Notwithstanding the foregoing, subject to further calls or assessmentany restrictions in applicable debt financing agreements and available liquidity as determined by the Company. There are no redemption or sinking fund provisionsboard of directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to make quarterly distributions to each of its partners (including the Company) at least equal to such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in LCFH’s Third Amended and Restated LLLP Agreement) for each partner as the product of (x) the U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to such partner in respect of the Series REIT LP Units and Series TRS LP Units held by such partner and (y) the highest marginal blended U.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing in New York, NY, taking into account, for U.S. federal income tax purposes, the Class A common stock. All outstanding sharesdeductibility of Class A common stock are fully paidstate and non-assessable.local taxes; provided that Series TRS of LCFH may take into account, in determining the amount of tax distributions to holders of Series TRS LP Units, the amount of any distributions each such holder received from Series REIT of LCFH in excess of tax distributions. In addition, to the extent the Company requires an additional distribution from the Series of LCFH in excess of its quarterly tax distribution in order to pay its quarterly cash dividend, the Series of LCFH will be required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis.
 
AllocationNoncontrolling Interest in the Operating Partnership

As more fully described in Note 1, certain of Income and Loss
Income and losses are allocated among the shareholders based uponpredecessor equity owners held interests in the number of shares outstanding.

Operating Partnership as modified by the IPO Transactions. These interests were subsequently further modified by the REIT Structuring Transactions (also described in Note 1). These interests, along with the Class B Common Stock
Voting Rights
Holdersshares held by these investors, were exchangeable for Class A shares of the Company. The roll-forward of the Operating Partnership’s LP Units followed the Class B common stock of the Company as disclosed in the consolidated statements of changes in equity. As of September 30, 2020, all shares of Class B common stock are entitled to 1 vote for each share held of record by such holder and all matters submitted to a vote of shareholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law.
No Dividend or Liquidation Rights
Holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of Ladder Capital Corp.
Exchange for Class A Common Stock
Pursuant to the Third Amended and Restated LLLP Agreement of LCFH, the Continuing LCFH Limited Partners may from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications.


During the nine months ended September 30, 2019, 1,140,000 Series REIT LP Units and 1,140,000 Series TRS LP Units were collectivelybeen exchanged for 1,140,000 shares of Class A common stock, and 1,140,000 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.

During the nine months ended September 30, 2018, 4,549,832 Series REIT LP Units and 4,549,832 Series TRS LP Units were collectively exchanged for 4,549,832 shares of Class A common stock; and 4,549,832 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.

Stock Repurchases

On October 30, 2014, the board of directors authorized the Company held a 100% interest in LCFH.

Pursuant to repurchase upASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary), while the parent retains its controlling interest in its subsidiary, should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to $50.0 millionreflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of Continuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the Company’s Class A common stock from time to time without further approval. Stock repurchases byshareholders and the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. During the nine months ended September 30, 2019, the Company repurchased 40,065 shares of Class A common stock. As of September 30, 2019, the Company has a remaining amount available for repurchase of $41.1 million, which represents 2.2%noncontrolling interests in the aggregate of its outstanding Class A common stock, based on the closing price of $17.27 per share on such date.

The following table is a summary of the Company’s repurchase activity of its Class A common stockOperating Partnership that occurred during the nine months ended September 30, 2019 and 2018 ($ in thousands):

  Shares Amount(1)
     
Authorizations remaining as of December 31, 2018   $41,769
Additional authorizations   —
Repurchases paid 40,065
 (637)
Repurchases unsettled   —
Authorizations remaining as of September 30, 2019   $41,132
(1) Amount excludes commissions paid associated with share repurchases.

  Shares Amount(1)
     
Authorizations remaining as of December 31, 2017   $41,769
Additional authorizations   —
Repurchases paid —
 —
Repurchases unsettled   —
Authorizations remaining as of September 30, 2018   $41,769
(1) Amount excludes commissions paid associated with share repurchases.

Dividends

In order for2020, the Company to maintain its qualification as a REIT under the Code, it must annually distribute at least 90% of its taxable income. The Company has paid andincreased noncontrolling interests in the future intends to declare regular quarterly distributions to its shareholders in an amount approximating the REIT’s net taxable income.


Consistent with IRS guidance, the Company may, subject to a cash/stock election by its shareholders, pay a portion of its dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit its ability to retain earningsOperating Partnership and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, the Company’s future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of the Company’s board of directors. Generally, the Company expects its distributions to be taxable as ordinary dividends to its shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital or a capital gain (although for taxable years beginning after December 31, 2017 and before January 1, 2026, generally stockholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations). The Company believes that its significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to its shareholders and servicing our debt obligations.
The following table presents dividends declared (on a per share basis) of Class A common stock for the nine months ended September 30, 2019 and 2018:

Declaration Date Dividend per Share
   
February 27, 2019 $0.340
May 30, 2019 0.340
August 22, 2019 0.340
Total $1.020
   
February 27, 2018 $0.315
May 30, 2018 0.325
September 5, 2018 0.325
Total $0.965


Changes in Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income related to the cumulative difference between the fair market value and the amortized cost basis of securities classified as available for sale for the nine months ended September 30, 2019 and 2018 ($ in thousands):
  Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests Total Accumulated Other Comprehensive Income (Loss)
       
December 31, 2018 $(4,649) $(588) $(5,237)
Other comprehensive income (loss) 14,935
 1,840
 16,775
Exchange of noncontrolling interest for common stock 64
 (64) —
Rebalancing of ownership percentage between Company and Operating Partnership 17
 (17) —
September 30, 2019 $10,367
 $1,171
 $11,538


  Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests Total Accumulated Other Comprehensive Income (Loss)
       
December 31, 2017 $(212) $116
 $(96)
Other comprehensive income (loss) (8,230) (1,428) (9,658)
Exchange of noncontrolling interest for common stock (167) 167
 —
Rebalancing of ownership percentage between Company and Operating Partnership 27
 (27) —
September 30, 2018 $(8,582) $(1,172) $(9,754)


12. NONCONTROLLING INTERESTS

There are two main types of noncontrolling interest reflectedincreased additional paid-in capital in the Company’s consolidated financial statements (i) noncontrolling interestshareholders’ equity by $1.0 million as of September 30, 2020.

Distributions to Noncontrolling Interest in the operating partnershipOperating Partnership

Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and (ii) noncontrolling interestavailable liquidity as determined by the board of directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to make quarterly distributions to each of its partners (including the Company) at least equal to such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in consolidated joint ventures.LCFH’s Third Amended and Restated LLLP Agreement) for each partner as the product of (x) the U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to such partner in respect of the Series REIT LP Units and Series TRS LP Units held by such partner and (y) the highest marginal blended U.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing in New York, NY, taking into account, for U.S. federal income tax purposes, the deductibility of state and local taxes; provided that Series TRS of LCFH may take into account, in determining the amount of tax distributions to holders of Series TRS LP Units, the amount of any distributions each such holder received from Series REIT of LCFH in excess of tax distributions. In addition, to the extent the Company requires an additional distribution from the Series of LCFH in excess of its quarterly tax distribution in order to pay its quarterly cash dividend, the Series of LCFH will be required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis.

Noncontrolling Interest in the Operating Partnership

As more fully described in Note 1,, certain of the predecessor equity owners continue to ownheld interests in the Operating Partnership as modified by the IPO Transactions. These interests were subsequently further modified by the REIT Structuring Transactions (also described in Note 1)1). These interests, along with the Class B shares held by these investors, arewere exchangeable for Class A shares of the Company. The roll-forward of the Operating Partnership’s LP Units followfollowed the Class B common stock of the Company as disclosed in the consolidated statements of changes in equity. As of September 30, 2020, all shares of Class B common stock have been exchanged for shares of Class A common stock, and the Company held a 100% interest in LCFH.

Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary), while the parent retains its controlling interest in its subsidiary, should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of Continuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the Company’s Class A shareholders and the noncontrolling interests in the Operating Partnership that occurred during the nine months ended September 30, 2019,2020, the Company has increased noncontrolling interests in the Operating Partnership and decreased additional paid-in capital and accumulated other comprehensive income and increased additional paid-in capital in the Company’s shareholders’ equity by $0.1$1.0 million as of September 30, 2019.2020.

Distributions to Noncontrolling Interest in the Operating Partnership

Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and available liquidity as determined by the board of directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to make quarterly distributions to each of its partners (including the Company) at least equal to such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in LCFH’s Third Amended and Restated LLLP Agreement) for each partner as the product of (x) the U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to such partner in respect of the Series REIT LP Units and Series TRS LP Units held by such partner and (y) the highest marginal blended U.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing in New York, NY, taking into account, for U.S. federal income tax purposes, the deductibility of state and local taxes; provided that Series TRS of LCFH may take into account, in determining the amount of tax distributions to holders of Series TRS LP Units, the amount of any distributions each such holder received from Series REIT of LCFH in excess of tax distributions. In addition, to the extent the Company requires an additional distribution from the Series of LCFH in excess of its quarterly tax distribution in order to pay its quarterly cash dividend, the Series of LCFH will be required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis.
 

Allocation of Income and Loss
 
Income and losses and comprehensive income arewere allocated among the partners in a manner to reflect as closely as possible the amount each partner would be distributed under the Third Amended and Restated LLLP Agreement of LCFH upon liquidation of the Operating Partnership’s assets.

Noncontrolling Interest in Consolidated Joint Ventures

As of September 30, 2019,2020, the Company consolidates 74 ventures in which there are other noncontrolling investors, which own between 1.2%10.0% - 29.4%25.0% of such ventures. These ventures hold investments in a 40 property40-building student housing portfolio 20in Isla Vista, CA with a book value of $82.0 million, 11 office buildings 1 industrial property, 1 condominiumin Richmond, VA with a book value of $71.7 million, a single-tenant office building in Oakland County, MI with a book value of $9.2 million and an apartment complex and 1 apartment complex.in Miami, FL with a book value of $37.1 million. The Company makes distributions and allocates income from these ventures to the noncontrolling interests in accordance with the terms of the respective governing agreements.



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13. EARNINGS PER SHARE
 
The Company’s net income (loss) and weighted average shares outstanding for the three and nine months ended September 30, 20192020 and 20182019 consist of the following:
  Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands except share amounts) 2019 2018 2019 2018
         
Basic Net income (loss) available for Class A common shareholders $27,576
 $66,630
 $81,996
 $155,911
Diluted Net income (loss) available for Class A common shareholders $27,576
 $74,038
 $81,996
 $177,875
Weighted average shares outstanding  
  
  
  
Basic 106,004,152
 96,935,986
 105,264,752
 96,317,513
Diluted 106,603,713
 110,650,253
 106,232,581
 110,482,991

Three Months Ended September 30,Nine Months Ended September 30,
($ in thousands except share amounts)2020201920202019
Basic Net income (loss) available for Class A common shareholders$17,188 $27,576 $(2,729)$81,996 
Diluted Net income (loss) available for Class A common shareholders$17,188 $27,576 $(2,729)$81,996 
Weighted average shares outstanding    
Basic117,481,812 106,004,152 110,233,748 105,264,752 
Diluted118,791,927 106,603,713 110,233,748 106,232,581 
 
The calculation of basic and diluted net income (loss) per share amounts for the three and nine months ended September 30, 2020 and 2019 and 2018 are described and presented below.consist of the following:

Three Months Ended September 30,Nine Months Ended September 30,
(In thousands except share amounts)20202019(1)2020(1)2019(1)
Basic Net Income (Loss) Per Share of Class A Common Stock    
Numerator:    
Net income (loss) attributable to Class A common shareholders$17,188 $27,576 $(2,729)$81,996 
Denominator:    
Weighted average number of shares of Class A common stock outstanding117,481,812 106,004,152 110,233,748 105,264,752 
Basic net income (loss) per share of Class A common stock$0.15 $0.26 $(0.02)$0.78 
Diluted Net Income (Loss) Per Share of Class A Common Stock  
Numerator:  
Net income (loss) attributable to Class A common shareholders$17,188 $27,576 $(2,729)$81,996 
Add (deduct) - dilutive effect of:    
Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss)(2)0 0 0 0 
Additional corporate tax (expense) benefit(2)0 0 0 0 
Diluted net income (loss) attributable to Class A common shareholders17,188 27,576 (2,729)81,996 
Denominator:  
Basic weighted average number of shares of Class A common stock outstanding117,481,812 106,004,152 110,233,748 105,264,752 
Add - dilutive effect of:    
Shares issuable relating to converted Class B common shareholders(3)1,217,761 0 0 0 
Incremental shares of unvested Class A restricted stock(3)92,354 599,561 0 967,829 
Incremental shares of unvested stock options0 0 0 0 
Diluted weighted average number of shares of Class A common stock outstanding118,791,927 106,603,713 110,233,748 106,232,581 
Diluted net income (loss) per share of Class A common stock$0.14 $0.26 $(0.02)$0.77 
Basic Net Income (Loss) per Share
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Numerator: (1)utilizes net income (loss) available for Class A common shareholders forFor the nine months ended September 30, 2020 and the three and nine months ended and September 30, 2019, and 2018, respectively.
Denominator: utilizes the weighted average shares ofissuable relating to converted Class A common stock for the three and nine months ended September 30, 2019 and 2018, respectively.
Diluted Net Income (Loss) per Share
Numerator: utilizes net income (loss) available for Class AB common shareholders forare excluded from the three and nine months ended September 30, 2019 and 2018, respectively, forcalculation of diluted EPS as the basic net income (loss) per share calculation described above, adding net income (loss) amounts attributable to the noncontrolling interestinclusion of such potential common shares in the Operating Partnershipcalculation would be anti-dilutive.
(2)The Company is using the as-if converted method for the Class B common shareholders while adjusting for additional corporate income tax expense (benefit) for the described net income (loss) add-back.
Denominator: utilizes the weighted average number of shares ofadd-back for periods prior to September 30, 2020. There are no Class AB common stock for the three and nine months endedoutstanding as of September 30, 2019 and 2018, respectively, for the basic net income (loss) per share calculation described above adding the dilutive effect of shares issuable relating to Operating Partnership exchangeable interests and the incremental shares of unvested Class A restricted stock2020.
(3)The Company is using the treasury stock method.

  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands except share amounts) 2019 2018 2019 2018
         
Basic Net Income (Loss) Per Share of Class A Common Stock      
  
Numerator:      
  
Net income (loss) attributable to Class A common shareholders $27,576
 $66,630
 $81,996
 $155,911
Denominator:  
  
  
  
Weighted average number of shares of Class A common stock outstanding 106,004,152
 96,935,986
 105,264,752
 96,317,513
Basic net income (loss) per share of Class A common stock $0.26
 $0.69
 $0.78
 $1.62
         
Diluted Net Income (Loss) Per Share of Class A Common Stock      
  
Numerator:      
  
Net income (loss) attributable to Class A common shareholders $27,576
 $66,630
 $81,996
 $155,911
Add (deduct) - dilutive effect of:  
  
  
  
Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss) —
 8,991
 —
 22,786
Additional corporate tax (expense) benefit —
 (1,583) —
 (822)
Diluted net income (loss) attributable to Class A common shareholders 27,576
 74,038
 81,996
 177,875
Denominator:      
  
Basic weighted average number of shares of Class A common stock outstanding 106,004,152
 96,935,986
 105,264,752
 96,317,513
Add - dilutive effect of:  
  
  
  
Shares issuable relating to converted Class B common shareholders —
 13,202,202
 —
 13,800,597
Incremental shares of unvested Class A restricted stock 599,561
 512,065
 967,829
 364,881
Diluted weighted average number of shares of Class A common stock outstanding 106,603,713
 110,650,253
 106,232,581
 110,482,991
Diluted net income (loss) per share of Class A common stock $0.26
 $0.67
 $0.77
 $1.61

(1)For three and nine months ended September 30, 2019, shares issuable relating to converted Class B common shareholders are excluded from the calculation of diluted EPS as the inclusion of such potential common shares in the calculation would be anti-dilutive.
 
The shares of Class B common stock do not share in the earnings of Ladder Capital Corp and are, therefore, not participating securities. Accordingly, basic and diluted net income (loss) per share of Class B common stock has not been presented, although the assumed conversion of Class B common stock has been included in the presented diluted net income (loss) per share of Class A common stock.
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14. STOCK BASED AND OTHER COMPENSATION PLANS
 
The following table summarizes the impact on the consolidated statement of operations of the various stock based compensation plans described in this note and in Note 14, Stock Based and Other Compensation Plans included within the Company’s Annual Report ($ in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Stock Based Compensation Expense$4,219 $3,575 $20,957 $18,336 
Phantom Equity Investment Plan(94)343 (1,671)1,047 
Stock Options Exercised— — 270 — 
Bonus Expense517 6,533 487 21,035 
Total$4,642 $10,451 $20,043 $40,418 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
        
Stock Based Compensation Expense:       
Annual Incentive Awards Granted in 2015 with Respect to 2014 Performance$—
 $—
 $—
 $172
Annual Incentive Awards Granted in 2016 with Respect to 2015 Performance—
 323
 131
 971
Annual Incentive Awards Granted in 2017 with Respect to 2016 Performance(1)280
 524
 955
 1,655
Other 2017 Restricted Stock Awards(1)25
 76
 102
 257
Annual Incentive Awards Granted in 2017 with Respect to 2017 Performance(1)596
 1,122
 1,961
 3,325
2018 Restricted Stock Awards—
 95
 32
 230
Other 2018 Restricted Stock Awards(1)11
 9
 31
 12
Annual Incentive Awards Granted in 2019 with Respect to 2018 Performance(1)2,509
 —
 14,804
 —
2019 Restricted Stock Awards148
 —
 297
 —
Other Employee/Director Awards6
 13
 23
 45
Total Stock Based Compensation Expense$3,575
 $2,162
 $18,336
 $6,667
        
Phantom Equity Investment Plan$343
 $—
 $1,047
 $—
Ladder Capital Corp Deferred Compensation Plan$—
 $601
 $—
 $1,519
Bonus Expense$6,533
 $9,210
 $21,035
 $26,772
(1)Includes immediate vesting of retirement eligible employees, including Brian Harris, our Chief Executive Officer.

Summary of Restricted Stock and Stock and Shares/Options Nonvested/Outstanding

A summary of the grants is presented below:
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Number
of Shares/Options		Weighted
Average
Fair Value
Per Share		Number
of Shares		Weighted
Average
Fair Value
Per Share		Number
of Shares/Options		Weighted
Average
Fair Value
Per Share		Number
of Shares/Options		Weighted
Average
Fair Value
Per Share
Grants - Class A Common Stock0 $0 24,125 $16.58 1,466,337 $18.72 1,569,694 $17.54 
Grants - Class A Common Stock dividends0 0 0 0 0 0 11,113 16.61 
Stock Options0 — 0 — 0 — 12,073 — 
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 Number
of Shares/Options		 
Weighted
Average
Fair Value
Per Share
 Number
of Shares		 Weighted
Average
Fair Value
Per Share		 Number
of Shares/Options		 Weighted
Average
Fair Value
Per Share		 Number
of Shares/Options		 Weighted
Average
Fair Value
Per Share
                
Grants - Class A Common Stock (restricted)23,443
 $16.58
 4,720
 $15.89
 1,569,694
 $17.54
 33,656
 $14.86
Grants - Class A Common Stock (restricted) dividends—
 —
 —
 —
 11,113
 16.61
 —
 —
Stock Options—
 —
 —
 —
 12,073
 —
 —
 —



The table below presents the number of unvested shares and outstanding stock options at September 30, 20192020 and changes during 20192020 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
 Restricted Stock Stock Options
    
Nonvested/Outstanding at December 31, 20181,118,194
 982,135
Granted1,580,807
 12,073
Exercised  —
Vested(1,122,107)  
Forfeited(8,702) —
Expired  —
Nonvested/Outstanding at September 30, 20191,568,192
 994,208
    
Exercisable at September 30, 2019  994,208

Restricted StockStock Options
Nonvested/Outstanding at December 31, 20191,436,683 994,208 
Granted1,466,337 0 
Exercised(83,845)
Vested(1,221,279)
Forfeited(24,266)0 
Expired0 
Nonvested/Outstanding at September 30, 20201,657,475 910,363 
Exercisable at September 30, 2020910,363 
 
At September 30, 20192020 there was $14.8$18.0 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 3422.8 months, with a weighted-average remaining vesting period of 25.829 months.

The table below presents the number of unvested shares and outstanding stock options at September 30, 2018 and changes during 2018 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
 Restricted Stock Stock Options
    
Nonvested/Outstanding at December 31, 20171,252,365
 982,135
Granted33,656
 —
Exercised  —
Vested(138,216)  
Forfeited(26,061) —
Expired  —
Nonvested/Outstanding at September 30, 20181,121,744
 982,135
    
Exercisable at September 30, 2018  929,701

As of September 30, 2018 there was $8.0 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 34 months, with a weighted-average remaining vesting period of 21.2 months.

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

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Annual Incentive Awards Granted in 20172020 with Respect to 20162019 Performance

For 20162019 performance, managementcertain employees received stock-based incentive equity (the “Annual Restricted Stock Awards”). On February 18, 2017, Annual Restricted Stock Awards were grantedequity. Fair value for all restricted and unrestricted stock grants was calculated using the closing stock price on the grant date. Compensation expense for unrestricted stock grants will be expensed immediately. The Company has elected to Management Grantees with an aggregate valuerecognize the compensation expense related to the time-based vesting of $10.2 million which represents 736,461 shares of restricted Class A common stock in connection with 2016 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees, 50% of each restricted stock awards for the entire award granted ison a straight-line basis over the requisite service period for the entire award. Restricted stock subject to time-based vestingperformance criteria and the remaining 50% of each restricted stock award is subjecteligible to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in 3 installments on each of the first 3 anniversaries of the date of grant, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves a return on equity, based on core earnings divided by the Company’s average book value of equity, equal to or greater than 8% for such year (the “Performance Target”) for those years.the years ended December 31, 2020, 2021 and 2022, respectively. If the Company misses the Performance Target during either the first or second calendar year but meets the Performance Target for a subsequent year during the 3three year performance period and the Company’s return on equity for such subsequent year and any years for which it missed its Performance Target equals or exceeds the compounded return on equity of 8%, based on core earnings divided by the Company’s average book value of equity, the performance-vesting restricted stock which failed to vest because the Company previously missed its Performance Target will vest on the last day of such subsequent year (the “Catch-Up Provision”). If the term “core earnings” is no longer used in the Company’s SEC filings and approved by the compensation committee, then the Performance Target will be calculated using such other pre-tax performance measurement defined in the Company’s SEC filings, as determined by the compensation committee. The Company met the Performance Target for the years ended December 31, 2018 and 2017.

The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the February 18, 2017 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
1.Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date.

2.Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date.

3.Compensation expense for restricted stock subject to time-based vesting criteria granted to Michael Mazzei will be expensed 1/3 each year, for three years, on an annual basis.

4.Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris, Ms. McCormack and Mr. Mazzei will be expensed 1/3 each year, for three years, on an annual basis in advance of the Executive Retirement Eligibility Date.
Accruals of compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.

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


On February 11, 2017 (the “Harris Retirement Eligibility Date”), all outstanding Annual Restricted Stock Awards, including the time-vesting portion and the performance-vesting portion, and all outstanding Annual Option Awards granted to Mr. Harris became fully vested, and any Annual Restricted Stock Awards and Annual Option Awards granted after the Harris Retirement Eligibility Date will be fully vested at grant. The Executive Retirement Eligibility Date for Pamela McCormack is December 8, 2019 (the “McCormack Retirement Eligibility Date”). For Management Grantees other than Harris and McCormack, the Executive Retirement Eligibility Date is February 11, 2019, when the time-vesting portion of the Annual Restricted Stock Awards and the Annual Option Awards will become fully vested, and the time-vesting portion of any Annual Restricted Stock Awards and Annual Option Awards granted after the Executive Retirement Eligibility Date will be fully vested at grant. Upon the occurrence of the respective Executive Retirement Eligibility Dates for each of the Management Grantees except Mr. Harris, the performance-vesting portion of such Management Grantee’s Annual Restricted Stock Awards will remain outstanding for the performance period and will vest to the extent we meet the Performance Target, including via the Catch-Up Provision described above, regardless of continued employment with our subsidiaries following the Executive Retirement Eligibility Date.

Other 2017 Restricted Stock Awards

On January 24, 2017, Management Grantees received a Restricted Stock Award with a grant date fair value of $30,455, representing 2,191 shares of restricted Class A common stock. These shares represent stock dividends paid on the number of shares subject to the 2016 options (had such shares been outstanding) and vest with the time-vesting 2016 options they are associated with, subject to the Retirement Eligibility Date of the respective member of management. Compensation expense shall be recognized on a straight-line basis over the requisite service period.

On February 18, 2017, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.4 million, representing 28,881 shares of restricted Class A common stock, which vested in 2 equal installments on each of the first 2 anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. Compensation expense was recognized on a straight-line basis over the requisite service period.

On February 18, 2017, Management Grantees received cash of $1.0 million and a Stock Award with a grant date fair value of $48,475, representing 3,500 shares of Class A common stock, intended to represent dividends in type and amount that the 2015 stock option grant to management would have received had such options had dividend equivalent rights since grant. This grant also provides for future dividend equivalents that vest according to the vesting schedule of the 2015 stock option grant. Compensation expense shall be recognized on a straight-line basis over the requisite service period.

On February 18, 2017, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.2 million, representing 16,245 shares of restricted Class A common stock, which vested in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award was recognized on a straight-line basis over the one year vesting period.

On February 18, 2017, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”(the “Catch-Up Provision”) with an aggregate value of $0.6 million which represents 40,000 shares of restricted Class A common stock in connection with 2016 compensation. NaN percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in 3 installments on each of the first 3 anniversaries of June 1, 2017, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments on June 1 of each of 2018, 2019 and 2020 (subject to the performance target being achieved). The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the February 18, 2017 Restricted Stock Awards to Non-Management Grantees for time-based vesting shall be recognized 1/3 for the period February 18, 2017 through June 1, 2018, 1/3 for the period June 2, 2018 through June 1, 2019 and 1/3 for the period June 2, 2019 through June 1, 2020.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.


On March 3, 2017, In view of the adverse impacts of COVID-19 on the Company’s operations and investments and the resulting intensified corporate focus on defensive actions, including maintaining high levels of unrestricted cash liquidity and refinancing debt with more expensive non-mark-to-market funding sources, the Company is no longer classifying the 2020 Performance Target as probable as of September 30, 2020 and has reversed $1.0 million of previous compensation expense relating to grants of restricted stock with a new memberDecember 2020 performance hurdle as their last vesting date (not available to take advantage of the Catch-Up Provision). However, recognizing that Ladder’s employees took these actions that, while in the best interests of the Company and its shareholders, would not produce earnings consistent with the Performance Target in their deferred compensation arrangements, on May 27, 2020, the compensation committee of the board of directors receivedused its discretion to waive the Performance Target for shares eligible to vest based on the Company’s performance in 2020 and 2021, subject to continued employment on the applicable vesting dates. The Company recorded $0.1 million of incremental compensation cost during the three and nine months ended September 30, 2020 as a Restricted Stock Awardresult of this modification. There are currently 47 Ladder employees and one consultant eligible for such waiver.

On February 18, 2020, in connection with a grant date2019 compensation, annual stock and restricted stock awards were granted to management grantees, other than Ms. Porcella, with an aggregate fair value of $0.1$12.0 million representing 5,130which represents 639,690 shares of restricted Class A common stock, which was scheduledstock. The grant to vestMs. Porcella is subject to the same time-based and performance-based vesting described below for non-management grantees and her shares are included in 3 equal installments on eachthat total. The grant to Mr. Harris, and 50% of the first 3 anniversariesgrants to Mr. Fox, Ms. McCormack and Mr. Perelman, were unrestricted. The other 50% of the date of grant, subjectincentive equity granted to continued service on the board of directors. Compensation expense forMr. Fox, Ms. McCormack and Mr. Perelman is restricted stock subject to time-based vestingperformance criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.as described above.

On June 19, 2017, Restricted Stock AwardsFebruary 18, 2020, in connection with 2019 compensation, stock awards were granted to a Ms. Porcella and non-management employees (“Non-Management GranteeGrantees”) with an aggregate value of $0.3$15.0 million which represents 21,307802,611 shares of time-basedmostly restricted Class A common stock. One-thirdFifty percent of this amount will vest on the first anniversary date of the grant date and 1,775 shares will vest on each of October 1, 2018, December 31, 2018, April 1, 2019, July 1, 2019, September 30, 2019, December 31, 2019 and March 31, 2020. The remaining 1,780 shares of the grant will vest on July 1, 2020, subject to the Non-Management Grantee’s continued employment with the Company. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of this Restricted Stock Award for the entire award on a straight-line basis over the requisite service period. 

In connection with Mr. Mazzei’s retirement as President, Ladder Capital Finance LLC, a subsidiary of Ladder, and Mr. Mazzei entered into a separation agreement, dated June 22, 2017 (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Mazzei was appointed as a Class III director of Ladder and, subject to certain exceptions, Mr. Mazzei’s unvestedmost stock and stock options will continue to vest as they would have had he continued to be employed with Ladder as long as he continues to serve on the Board of Directors. Such unvested stock and stock options will not be subject to the original retirement eligibility date provided for in his employment agreement. On June 22, 2017, in connection with his appointment to the board of directors, Mr. Mazzei received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 5,346 shares of restricted Class A common stock, which will vest in 3 equal installments on each of the first 3 anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.

Annual Incentive Awards Granted in 2017 with Respect to 2017 Performance

For 2017 performance, management received stock-based incentive equity. On December 21, 2017, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $10.5 million which represents 768,205 shares of restricted Class A common stock in connection with 2017 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees, 50% of each restricted stock award granted is subject to time-based vesting criteria, and the remaining 50% of each restrictedthese stock awardawards is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in 3 installments on each of February 18, 2019, February 18, 2020 and February 18, 2021, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2018, 2019 and 2020, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.

The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the December 21, 2017 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
1.Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date.

2.Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date.

3.Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris and Ms. McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the Executive Retirement Eligibility Date.
Compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.


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

On December 21, 2017, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of $5.0 million which represents 369,328 shares of restricted Class A common stock in connection with 2017 compensation. NaN percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in 3 installments on February 18 of each of 2019, 20202021, 2022 and 20212023 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2018, 20192020, 2021 and 2020,2022, respectively. The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire awardperformance-based restricted stock granted on a straight-line basis over the requisite service period. As such, the compensation expense related to the December 21, 2017 Restricted Stock Awards to Non-Management GranteesFebruary 18, 2020 shall be recognized 1/3 for the period December 21, 2017February 18, 2020 through February 18, 2019,2021, 1/3 for the period February 19, 20192021 through February 18, 20202022 and 1/3 for the period February 19, 20202022 through February 18, 2021.2023.

In the event Ms. Porcella or a Non-Management Grantee is terminated by the Company without cause within six months of certain changes in control, all unvested time shares shall vest on the termination date and all unvested performance shares shall remain outstanding and be eligible to vest (and be forfeited) in accordance with the performance conditions; provided that if such change in control is for more than 50%conditions.

56
Table of the shares of the Company, then all restricted stock awards will become fully vested if the Non-Management Grantee continues to be employed through the closing of the change in control.Contents
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition.  Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.

2018 Restricted Stock Awards

On February 18, 2018, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.4 million, representing 25,370 shares of restricted Class A common stock, which vested in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award was recognized on a straight-line basis over the one year vesting period.

Other 2018 Restricted Stock Awards

On April 23, 2018, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 3,566 shares of restricted Class A common stock, which will vest in 3 equal installments on each of the first 3 anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. Compensation expense shall be recognized on a straight-line basis over the requisite service period.

On July 19, 2018, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 4,720 shares of restricted Class A common stock, which will vest in 3 equal installments on each of the first 3 anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.


Annual Incentive Awards Granted in 2019 with Respect to 2018 Performance

For 2018 performance, management received stock-based incentive equity. On February 18, 2019, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $11.7 million which represents 666,288 shares of restricted Class A common stock in connection with 2018 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. Having attained their Executive Retirement Eligibility Date, 50 percent of the annual awards (representing the portion of the Annual Restricted Stock Awards historically subject to time-based vesting) to Messrs. Fox, Harney, and Perelman was fully vested at grant and the remaining 50 percent of each of their Annual Restricted Stock Awards is subject to performance-based criteria. For Ms. McCormack, the vesting of her annual awards is the same as described for the Annual Restricted Stock Awards with respect to 2017 performance. Subject to the McCormack Retirement Eligibility Date, her time-vesting restricted stock will vest in 3 installments on each of February 18, 2020, February 18, 2021 and February 18, 2022, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock for the Management Grantees other than Mr. Harris will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2019, 2020 and 2021, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.

The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the February 18, 2019 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
1.Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date.

2.Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date.

3.Having attained their Executive Retirement Eligibility Date, compensation expense for restricted stock subject to time-based vesting criteria granted to Messrs. Fox, Harney, and Perelman was fully vested at grant date.
Compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.

Upon a change in control (as defined in the respective award agreements), all restricted stock awards to Mr. Fox, Ms. McCormack and Mr. Perelman will become fully vested if (1) the Management Granteesuch management grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’ssuch management grantee’s employment is terminated without cause or due to death or disability or the Management Granteemanagement grantee resigns for Good Reason.Reason, as described in the Company’s definitive proxy statement filed with the SEC on April 28, 2020. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.

2020 Restricted Stock Awards

On February 18, 2019, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of $14.9 million which represents 849,087 shares of restricted Class A common stock in connection with 2018 compensation. Fifty percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in 3 installments on February 18 of each of 2020, 2021 and 2022 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2019, 2020 and 2021, respectively. The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the February 18, 2019 Restricted Stock Awards to Non-Management Grantees shall be recognized 1/3 for the period February 18, 2019 through February 18, 2020, 1/3 for the period February 19, 2020 through February 18, 2021 and 1/3 for the period February 19, 2021 through February 18, 2022.


In the event a Non-Management Grantee is terminated by the Company without cause within six months of certain changes in control, all unvested time shares shall vest on the termination date and all unvested performance shares shall remain outstanding and be eligible to vest (and be forfeited) in accordance with the performance conditions; provided that if such change in control is for more than 50% of the shares of the Company, then all restricted stock awards will become fully vested if the Non-Management Grantee continues to be employed through the closing of the change in control.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition.  Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.

2019 Restricted Stock Awards

On February 18, 2019, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.4 million, representing 25,62624,036 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one year vesting period.

Other 2019 Restricted Stock Awards

On January 24, 2019, Management Grantees received a Restricted Stock Award with a grant date fair value of $11,328, representing 682 shares of restricted Class A common stock. These shares represent stock dividends paid on the number of shares subject to the 2016 options (had such shares been outstanding) and vest with the time-vesting 2016 options they are associated with, subject to the Retirement Eligibility Date of the respective member of management. Compensation expense shall be recognized on a straight-line basis over the requisite service period.

An equitable adjustment was also made to outstanding options in the first quarter of 2019 for the Company’s stock dividend paid on January 24, 2019. Those additional options are reflected in the summary of grants table above.

On June 4, 2019, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 4,568 shares of restricted Class A common stock, which will vest in 3 equal installments on each of the first 3 anniversaries of the date of grant, subject to continued service on the board of directors. TheseMarch 26, 2020, 5,803 shares of restricted Class A common stock were forfeited when a re-issuance of treasury stock. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.

On July 1, 2019, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.4 million, representing 24,125 shares of restricted Class A common stock. Fifty percent of this Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of this Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted will vest in 3 installments on July 1 of each of 2020, 2021 and 2022 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments on July 1 of each of 2020, 2021 and 2022 upon the Compensation Committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2019, 2020 and 2021, respectively. The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Award on a straight-line basis over the requisite service period. 


Ladder Capital Corp Deferred Compensation Plan
On July 3, 2014, the Company adopted a nonqualified deferred compensation plan, which was amended and restated on March 17, 2015 (the “2014 Deferred Compensation Plan”), in which certain eligible employees participate. On February 22, 2018, the Board of Directors froze the 2014 Deferred Compensation Plan. Pursuant to the 2014 Deferred Compensation Plan, participants elected, or in some cases non-management participants were required, to defer all or a portion of their annual cash performance-based bonuses into the 2014 Deferred Compensation Plan. Generally, if a participant’s total compensation was in excess of a certain threshold, a portion of a participant’s performance-based annual bonus was required to be deferred into the 2014 Deferred Compensation Plan. Otherwise, a portion of the participant’s annual bonus could have been deferred into the 2014 Deferred Compensation Plan at the election of the participant, so long as such elections were timely made in accordance with the terms and procedures of the 2014 Deferred Compensation Plan. 

In the event that a participant elected to (or was required to) defer a portion of his or her compensation pursuant to the 2014 Deferred Compensation Plan, such amount was not paid to the participant and was instead credited to such participant’s notional account under the 2014 Deferred Compensation Plan. Such amounts were then invested on a phantom basis in Class A common stock of the Company, or the phantom units, and a participant’s account is credited with any dividends or other distributions received by holders of Class A common stock of the Company, which are subject to the same vesting and payment conditions as the applicable contributions. Elective contributions were immediately vested upon contribution. Mandatory contributions are subject to one-third vesting over three years on a straight-line basis following the applicable year in which the related compensation was earned and mandatory contributions for compensation earned in 2016 and 2017 remain in the 2014 Deferred Compensation Plan, subject to vesting in 2019 and 2020, respectively.

If a participant’s employment with the Company is terminated by the Company other than for cause and such termination is within six months following a change in control (each, as defined in the 2014 Deferred Compensation Plan), then the participant will fully vest in his or her unvested account balances. Furthermore, the unvested account balances will fully vest in the event of the participant’s death, disability, retirement (as defined in the 2014 Deferred Compensation Plan) or in the event of certain hostile takeovers ofmember resigned from the board of directors of the Company.  In the event that a participant’s employment is terminated by the Company other than for cause, the participant will vest in the portion of the participant’s account that would have vested had the participant remained employed through the end of the year in which such termination occurs, subject to, in such case or in the case of retirement, the participant’s timely execution of a general release of claims in favor of the Company. Unvested amounts are otherwise generally forfeited upon the participant’s resignation or termination of employment, and vested mandatory contributions are generally forfeited upon the participant’s termination for cause.

directors.
Amounts deferred into the 2014 Deferred Compensation Plan are paid upon the earliest to occur of (1) a change in control, (2) within sixty days following the end of the participant’s employment with the Company, or (3) the date of payment of the annual bonus payments following December 31 of the third calendar year following the applicable year to which the underlying deferred annual compensation relates. Payment is made in cash equal to the fair market value of the number of phantom units credited to a participant’s account, provided that, if the participant’s termination was by the Company for cause or was a voluntary resignation other than on account of such participant’s retirement, the amount paid is based on the lowest fair market value of a share of Class A common stock during the forty-five day period following such termination of employment.The amount of the final cash payment may be more or less than the amount initially deferred into the 2014 Deferred Compensation Plan, depending upon the change in the value of the Class A common stock of the Company during such period.
As of September 30, 2019, there are 260,200 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 138,583 are unvested, resulting in a liability of $4.6 million, which is included in accrued expenses on the consolidated balance sheets. As of December 31, 2018, there were 380,662 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 130,389 were unvested, resulting in a liability of $5.9 million, which is included in accrued expenses on the consolidated balance sheets.


Bonus Payments
 
On February 6, 2020, the board of directors of Ladder Capital Corp approved the 2019 bonus payments to employees, including officers, totaling $55.2 million, which included $27.0 million of equity based compensation. The bonuses were accrued for as of December 31, 2019 and paid to employees in full on February 14, 2020. On February 7, 2019, the board of directors of Ladder Capital Corp approved the 2018 bonus payments to employees, including officers, totaling $61.4 million, which included $26.6 million of equity based compensation. The bonuses were accrued for as of December 31, 2018 and paid to employees in full on February 15, 2019. On December 19, 2017,During the board of directors of Ladder Capital Corp approved 2017 bonus paymentsthree and nine months ended September 30, 2020, the Company recorded $0.5 million compensation expense related to employees, including officers, totaling $49.3 million, which included $15.5 million of equity based compensation, which was granted on December 21, 2017. Cash bonuses of $17.1 million were paid on December 29, 2017. The remaining $16.8 million of cash bonuses were accrued for as of December 31, 2017due to the significant market disruption caused by the COVID-19 pandemic and paid to employeesthe substantial economic uncertainty present in full on January 5, 2018.the commercial real estate market and overall economy. During the three and nine months ended September 30, 2019, the Company recorded compensation expense of $6.5 million and $21.0 million, respectively, related to bonuses. During the three and nine months ended September 30, 2018, the Company recorded compensation expense

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Table of $9.2 million and $26.8 million, respectively, related to bonuses.Contents


15. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Fair value is based upon internal models, using market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.
 
Fair Value Summary Table
 
The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at September 30, 20192020 and December 31, 20182019 are as follows ($ in thousands):
 
September 30, 2019
2020
         Weighted Average
 
Outstanding
Face Amount
 Amortized Cost Basis/Purchase Price Fair Value Fair Value Method 
Yield
%
 
Remaining
Maturity/Duration (years)
Assets: 
  
  
    
  
CMBS(1)$1,779,458
 $1,780,233
 $1,788,712
 Internal model, third-party inputs 3.14% 2.38
CMBS interest-only(1)2,139,357
(2)39,961
 41,440
 Internal model, third-party inputs 3.65% 2.61
GNMA interest-only(3)113,096
(2)2,202
 2,026
 Internal model, third-party inputs 9.65% 2.73
Agency securities(1)641
 652
 654
 Internal model, third-party inputs 1.74% 1.97
GNMA permanent securities(1)31,760
 31,984
 32,795
 Internal model, third-party inputs 3.27% 4.55
Corporate bonds(1)32,088
 31,604
 32,372
 Internal model, third-party inputs 4.81% 1.31
Equity securities(3) N/A
 13,720
 13,457
 Observable market prices N/A
  N/A
Mortgage loan receivables held for investment, net, at amortized cost:           
Mortgage loan receivables held for investment, net, at amortized cost3,249,711
 3,231,443
 3,249,383
 Discounted Cash Flow(4) 7.29% 1.37
Provision for loan losses N/A
 (18,500) (18,500) (5) N/A
 N/A
Mortgage loan receivables held for sale173,957
 174,214
 182,716
 Internal model, third-party inputs(6) 4.59% 9.68
FHLB stock(7)61,619
 61,619
 61,619
 (7) 5.50%  N/A
Nonhedge derivatives(1)(8)6,000
  N/A
 22
 Counterparty quotations N/A
 0.30
            
Liabilities: 
  
  
    
  
Repurchase agreements - short-term1,486,049
 1,486,049
 1,486,049
 Discounted Cash Flow(9) 2.65% 0.18
Repurchase agreements - long-term299,999
 299,999
 299,999
 Discounted Cash Flow(10) 3.20% 1.28
Mortgage loan financing718,351
 723,313
 748,489
 Discounted Cash Flow(10) 4.96% 1.51
CLO debt117,760
 117,760
 117,760
 Discounted Cash Flow(9) 4.97% 5.91
Borrowings from the FHLB1,076,449
 1,076,449
 1,084,876
 Discounted Cash Flow 2.50% 2.32
Senior unsecured notes1,166,201
 1,157,117
 1,201,973
 Broker quotations, pricing services 5.39% 3.53
Nonhedge derivatives(1)(8)270,471
  N/A
 82
 Counterparty quotations N/A
 0.25
      Weighted Average
 Outstanding
Face Amount		 Amortized Cost Basis/Purchase PriceFair ValueFair Value MethodYield
%		Remaining
Maturity/Duration (years)
Assets:       
CMBS(1)$1,420,752  $1,420,537 $1,390,562 Internal model, third-party inputs1.54 %2.10
CMBS interest-only(1)1,506,152 (2)23,063 23,741 Internal model, third-party inputs3.32 %2.28
GNMA interest-only(3)87,917 (2)1,175 1,228 Internal model, third-party inputs3.90 %3.27
Agency securities(1)595  603 619 Internal model, third-party inputs1.66 %1.40
GNMA permanent securities(1)30,542  30,662 31,494 Internal model, third-party inputs3.49 %2.20
Provision for current expected credit reserves N/A(19)(19)(5)N/AN/A
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost2,744,724  2,731,254 2,743,359 Discounted Cash Flow(4)6.81 %1.10
Provision for current expected credit reserves N/A(47,084)(47,084)(5)N/AN/A
Mortgage loan receivables held for sale30,513  30,553 32,016 Internal model, third-party inputs(6)4.05 %9.43
FHLB stock(7)61,619  61,619 61,619 (7)3.50 % N/A
Nonhedge derivatives(1)(8)66,800   N/A449 Counterparty quotationsN/A0.25
Liabilities:       
Repurchase agreements - short-term1,140,350  1,140,350 1,140,350 Discounted Cash Flow(9)1.55 %0.24
Repurchase agreements - long-term36,616  36,616 36,616 Discounted Cash Flow(10)0.64 %1.23
Revolving credit facility266,430 266,430 266,430 Discounted Cash Flow(9)3.16 %0.06
Mortgage loan financing765,516  769,968 791,391 Discounted Cash Flow(10)4.98 %4.75
Secured financing facility190,582 190,582 190,582 Discounted Cash Flow(9)10.75 %2.60
CLO debt281,625 281,625 281,625 Discounted Cash Flow(9)5.50 %3.63
Borrowings from the FHLB326,000  326,000 327,418 Discounted Cash Flow1.33 %2.68
Senior unsecured notes1,716,994  1,702,939 1,031,999 Internal model, third-party inputs4.96 %3.94
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.
(5)Fair value is estimated to equal par value.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(9)Fair value for repurchase agreement liabilities - short term borrowings under the secured financing facility and borrowings under the revolving credit facility is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
58
Table of Contents
(10)For repurchase agreements - long term, mortgage loan financing, and CLO debt the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

December 31, 2019
      Weighted Average
 Outstanding
Face Amount		 Amortized
Cost Basis		Fair ValueFair Value MethodYield
%		Remaining
Maturity/Duration (years)
Assets:       
CMBS(1)$1,640,597  $1,640,905 $1,644,322 Internal model, third-party inputs3.08 %2.41
CMBS interest-only(1)1,559,160 (2)28,553 29,146 Internal model, third-party inputs3.04 %2.53
GNMA interest-only(3)109,783 (2)1,982 1,851 Internal model, third-party inputs4.59 %2.77
Agency securities(1)629  640 637 Internal model, third-party inputs1.73 %1.83
GNMA permanent securities(1)31,461  31,681 32,369 Internal model, third-party inputs3.17 %1.93
Equity securities(3)N/A12,848 12,980 Observable market pricesN/AN/A
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost3,277,596  3,257,036 3,273,219 Discounted Cash Flow(4)6.94 %1.43
Provision for loan lossesN/A(20,500)(20,500)(5)N/AN/A
Mortgage loan receivables held for sale122,748  122,325 124,989 Internal model, third-party inputs(6)4.20 %9.99
FHLB stock(7)61,619  61,619 61,619 (7)4.75 %N/A
Nonhedge derivatives(1)(8)340,200  N/A693 Counterparty quotationsN/A0.25
Liabilities:       
Repurchase agreements - short-term1,781,253  1,781,253 1,781,253 Discounted Cash Flow(9)2.50 %0.19
Repurchase agreements - long-term34,681  34,681 34,681 Discounted Cash Flow(10)2.81 %1.41
Mortgage loan financing807,854  812,606 838,766 Discounted Cash Flow(10)4.91 %5.65
Borrowings from the FHLB1,073,500  1,073,500 1,080,354 Discounted Cash Flow2.33 %2.08
Senior unsecured notes1,166,201  1,157,833 1,208,860 Internal model, third-party inputs5.39 %3.28
Nonhedge derivatives(1)(8)69,571  N/A0 Counterparty quotationsN/A0.36
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model.
(5)Fair value is estimated to equal par value.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(9)Fair value for repurchase agreement liabilities and CLO debt is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

(10)For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

December 31, 2018 (1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow.
(5)Fair value is estimated to equal par value.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(9)Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(10)For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.

59
         Weighted Average
 
Outstanding
Face Amount
 
Amortized
Cost Basis
 Fair Value Fair Value Method 
Yield
%
 
Remaining
Maturity/Duration (years)
Assets: 
  
  
    
  
CMBS(1)$1,258,819
 $1,257,801
 $1,252,640
 Internal model, third-party inputs 3.14% 2.33
CMBS interest-only(1)2,373,936
(2)55,534
 55,691
 Internal model, third-party inputs 2.80% 2.69
GNMA interest-only(3)135,932
(2)2,862
 2,648
 Internal model, third-party inputs 6.30% 4.11
Agency securities(1)668
 682
 662
 Internal model, third-party inputs 1.83% 2.36
GNMA permanent securities(1)32,633
 32,889
 33,064
 Internal model, third-party inputs 3.76% 5.03
Corporate bonds(1)55,305
 54,257
 53,871
 Internal model, third-party inputs 5.04% 2.51
Equity securities(3)N/A
 13,154
 11,550
 Observable market prices N/A
 N/A
Mortgage loan receivables held for investment, net, at amortized cost:           
Mortgage loan receivables held for investment, net, at amortized cost3,340,381
 3,318,390
 3,324,588
 Discounted Cash Flow(4) 7.84% 1.32
Provision for loan lossesN/A
 (17,900) (17,900) (5) N/A
 N/A
Mortgage loan receivables held for sale181,905
 182,439
 187,870
 Internal model, third-party inputs(6) 5.46% 9.75
FHLB stock(7)57,915
 57,915
 57,915
 (7) 4.50% N/A
Nonhedge derivatives(1)(8)—
 N/A
 —
 Counterparty quotations N/A
 0.00
            
Liabilities: 
  
  
    
  
Repurchase agreements - short-term436,957
 436,957
 436,957
 Discounted Cash Flow(9) 3.42% 0.23
Repurchase agreements - long-term226,728
 226,728
 226,728
 Discounted Cash Flow(10) 3.47% 1.73
Mortgage loan financing738,825
 743,902
 735,662
 Discounted Cash Flow(10) 5.09% 2.61
CLO debt601,543
 601,543
 601,543
 Discounted Cash Flow(9) 4.41% 9.40
Participation Financing - Mortgage Loan Receivable2,453
 2,453
 2,453
 Discounted Cash Flow(11) 17.00% 0.43
Borrowings from the FHLB1,286,000
 1,286,000
 1,286,664
 Discounted Cash Flow 2.55% 2.46
Senior unsecured notes1,166,201
 1,154,991
 1,111,288
 Broker quotations, pricing services 5.39% 4.28
Nonhedge derivatives(1)(8)578,971
 N/A
 975
 Counterparty quotations N/A
 0.25

Table of Contents
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
(2)Represents notional outstanding balance of underlying collateral.
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
(4)Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow.
(5)Fair value is estimated to equal par value.
(6)Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
(7)Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
(8)The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(9)Fair value for repurchase agreement liabilities and CLO debt is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(10)For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
(11)Fair value for Participation Financing - Mortgage Loan Receivable approximates amortized cost as this is a loan participation to a third party.


The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at September 30, 20192020 and December 31, 20182019 ($ in thousands):
 
September 30, 20192020
 
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition 
Outstanding Face
Amount
 Fair Value
 Level 1 Level 2 Level 3 Total
           
Assets:  
  
  
  
  
CMBS(1) $1,767,314
 $—
 $—
 $1,777,085
 $1,777,085
CMBS interest-only(1) 2,128,234
(2)—
 —
 40,601
 40,601
GNMA interest-only(3) 113,096
(2)—
 —
 2,026
 2,026
Agency securities(1) 641
 —
 —
 654
 654
GNMA permanent securities(1) 31,760
 —
 —
 32,795
 32,795
Corporate bonds(1) 32,088
 —
 —
 32,372
 32,372
Equity securities  N/A
 13,457
 —
 —
 13,457
Nonhedge derivatives(4) 6,000
 —
 22
 —
 22
    $13,457
 $22
 $1,885,533
 $1,899,012
Liabilities:          
Nonhedge derivatives(4) 270,471
 $—
 $82
 $—
 $82
           
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition 
Outstanding Face
Amount
 Fair Value
 Level 1 Level 2 Level 3 Total
           
Assets:          
Mortgage loan receivable held for investment, net, at amortized cost:          
Mortgage loans held by consolidated subsidiaries $3,249,711
 $—
 $—
 $3,249,383
 $3,249,383
Provision for loan losses  N/A
 —
 —
 (18,500) (18,500)
Mortgage loan receivable held for sale 173,957
 —
 —
 182,716
 182,716
CMBS(5) 12,144
 —
 —
 11,627
 11,627
CMBS interest-only(5) 11,123
(2)—
 —
 839
 839
FHLB stock 61,619
 —
 —
 61,619
 61,619
    $—
 $—
 $3,487,684
 $3,487,684
Liabilities:  
  
  
  
 

Repurchase agreements - short-term 1,486,049
 $—
 $—
 $1,486,049
 $1,486,049
Repurchase agreements - long-term 299,999
 —
 —
 299,999
 299,999
Mortgage loan financing 718,351
 —
 —
 748,489
 748,489
CLO debt 117,760
 —
 —
 117,760
 117,760
Borrowings from the FHLB 1,076,449
 —
 —
 1,084,876
 1,084,876
Senior unsecured notes 1,166,201
 —
 —
 1,201,973
 1,201,973
    $—
 $—
 $4,939,146
 $4,939,146
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial ConditionOutstanding Face
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:      
CMBS(1)$1,409,202  $0 $0 $1,379,469 $1,379,469 
CMBS interest-only(1)1,495,559 (2)0 0 23,035 23,035 
GNMA interest-only(3)87,917 (2)0 0 1,228 1,228 
Agency securities(1)595  0 0 619 619 
GNMA permanent securities(1)30,542  0 0 31,494 31,494 
Nonhedge derivatives(4)66,800  0 449 0 449 
$0 $449 $1,435,845 $1,436,294 
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial ConditionOutstanding Face
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries$2,744,724  $0 $0 $2,743,359 $2,743,359 
Provision for current expected credit losses N/A0 0 (47,084)(47,084)
Mortgage loan receivable held for sale30,513  0 0 32,016 32,016 
CMBS(5)11,550 0 0 11,093 11,093 
CMBS interest-only(5)10,593 (2)0 0 706 706 
Provision for current expected credit losses N/A(19)(19)
FHLB stock61,619  0 0 61,619 61,619 
$0 $0 $2,801,690 $2,801,690 
Liabilities:     
Repurchase agreements - short-term1,140,350  $0 $0 $1,140,350 $1,140,350 
Repurchase agreements - long-term36,616  0 0 36,616 36,616 
Revolving credit facility266,430 0 0 266,430 266,430 
Mortgage loan financing765,516  0 0 791,391 791,391 
Secured financing facility190,582 0 0 190,582 190,582 
CLO debt281,625 0 0 281,625 281,625 
Borrowings from the FHLB326,000  0 0 327,418 327,418 
Senior unsecured notes1,716,994  0 0 1,031,999 1,031,999 
$0 $0 $4,066,411 $4,066,411 
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.

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Table of Contents
December 31, 2019
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial ConditionOutstanding Face
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:      
CMBS(1)$1,628,476  $0 $0 $1,632,714 $1,632,714 
CMBS interest-only(1)1,548,061 (2)0 0 28,342 28,342 
GNMA interest-only(3)109,783 (2)0 0 1,851 1,851 
Agency securities(1)629  0 0 637 637 
GNMA permanent securities(1)31,461  0 0 32,369 32,369 
Equity securitiesN/A12,980 — — 12,980 
Nonhedge derivatives(4)340,200  0 693 0 693 
$12,980 $693 $1,695,913 $1,709,586 
Liabilities:
Nonhedge derivatives(4)$69,571  $0 $0 $0 $0 
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial ConditionOutstanding Face
Amount		 Fair Value
 Level 1Level 2Level 3Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries$3,277,597  $0 $0 $3,273,219 $3,273,219 
Provision for loan lossesN/A0 0 (20,500)(20,500)
Mortgage loan receivables held for sale122,748  0 0 124,989 124,989 
CMBS(5)12,121 0 0 11,608 11,608 
CMBS interest-only(5)11,099 (2)0 0 804 804 
FHLB stock61,619  0 0 61,619 61,619 
$0 $0 $3,451,739 $3,451,739 
Liabilities:     
Repurchase agreements - short-term1,781,253  $0 $0 $1,781,253 $1,781,253 
Repurchase agreements - long-term34,681  0 0 34,681 34,681 
Mortgage loan financing807,854  0 0 838,766 838,766 
Borrowings from the FHLB1,073,500  0 0 1,080,354 1,080,354 
Senior unsecured notes1,166,201  0 0 1,208,860 1,208,860 
$0 $0 $4,943,914 $4,943,914 
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.


December 31, 2018(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition 
Outstanding Face
Amount
 Fair Value
  Level 1 Level 2 Level 3 Total
           
Assets:  
  
  
  
  
CMBS(1) $1,246,609
 $—
 $—
 $1,241,334
 $1,241,334
CMBS interest-only(1) 2,362,747
(2)—
 —
 54,789
 54,789
GNMA interest-only(3) 135,932
(2)—
 —
 2,648
 2,648
Agency securities(1) 668
 —
 —
 662
 662
GNMA permanent securities(1) 32,633
 —
 —
 33,064
 33,064
Corporate bonds(1) 55,305
 —
 —
 53,871
 53,871
Equity securities N/A
 11,550
 —
 —
 11,550
    $11,550
 $—
 $1,386,368
 $1,397,918
Liabilities:          
Nonhedge derivatives(4) $605,871
 $—
 $975
 $—
 $975
           
           
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition 
Outstanding Face
Amount
 Fair Value
 Level 1 Level 2 Level 3 Total
           
Assets:          
Mortgage loan receivable held for investment, net, at amortized cost:          
Mortgage loans held by consolidated subsidiaries $3,340,381
 $—
 $—
 $3,324,588
 $3,324,588
Provision for loan losses N/A
 —
 —
 (17,900) (17,900)
Mortgage loan receivables held for sale 181,905
 —
 —
 187,870
 187,870
CMBS(5) 12,210
 —
 —
 11,306
 11,306
CMBS interest-only(5) 11,189
(2)—
 —
 902
 902
FHLB stock 57,915
 —
 —
 57,915
 57,915
    $—
 $—
 $3,564,681
 $3,564,681
Liabilities:  
  
  
  
 

Repurchase agreements - short-term 436,957
 $—
 $—
 $436,957
 $436,957
Repurchase agreements - long-term 226,728
 —
 —
 226,728
 226,728
Mortgage loan financing 738,825
 —
 —
 735,662
 735,662
CLO debt 601,543
 —
 —
 601,543
 601,543
Participation Financing - Mortgage Loan Receivable 2,453
 —
 —
 2,453
 2,453
Borrowings from the FHLB 1,286,000
 —
 —
 1,286,664
 1,286,664
Senior unsecured notes 1,166,201
 —
 —
 1,111,288
 1,111,288
    $—
 $—
 $4,401,295
 $4,401,295
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.


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Table of Contents
(1)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. 
(2)Represents notional outstanding balance of underlying collateral. 
(3)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. 
(4)Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.  The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
(5)Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost.



The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the nine months ended September 30, 20192020 and 2018December 31, 2019 ($ in thousands):

  Nine Months Ended September 30,
Level 3 2019 2018
     
Balance at January 1, $1,385,957
 $1,106,517
Transfer from level 2 —
 —
Purchases 1,193,671
 303,007
Sales (533,811) (306,109)
Paydowns/maturities (178,402) (93,185)
Amortization of premium/discount (9,333) (17,842)
Unrealized gain/(loss) 16,813
 (9,203)
Realized gain/(loss) on sale(1) 10,639
 (4,896)
Balance at September 30, $1,885,534
 $978,289

Nine Months Ended September 30,
Level 320202019
Balance at January 1,$1,695,913 $1,385,957 
Transfer from level 20 0 
Purchases438,707 1,193,671 
Sales(551,676)(533,811)
Paydowns/maturities(94,659)(178,402)
Amortization of premium/discount(6,406)(9,333)
Unrealized gain/(loss)(32,959)16,813 
Realized gain/(loss) on sale(1)(13,075)10,639 
Balance at September 30,$1,435,845 $1,885,534 
(1)Includes realized losses on securities recorded as other than temporary impairments.
(1)Includes realized losses on securities recorded as other than temporary impairments.

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

September 30, 20192020
Financial Instrument Carrying Value Valuation Technique Unobservable Input Minimum Weighted Average Maximum
             
CMBS(1) $1,788,712
 Discounted cash flow Yield (4) 1.68 % 3.1% 20.55%
      Duration (years)(5) 0.00
 1.54
 7.10
CMBS interest-only(1) 41,440
(2)Discounted cash flow Yield (4) 1.79 % 3.73% 6.35%
      Duration (years)(5) 0.08
 2.61
 3.85
      Prepayment speed (CPY)(5) 100.00
 100.00
 100.00
GNMA interest-only(3) 2,026
(2)Discounted cash flow Yield (4) (7.19)% 14.44% 44.47%
      Duration (years)(5) 0.00
 2.78
 8.61
      Prepayment speed (CPJ)(5) 5.00
 11.57
 15.00
Agency securities(1) 654
 Discounted cash flow Yield (4) — % 1.43% 1.85%
      Duration (years)(5) 0.00
 2.46
 3.17
GNMA permanent securities(1) 32,795
 Discounted cash flow Yield (4) 3.43 % 18.72% 84.30%
      Duration (years)(5) 1.15
 7.76
 13.99
Corporate bonds(1) 32,372
 Discounted cash flow Yield (4) 2.79 % 2.79% 2.79%
      Duration (years)(5) 1.05
 1.05
 1.05
Total $1,897,999
          
Financial InstrumentCarrying ValueValuation TechniqueUnobservable InputMinimumWeighted AverageMaximum
CMBS(1)$1,379,469 Discounted cash flowYield (4)0.59 %2.46 %31.64 %
Duration (years)(5)0.002.566.05
CMBS interest-only(1)23,035 (2)Discounted cash flowYield (4)0.87 %2.57 %9.94 %
Duration (years)(5)0.332.293.21
Prepayment speed (CPY)(5)100.0099.60100.00
GNMA interest-only(3)1,228 (2)Discounted cash flowYield (4)0 %3.61 %9.05 %
Duration (years)(5)0.452.516.37
Prepayment speed (CPJ)(5)5.0014.4135.00
Agency securities(1)619 Discounted cash flowYield (4)0.78 %0.89 %1.48 %
Duration (years)(5)0.001.872.24
GNMA permanent securities(1)31,494 Discounted cash flowYield (4)2.47 %3.56 %6.39 %
Duration (years)(5)1.159.8114.66
Total$1,435,845 
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(3)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

(1)CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.

(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(3)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs
        
(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
(5)Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.

62
December 31, 2019
Financial InstrumentCarrying ValueValuation TechniqueUnobservable InputMinimumWeighted AverageMaximum
CMBS(1)$1,632,714 Discounted cash flowYield (3)0 %3.11 %19.92 %
Duration (years)(4)0.001.636.87
CMBS interest-only(1)28,342 (2)Discounted cash flowYield (3)1.57 %3.93 %7.62 %
Duration (years)(4)0.262.473.51
Prepayment speed (CPY)(4)100.0097.24100.00
GNMA interest-only(3)1,851 (2)Discounted cash flowYield (4)(4.82)%15.13 %44.5 %
Duration (years)(5)0.852.9013.69
Prepayment speed (CPJ)(5)5.0012.3635.00
Agency securities(1)637 Discounted cash flowYield (4)0 %1.7 %2.16 %
Duration (years)(5)0.002.302.92
GNMA permanent securities(1)32,369 Discounted cash flowYield (4)56.56 %166.79 %410 %
Duration (years)(5)2.603.616.49
Total$1,695,913 
(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
(5)Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.

December 31, 2018
Financial Instrument Carrying Value Valuation Technique Unobservable Input Minimum Weighted Average Maximum
             
CMBS(1) $1,252,640
 Discounted cash flow Yield (3) —% 3.54% 21.67%
      Duration (years)(4) 0.00
 2.50
 7.78
CMBS interest-only(1) 55,691
(2)Discounted cash flow Yield (3) 0.87% 4.71% 8.11%
      Duration (years)(4) 0.14
 2.96
 6.86
      Prepayment speed (CPY)(4) 100.00
 100.00
 100.00
GNMA interest-only(3) 2,648
(2)Discounted cash flow Yield (4) 1.21% 5.54% 10.21%
      Duration (years)(5) 0.04
 3.13
 4.77
      Prepayment speed (CPJ)(5) 5.00
 6.58
 15.00
Agency securities(1) 662
 Discounted cash flow Yield (4) —% 2.1% 2.84%
      Duration (years)(5) 0.00
 2.83
 3.82
GNMA permanent securities(1) 33,064
 Discounted cash flow Yield (4) —% 3.51% 4%
      Duration (years)(5) 0.00
 5.62
 5.88
Corporate bonds(1) 53,871
 Discounted cash flow Yield (4) 5.3% 5.35% 5.46%
      Duration (years)(5) 1.94
 2.19
 2.70
Total $1,398,576
          
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(3)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
(1)CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
(2)The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
(3)Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.

Sensitivity of the Fair Value to Changes in the Unobservable Inputs
        
(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
(5)Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.
(4)Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
(5)Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of assets value due to impairment. Refer to Note 3, Mortgage Loan Receivables and Note 5, Real Estate and Related Lease Intangibles, Net for disclosure of level 3 inputs.

There were no assets carried at fair value on a nonrecurring basis at September 30, 2019 and December 31, 2018.

The following table summarizes the fair value write-downs to assets carried at fair value on a nonrecurring basis ($ in thousands):

63
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Impairment of real estate       
Real estate, net(1)(2)$—
 $—
 $1,350
 $—
(1)The write down to fair value was recorded based on contracted sales price and classified as Level 2 of the fair valuation hierarchy. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a $20 thousand loss on sale of real estate, net.
(2)
Impairment is discussed in further detail in Note 5, Real Estate and Related Lease Intangibles, Net.






16. INCOME TAXES
 
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the taxable year ended December 31, 2015 (the REIT Election”). As such, the Company’s income is generally not subject to U.S. Federal,federal, state and local corporate income taxes other than as described below.
Certain of the Company’s subsidiaries have elected to be treated as TRSs. TRSs permit the Company to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, the Company will continue to maintain its qualification as a REIT. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in TRSs. Current income tax expense (benefit) was $3.1 million and $(11.9) million for the three and nine months ended September 30, 2020, respectively. Current income tax expense (benefit) was $0.4 million and $(6.9) million for the three and nine months ended September 30, 2019, respectively. Current income tax expense (benefit) was $7.2 million and $10.2 million for the three and nine months ended September 30, 2018, respectively.

As of September 30, 20192020 and December 31, 2018,2019, the Company’s net deferred tax assets (liabilities) were $(4.7)$(8.7) million and $2.3$(2.1) million, respectively, and are included in other assets (other liabilities) in the Company’s consolidated balance sheets. Deferred income tax expense (benefit) included within the provision for income taxes was $(3.1) million and $6.8 million for the three and nine months ended September 30, 2020, respectively. Deferred income tax expense (benefit) included within the provision for income taxes was $0.7 million and $7.4 million for the three and nine months ended September 30, 2019, respectively. Deferred income tax expense (benefit) included within the provision for income taxes was $(6.0) million and $(4.5) million for the three and nine months ended September 30, 2018, respectively. The Company’s net deferred tax liability is comprised of deferred tax assets and deferred tax liabilities. The Company believes it is more likely than not that the deferred tax assets (aside from the exception noted below) will be realized in the future. Realization of the deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
 
As of September 30, 2019,2020, the Company has a deferred tax asset of $10.0$7.0 million relating to capital losses which it may only use to offset capital gains. These tax attributes will begin to expire if unused in 2020.2022. As the realization of these assets are not more likely than not before their expiration, the Company hasprovided a full valuation allowance against this deferred tax asset. Additionally, as of September 30, 2020, the Company had a deferred tax asset of $1.4 million related to Code Section 163(j) interest expense limitation. As the Company is uncertain if this asset will be realized in the future, the Company provided a full valuation allowance against this deferred tax asset.

The Company has historically calculated its tax provision during quarterly reporting periods by applying an annual effective tax rate (“AETR”) for the full year to the income for the reporting period; however, for the three months ended March 31, 2020 and the three and six months ended June 30, 2020, the Company used a discrete effective tax rate method to calculate taxes, given that, based on the projections of income at the time, the Company was unable to determine a reliable AETR. The Company has returned to using an AETR for the full year to income for the current reporting period.

The Company’s tax returns are subject to audit by taxing authorities. Generally, as of September 30, 2019,2020, the tax years 2015-20182016-2019 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. The IRS recently completed its audit of the 2014 tax year and did not recommend any changes to the Company’s tax return. The Company is currently under New York City audit for tax years 2012-2014. Several of the Company’s subsidiary entities are under New York State audit for tax years 2015-2018. The Company does not expect these audits to result in any material changes to the Company’s financial position. The Company does not expect tax expense to have an impact on either short, or long-term liquidity or capital needs.

The Company acquired certain corporate entities at the time of its IPO. The related acquisition agreements provided an indemnification to the Company by each transferor of any amounts due for any potential tax liabilities owed by these entities for tax years prior to their acquisition. In January 2019,connection with a settlement was reached with New York State pertaining to an audit of these corporate entities forsettlement, the years 2013-2015. As a result of the settlement, during the year ended December 31, 2018, management recorded income tax expense in the amount of $3.3 million and a corresponding payable to the State of New York. Pursuant to the indemnification, management expects to recoverCompany collected $2.5 million of such amounts and, accordingly, recorded fee and other income inindemnities under the amount of $2.5 million as well as a corresponding receivable from the indemnity counterparties. As of July 31, 2019, the Company collected all amounts owed by the indemnity counterparties related to the 2013-2015 audit. The IRS recently completed its audit of the 2014 tax year and did not recommend any changes to the Company’s tax return. The Company is currently under New York City audit for tax years 2012-2014. The Company does not expect the audit to result in any material changes to the Company’s financial position. The Company does not expect tax expense to have an impact on either short or long-term liquidity or capital needs.acquisition agreements during 2019.


Under U.S. GAAP, a tax benefit related to an income tax position may be recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. As of September 30, 2019 and December 31, 2018, the Company’s unrecognized tax benefit is a liability for $0.2 million and $0.8 million, respectively, and is included in the accrued expenses in the Company’s consolidated balance sheets. This unrecognized tax benefit, if recognized, would have a favorable impact on our effective income tax rate in future periods. As of September 30, 2019, the Company has not recognized a significant amount of any interest or penalties related to uncertain tax positions. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months. The statute
64

Tax Receivable Agreement
 
Upon consummation of the IPO, the Company entered into a Tax Receivable Agreement with the Continuing LCFH Limited Partners. Under the Tax Receivable Agreement the Company generally is required to pay to those Continuing LCFH Limited Partners that exchange their interests in LCFH and Class B shares of the Company for Class A shares of the Company, 85% of the applicable cash savings, if any, in U.S. federal, state and local income tax that the Company realizes (or is deemed to realize in certain circumstances) as a result of (i) the increase in tax basis in its proportionate share of LCFH’s assets that is attributable to the Company as a result of the exchanges and (ii) payments under the Tax Receivable Agreement, including any tax benefits related to imputed interest deemed to be paid by the Company as a result of such agreement. The Company may make future payments under the Tax Receivable Agreement if the tax benefits are realized. WeThe Company would then benefit from the remaining 15% of cash savings in income tax that we realize. For purposes of the Tax Receivable Agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase to the tax basis of the assets of LCFH as a result of the exchanges and had we not entered into the Tax Receivable Agreement.
Payments to a Continuing LCFH Limited Partner under the Tax Receivable Agreement are triggered by each exchange and are payable annually commencing following the Company’s filing of its income tax return for the year of such exchange.  The timing of the payments may be subject to certain contingencies, including the Company having sufficient taxable income to utilize all of the tax benefits defined in the Tax Receivable Agreement.
As of September 30, 20192020 and December 31, 2018,2019, pursuant to the Tax Receivable Agreement, the Company recorded a liability of $1.6 million, which is included in amount payable pursuant to tax receivable agreementother liabilities in the consolidated balance sheets for Continuing LCFH Limited Partners. The amount and timing of any payments may vary based on a number of factors, including the absence of any material change in the relevant tax law, the Company continuing to earn sufficient taxable income to realize all tax benefits, and assuming no additional exchanges that are subject to the Tax Receivable Agreement. Depending upon the outcome of these factors, the Company may be obligated to make substantial payments pursuant to the Tax Receivable Agreement. The actual payment amounts may differ from these estimated amounts, as the liability will reflect changes in prevailing tax rates, the actual benefit the Company realizes on its annual income tax returns, and any additional exchanges.
 
To determine the current amount of the payments due, the Company estimates the amount of the Tax Receivable Agreement payments that will be made within twelve months of the balance sheet date. As described in Note 1 above, the Tax Receivable Agreement was amended and restated in connection with our REIT Election, effective as of December 31, 2014 (the “TRA Amendment”), in order to preserve a portion of the potential tax benefits currently existing under the Tax Receivable Agreement that would otherwise be reduced in connection with our REIT Election. The purpose of the TRA Amendment was to preserve the benefits of the Tax Receivable Agreement to the extent possible in a REIT, although, as a result, the amount of payments made to the TRA Members under the TRA Amendment is expected to be less than the amount that would have been paid under the original Tax Receivable Agreement. The TRA Amendment continues to share such benefits in the same proportions and otherwise has substantially the same terms and provisions as the prior Tax Receivable Agreement.



17. RELATED PARTY TRANSACTIONS
 
Ladder Select Bond Fund

On October 18, 2016, Ladder Capital Asset Management LLC (“LCAM”), a subsidiary of the Company and a registered investment adviser, launched the Ladder Select Bond Fund (the “Fund”), a mutual fund. In addition, on October 18, 2016, the Company made a $10.0 million investment in the Fund, which iswas included in other assets in the consolidated balance sheets. AsOn June 22, 2020, the Fund was liquidated and LCAM deregistered with the Securities and Exchange Commission (“SEC”). The Company recognized a realized loss of September 30, 2019, members of senior management have $0.8$0.7 million invested in the Fund. LCAM earns a 0.75% fee on assets under management, which may be reduced for expenses incurred in excessupon liquidation of the Fund’s expense cap of 0.95%.

Stockholders Agreement

On March 3, 2017, Ladder, RREF II Ladder LLC, an entity affiliated with The Related Companies (“Related”),Fund which is included in fee and certain pre-IPO stockholders of Ladder, including affiliates of TowerBrook Capital Partners, L.P. and GI Partners L.P., closed a purchase by Related of $80.0 million of Ladder’s Class A common stock from the pre-IPO stockholders. As part of the closing of the transaction, Ladder and Related entered into a Stockholders Agreement, dated as of March 3, 2017, pursuant to which Jonathan Bilzin resigned from the Board, and all committees thereof, and Ladder appointed Richard O’Toole to replace Mr. Bilzin as a Class II Director on Ladder’s Board, each effective as of March 3, 2017. Pursuant to the Stockholders Agreement, Ladder granted to Related a right of first offer with respect to certain horizontal risk retention investments in which Ladder intends to retain an interest and Related agreed to certain standstill provisions.

Commercial Real Estate Loans

From time to time, the Company may provide commercial real estate loans to entities affiliated with certain of our directors, officers or large shareholders who are, as part of their ordinary course of business, commercial real estate investors. These loans are made in the ordinary course of the Company’s businessother income on the same terms and conditions as would be offered to any other borrowerconsolidated statements of similar type and standing on a similar property.

On March 13, 2017, Related Reserve IV LLC, an affiliate of Related Fund Management LLC (the “B Participation Holder”), purchased a $4.0 million subordinate participation interest (the “B Participation Interest”) in the up to $136.5 million mortgage loan (the “Loan”) secured by the Conrad hotels and condominiums in Fort Lauderdale, Florida from a subsidiary of the Company. The B Participation Interest earns interest at an annual rate of 17%, with the Company’s participation interest (the “A Participation Interest”) receiving the balance of all interest paid under the Loan. Upon an event of default under the Loan, all receipts will be applied to the payment of interest and principal on the Company’s share of the principal balance before the B Participation Holder receives any sums. The Company retains all control over the administration and servicing of the whole loan, except that upon the occurrence of certain Loan defaults and other events, the B Participation Holder will have the option to trigger a buy-sell option, whereupon the Company shall have the right to either repurchase the B Participation Interest at par or sell the A Participation Interest to the B Participation Holder at par plus exit fees that would have been payable upon a borrower repayment. Because the participation interest was not pari passu and effective control continued to reside with the retained portions of the loans the transfers of any portion of this loan asset is considered a non-recourse secured borrowing in which the full loan asset remains on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds are reported as debt obligations. The loan was repaid during the three months ended June 30, 2019. See Note 7, Debt Obligations, Net for further detail. The Company recorded $0.2 million of interest expenseincome for the nine months ended September 30, 2019, which is included in accrued expenses on the consolidated balance sheets. The Company recorded $0.1 million and $0.4 million of interest expense for the three and nine months ended September 30, 2018, respectively, which is included in accrued expenses on the consolidated balance sheets.

On December 12, 2018, Ladder provided a $6.4 million first mortgage interest-only loan to a borrower affiliated with principals of Related to facilitate the acquisition of a gym facility and associated parking located in Woodbury, New York. The borrowing entity is owned directly or indirectly by certain investors, including, among other principals of Related, Richard O’Toole, who owns an approximate 12% interest in the borrowing entity and is a member of Ladder’s board of directors. For the nine months ended September 30, 2019, the Company earned $0.1 million in interest income related to this loan. The loan was sold into a securitization trust during the three months ended June 30, 2019.


On March 5, 2019, Ladder provided a $14.3 million first mortgage interest-only loan to a borrower affiliated with principals of Related to refinance a gym facility and associated parking located in Bloomfield Heights, Michigan. The borrowing entity is owned directly or indirectly by certain investors, including, among other principals of Related, Richard O’Toole, who owns an approximate 0.7% interest in the borrowing entity and is a member of Ladder’s board of directors. For the nine months ended September 30, 2019, the Company earned $0.3 million in interest income related to this loan. The loan was sold into a securitization trust during the three months ended June 30, 2019.



2020.


18. COMMITMENTS AND CONTINGENCIES
 
Leases

The Company adopted ASC Topic 842 on January 1, 2019. The primary impact of applying ASC Topic 842 was the initial recognition of a $3.5 million lease liability and a $3.3 million right of use asset (including previously accrued straight line rent) on the Company’s consolidated financial statements, for leases classified as operating leases under ASC Topic 840, primarily for the Company’s corporate headquarters and other identified leases. There is no cumulative effect on retained earnings or other components of equity recognized as of January 1, 2019. As of September 30, 2019,2020, the Company had a $2.7$1.6 million lease liability and a $2.7$1.6 million right-of-use asset on its consolidated balance sheets. Tenant reimbursements, which consist of real estate taxes and other municipal charges paid by us which were reimbursable by our tenants pursuant to the terms of triple-net lease agreements, were $1.7 million and $4.0 million for the three and nine months ended September 30, 2020, respectively, and are included in operating lease income on the Company’s consolidated statements of income. Tenant reimbursements were $1.3 million and $4.6$4.6 million for the three and nine months ended September 30, 2019, respectively, and are included in operating lease income on the Company’s consolidated statements of income, compared to $2.3 million and income.
$7.8 million of tenant reimbursements for the three and nine months ended September 30, 2018, respectively.

Investments in Unconsolidated Joint Ventures

We have made investments in various unconsolidated joint ventures. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments.

65
Unfunded Loan Commitments
 
As of September 30, 2019,2020, the Company’s off-balance sheet arrangements consisted of $257.7$227.0 million of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing over the next three years at rates to be determined at the time of funding.funding, 59% of which additional funds relate to the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, 2018,2019, the Company’s off-balance sheet arrangements consisted of $379.8$286.5 million of unfunded commitments ofon mortgage loan receivables held for investment to provide additional first mortgage loan financing, at rates to be determined at the time of funding. Such commitmentsfinancing. Commitments are subject to our loan borrowers’ satisfaction of certain financial and nonfinancial covenants and may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring. The COVID-19 pandemic has impacted the progress of work generally and, depending on specific property locations, the progress of capital expenditures, construction, and leasing, which have been delayed and/or slower paced than originally anticipated. The progress of those particular projects located in states or local municipalities with continuing restrictions on such activities is anticipated to remain slower to complete than otherwise expected, and the pace of future funding relating to these capital needs has been, and may continue to be, commensurately slower. These commitments are not reflected on the consolidated balance sheets. 






66
19. SEGMENT REPORTING
 
The Company has determined that it has 3 reportable segments based on how the chief operating decision maker reviews and manages the business. These reportable segments include loans, securities, and real estate. The loans segment includes mortgage loan receivables held for investment (balance sheet loans) and mortgage loan receivables held for sale (conduit loans). The securities segment is composed of all of the Company’s activities related to commercial real estate securities, which include investments in CMBS, U.S. Agency Securities, corporate bonds and equity securities. The real estate segment includes net leased properties, office buildings, a student housing portfolio,portfolios, hotels, industrial buildings, a shopping center and condominium units. Corporate/other includes the Company’s investments in joint ventures, other asset management activities and operating expenses.

The Company evaluates performance based on the following financial measures for each segment ($ in thousands):
 LoansSecuritiesReal
Estate(1)		Corporate/Other(2)Company
Total
Three months ended September 30, 2020     
Interest income$48,349 $6,189 $1 $82 $54,621 
Interest expense(16,319)(4,535)(10,221)(25,323)(56,398)
Net interest income (expense)32,030 1,654 (10,220)(25,241)(1,777)
(Provision) benefit for loan losses2,512 0 0 0 2,512 
Net interest income (expense) after provision for loan losses34,542 1,654 (10,220)(25,241)735 
Operating lease income0 0 25,464 0 25,464 
Sale of loans, net1,127 0 0 0 1,127 
Realized gain (loss) on securities0 (303)0 0 (303)
Unrealized gain (loss) on Agency interest-only securities0 9 0 0 9 
Realized gain on sale of real estate, net0 0 21,588 0 21,588 
Fee and other income2,515 0 0 536 3,051 
Net result from derivative transactions165 95 0 0 260 
Earnings (loss) from investment in unconsolidated joint ventures0 0 447 0 447 
Gain (loss) on extinguishment of debt0 0 0 1,167 1,167 
Total other income (loss)3,807 (199)47,499 1,703 52,810 
Salaries and employee benefits0 0 0 (7,858)(7,858)
Operating expenses(3)0 0 0 (3,938)(3,938)
Real estate operating expenses0 0 (8,060)0 (8,060)
Fee expense(2,465)(50)39 0 (2,476)
Depreciation and amortization0 0 (9,792)(25)(9,817)
Total costs and expenses(2,465)(50)(17,813)(11,821)(32,149)
Income tax (expense) benefit0 0 0 (14)(14)
Segment profit (loss)$35,884 $1,405 $19,466 $(35,373)$21,382 
Total assets as of September 30, 2020$2,714,723 $1,447,625 $1,039,738 $1,157,377 $6,359,463 
67
Loans Securities 
Real
Estate(1)
 Corporate/Other(2) 
Company
Total
 LoansSecuritiesReal
Estate(1)		Corporate/Other(2)Company
Total
         
Three months ended September 30, 2019 
  
  
  
  
Three months ended September 30, 2019     
Interest income$66,422
 $15,515
 $7
 $307
 $82,251
Interest income$66,422 $15,515 $7 $307 $82,251 
Interest expense(12,063) (5,632) (9,646) (24,056) (51,397)Interest expense(12,063)(5,632)(9,646)(24,056)(51,397)
Net interest income (expense)54,359
 9,883
 (9,639) (23,749) 30,854
Net interest income (expense)54,359 9,883 (9,639)(23,749)30,854 
Provision for loan losses—
 —
 —
 —
 —
(Provision) benefit for loan losses(Provision) benefit for loan losses0 0 0 0 0 
Net interest income (expense) after provision for loan losses54,359
 9,883
 (9,639) (23,749) 30,854
Net interest income (expense) after provision for loan losses54,359 9,883 (9,639)(23,749)30,854 
         
Operating lease income—
 —
 24,405
 —
 24,405
Operating lease income0 0 24,405 0 24,405 
Sale of loans, net11,247
 —
 —
 —
 11,247
Sale of loans, net11,247 0 0 0 11,247 
Realized gain (loss) on securities—
 3,396
 —
 —
 3,396
Realized gain (loss) on securities0 3,396 0 0 3,396 
Unrealized gain (loss) on equity securities—
 254
 —
 —
 254
Unrealized gain (loss) on equity securities0 254 0 0 254 
Unrealized gain (loss) on Agency interest-only securities—
 16
 —
 —
 16
Unrealized gain (loss) on Agency interest-only securities0 16 0 0 16 
Realized gain on sale of real estate, net—
 —
 2,082
 —
 2,082
Realized gain on sale of real estate, net0 0 2,082 0 2,082 
Fee and other income3,839
 428
 —
 899
 5,166
Fee and other income3,839 428 0 899 5,166 
Net result from derivative transactions(6,557) (2,908) —
 —
 (9,465)Net result from derivative transactions(6,557)(2,908)0 0 (9,465)
Earnings (loss) from investment in unconsolidated joint ventures—
 —
 1,094
 —
 1,094
Earnings (loss) from investment in unconsolidated joint ventures0 0 1,094 0 1,094 
Total other income (loss)8,529
 1,186
 27,581
 899
 38,195
Total other income (loss)8,529 1,186 27,581 899 38,195 
         
Salaries and employee benefits—
 —
 —
 (14,319) (14,319)Salaries and employee benefits0 0 0 (14,319)(14,319)
Operating expenses—
 —
 —
 (5,314)(3)(5,314)
Operating expenses(3)Operating expenses(3)0 0 0 (5,314)(5,314)
Real estate operating expenses—
 —
 (6,270) —
 (6,270)Real estate operating expenses0 0 (6,270)0 (6,270)
Fee expense(1,264) (92) (700) —
 (2,056)Fee expense(1,264)(92)(700)0 (2,056)
Depreciation and amortization—
 —
 (9,005) (25) (9,030)Depreciation and amortization0 0 (9,005)(25)(9,030)
Total costs and expenses(1,264) (92) (15,975) (19,658) (36,989)Total costs and expenses(1,264)(92)(15,975)(19,658)(36,989)
         
Income tax (expense) benefit—
 —
 —
 (1,112) (1,112)Income tax (expense) benefit0 0 0 (1,112)(1,112)
Segment profit (loss)$61,624
 $10,977
 $1,967
 $(43,620) $30,948
Segment profit (loss)$61,624 $10,977 $1,967 $(43,620)$30,948 
         
Total assets as of September 30, 2019$3,387,157
 $1,911,456
 $1,032,752
 $288,509
 $6,619,874
Total assets as of December 31, 2019Total assets as of December 31, 2019$3,358,861 $1,721,305 $1,096,514 $492,472 $6,669,152 
68
LoansSecuritiesReal
Estate(1)		Corporate/Other(2)Company
Total
Loans Securities 
Real
Estate(1)
 Corporate/Other(2) 
Company
Total
         
Three months ended September 30, 2018 
  
  
  
  
Nine months ended September 30, 2020Nine months ended September 30, 2020     
Interest income$81,779
 $8,541
 $6
 $60
 $90,386
Interest income$160,896 $27,228 $11 $1,171 $189,306 
Interest expense(17,232) (1,482) (9,213) (23,549) (51,476)Interest expense(32,921)(19,090)(30,213)(94,001)(176,225)
Net interest income (expense)64,547
 7,059
 (9,207) (23,489) 38,910
Net interest income (expense)127,975 8,138 (30,202)(92,830)13,081 
Provision for loan losses(10,300) —
 —
 —
 (10,300)
(Provision) benefit for loan losses(Provision) benefit for loan losses(23,343)3 0 0 (23,340)
Net interest income (expense) after provision for loan losses54,247
 7,059
 (9,207) (23,489) 28,610
Net interest income (expense) after provision for loan losses104,632 8,141 (30,202)(92,830)(10,259)
         
Operating lease income—
 —
 24,997
 —
 24,997
Operating lease income0 0 75,565 0 75,565 
Sale of loans, net1,861
 —
 —
 —
 1,861
Sale of loans, net1,387 0 0 0 1,387 
Realized gain (loss) on securities—
 (2,554) —
 —
 (2,554)Realized gain (loss) on securities0 (12,089)0 0 (12,089)
Unrealized gain (loss) on equity securitiesUnrealized gain (loss) on equity securities0 (132)0 0 (132)
Unrealized gain (loss) on Agency interest-only securities—
 142
 —
 —
 142
Unrealized gain (loss) on Agency interest-only securities0 183 0 0 183 
Realized gain on sale of real estate, net—
 —
 63,704
 —
 63,704
Realized gain on sale of real estate, net0 0 32,116 0 32,116 
Fee and other income3,895
 —
 —
 956
 4,851
Fee and other income6,368 403 25 1,279 8,075 
Net result from derivative transactions3,741
 3,374
 —
 —
 7,115
Net result from derivative transactions(11,774)(4,214)0 0 (15,988)
Earnings (loss) from investment in unconsolidated joint ventures—
 —
 401
 —
 401
Earnings (loss) from investment in unconsolidated joint ventures0 0 1,359 0 1,359 
Gain (loss) on extinguishment/defeasance of debt—
 —
 (4,323) —
 (4,323)
Gain (loss) on extinguishment of debtGain (loss) on extinguishment of debt0 0 0 22,244 22,244 
Total other income (loss)9,497
 962
 84,779
 956
 96,194
Total other income (loss)(4,019)(15,849)109,065 23,523 112,720 
         
Salaries and employee benefits—
 —
 —
 (15,792) (15,792)Salaries and employee benefits0 0 0 (31,880)(31,880)
Operating expenses61
 —
 —
 (5,525)(3)(5,464)
Operating expenses(3)Operating expenses(3)0 0 0 (15,957)(15,957)
Real estate operating expenses—
 —
 (7,152) —
 (7,152)Real estate operating expenses0 0 (22,041)(22,041)
Fee expense(928) (91) (292) —
 (1,311)Fee expense(5,129)(183)(580)0 (5,892)
Depreciation and amortization—
 —
 (10,398) (19) (10,417)Depreciation and amortization0 0 (29,568)(74)(29,642)
Total costs and expenses(867) (91) (17,842) (21,336) (40,136)Total costs and expenses(5,129)(183)(52,189)(47,911)(105,412)
         
Income tax (expense) benefit—
 —
 —
 (1,204) (1,204)Income tax (expense) benefit0 0 0 5,078 5,078 
Segment profit (loss)$62,877
 $7,930
 $57,730
 $(45,073) $83,464
Segment profit (loss)$95,484 $(7,891)$26,674 $(112,140)$2,127 
         
Total assets as of December 31, 2018$3,482,929
 $1,410,126
 $1,038,376
 $341,441
 $6,272,872
Total assets as of September 30, 2020Total assets as of September 30, 2020$2,714,723 $1,447,625 $1,039,738 $1,157,377 $6,359,463 
69
 Loans Securities 
Real
Estate(1)
 Corporate/Other(2) 
Company
Total
          
Nine months ended September 30, 2019 
  
  
  
  
Interest income$209,369
 $43,844
 $21
 $806
 $254,040
Interest expense(41,043) (12,250) (27,620) (74,102) (155,015)
Net interest income (expense)168,326
 31,594
 (27,599) (73,296) 99,025
Provision for loan losses(600) —
 —
 —
 (600)
Net interest income (expense) after provision for loan losses167,726
 31,594
 (27,599) (73,296) 98,425
          
Operating lease income—
 —
 81,106
 —
 81,106
Sale of loans, net38,589
 —
 —
 —
 38,589
Realized gain (loss) on securities—
 10,726
 —
 —
 10,726
Unrealized gain (loss) on equity securities—
 1,341
 —
 —
 1,341
Unrealized gain (loss) on Agency interest-only securities—
 38
 —
 —
 38
Realized gain on sale of real estate, net—
 —
 963
 —
 963
Impairment of real estate—
 —
 (1,350) —
 (1,350)
Fee and other income13,095
 1,165
 7
 2,780
 17,047
Net result from derivative transactions(20,273) (15,683) —
 —
 (35,956)
Earnings (loss) from investment in unconsolidated joint ventures—
 —
 3,617
 —
 3,617
Gain (loss) on extinguishment of debt—
 —
 (1,070) —
 (1,070)
Total other income (loss)31,411
 (2,413) 83,273
 2,780
 115,051
          
Salaries and employee benefits—
 —
 —
 (52,800) (52,800)
Operating expenses—
 —
 —
 (16,727)(3)(16,727)
Real estate operating expenses—
 —
 (17,776)   (17,776)
Fee expense(3,516) (280) (1,155) —
 (4,951)
Depreciation and amortization—
 —
 (29,118) (74) (29,192)
Total costs and expenses(3,516) (280) (48,049) (69,601) (121,446)
          
Income tax (expense) benefit—
 —
 —
 (478) (478)
Segment profit (loss)$195,621
 $28,901
 $7,625
 $(140,595) $91,552
          
Total assets as of September 30, 2019$3,387,157
 $1,911,456
 $1,032,752
 $288,509
 $6,619,874

 Loans Securities 
Real
Estate(1)
 Corporate/Other(2) 
Company
Total
          
Nine months ended September 30, 2018 
  
  
  
  
Interest income$228,273
 $25,217
 $16
 $316
 $253,822
Interest expense(46,286) (3,423) (25,799) (69,098) (144,606)
Net interest income (expense)181,987
 21,794
 (25,783) (68,782) 109,216
Provision for loan losses(13,600) —
 —
 —
 (13,600)
Net interest income (expense) after provision for loan losses168,387
 21,794
 (25,783) (68,782) 95,616
          
Operating lease income—
 —
 79,306
 —
 79,306
Sale of loans, net12,893
 —
 —
 —
 12,893
Realized gain (loss) on securities—
 (4,896) —
 —
 (4,896)
Unrealized gain (loss) on Agency interest-only securities—
 456
 —
 —
 456
Realized gain on sale of real estate, net—
 —
 96,341
 —
 96,341
Fee and other income10,823
 72
 3,416
 3,268
 17,579
Net result from derivative transactions14,516
 14,640
 —
 —
 29,156
Earnings (loss) from investment in unconsolidated joint ventures—
 —
 466
 —
 466
Gain (loss) on extinguishment of debt(69) —
 (4,323) —
 (4,392)
Total other income (loss)38,163
 10,272
 175,206
 3,268
 226,909
          
Salaries and employee benefits—
 —
 —
 (46,754) (46,754)
Operating expenses61
 —
 —
 (16,669)(3)(16,608)
Real estate operating expenses—
 —
 (23,806) 


 (23,806)
Fee expense(2,160) (297) (496) —
 (2,953)
Depreciation and amortization—
 —
 (31,840) (56) (31,896)
Total costs and expenses(2,099) (297) (56,142) (63,479) (122,017)
          
Income tax (expense) benefit—
 —
 —
 (5,679) (5,679)
Segment profit (loss)$204,451
 $31,769
 $93,281
 $(134,672) $194,829
          
Total assets as of December 31, 2018$3,482,929
 $1,410,126
 $1,038,376
 $341,441
 $6,272,872
 LoansSecuritiesReal
Estate(1)		Corporate/Other(2)Company
Total
Nine months ended September 30, 2019     
Interest income$209,369 $43,844 $21 $806 $254,040 
Interest expense(41,043)(12,250)(27,620)(74,102)(155,015)
Net interest income (expense)168,326 31,594 (27,599)(73,296)99,025 
(Provision) benefit for loan losses(600)0 0 0 (600)
Net interest income (expense) after provision for loan losses167,726 31,594 (27,599)(73,296)98,425 
Operating lease income0 0 81,106 0 81,106 
Sale of loans, net38,589 0 0 0 38,589 
Realized gain (loss) on securities0 10,726 0 0 10,726 
Unrealized gain (loss) on equity securities0 1,341 0 0 1,341 
Unrealized gain (loss) on Agency interest-only securities0 38 0 0 38 
Realized gain on sale of real estate, net0 0 963 0 963 
Impairment of real estate0 0 (1,350)0 (1,350)
Fee and other income13,095 1,165 7 2,780 17,047 
Net result from derivative transactions(20,273)(15,683)0 0 (35,956)
Earnings (loss) from investment in unconsolidated joint ventures0 0 3,617 0 3,617 
Gain (loss) on extinguishment of debt0 0 (1,070)0 (1,070)
Total other income (loss)31,411 (2,413)83,273 2,780 115,051 
Salaries and employee benefits0 0 0 (52,800)(52,800)
Operating expenses(3)0 0 0 (16,727)(16,727)
Real estate operating expenses0 0 (17,776)0 (17,776)
Fee expense(3,516)(280)(1,155)0 (4,951)
Depreciation and amortization0 0 (29,118)(74)(29,192)
Total costs and expenses(3,516)(280)(48,049)(69,601)(121,446)
Income tax (expense) benefit0 0 0 (478)(478)
Segment profit (loss)$195,621 $28,901 $7,625 $(140,595)$91,552 
Total assets as of December 31, 2019$3,358,861 $1,721,305 $1,096,514 $492,472 $6,669,152 
(1)Includes the Company’s investment in unconsolidated joint ventures that held real estate of $51.4 million and $40.4 million as of September 30, 2019 and December 31, 2018, respectively.
(2)Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This segment also includes the Company’s investment in unconsolidated joint ventures and strategic investments that are not related to the other reportable segments above, including the Company’s investment in FHLB stock of $61.6 million and $57.9 million as of September 30, 2019 and December 31, 2018, respectively, the Company’s deferred tax asset (liability) of $(4.7) million and $2.3 million as of September 30, 2019 and December 31, 2018, respectively and the Company’s senior unsecured notes of $1.2 billion as of September 30, 2019 and December 31, 2018.
(3)
Includes $3.0 million and $9.1 million of professional fees for the three and nine months ended September 30, 2019, respectively. Includes $2.9 million and $8.7 million of professional fees for the three and nine months ended September 30, 2018, respectively.

(1)Includes the Company’s investment in unconsolidated joint ventures that held real estate of $49.2 million and $48.4 million as of September 30, 2020 and December 31, 2019, respectively.
(2)Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This segment also includes the Company’s investment in unconsolidated joint ventures and strategic investments that are not related to the other reportable segments above, including the Company’s investment in FHLB stock of $61.6 million and $61.6 million as of September 30, 2020 and December 31, 2019, respectively, the Company’s deferred tax asset (liability) of $(8.7) million and $(2.1) million as of September 30, 2020 and December 31, 2019, respectively, and the Company’s senior unsecured notes of $1.7 billion and $1.2 billion as of September 30, 2020 and December 31, 2019, respectively.
(3)Includes $2.0 million and $9.2 million of professional fees for the three and nine months ended September 30, 2020, respectively. Includes $3.0 million and $9.1 million of professional fees for the three and nine months ended September 30, 2019, respectively.
70
20. SUBSEQUENT EVENTS
 
The Company has evaluated subsequent events through the issuance date of the financial statements and determined that no additional disclosure is necessary.










71
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of Ladder Capital Corp included within this Quarterly Reportreport and the Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” within this Quarterly Report and “Risk Factors” within the Annual Report for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements as a result of various factors, including but not limited to, those in “Risk Factors” set forth within the Annual Report.

References to “Ladder,” the “Company,” and “we,” “our” and “us” refer to Ladder Capital Corp, a Delaware corporation incorporated in 2013, and its consolidated subsidiaries. 

Ladder Capital Corp is the sole general partner of Ladder Capital Finance Holdings LLLP (“LCFH”) and, as a result of the serialization of LCFH on December 31, 2014, became the sole general partner of Series REIT of LCFH. LC TRS I LLC, a wholly-owned subsidiary of Series REIT of LCFH, is the general partner of Series TRS of LCFH. Ladder Capital Corp has a controlling interest in Series REIT of LCFH, and through such controlling interest, also has a controlling interest in Series TRS of LCFH. Ladder Capital Corp’s only business is to act as the sole general partner of LCFH and Series REIT of LCFH, and, as a result of the foregoing, Ladder Capital Corp directly and indirectly operates and controls all of the business and affairs of LCFH, and each Series thereof, and consolidates the financial results of LCFH, and each Series thereof, into Ladder Capital Corp’s consolidated financial statements.

Overview

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

Our businesses, including balance sheet lending, conduit lending, securities investments, and real estate investments, provide for a stable base of net interest and rental income. We have originated $24.4$25.8 billion of commercial real estate loans from our inception through September 30, 2019.2020. During this timeframe, we also acquired $11.8$12.7 billion of predominantly investment grade-rated securities secured by first mortgage loans on commercial real estate and $1.7$1.8 billion of selected net leased and other real estate assets.

As part of our commercial mortgage lending operations, we originate conduit loans, which are first mortgage loans on stabilized, income producing commercial real estate properties that we intend to make available for sale in commercial mortgage-backed securities (“CMBS”) securitizations. From our inception in October 2008 through September 30, 2019,2020, we originated $16.0$16.6 billion of conduit loans, $15.9 billion of which were sold into 6369 CMBS securitizations, making us, by volume, the second largest non-bank contributor of loans to CMBS securitizations in the United States in such period. Our sales of loans into securitizations are generally accounted for as true sales, not financings, and we generally retain no ongoing interest in loans which we securitize unless we are required to do so as issuer pursuant to the risk retention requirements of the Dodd-Frank Act.Wall Street Reform and Consumer Protection Act of 2010, (the “Dodd-Frank Act”). The securitization of conduit loans enables us to reinvest our equity capital into new loan originations or allocate it to other investments.

As of September 30, 2019,2020, we had $6.6$6.4 billion in total assets and $1.6$1.5 billion of total equity. Our assets included $3.4$2.7 billion of loans, $1.9$1.4 billion of securities, and $1.0 billion of real estate.estate, and $875.8 million of unrestricted cash.

We havemaintain a diversified and flexible financing strategy supporting our investment strategy and overall business operations, including unsecured debt and significant committed term financing from leading financial institutions. AsRefer to “Our Financing Strategies” and “Liquidity and Capital Resources” for further information.

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In addition, as of September 30, 2019, we had $3.7 billion of secured debt financing outstanding. This financing was comprised of $1.1 billion of financing from the Federal Home Loan Bank (the “FHLB”), $846.0 million of committed secured term repurchase agreement financing, $940.1 million of other securities financing, $723.3 million of third-party, non-recourse mortgage debt and $117.8 million of collateralized loan obligation (“CLO”) debt.

As of September 30, 2019, we had $2.4 billion of committed, undrawn total funding capacity available, consisting of $266.4 million of availability under our $266.4 million Revolving Credit Facility, $869.3 million of undrawn committed FHLB financing and $1.3 billion of other undrawn committed financings. As of September 30, 2019, our debt-to-equity ratio was 3.0:1.0, as we employ leverage prudently to maximize financial flexibility. Our adjusted leverage, a non-GAAP financial measure, was 2.9:1.0 as of September 30, 2019. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverage and a reconciliation to debt obligations, net.
Ladder was founded in October 2008 and we completed our IPO in February 2014. We are led by a disciplined and highly aligned management team. As of September 30, 2019,2020, our management team and directors held interests in our Company comprising 11.3%10.7% of our total equity. On average, our management team members have 2627 years of experience in the industry. Our management team includes Brian Harris, Chief Executive Officer; Pamela McCormack, President; Marc Fox, Chief Financial Officer; Robert Perelman, Head of Asset Management; and Kelly Porcella, Chief Administrative Officer & General Counsel. Kevin Moclair, Chief Accounting Officer, is an additional officer of Ladder. We employ 73As of September 30, 2020, we employed 60 full-time industry professionals.

We are organizedCOVID-19 Impact on the Organization

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and conduct our operations to qualify as a REIT underrecommended containment and mitigation measures worldwide. As of the Internal Revenue Codedate of 1986, as amended (the “Code”). As such, we will generally not be subject to U.S. federal income tax on that portionthis filing, the majority of our net income thatemployees continue to work remotely in compliance with state guidelines. We continue to actively manage the liquidity and operations of the Company in light of the market disruption and overall financial impact caused by the COVID-19 pandemic across most industries in the United States. In view of the uncertainty related to the severity and duration of the pandemic, its ultimate impact on our revenues, profitability and financial position is distributeddifficult to shareholders if we distributeassess at least 90%this time. The Company has disclosed the impact of the COVID-19 global pandemic on our taxable income and comply with certain other requirements.business throughout this Quarterly Report.



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Our Businesses

We invest primarily in loans, securities and other interests in U.S. commercial real estate, with a focus on senior secured assets. Our complementary business segments are designed to provide us with the flexibility to opportunistically allocate capital in order to generate attractive risk-adjusted returns under varying market conditions. The following table summarizes the carrying value of our investment portfolio as reported in our consolidated financial statements as of the dates indicated below ($ in thousands):
 September 30, 2020December 31, 2019
Loans  
Balance sheet loans:
Balance sheet first mortgage loans$2,608,933 41.0 %$3,127,173 46.9 %
Other commercial real estate-related loans122,321 1.9 %129,863 1.9 %
Provision for current expected credit losses(47,084)(0.7)%(20,500)(0.3)%
Total balance sheet loans2,684,170 42.2 %3,236,536 48.5 %
Conduit first mortgage loans30,553 0.5 %122,325 1.8 %
Total loans2,714,723 42.7 %3,358,861 50.3 %
Securities   
CMBS investments1,414,303 22.2 %1,673,468 25.3 %
U.S. Agency Securities investments33,341 0.5 %34,857 0.5 %
Equity securities— — %12,980 0.2 %
Provision for current expected credit losses(19)— %— — %
Total securities1,447,625 22.7 %1,721,305 26.0 %
Real Estate   
Real estate and related lease intangibles, net990,583 15.6 %1,048,081 15.7 %
Total real estate990,583 15.6 %1,048,081 15.7 %
Other Investments   
Investments in and advances to unconsolidated joint ventures49,155 0.8 %48,433 0.7 %
FHLB stock61,619 1.0 %61,619 0.9 %
Total other investments110,774 1.8 %110,052 1.6 %
Total investments5,263,705 82.8 %6,238,299 93.6 %
Cash, cash equivalents and restricted cash917,736 14.4 %355,746 5.3 %
Other assets178,022 2.8 %75,107 1.1 %
Total assets$6,359,463 100.0 %$6,669,152 100.0 %
The unique nature of COVID-19 has had a broad impact on commercial real estate, specifically the hotel and retail sectors. Loans on hotel and retail properties comprised approximately 13.8% and 8.0%, respectively, of our loan portfolio at September 30, 2020. Hotel and retail properties comprised approximately 6.0% and 48.0%, respectively, of our real estate portfolio at September 30, 2020. We are in regular communication with our borrowers and tenants and are closely monitoring property performance. The majority of our retail properties are necessity-based businesses and have remained open and stable during the COVID-19 pandemic.
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 September 30, 2019 December 31, 2018
Loans 
    
  
        
Balance sheet loans:       
Balance sheet first mortgage loans$3,098,241
 46.8 % $3,170,788
 50.5 %
Other commercial real estate-related loans133,202
 2.0 % 147,602
 2.4 %
Provision for loan losses(18,500) (0.3)% (17,900) (0.3)%
Total balance sheet loans3,212,943
 48.5 % 3,300,490
 52.6 %
Conduit first mortgage loans174,214
 2.6 % 182,439
 2.9 %
Total loans3,387,157
 51.1 % 3,482,929
 55.5 %
Securities   
  
  
CMBS investments1,830,152
 27.8 % 1,308,331
 20.8 %
U.S. Agency Securities investments35,475
 0.5 % 36,374
 0.6 %
Corporate bonds32,372
 0.5 % 53,871
 0.9 %
Equity securities13,457
 0.2 % 11,550
 0.2 %
Total securities1,911,456
 29.0 % 1,410,126
 22.5 %
Real Estate   
  
  
Real estate and related lease intangibles, net981,333
 14.8 % 998,022
 15.9 %
Total real estate981,333
 14.8 % 998,022
 15.9 %
Other Investments   
  
  
Investments in and advances to unconsolidated joint ventures51,419
 0.8 % 40,354
 0.6 %
FHLB stock61,619
 0.9 % 57,915
 0.9 %
Total other investments113,038
 1.7 % 98,269
 1.5 %
Total investments6,392,984
 96.6 % 5,989,346
 95.4 %
Cash, cash equivalents and restricted cash121,753
 1.8 % 98,450
 1.6 %
Other assets105,137
 1.6 % 185,076
 3.0 %
Total assets$6,619,874
 100.0 % $6,272,872
 100.0 %

Loans
 
Balance Sheet First Mortgage Loans.  We originate and invest in balance sheet first mortgage loans secured by commercial real estate properties that are typically undergoing transition, including lease-up, sell-out, and renovation or repositioning. These mortgage loans are structured to fit the needs and business plans of the property owners, and generally have LIBOR based floating rates and terms (including extension options) ranging from one to five years. Our loans are directly originated by an internal team that has longstanding and strong relationships with borrowers and mortgage brokers throughout the United States. We follow a rigorous investment process, which begins with an initial due diligence review; continues through a comprehensive legal and underwriting process incorporating multiple internal and external checks and balances; and culminates in approval or disapproval of each prospective investment by our Investment Committee. Balance sheet first mortgage loans in excess of $50.0 million also require the approval of our board of directors’ Risk and Underwriting Committee.


We generally seek to hold our balance sheet first mortgage loans for investment although we also maintain the flexibility to contribute such loans into a CLOcollateralized loan obligation (“CLO”) or similar structure, sell participation interests or “b-notes” in our mortgage loans or sell such mortgage loans as whole loans. These investmentsOur balance sheet first mortgage loans have been typically repaid at or prior to maturity (including by being refinanced by us into a new conduit first mortgage loan upon property stabilization). As of September 30, 2019,2020, we held a portfolio of 149118 balance sheet first mortgage loans with an aggregate book value of $3.1$2.6 billion. Based on the loan balances and the “as-is” third-party FIRREAFinancial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) appraised values at origination, the weighted average loan-to-value ratio of this portfolio was 70.0%66.9% at September 30, 2019.2020.

We continue to actively manage and monitor the credit and liquidity risk associated with the balance sheet first mortgage loan portfolio. Due to the nationwide limitations placed on many businesses in response to the COVID-19 pandemic, significant cash flow disruptions have occurred across the economy which have impacted and likely will continue to impact certain of our borrowers. We have used, and continue to use, a variety of legal and structural options to manage that risk effectively, including forbearance and default provisions, as is generally being utilized throughout the credit lending industries.
 
Other Commercial Real Estate-Related Loans.  We selectively invest in note purchase financings, subordinated debt, mezzanine debt and other structured finance products related to commercial real estate that are generally held for investment. As of September 30, 2019,2020, we held a portfolio of 2724 other commercial real estate-related loans with an aggregate book value of $133.2$122.3 million. Based on the loan balance and the “as-is” third-party FIRREA appraised values at origination, the weighted average loan-to-value ratio of the portfolio was 68.2%67.1% at September 30, 2019.2020.

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

Although our primary intent is to sell our conduit first mortgage loans to CMBS trusts, we generally seek to maintain the flexibility to keep them on our balance sheet, sell participation interests or “b-notes” in such loans or sell the loans as whole loans. From our inception in 2008 through September 30, 2019, we have originated and funded $16.0 billion of conduit first mortgage loans and securitized $15.9 billion of such mortgage loans in 63 separate transactions, including two securitizations in 2010, three securitizations in 2011, six securitizations in 2012, six securitizations in 2013, 10 securitizations in 2014, 10 securitizations in 2015, six securitizations in 2016, seven securitizations in 2017, nine securitizations in 2018 and four securitizations in 2019. We generally securitize our loans together with certain financial institutions, which to date have included affiliates of Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC. We have also completed three single-asset securitizations, executed a Ladder-only multi-borrower securitization and completed our first contributions of shorter-term loans into CLO transactions in the fourth quarter of 2017. As of September 30, 2019,2020, we held 11four first mortgage loans that were available for contribution into a securitization with an aggregate book value of $174.2$30.6 million. Based on the loan balances and the “as-is” third-party Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”)FIRREA appraised values at origination, the weighted average loan- to-value ratio of this portfolio was 58.0%67.0% at September 30, 2019.2020. The Company holds these conduit loans in its taxable REIT subsidiary (“TRS”).

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The following charts set forth our total outstanding balance sheet first mortgage loans, other commercial real estate-related loans, mortgage loans transferred but not considered sold and conduit first mortgage loans as of September 30, 20192020 and a breakdown of our loan portfolio by loan size and geographic location and asset type of the underlying real estate.


loanpiecharts20190930.jpgladr-20200930_g2.jpg 

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Securities
 
CMBS Investments.  We invest in CMBS secured by first mortgage loans on commercial real estate and own predominantly AAA-rated securities. These investments provide a stable and attractive base of net interest income and help us manage our liquidity. We have significant in-house expertise in the evaluation and trading of CMBS, due in part to our experience in originating and underwriting mortgage loans that comprise assets within CMBS trusts, as well as our experience in structuring CMBS transactions. AAA-rated CMBS or U.S. Agency securities investments in excess of $76.0 million and all other investment grade CMBS or U.S. Agency securities investments in excess of $51.0 million, each in any single class of any single issuance, require the approval of our board of directors’ Risk and Underwriting Committee. The Risk and Underwriting Committee also must approve any investments in non-rated or sub-investment grade CMBS or U.S. Agency Securities in any single class of any single issuance in excess of the lesser of (x) $21,000,000 and (y) 10% of the total net asset value of the respective Ladder investment company.

As of September 30, 2019,2020, the estimated fair value of our portfolio of CMBS investments totaled $1.8$1.4 billion in 157115 CUSIPs ($11.712.3 million average investment per CUSIP). As of September 30, 2019,2020, included in the $1.8$1.4 billion of CMBS securities are $12.5$11.8 million of CMBS securities designated as risk retention securities under the Dodd-Frank Act which are subject to transfer restrictions over the term of the securitization trust. As of that date, 100%99.8% of our CMBS investments were rated investment grade by Standard & Poor’s Ratings Group, Moody’s Investors Service, Inc. or Fitch Ratings Inc., consisting of 88.4%91.8% AAA/Aaa-rated securities and 11.6%8% of other investment grade-rated securities, including 9.7%6.2% rated AA/Aa, 0.9%1.6% rated A/A and 1.0%0.2% rated BBB/Baa. In the future, we may invest in CMBS securities or other securities that are unrated. As of September 30, 2019,2020, our CMBS investments had a weighted average duration of 2.42.1 years. The commercial real estate collateral underlying our CMBS investment portfolio is located throughout the United States. As of September 30, 2019,2020, by property count and market value, respectively, 49.9%52.5% and 76.2%72.4% of the collateral underlying our CMBS investment portfolio was distributed throughout the top 25 metropolitan statistical areas (“MSAs”) in the United States, with 7.2%7.5% and 34%34.1%, by property count and market value, respectively, of the collateral located in the New York-Newark-Edison MSA, and the concentrations in each of the remaining top 24 MSAs ranging from 0.2%30.0% to 4.5% by property count and 0.1%0.2% to 8.2%9.7% by market value.

U.S. Agency Securities Investments.  Our U.S. Agency Securities portfolio consists of securities for which the principal and interest payments are guaranteed by a U.S. government agency, such as the Government National Mortgage Association (“GNMA”), or by a government-sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). In addition, these securities are secured by first mortgage loans on commercial real estate. Investments in U.S. Agency Securities are subject to the same Risk and Underwriting Committee approval requirements as CMBS investments, as described above. As of September 30, 2019,2020, the estimated fair value of our portfolio of U.S. Agency Securities was $35.5$33.3 million in 2019 CUSIPs ($1.8 million average investment per CUSIP), with a weighted average duration of 4.42.2 years. The commercial real estate collateral underlying our U.S. Agency Securities portfolio is located throughout the United States. As of September 30, 2019,2020, by market value, 75.9%76.4% and 19.7%20.4% of the collateral underlying our U.S. Agency Securities, excluding the collateral underlying our Agency interest-only securities, was located in New York and California, respectively, with no other state having a concentration greater than 10.0%. By property count, California represented 75.9% and New York represented 3.4% of such collateral. While the specific geographic concentration of our Agency interest-only securities portfolio as of September 30, 20192020 is not obtainable, risk relating to any such possible concentration is mitigated by the interest payments of these securities being guaranteed by a U.S. government agency or a GSE.

Corporate Bonds.  In addition to CMBS and U.S. Agency Securities, we invest in other debt securities, including, but not limited to, debt securities issued by REITs and real estate companies. Approval of our board of directors’ Risk and Underwriting Committee is required for the aggregate investments in such debt securities made and owned by all Ladder investment companies to exceed $20.0$80.0 million. As of September 30, 2019, the estimated fair value of our portfolio of2020, we had no investments in debt securities was $32.4 million in one CUSIP, with a weighted average duration of 1.3 years.securities.

Equity Securities.  We invest in real estate related equity investments. Approval of our board of directors’ Risk and Underwriting Committee is required for the aggregate real estate related equity investments made and owned by all Ladder investment companies to exceed $20.0 million. As of September 30, 2019,2020, we had no investments in equity securities.

The Company invests in primarily AAA-rated real estate securities, typically front pay securities, with relatively short duration and significant subordination. The hyperamortization features included in many of the estimated fairsecurities positions we own help mitigate potential credit losses even in the current market conditions. At the onset of the COVID-19 pandemic in March 2020, there was a significant decrease in liquidity and trading activity for the real estate securities we own. During the three months ended September 30, 2020, liquidity and trading activity continued to return to the market and the value of our securities portfolio as of equity securities was $13.5 million in three CUSIPs ($4.5 million average investment per CUSIP).September 30, 2020 had an unrealized mark-to-market gain of $18.4 million.


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Real Estate

Net Leased Commercial Real Estate Properties. As of September 30, 2019,2020, we owned 154163 single tenant net leased properties with an aggregate book value of $669.5$643.3 million. These properties are fully leased on a net basis where the tenant is generally responsible for payment of real estate taxes, property, building and general liability insurance and property and building maintenance expenses. As of September 30, 2019,2020, our net leased properties comprised a total of 5.3 million square feet, 100% leased with an average age since construction of 14.815.7 years and a weighted average remaining lease term of 12.611.6 years. Commercial real estate investments in excess of $20.0 million require the approval of our board of directors’ Risk and Underwriting Committee. The majority of the net leased properties in our real estate portfolio are necessity-based businesses and have remained open and stable during the COVID-19 pandemic. During the three months ended September 30, 2020, we collected 100% of rent on these properties.
 
Diversified Commercial Real Estate Properties. In addition, as of September 30, 2019,2020, we own 67owned 62 diversified commercial real estate properties with an aggregate book value of $309.0$346.6 million. Through separate joint ventures, we own a 40 property student housing portfolio in Isla Vista, CA with a book value of $82.9$82.0 million and an occupancy rate of 100.0%, a portfolio of 1211 office buildings in Richmond, VA with a book value of $77.1$71.7 million with a 90.5%84.3% occupancy rate, an apartment complex in Miami, FL with a book value of $35.5$37.1 million and an occupancy rate of 92.9%93.7%, an unleased industrial buildinga portfolio of two student housing properties in Lithia Springs, GAFort Worth and Arlington, TX with an aggregate book value of $23.8$23.1 million and a portfolio of seven office buildings89.5% occupancy rate, one hotel in Richmond, VASan Diego, CA with a book value of $15.1$40.4 million and an 88.3%a 38.7% occupancy rate, and a 13-story office building in Oakland County, MI with a book value of $10.4$9.2 million and an 81.2%82.1% occupancy rate. We also own a single-tenant office building in Ewing, NJ with a book value of $27.2$25.9 million, a development property in Los Angeles, CA with a book value of $21.5 million, a hotel in Omaha, NE with a book value of $17.7$16.9 million, a single-tenant office building in Crum Lynne, PA with a book value of $10.0$9.7 million, a shopping center in Carmel, NY with a book value of $6.1$5.8 million and a 44.4% occupancy rate and an office building in Peoria, IL with a book value of $3.2$3.3 million and a 50.8%45.6% occupancy rate. During the three months ended September 30, 2020, we collected approximately 96.1% of rent on these properties.

Residential Real Estate. We sold no condominium units at Veer Towers in Las Vegas, NV, during the nine months ended September 30, 2019. As of September 30, 2019, we own one residential condominium unit at Veer Towers in Las Vegas, NV with a book value of $0.5 million through a joint venture, and we expect to complete the sale of this remaining unit by March 31, 2020. As of September 30, 2019, there were no condominium units under contract for sale. As of September 30, 2019, the remaining condominium unit we hold is not rented or occupied.
We sold 14four condominium units at Terrazas River Park Village in Miami, FL, during the nine months ended September 30, 2019,2020, generating aggregate gains on sale of $0.4 million.$24 thousand. As of September 30, 2019,2020, we own eighttwo residential condominium units at Terrazas River Park Village in Miami, FL with a book value of $2.4$0.6 million, and we intend to sell these remaining units in less than 18 months. As of September 30, 2019, two condominium units were under contract for sale with a book value of $0.5 million. As of September 30, 2019, the remaining condominium units we hold were 37.5% rented and occupied. During the nine months ended September 30, 2019, the Company recorded $0.2 million of rental income from the condominium units.

The Company holds these residential condominium units in a TRS.

The following table, organized by tenant typemarket conditions due to the COVID-19 pandemic and acquisition date, summarizesthe resulting economic disruption has broadly impacted the commercial real estate sector. As expected, the net leased commercial real estate properties, which comprise the majority of our ownedportfolio, have remained minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based businesses and have remained open and stable during the COVID-19 pandemic. We continue to actively monitor our diversified commercial real estate properties as of September 30, 2019 ($ amounts in thousands):well to determine the immediate and long term impacts on the buildings, tenants, business plans and the ability to execute those business plans.

Location Acquisition date Acquisition price/basis Year built/reno. Lease expiration (1) Approx. square footage Carrying value of asset Mortgage loan outstanding (2) Asset net of mortgage loan outstanding Annual rental income (3) Ownership Percentage (4) 
                      
Net Leased                     
Sullivan, IL 09/13/19 $1,496
 2019 5/31/34 10,566
 $1,577
 $—
 $1,577
 $65
 100.0% 
Becker, MN 09/13/19 1,185
 2019 7/31/34 9,002
 1,244
 —
 1,244
 52
 100.0% 
Adrian, MO 09/13/19 1,138
 2019 7/31/34 9,026
 1,209
 —
 1,209
 49
 100.0% 
Chillicothe, IL 09/05/19 1,445
 2019 6/30/34 10,640
 1,516
 —
 1,516
 91
 100.0% 
Poseyville, IN 08/13/19 1,220
 2019 5/31/34 10,566
 1,297
 —
 1,297
 88
 100.0% 
Dexter, MO 07/09/19 1,150
 2019 4/30/34 9,002
 1,201
 —
 1,201
 83
 100.0% 
Hubbard Lake, MI 07/09/19 1,199
 2019 4/30/34 9,026
 1,252
 —
 1,252
 87
 100.0% 
Fayette, MO 06/26/19 1,423
 2019 1/31/34 10,566
 1,483
 —
 1,483
 103
 100.0% 
Centralia, IL 04/25/19 1,242
 2019 2/28/34 9,002
 1,290
 —
 1,290
 90
 100.0% 
Trenton, MO 02/26/19 1,164
 2019 12/31/33 9,100
 1,206
 —
 1,206
 84
 100.0% 
Houghton Lake, MI 02/26/19 1,242
 2018 12/31/33 9,100
 1,283
 970
 313
 90
 100.0% 

Location Acquisition date Acquisition price/basis Year built/reno. Lease expiration (1) Approx. square footage Carrying value of asset Mortgage loan outstanding (2) Asset net of mortgage loan outstanding Annual rental income (3) Ownership Percentage (4) 
                      
Pelican Rapids, MN 12/26/18 1,195
 2018 10/31/33 9,100
 1,229
 920
 309
 87
 100.0% 
Carthage, MO 12/26/18 1,099
 2018 10/31/33 7,489
 1,146
 848
 298
 80
 100.0% 
Bolivar, MO 12/26/18 1,175
 2018 10/31/33 9,026
 1,219
 897
 322
 85
 100.0% 
Pinconning, MI 12/06/18 1,235
 2018 9/30/33 9,026
 1,269
 952
 317
 90
 100.0% 
New Hampton, IA 11/30/18 1,317
 2018 9/30/33 9,002
 1,438
 1,016
 422
 96
 100.0% 
Ogden, IA 10/03/18 1,137
 2018 7/31/33 7,489
 1,154
 857
 297
 82
 100.0% 
Moscow Mills, MO 04/12/18 1,237
 2018 1/31/33 9,026
 1,259
 991
 268
 90
 100.0% 
Foley, MN 04/12/18 1,176
 2018 1/1/33 7,489
 1,181
 883
 298
 85
 100.0% 
Wonder Lake, IL 04/12/18 1,256
 2017 7/31/32 9,100
 1,272
 943
 329
 91
 100.0% 
Kirbyville, MO 04/02/18 1,156
 2018 1/31/33 9,026
 1,168
 870
 298
 84
 100.0% 
Gladwin, MI 04/02/18 1,171
 2017 1/31/33 9,026
 1,194
 883
 311
 85
 100.0% 
Rockford, MN 12/08/17 1,195
 2017 10/31/32 9,002
 1,166
 886
 280
 87
 100.0% 
Winterset, IA 12/08/17 1,258
 2017 8/31/32 9,026
 1,240
 934
 306
 91
 100.0% 
Kawkawlin, MI 10/05/17 1,234
 2017 7/31/32 9,100
 1,217
 917
 300
 89
 100.0% 
Aroma Park, IL 10/05/17 1,218
 2017 7/31/32 9,002
 1,192
 949
 243
 88
 100.0% 
East Peoria, IL 10/05/17 1,350
 2017 7/31/32 9,100
 1,320
 1,019
 301
 98
 100.0% 
Milford, IA 09/08/17 1,298
 2017 6/1/32 9,100
 1,284
 987
 297
 94
 100.0% 
Jefferson City, MO 06/02/17 1,241
 2016 2/28/32 9,002
 1,255
 949
 306
 90
 100.0% 
Denver, IA 05/31/17 1,183
 2017 3/31/31 9,026
 1,150
 903
 247
 86
 100.0% 
Port O'Connor, TX 05/25/17 1,255
 2017 3/31/30 9,100
 1,216
 955
 261
 91
 100.0% 
Wabasha, MN 05/25/17 1,280
 2016 3/31/31 9,026
 1,270
 970
 300
 92
 100.0% 
Jacksonville, FL 05/23/17 115,641
 1989 9/30/31 822,540
 131,816
 83,281
 48,535
 7,403
 100.0% 
Shelbyville, IL 05/23/17 1,132
 2016 1/31/31 9,026
 1,161
 868
 293
 82
 100.0% 
Jesup, IA 05/05/17 1,163
 2017 3/31/30 9,026
 1,116
 889
 227
 84
 100.0% 
Hanna City, IL 04/11/17 1,141
 2016 6/30/31 9,100
 1,147
 870
 277
 83
 100.0% 
Ridgedale, MO 03/09/17 1,298
 2016 6/30/31 9,002
 1,278
 997
 281
 94
 100.0% 
Peoria, IL 02/06/17 1,183
 2016 8/31/31 7,489
 1,181
 909
 272
 86
 100.0% 
Carmi, IL 02/03/17 1,411
 2016 10/31/31 9,100
 1,351
 1,106
 245
 102
 100.0% 
Springfield, IL 11/16/16 1,308
 2016 6/30/31 9,026
 1,320
 1,007
 313
 96
 100.0% 
Fayetteville, NC 11/15/16 6,971
 2008 10/31/34 14,820
 6,286
 4,909
 1,377
 450
 100.0% 
Dryden Township, MI 10/26/16 1,190
 2016 8/31/31 9,100
 1,186
 916
 270
 87
 100.0% 
Lamar, MO 07/22/16 1,175
 2016 5/31/31 9,100
 1,137
 906
 231
 86
 100.0% 
Union, MO 07/01/16 1,227
 2016 5/31/31 9,100
 1,232
 949
 283
 90
 100.0% 
Pawnee, IL 07/01/16 1,201
 2016 5/31/31 9,002
 1,131
 949
 182
 88
 100.0% 
Decatur, IL 06/30/16 1,365
 2016 5/31/31 9,002
 1,368
 1,056
 312
 100
 100.0% 
Cape Girardeau, MO 06/30/16 1,281
 2016 5/31/31 9,100
 1,280
 1,023
 257
 94
 100.0% 
Linn, MO 06/30/16 1,122
 2016 5/31/31 9,002
 1,086
 864
 222
 82
 100.0% 
Rantoul, IL 06/21/16 1,204
 2016 4/30/31 9,100
 1,191
 928
 263
 88
 100.0% 
Flora Vista, NM 06/06/16 1,305
 2016 4/30/31 9,002
 1,203
 1,006
 197
 95
 100.0% 
Champaign, IL 06/03/16 1,324
 2016 4/30/31 9,002
 1,328
 1,021
 307
 97
 100.0% 
Mountain Grove, MO 06/03/16 1,279
 2016 4/30/31 10,566
 1,278
 985
 293
 93
 100.0% 
Decatur, IL 06/03/16 1,181
 2016 4/30/31 9,002
 1,166
 949
 217
 86
 100.0% 
San Antonio, TX 05/06/16 1,096
 2015 3/31/31 9,100
 1,044
 890
 154
 80
 100.0% 
Borger, TX 05/06/16 978
 2016 3/31/31 9,100
 944
 786
 158
 71
 100.0% 
St.Charles, MN 04/26/16 1,198
 2016 3/31/31 9,026
 1,134
 964
 170
 87
 100.0% 
Philo, IL 04/26/16 1,156
 2016 3/31/31 9,026
 1,135
 927
 208
 84
 100.0% 
Dimmitt, TX 04/26/16 1,319
 2016 3/31/31 10,566
 1,260
 1,053
 207
 96
 100.0% 
Radford, VA 12/23/15 1,564
 2015 9/30/30 8,360
 1,406
 1,133
 273
 104
 100.0% 
Albion, PA 12/23/15 1,525
 2015 9/30/30 8,184
 1,294
 1,122
 172
 101
 100.0% 

Location Acquisition date Acquisition price/basis Year built/reno. Lease expiration (1) Approx. square footage Carrying value of asset Mortgage loan outstanding (2) Asset net of mortgage loan outstanding Annual rental income (3) Ownership Percentage (4) 
                      
Rural Retreat, VA 12/23/15 1,399
 2015 9/30/30 8,305
 1,262
 1,035
 227
 93
 100.0% 
Mount Vernon, AL 12/23/15 1,224
 2015 6/30/30 8,323
 1,105
 941
 164
 84
 100.0% 
Malone, NY 12/16/15 1,474
 2015 6/30/30 8,320
 1,321
 1,084
 237
 99
 100.0% 
Mercedes, TX 12/16/15 1,263
 2015 11/30/30 9,100
 1,153
 835
 318
 86
 100.0% 
Gordonville, MO 11/10/15 1,207
 2015 9/30/30 9,026
 1,095
 773
 322
 80
 100.0% 
Rice, MN 10/28/15 1,242
 2015 9/30/30 9,002
 1,079
 818
 261
 85
 100.0% 
Bixby, OK 10/27/15 12,151
 2012 12/31/32 75,996
 11,010
 7,967
 3,043
 769
 100.0% 
Farmington, IL 10/23/15 1,408
 2015 8/31/30 9,100
 1,261
 897
 364
 93
 100.0% 
Grove, OK 10/20/15 5,583
 2012 8/31/32 31,500
 4,910
 3,631
 1,279
 364
 100.0% 
Jenks, OK 10/19/15 13,418
 2009 9/24/33 80,932
 12,063
 8,815
 3,248
 912
 100.0% 
Bloomington, IL 10/14/15 1,294
 2015 8/31/30 9,026
 1,164
 818
 346
 85
 100.0% 
Montrose, MN 10/14/15 1,193
 2015 8/31/30 9,100
 1,028
 782
 246
 83
 100.0% 
Lincoln County , MO 10/14/15 1,137
 2015 8/31/30 9,002
 1,021
 740
 281
 76
 100.0% 
Wilmington, IL 10/07/15 1,399
 2015 8/31/30 9,002
 1,256
 904
 352
 93
 100.0% 
Danville, IL 10/07/15 1,160
 2015 8/31/30 9,100
 1,051
 740
 311
 76
 100.0% 
Moultrie, GA 09/22/15 1,305
 2014 6/30/29 8,225
 1,127
 932
 195
 85
 100.0% 
Rose Hill, NC 09/22/15 1,420
 2014 6/30/29 8,320
 1,248
 1,002
 246
 93
 100.0% 
Rockingham, NC 09/22/15 1,158
 2014 6/30/29 8,320
 1,004
 823
 181
 76
 100.0% 
Biscoe, NC 09/22/15 1,216
 2014 6/30/29 8,320
 1,059
 862
 197
 80
 100.0% 
De Soto, IL 09/08/15 1,111
 2015 7/31/30 9,100
 986
 705
 281
 76
 100.0% 
Kerrville, TX 08/28/15 1,236
 2015 7/31/30 9,100
 1,079
 768
 311
 84
 100.0% 
Floresville, TX 08/28/15 1,312
 2015 7/31/30 9,100
 1,153
 815
 338
 89
 100.0% 
Minot, ND 08/19/15 6,946
 2012 1/31/34 55,440
 6,323
 4,699
 1,624
 419
 100.0% 
Lebanon, MI 08/14/15 1,261
 2015 7/31/30 9,050
 1,149
 821
 328
 85
 100.0% 
Effingham County, IL 08/10/15 1,252
 2015 6/30/30 9,002
 1,123
 821
 302
 85
 100.0% 
Ponce, PR 08/03/15 9,345
 2012 8/31/37 15,660
 8,396
 6,522
 1,874
 560
 100.0% 
Tremont, IL 06/25/15 1,192
 2015 5/31/30 9,026
 1,053
 788
 265
 82
 100.0% 
Pleasanton, TX 06/24/15 1,377
 2015 5/31/30 9,026
 1,215
 865
 350
 93
 100.0% 
Peoria, IL 06/24/15 1,293
 2015 5/31/30 9,002
 1,141
 854
 287
 87
 100.0% 
Bridgeport, IL 06/24/15 1,241
 2015 5/31/30 9,100
 1,100
 821
 279
 84
 100.0% 
Warren, MN 06/24/15 1,090
 2015 4/30/30 9,100
 928
 697
 231
 75
 100.0% 
Canyon Lake, TX 06/18/15 1,443
 2015 3/31/30 9,100
 1,274
 907
 367
 98
 100.0% 
Wheeler, TX 06/18/15 1,127
 2015 3/31/30 9,002
 968
 716
 252
 76
 100.0% 
Aurora, MN 06/18/15 993
 2015 3/31/30 9,100
 877
 628
 249
 68
 100.0% 
Red Oak, IA 05/07/15 1,208
 2014 10/31/29 9,026
 1,040
 779
 261
 84
 100.0% 
Zapata, TX 05/07/15 1,204
 2015 3/31/30 9,100
 995
 746
 249
 82
 100.0% 
St. Francis, MN 03/26/15 1,180
 2014 1/31/30 9,002
 973
 733
 240
 79
 100.0% 
Yorktown, TX 03/25/15 1,301
 2015 2/28/30 10,566
 1,078
 785
 293
 86
 100.0% 
Battle Lake, MN 03/25/15 1,168
 2014 2/28/30 9,100
 953
 720
 233
 78
 100.0% 
Paynesville, MN 03/05/15 1,254
 2015 11/30/26 9,100
 1,075
 804
 271
 89
 100.0% 
Wheaton, MO 03/05/15 970
 2015 11/30/29 9,100
 818
 648
 170
 69
 100.0% 
Rotterdam, NY 03/03/15 12,619
 1996 8/31/32 115,660
 9,713
 8,930
 783
 940
 100.0% 
Hilliard, OH 03/02/15 6,384
 2007 8/31/32 14,820
 5,554
 4,555
 999
 399
 100.0% 
Niles, OH 03/02/15 5,200
 2007 11/30/32 14,820
 4,510
 3,701
 809
 325
 100.0% 
Youngstown, OH 02/20/15 5,400
 2005 9/30/30 14,820
 4,645
 3,826
 819
 336
 100.0% 
Kings Mountain, NC 01/29/15 24,167
 1995 9/30/30 467,781
 23,804
 18,574
 5,230
 1,534
 100.0% 
Iberia, MO 01/23/15 1,328
 2015 12/31/29 10,542
 1,126
 892
 234
 94
 100.0% 
Pine Island, MN 01/23/15 1,142
 2014 4/30/27 9,100
 947
 767
 180
 81
 100.0% 
Isle, MN 01/23/15 1,077
 2014 1/31/30 9,100
 890
 721
 169
 77
 100.0% 

Location Acquisition date Acquisition price/basis Year built/reno. Lease expiration (1) Approx. square footage Carrying value of asset Mortgage loan outstanding (2) Asset net of mortgage loan outstanding Annual rental income (3) Ownership Percentage (4) 
                      
Jacksonville, NC 01/22/15 8,632
 2014 12/31/29 55,000
 7,563
 5,658
 1,905
 517
 100.0% 
Evansville, IN 11/26/14 9,000
 2014 12/31/35 71,680
 7,736
 6,402
 1,334
 540
 100.0% 
Woodland Park, CO 11/14/14 3,969
 2014 8/31/29 22,141
 3,293
 2,794
 499
 258
 100.0% 
Bellport, NY 11/13/14 18,100
 2014 8/16/34 87,788
 15,463
 12,803
 2,660
 1,119
 100.0% 
Ankeny, IA 11/04/14 16,510
 2013 10/30/34 94,872
 14,210
 11,678
 2,532
 991
 100.0% 
Springfield, MO 11/04/14 11,675
 2011 10/30/34 88,793
 10,304
 8,321
 1,983
 701
 100.0% 
Cedar Rapids, IA 11/04/14 11,000
 2012 10/30/34 79,389
 9,039
 7,780
 1,259
 660
 100.0% 
Fairfield, IA 11/04/14 10,695
 2011 10/30/34 69,280
 9,015
 7,568
 1,447
 642
 100.0% 
Owatonna, MN 11/04/14 9,970
 2010 10/30/34 70,825
 8,463
 7,091
 1,372
 598
 100.0% 
Muscatine, IA 11/04/14 7,150
 2013 10/30/34 78,218
 7,391
 5,085
 2,306
 429
 100.0% 
Sheldon, IA 11/04/14 4,300
 2011 10/30/34 35,385
 3,700
 3,058
 642
 258
 100.0% 
Memphis, TN 10/24/14 5,310
 1962 12/31/29 68,761
 4,197
 3,908
 289
 358
 100.0% 
Bennett, CO 10/02/14 3,522
 2014 8/31/29 21,930
 2,883
 2,483
 400
 229
 100.0% 
Conyers, GA 08/28/14 32,530
 2014 4/30/29 499,668
 27,432
 22,820
 4,612
 1,956
 100.0% 
O'Fallon, IL 08/08/14 8,000
 1984 1/31/28 141,436
 6,324
 5,682
 642
 460
 100.0% 
El Centro, CA 08/08/14 4,277
 2014 6/30/29 19,168
 3,646
 2,981
 665
 278
 100.0% 
Durant, OK 01/28/13 4,991
 2007 2/28/33 14,550
 4,118
 3,239
 879
 323
 100.0% 
Gallatin, TN 12/28/12 5,062
 2007 9/30/32 14,820
 4,279
 3,311
 968
 329
 100.0% 
Mt. Airy, NC 12/27/12 4,492
 2007 6/30/32 14,820
 3,809
 2,940
 869
 292
 100.0% 
Aiken, SC 12/21/12 5,926
 2008 2/28/33 14,550
 4,972
 3,872
 1,100
 384
 100.0% 
Johnson City, TN 12/21/12 5,262
 2007 3/30/32 14,550
 4,301
 3,441
 860
 341
 100.0% 
Palmview, TX 12/19/12 6,820
 2012 8/31/37 14,820
 5,718
 4,529
 1,189
 437
 100.0% 
Ooltewah, TN 12/18/12 5,703
 2008 1/31/33 14,550
 4,674
 3,793
 881
 365
 100.0% 
Abingdon, VA 12/18/12 4,688
 2006 6/30/31 15,371
 4,100
 3,045
 1,055
 300
 100.0% 
Wichita, KS 12/14/12 7,200
 2012 12/31/32 73,322
 5,542
 4,746
 796
 536
 100.0% 
North Dartmouth, MA 09/21/12 29,965
 1989 8/31/32 103,680
 21,379
 18,775
 2,604
 2,256
 100.0% 
Vineland, NJ 09/21/12 22,507
 2003 8/31/32 115,368
 16,502
 13,801
 2,701
 1,695
 100.0% 
Saratoga Springs, NY 09/21/12 20,222
 1994 8/31/32 116,620
 14,598
 12,400
 2,198
 1,523
 100.0% 
Waldorf, MD 09/21/12 18,803
 1999 8/31/32 115,660
 14,700
 11,530
 3,170
 1,416
 100.0% 
Mooresville, NC 09/21/12 17,644
 2000 8/31/32 108,528
 12,583
 10,819
 1,764
 1,329
 100.0% 
Sennett, NY 09/21/12 7,476
 1996 8/31/32 68,160
 5,242
 4,684
 558
 641
 100.0% 
DeLeon Springs, FL 08/13/12 1,242
 2011 1/31/27 9,100
 890
 811
 79
 98
 100.0% 
Orange City, FL 05/23/12 1,317
 2011 4/30/27 9,026
 949
 798
 151
 103
 100.0% 
Satsuma, FL 04/19/12 1,092
 2011 11/30/26 9,026
 737
 719
 18
 86
 100.0% 
Greenwood, AR 04/12/12 5,147
 2009 6/30/34 13,650
 4,181
 3,383
 798
 332
 100.0% 
Snellville, GA 04/04/12 8,000
 2011 4/30/32 67,375
 6,048
 5,300
 748
 626
 100.0% 
Columbia, SC 04/04/12 7,800
 2001 4/30/32 71,744
 6,151
 5,156
 995
 610
 100.0% 
Millbrook, AL 03/28/12 6,941
 2008 3/22/32 14,820
 5,529
 4,561
 968
 448
 100.0% 
Pittsfield, MA 02/17/12 14,700
 2011 10/29/31 85,188
 11,366
 11,063
 303
 1,118
 100.0% 
Spartanburg, SC 01/14/11 3,870
 2007 8/31/32 14,820
 3,167
 3,386
 (219) 291
 100.0% 
Tupelo, MS 08/13/10 5,128
 2007 1/31/33 14,691
 3,974
 —
 3,974
 400
 100.0% 
Lilburn, GA 08/12/10 5,791
 2007 10/31/32 14,752
 4,458
 3,514
 944
 443
 100.0% 
Douglasville, GA 08/12/10 5,409
 2008 10/31/33 13,434
 4,357
 —
 4,357
 417
 100.0% 
Elkton, MD 07/27/10 4,872
 2008 10/31/33 13,706
 3,758
 4,428
 (670) 380
 100.0% 
Lexington, SC 06/28/10 4,732
 2009 9/30/33 14,820
 3,783
 —
 3,783
 362
 100.0% 
Total Net Leased 751,422
     5,291,867
 669,483
 500,925
 168,558
 50,633
   
                      

Location Acquisition date Acquisition price/basis Year built/reno. Lease expiration (1) Approx. square footage Carrying value of asset Mortgage loan outstanding (2) Asset net of mortgage loan outstanding Annual rental income (3) Ownership Percentage (4) 
                      
Diversified                   
Omaha, NE 02/27/19 18,200
 1969 
 108,555
 17,733
 —
 17,733
 —
 100.0% 
Isla Vista, CA 05/01/18 83,442
 2005 7/2/19(6) 117,324
 82,912
 69,227
 13,685
 7,486
 75.0%(8)
Lithia Springs, GA 03/08/18 24,466
 2005 
 617,969
 23,780
 18,464
 5,316
 —
 70.6%(8)
Crum Lynne, PA 09/29/17 9,196
 1999 9/30/32 56,320
 9,977
 6,028
 3,949
 675
 100.0% 
Miami, FL 08/31/17 38,145
 1987 9/30/18(8) 166,176
 35,523
 —
 35,523
 3,946
 80.0%(8)
Peoria, IL 10/21/16 2,760
 1926 7/31/30 252,940
 3,198
 —
 3,198
 1,663
 100.0% 
Ewing, NJ 08/04/16 30,640
 2009 7/31/30 110,765
 27,231
 21,751
 5,480
 2,040
 100.0% 
Carmel, NY 10/14/15 6,706
 1985 1/31/39 50,121
 6,120
 —
 6,120
 462
 100.0% 
Richmond, VA 08/14/14 19,850
 1986 4/30/21 195,881
 15,074
 15,556
 (482) 2,731
 77.5%(8)
Richmond, VA 06/07/13 118,406
 1984 4/30/21 994,040
 77,093
 73,299
 3,794
 12,117
 77.5%(8)
Oakland County, MI 02/01/13 18,000
 1989 12/31/21 240,900
 10,380
 18,063
 (7,683) 4,506
 90.0%(8)
Total Diversified 369,811
     2,910,991
 309,021
 222,388
 86,633
 35,626
   
                    
Condominium                   
Miami, FL 11/21/13 80,000
 2010   (10) 2,363
 —
 2,363
 88
 100.0%(11)
Las Vegas, NV 12/20/12 119,000
 2006   (12) 466
 —
 466
 —
 98.8%(8)(13)
Total Condominium 199,000
     —
 2,829
 —
 2,829
 88
   
Total   $1,320,233
     8,202,858
 $981,333
 $723,313
 $258,020
 $86,347
   
(1)Lease expirations reflect the earliest date the lease is cancellable without penalty, although actual terms may be longer.
(2)Non-recourse.
(3)Annual rental income represents twelve months of contractual rental income, excluding concessions, due under leases outstanding for the year ended December 31, 2019. Operating lease income on the consolidated statements of income represents rental income earned and recorded on a straight line basis over the term of the lease.
(4)Properties were consolidated as of acquisition date.
(5)Property is a hotel.
(6)40 property student housing portfolio with 73 leaseable units with short term rentals that are renewed regularly. Represents longest term lease expiration date.
(7)Property was acquired with no lease in place.
(8)See Note 12 to our consolidated financial statements for further information regarding noncontrolling interests.
(9)This is an apartment complex with short term rentals that are renewed regularly. Represents longest term lease expiration date.
(10)Eight remaining condominium units. As of September 30, 2019, two condominium units were under contract for sale with a book value of $0.5 million.
(11)We own a portfolio of residential condominium units, some of which are subject to residential leases. We intend to sell these units. The residential leases are generally short term in nature and are not included in the table above given our intention to sell the units.
(12)
One remaining condominium unit. There were no condominium units under contract for sale as of September 30, 2019.
(13)We own, through a majority-owned joint venture with an operating partner, a residential condominium unit. The joint venture intends to sell this unit.

Other Investments

Unconsolidated Joint Venture.  In connection with the origination of a loan in April 2012, we received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, we refinanced the loan, and we converted our equity interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”). As of September 30, 2019,2020, Grace Lake LLC owned an office building campus with a carrying value of $54.3$51.0 million, which is net of accumulated depreciation of $30.5$35.3 million, that is financed by $64.8$62.2 million of long-term debt. Debt of Grace Lake LLC is non-recourse to the limited liability company members, except for customary non-recourse carve-outs for certain actions and environmental liability. As of September 30, 2019,2020, the book value of our investment in Grace Lake LLC was $3.8$3.7 million.

 
Unconsolidated Joint Venture.  On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an Operating Partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium development and construction project located at 24 Second Avenue, New York, NY.

During the three months ended March 31, 2019, the Company converted its existing $35.0 million common equity interest into a $35.0 million priority preferred equity position. The Company also provided $50.4 million in first mortgage financing in order to refinance the existing $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the new $50.4 million first mortgage loan, the Company also funded a $6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and all additional capital for necessary expenses.

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Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company accounts for the new loans as additional investments in the joint venture.

24 Second Avenue consists of 30 residential condominium units and one commercial condominium unit. 24 Second Avenue started closing on the existing sales contracts during the quarter ended March 31, 2019, upon receipt of New York City Building Department approvals and a temporary certificate of occupancy for a portion of the project. As of September 30, 2019,2020, 24 Second Avenue had sold 1719 residential condominium units for $47.3 million in sales proceeds and one residential condominium unit was under contract for sale for $1.2$49.6 million in sales proceeds. As of September 30, 2019, 24 Second Avenue is holding a 15% deposit on the sales contract. As of September 30, 2019,2020, the Company had no remaining additional capital commitment to 24 Second Avenue. As of September 30, 2019,2020, the book value of the Company’s investment in 24 Second Avenue was $47.6$45.4 million.

FHLB Stock. Tuebor Captive Insurance Company LLC (“Tuebor”) is a member of the FHLB.Federal Home Loan Bank (“FHLB”). Each member of the FHLB must purchase and hold FHLB stock as a condition of initial and continuing membership, in proportion to their borrowings from the FHLB and levels of certain assets. Members may need to purchase additional stock to comply with these capital requirements from time to time. FHLB stock is redeemable by Tuebor upon five years’ prior written notice, subject to certain restrictions and limitations. Under certain conditions, the FHLB may also, at its sole discretion, repurchase FHLB stock from its members. As of September 30, 2019,2020, the book value of our investment in FHLB Stock was $61.6 million.

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

•Unsecured corporate bonds
•Secured loan and securities through multiple sources, including the following:repurchase facilities

•Loan sales and securitizations
$611.6 million of gross proceeds we raised in our initial equity private placement beginning in October 2008,•Secured financing facility
$257.4 million of gross proceeds we raised in our follow-on equity private placement in the third quarter of 2011,•CLO transactions
$325.0 million of gross proceeds from the issuance of 2017 Notes in 2012,•Non-recourse mortgage debt
$259.0 million of gross proceeds from the issuance of Class A common stock in 2014,•FHLB financing
$300.0 million of gross proceeds from the issuance of 2021 Notes in 2014,•Revolving credit facility
$500.0 million of gross proceeds from the issuance of 2022 Notes in 2017,•Unencumbered assets available for financing
$400.0 million of gross proceeds from the issuance of 2025 Notes in 2017,
$99.0 million of gross proceeds we raised in our primary equity offering in the fourth quarter of 2018, and
existing debt facilities, and other borrowing programs in which we participate.•Equity
 
We financeFrom time to time, we may add financing counterparties that we believe will complement our portfoliobusiness, although the agreements governing our indebtedness may limit our ability and the ability of commercial real estate loans using committed term facilities provided by multiple financial institutions, with total commitments of $1.8 billion at September 30, 2019, a $266.4 million Revolving Credit Facility, CLO transactionsour present and through our FHLB membership. As of September 30, 2019, there was $760.5 million outstanding under the committed term facilities. We finance our securities portfolio, including CMBSfuture subsidiaries to incur additional indebtedness. Our amended and U.S. Agency Securities, through our FHLB membership, a $400.0 million committed term master repurchase agreement from a leading domestic financial institutionrestated charter and uncommitted master repurchase agreements with numerous counterparties. As of September 30, 2019, we had total outstanding balances of $1.0 billion under all securities master repurchase agreements. We finance our real estate investments with non-recourse first mortgage loans. As of September 30, 2019, we had outstanding balances of $723.3 million on these non-recourse mortgage loans.


In addition to the amounts outstandingby-laws do not impose any threshold limits on our other facilities, we had $1.1 billion of borrowings from the FHLB outstanding at September 30, 2019. As of September 30, 2019, we also had a $266.4 million Revolving Credit Facility, with no borrowings outstanding, and $1.2 billion of Notes issued and outstanding. Seeability to use leverage. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 7 Debt Obligations, Net in our consolidated financial statements included elsewhere in this Quarterly Report for more information about our financing arrangements.

Unsecured Corporate Bonds

As of September 30, 2020, we had $1.7 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of $251.4 million in aggregate principal amount of 5.875% senior notes due 2021 (the “2021 Notes”), $465.9 million in aggregate principal amount of 5.25% senior notes due 2022 (the “2022 Notes”), $348.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”) and $651.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes,” collectively with the 2021 Notes, the 2022 Notes and the 2025 Notes, the “Notes”). During the nine months ended September 30, 2020, we repurchased an aggregate principal of the Notes of $199.2 million, recognizing an aggregate gain on extinguishment of debt of $20.2 million. Refer to Note 7 to the Consolidated Financial Statements for further detail.

Due in large part to devoting such a large portion of the Company’s capital structure to equity and unsecured corporate bond debt, Ladder maintains a $2.8 billion pool of unencumbered assets, comprised primarily of first mortgage loans and unrestricted cash as of September 30, 2020.

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Committed Loan Financing Facilities
We are parties to multiple committed loan repurchase agreement facilities, totaling $1.6 billion of credit capacity. As of September 30, 2020, the Company had $353.8 million of borrowings outstanding, with an additional $1.2 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to first mortgage whole mortgage loans, mezzanine loans and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios.
We have the option to extend some of our existing facilities subject to a number of customary conditions. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, and, if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call), sufficient to rebalance the facilities. Typically, the lender establishes a maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.
Securities Repurchase Facilities
We are a party to a committed term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $400.0 million of credit capacity, or more depending on our utilization of a loan repurchase facility with the same lender. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis. As of September 30, 2020, the Company had $352.2 million borrowings outstanding, with an additional $433.1 million of committed financing available.
Additionally, we are party to multiple uncommitted master repurchase agreements with several counterparties to finance our investments in CMBS and U.S. Agency Securities. The securities that served as collateral for these borrowings are typically AAA-rated CMBS with relatively short duration and significant subordination. The lenders have sole discretion to determine the market value of the collateral on a daily basis, and, if the estimated market value of the collateral declines, the lenders have the right to require additional cash collateral, and if the estimated market value of the collateral subsequently increases, we have the right to call back excess cash collateral.

Revolving Credit Facility
The Company’s revolving credit facility (the “Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $266.4 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On November 25, 2019, the Company amended the Revolving Credit Facility to add two additional one-year extension options, extending the final maturity date, including all extension options, to February 2025. The amendment also provided for a reduction in the interest rate to one-month LIBOR plus 3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in January 2020.
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities.

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FHLB Financing
We have maintained membership in the FHLB since 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). As of September 30, 2020, Tuebor had $326.0 million of borrowings outstanding from the FHLB (with an additional $1.2 billion of committed term financing available), with terms of overnight to 4.0 years, interest rates of 0.41% to 2.95%, and advance rates of 45.0% to 100% on eligible collateral, including cash collateral. As of September 30, 2020, collateral for the borrowings was comprised of $303.0 million of CMBS and U.S. Agency Securities, $8.2 million of cash and $162.4 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $667.7 million for the nine months ended September 30, 2020. FHLB advances amounted to 6.9% of the Company’s outstanding debt obligations as of September 30, 2020.

Mortgage Loan Financing
We generally finance our real estate using long-term non-recourse mortgage financing. During the nine months ended September 30, 2020, we executed ten term debt agreements to finance real estate. All of our mortgage loan financings have fixed rates ranging from 3.75% to 6.75%, mature between 2020 - 2030 and total $770.0 million at September 30, 2020. These long-term non-recourse mortgages include net unamortized premiums of $4.8 million at September 30, 2020, representing proceeds received upon financing greater than the contractual amounts due under the agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. We recorded $0.9 million of premium amortization, which decreased interest expense, for the nine months ended September 30, 2020. The loans are collateralized by real estate and related lease intangibles, net, of $919.3 million as of September 30, 2020.

Secured Financing Facility

On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans. The Secured Financing Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature on May 6, 2023, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Secured Financing Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Senior Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Senior Financing Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, the Lender also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, the Lender has agreed to a customary standstill until December 31, 2020 or the date on which the Lender has exercised the Purchase Right in full, if earlier. In addition, the Lender has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender.

As of September 30, 2020, the Company had $190.6 million of borrowings outstanding under the secured financing facility included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $8.5 million were included in secured financing facility as of September 30, 2020.

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Collateralized Loan Obligation (“CLO”) Debt

On April 27, 2020, a consolidated subsidiary of the Company completed a private CLO transaction with a major U.S. bank which generated $310.2 million of gross proceeds to Ladder, financing $481.3 million of loans (“Contributed Loans”) at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company will retained a 35.5% subordinate and controlling interest in the CLO. The Company retained control over major decisions made with respect to the administration of the Contributed Loans, including broad discretion in managing these loans in light of the COVID-19 pandemic, and has the ability to appoint the special servicer under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 10, Consolidated Variable Interest Entities. Proceeds from the transaction were used to pay off other secured debt including bank and FHLB financing that was subject to mark-to-market provisions.

As of September 30, 2020, the Company had $281.6 million of matched term, non-mark-to-market and non-recourse basis CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.4 million were included in CLO debt as of September 30, 2020.

Hedging Strategies

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

Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a financial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million unsecured revolving credit facility, which continues to be fully-drawn, and the proceeds continue to be held as unrestricted cash on the Company’s balance sheet as of October 29, 2020.   

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term maturity, repurchase agreements with various bank counterparties. The Company has been able to continue to access securities repurchase funding and the pricing of such borrowings has improved during the three months ended September 30, 2020 as liquidity continued to return to the market and pricing for the securities that serve as collateral improved. Furthermore, during the three months ended September 30, 2020, the Company paid down $90.8 million of securities repurchase financing, primarily through sales of securities.

Federal Home Loan Bank (“FHLB”) Financing:  As discussed in the Company’s Annual Report, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February of 2021.

During the three months ended September 30, 2020, the Company paid down FHLB borrowings of $34.8 million. The remaining maturities are staggered out through 2024. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral. During the three months ended June 30, 2020, the Company paid down FHLB borrowings of $646.8 million and incurred $6.5 million in prepayment penalties related to this paydown.

Loan Repurchase Financing:  The Company has maintained a consistent dialogue with its loan financing counterparties since the COVID-19 crisis began to unfold in late March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, during the three months ended September 30, 2020, the Company paid down over $27.3 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a CLO financing transaction (see above). The Company continues to maintain an active dialogue with its bank counterparties as it expects loan collateral on each of their lines to experience some measure of forbearance.

82
Secured Financing Facility:  On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans (see above).

Completion of Private CLO: On April 27, 2020, the Company completed a private CLO financing transaction with a major U.S. bank which generated $310.2 million of gross proceeds, financing $481.3 million of loans at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis (see above).

Based on the financing actions described above, the Company has significantly decreased its exposure to mark-to-market financing. As of October 27, 2020, the Company is holding over $940.0 million of unrestricted cash.

Financial Covenants

We generally seek to maintain a debt-to-equity ratio of approximately 3.0:1.0 or below. We expect this ratio to fluctuate during the course of a fiscal year due to the normal course of business in our conduit lending operations, in which we generally securitize our inventory of conduit loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. As of September 30, 2019,We generally seek to match fund our debt-to-equity ratio was 3.0:1.0. Our adjusted leverage, a non-GAAP financial measure, was 2.9:1.0 as of September 30, 2019. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverageassets according to their liquidity characteristics and a reconciliation to debt obligations, net.expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our moderate leverage providefinancing strategy has allowed us to maintain financial flexibility to be able to capitalize on an attractive range of market opportunities as they arise.have arisen.

We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary.

Our borrowings under certain financing agreements and our committed repurchase facilities are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from 3.50 to 1.00 to 4.00 to 1.00, or a maximum ratio based on our asset composition at the time of determination), minimum net worth requirements (ranging from $400.0 million to $849.0 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.

Further, certain of our financing arrangements and loans on our real property are secured by the assets of the Company, including pledges of the equity of certain subsidiaries or the assets of certain subsidiaries. From time to time, wecertain of these financing arrangements and loans may add financing counterparties that we believe will complement our business, although the agreements governing our indebtedness may limit our ability and the abilityprohibit certain of our presentsubsidiaries from paying dividends to the Company, from making distributions on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or other assets to the Company or other subsidiaries of the Company.

We were in compliance with all covenants as described in the Company’s Annual Report, as of September 30, 2020.

Net of the $875.8 million of unrestricted cash held as of September 30, 2020, our adjusted leverage ratio would be significantly below 3.0x. In late March 2020, as the COVID-19 crisis evolved, management began executing on a plan to mitigate uncertainty in financial markets by increasing liquidity and future subsidiariesobtaining additional non-recourse and non-mark-to-market financing. Partly as a result of maintaining conservative cash levels as of March 31, 2020, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements). Refer to incur additional indebtedness. Our amended and restated charter and by-laws do not impose any threshold limits on our ability to use leverage.Financing Strategy in Current Market Conditions for further disclosures surrounding deleveraging actions completed during 2020.

Business Outlook
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Results of Operations
 
We believe the commercial real estate finance market is currently characterized by stable demandA discussion regarding our results of operations for fixed and floating rate mortgage financing supported bystable property values in most parts of the U.S. The demand is driven by acquisitions and refinancings of existing properties, the need to fund expenditures to renovate or otherwise improve buildings, and new real estate development. $2.1 trillion of commercial real estate debt is scheduled to mature over the next five years (according to Trepp), providing a substantial foundation of demand for mortgage financing services going forward. Somewhat offsetting these positive macro market factors is the yield curve's flattening trend which may reflect a market anticipating slower economic growth in the future.
From our perspective as a commercial mortgage lender that finances its customers’ real estate investments nationwide, the trends observed in the commercial mortgage backed securities market are often informative and somewhat predictive. In 2017, new U.S. CMBS issuance volume increased 27.1% to $87.8 billion in comparison to 2016, a year in which swings in credit spreads created uncertainty for lenders and borrowers thereby suppressing transaction activity. The return to positive annual growth in U.S. CMBS issuance volume in 2017 was, at least in part, due to more stable and favorable credit spread environment. Although spreads continued to tighten into the beginning of 2018, they mostly widened during the rest of the year. Still, the U.S. CMBS new issuance market was active in 2018, with issuance totaling $77.0 billion during the year, a decrease of 12.3% compared to 2017, but an increase of 11.4% compared to 2016. Spreads generally tightened during the first half of 2019, and then widened to a small extent during the three months ended September 30, 2019. U.S. CMBS new issuance totaled $57.8 billion during the nine months ended September 30, 2019, which was relatively flat versus the same period in 2018. 

We believe the CMBS market will continue to play an important role in the financing of commercial real estate that is expected to produce substantial streams of stabilized income over multiple years, and we expect to continue to participate in this market as a loan originator and a contributor of loans to securitization transactions in which CMBS are issued. We also expect to continue to be active as a lender to owners of properties that are in transition and are expected to start generating substantial streams of stabilized income after the financed property’s transition plan has been executed. Our ability to offer borrowers mortgage loan financing on transitional properties enables us to remain an active lender even when the CMBS market experiences disruptions or periods of slower activity that impair the origination of new loans for securitization.


Reflected in all of these lending and financing capabilities that Ladder applies in its daily operations is its ability to underwrite commercial real estate debt and equity investments and efficiently shift capital among mortgage loans, securities, and real estate investments. Underwriting commercial real estate credit risk is Ladder’s core strength—and Ladder expresses its view of the commercial real estate market and of specific investment opportunities within it by making loans, investing in debt securities, and acquiring real estate—constantly fine-tuning that mix of investments in an ongoing effort to optimize risk adjusted returns on equity.

Results of Operations
Three months ended September 30, 20192020 compared to the three months ended September 30, 20182019 is presented below.

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands, except per share data)thousands):
 Three Months Ended September 30, 2019 vs
 2019 2018 2018
      
Net interest income 
  
  
Interest income$82,251
 $90,386
 $(8,135)
Interest expense51,397
 51,476
 (79)
Net interest income30,854
 38,910
 (8,056)
Provision for loan losses—
 10,300
 (10,300)
Net interest income after provision for loan losses30,854
 28,610
 2,244
      
Other income (loss) 
  
  
Operating lease income24,405
 24,997
 (592)
Sale of loans, net11,247
 1,861
 9,386
Realized gain (loss) on securities3,396
 (2,554) 5,950
Unrealized gain (loss) on equity securities254
 —
 254
Unrealized gain (loss) on Agency interest-only securities16
 142
 (126)
Realized gain (loss) on sale of real estate, net2,082
 63,704
 (61,622)
Fee and other income5,166
 4,851
 315
Net result from derivative transactions(9,465) 7,115
 (16,580)
Earnings (loss) from investment in unconsolidated joint ventures1,094
 401
 693
Gain (loss) on extinguishment/defeasance of debt—
 (4,323) 4,323
Total other income (loss)38,195
 96,194
 (57,999)
Costs and expenses 
  
  
Salaries and employee benefits14,319
 15,792
 (1,473)
Operating expenses5,314
 5,464
 (150)
Real estate operating expenses6,270
 7,152
 (882)
Fee expense2,056
 1,311
 745
Depreciation and amortization9,030
 10,417
 (1,387)
Total costs and expenses36,989
 40,136
 (3,147)
Income (loss) before taxes32,060
 84,668
 (52,608)
Income tax expense (benefit)1,112
 1,204
 (92)
Net income (loss)30,948
 83,464
 (52,516)

 Three Months Ended September 30,2020 vs
 202020192019
Net interest income  
Interest income$54,621 $82,251 $(27,630)
Interest expense56,398 51,397 5,001 
Net interest income(1,777)30,854 (32,631)
Provision for/(release of) loan loss reserves(2,512)— (2,512)
Net interest income (expense) after provision for/(release of) loan losses735 30,854 (30,119)
Other income (loss)  
Operating lease income25,464 24,405 1,059 
Sale of loans, net1,127 11,247 (10,120)
Realized gain (loss) on securities(303)3,396 (3,699)
Unrealized gain (loss) on equity securities— 254 (254)
Unrealized gain (loss) on Agency interest-only securities9 16 (7)
Realized gain (loss) on sale of real estate, net21,588 2,082 19,506 
Fee and other income3,051 5,166 (2,115)
Net result from derivative transactions260 (9,465)9,725 
Earnings (loss) from investment in unconsolidated joint ventures447 1,094 (647)
Gain (loss) on extinguishment/defeasance of debt1,167 — 1,167 
Total other income (loss)52,810 38,195 14,615 
Costs and expenses  
Salaries and employee benefits7,858 14,319 (6,461)
Operating expenses3,938 5,314 (1,376)
Real estate operating expenses8,060 6,270 1,790 
Fee expense2,476 2,056 420 
Depreciation and amortization9,817 9,030 787 
Total costs and expenses32,149 36,989 (4,840)
Income (loss) before taxes21,396 32,060 (10,664)
Income tax expense (benefit)14 1,112 (1,098)
Net income (loss)$21,382 $30,948 $(9,566)
 

Investment Overview
 
Investment activityActivity for the three months ended September 30, 2020 includes funding of $8.9 million in principal value of commercial mortgage loans, which was offset by $63.5 million of sales and $229.3 million of principal repayments in the three months ended September 30, 2019 focused on loan, security2020. We sold $34.0 million of securities and had $42.4 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $59.1 million during the three months ended September 30, 2020. We also received proceeds from the sale of real estate activities. We originatedof $63.8 million during the three months ended September 30, 2020.
Activity for the three months ended September 30, 2019 includes originating and fundedfunding of $722.1 million in principal value of commercial mortgage loans, which was partially offset by $143.7 million of sales and $412.3 million of principal repayments in the three months ended September 30, 2019. We acquired $346.4 million of new securities, which was partially offset by $153.8 million of sales and $68.0 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $123.0 million during the three months ended September 30, 2019. We also invested $8.8 million in real estate and received proceeds from the sale of real estate of $7.2 million.
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Investment activity in the three months ended September 30, 2018 focused on loan, security and real estate activities. We originated and funded $676.7 million in principal value of commercial mortgage loans in the three months ended September 30, 2018. We acquired $59.1 million of new securities, which was offset by $144.6 million of sales and $36.5 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $128.1 million during the three months ended September 30, 2018. We also received proceeds from the sale of real estate of $112.5 million.

Operating Overview

Net income (loss) attributable to Class A common shareholders totaled $27.6$21.4 million for the three months ended September 30, 2019,2020, compared to $66.6$30.9 million for the three months ended September 30, 2018.2019. The most significant drivers of the $39.1$9.5 million decrease are as follows:

•
a decrease in total other income (loss) of $58.0 million, primarily as a result of a $61.6 million decrease in realized gain (loss) on opportunistic sales of real estate, net, a $16.6 million decrease in net results from derivative transactions, partially offset by an increase of $9.4 million in sale of loans, net and a $6.0 million increase in realized gain (loss) on securities;

a decrease in net interest income after provision for loan losses of $8.1$30.1 million, primarily as a result of lower average loan balancesthe $27.6 million decrease in interest income and lower interest expense attributable to the $5.0 million increase in LIBOR rates throughout 2018interest expense;
•an increase in total other income (loss) of $14.6 million, primarily as a result of a $19.5 million increase in realized gain on sale of real estate, net, a $9.7 million increase in net results from derivative transactions, and thea $1.2 million increase in gain (loss) on extinguishment of debt, partially offset by a $10.1 million decrease in the average yieldsale of loans, net, a $3.7 million decrease in realized gain (loss) on the securities portfolio year-over-year;and a $2.1 million decrease in fee and other income;

•a decrease in total costs and expenses of $3.1$4.8 million compared to the prior year, primarily as a result of a $1.5$6.5 million decrease in salaries and employee benefits and a $1.4 million decrease in depreciationoperating expenses; and amortization; and

•a decrease in income tax expense (benefit) of $0.1$1.1 million compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $21.4 million for the three months ended September 30, 2020, compared to $32.1 million for the three months ended September 30, 2019, compared to $84.7 million for the three months ended September 30, 2018.2019. The significant components of the $52.6$10.7 million decrease in income (loss) before taxes are described in the first threefour bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $19.7 million for the three months ended September 30, 2020, compared to $44.1 million for the three months ended September 30, 2019, compared to $63.4 million for the three months ended September 30, 2018. The2019. A significant componentscomponent of the $19.3$24.4 million decrease in core earnings are a decrease in realized gain onis the sale of real estate, net of $42.4 million, a decrease in net results from derivative transactions of $11.1 million, the $8.1$32.6 million decrease in net interest income, discussed above,which includes a $27.6 million decrease in interest income and a $5.0 million increase in interest expense. Also contributing to the decrease is a decrease of $9.4 million in sale of loans, net, a decrease of $3.7 million in gain (loss) on securities and a decrease of $2.1 million in fee and other income, partially offset by an increase of $9.2$17.3 million in sale of loans,real estate, net, ana decrease of $5.0 million in total costs and expenses and a $1.2 million increase of $6.0 million in gain (loss) on securities, a decrease in salaries and employee benefitsextinguishment/defeasance of $2.6 million and a $1.4 million decrease in depreciation and amortization. debt.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.


Net Interest Income
 
Interest income totaled $82.3 million for the three months ended September 30, 2019, compared to $90.4 million for the three months ended September 30, 2018. The $8.1$27.6 million decrease in interest income was primarily attributable to the increase inlower prevailing LIBOR rates throughout 2018,during 2020 and bya decrease in our securities and loan portfolios. For the investment mix composition with lower yields onthree months ended September 30, 2020, securities investments versus higher yields onaveraged $1.5 billion and loan investments.investments averaged $2.9 billion. For the three months ended September 30, 2019, securities investments averaged $1.9 billion and loan investments averaged $3.3 billion. For the three months ended September 30, 2018, securities investments averaged $1.1 billion and loan investments averaged $4.0 billion. There was a $723.9$385.9 million decrease in average loan investments, offset byand a $811.7 million increase$0.4 billion decrease in average securities investments.

Interest expense totaled $51.4The $5.0 million for the three months ended September 30, 2019, compared to $51.5 million for the three months ended September 30, 2018. The $0.1 million decreaseincrease in interest expense was primarily attributable to higher prevailing LIBOR ratesan increase in 2018,interest expense on corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a decreased reliance on FHLB financing, and an increased reliance on mortgage loan financing.

Net interest income after provision for loan losses totaled $30.9 million forresult of the retirement of corporate bonds in the three months ended September 30, 2019, compared to $28.62020. The increase is also driven by interest expense on the fully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a decrease in interest expense on FHLB debt.

The $30.1 million for the three months ended September 30, 2018. The $2.2 million increasedecrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income discussed above offset byand the increase in interest expense discussed above and the $10.3$2.5 million decrease in provision for loan losses discussed below.
 
Cost
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We present cost of funds, which is a non-GAAP financial measure, as a supplemental measure of the Company’s cost of debt financing. We define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities, which is currently included in net results from derivative transactions on our consolidated statements of income. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of cost of funds and a reconciliation to interest expense.
Interest Spreads
As of September 30, 2019,2020, the weighted average yield on our mortgage loan receivables was 7.2%6.8%, compared to 7.5%7.2% as of September 30, 20182019 as the weighted average yield on new loans originated or funded was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2019,2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 3.6%5.0%, compared to 3.8%3.6% as of September 30, 2018.2019. The decreaseincrease in the rate on borrowings against our mortgage loan receivables from September 30, 20182019 to September 30, 20192020 was primarily due to lower prevailing markethigher borrowing rates.rates on new sources of financing obtained during 2020. As of September 30, 2019,2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 39.4%33.5% of the carrying value of our mortgage loan receivables, compared to 48.6%39.4% as of September 30, 2018.2019.

As of September 30, 2019,2020, the weighted average yield on our real estate securities was 3.2%1.6%, compared to 3.1%3.2% as of September 30, 2018.2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2019,2020, the weighted average interest rate on borrowings against our real estate securities was 2.7%1.4%, compared to 2.5%2.7% as of September 30, 2018.2019. The increasedecrease in the rate on borrowings against our real estate securities from September 30, 20182019 to September 30, 20192020 was primarily due to a decreased reliance on FHLB financing and an increased reliance on repurchase financinglower prevailing market borrowing rates as of September 30, 2019 versus the prior year period.2020 compared to September 30, 2019. As of September 30, 2019,2020, we had outstanding borrowings secured by our real estate securities equal to 86.1%73.6% of the carrying value of our real estate securities, compared to 85.5%86.1% as of September 30, 2018.2019.
 
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2019,2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.1%5.0% as of September 30, 2018.2019. As of September 30, 2019,2020, we had outstanding borrowings secured by our real estate equal to 73.7%77.7% of the carrying value of our real estate, compared to 74.3%73.7% as of September 30, 2018.2019.
 

Provision for Loan Losses

We originateIn compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and invest primarily inmanagement processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans with high credit quality,that previously had an aggregate of $14.7 million of asset-specific reserves and we sell our conduit loans ina carrying value of $39.8 million as of January 1, 2020. Upon adoption, the ordinary courseaggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of business. We estimate ourbook value per share of common stock).
The change of $(2.5) million is reflected as a decrease to provision for/(release of) loan loss provision basedreserves of $(2.0) million, and a decrease in reserve on our historical loss experience and our expectationunfunded commitments of losses inherent in the investment portfolio but not yet realized. To ensure that the risk exposures are properly measured and the appropriate reserves are taken, the Company assesses a loan loss provision balance that will grow over time with its portfolio and the related risk as the assets approach maturity and ultimate refinancing where applicable.

We determined that no provision expense for loan losses was required for$(0.5) million during the three months ended September 30, 2019 and a provision expense2020. These decreases are primarily due to the decrease in the size of $10.3 million was required for the three months ended September 30, 2018. This provision consisted of a portfolio-based, general reserve of $0.3 million to provide reserves for expected losses over the remainingour loan portfolio, of mortgage loan receivables held for investment andoffset by an asset-specific reserve of $10.0 million relating to oneupdate of the macro economic assumptions used in the Company’s loans.CECL evaluation in the current quarter. For additional information, refer to “Provision“Allowance for LoanCredit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.


Operating Lease Income
Operating lease income totaled $24.4 millionWe determined that no provision for loan losses was required for the three months ended September 30, 2019, compared to $25.02019.

Operating Lease Income
The increase of $1.1 million for the three months ended September 30, 2018. The decrease of $0.6 millionin operating lease income was primarily attributable to the timing of the real estate sales during each quarter and real estate purchases subsequent to September 30, 2018.made during 2019 and 2020. Tenant recoveries are included in operating lease income.

Sales of Loans, Net
 
We recorded $11.2 million incomeIncome (loss) from sales of loans, net, which includes all loan sales, whether by securitization, whole loan sales or other means, for the three months ended September 30, 2019, compared to $1.9 million for the three months ended September 30, 2018, an increase of $9.4 million.means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended September 30, 2020, we sold/transferred eight mortgage loan receivables held for sale with an aggregate outstanding principal balance of $60.3 million. We also sold one mortgage loan receivable held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $7.0 million during the three months ended September 30, 2020. In the three months ended September 30, 2019, we participated in one securitization transaction, transferringsold/transferred 10 loans with an aggregate outstanding principal balance of $140.7 million. In the three months ended September 30, 2018, we participated in one securitization transaction, transferring 13 loans with an aggregate outstanding principal balance of $102.0 million. During the three months ended September 30, 20192020 and September 30, 2018,2019, we recorded no realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. There was $6.2The $10.1 million income (loss) from sales of securitized loans, net of hedging for the three months ended September 30, 2019, compared to $2.3 million income (loss) from sales of securitized loans, net of hedging for the three months ended September 30, 2018. The $3.9 million increasedecrease was predominantly duea result of our financing and liquidity measures implemented to an increasedate in the profit margin on sales of securitized loans, period over period.

Income (loss) from sale of loans, net, represents gross proceeds received from the sale of loans, less the book value of those loans at the time they were sold, less any costs, such as legal and closing costs, associated with the sale. Income from sales of securitized loans, net, a non-GAAP financial measure, represents the portion of income from sales of loans, net relateddirect response to the saleCOVID-19 pandemic.

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Realized Gain (Loss) on Securities
 
Realized gain (loss) onWe sold $34.0 million of securities totaled $3.4 million for the three months ended September 30, 2019, compared to $(2.6)2020. We sold $153.8 million of securities for the three months ended September 30, 2018,2019. The decrease of $3.7 million in realized gain (loss) on securities is a $6.0 million increase.result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic. Included in realized gain (loss) on securities are $(0.6) million ofzero other than temporary impairments on securities for the three months ended September 30, 2018,2020, compared to $(0.1) million for the three months ended September 30, 2019. For the three months ended September 30, 2019, we sold $153.8 million of securities, comprised of $143.5 million of CMBS and $10.3 million of corporate bonds. For the three months ended September 30, 2018, we sold $144.6 million of CMBS. The increase reflects higher margin on sale of securities in 2019 as compared to 2018, the decrease in interest rates throughout 2019 and a reduction in other than temporary impairments on securities recorded during the three months ended September 30, 2019 compared to the three months ended September 30, 2018.


Unrealized Gain (Loss) on Equity Securities

UnrealizedThere were no unrealized gain (loss) on equity securities represented a gainas of$0.3 million for the three months ended September 30, 2019,2020, compared to none for the three months ended$0.3 million as of September 30, 2018.2019. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
 
Unrealized Gain (Loss) on Agency Interest-Only Securities
 
Unrealized gain (loss) on Agency interest-only securities represented a gain of $16 thousand for the three months ended September 30, 2019, compared to a gain of $0.1 million for the three months ended September 30, 2018. The negative change of $0.1 million$6.5 thousand in unrealized gain (loss) on Agency interest-only securities was due to amortizationchange in fair value of our securities portfolio.the securities.

Realized Gain (Loss) on Sale of Real Estate, Net
 
IncomeThe increase of $19.5 million in realized gain (loss) from saleson sale of real estate, net totaled $2.1 million for the three months ended September 30, 2019, compared to $63.7 million for the three months ended September 30, 2018. The decrease of $61.6 million was primarily a result of the commercial real estate and residential condominium sales discussed below.

During the three months ended September 30, 2020, we sold one single-tenant net leased property, resulting in a net gain (loss) on sale of $4.4 million. During the three months ended September 30, 2019, and 2018, we sold no single-tenant net leased properties.

During the three months ended September 30, 2020, we sold two diversified commercial real estate properties, resulting in a net gain (loss) on sale of $17.1 million. During the three months ended September 30, 2019, we sold one diversified commercial real estate propertyproperties resulting in a net gain (loss) on sale of $2.1 million. During the three months ended September 30, 2018, we sold a portfolio of four diversified commercial real estate properties, resulting in a net gain on sale of $61.6 million.

During the three months ended September 30, 2019, income from sales of residential condominiums totaled $32 thousand. We2020, we sold one residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $32$17.4 thousand. During the three months ended September 30, 2018, income from sales of residential condominiums totaled $0.8 million. We2019, we sold two residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $0.5 million, and sixone residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.2 million.$32.2 thousand.

Fee and Other IncomeImpairment of Real Estate

Fee and other income totaled $5.2 millionThere was no impairment of real estate for the three months ended September 30, 2019, compared to $4.9 million for the three months ended2020 and September 30, 2018. 2019.

Fee and Other Income

We generate fee and other income from origination fees, exit fees and other fees on the loans we originate and in which we invest, HOA fees, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock and equity securities. The $0.3$2.1 million increasedecrease in fee and other income year-over-year was primarily due to an increasea decrease in exit fees, origination fees and dividend income and other fees relating to mortgage loan receivables.income.

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Net Result from Derivative Transactions
 
Net result from derivative transactions represented a gain of $0.3 million for the three months ended September 30, 2020, which was comprised of an unrealized gain of $0.1 million and a realized gain of $0.2 million, compared to a loss of $9.5 million for the three months ended September 30, 2019, which was comprised of an unrealized loss of $0.6 million and a realized loss of $8.9 million, compared to a gain of $7.1 million for the three months ended September 30, 2018, which was comprised of an unrealized loss of $1.0 million and a realized gain of $8.1 million, resulting in a negativepositive change of $16.6$9.7 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of futures, interest rate swaps, and credit derivativesfutures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The lossgain in 20192020 was primarily related to the movement in interest rates during the three months ended September 30, 2019.2020. The total net result from derivative transactions is composed of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges. The hedge positions were related to fixed rate conduit loans and securities investments.
 

Earnings (Loss) from Investment in Unconsolidated Joint Ventures
 
Total earningsEarnings (loss) from our investment in unconsolidated joint venturesGrace Lake JV totaled $1.1$0.2 million and $0.5 million for the three months ended September 30, 2020 and 2019, compared to $0.4 million for the three months ended September 30, 2018.respectively. Earnings (loss) from our investment in Grace Lake JV24 Second Avenue totaled $0.5$0.2 million and $0.6 million for the three months ended September 30, 2020 and 2019, and 2018, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.6 million and $(0.2) million for the three months ended September 30, 2019 and 2018, respectively. The loss for the three months ended September 30, 2018 is due to a negative return related to upfront sales costs on the investment. The gain in the three months ended September 30, 2019 is due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

There was no gain (loss) on extinguishment/defeasance of debt totaled for the three months ended September 30, 2019. There was $(4.3)a $1.2 million gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2018.2020. During the three months ended September 30, 2018,2020, the Company retired $47.0$6.2 million of principal of mortgage loan financing in connection with the sale2027 Notes for a repurchase price of real estate,$5.5 million, recognizing a $4.3$0.6 million net lossgain on extinguishment of debt after paying $4.3 millionrecognizing $(80.3) thousand of defeasanceunamortized debt issuance costs associated with the retired debt, the Company retired $2.8 million of principal of the 2025 Notes for a repurchase price of $2.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(24.6) thousand of unamortized debt issuance costs associated with the retired debt, the Company retired $19.7 million of principal of the 2022 Notes for a repurchase price of $19.4 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(0.1) million of unamortized debt issuance costs associated with the retired debt and the Company retired $7.2 million of principal of the 2021 Notes for a repurchase price of $7.1 million, recognizing a $3.2 thousand net gain on extinguishment of debt after recognizing $(13.9) thousand of unamortized debt issuance costs associated with the retired debt. There was no gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2019.

Salaries and Employee Benefits
 
Salaries and employee benefits totaled $7.9 million for the three months ended September 30, 2020, compared to $14.3 million for the three months ended September 30, 2019, compared to $15.8 million for the three months ended September 30, 2018.2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $1.5$6.5 million in compensation expense was primarily attributable to a decreasethe reduction in bonuscompensation expense partially offsetrelated to salaries and bonuses due to the significant market disruption caused by an increasethe COVID-19 pandemic and the substantial economic uncertainty present in equity based compensation expense.the commercial real estate market and overall economy during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
 
Operating Expenses
 
Operating expenses totaled $5.3 million for the three months ended September 30, 2019, compared to $5.5 million for the three months ended September 30, 2018. Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The decrease of $0.2$1.4 million was primarily related to a decrease in tax and consultingprofessional fees partially offset by an increase in information technology costs.during the three months ended September 30, 2020.
 
Real Estate Operating Expenses
 
Real estate operating expenses totaled $6.3 million for the three months ended September 30, 2019, compared to $7.2 million for the three months ended September 30, 2018. The decreaseincrease of $0.9$1.8 million in real estate operating expenses primarily relates to the saleacquisition of real estate in 20182019 and a decrease2020, partially offset by real estate sales in operating expenses for condominium properties.2020.
 
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Fee Expense
 
Fee expense totaled $2.1 million for the three months ended September 30, 2019, compared to $1.3 million for the three months ended September 30, 2018. Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.8$0.4 million in fee expense was primarily attributable to an increase in other professional fees, partially offset by a decrease in financing cost fees, legal fees on mortgagepaid for loan receivables and an increasereal estate assets, and dead deal costs in servicing fees related to our mortgage loan receivables held for investment, net, at amortized cost.the three months ended September 30, 2020.
 
Depreciation and Amortization
 
Depreciation and amortization totaled $9.0The $0.8 million for the three months ended September 30, 2019, compared to $10.4 million for the three months ended September 30, 2018. The $1.4 million decreaseincrease in depreciation and amortization is was primarily attributable to the timing theacquisition of real estate sales during each quarter.in 2019 and 2020.
 

Income Tax (Benefit) Expense
 
Most of our consolidated income tax provision related to the business units held in our TRSs. IncomeThe decrease in income tax expense (benefit) totaledof $1.1 million for the three months ended September 30, 2019, compared to $1.2 million for the three months ended September 30, 2018. The decrease of $0.1 million is primarily attributable to a decrease in forecasted GAAP incomeoperating losses in our TRSs.

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Results of Operations

NineA discussion regarding our results of operations for the nine months ended September 30, 20192020 compared to the nine months ended September 30, 20182019 is presented below.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands, except per share data)thousands):
Nine Months Ended September 30, 2019 vs Nine Months Ended September 30,2020 vs
2019 2018 2018 202020192019
     
Net interest income 
  
  Net interest income  
Interest income$254,040
 $253,822
 $218
Interest income$189,306 $254,040 $(64,734)
Interest expense155,015
 144,606
 10,409
Interest expense176,225 155,015 21,210 
Net interest income99,025
 109,216
 (10,191)Net interest income13,081 99,025 (85,944)
Provision for loan losses600
 13,600
 (13,000)
Net interest income after provision for loan losses98,425
 95,616
 2,809
Provision for/(release of) loan loss reservesProvision for/(release of) loan loss reserves23,340 600 22,740 
Net interest income (expense) after provision for/(release of) loan lossesNet interest income (expense) after provision for/(release of) loan losses(10,259)98,425 (108,684)
     
Other income (loss) 
  
  Other income (loss)  
Operating lease income81,106
 79,306
 1,800
Operating lease income75,565 81,106 (5,541)
Sale of loans, net38,589
 12,893
 25,696
Sale of loans, net1,387 38,589 (37,202)
Realized gain (loss) on securities10,726
 (4,896) 15,622
Realized gain (loss) on securities(12,089)10,726 (22,815)
Unrealized gain (loss) on equity securities1,341
 —
 1,341
Unrealized gain (loss) on equity securities(132)1,341 (1,473)
Unrealized gain (loss) on Agency interest-only securities38
 456
 (418)Unrealized gain (loss) on Agency interest-only securities183 38 145 
Realized gain (loss) on sale of real estate, net963
 96,341
 (95,378)Realized gain (loss) on sale of real estate, net32,116 963 31,153 
Impairment of real estate(1,350) —
 (1,350)Impairment of real estate— (1,350)1,350 
Fee and other income17,047
 17,579
 (532)Fee and other income8,075 17,047 (8,972)
Net result from derivative transactions(35,956) 29,156
 (65,112)Net result from derivative transactions(15,988)(35,956)19,968 
Earnings (loss) from investment in unconsolidated joint ventures3,617
 466
 3,151
Earnings (loss) from investment in unconsolidated joint ventures1,359 3,617 (2,258)
Gain (loss) on extinguishment/defeasance of debt(1,070) (4,392) 3,322
Gain (loss) on extinguishment/defeasance of debt22,244 (1,070)23,314 
Total other income (loss)115,051
 226,909
 (111,858)Total other income (loss)112,720 115,051 (2,331)
Costs and expenses 
  
  Costs and expenses  
Salaries and employee benefits52,800
 46,754
 6,046
Salaries and employee benefits31,880 52,800 (20,920)
Operating expenses16,727
 16,608
 119
Operating expenses15,957 16,727 (770)
Real estate operating expenses17,776
 23,806
 (6,030)Real estate operating expenses22,041 17,776 4,265 
Fee expense4,951
 2,953
 1,998
Fee expense5,892 4,951 941 
Depreciation and amortization29,192
 31,896
 (2,704)Depreciation and amortization29,642 29,192 450 
Total costs and expenses121,446
 122,017
 (571)Total costs and expenses105,412 121,446 (16,034)
Income (loss) before taxes92,030
 200,508
 (108,478)Income (loss) before taxes(2,951)92,030 (94,981)
Income tax expense (benefit)478
 5,679
 (5,201)Income tax expense (benefit)(5,078)478 (5,556)
Net income (loss)91,552
 194,829
 (103,277)Net income (loss)$2,127 $91,552 $(89,425)
 

Investment Overview
 
Investment activityActivity for the nine months ended September 30, 2020 includes originating and funding of $556.1 million in principal value of commercial mortgage loans, which was offset by $484.7 million of sales and $675.7 million of principal repayments in the nine months ended September 30, 2019 focused on loan, security2020. We acquired $439.4 million of new securities, which was offset by $566.2 million of sales and $95.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $273.7 million during the nine months ended September 30, 2020. We also invested $31.7 million in real estate, activities. We originatedwhich includes $25.4 million of real estate acquired via foreclosure, and fundedreceived proceeds from the sale of real estate of $94.2 million.
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Activity for the nine months ended September 30, 2019 includes originating and funding $1.5 billion in principal value of commercial mortgage loans, which was offset by $574.3 million of sales and $1.1 billion of principal repayments in the nine months ended September 30, 2019. We acquired $1.2 billion of new securities, which was partially offset by $538.2 million of sales and $178.5 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $501.3 million during the nine months ended September 30, 2019. We also invested $32.1 million in real estate, which includes $18.2 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $22.9 million.
Investment activity in the nine months ended September 30, 2018 focused on loan, security and real estate activities. We originated and funded $2.4 billion in principal value of commercial mortgage loans, which was offset by $926.4 million of sales and $788.5 million of principal repayments in the nine months ended September 30, 2018. We acquired $303.0 million of new securities, which was offset by $306.1 million of sales and $93.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $128.2 million during the nine months ended September 30, 2018. We also invested $115.5 million in real estate and received proceeds from the sale of real estate of $213.1 million.

Operating Overview

Net income (loss) attributable to Class A common shareholders totaled $82.0$2.1 million for the nine months ended September 30, 2019,2020, compared to $155.9$91.6 million for the nine months ended September 30, 2018.2019. Net income (loss) for the nine months ended September 30, 2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The most significant drivers of the $73.9$89.4 million decrease are as follows:

•a decrease in net interest income after provision for loan losses of $108.7 million, primarily as a result of the $64.7 million decrease in interest income and a $21.2 million increase in interest expense. Also contributing was a $22.7 million increase in provision for loan loss reserves related to the adoption of CECL;

•a decrease in total other income (loss) of $111.9$2.3 million, primarily as a result of a $95.4decrease of $37.2 million in sales of loans, a decrease of $22.8 million in profitsrealized gains (losses) on salesecurities, a decrease of real estate$5.5 million on operating lease income, a decrease of $9.0 million on fee and $65.1other income, partially offset by a $20.0 million decreaseincrease in net results from derivative transactions partially offset by anand $31.2 million increase of $25.7 million in profits on sales of loans, net, an increase of $15.6 million in realized gains on securities and an increase of $3.2 million in earnings (loss) from investment in unconsolidated joint ventures;real estate;

•a decrease in total costs and expenses of $0.6$16.0 million compared to the prior year, primarily asattributable to a result of a $6.0$20.9 million increasedecrease in salaries and employee benefits relating to equity compensation,benefit, partially offset by a $6.0$4.3 million decreaseincrease in real estate operating expenses; and

•
•A ($5.6 million) increase in income tax expense (benefit) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

 in income tax expense (benefit) of $5.2 million compared to the prior year, primarily as a result of a significant reduction in real estate sales and net interest income in our TRSs.
Income (Loss) Before Taxes

Income (loss) before taxes totaled $(3.0) million for the nine months ended September 30, 2020, compared to $92.0 million for the nine months ended September 30, 2019, compared to $200.5 million for the nine months ended September 30, 2018.2019. The significant components of the $108.5$95.0 million decrease in income (loss) before taxes are described in the first twothree bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $63.3 million for the nine months ended September 30, 2020, compared to $142.0 million for the nine months ended September 30, 2019, compared to $177.6 million2019. Core earnings for the nine months ended September 30, 2018.2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The significant components of the $35.6$78.7 million decrease in core earnings are a decrease of $85.3 million in net interest income after provision for loan losses, a decrease in total other income (loss) of $67.1$5.7 million, primarily as a result of a decrease of $78.8$25.5 million in sale of loans, net, a decrease of $9.0 million in fee and other income, a decrease of $5.5 million in operating lease income and a decrease of $7.4 million in gain (loss) on securities and , partially offset by an increase of $26.9 million in sale of real estate, net, and a decreasean increase of $35.6$11.5 million in net results from derivative transactions, partially offset by an increase of $25.4$4.3 million in gain (loss) on extinguishment of debt and a decrease of $21.3 million in salaries and employee benefits.

Our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the COVID-19 pandemic. The actions taken by management had multiple impacts on core earnings for the nine months ended September 30, 2020. Management believes the actions taken were prompted by the unusual market conditions and therefore outside of Ladder’s core operations. Management believes adjusting for certain transactional charges/gains related to the impact of COVID-19, for the three months ended June 30, 2020, on its performance measures provides a more useful guide to assess the ongoing core operations of the Company.

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The impact from COVID-19 included adjustments related to the unusual market conditions and actions taken by management including: (a) $6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net, an increase(b) $15.4 million of $15.6losses from sales of CMBS, (c) $3.7 million of loss from conduit loan sales, (d) $6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in gain (loss) on securities and, an increaseinterest expense, (e) $2.1 million of $1.8 millionprofessional fee expenses included in operating lease incomeexpenses and the changes(f) $0.2 million of severance costs included in salaries and employee benefits. The $34.5 million total costs and expenses discussed inof the preceding paragraph. amounts was partially offset by (g) $19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par, net of (h) $1.5 million of accelerated premium amortization included in interest expense.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.


Net Interest Income
 
Interest income totaled $254.0The $64.7 million for the nine months ended September 30, 2019, compared to $253.8 million for the nine months ended September 30, 2018. The $0.2 million increasedecrease in interest income was primarily attributable to higherlower prevailing LIBOR rates throughout 2018, partially offset byduring 2020 and a decrease in our securities and loan portfolios. For the investment mix composition with lower yields onnine months ended September 30, 2020, securities investments versus higher yields onaveraged $1.7 billion and loan investments.investments averaged $3.2 billion. For the nine months ended September 30, 2019, securities investments averaged $1.7 billion and loan investments averaged $3.5 billion. For the nine months ended September 30, 2018, securities investments averaged $1.1 billion and loan investments averaged $3.9 billion. There was a $438.4$261.8 million decrease in average loan investments, offset byand a $642.0$57.6 million increasedecrease in average securities investments.

Interest expense totaled $155.0 million for the nine months ended September 30, 2019, compared to $144.6 million for the nine months ended September 30, 2018. The $10.4$21.2 million increase in interest expense was primarily attributable to an increase in LIBOR rates throughout 2018, a decreased reliance on FHLB financing, and an increased reliance on mortgage loan financing. Our interest expense related to mortgage loan financing increased by $1.2 million from $27.5 million foron corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the nine months ended September 30, 2018 to $28.7 million for2020. The increase was also driven by interest expense on the nine months ended September 30, 2019, primarily asfully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a result of our increasedecrease in average outstanding mortgage loan financing of $735.6 million for the nine months ended September 30, 2019 compared to $732.4 million for the nine months ended September 30, 2018.interest expense on FHLB debt.
 
Net interest income after provision for loan losses totaled $98.4The $108.7 million for the nine months ended September 30, 2019, compared to $95.6 million for the nine months ended September 30, 2018. The $2.8 million increasedecrease in net interest income after provision for loan losses was primarily attributable to the increasedecrease in net interest income and the increase in interest expense discussed above and increase in debt obligations.above.
Cost of funds, a non-GAAP financial measure, totaled $156.9 million for the nine months ended September 30, 2019, compared to $150.4 million for the nine months ended September 30, 2018. The $6.5 million increase in cost of funds was primarily attributable to the increase in LIBOR rates throughout 2017 and 2018 and a shift away from borrowings from the FHLB and securities repurchase financing, a lower cost source of funding, to higher cost loan repurchase financing and senior unsecured notes.

We present cost of funds, which is a non-GAAP financial measure, as a supplemental measure of the Company’s cost of debt financing. We define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities, which is currently included in net results from derivative transactions on our consolidated statements of income. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of cost of funds and a reconciliation to interest expense.
Interest Spreads
As of September 30, 2019,2020, the weighted average yield on our mortgage loan receivables was 7.2%6.8%, compared to 7.5%7.2% as of September 30, 20182019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2019,2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 3.6%5.0%, compared to 3.8%3.6% as of September 30, 2018.2019. The decreaseincrease in the rate on borrowings against our mortgage loan receivables from September 30, 20182019 to September 30, 2020 was primarily due to higher borrowing rates on new sources of financing obtained during the nine months ended September 30, 2020. As of September 30, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 33.5% of the carrying value of our mortgage loan receivables, compared to 39.4% as of September 30, 2019.

As of September 30, 2020, the weighted average yield on our real estate securities was 1.6%, compared to 3.2% as of September 30, 2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, the weighted average interest rate on borrowings against our real estate securities was 1.4%, compared to 2.7% as of September 30, 2019. The decrease in the rate on borrowings against our real estate securities from September 30, 2019 to September 30, 2020 was primarily due to lower prevailing market borrowing rates as of September 30, 20192020 compared to September 30, 2018.2019. As of September 30, 2019, we had outstanding borrowings secured by our mortgage loan receivables equal to 39.4% of the carrying value of our mortgage loan receivables, compared to 48.6% as of September 30, 2018.

As of September 30, 2019, the weighted average yield on our real estate securities was 3.2%, compared to 3.1% as of September 30, 2018. As of September 30, 2019, the weighted average interest rate on borrowings against our real estate securities was 2.7%, compared to 2.5% as of September 30, 2018. The increase in the rate on borrowings against our real estate securities from September 30, 2018 to September 30, 2019 was primarily due to a decreased reliance on FHLB financing and an increased reliance on repurchase financing as of September 30, 2019 versus the prior period year end. As of September 30, 2019,2020, we had outstanding borrowings secured by our real estate securities equal to 86.1%73.6% of the carrying value of our real estate securities, compared to 85.5%86.1% as of September 30, 2018.2019.
 

Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2019,2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.1%5.0% as of September 30, 2018.2019. As of September 30, 2019,2020, we had outstanding borrowings secured by our real estate equal to 73.7%77.7% of the carrying value of our real estate, compared to 74.3%73.7% as of September 30, 2018.2019.

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Provision for Loan Losses

We originateIn compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and invest primarily inmanagement processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans with high credit quality,that previously had an aggregate of $14.7 million of asset-specific reserves and we sell our conduit loansa carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).

The change of $15.3 million in the ordinary coursenine months ended September 30, 2020 is reflected as an increase of business. We estimate our loan lossreserve to provision basedof $15.6 million, and a decrease in reserve on our historical loss experience and our expectationunfunded commitments of losses inherent$(0.3) million. These increases/decreases are primarily due to the update of the macro economic assumptions used in the investment portfolio but not yet realized. To ensureCompany’s CECL evaluation to reflect a recessionary macro economic scenario due to current market conditions instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the risk exposures are properly measured andJanuary 1, 2020 CECL reserve analysis, partially offset by a decrease in unfunded commitments. In addition to the appropriate reserves are taken,CECL reserve, the Company assesses a loan loss provision balancedetermined that will grow over time with its portfolioan asset-specific reserve of $8.0 million was required relating to two of the Company’s loans for the nine months ended September 30, 2020. For additional information, refer to “Allowance for Credit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the related risk as the assets approach maturity and ultimate refinancing where applicable.consolidated financial statements.

We determined that a provision expense for loan losses of $0.6 million was required for the nine months ended September 30, 2019. The provision consisted of a portfolio-based, general reserve of $0.6 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment. We determined that a provision expense for loan losses of $13.6 million was required for the nine months ended September 30, 2018. The provision consisted of a portfolio-based, general reserve of $0.9 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, anand no asset-specific reserve of $2.7 million relating to two of the Company’s loans and an asset-specific reserve of $10.0 million relating to one of the Company’s loans. For additional information, refer to “Provision for Loan Losses and Non-Accrual Status” in Note 3 Mortgage Loan Receivables to the consolidated financial statements.reserve.

Operating Lease Income
 
OperatingThe decrease of $5.5 million in operating lease income totaled $81.1 million for the nine months ended September 30, 2019, compared to $79.3 million for the nine months ended September 30, 2018. The increase of $1.8 million was primarily attributable to sales of real estate purchases subsequent to September 30, 2018.in 2019 and 2020, partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. Tenant recoveries are included in operating lease income.
 
Sale of Loans, Net
 
We recorded $38.6 million incomeIncome (loss) from sale of loans, net, which includes all loan sales, whether by securitization, whole loan sales or other means, for the nine months ended September 30, 2019, compared to $12.9 million for the nine months ended September 30, 2018, an increase of $25.7 million.means. Income (loss) from salessale of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2020, we sold/transferred 30 loans with an aggregate outstanding principal balance of $313.7 million. During the nine months ended September 30, 2020, we recorded no realized losses on loans related to lower of cost or market adjustments. We also sold six mortgage loan receivables held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $179.1 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, we participated in four separate securitization transactions, selling/transferringsold/transferred 46 loans with an aggregate outstanding principal balance of $548.1 million. During the nine months ended September 30, 2019, we recorded no realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2018, we participated in six separate securitization transactions, selling/transferring 80 loans with an aggregate outstanding principal balance of $939.3 million. In addition, in the nine months ended September 30, 2018, we recorded $0.5 million of realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. There was $23.2The $37.2 million income from sales of securitized loans, net of hedging for the nine months ended September 30, 2019 compared to $22.7 million for the nine months ended September 30, 2018. The $0.5 million increasedecrease was predominantly duea result of our financing and liquidity measures implemented to declining interest ratesdate in 2019, higher overall profit on the sale of loans, offset by a lower volume of loans sold.
Income (loss) from sale of loans, net, represents gross proceeds received from the sale of loans, less the book value of those loans at the time they were sold, less any costs, such as legal and closing costs, associated with the sale. Income from sales of securitized loans, net of hedging, a non-GAAP financial measure, represents the portion of income (loss) from sale of loans, net relateddirect response to the sale of loans into securitization trusts. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of income from sales of securitized loans, net of hedging and a reconciliation to income (loss) from sale of loans, net.COVID-19 pandemic.
 

Realized Gain (Loss) on Securities
 
Realized gain (loss) on securities totaled $10.7 million forFor the nine months ended September 30, 2019, compared to $(4.9)2020, we sold $566.2 million for the nine months ended September 30, 2018, an increase of $15.6 million. Other than temporary impairments on securities, comprised of $(0.1)$547.7 million are included in realized gain (loss) on securities for the nine months ended September 30, 2019, compared to $(2.2)of CMBS, no U.S. Agency Securities, $4.0 million for the nine months ended September 30, 2018, a reduction of $2.1 million.corporate bonds and $14.5 million of equity securities. For the nine months ended September 30, 2019, we sold $538.2 million of CMBS securities, comprised of $500.8 million of CMBS, no U.S. Agency Securities, $33.0 million of corporate bonds and $4.4 million of equity securities. ForThe decrease of $22.8 million is a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic. Other than temporary impairments on securities of $(0.3) million are included in realized gain (loss) on securities for the nine months ended September 30, 2018, we sold $306.1 million of CMBS securities, comprised of $305.6 million of CMBS and $0.5 million U.S. Agency Securities. The increase reflects higher margin on sale of securities in 2019 as2020, compared to 2018 and$(0.1) million for the decrease in interest rates throughout 2019.nine months ended September 30, 2019, an increase of $(0.2) million.
 
Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented a gain of$(0.1) million for the nine months ended September 30, 2020, compared to $1.3 million for the nine months ended September 30, 2019, compared to none for the nine months ended September 30, 2018.2019. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
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Unrealized Gain (Loss) on Agency Interest-Only Securities
 
Unrealized gain (loss) on Agency interest-only securities represented a gain of $38 thousand for the nine months ended September 30, 2019, compared to a gain of $0.5 million for the nine months ended September 30, 2018. The negativepositive change of $0.4$0.1 million in unrealized gain (loss) on Agency interest-only securities was due to the amortization ofmark-to-market adjustments on our securities portfolio.
 
Realized Gain (Loss) on Sale of Real Estate, Net
 
For the nine months ended September 30, 2019, incomeThe increase of $31.2 million in realized gain (loss) from saleson sale of real estate, net totaled $1.0 million, compared to $96.3 million for the nine months ended September 30, 2018. The decrease of $95.4 million was a result of the commercial real estate and residential condominium sales discussed below.

During the nine months ended September 30, 2019 and 2018, there were no sales of2020, we sold one single-tenant net leaseleased property, resulting in a net gain (loss) on sale of $4.4 million. During the nine months ended September 30, 2019, we sold no single-tenant net leased properties.

During the nine months ended September 30, 2020, we sold ten diversified commercial real estate properties, resulting in a net gain (loss) on sale of $27.7 million. During the nine months ended September 30, 2019, we sold three diversified commercial real estate properties resulting in a net gain (loss) on sale of $0.7 million.

During the nine months ended September 30, 2018,2020, we sold six diversified commercial real estate propertiesfour residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain (loss) on sale of $90.4 million.

$24.4 thousand. During the nine months ended September 30, 2019, income from sales of residential condominiums totaled $0.4 million. We sold no residential condominium units from Veer Towers in Las Vegas, NV, andbut sold 14 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.4 million. During

Impairment of Real Estate

There was no impairment of real estate for the nine months ended September 30, 2018, income from sales of residential condominiums totaled $4.0 million. We sold eight residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $3.1 million, and 18 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.9 million.

Impairment of Real Estate

2020. Impairment of real estate of $1.4 million was recorded for the nine months ended September 30, 2019, is attributable to the receipt of a lease termination payment on a single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and Related Lease Intangibles, Net and Note 15, Fair Value of Financial Instruments for further detail. There was no impairment of real estate for the nine months ended September 30, 2018.
 
Fee and Other Income
 
Fee and other income totaled $17.0 million for the nine months ended September 30, 2019, compared to $17.6 million for the nine months ended September 30, 2018. We generated fee income from origination fees, exit fees and other fees on the loans we originate and in which we invest, HOA fees, unrealized gains (losses) on our investment in a mutual fund and dividend income on our investment in FHLB stock and equity securities. The $0.5$9.0 million decrease in fee and other income year-over-year was primarily due to a decrease in HOA feeexit fees, origination fees and dividend income. Also contributing was a realized loss on our investment in the Fund, which was liquidated on June 22, 2020.


Net Result from Derivative Transactions
 
Net result from derivative transactions represented a loss of $16.0 million for the nine months ended September 30, 2020, which was comprised of an unrealized loss of $0.1 million and a realized loss of $15.9 million, compared to a loss of $36.0 million, for the nine months ended September 30, 2019, which was comprised of an unrealized gain of $0.9 million and a realized loss of $36.9 million, compared to a gain of $29.2 million, for the nine months ended September 30, 2018, which was comprised of an unrealized gain of $1.4 million and a realized gain of $27.8 million, resulting in a negativepositive change of $65.1$20.0 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate swaps, and futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The loss in 20192020 was primarily related to movement in interest rates during the nine months ended September 30, 2019.2020. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges. The hedge positions were related to fixed rate conduit loans and securities investments.
 
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Earnings (Loss) from Investment in Unconsolidated Joint Ventures
 
Total earnings (loss) from investment in unconsolidated joint ventures totaled $3.6 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively. Earnings from our investment in Grace Lake LLC totaled $1.5$0.7 million and $1.1$1.5 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $2.1$0.7 million and $(0.7)$2.1 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively. The lossEarnings for the nine months ended September 30, 2018 is due to2019 included a negative return related to upfront sales costs on the investment. The gain in the nine months ended September 30, 2019 is due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail. The gain in the nine months ended September 30, 2020 is attributable to equity and earnings on our investments.

Gain (Loss) on Extinguishment/Defeasance of Debt

Gain (loss) on extinguishment/defeasance of debt totaled $22.2 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the Company retired $98.2 million of principal of the 2027 Notes for a repurchase price of $83.9 million, recognizing a $12.9 million net gain on extinguishment of debt after recognizing $(1.3) million of unamortized debt issuance costs associated with the retired debt, the Company retired $52.0 million of principal of the 2025 Notes for a repurchase price of $45.1 million, recognizing a $6.4 million net gain on extinguishment of debt after recognizing $(0.5) million of unamortized debt issuance costs associated with the retired debt, the Company retired $34.2 million of principal of the 2022 Notes for a repurchase price of $33.2 million, recognizing a $0.7 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt and, the Company retired $14.9 million of principal of the 2021 Notes for a repurchase price of $14.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(34.0) thousand of unamortized debt issuance costs associated with the retired debt.

Gain (loss) on extinguishment/defeasance of debt totaled $(1.1) million for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the Company paid off $6.6 million of mortgage loan financing, recognizing a loss on extinguishment of debt of $(1.1) million. There was a $(4.4) million gain (loss) on extinguishment/defeasance of debt for the nine months ended September 30, 2018. During the nine months ended September 30, 2018 the Company retired $5.9 million of principal of the CLO debt, via the purchase of related CLO securities, for a repurchase price of $6.0 million, recognizing a $(0.1) million net loss on extinguishment of debt after recognizing $0.1 million of unamortized debt issuance costs associated with the retired debt.

Salaries and Employee Benefits

Salaries and employee benefits totaled $52.8 million for the nine months ended September 30, 2019, compared to $46.8 million for the nine months ended September 30, 2018. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The increasedecrease of $6.0$20.9 million in compensation expense was primarily attributable to an increasethe reduction in equity based compensation expense (due in partrelated to salaries and bonuses due to the payment of some compensation awardssignificant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in December of 2017, that would normally have been paid in early 2018), partially offset by a decrease in bonus expense.

Operating Expenses

Operating expenses totaled $16.7 million forthe commercial real estate market and overall economy during the nine months ended September 30, 2019,2020 compared to $16.6 million for the nine months ended September 30, 2018. 2019.

Operating Expenses

Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The increasedecrease of $0.1$0.8 million was primarily related to an increase in professional fees, partially offset by a decrease in other operating expenses.professional fees.

Real Estate Operating Expenses

Real estate operating expenses totaled $17.8 million for the nine months ended September 30, 2019, compared to $23.8 million for the nine months ended September 30, 2018. The decreaseincrease of $6.0$4.3 million in real estate operating expense primarily relates to the saleacquisition of real estate in 20182019 and a decrease in operating expenses for condominium properties.2020.
 

Fee Expense
 
Fee expense totaled $5.0 million for the nine months ended September 30, 2019, compared to $3.0 million for the nine months ended September 30, 2018. Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $2.0$0.9 million in fee expense was primarily attributable to an increase in legal and other professional fees on mortgage loan receivables and an increasereal estate, partially offset by a decrease in servicing fees related to our mortgage loan receivables held for investment, net, at amortized cost.financing and dead deal costs.
 
Depreciation and Amortization
 
Depreciation and amortization totaled $29.2The $0.4 million for the nine months ended September 30, 2019, compared to $31.9 million for the nine months ended September 30, 2018. The $2.7 million decreaseincrease in depreciation and amortization is primarily attributable to the timing of the real estate sales or acquisitions during each quarter.
 
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Income Tax (Benefit) Expense
 
Most of our consolidated income tax provision relates to the business units held in our TRSs. IncomeThe increase of ($5.6 million) in income tax (benefit) expense totaled $0.5 million for the nine months ended September 30, 2019, compared to $5.7 million for the nine months ended September 30, 2018. The decrease of $5.2 million is primarily as a result of significant reduction in real estate sales and net interest incomeoperating losses in our TRSs.


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

To ensure that Ladder Capital can effectively address the funding needs of the Company on a timely basis, we maintain a diverse array of liquidity sources including (1) cash and cash equivalents; (2) cash generated from operations; (3) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; (4)(5) principal repayments on investments including mortgage loans and securities; (5) proceeds from the issuance of CLO debt; (6) borrowings under our revolving credit facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of the Notes;CLO debt and other non-mark-to-market loan financing; (11) a significant and financeable unencumbered asset base; and (12) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis.

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

In addition, as a REIT, we are also required to make sufficient dividend payments to our shareholders (and equivalent distributions to the Continuing LCFH Limited Partners) in amounts at least sufficient to maintain outour REIT status. Under IRS guidance, we may elect to pay a portion of our dividends in stock, subject to a cash/stock election by our shareholders, to optimize our level of capital retention. Accordingly, our cash requirement to pay dividends to maintain REIT status could be substantially reduced at the discretion of the board.
 

Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds, (2) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB, (3) long term non-recourse mortgage financing, (4) committed secured funding provided by banks and other lenders, and (5) uncommitted secured funding sources, including asset repurchase agreements with a number of banks.
A
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments.

Refer to our “Financing Strategy in the Current Market Conditions” and “Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of our diverse financing sources and, for a summary of our financial obligations, is provided below in ourrefer to the Contractual Obligations table.table below. All of our existing financial obligations due within the following year can be extended for one or more additional years at our discretion, refinanced or repaid at maturity using other existing facilities or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).

We generally seek to maintain an adjusted leverage ratio
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Table of approximately 3.0:1.0 or below. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverage and a reconciliation to debt obligations, net. This ratio typically fluctuates during the course of a fiscal year due to the normal course of business in our conduit lending operations, in which we generally securitize our inventory of loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. We generally seek to match fund our assets according to their liquidity characteristics and expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen.Contents
We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary. Our borrowings under certain financing agreements and our committed loan facilities are subject to maximum consolidated leverage ratio limits (currently ranging from 3.50 to 1.00 to 4.00 to 1.00), including maximum consolidated leverage ratio limits weighted by asset composition that change based on our asset base at the time of determination, and, in the case of one provider, a minimum interest coverage ratio requirement of 1.50 to 1.00 if certain liquidity thresholds are not satisfied. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.
Our principal debt financing sources include: (1) committed secured funding provided by banks, (2) uncommitted secured funding sources, including asset repurchase agreements with a number of banks, (3) long term non-recourse mortgage financing, (4) long term senior unsecured notes in the form of corporate bonds and (5) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB.
As of September 30, 2019, we had unrestricted cash and cash equivalents of $83.1 million, unencumbered loans of $1.3 billion, unencumbered securities of $38.7 million, unencumbered real estate of $90.8 million and $374.3 million of other assets not secured by any portion of secured indebtedness, including the net equity in consolidated VIEs.
To maintain our qualification as a REIT under the Code, we were required to distribute our accumulated earnings and profits attributable to taxable periods ending prior to January 1, 2015 and we must annually distribute at least 90% of our taxable income. Consistent with the terms of an IRS private letter ruling, we paid our fourth quarter 2016 and 2015 dividends in a combination of cash and stock and may pay future distributions in such a manner; however, the REIT distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. We believe that our significant capital resources and access to financing will provide us with financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders and servicing our debt obligations.

Our captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends may only be made with regulatory approval. Largely as a result of this restriction, $1.9 billion of Tuebor’s member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at September 30, 2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

The Company established a broker-dealer subsidiary, Ladder Capital Securities LLC (“LCS”), which was initially licensed and capitalized to do business in July 2010. LCS is required to be compliant with Financial Industry Regulatory Authority (“FINRA”) and SEC regulations, which require that dividends may only be made with regulatory approval. Largely as a result of this restriction, $2.6 million of LCS’s member’s capital was restricted from transfer to LCS’s parent without prior approval of regulators at September 30, 2019.

Cash, Cash Equivalents and Restricted Cash
 
We held cash, cash equivalents and restricted cash of $917.7 million at September 30, 2020, of which $875.8 million was unrestricted cash and cash equivalents of $83.1and $41.9 million and $67.9 million at September 30, 2019 and December 31, 2018, respectively. We heldwas restricted cash of $38.7 million and $30.6 million at September 30, 2019 and December 31, 2018, respectively. We elected to early adopt ASU 2016-18 effective January 1, 2017. ASU 2016-18 requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-the-period and end-of-period total amounts show on the statement of cash flows.cash. We held cash, cash equivalents and restricted cash of $121.8 million and $98.5$355.7 million at September 30, 2019 and December 31, 2018, respectively.2019, of which $58.2 million was unrestricted cash and cash equivalents and $297.6 million was restricted cash. As the COVID-19 crisis evolved, management implemented a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark-to-market financing. 

Cash FlowsRevolving Credit Facility

The following tableCompany’s revolving credit facility (the “Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $266.4 million, including a breakdown$25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On November 25, 2019, the Company amended the Revolving Credit Facility to add two additional one-year extension options, extending the final maturity date, including all extension options, to February 2025. The amendment also provided for a reduction in the interest rate to one-month LIBOR plus 3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in January 2020.
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net change inworth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our cash, cash equivalents, and restricted cash ($ in thousands):other credit facilities.

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 Nine Months Ended September 30,
 2019 2018
    
Net cash provided by (used in) operating activities$64,245
 $(51,339)
Net cash provided by (used in) investing activities(285,759) (320,031)
Net cash provided by (used in) financing activities244,817
 273,600
Net increase (decrease) in cash and cash equivalents$23,303
 $(97,770)
FHLB Financing

We experienced a net increasehave maintained membership in the FHLB since 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). As of September 30, 2020, Tuebor had $326.0 million of borrowings outstanding from the FHLB (with an additional $1.2 billion of committed term financing available), with terms of overnight to 4.0 years, interest rates of 0.41% to 2.95%, and advance rates of 45.0% to 100% on eligible collateral, including cash collateral. As of September 30, 2020, collateral for the borrowings was comprised of $303.0 million of CMBS and U.S. Agency Securities, $8.2 million of cash and cash equivalents$162.4 million of $23.3first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $667.7 million for the nine months ended September 30, 2019, compared2020. FHLB advances amounted to a6.9% of the Company’s outstanding debt obligations as of September 30, 2020.

Mortgage Loan Financing
We generally finance our real estate using long-term non-recourse mortgage financing. During the nine months ended September 30, 2020, we executed ten term debt agreements to finance real estate. All of our mortgage loan financings have fixed rates ranging from 3.75% to 6.75%, mature between 2020 - 2030 and total $770.0 million at September 30, 2020. These long-term non-recourse mortgages include net decrease in cash and cash equivalentsunamortized premiums of $97.8$4.8 million at September 30, 2020, representing proceeds received upon financing greater than the contractual amounts due under the agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. We recorded $0.9 million of premium amortization, which decreased interest expense, for the nine months ended September 30, 2018. During2020. The loans are collateralized by real estate and related lease intangibles, net, of $919.3 million as of September 30, 2020.

Secured Financing Facility

On April 30, 2020, the nineCompany entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans. The Secured Financing Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature on May 6, 2023, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Secured Financing Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Senior Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Senior Financing Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, the Lender also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, the Lender has agreed to a customary standstill until December 31, 2020 or the date on which the Lender has exercised the Purchase Right in full, if earlier. In addition, the Lender has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender.

As of September 30, 2020, the Company had $190.6 million of borrowings outstanding under the secured financing facility included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $8.5 million were included in secured financing facility as of September 30, 2020.

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Collateralized Loan Obligation (“CLO”) Debt

On April 27, 2020, a consolidated subsidiary of the Company completed a private CLO transaction with a major U.S. bank which generated $310.2 million of gross proceeds to Ladder, financing $481.3 million of loans (“Contributed Loans”) at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company will retained a 35.5% subordinate and controlling interest in the CLO. The Company retained control over major decisions made with respect to the administration of the Contributed Loans, including broad discretion in managing these loans in light of the COVID-19 pandemic, and has the ability to appoint the special servicer under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 10, Consolidated Variable Interest Entities. Proceeds from the transaction were used to pay off other secured debt including bank and FHLB financing that was subject to mark-to-market provisions.

As of September 30, 2020, the Company had $281.6 million of matched term, non-mark-to-market and non-recourse basis CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.4 million were included in CLO debt as of September 30, 2020.

Hedging Strategies

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

Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a financial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million unsecured revolving credit facility, which continues to be fully-drawn, and the proceeds continue to be held as unrestricted cash on the Company’s balance sheet as of October 29, 2020.   

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term maturity, repurchase agreements with various bank counterparties. The Company has been able to continue to access securities repurchase funding and the pricing of such borrowings has improved during the three months ended September 30, 2019, we received (i) $1.2 billion2020 as liquidity continued to return to the market and pricing for the securities that serve as collateral improved. Furthermore, during the three months ended September 30, 2020, the Company paid down $90.8 million of proceedssecurities repurchase financing, primarily through sales of securities.

Federal Home Loan Bank (“FHLB”) Financing:  As discussed in the Company’s Annual Report, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February of 2021.

During the three months ended September 30, 2020, the Company paid down FHLB borrowings of $34.8 million. The remaining maturities are staggered out through 2024. Funding for future advance paydowns would be obtained from repaymentthe natural amortization of mortgage loans receivable, (ii) $574.3securities over time, loan pay offs and/or sales of loan and securities collateral. During the three months ended June 30, 2020, the Company paid down FHLB borrowings of $646.8 million ofand incurred $6.5 million in prepayment penalties related to this paydown.

Loan Repurchase Financing:  The Company has maintained a consistent dialogue with its loan financing counterparties since the COVID-19 crisis began to unfold in late March 2020. In addition to using proceeds from the salesCompany’s 2027 Notes offering in January to reduce secured debt, during the three months ended September 30, 2020, the Company paid down over $27.3 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a CLO financing transaction (see above). The Company continues to maintain an active dialogue with its bank counterparties as it expects loan collateral on each of their lines to experience some measure of forbearance.

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Secured Financing Facility:  On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans (see above).

Completion of Private CLO: On April 27, 2020, the Company completed a private CLO financing transaction with a major U.S. bank which generated $310.2 million of gross proceeds, financing $481.3 million of loans (iii) $534.2at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis (see above).

Based on the financing actions described above, the Company has significantly decreased its exposure to mark-to-market financing. As of October 27, 2020, the Company is holding over $940.0 million of proceeds fromunrestricted cash.

Financial Covenants

We generally seek to maintain a debt-to-equity ratio of approximately 3.0:1.0 or below. We expect this ratio to fluctuate during the salescourse of real estate securities, (iv) $178.5 milliona fiscal year due to the normal course of repaymentbusiness in our conduit lending operations, in which we generally securitize our inventory of real estate securitiesconduit loans at intervals, and (v) $415.7 million netalso because of changes in our asset mix, due in part to such securitizations. We generally seek to match fund our assets according to their liquidity characteristics and expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen.

We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary.

Our borrowings under debt obligations. We used the proceedscertain financing agreements and our committed repurchase facilities are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from these activities3.50 to (i) originate $1.5 billion of new loans and (ii) purchase $1.2 billion of real estate securities.

Borrowings Under Various Financing Arrangements
Our financing strategies are critical1.00 to the success and growth of our business. We manage our leverage policies4.00 to complement1.00, or a maximum ratio based on our asset composition and to diversify our exposure across multiple counterparties. Our borrowings under various financing arrangements asat the time of September 30, 2019 and December 31, 2018 are set forth in the table below ($ in thousands):

 September 30, 2019 December 31, 2018
    
Committed loan repurchase facilities$760,521
 $497,531
Committed securities repurchase facility85,457
 —
Uncommitted securities repurchase facilities940,070
 166,154
Total repurchase facilities1,786,048
 663,685
Revolving credit facility—
 —
Mortgage loan financing(1)723,313
 743,902
CLO debt(2)117,760
 601,543
Participation financing - mortgage loan receivable—
 2,453
Borrowings from the FHLB1,076,449
 1,286,000
Senior unsecured notes(3)1,157,117
 1,154,991
Total debt obligations, net$4,860,687
 $4,452,574
(1)Presented net of unamortized debt issuance costs of $0.4 million and $0.7 million as of September 30, 2019 and December 31, 2018, respectively.
(2)Presented net of unamortized debt issuance costs of $0.4 million and $2.6 million as of September 30, 2019 and December 31, 2018, respectively.

(3)Presented net of unamortized debt issuance costs of $9.1 million and $11.2 million as of September 30, 2019 and December 31, 2018, respectively.

The Company’s repurchase facilities include covenants coveringdetermination), minimum net worth requirements (ranging from $300.0$400.0 million to $829.3$849.0 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), maximum leverage ratios (calculated in various ways based on specified definitions of indebtedness and net worth) and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. We were in compliance with all covenants as of September 30, 2019These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and December 31, 2018. exceptions.

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

We are parties to multiple committed loan repurchase agreement facilities, totaling $1.8 billion of credit capacity. As of September 30, 2019, the Company had $760.5 million of borrowings outstanding, with an additional $1.0 billion of committed financing available. As of December 31, 2018, the Company had $497.5 million of borrowings outstanding, with an additional $1.3 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to whole mortgage loans collateralized by first liens on commercial real estate, mezzanine loans collateralized by equity interests in entities that own commercial real estate, and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios. We believe we were in compliance with all covenants as described in the Company’s Annual Report, as of September 30, 2020.

Net of the $875.8 million of unrestricted cash held as of September 30, 2020, our adjusted leverage ratio would be significantly below 3.0x. In late March 2020, as the COVID-19 crisis evolved, management began executing on a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark-to-market financing. Partly as a result of maintaining conservative cash levels as of March 31, 2020, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements). Refer to Financing Strategy in Current Market Conditions for further disclosures surrounding deleveraging actions completed during 2020.

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Results of Operations
A discussion regarding our results of operations for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 is presented below.

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
 Three Months Ended September 30,2020 vs
 202020192019
Net interest income  
Interest income$54,621 $82,251 $(27,630)
Interest expense56,398 51,397 5,001 
Net interest income(1,777)30,854 (32,631)
Provision for/(release of) loan loss reserves(2,512)— (2,512)
Net interest income (expense) after provision for/(release of) loan losses735 30,854 (30,119)
Other income (loss)  
Operating lease income25,464 24,405 1,059 
Sale of loans, net1,127 11,247 (10,120)
Realized gain (loss) on securities(303)3,396 (3,699)
Unrealized gain (loss) on equity securities— 254 (254)
Unrealized gain (loss) on Agency interest-only securities9 16 (7)
Realized gain (loss) on sale of real estate, net21,588 2,082 19,506 
Fee and other income3,051 5,166 (2,115)
Net result from derivative transactions260 (9,465)9,725 
Earnings (loss) from investment in unconsolidated joint ventures447 1,094 (647)
Gain (loss) on extinguishment/defeasance of debt1,167 — 1,167 
Total other income (loss)52,810 38,195 14,615 
Costs and expenses  
Salaries and employee benefits7,858 14,319 (6,461)
Operating expenses3,938 5,314 (1,376)
Real estate operating expenses8,060 6,270 1,790 
Fee expense2,476 2,056 420 
Depreciation and amortization9,817 9,030 787 
Total costs and expenses32,149 36,989 (4,840)
Income (loss) before taxes21,396 32,060 (10,664)
Income tax expense (benefit)14 1,112 (1,098)
Net income (loss)$21,382 $30,948 $(9,566)
Investment Overview
Activity for the three months ended September 30, 2020 includes funding of $8.9 million in principal value of commercial mortgage loans, which was offset by $63.5 million of sales and $229.3 million of principal repayments in the three months ended September 30, 2020. We sold $34.0 million of securities and had $42.4 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $59.1 million during the three months ended September 30, 2020. We also received proceeds from the sale of real estate of $63.8 million during the three months ended September 30, 2020.
Activity for the three months ended September 30, 2019 includes originating and funding of $722.1 million in principal value of commercial mortgage loans, which was partially offset by $143.7 million of sales and $412.3 million of principal repayments in the three months ended September 30, 2019. We acquired $346.4 million of new securities, which was partially offset by $153.8 million of sales and $68.0 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $123.0 million during the three months ended September 30, 2019. We also invested $8.8 million in real estate and received proceeds from the sale of real estate of $7.2 million.
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Operating Overview

Net income (loss) totaled $21.4 million for the three months ended September 30, 2020, compared to $30.9 million for the three months ended September 30, 2019. The most significant drivers of the $9.5 million decrease are as follows:

•a decrease in net interest income after provision for loan losses of $30.1 million, primarily as a result of the $27.6 million decrease in interest income and the $5.0 million increase in interest expense;
•an increase in total other income (loss) of $14.6 million, primarily as a result of a $19.5 million increase in realized gain on sale of real estate, net, a $9.7 million increase in net results from derivative transactions, and a $1.2 million increase in gain (loss) on extinguishment of debt, partially offset by a $10.1 million decrease in sale of loans, net, a $3.7 million decrease in realized gain (loss) on securities and a $2.1 million decrease in fee and other income;

•a decrease in total costs and expenses of $4.8 million compared to the prior year, primarily as a result of a $6.5 million decrease in salaries and employee benefits and a $1.4 million decrease in operating expenses; and

•a decrease in income tax expense (benefit) of $1.1 million compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $21.4 million for the three months ended September 30, 2020, compared to $32.1 million for the three months ended September 30, 2019. The significant components of the $10.7 million decrease in income (loss) before taxes are described in the first four bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $19.7 million for the three months ended September 30, 2020, compared to $44.1 million for the three months ended September 30, 2019. A significant component of the $24.4 million decrease in core earnings is the $32.6 million decrease in net interest income, which includes a $27.6 million decrease in interest income and a $5.0 million increase in interest expense. Also contributing to the decrease is a decrease of $9.4 million in sale of loans, net, a decrease of $3.7 million in gain (loss) on securities and a decrease of $2.1 million in fee and other income, partially offset by an increase of $17.3 million in sale of real estate, net, a decrease of $5.0 million in total costs and expenses and a $1.2 million increase in gain (loss) on extinguishment/defeasance of debt.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.

Net Interest Income
The $27.6 million decrease in interest income was primarily attributable to lower prevailing LIBOR rates during 2020 and a decrease in our securities and loan portfolios. For the three months ended September 30, 2020, securities investments averaged $1.5 billion and loan investments averaged $2.9 billion. For the three months ended September 30, 2019, securities investments averaged $1.9 billion and loan investments averaged $3.3 billion. There was a $385.9 million decrease in average loan investments, and a $0.4 billion decrease in average securities investments.

The $5.0 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the three months ended September 30, 2020. The increase is also driven by interest expense on the fully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a decrease in interest expense on FHLB debt.

The $30.1 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income discussed above and the increase in interest expense discussed above and the $2.5 million decrease in provision for loan losses discussed below.
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As of September 30, 2020, the weighted average yield on our mortgage loan receivables was 6.8%, compared to 7.2% as of September 30, 2019 as the weighted average yield on new loans originated or funded was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 5.0%, compared to 3.6% as of September 30, 2019. The increase in the rate on borrowings against our mortgage loan receivables from September 30, 2019 to September 30, 2020 was primarily due to higher borrowing rates on new sources of financing obtained during 2020. As of September 30, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 33.5% of the carrying value of our mortgage loan receivables, compared to 39.4% as of September 30, 2019.

As of September 30, 2020, the weighted average yield on our real estate securities was 1.6%, compared to 3.2% as of September 30, 2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, the weighted average interest rate on borrowings against our real estate securities was 1.4%, compared to 2.7% as of September 30, 2019. The decrease in the rate on borrowings against our real estate securities from September 30, 2019 to September 30, 2020 was primarily due to lower prevailing market borrowing rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate securities equal to 73.6% of the carrying value of our real estate securities, compared to 86.1% as of September 30, 2019.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.0% as of September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate equal to 77.7% of the carrying value of our real estate, compared to 73.7% as of September 30, 2019.
Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and December 31, 2018.management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).
The change of $(2.5) million is reflected as a decrease to provision for/(release of) loan loss reserves of $(2.0) million, and a decrease in reserve on unfunded commitments of $(0.5) million during the three months ended September 30, 2020. These decreases are primarily due to the decrease in the size of our loan portfolio, offset by an update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter. For additional information, refer to “Allowance for Credit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.

We determined that no provision for loan losses was required for the three months ended September 30, 2019.

Operating Lease Income
The increase of $1.1 million in operating lease income was primarily attributable to real estate purchases made during 2019 and 2020. Tenant recoveries are included in operating lease income.

Sales of Loans, Net
Income (loss) from sales of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended September 30, 2020, we sold/transferred eight mortgage loan receivables held for sale with an aggregate outstanding principal balance of $60.3 million. We also sold one mortgage loan receivable held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $7.0 million during the three months ended September 30, 2020. In the three months ended September 30, 2019, we sold/transferred 10 loans with an aggregate outstanding principal balance of $140.7 million. During the three months ended September 30, 2020 and 2019, we recorded no realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. The $10.1 million decrease was predominantly a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic.

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Realized Gain (Loss) on Securities
 
We havesold $34.0 million of securities for the option to extend somethree months ended September 30, 2020. We sold $153.8 million of securities for the three months ended September 30, 2019. The decrease of $3.7 million in realized gain (loss) on securities is a result of our existing facilities subjectfinancing and liquidity measures implemented to a number of customary conditions. The lenders have sole discretion with respectdate in direct response to the inclusionCOVID-19 pandemic. Included in realized gain (loss) on securities are zero other than temporary impairments on securities for the three months ended September 30, 2020, compared to $(0.1) million for the three months ended September 30, 2019.

Unrealized Gain (Loss) on Equity Securities

There were no unrealized gain (loss) on equity securities as of collateralSeptember 30, 2020, compared to $0.3 million as of September 30, 2019. The Company has elected the fair market value option for accounting for these equity securities and changes in these facilities,fair value are recorded in current period earnings.
Unrealized Gain (Loss) on Agency Interest-Only Securities
The negative change of $6.5 thousand in unrealized gain (loss) on Agency interest-only securities was due to determine the marketchange in fair value of the collateralsecurities.

Realized Gain (Loss) on Sale of Real Estate, Net
The increase of $19.5 million in realized gain (loss) on sale of real estate, net was primarily a result of the commercial real estate and residential condominium sales discussed below.

During the three months ended September 30, 2020, we sold one single-tenant net leased property, resulting in a net gain (loss) on sale of $4.4 million. During the three months ended September 30, 2019, we sold no single-tenant net leased properties.

During the three months ended September 30, 2020, we sold two diversified commercial real estate properties, resulting in a net gain (loss) on sale of $17.1 million. During the three months ended September 30, 2019, we sold one diversified commercial real estate properties resulting in a net gain (loss) on sale of $2.1 million.

During the three months ended September 30, 2020, we sold one residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $17.4 thousand. During the three months ended September 30, 2019, we sold one residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $32.2 thousand.

Impairment of Real Estate

There was no impairment of real estate for the three months ended September 30, 2020 and September 30, 2019.

Fee and Other Income

We generate fee and other income from origination fees, exit fees and other fees on the loans we originate and in which we invest, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock and equity securities. The $2.1 million decrease in fee and other income year-over-year was primarily due to a decrease in exit fees, origination fees and dividend income.

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Net Result from Derivative Transactions
Net result from derivative transactions represented a gain of $0.3 million for the three months ended September 30, 2020, which was comprised of an unrealized gain of $0.1 million and a realized gain of $0.2 million, compared to a loss of $9.5 million for the three months ended September 30, 2019, which was comprised of an unrealized loss of $0.6 million and a realized loss of $8.9 million, resulting in a positive change of $9.7 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gain in 2020 was primarily related to movement in interest rates during the three months ended September 30, 2020. The total net result from derivative transactions is composed of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
Earnings (Loss) from Investment in Unconsolidated Joint Ventures
Earnings (loss) from our investment in Grace Lake JV totaled $0.2 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.2 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

There was a $1.2 million gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2020. During the three months ended September 30, 2020, the Company retired $6.2 million of principal of the 2027 Notes for a repurchase price of $5.5 million, recognizing a $0.6 million net gain on extinguishment of debt after recognizing $(80.3) thousand of unamortized debt issuance costs associated with the retired debt, the Company retired $2.8 million of principal of the 2025 Notes for a repurchase price of $2.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(24.6) thousand of unamortized debt issuance costs associated with the retired debt, the Company retired $19.7 million of principal of the 2022 Notes for a repurchase price of $19.4 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(0.1) million of unamortized debt issuance costs associated with the retired debt and the Company retired $7.2 million of principal of the 2021 Notes for a repurchase price of $7.1 million, recognizing a $3.2 thousand net gain on extinguishment of debt after recognizing $(13.9) thousand of unamortized debt issuance costs associated with the retired debt. There was no gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2019.

Salaries and Employee Benefits
Salaries and employee benefits totaled $7.9 million for the three months ended September 30, 2020, compared to $14.3 million for the three months ended September 30, 2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $6.5 million in compensation expense was primarily attributable to the reduction in compensation expense related to salaries and bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
Operating Expenses
Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The decrease of $1.4 million was primarily related to a decrease in professional fees during the three months ended September 30, 2020.
Real Estate Operating Expenses
The increase of $1.8 million in real estate operating expenses primarily relates to the acquisition of real estate in 2019 and 2020, partially offset by real estate sales in 2020.
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Fee Expense
Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.4 million in fee expense was primarily attributable to an increase in other professional fees, partially offset by a decrease in financing cost fees, legal fees paid for loan and real estate assets, and dead deal costs in the three months ended September 30, 2020.
Depreciation and Amortization
The $0.8 million increase in depreciation and amortization was attributable to the acquisition of real estate in 2019 and 2020.
Income Tax (Benefit) Expense
Most of our consolidated income tax provision related to the business units held in our TRSs. The decrease in income tax expense (benefit) of $1.1 million is primarily attributable to operating losses in our TRSs.

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Results of Operations

A discussion regarding our results of operations for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is presented below.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
 Nine Months Ended September 30,2020 vs
 202020192019
Net interest income  
Interest income$189,306 $254,040 $(64,734)
Interest expense176,225 155,015 21,210 
Net interest income13,081 99,025 (85,944)
Provision for/(release of) loan loss reserves23,340 600 22,740 
Net interest income (expense) after provision for/(release of) loan losses(10,259)98,425 (108,684)
Other income (loss)  
Operating lease income75,565 81,106 (5,541)
Sale of loans, net1,387 38,589 (37,202)
Realized gain (loss) on securities(12,089)10,726 (22,815)
Unrealized gain (loss) on equity securities(132)1,341 (1,473)
Unrealized gain (loss) on Agency interest-only securities183 38 145 
Realized gain (loss) on sale of real estate, net32,116 963 31,153 
Impairment of real estate— (1,350)1,350 
Fee and other income8,075 17,047 (8,972)
Net result from derivative transactions(15,988)(35,956)19,968 
Earnings (loss) from investment in unconsolidated joint ventures1,359 3,617 (2,258)
Gain (loss) on extinguishment/defeasance of debt22,244 (1,070)23,314 
Total other income (loss)112,720 115,051 (2,331)
Costs and expenses  
Salaries and employee benefits31,880 52,800 (20,920)
Operating expenses15,957 16,727 (770)
Real estate operating expenses22,041 17,776 4,265 
Fee expense5,892 4,951 941 
Depreciation and amortization29,642 29,192 450 
Total costs and expenses105,412 121,446 (16,034)
Income (loss) before taxes(2,951)92,030 (94,981)
Income tax expense (benefit)(5,078)478 (5,556)
Net income (loss)$2,127 $91,552 $(89,425)
Investment Overview
Activity for the nine months ended September 30, 2020 includes originating and funding of $556.1 million in principal value of commercial mortgage loans, which was offset by $484.7 million of sales and $675.7 million of principal repayments in the nine months ended September 30, 2020. We acquired $439.4 million of new securities, which was offset by $566.2 million of sales and $95.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $273.7 million during the nine months ended September 30, 2020. We also invested $31.7 million in real estate, which includes $25.4 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $94.2 million.
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Activity for the nine months ended September 30, 2019 includes originating and funding $1.5 billion in principal value of commercial mortgage loans, which was offset by $574.3 million of sales and $1.1 billion of principal repayments in the nine months ended September 30, 2019. We acquired $1.2 billion of new securities, which was partially offset by $538.2 million of sales and $178.5 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $501.3 million during the nine months ended September 30, 2019. We also invested $32.1 million in real estate, which includes $18.2 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $22.9 million.

Operating Overview

Net income (loss) totaled $2.1 million for the nine months ended September 30, 2020, compared to $91.6 million for the nine months ended September 30, 2019. Net income (loss) for the nine months ended September 30, 2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The most significant drivers of the $89.4 million decrease are as follows:

•a decrease in net interest income after provision for loan losses of $108.7 million, primarily as a result of the $64.7 million decrease in interest income and a $21.2 million increase in interest expense. Also contributing was a $22.7 million increase in provision for loan loss reserves related to the adoption of CECL;

•a decrease in total other income (loss) of $2.3 million, primarily as a result of a decrease of $37.2 million in sales of loans, a decrease of $22.8 million in realized gains (losses) on securities, a decrease of $5.5 million on operating lease income, a decrease of $9.0 million on fee and other income, partially offset by a $20.0 million increase in net results from derivative transactions and $31.2 million increase in profits on sales of real estate;

•a decrease in total costs and expenses of $16.0 million compared to the prior year, primarily attributable to a $20.9 million decrease in salaries and employee benefit, partially offset by a $4.3 million increase in real estate operating expenses; and

•A ($5.6 million) increase in income tax expense (benefit) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $(3.0) million for the nine months ended September 30, 2020, compared to $92.0 million for the nine months ended September 30, 2019. The significant components of the $95.0 million decrease in income (loss) before taxes are described in the first three bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $63.3 million for the nine months ended September 30, 2020, compared to $142.0 million for the nine months ended September 30, 2019. Core earnings for the nine months ended September 30, 2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The significant components of the $78.7 million decrease in core earnings are a decrease of $85.3 million in net interest income after provision for loan losses, a decrease in total other income (loss) of $5.7 million, primarily as a result of a decrease of $25.5 million in sale of loans, net, a decrease of $9.0 million in fee and other income, a decrease of $5.5 million in operating lease income and a decrease of $7.4 million in gain (loss) on securities and , partially offset by an increase of $26.9 million in sale of real estate, net, an increase of $11.5 million in net results from derivative transactions, an increase of $4.3 million in gain (loss) on extinguishment of debt and a decrease of $21.3 million in salaries and employee benefits.

Our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the COVID-19 pandemic. The actions taken by management had multiple impacts on core earnings for the nine months ended September 30, 2020. Management believes the actions taken were prompted by the unusual market conditions and therefore outside of Ladder’s core operations. Management believes adjusting for certain transactional charges/gains related to the impact of COVID-19, for the three months ended June 30, 2020, on its performance measures provides a more useful guide to assess the ongoing core operations of the Company.

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The impact from COVID-19 included adjustments related to the unusual market conditions and actions taken by management including: (a) $6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net, (b) $15.4 million of losses from sales of CMBS, (c) $3.7 million of loss from conduit loan sales, (d) $6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in interest expense, (e) $2.1 million of professional fee expenses included in operating expenses and (f) $0.2 million of severance costs included in salaries and employee benefits. The $34.5 million total of the preceding amounts was partially offset by (g) $19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par, net of (h) $1.5 million of accelerated premium amortization included in interest expense.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.

Net Interest Income
The $64.7 million decrease in interest income was primarily attributable to lower prevailing LIBOR rates during 2020 and a decrease in our securities and loan portfolios. For the nine months ended September 30, 2020, securities investments averaged $1.7 billion and loan investments averaged $3.2 billion. For the nine months ended September 30, 2019, securities investments averaged $1.7 billion and loan investments averaged $3.5 billion. There was a $261.8 million decrease in average loan investments, and a $57.6 million decrease in average securities investments.

The $21.2 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the nine months ended September 30, 2020. The increase was also driven by interest expense on the fully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a decrease in interest expense on FHLB debt.
The $108.7 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income and the increase in interest expense discussed above.

As of September 30, 2020, the weighted average yield on our mortgage loan receivables was 6.8%, compared to 7.2% as of September 30, 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 5.0%, compared to 3.6% as of September 30, 2019. The increase in the rate on borrowings against our mortgage loan receivables from September 30, 2019 to September 30, 2020 was primarily due to higher borrowing rates on new sources of financing obtained during the nine months ended September 30, 2020. As of September 30, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 33.5% of the carrying value of our mortgage loan receivables, compared to 39.4% as of September 30, 2019.

As of September 30, 2020, the weighted average yield on our real estate securities was 1.6%, compared to 3.2% as of September 30, 2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, the weighted average interest rate on borrowings against our real estate securities was 1.4%, compared to 2.7% as of September 30, 2019. The decrease in the rate on borrowings against our real estate securities from September 30, 2019 to September 30, 2020 was primarily due to lower prevailing market borrowing rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate securities equal to 73.6% of the carrying value of our real estate securities, compared to 86.1% as of September 30, 2019.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.0% as of September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate equal to 77.7% of the carrying value of our real estate, compared to 73.7% as of September 30, 2019.

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Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).

The change of $15.3 million in the nine months ended September 30, 2020 is reflected as an increase of reserve to provision of $15.6 million, and a decrease in reserve on unfunded commitments of $(0.3) million. These increases/decreases are primarily due to the update of the macro economic assumptions used in the Company’s CECL evaluation to reflect a recessionary macro economic scenario due to current market conditions instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the January 1, 2020 CECL reserve analysis, partially offset by a decrease in unfunded commitments. In addition to the CECL reserve, the Company determined that an asset-specific reserve of $8.0 million was required relating to two of the Company’s loans for the nine months ended September 30, 2020. For additional information, refer to “Allowance for Credit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.

We determined that a provision for loan losses of $0.6 million was required for the nine months ended September 30, 2019. The provision consisted of a portfolio-based, general reserve of $0.6 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, and no asset-specific reserve.

Operating Lease Income
The decrease of $5.5 million in operating lease income was primarily attributable to sales of real estate in 2019 and 2020, partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. Tenant recoveries are included in operating lease income.
Sale of Loans, Net
Income (loss) from sale of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income (loss) from sale of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2020, we sold/transferred 30 loans with an aggregate outstanding principal balance of $313.7 million. During the nine months ended September 30, 2020, we recorded no realized losses on loans related to lower of cost or market adjustments. We also sold six mortgage loan receivables held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $179.1 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, we sold/transferred 46 loans with an aggregate outstanding principal balance of $548.1 million. During the nine months ended September 30, 2019, we recorded no realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. The $37.2 million decrease was predominantly a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic.
Realized Gain (Loss) on Securities
For the nine months ended September 30, 2020, we sold $566.2 million of securities, comprised of $547.7 million of CMBS, no U.S. Agency Securities, $4.0 million of corporate bonds and $14.5 million of equity securities. For the nine months ended September 30, 2019, we sold $538.2 million of securities, comprised of $500.8 million of CMBS, no U.S. Agency Securities, $33.0 million of corporate bonds and $4.4 million of equity securities. The decrease of $22.8 million is a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic. Other than temporary impairments on securities of $(0.3) million are included in realized gain (loss) on securities for the nine months ended September 30, 2020, compared to $(0.1) million for the nine months ended September 30, 2019, an increase of $(0.2) million.
Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented $(0.1) million for the nine months ended September 30, 2020, compared to $1.3 million for the nine months ended September 30, 2019. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
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Unrealized Gain (Loss) on Agency Interest-Only Securities
The positive change of $0.1 million in unrealized gain (loss) on Agency interest-only securities was due to the mark-to-market adjustments on our securities portfolio.
Realized Gain (Loss) on Sale of Real Estate, Net
The increase of $31.2 million in realized gain (loss) on sale of real estate, net was a result of the commercial real estate and residential condominium sales discussed below.

During the nine months ended September 30, 2020, we sold one single-tenant net leased property, resulting in a net gain (loss) on sale of $4.4 million. During the nine months ended September 30, 2019, we sold no single-tenant net leased properties.

During the nine months ended September 30, 2020, we sold ten diversified commercial real estate properties, resulting in a net gain (loss) on sale of $27.7 million. During the nine months ended September 30, 2019, we sold three diversified commercial real estate properties resulting in a net gain (loss) on sale of $0.7 million.

During the nine months ended September 30, 2020, we sold four residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $24.4 thousand. During the nine months ended September 30, 2019, income from sales of residential condominiums totaled $0.4 million. We sold no residential condominium units from Veer Towers in Las Vegas, NV, but sold 14 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.4 million.

Impairment of Real Estate

There was no impairment of real estate for the nine months ended September 30, 2020. Impairment of real estate of $1.4 million was recorded for the nine months ended September 30, 2019, attributable to the receipt of a lease termination payment on a daily basis,single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call), sufficient to rebalance the facilities. Typically, the facilities are established with stated guidelines regarding the maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.Related Lease Intangibles, Net for further detail.
 
Committed Securities Repurchase FacilityFee and Other Income
 
We aregenerated fee income from origination fees, exit fees and other fees on the loans we originate and in which we invest, unrealized gains (losses) on our investment in a partymutual fund and dividend income on our investment in FHLB stock and equity securities. The $9.0 million decrease in fee and other income year-over-year was primarily due to a term master repurchase agreement withdecrease in exit fees, origination fees and dividend income. Also contributing was a major U.S. banking institutionrealized loss on our investment in the Fund, which was liquidated on June 22, 2020.

Net Result from Derivative Transactions
Net result from derivative transactions represented a loss of $16.0 million for CMBS, totaling $400.0the nine months ended September 30, 2020, which was comprised of an unrealized loss of $0.1 million and a realized loss of $15.9 million, compared to a loss of $36.0 million, for the nine months ended September 30, 2019, which was comprised of an unrealized gain of $0.9 million and a realized loss of $36.9 million, resulting in a positive change of $20.0 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The loss in 2020 was primarily related to movement in interest rates during the nine months ended September 30, 2020. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
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Earnings (Loss) from Investment in Unconsolidated Joint Ventures
Earnings from our investment in Grace Lake LLC totaled $0.7 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.7 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively. Earnings for the nine months ended September 30, 2019 included a gain due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail. The gain in the nine months ended September 30, 2020 is attributable to equity and earnings on our investments.

Gain (Loss) on Extinguishment/Defeasance of Debt

Gain (loss) on extinguishment/defeasance of debt totaled $22.2 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the Company retired $98.2 million of credit capacity. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentageprincipal of the collateral asset’s value than2027 Notes for a repurchase price of $83.9 million, recognizing a $12.9 million net gain on extinguishment of debt after recognizing $(1.3) million of unamortized debt issuance costs associated with the maximum leaving usretired debt, the Company retired $52.0 million of principal of the 2025 Notes for a repurchase price of $45.1 million, recognizing a $6.4 million net gain on extinguishment of debt after recognizing $(0.5) million of unamortized debt issuance costs associated with excess borrowing capacity that can be drawn uponthe retired debt, the Company retired $34.2 million of principal of the 2022 Notes for a later date and/or applied against future margin calls so that they can be satisfiedrepurchase price of $33.2 million, recognizing a $0.7 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt and, the Company retired $14.9 million of principal of the 2021 Notes for a cashless basis. Asrepurchase price of $14.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(34.0) thousand of unamortized debt issuance costs associated with the retired debt.

Gain (loss) on extinguishment/defeasance of debt totaled $(1.1) million for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the Company had $85.5 million borrowings outstanding, with an additional $314.5paid off $6.6 million of committedmortgage loan financing, available. Asrecognizing a loss on extinguishment of December 31, 2018,debt of $(1.1) million.

Salaries and Employee Benefits

Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $20.9 million in compensation expense was primarily attributable to the Company had no borrowings outstanding, with an additional $400.0reduction in compensation expense related to salaries and bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Operating Expenses

Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The decrease of $0.8 million was primarily related to a decrease in professional fees.

Real Estate Operating Expenses

The increase of committed financing available.$4.3 million in real estate operating expense primarily relates to the acquisition of real estate in 2019 and 2020.
 
Uncommitted Securities Repurchase FacilitiesFee Expense
Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.9 million in fee expense was primarily attributable to an increase in legal and other professional fees on mortgage loan receivables and real estate, partially offset by a decrease in financing and dead deal costs.
Depreciation and Amortization
The $0.4 million increase in depreciation and amortization is primarily attributable to the timing of the real estate sales or acquisitions during each quarter.
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Income Tax (Benefit) Expense
Most of our consolidated income tax provision relates to the business units held in our TRSs. The increase of ($5.6 million) in income tax (benefit) expense is primarily a result of operating losses in our TRSs.


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

To ensure that Ladder Capital can effectively address the funding needs of the Company on a timely basis, we maintain a diverse array of liquidity sources including (1) cash and cash equivalents; (2) cash generated from operations; (3) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; (5) principal repayments on investments including mortgage loans and securities; (6) borrowings under our revolving credit facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of CLO debt and other non-mark-to-market loan financing; (11) a significant and financeable unencumbered asset base; and (12) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis.

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

In addition, as a REIT, we are also required to make sufficient dividend payments to our shareholders in amounts at least sufficient to maintain our REIT status. Under IRS guidance, we may elect to pay a portion of our dividends in stock, subject to a cash/stock election by our shareholders, to optimize our level of capital retention. Accordingly, our cash requirement to pay dividends to maintain REIT status could be substantially reduced at the discretion of the board.
Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds, (2) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB, (3) long term non-recourse mortgage financing, (4) committed secured funding provided by banks and other lenders, and (5) uncommitted secured funding sources, including asset repurchase agreements with several counterpartiesa number of banks.
In the future, we may also use other sources of financing to financefund the acquisition of our investmentsassets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in CMBS and U.S. Agency Securities. The securities that served as collateral for these borrowings are highly liquid and marketable assets that are typically of relatively short duration. As we doorder to fund our future investments.

Refer to our “Financing Strategy in the caseCurrent Market Conditions” and “Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of other secured borrowings, we often borrow atour diverse financing sources and, for a lower percentagesummary of our financial obligations, refer to the collateral asset’s value thanContractual Obligations table below. All of our existing financial obligations due within the maximum leaving us with excess borrowing capacity thatfollowing year can be drawn upon a later date and/extended for one or applied against future margin calls so that they can be satisfied on a cashless basis.more additional years at our discretion, refinanced or repaid at maturity or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).


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Collateralized Borrowings Under Repurchase AgreementCash, Cash Equivalents and Restricted Cash
 
The following table presents the amountWe held cash, cash equivalents and restricted cash of collateralized borrowings outstanding as of the end of each quarter, the average amount of collateralized borrowings outstanding during the quarter and the monthly maximum amount of collateralized borrowings outstanding during the quarter ($ in thousands):

  Collateralized Borrowings Under Repurchase Agreements (1)
Quarter Ended Quarter-end balance Average quarterly balance Maximum balance of any month-end
       
September 30, 2016 $1,458,327
 $1,393,122
 $1,468,013
December 31, 2016 1,107,185
 1,397,061
 1,555,941
March 31, 2017 1,039,356
 1,073,893
 1,119,863
June 30, 2017 1,149,605
 1,264,948
 1,373,953
September 30, 2017 913,137
 1,126,201
 1,301,334
December 31, 2017 473,410
 739,721
 892,081
March 31, 2018 754,377
 721,139
 773,383
June 30, 2018 819,962
 787,568
 819,962
September 30, 2018 973,616
 934,554
 973,616
December 31, 2018 663,686
 735,350
 820,080
March 31, 2019 1,030,082
 968,984
 1,030,082
June 30, 2019 1,267,371
 1,221,388
 1,300,175
September 30, 2019 1,786,048
 1,599,183
 1,786,048
(1)  Collateralized borrowings under repurchase agreements include all securities and loan financing under repurchase agreements.
As of$917.7 million at September 30, 2020, of which $875.8 million was unrestricted cash and cash equivalents and $41.9 million was restricted cash. We held cash, cash equivalents and restricted cash of $355.7 million at December 31, 2019, we had repurchase agreements with 10 counterparties, with total debt obligations outstanding of $1.8 billion.which $58.2 million was unrestricted cash and cash equivalents and $297.6 million was restricted cash. As of September 30, 2019, two counterparties, JP Morganthe COVID-19 crisis evolved, management implemented a plan to mitigate uncertainty in financial markets by increasing liquidity and Wells Fargo, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $82.0 million, or 5% of our total equity. As of September 30, 2019, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 22.8%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.obtaining additional non-recourse and non-mark-to-market financing. 

Revolving Credit Facility
 
The Company’s revolving credit facility (the “Revolving Credit Facility”) provides for an aggregate maximum borrowing amount of $266.4 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. On January 15,November 25, 2019, the Company extended the maturity date ofamended the Revolving Credit Facility to February 11, 2020. The Company hasadd two additional one-year extension options, to extendextending the final maturity date, including all extension options, to February 2023. Interest on2025. The amendment also provided for a reduction in the Revolving Credit Facility isinterest rate to one-month LIBOR plus 3.25% per annum payable monthly3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in arrears.January 2020.
 
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
 
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. Our ability

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FHLB Financing
We have maintained membership in the FHLB since 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). As of September 30, 2020, Tuebor had $326.0 million of borrowings outstanding from the FHLB (with an additional $1.2 billion of committed term financing available), with terms of overnight to borrow under4.0 years, interest rates of 0.41% to 2.95%, and advance rates of 45.0% to 100% on eligible collateral, including cash collateral. As of September 30, 2020, collateral for the Revolving Credit Facility will be dependent on, among other things, LCFH’s compliance withborrowings was comprised of $303.0 million of CMBS and U.S. Agency Securities, $8.2 million of cash and $162.4 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $667.7 million for the financial covenants. The Revolving Credit Facility contains customary eventsnine months ended September 30, 2020. FHLB advances amounted to 6.9% of default, including non-paymentthe Company’s outstanding debt obligations as of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.September 30, 2020.


Mortgage Loan Financing
 
We generally finance our real estate using long-term non-recourse mortgage financing. During the nine months ended September 30, 2019,2020, we executed nineten term debt agreements to finance real estate. Our total portfolioAll of our mortgage loan financings arehave fixed rate financing at rates ranging from 4.25%3.75% to 6.75%, maturingmature between 2020 - 20292030 and totaling $723.3 million and $743.9total $770.0 million at September 30, 2019 and December 31, 2018, respectively.2020. These long-term non-recourse mortgages include net unamortized premiums of $5.3 million and $5.8$4.8 million at September 30, 2019 and December 31, 2018, respectively,2020, representing proceeds received upon financing greater than the contractual amounts due under the agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. We recorded $1.3 million and $0.8$0.9 million of premium amortization, which decreased interest expense, for the nine months ended September 30, 2019 and 2018, respectively.2020. The loans are collateralized by real estate and related lease intangibles, net, of $902.7 million and $939.4$919.3 million as of September 30, 20192020.

Secured Financing Facility

On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans. The Secured Financing Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature on May 6, 2023, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Secured Financing Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Senior Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Senior Financing Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, the Lender also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2018, respectively.

CLO Debt

2020. The Company completed CLO issuancesexpects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, the Lender has agreed to a customary standstill until December 31, 2020 or the date on which the Lender has exercised the Purchase Right in full, if earlier. In addition, the two transactions described below. TheLender has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender.

As of September 30, 2020, the Company had a total of $117.8 million and $601.5$190.6 million of floating rate, non-recourse CLO debtborrowings outstanding under the secured financing facility included in debt obligations on its consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively.sheets. Unamortized debt issuance costs of $0.4$8.5 million and $2.6 million arewere included in CLO debtsecured financing facility as of September 30, 2019 and December 31, 2018, respectively. As2020.

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Collateralized Loan Obligation (“CLO”) Debt

On October 17, 2017,April 27, 2020, a consolidated subsidiary of the Company consummatedcompleted a securitization of floating-rate commercial mortgage loans throughprivate CLO transaction with a static CLO structure. Over $456.9major U.S. bank which generated $310.2 million of balance sheetgross proceeds to Ladder, financing $481.3 million of loans (“Contributed Loans”) were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLOat a 64.5% advance rate on a matched term, non-mark-to-market and that are retained by anon-recourse basis. A consolidated subsidiary of the Company in the form ofwill retained a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s affiliate. An affiliate of the Company retained an approximately 18.5%35.5% subordinate and controlling interest in the CLO by retaining the most subordinate classes of notes issued by the CLO, retainsCLO. The Company retained control over major decisions made with respect to the administration of the Contributed Loans, including broad discretion in managing these loans in light of the COVID-19 pandemic, and appointshas the ability to appoint the special servicer under the CLO. The CLO is a VIE and the Company iswas the primary beneficiary and, therefore, consolidatesconsolidated the VIE.VIE - See Note 10, Consolidated Variable Interest Entities. Proceeds from the transaction were used to pay off other secured debt including bank and FHLB financing that was subject to mark-to-market provisions.

On December 21, 2017, a consolidated subsidiaryAs of September 30, 2020, the Company consummatedhad $281.6 million of matched term, non-mark-to-market and non-recourse basis CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.4 million were included in CLO debt as of September 30, 2020.

Hedging Strategies

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

Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a staticfinancial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million unsecured revolving credit facility, which continues to be fully-drawn, and the proceeds continue to be held as unrestricted cash on the Company’s balance sheet as of October 29, 2020.   

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO structure. Over $431.5securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term maturity, repurchase agreements with various bank counterparties. The Company has been able to continue to access securities repurchase funding and the pricing of such borrowings has improved during the three months ended September 30, 2020 as liquidity continued to return to the market and pricing for the securities that serve as collateral improved. Furthermore, during the three months ended September 30, 2020, the Company paid down $90.8 million of Contributed Loans were contributed into the CLO. Certainsecurities repurchase financing, primarily through sales of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a subsidiary of the Companysecurities.

Federal Home Loan Bank (“FHLB”) Financing:  As discussed in the form ofCompany’s Annual Report, in 2016, the FHFA adopted a participation interest or separate note. However, for afinal rule that limited period of time, to the extent loansour captive insurance subsidiary’s membership in the CLO are repaid,FHLB, requiring us to significantly reduce the CLO may acquire portionsamounts of the future fundings from the Company’s affiliate. An affiliateFHLB borrowings outstanding by February of the Company retained an approximately 25% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO, retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE.2021.

Participation Financing - Mortgage Loan Receivable

During the three months ended September 30, 2020, the Company paid down FHLB borrowings of $34.8 million. The remaining maturities are staggered out through 2024. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral. During the three months ended June 30, 2020, the Company paid down FHLB borrowings of $646.8 million and incurred $6.5 million in prepayment penalties related to this paydown.

Loan Repurchase Financing:  The Company has maintained a consistent dialogue with its loan financing counterparties since the COVID-19 crisis began to unfold in late March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, during the three months ended September 30, 2020, the Company paid down over $27.3 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a CLO financing transaction (see above). The Company continues to maintain an active dialogue with its bank counterparties as it expects loan collateral on each of their lines to experience some measure of forbearance.

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Secured Financing Facility:  On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with an American multinational corporation (the “Lender”), under which the Lender will provide the Company with approximately $206.4 million in senior secured financing (the “Secured Financing Facility”) to fund transitional and land loans (see above).

Completion of Private CLO: On April 27, 2020, the Company completed a private CLO financing transaction with a major U.S. bank which generated $310.2 million of gross proceeds, financing $481.3 million of loans at a 64.5% advance rate on a matched term, non-mark-to-market and non-recourse basis (see above).

Based on the financing actions described above, the Company has significantly decreased its exposure to mark-to-market financing. As of October 27, 2020, the Company is holding over $940.0 million of unrestricted cash.

Financial Covenants

We generally seek to maintain a debt-to-equity ratio of approximately 3.0:1.0 or below. We expect this ratio to fluctuate during the course of a fiscal year due to the normal course of business in our conduit lending operations, in which we generally securitize our inventory of conduit loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. We generally seek to match fund our assets according to their liquidity characteristics and expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen.

We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary.

Our borrowings under certain financing agreements and our committed repurchase facilities are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from 3.50 to 1.00 to 4.00 to 1.00, or a maximum ratio based on our asset composition at the time of determination), minimum net worth requirements (ranging from $400.0 million to $849.0 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.

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

We were in compliance with all covenants as described in the Company’s Annual Report, as of September 30, 2020.

Net of the $875.8 million of unrestricted cash held as of September 30, 2020, our adjusted leverage ratio would be significantly below 3.0x. In late March 2020, as the COVID-19 crisis evolved, management began executing on a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark-to-market financing. Partly as a result of maintaining conservative cash levels as of March 31, 2017,2020, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements). Refer to Financing Strategy in Current Market Conditions for further disclosures surrounding deleveraging actions completed during 2020.

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Results of Operations
A discussion regarding our results of operations for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 is presented below.

Three months ended September 30, 2020 compared to the three months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
 Three Months Ended September 30,2020 vs
 202020192019
Net interest income  
Interest income$54,621 $82,251 $(27,630)
Interest expense56,398 51,397 5,001 
Net interest income(1,777)30,854 (32,631)
Provision for/(release of) loan loss reserves(2,512)— (2,512)
Net interest income (expense) after provision for/(release of) loan losses735 30,854 (30,119)
Other income (loss)  
Operating lease income25,464 24,405 1,059 
Sale of loans, net1,127 11,247 (10,120)
Realized gain (loss) on securities(303)3,396 (3,699)
Unrealized gain (loss) on equity securities— 254 (254)
Unrealized gain (loss) on Agency interest-only securities9 16 (7)
Realized gain (loss) on sale of real estate, net21,588 2,082 19,506 
Fee and other income3,051 5,166 (2,115)
Net result from derivative transactions260 (9,465)9,725 
Earnings (loss) from investment in unconsolidated joint ventures447 1,094 (647)
Gain (loss) on extinguishment/defeasance of debt1,167 — 1,167 
Total other income (loss)52,810 38,195 14,615 
Costs and expenses  
Salaries and employee benefits7,858 14,319 (6,461)
Operating expenses3,938 5,314 (1,376)
Real estate operating expenses8,060 6,270 1,790 
Fee expense2,476 2,056 420 
Depreciation and amortization9,817 9,030 787 
Total costs and expenses32,149 36,989 (4,840)
Income (loss) before taxes21,396 32,060 (10,664)
Income tax expense (benefit)14 1,112 (1,098)
Net income (loss)$21,382 $30,948 $(9,566)
Investment Overview
Activity for the three months ended September 30, 2020 includes funding of $8.9 million in principal value of commercial mortgage loans, which was offset by $63.5 million of sales and $229.3 million of principal repayments in the three months ended September 30, 2020. We sold $34.0 million of securities and had $42.4 million of amortization in the portfolio, which partially contributed to a participatingnet decrease in our securities portfolio of $59.1 million during the three months ended September 30, 2020. We also received proceeds from the sale of real estate of $63.8 million during the three months ended September 30, 2020.
Activity for the three months ended September 30, 2019 includes originating and funding of $722.1 million in principal value of commercial mortgage loans, which was partially offset by $143.7 million of sales and $412.3 million of principal repayments in the three months ended September 30, 2019. We acquired $346.4 million of new securities, which was partially offset by $153.8 million of sales and $68.0 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $123.0 million during the three months ended September 30, 2019. We also invested $8.8 million in real estate and received proceeds from the sale of real estate of $7.2 million.
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Operating Overview

Net income (loss) totaled $21.4 million for the three months ended September 30, 2020, compared to $30.9 million for the three months ended September 30, 2019. The most significant drivers of the $9.5 million decrease are as follows:

•a decrease in net interest income after provision for loan losses of $30.1 million, primarily as a result of the $27.6 million decrease in interest income and the $5.0 million increase in interest expense;
•an increase in total other income (loss) of $14.6 million, primarily as a result of a $19.5 million increase in realized gain on sale of real estate, net, a $9.7 million increase in net results from derivative transactions, and a $1.2 million increase in gain (loss) on extinguishment of debt, partially offset by a $10.1 million decrease in sale of loans, net, a $3.7 million decrease in realized gain (loss) on securities and a $2.1 million decrease in fee and other income;

•a decrease in total costs and expenses of $4.8 million compared to the prior year, primarily as a result of a $6.5 million decrease in salaries and employee benefits and a $1.4 million decrease in operating expenses; and

•a decrease in income tax expense (benefit) of $1.1 million compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $21.4 million for the three months ended September 30, 2020, compared to $32.1 million for the three months ended September 30, 2019. The significant components of the $10.7 million decrease in income (loss) before taxes are described in the first four bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $19.7 million for the three months ended September 30, 2020, compared to $44.1 million for the three months ended September 30, 2019. A significant component of the $24.4 million decrease in core earnings is the $32.6 million decrease in net interest income, which includes a $27.6 million decrease in interest income and a $5.0 million increase in interest expense. Also contributing to the decrease is a decrease of $9.4 million in sale of loans, net, a decrease of $3.7 million in gain (loss) on securities and a decrease of $2.1 million in fee and other income, partially offset by an increase of $17.3 million in sale of real estate, net, a decrease of $5.0 million in total costs and expenses and a $1.2 million increase in gain (loss) on extinguishment/defeasance of debt.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.

Net Interest Income
The $27.6 million decrease in interest income was primarily attributable to lower prevailing LIBOR rates during 2020 and a decrease in our securities and loan portfolios. For the three months ended September 30, 2020, securities investments averaged $1.5 billion and loan investments averaged $2.9 billion. For the three months ended September 30, 2019, securities investments averaged $1.9 billion and loan investments averaged $3.3 billion. There was a $385.9 million decrease in average loan investments, and a $0.4 billion decrease in average securities investments.

The $5.0 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the three months ended September 30, 2020. The increase is also driven by interest expense on the fully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a decrease in interest expense on FHLB debt.

The $30.1 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income discussed above and the increase in interest expense discussed above and the $2.5 million decrease in provision for loan losses discussed below.
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As of September 30, 2020, the weighted average yield on our mortgage loan receivablereceivables was 6.8%, compared to a third party. The sales proceeds of $4.0 million were considered non-recourse secured borrowings and were recognized in debt obligations on the Company’s consolidated balance sheets with $2.5 million outstanding as of December 31, 2018. There were no non-recourse secured borrowings recognized in debt obligations on the Company’s consolidated balance sheets7.2% as of September 30, 2019 as the weighted average yield on new loans originated or funded was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2020, the weighted average interest rate on borrowings against our mortgage loan maturedreceivables was 5.0%, compared to 3.6% as of September 30, 2019. The increase in the rate on borrowings against our mortgage loan receivables from September 30, 2019 to September 30, 2020 was primarily due to higher borrowing rates on new sources of financing obtained during 2020. As of September 30, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 33.5% of the carrying value of our mortgage loan receivables, compared to 39.4% as of September 30, 2019.

As of September 30, 2020, the weighted average yield on our real estate securities was 1.6%, compared to 3.2% as of September 30, 2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, the weighted average interest rate on borrowings against our real estate securities was 1.4%, compared to 2.7% as of September 30, 2019. The decrease in the rate on borrowings against our real estate securities from September 30, 2019 to September 30, 2020 was primarily due to lower prevailing market borrowing rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate securities equal to 73.6% of the carrying value of our real estate securities, compared to 86.1% as of September 30, 2019.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.0% as of September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate equal to 77.7% of the carrying value of our real estate, compared to 73.7% as of September 30, 2019.
Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and was repaidmanagement processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).
The change of $(2.5) million is reflected as a decrease to provision for/(release of) loan loss reserves of $(2.0) million, and a decrease in reserve on unfunded commitments of $(0.5) million during the three months ended JuneSeptember 30, 2020. These decreases are primarily due to the decrease in the size of our loan portfolio, offset by an update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter. For additional information, refer to “Allowance for Credit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.

We determined that no provision for loan losses was required for the three months ended September 30, 2019.

Operating Lease Income
The Companyincrease of $1.1 million in operating lease income was primarily attributable to real estate purchases made during 2019 and 2020. Tenant recoveries are included in operating lease income.

Sales of Loans, Net
Income (loss) from sales of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended September 30, 2020, we sold/transferred eight mortgage loan receivables held for sale with an aggregate outstanding principal balance of $60.3 million. We also sold one mortgage loan receivable held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $7.0 million during the three months ended September 30, 2020. In the three months ended September 30, 2019, we sold/transferred 10 loans with an aggregate outstanding principal balance of $140.7 million. During the three months ended September 30, 2020 and 2019, we recorded $0.2no realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. The $10.1 million decrease was predominantly a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic.

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Realized Gain (Loss) on Securities
We sold $34.0 million of interest expensesecurities for the ninethree months ended September 30, 2020. We sold $153.8 million of securities for the three months ended September 30, 2019. The Company recorded $0.1decrease of $3.7 million in realized gain (loss) on securities is a result of our financing and $0.4 million of interest expenseliquidity measures implemented to date in direct response to the COVID-19 pandemic. Included in realized gain (loss) on securities are zero other than temporary impairments on securities for the three and nine months ended September 30, 2018, respectively.


FHLB Financing
On July 11, 2012, Tuebor became a member of the FHLB. As of September 30, 2019, Tuebor had $1.1 billion of borrowings outstanding (with an additional $869.32020, compared to $(0.1) million of committed term financing available from the FHLB), with terms of overnight to 5.0 years, interest rates of 1.47% to 2.95%, and advance rates of 61.0% to 95.7% of the collateral. As of September 30, 2019, collateral for the borrowings was comprised of $721.5 million of CMBS and U.S. Agency Securities and $689.5 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.2 billion for the ninethree months ended September 30, 2019. On December 6, 2017, Tuebor’s advance limit was updated by the FHLB

Unrealized Gain (Loss) on Equity Securities

There were no unrealized gain (loss) on equity securities as of September 30, 2020, compared to the lowest of a Set Dollar Limit (currently $2.0 billion), 40% of Tuebor’s total assets or 150% of the Company’s total equity. Beginning April 1, 2020 through December 31, 2020, the Set Dollar Limit will be $1.5 billion. Beginning January 1, 2021 through February 19, 2021, the Set Dollar Limit will be $750.0 million. Tuebor is well-positioned to meet its obligations and pay down its advances in accordance with the scheduled reduction in the Set Dollar Limit, which remains subject to revision by the FHLB or as a result of any future changes in applicable regulations.

As of December 31, 2018, Tuebor had $1.3 billion of borrowings outstanding (with an additional $647.5$0.3 million of committed term financing available from the FHLB), with terms of overnight to 5.75 years, interest rates of 1.18% to 3.01%, and advance rates of 56.4% to 95.2% of the collateral. As of December 31, 2018, collateral for the borrowings was comprised of $1.0 billion of CMBS and U.S. Agency Securities and $637.2 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.3 billion for the nine months ended December 31, 2018.

Effective February 19, 2016, the FHFA, regulator of the FHLB, adopted a final rule amending its regulation regarding the eligibility of captive insurance companies for FHLB membership.
Pursuant to the final rule, Tuebor may remain a member of the FHLB through February 19, 2021 (the “Transition Period”). During the Transition Period, Tuebor is eligible to continue to draw new additional advances, extend the maturities of existing advances, and pay off outstanding advances on the same terms as non-captive insurance company FHLB members with the following two exceptions:
1.New advances (including any existing advances that are extended during the Transition Period) will have maturity dates on or before February 19, 2021; and
2.The FHLB will make new advances to Tuebor subject to a requirement that Tuebor’s total outstanding advances do not exceed 40% of Tuebor’s total assets. As of September 30, 2019, the Company is in compliance with this requirement.

Tuebor has executed new advances since the effective date of the new rule in the ordinary course of business.

FHLB advances amounted to 22.1% of the Company’s outstanding debt obligations as of September 30, 2019. The Company does not anticipate thathas elected the FHFA’s final regulation will materially impact its operations as it will continuefair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
Unrealized Gain (Loss) on Agency Interest-Only Securities
The negative change of $6.5 thousand in unrealized gain (loss) on Agency interest-only securities was due to access FHLB advances during the five-year Transition Period and it has multiple, diverse funding sources for financing its portfoliochange in the future. In the latter stagesfair value of the five-year Transition Period,securities.

Realized Gain (Loss) on Sale of Real Estate, Net
The increase of $19.5 million in realized gain (loss) on sale of real estate, net was primarily a result of the Company expects to adjust its financing activities by gradually making greater usecommercial real estate and residential condominium sales discussed below.

During the three months ended September 30, 2020, we sold one single-tenant net leased property, resulting in a net gain (loss) on sale of alternative sources$4.4 million. During the three months ended September 30, 2019, we sold no single-tenant net leased properties.

During the three months ended September 30, 2020, we sold two diversified commercial real estate properties, resulting in a net gain (loss) on sale of funding$17.1 million. During the three months ended September 30, 2019, we sold one diversified commercial real estate properties resulting in a net gain (loss) on sale of types currently used by$2.1 million.

During the Company including securedthree months ended September 30, 2020, we sold one residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $17.4 thousand. During the three months ended September 30, 2019, we sold one residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $32.2 thousand.

Impairment of Real Estate

There was no impairment of real estate for the three months ended September 30, 2020 and unsecured borrowings from banksSeptember 30, 2019.

Fee and Other Income

We generate fee and other counterparties,income from origination fees, exit fees and other fees on the issuance of corporate bondsloans we originate and in which we invest, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock and equity securities. The $2.1 million decrease in fee and other income year-over-year was primarily due to a decrease in exit fees, origination fees and dividend income.

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Net Result from Derivative Transactions
Net result from derivative transactions represented a gain of $0.3 million for the securitization or salethree months ended September 30, 2020, which was comprised of assets. Future movesan unrealized gain of $0.1 million and a realized gain of $0.2 million, compared to alternative funding sources could resulta loss of $9.5 million for the three months ended September 30, 2019, which was comprised of an unrealized loss of $0.6 million and a realized loss of $8.9 million, resulting in higher or lower advance rates from secured funding sources but also the incurrencea positive change of higher funding$9.7 million. The hedge positions were related to fixed rate conduit loans and operating costs than would have been incurred had FHLB funding continued to be available. In addition, the Company may find it more difficult to obtain committed secured funding for multiple year terms as it has been able to obtain from the FHLB.

securities investments. The Transition Period allows time for events to occurderivative positions that may impact Tuebor’s long-term membership in the FHLB, including further regulatory changes, the enactment of legislation, or the filing of litigation challenging the validity of the final rule. During this period,generated these results were a combination of these external events and/or Tuebor’s own actions couldinterest rate futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gain in 2020 was primarily related to movement in interest rates during the three months ended September 30, 2020. The total net result from derivative transactions is composed of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the emergencefair value of feasible alternative approaches for it to retain its FHLB membership.asset hedges.
 
Earnings (Loss) from Investment in Unconsolidated Joint Ventures
Earnings (loss) from our investment in Grace Lake JV totaled $0.2 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.2 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

There is no assurance thatwas a $1.2 million gain (loss) on extinguishment/defeasance of debt for the FHFA orthree months ended September 30, 2020. During the FHLB will not take actions that could adversely impact Tuebor’s membership in the FHLB and continuing access to new or existing advances prior to February 19, 2021.

Tuebor is subject to state regulations which require that dividends (including dividends tothree months ended September 30, 2020, the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a resultretired $6.2 million of this restriction, $1.9 billionprincipal of the member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval2027 Notes for a repurchase price of state insurance regulators at September 30, 2019. To facilitate intercompany cash funding$5.5 million, recognizing a $0.6 million net gain on extinguishment of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

Senior Unsecured Notes
LCFH issueddebt after recognizing $(80.3) thousand of unamortized debt issuance costs associated with the retired debt, the Company retired $2.8 million of principal of the 2025 Notes for a repurchase price of $2.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(24.6) thousand of unamortized debt issuance costs associated with the retired debt, the Company retired $19.7 million of principal of the 2022 Notes the 2021 Notes and the 2017 Notes (each as defined below, and collectively, the “Notes”) with Ladder Capital Finance Corporation (“LCFC”), as co-issuersfor a repurchase price of $19.4 million, recognizing a $0.2 million net gain on a joint and several basis. LCFC is a 100% owned finance subsidiaryextinguishment of Series TRSdebt after recognizing $(0.1) million of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company is the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business. As of September 30, 2019, the Company has a 89.8% economic and voting interest in LCFH and controls the management of LCFH as a result of its ability to appoint board members. Accordingly, the Company consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners. In addition, the Company, through certain subsidiaries which are treated as TRSs, is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and federal, state and local income taxes, there are no material differences between the Company’s consolidated financial statements and LCFH’s consolidated financial statements. Unamortizedunamortized debt issuance costs of $9.1 millionassociated with the retired debt and $11.2 million are included in senior unsecured notes as of September 30, 2019 and December 31, 2018, respectively.

2021 Notes

On August 1, 2014, LCFH issued $300.0 million in aggregate principal amount of 5.875% senior notes due August 1, 2021 (the “2021 Notes”). The 2021 Notes require interest payments semi-annually in cash in arrears on February 1 and August 1 of each year, beginning on February 1, 2015. The 2021 Notes will mature on August 1, 2021. The 2021 Notes are unsecured and are subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after August 1, 2020, the 2021 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice, without penalty. On February 24, 2016, the board of directors authorized the Company to make up to $100.0 million in repurchases of the 2021 Notes from time to time without further approval. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2021 Notes from time to time without further approval.

During the year ended December 31, 2016, the Company retired $33.8$7.2 million of principal of the 2021 Notes for a repurchase price of $28.2$7.1 million, recognizing a $5.1$3.2 thousand net gain on extinguishment of debt after recognizing $(13.9) thousand of unamortized debt issuance costs associated with the retired debt. There was no gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2019.

Salaries and Employee Benefits
Salaries and employee benefits totaled $7.9 million for the three months ended September 30, 2020, compared to $14.3 million for the three months ended September 30, 2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $6.5 million in compensation expense was primarily attributable to the reduction in compensation expense related to salaries and bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
Operating Expenses
Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The decrease of $1.4 million was primarily related to a decrease in professional fees during the three months ended September 30, 2020.
Real Estate Operating Expenses
The increase of $1.8 million in real estate operating expenses primarily relates to the acquisition of real estate in 2019 and 2020, partially offset by real estate sales in 2020.
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Fee Expense
Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.4 million in fee expense was primarily attributable to an increase in other professional fees, partially offset by a decrease in financing cost fees, legal fees paid for loan and real estate assets, and dead deal costs in the three months ended September 30, 2020.
Depreciation and Amortization
The $0.8 million increase in depreciation and amortization was attributable to the acquisition of real estate in 2019 and 2020.
Income Tax (Benefit) Expense
Most of our consolidated income tax provision related to the business units held in our TRSs. The decrease in income tax expense (benefit) of $1.1 million is primarily attributable to operating losses in our TRSs.

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Results of Operations

A discussion regarding our results of operations for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is presented below.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands):
 Nine Months Ended September 30,2020 vs
 202020192019
Net interest income  
Interest income$189,306 $254,040 $(64,734)
Interest expense176,225 155,015 21,210 
Net interest income13,081 99,025 (85,944)
Provision for/(release of) loan loss reserves23,340 600 22,740 
Net interest income (expense) after provision for/(release of) loan losses(10,259)98,425 (108,684)
Other income (loss)  
Operating lease income75,565 81,106 (5,541)
Sale of loans, net1,387 38,589 (37,202)
Realized gain (loss) on securities(12,089)10,726 (22,815)
Unrealized gain (loss) on equity securities(132)1,341 (1,473)
Unrealized gain (loss) on Agency interest-only securities183 38 145 
Realized gain (loss) on sale of real estate, net32,116 963 31,153 
Impairment of real estate— (1,350)1,350 
Fee and other income8,075 17,047 (8,972)
Net result from derivative transactions(15,988)(35,956)19,968 
Earnings (loss) from investment in unconsolidated joint ventures1,359 3,617 (2,258)
Gain (loss) on extinguishment/defeasance of debt22,244 (1,070)23,314 
Total other income (loss)112,720 115,051 (2,331)
Costs and expenses  
Salaries and employee benefits31,880 52,800 (20,920)
Operating expenses15,957 16,727 (770)
Real estate operating expenses22,041 17,776 4,265 
Fee expense5,892 4,951 941 
Depreciation and amortization29,642 29,192 450 
Total costs and expenses105,412 121,446 (16,034)
Income (loss) before taxes(2,951)92,030 (94,981)
Income tax expense (benefit)(5,078)478 (5,556)
Net income (loss)$2,127 $91,552 $(89,425)
Investment Overview
Activity for the nine months ended September 30, 2020 includes originating and funding of $556.1 million in principal value of commercial mortgage loans, which was offset by $484.7 million of sales and $675.7 million of principal repayments in the nine months ended September 30, 2020. We acquired $439.4 million of new securities, which was offset by $566.2 million of sales and $95.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $273.7 million during the nine months ended September 30, 2020. We also invested $31.7 million in real estate, which includes $25.4 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $94.2 million.
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Activity for the nine months ended September 30, 2019 includes originating and funding $1.5 billion in principal value of commercial mortgage loans, which was offset by $574.3 million of sales and $1.1 billion of principal repayments in the nine months ended September 30, 2019. We acquired $1.2 billion of new securities, which was partially offset by $538.2 million of sales and $178.5 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $501.3 million during the nine months ended September 30, 2019. We also invested $32.1 million in real estate, which includes $18.2 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $22.9 million.

Operating Overview

Net income (loss) totaled $2.1 million for the nine months ended September 30, 2020, compared to $91.6 million for the nine months ended September 30, 2019. Net income (loss) for the nine months ended September 30, 2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The most significant drivers of the $89.4 million decrease are as follows:

•a decrease in net interest income after provision for loan losses of $108.7 million, primarily as a result of the $64.7 million decrease in interest income and a $21.2 million increase in interest expense. Also contributing was a $22.7 million increase in provision for loan loss reserves related to the adoption of CECL;

•a decrease in total other income (loss) of $2.3 million, primarily as a result of a decrease of $37.2 million in sales of loans, a decrease of $22.8 million in realized gains (losses) on securities, a decrease of $5.5 million on operating lease income, a decrease of $9.0 million on fee and other income, partially offset by a $20.0 million increase in net results from derivative transactions and $31.2 million increase in profits on sales of real estate;

•a decrease in total costs and expenses of $16.0 million compared to the prior year, primarily attributable to a $20.9 million decrease in salaries and employee benefit, partially offset by a $4.3 million increase in real estate operating expenses; and

•A ($5.6 million) increase in income tax expense (benefit) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $(3.0) million for the nine months ended September 30, 2020, compared to $92.0 million for the nine months ended September 30, 2019. The significant components of the $95.0 million decrease in income (loss) before taxes are described in the first three bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $63.3 million for the nine months ended September 30, 2020, compared to $142.0 million for the nine months ended September 30, 2019. Core earnings for the nine months ended September 30, 2020 were significantly impacted by management’s actions to generate liquidity and pay down mark-to-market financing in direct response to the COVID-19 pandemic. The significant components of the $78.7 million decrease in core earnings are a decrease of $85.3 million in net interest income after provision for loan losses, a decrease in total other income (loss) of $5.7 million, primarily as a result of a decrease of $25.5 million in sale of loans, net, a decrease of $9.0 million in fee and other income, a decrease of $5.5 million in operating lease income and a decrease of $7.4 million in gain (loss) on securities and , partially offset by an increase of $26.9 million in sale of real estate, net, an increase of $11.5 million in net results from derivative transactions, an increase of $4.3 million in gain (loss) on extinguishment of debt and a decrease of $21.3 million in salaries and employee benefits.

Our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the COVID-19 pandemic. The actions taken by management had multiple impacts on core earnings for the nine months ended September 30, 2020. Management believes the actions taken were prompted by the unusual market conditions and therefore outside of Ladder’s core operations. Management believes adjusting for certain transactional charges/gains related to the impact of COVID-19, for the three months ended June 30, 2020, on its performance measures provides a more useful guide to assess the ongoing core operations of the Company.

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The impact from COVID-19 included adjustments related to the unusual market conditions and actions taken by management including: (a) $6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net, (b) $15.4 million of losses from sales of CMBS, (c) $3.7 million of loss from conduit loan sales, (d) $6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in interest expense, (e) $2.1 million of professional fee expenses included in operating expenses and (f) $0.2 million of severance costs included in salaries and employee benefits. The $34.5 million total of the preceding amounts was partially offset by (g) $19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par, net of (h) $1.5 million of accelerated premium amortization included in interest expense.

See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.

Net Interest Income
The $64.7 million decrease in interest income was primarily attributable to lower prevailing LIBOR rates during 2020 and a decrease in our securities and loan portfolios. For the nine months ended September 30, 2020, securities investments averaged $1.7 billion and loan investments averaged $3.2 billion. For the nine months ended September 30, 2019, securities investments averaged $1.7 billion and loan investments averaged $3.5 billion. There was a $261.8 million decrease in average loan investments, and a $57.6 million decrease in average securities investments.

The $21.2 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds issued in 2020, prepayment penalties on repayment of mark-to-market borrowings and hyper amortization of deferred issuance costs as a result of the retirement of corporate bonds in the nine months ended September 30, 2020. The increase was also driven by interest expense on the fully drawn revolver and the addition of the CLO and secured financing facility, partially offset by a decrease in interest expense on FHLB debt.
The $108.7 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income and the increase in interest expense discussed above.

As of September 30, 2020, the weighted average yield on our mortgage loan receivables was 6.8%, compared to 7.2% as of September 30, 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 5.0%, compared to 3.6% as of September 30, 2019. The increase in the rate on borrowings against our mortgage loan receivables from September 30, 2019 to September 30, 2020 was primarily due to higher borrowing rates on new sources of financing obtained during the nine months ended September 30, 2020. As of September 30, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 33.5% of the carrying value of our mortgage loan receivables, compared to 39.4% as of September 30, 2019.

As of September 30, 2020, the weighted average yield on our real estate securities was 1.6%, compared to 3.2% as of September 30, 2019, primarily due to lower prevailing market rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, the weighted average interest rate on borrowings against our real estate securities was 1.4%, compared to 2.7% as of September 30, 2019. The decrease in the rate on borrowings against our real estate securities from September 30, 2019 to September 30, 2020 was primarily due to lower prevailing market borrowing rates as of September 30, 2020 compared to September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate securities equal to 73.6% of the carrying value of our real estate securities, compared to 86.1% as of September 30, 2019.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of September 30, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.0% as of September 30, 2019. As of September 30, 2020, we had outstanding borrowings secured by our real estate equal to 77.7% of the carrying value of our real estate, compared to 73.7% as of September 30, 2019.

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Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock).

The change of $15.3 million in the nine months ended September 30, 2020 is reflected as an increase of reserve to provision of $15.6 million, and a decrease in reserve on unfunded commitments of $(0.3) million. These increases/decreases are primarily due to the update of the macro economic assumptions used in the Company’s CECL evaluation to reflect a recessionary macro economic scenario due to current market conditions instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the January 1, 2020 CECL reserve analysis, partially offset by a decrease in unfunded commitments. In addition to the CECL reserve, the Company determined that an asset-specific reserve of $8.0 million was required relating to two of the Company’s loans for the nine months ended September 30, 2020. For additional information, refer to “Allowance for Credit Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.

We determined that a provision for loan losses of $0.6 million was required for the nine months ended September 30, 2019. The provision consisted of a portfolio-based, general reserve of $0.6 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, and no asset-specific reserve.

Operating Lease Income
The decrease of $5.5 million in operating lease income was primarily attributable to sales of real estate in 2019 and 2020, partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. Tenant recoveries are included in operating lease income.
Sale of Loans, Net
Income (loss) from sale of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income (loss) from sale of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2020, we sold/transferred 30 loans with an aggregate outstanding principal balance of $313.7 million. During the nine months ended September 30, 2020, we recorded no realized losses on loans related to lower of cost or market adjustments. We also sold six mortgage loan receivables held for investment, net, at amortized cost, with an aggregate outstanding principal balance of $179.1 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, we sold/transferred 46 loans with an aggregate outstanding principal balance of $548.1 million. During the nine months ended September 30, 2019, we recorded no realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. The $37.2 million decrease was predominantly a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic.
Realized Gain (Loss) on Securities
For the nine months ended September 30, 2020, we sold $566.2 million of securities, comprised of $547.7 million of CMBS, no U.S. Agency Securities, $4.0 million of corporate bonds and $14.5 million of equity securities. For the nine months ended September 30, 2019, we sold $538.2 million of securities, comprised of $500.8 million of CMBS, no U.S. Agency Securities, $33.0 million of corporate bonds and $4.4 million of equity securities. The decrease of $22.8 million is a result of our financing and liquidity measures implemented to date in direct response to the COVID-19 pandemic. Other than temporary impairments on securities of $(0.3) million are included in realized gain (loss) on securities for the nine months ended September 30, 2020, compared to $(0.1) million for the nine months ended September 30, 2019, an increase of $(0.2) million.
Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented $(0.1) million for the nine months ended September 30, 2020, compared to $1.3 million for the nine months ended September 30, 2019. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
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Unrealized Gain (Loss) on Agency Interest-Only Securities
The positive change of $0.1 million in unrealized gain (loss) on Agency interest-only securities was due to the mark-to-market adjustments on our securities portfolio.
Realized Gain (Loss) on Sale of Real Estate, Net
The increase of $31.2 million in realized gain (loss) on sale of real estate, net was a result of the commercial real estate and residential condominium sales discussed below.

During the nine months ended September 30, 2020, we sold one single-tenant net leased property, resulting in a net gain (loss) on sale of $4.4 million. During the nine months ended September 30, 2019, we sold no single-tenant net leased properties.

During the nine months ended September 30, 2020, we sold ten diversified commercial real estate properties, resulting in a net gain (loss) on sale of $27.7 million. During the nine months ended September 30, 2019, we sold three diversified commercial real estate properties resulting in a net gain (loss) on sale of $0.7 million.

During the nine months ended September 30, 2020, we sold four residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $24.4 thousand. During the nine months ended September 30, 2019, income from sales of residential condominiums totaled $0.4 million. We sold no residential condominium units from Veer Towers in Las Vegas, NV, but sold 14 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.4 million.

Impairment of Real Estate

There was no impairment of real estate for the nine months ended September 30, 2020. Impairment of real estate of $1.4 million was recorded for the nine months ended September 30, 2019, attributable to the receipt of a lease termination payment on a single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and Related Lease Intangibles, Net for further detail.
Fee and Other Income
We generated fee income from origination fees, exit fees and other fees on the loans we originate and in which we invest, unrealized gains (losses) on our investment in a mutual fund and dividend income on our investment in FHLB stock and equity securities. The $9.0 million decrease in fee and other income year-over-year was primarily due to a decrease in exit fees, origination fees and dividend income. Also contributing was a realized loss on our investment in the Fund, which was liquidated on June 22, 2020.

Net Result from Derivative Transactions
Net result from derivative transactions represented a loss of $16.0 million for the nine months ended September 30, 2020, which was comprised of an unrealized loss of $0.1 million and a realized loss of $15.9 million, compared to a loss of $36.0 million, for the nine months ended September 30, 2019, which was comprised of an unrealized gain of $0.9 million and a realized loss of $36.9 million, resulting in a positive change of $20.0 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The loss in 2020 was primarily related to movement in interest rates during the nine months ended September 30, 2020. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
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Earnings (Loss) from Investment in Unconsolidated Joint Ventures
Earnings from our investment in Grace Lake LLC totaled $0.7 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.7 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively. Earnings for the nine months ended September 30, 2019 included a gain due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail. The gain in the nine months ended September 30, 2020 is attributable to equity and earnings on our investments.

Gain (Loss) on Extinguishment/Defeasance of Debt

Gain (loss) on extinguishment/defeasance of debt totaled $22.2 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the Company retired $98.2 million of principal of the 2027 Notes for a repurchase price of $83.9 million, recognizing a $12.9 million net gain on extinguishment of debt after recognizing $(0.4)$(1.3) million of unamortized debt issuance costs associated with the retired debt, the Company retired $52.0 million of principal of the 2025 Notes for a repurchase price of $45.1 million, recognizing a $6.4 million net gain on extinguishment of debt after recognizing $(0.5) million of unamortized debt issuance costs associated with the retired debt, the Company retired $34.2 million of principal of the 2022 Notes for a repurchase price of $33.2 million, recognizing a $0.7 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt and, the Company retired $14.9 million of principal of the 2021 Notes for a repurchase price of $14.6 million, recognizing a $0.2 million net gain on extinguishment of debt after recognizing $(34.0) thousand of unamortized debt issuance costs associated with the retired debt.

Gain (loss) on extinguishment/defeasance of debt totaled $(1.1) million for the nine months ended September 30, 2019. During the nine months ended September 30, 2019, the Company paid off $6.6 million of mortgage loan financing, recognizing a loss on extinguishment of debt of $(1.1) million.

Salaries and Employee Benefits

Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $20.9 million in compensation expense was primarily attributable to the reduction in compensation expense related to salaries and bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Operating Expenses

Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The decrease of $0.8 million was primarily related to a decrease in professional fees.

Real Estate Operating Expenses

The increase of $4.3 million in real estate operating expense primarily relates to the acquisition of real estate in 2019 and 2020.
Fee Expense
Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.9 million in fee expense was primarily attributable to an increase in legal and other professional fees on mortgage loan receivables and real estate, partially offset by a decrease in financing and dead deal costs.
Depreciation and Amortization
The $0.4 million increase in depreciation and amortization is primarily attributable to the timing of the real estate sales or acquisitions during each quarter.
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Income Tax (Benefit) Expense
Most of our consolidated income tax provision relates to the business units held in our TRSs. The increase of ($5.6 million) in income tax (benefit) expense is primarily a result of operating losses in our TRSs.


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

To ensure that Ladder Capital can effectively address the funding needs of the Company on a timely basis, we maintain a diverse array of liquidity sources including (1) cash and cash equivalents; (2) cash generated from operations; (3) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; (5) principal repayments on investments including mortgage loans and securities; (6) borrowings under our revolving credit facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of CLO debt and other non-mark-to-market loan financing; (11) a significant and financeable unencumbered asset base; and (12) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis.

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

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

Refer to our “Financing Strategy in the Current Market Conditions” and “Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of our diverse financing sources and, for a summary of our financial obligations, refer to the Contractual Obligations table below. All of our existing financial obligations due within the following year can be extended for one or more additional years at our discretion, refinanced or repaid at maturity or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).

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Cash, Cash Equivalents and Restricted Cash
We held cash, cash equivalents and restricted cash of $917.7 million at September 30, 2020, of which $875.8 million was unrestricted cash and cash equivalents and $41.9 million was restricted cash. We held cash, cash equivalents and restricted cash of $355.7 million at December 31, 2019, of which $58.2 million was unrestricted cash and cash equivalents and $297.6 million was restricted cash. As the COVID-19 crisis evolved, management implemented a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark-to-market financing. 

Cash Flows

The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash ($ in thousands):
 Nine Months Ended September 30,
 20202019
Net cash provided by (used in) operating activities$88,009 $64,245 
Net cash provided by (used in) investing activities690,478 (285,759)
Net cash provided by (used in) financing activities(216,497)244,817 
Net increase (decrease) in cash, cash equivalents and restricted cash$561,990 $23,303 

We experienced a net increase in cash, cash equivalents and restricted cash of $562.0 million for the nine months ended September 30, 2020, compared to a net increase in cash, cash equivalents and restricted cash of $23.3 million for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, we received (i) $568.5 million of proceeds from repayment of mortgage loans receivable, (ii) $484.7 million of proceeds from the sales of loans, (iii) $566.5 million of proceeds from the sales of real estate securities, (iv) $105.4 million of repayment of real estate securities and (v) $(85.0) million net borrowings under debt obligations.

Unencumbered Assets

As of September 30, 2019, the remaining $266.22020, we held unencumbered cash of $875.8 million, in aggregate principal amountunencumbered loans of the 2021 Notes is due August 1, 2021.$1.3 billion, unencumbered securities of $142.7 million, unencumbered real estate of $71.3 million and $379.9 million of other assets not secured by any portion of secured indebtedness.

2022 Notes

On March 16, 2017, LCFH issued $500.0 million in aggregate principal amount of 5.250% senior notes due March 15, 2022 (the “2022 Notes”). The 2022 Notes require interest payments semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The 2022 Notes will mature on March 15, 2022. The 2022 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. At any time on or after September 15, 2021, the 2022 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, without penalty. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2022 Notes from time to time without further approval.

2025 Notes

On September 25, 2017, LCFH issued $400.0 million in aggregate principal amount of 5.250% senior notes due October 1, 2025 (the “2025 Notes”). The 2025 Notes require interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on April 1, 2018. The 2025 Notes will mature on October 1, 2025. The 2025 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the 2025 Notes, in whole, at any time, or from time to time, prior to their stated maturity. The 2025 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the 2025 Notes plus the Applicable Premium (as defined in the indenture governing the 2025 Notes) as of, and accrued and unpaid interest, if any, to the redemption date. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2025 Notes from time to time without further approval.


Stock Repurchases

On October 30, 2014, the board of directors authorized the Company to make up to $50.0 million in repurchases of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. As of September 30, 2019,2020, the Company has a remaining amount available for repurchase of $41.1$38.6 million, which represents 2.2%4.5% in the aggregate of its outstanding Class A common stock, based on the closing price of $17.27$7.12 per share on such date.

The following table is a summary Refer to Item 1—“Financial Statements—Note 11, Equity Structure and Accounts” for disclosure of the Company’s repurchase activity of its Class A common stock during the nine months ended September 30, 2019 and 2018 ($ in thousands):

  Shares Amount(1)
     
Authorizations remaining as of December 31, 2018   $41,769
Additional authorizations   —
Repurchases paid 40,065
 (637)
Repurchases unsettled   —
Authorizations remaining as of September 30, 2019   $41,132
activity.
(1)
Amount excludes commissions paid associated with share repurchases.
  Shares Amount(1)
     
Authorizations remaining as of December 31, 2017   $41,769
Additional authorizations   —
Repurchases paid —
 —
Repurchases unsettled   —
Authorizations remaining as of September 30, 2018   $41,769
(1) Amount excludes commissions paid associated with share repurchases.

Dividends

To maintain our qualification as a REIT under the Code, we must annually distribute at least 90% of our taxable incomeincome. Consistent with the guidance provided in Revenue Procedure 2017-45, we have paid several of our past dividends in a combination of cash and for 2015, we hadstock and may pay future distributions in such a manner; however, the REIT distribution requirements limit our ability to distribute our undistributed accumulatedretain earnings and profits attributablethereby replenish or increase capital for operations. We believe that our significant capital resources and access to taxable periods priorfinancing will provide us with financial flexibility at levels sufficient to January 1, 2015 (the “E&P Distribution”). The Company made the E&P Distribution on January 21, 2016meet current and has paid and in the future intend to declare regular quarterlyanticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders in an amount approximatingand servicing our net taxable income.debt obligations. Refer to Item 1—“Financial Statements—Note 11, Equity Structure and Accounts” for disclosure of dividends declared.

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Consistent with IRS guidance we may, subject to a cash/stock election by our shareholders, pay a portion of our dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, our future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of our board of directors. Generally, we expect the distributions to be taxable as ordinary dividends to our shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital. Refer to Item 1—“Financial Statements—Note 11, Equity Structure and AccountsAccounts” for tax treatment of dividends. We believe that our significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders and servicing our debt obligations.


Our captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends may only be made with regulatory approval. Largely as a result of this restriction, $2.1 billion of Tuebor’s member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at September 30, 2020. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

The following table presentsCompany established a broker-dealer subsidiary, Ladder Capital Securities LLC (“LCS”), which was initially licensed and capitalized to do business in July 2010. LCS is required to be compliant with Financial Industry Regulatory Authority (“FINRA”) and SEC regulations, which require that dividends declared (onmay only be made with regulatory approval. LCS deregistered with the SEC effective May 28, 2020. On May 29, 2020, LCS filed a per share basis) of Class A common stock for the nine months ended September 30, 2019 and 2018:

Declaration Date Dividend per Share
   
February 27, 2019 $0.340
May 30, 2019 0.340
August 22, 2019 0.340
Total $1.020
   
February 27, 2018 $0.315
May 30, 2018 0.325
September 5, 2018 0.325
Total $0.965

Principal Repaymentsbroker-dealer withdrawal form with FINRA, which became effective on InvestmentsJuly 28, 2020.
 
We receive principal amortization on our loans and securities as part of the normal course of our business. Repayment of mortgage loan receivables provided net cash of $1.2 billion for the nine months ended September 30, 2019 and $756.7 million for the nine months ended September 30, 2018. Repayment of real estate securities provided net cash of $178.5 million for the nine months ended September 30, 2019 and $93.2 million for the nine months ended September 30, 2018.
Proceeds from Securitizations and Sales of Loans
We sell our conduit mortgage loans to securitization trusts and to other third parties as part of our normal course of business. There were $574.3 million of proceeds from sales of mortgage loans for the nine months ended September 30, 2019 and $926.9 million sales of mortgage loans for the nine months ended September 30, 2018.

Proceeds from the Sale of Securities
We invest in CMBS, U.S. Agency Securities, corporate bonds and equity securities. Proceeds from sales of securities provided net cash of $534.2 million for the nine months ended September 30, 2019 and $306.1 million for the nine months ended September 30, 2018.
Proceeds from the Sale of Real Estate
We own a portfolio of commercial real estate properties as well as residential condominium units. Proceeds from sales of real estate provided net cash of $10.8 million for the nine months ended September 30, 2019 and $153.4 million for the nine months ended September 30, 2018.
Proceeds from the Issuance of Equity
For the nine months ended September 30, 2019 and 2018, there were no proceeds realized in connection with the issuance of equity. We may issue additional equity in the future.
Other Potential Sources of Financing
 
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments.
 

Contractual Obligations
 
Contractual obligations as of September 30, 20192020 were as follows ($ in thousands):
 Contractual Obligations
 Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total
          
Secured financings$1,586,058
(1)$1,223,774
 $519,246
 $369,924
 $3,699,002
Senior unsecured notes—
 766,201
 —
 400,000
 1,166,201
Interest payable(2)123,167
 158,852
 44,805
 31,500
 358,324
Other funding obligations(3)257,725
 —
 —
 —
 257,725
Payments pursuant to tax receivable agreement104
 208
 208
 1,039
 1,559
Operating lease obligations604
 2,361
 98
 —
 3,063
Total$1,967,658
 $2,151,396
 $564,357
 $802,463
 $5,485,874
Contractual Obligations
Less than 1 Year1-3 Years3-5 YearsMore than 5 YearsTotal
Secured financings$1,279,571 (1)$545,113 $671,292 $263,895 $2,759,871 
Unsecured revolving credit facility266,430 (1)— — — 266,430 
Senior unsecured notes— 717,200 — 999,794 1,716,994 
Interest payable(2)131,649 133,590 91,977 50,689 407,905 
Other funding obligations(3)227,019 — — — 227,019 
Payments pursuant to tax receivable agreement104 208 208 1,039 1,559 
Operating lease obligations295 1,279 — — 1,574 
Total$1,905,068 $1,397,390 $763,477 $1,315,417 $5,381,352 
(1)          As more fully disclosed in Note 7, Debt Obligations, Net, these obligations are subject to existing Company controlled extension options for one or more additional one-year periods or could be refinanced by other existing facilities.
(2)          Composed of interest on secured financings and on senior unsecured notes. For borrowings with variable interest rates, we used the rates in effect as of September 30, 20192020 to determine the future interest payment obligations. Represents amounts payable through contractual maturity, including short-term securities repurchase agreements.
(3)          Comprised of our off-balance sheet unfunded commitment to provide additional first mortgage loan financing as of September 30, 2019.2020.
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The tablestable above dodoes not include amounts due under our derivative agreements as those contracts do not have fixed and determinable payments. Our contractual obligations will be refinanced and/or repaid from earnings as well as amortization and sales of our liquid collateral.

Off-Balance Sheet Arrangements

We have made investments in various unconsolidated joint ventures. See Item 1—“Financial Statements—Note 6, Investment in and Advances to Unconsolidated Joint VenturesVentures” for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments.

Unfunded Loan Commitments
 
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our borrowers. These commitments are not reflected on the consolidated balance sheets. As of September 30, 2019,2020, our off-balance sheet arrangements consisted of $257.7$227.0 million of unfunded commitments of mortgage loan receivables held for investment, all59% of which wasadditional funds relate to provide additional first mortgage loan financing.the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, 2018,2019, our off-balance sheet arrangements consisted of $379.8$286.5 million of unfunded commitments of mortgage loan receivables held for investment all of which was to provide additional first mortgage loan financing. Such commitments are subject to our borrowers’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheetssheets. Commitments are subject to our loan borrowers’ satisfaction of certain financial and arenonfinancial covenants and may or may not reflectedbe funded depending on our consolidated balance sheets.a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring. The COVID-19 pandemic has impacted the progress of work generally and, depending on specific property locations, the progress of capital expenditures, construction, and leasing, which have been delayed and/or slower paced than originally anticipated. The progress of those particular projects located in states or local municipalities with continuing restrictions on such activities is anticipated to remain slower to complete than otherwise expected, and the pace of future funding relating to these capital needs has been, and may continue to be, commensurately slower.

Critical Accounting Policies

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” within the Annual Report for a full discussion of our critical accounting policies. Other than disclosed in Note 2, Significant Accounting Policies, our critical accounting policies have not materially changed since December 31, 2018.2019.

Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Pending Adoption

Our recently adopted accounting pronouncements and recent accounting pronouncements pending adoption are described in Item 1—“Financial Statements—Note 2, Significant Accounting Policies.”


Reconciliation of Non-GAAP Financial Measures
 
Core Earnings
 
We present core earnings, which is a non-GAAP financial measure, as a supplemental measure of our performance. We believe core earnings assists investors in comparing our performance across reporting periods on a more relevant and consistent basis by excluding certain non-cash expenses and unrecognized results as well as eliminating timing differences related to securitization gains and changes in the values of assets and derivatives. In addition, we use core earnings: (i) to evaluate our earnings from operations and (ii) because management believes that it may be a useful performance measure for us. Core earnings is also used as a factor in determining the annual incentive compensation of our senior managers and other employees.

We considerPrior to the final exchanges of the Continuing LCFH Limited Partners into Class A shares in the third quarter, we considered the Class A common shareholders of the Company and Continuing LCFH Limited Partners to have had fundamentally equivalent interests in our pre-tax earnings. Accordingly, for purposes of computing core earnings we start with pre-tax earnings and adjust for other noncontrolling interest in consolidated joint ventures but we dodid not adjust for amounts attributable to noncontrolling interest held by Continuing LCFH Limited Partners. As of September 30, 2020, there are no remaining Continuing LCFH Limited Partners.
 
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We define core earnings as income before taxes adjusted for: (i) real estate depreciation and amortization; (ii) the impact of derivative gains and losses related to the hedging of assets on our balance sheet as of the end of the specified accounting period; (iii) unrealized gains/(losses) related to our investments in fair value securities and passive interest in unconsolidated joint ventures; (iv) economic gains on securitization transactionsloan sales not recognized under GAAP accounting for which risk has substantially transferred during the period and the exclusion of resultant GAAP recognition of the related economics during the subsequent periods; (v) adjustment for CECL reserves; (vi) non-cash stock-based compensation; and (vi)(vii) certain transactional items.

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

As discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, we do not designate derivatives as hedges to qualify for hedge accounting and therefore any net payments under, or fluctuations in the fair value of, our derivatives are recognized currently in our income statement. However, fluctuations in the fair value of the related assets are not included in our income statement. We consider the gain or loss on our hedging positions related to assets that we still own as of the reporting date to be “open hedging positions.” While recognized for GAAP purposes, we exclude the results on the hedges from core earnings until the related asset is sold and the hedge position is considered “closed,” whereupon they would then be included in core earnings in that period. These are reflected as “Adjustments for unrecognized derivative results” for purposes of computing core earnings for the period. We believe that excluding these specifically identified gains and losses associated with the open hedging positions adjusts for timing differences between when we recognize changes in the fair values of our assets and changes in the fair value of the derivatives used to hedge such assets.
 
As more fully discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, our investments in Agency interest-only securities and equity securities are recorded at fair value with changes in fair value recorded in current period earnings. We believe that excluding these specifically identified gains and losses associated with the fair value securities adjusts for timing differences between when we recognize changes in the fair values of our assets.


Our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the COVID-19 pandemic. The actions taken by management had multiple impacts on core earnings for the three months ended June 30, 2020. Management believes the actions taken were prompted by the unusual market conditions and therefore outside of Ladder’s core operations. Management believes adjusting for certain transactional charges/gains related to the impact of COVID-19 on its performance measures provides a more useful guide to assess the ongoing core operations of the Company.
Set forth below is a reconciliation of income (loss) before taxes to core earnings ($ in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Income (loss) before taxes$21,396 $32,060 $(2,951)$92,030 
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures (GAAP)(1)(4,153)(71)(5,429)667 
Our share of real estate depreciation, amortization and gain adjustments(2)(3)4,534 6,741 14,782 18,999 
Adjustments for unrecognized derivative results(4)(4,222)1,889 4,737 13,191 
Unrealized (gain) loss on fair value securities(9)(248)(146)(1,475)
Adjustment for economic gain on loan sales not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization547 (168)502 (817)
Adjustment for CECL reserves(2,512)— 15,340 — 
Non-cash stock-based compensation4,125 3,918 19,557 19,383 
Transactional adjustments (response to COVID-19)(5)— — 16,939 — 
Core earnings$19,706 $44,121 $63,331 $141,978 
100
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Income (loss) before taxes$32,060
 $84,668
 $92,030
 $200,508
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures and operating partnership (GAAP)(1)(71) (7,851) 667
 (16,155)
Our share of real estate depreciation, amortization and gain adjustments(2)(3)6,741
 (12,435) 18,999
 2,398
Adjustments for unrecognized derivative results(4)1,889
 (3,614) 13,191
 (16,320)
Unrealized (gain) loss on fair value securities(248) (142) (1,475) (456)
Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization(168) 7
 (817) (530)
Non-cash stock-based compensation3,918
 2,763
 19,383
 8,186
Core earnings$44,121
 $63,396
 $141,978
 $177,631
(1)
Includes $7 thousand and $8 thousand of net income attributable to noncontrolling interest in consolidated joint ventures which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three months endedSeptember 30, 2019 and 2018, respectively. Includes $24 thousand and $23 thousand of net income attributable to noncontrolling interest in consolidated joint ventures which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the nine months endedSeptember 30, 2019 and 2018, respectively.
(1)    Includes $4 thousand and $12 thousand of net income which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three and nine months endedSeptember 30, 2020, respectively. Includes $7 thousand and $24 thousand of net income which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three and nine months endedSeptember 30, 2019, respectively.
(2)The following is a reconciliation of GAAP depreciation and amortization to our share of real estate depreciation, amortization and gain adjustments presented in the computation of core earnings in the preceding table ($ in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total GAAP depreciation and amortization$9,817 $9,030 $29,642 $29,192 
Less: Depreciation and amortization related to non-rental property fixed assets(25)(25)(74)(74)
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures(348)(417)(1,290)(2,392)
Our share of real estate depreciation and amortization9,444 8,588 28,278 26,726 
Realized gain from accumulated depreciation and amortization on real estate sold (see below)(4,897)(1,418)(14,576)(6,839)
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold520 41 2,667 83 
Our share of accumulated depreciation and amortization on real estate sold(4,377)(1,377)(11,909)(6,756)
Less: Operating lease income on above/below market lease intangible amortization(533)(470)(1,587)(971)
Our share of real estate depreciation, amortization and gain adjustments$4,534 $6,741 $14,782 $18,999 
GAAP gains/losses on sales of real estate include the effects of previously recognized real estate depreciation and amortization. For purposes of core earnings, our share of real estate depreciation and amortization is eliminated and, accordingly, the resultant gain/losses also must be adjusted. Following is a reconciliation of the related consolidated GAAP amounts to the amounts reflected in core earnings ($ in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
GAAP realized gain (loss) on sale of real estate, net$21,588 $2,082 $32,116 $963 
Adjusted gain/loss on sale of real estate for purposes of core earnings(17,211)$(705)(20,207)5,793 
Our share of accumulated depreciation and amortization on real estate sold$4,377 $1,377 $11,909 $6,756 
(3)As more fully discussed in Note 5, Real Estate and Related Intangibles, Net, Note 7, Debt Obligations, Net and Note 15, Fair Value of Financial Instruments to the Company’s Consolidated Financial Statements for the three months ended March 31, 2019, the Company recognized $5.7 million of operating lease income from prepayment of a lease, a $1.1 million loss on extinguishment of debt and a $1.4 million impairment of real estate related to a single-tenant two-story office building in Wayne, NJ. This property was sold on May 1, 2019. For core earnings, the Company recognizes the net impact of these events in the period the sale was realized. Accordingly, the $3.3 million net impact of the income and losses discussed above were excluded from core earnings for the three months ended March 31, 2019 and have been included in core earnings for the nine months ended September 30, 2019.
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(4)The following is a reconciliation of GAAP net results from derivative transactions to our unrecognized derivative result presented in the computation of core earnings in the preceding table ($ in thousands):
(2)The following is a reconciliation of GAAP depreciation and amortization to our share of real estate depreciation, amortization and gain adjustments presented in the computation of core earnings in the preceding table ($ in thousands):
        
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
 2019 2018 2019 20182020201920202019
        
Total GAAP depreciation and amortization$9,030
 $10,417
 $29,192
 $31,896
Net results from derivative transactions$260 $(9,465)$(15,988)$(35,956)
Less: Depreciation and amortization related to non-rental property fixed assets(25) (18) (74) (56)Hedging interest expense1,346 436 1,028 1,927 
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures(417) (1,076) (2,392) (2,447)Hedging realized result2,616 7,140 10,223 20,838 
Our share of real estate depreciation and amortization8,588
 9,323
 26,726
 29,393
Adjustments for unrecognized derivative results$4,222 $(1,889)$(4,737)$(13,191)
        
(5)(5)The impact from COVID-19 included adjustments related to the unusual market conditions and actions taken by management including: (a) $6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net, (b) $15.4 million of losses from sales of CMBS, (c) $3.7 million of loss from conduit loan sales, (d) $6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in interest expense, (e) $2.1 million of professional fee expenses included in operating expenses and (f) $0.2 million of severance costs included in salaries and employee benefits. The $34.5 million total of the preceding amounts was partially offset by (g) $19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par, net of (h) $1.5 million of accelerated premium amortization included in interest expense.
Realized gain from accumulated depreciation and amortization on real estate sold (see below)(1,418) (22,066) (6,839) (27,553)
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold41
 653
 83
 1,844
Our share of accumulated depreciation and amortization on real estate sold(1,377) (21,413) (6,756) (25,709)
        
Less: Operating lease income on above/below market lease intangible amortization(470) (345) (971) (1,286)
        
Our share of real estate depreciation, amortization and gain adjustments$6,741
 $(12,435) $18,999
 $2,398
        


 GAAP gains/losses on sales of real estate include the effects of previously recognized real estate depreciation and amortization. For purposes of core earnings, our share of real estate depreciation and amortization is eliminated and, accordingly, the resultant gain/losses also must be adjusted. Following is a reconciliation of the related consolidated GAAP amounts to the amounts reflected in core earnings ($ in thousands):
         
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
 GAAP realized gain (loss) on sale of real estate, net$2,082
 $63,704
 $963
 $96,341
 Adjusted gain/loss on sale of real estate for purposes of core earnings(705) $(42,291) 5,793
 (70,632)
 Our share of accumulated depreciation and amortization on real estate sold$1,377
 $21,413
 $6,756
 $25,709
         
(3)As more fully discussed in Note 5, Real Estate and Related Intangibles, Net, Note 7, Debt Obligations, Net and Note 15, Fair Value of Financial Instruments to the Company’s Consolidated Financial Statements for the three months ended March 31, 2019, the Company recognized $5.7 million of operating lease income from prepayment of a lease, a $1.1 million loss on extinguishment of debt and a $1.4 million impairment of real estate related to a single-tenant two-story office building in Wayne, NJ. This property was sold on May 1, 2019. For core earnings, the Company recognizes the net impact of these events in the period the sale was realized. Accordingly, the $3.3 million net impact of the income and losses discussed above were excluded from core earnings for the three months ended March 31, 2019 and have been included in core earnings for the nine months ended September 30, 2019.
         
(4)The following is a reconciliation of GAAP net results from derivative transactions to our unrecognized derivative result presented in the computation of core earnings in the preceding table ($ in thousands):
         
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
 Net results from derivative transactions$(9,465) $7,115
 $(35,956) $29,156
 Hedging interest expense436
 1,365
 1,927
 5,789
 Hedging realized result7,140
 (4,866) 20,838
 (18,625)
 Adjustments for unrecognized derivative results$(1,889) $3,614
 $(13,191) $16,320
(b)Set forth below is a reconciliation of the COVID-19 losses from sales of highly rated, relatively short duration CMBS ($ in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Loss on sale of securities - COVID-19 related$— $— $(14,670)$— 
Hedge (loss) related to sale of securities, included in net results from derivative transactions— — (698)— 
Losses from sales of CMBS$— $— $(15,368)$— 

(c)Set forth below is a reconciliation of the COVID-19 loss from conduit loan sales ($ in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Income from sales of loans, net - COVID-19 related$— $— $(1,680)$— 
Hedge (loss) related to sales of loans, included in net results from derivative transactions— — (1,994)— 
Losses from conduit loan sales$— $— $(3,674)$— 
Core earnings has limitations as an analytical tool. Some of these limitations are:
 
•Core earnings does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations and is not necessarily indicative of cash necessary to fund cash needs; and
 
•other companies in our industry may calculate core earnings differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, core earnings should not be considered in isolation or as a substitute for net income (loss) attributable to shareholders or any other performance measures calculated in accordance with GAAP, or as an alternative to cash flows from operations as a measure of our liquidity.
 
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In the future we may incur gains and losses that are the same as or similar to some of the adjustments in this presentation. Our presentation of core earnings should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Income from Sales of Securitized Loans, Net of Hedging and Core Gain on Sale of Securitized Loans
We present income from sales of securitized loans, net of hedging, a non-GAAP financial measure, as a supplemental measure of the performance of our loan securitization business. Since our loans sold into securitizations to date are comprised of long-term fixed-rate loans, the result of hedging those exposures prior to securitization represents a substantial portion of our securitization profitability. Therefore, we view these two components of our profitability together when assessing the performance of this business activity and find it a meaningful measure of the Company’s performance as a whole. When evaluating the performance of our sale of loans into securitization business, we generally consider the income from sales of loans, net in conjunction with other income statement items that are directly related to such securitization transactions, including portions of the realized net result from derivative transactions that are specifically related to hedges on the securitized or sold loans, which we reflect as hedge gain/(loss) related to loans securitized, a non-GAAP financial measure, in the table below.

In addition, we present core gain on sale of securitized loans, a non-GAAP financial measure, which adjusts income from sales of securitized loans, net of hedging for economic gains on securitization transactions not recognized under GAAP. Management believes recognizing these amounts for core purposes in the period of economic transfer of risk is a reasonable supplemental measure of our performance.
Set forth below is an unaudited reconciliation of income from sale of loans, net to income from sales of securitized loans, net of hedging as well as core gain on sale of securitized loans ($ in thousands except for number of loans and securitizations):

  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Number of loans10
 13
 46
 80
Face amount of loans sold into securitizations$140,673
 $101,978
 $548,125
 $939,314
Number of securitizations1
 1
 4
 6
         
Income from sales of loans, net$11,247
 $1,861
 $38,589
 $12,893
Realized losses on loans related to lower of cost or market adjustments—
 —
 —
 463
Hedge gain/(loss) related to loans securitized(1)(5,039) 453
 (15,371) 9,329
Income from sales of securitized loans, net of hedging6,208
 2,314
 23,218
 22,685
Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred357
 265
 483
 232
Core gain on sale of securitized loans$6,565
 $2,579
 $23,701
 $22,917

(1)The following is a reconciliation of net results from derivative transactions, which is the closest GAAP measure, as reported in our consolidated financial statements included herein to the non-GAAP financial measure of hedge gain/(loss) related to loans securitized ($ in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Net results from derivative transactions$(9,465) $7,115
 $(35,956) $29,156
Hedge gain/(loss) related to lending and securities positions4,426
 (6,662) 20,585
 (19,827)
Hedge gain/(loss) related to loans securitized$(5,039) $453
 $(15,371) $9,329


Adjusted Leverage

We present adjusted leverage, which is a non-GAAP financial measure, as a supplemental measure of our performance. We define adjusted leverage as the ratio of (i) debt obligations, net of deferred financing costs, adjusted for non-recourse indebtedness related to securitizations that is consolidated on our GAAP balance sheet and liability for transfers not considered sales to (ii) GAAP total equity. We believe adjusted leverage assists investors in comparing our leverage across reporting periods on a consistent basis by excluding non-recourse debt related to securitized loans. In addition, adjusted leverage is used to determine compliance with financial covenants. (Refer to “Financing Strategy in Current Market Conditions” and “Financial Covenants” for further discussion about our compliance with covenants.)

Set forth below is an unaudited computation of adjusted leverage ($ in thousands):
September 30, 2020December 31, 2019
Debt obligations, net$4,714,510 $4,859,873 
Less: CLO debt(281,625)— 
Adjusted debt obligations4,432,885 4,859,873 
Total equity1,521,794 1,638,977 
Adjusted leverage2.9 3.0 
 September 30, 2019 December 31, 2018
    
Debt obligations, net$4,860,687
 $4,452,574
Less: CLO debt(1)(117,760) (601,543)
Adjusted debt obligations4,742,927
 3,851,031
    
Total equity1,639,250
 1,643,635
    
Adjusted leverage2.9
 2.3


(1)As more fully discussed in Note 7 to our consolidated financial statements, we contributed over $888.4 million of balance sheet loans into two CLO securitizations that remain on our balance sheet for accounting purposes but should be excluded from debt obligations for adjusted leverage calculation purposes.



Cost of Funds
 
We present cost
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Set forth below is an unaudited reconciliation of interest expense to cost of funds ($ in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
Interest expense$(51,397) $(51,476) $(155,015) $(144,606)
Interest expense related to liability for transfers not considered sales(1)—
 —
 92
 —
Net interest expense component of hedging activities(2)(436) (1,365) (1,927) (5,789)
Cost of funds$(51,833) $(52,841) $(156,850) $(150,395)
         
Interest income$82,251
 $90,386
 $254,040
 $253,822
Interest income related to mortgage loans transferred but not considered sold(1)—
 —
 (92) —
Cost of funds(51,833) (52,841) (156,850) (150,395)
Interest income, net of cost of funds$30,418
 $37,545
 $97,098
 $103,427
(1)As more fully discussed in Note 4 to our consolidated financial statements, during the three months ended March 31, 2019, we sold a non-controlling loan interest in a first mortgage loan receivable to a third party. The sales proceeds were considered non-recourse secured borrowings, which were included in liability for transfers not considered sales in debt obligations, and the asset remained on the Company’s consolidated balance sheets as mortgage loans transferred but not considered sold. During the three months ended June 30, 2019, the controlling loan interest was sold, and as a result, the loan previously sold during the three months ended March 30, 2019 was accounted for as a sale during the six months ended June 30, 2019. The interest income and expense related to this asset and liability are included on our consolidated statements of income but should be excluded from the calculation of cost of funds.
         
  Three Months Ended September 30, Nine Months Ended September 30,
  2019 2018 2019 2018
         
(2)Net result from derivative transactions$(9,465) $7,115
 $(35,956) $29,156
 Hedging realized result7,140
 (4,866) 20,838
 (18,625)
 Hedging unrecognized result1,889
 (3,614) 13,191
 (16,320)
 Net interest expense component of hedging activities$(436) $(1,365) $(1,927) $(5,789)




Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A. “Risk Factors”.

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

The following table summarizes the change in net income for a 12-month period commencing September 30, 20192020 and the change in fair value of our investments and indebtedness assuming an increase or decrease of 100 basis points in the LIBOR interest rate on September 30, 2019,2020, both adjusted for the effects of our interest rate hedging activities ($ in thousands):
 
 
Projected change
in net income(1)
 
Projected change
in portfolio
value
    
Change in interest rate:   
Decrease by 1.00%$(3,656) $15,800
Increase by 1.00%13,311
 (15,565)
Projected change
in net income(1)		Projected change
in portfolio
value
Change in interest rate:
Decrease by 1.00%$(3,124)$8,558 
Increase by 1.00%12,087 (9,002)
(1)Subject to limits for floors on our floating rate investments and indebtedness.
(1)    Subject to limits for floors on our floating rate investments and indebtedness.
 
Market Value Risk
 
The Company’s securities investments are reflected at their estimated fair value. The change in estimated fair value of securities available-for-sale is reflected in accumulated other comprehensive income. The change in estimated fair value of Agency interest-only securities is recorded in current period earnings. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the market value of the Company’s assets may be adversely impacted. The Company’s fixed rate mortgage loan portfolio is subject to the same risks. However, to the extent those loans are classified as held for sale, they are reflected at the lower of cost or market. Otherwise, held for investment mortgage loans are reflected at values equal to the unpaid principal balances net of certain fees, costs and loan loss allowances.
 

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

The Company is subjectCOVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in property renovations currently planned or underway. These negative conditions may persist into the future and impair borrowers’ ability to varying degreespay principal and interest due under our loan agreements. We maintain robust asset management relationships with our borrowers and have utilized these relationships to address the impacts of credit risk in connectionthe COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure, most significantly hospitality assets. Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences and have requested temporary interest deferral or forbearance, or other modifications of their loans. Accordingly, we have discussed with its investments. The Company seeks to manage credit riskour borrowers potential near-term defensive loan modifications, which could include repurposing of reserves, temporary deferrals of interest, or performance test or covenant waivers on loans collateralized by performing deep credit fundamental analyses of potential assets and through ongoing asset management. The Company’s investment guidelines do not limit the amount of its equity that may be invested in any type of its assets; however, investments greater than a certain size are subject to approvaldirectly impacted by the RiskCOVID-19 pandemic, and Underwriting Committeewhich would typically be coupled with an additional equity commitment and/or guaranty from sponsors.

Based on the limited loan modifications completed to date, we are encouraged by the tone of these conversations and our borrowers’ response to the boardCOVID-19 pandemic’s impacts on their properties. We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments. Our portfolio’s low weighted-average LTV of directors.66.9% as of September 30, 2020 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

Credit Spread Risk

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

Risks Related to Real Estate

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

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Covenant Risk

In the normal course of business, the Company enters into loan and securities repurchase agreements and credit facilities with certain lenders to finance its real estate investment transactions. These agreements contain, among other conditions, events of default and various covenants and representations. If such events are not cured by the Company or waived by the lenders, the lenders may decide to curtail or limit extension of credit, and the Company may be forced to repay its advances or loans. In addition, the Company’s Notes are subject to covenants, including maintenance of unencumbered assets, limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. The Company’s failure to comply with these covenants could result in an event of default, which could result in the Company being required to repay these borrowings before their due date. As of September 30, 2019, the Company believes it was

We were in compliance with all covenants.covenants as described in the Company’s Annual Report, as of September 30, 2020.


Net of the $875.8 million of unrestricted cash held as of September 30, 2020, our adjusted leverage ratio would be significantly below 3.0x. In late March 2020, as the COVID-19 crisis evolved, management began executing on a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark-to-market financing. Partly as a result of maintaining conservative cash levels as of March 31, 2020, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements). Refer to Financing Strategy in Current Market Conditions for further disclosures surrounding deleveraging actions completed during the second quarter of 2020.  

Diversification Risk

The assets of the Company are concentrated in the commercial real estate sector. Accordingly, the investment portfolio of the Company may be subject to more rapid change in value than would be the case if the Company were to maintain a wide diversification among investments or industry sectors. Furthermore, even within the commercial real estate sector, the investment portfolio may be relatively concentrated in terms of geography and type of real estate investment. This lack of diversification may subject the investments of the Company to more rapid change in value than would be the case if the assets of the Company were more widely diversified.

Concentrations of Market Risk

Concentrations of market risk may exist with respect to the Company’s investments. Market risk is a potential loss the Company may incur as a result of change in the fair values of its investments. The Company may also be subject to risk associated with concentrations of investments in geographic regions and industries.
 
Regulatory Risk
 
The Company established a broker-dealer subsidiary, LCS, which was initially licensed and capitalized to do business in July 2010. LCS is required to be compliant with FINRA and SEC requirements on an ongoing basis and is subject to multiple operating and reporting requirements to which all broker-dealer entities are subject. Additionally, Ladder Capital Asset Management LLC (“LCAM”) is a registered investment adviser. LCAM is required to be compliant with SEC requirements on an ongoing basis and is subject to multiple operating and reporting requirements to which all registered investment advisers are subject. In addition, Tuebor is subject to state regulation as a captive insurance company. If LCS, the Adviser or Tuebor failfails to comply with regulatory requirements, they could be subject to loss of their licenses and registration and/or economic penalties.
 

Capital Market Risks

The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. U.S. financial markets, in particular, are experiencing limited liquidity, and forced selling by certain market participants to meet current obligations has put further downward pressure on asset prices. In reaction to these volatile and unpredictable market conditions, banks and other lenders have generally restricted lending activity and requested margin posting or repayments where applicable for secured loans collateralized by assets with depressed valuations. Ladder has satisfied all margin calls on a timely basis.

106
Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act as of September 30, 2019.2020. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of September 30, 2019,2020, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information
 
Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes during the threenine months ended September 30, 20192020 to the risk factors in Item 1A. in our Annual Report.Report, except as set forth below:

The outbreak of the novel coronavirus (COVID-19) has had, and will continue to have for the foreseeable future, an adverse effect on our business, financial condition and results of operations, and we are unable to predict the full extent or nature of these impacts at this time.

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared the COVID-19 outbreak a pandemic and public health emergency of international concern. Public health officials have recommended and mandated precautions to mitigate the spread of COVID-19, including the closing of non-essential businesses, prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. As the COVID-19 pandemic develops, governments, businesses and other third parties will likely continue to implement restrictions or policies that adversely impact consumer spending, global capital markets, the global economy and stock prices.

The continued spread of COVID-19 globally has had, and is likely to continue to have for the foreseeable future, a material adverse effect on the global and U.S. economies as a whole, as well as on the states and cities where we own properties or have properties as collateral. A prolonged economic downturn could adversely and materially affect our business, results of operations and financial condition.

The COVID-19 outbreak is negatively impacting almost every industry, whether directly or indirectly. Businesses have been, continue to be or may periodically be, required by the local, state or federal authorities to cease or reduce operations, thereby preventing them from generating revenue. The extent of the effects will depend, in part, upon the breadth and duration of these economic shutdowns. The effects on commercial real estate have varied by sector and market. Some properties securing our loans to borrowers or owned by us, including hotels and certain retail properties, have experienced, or are likely to experience, material disruptions to their businesses from the end consumer and underlying property tenants. These disruptions could lead to or continue to cause a material decline in operating cash flows from these assets, and could impact our borrowers’ ability to pay debt service or property expenses or repay our loans to them at maturity or affect our ability to service our own borrowings secured by these loans or properties. Further, long-term structural changes may affect the value of certain businesses and properties. For example, restaurants have been required to reduce capacity and other businesses have moved to, and may continue, remote work arrangements, which may reduce the demand for certain types of office space. Without the requirement to be close to the office, many cities have experienced a flight to local suburbs that has led to reduced multifamily rental occupancy.

In addition, it is possible that there could be a return of volatility to the credit markets, which may impact our ability to access capital on favorable terms, or at all. Our ability to execute on one or more of our business models, such as the origination of loans for securitization, may be adversely affected by the underlying economic and credit market disruptions. In addition, the effects of the outbreak on credit markets, tenants and borrowers negatively affected, and may in the future negatively affect, the prices of securities that we hold, which resulted in, and may in the future result in, margin calls under our repurchase agreements. To the extent we are not able to satisfy such margin calls, it would result in a default under such repurchase agreements and could result in a default under our other debt instruments, including our senior secured credit agreement or the indentures governing our notes.

The COVID-19 crisis has created uncertainty regarding the valuation of commercial properties. Continuing uncertainty or a significant drop in prices may affect the ability of our borrowers to refinance loans we have extended to them and/or may impact the value of real estate we own. In addition, if loans we have extended become impaired, we may be required to establish reserves against losses, which can impact our earnings and/or our liquidity.
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The ultimate extent of the COVID-19 outbreak and its impact on our business, global markets and overall economic activity are unknown and impossible to predict with certainty at this time.

Item 2. Unregistered SaleSales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2020, 5,381,000 Series REIT LP Units and 5,381,000 Series TRS LP Units were collectively exchanged for 5,381,000 shares of Class A common stock and 5,381,000 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges, which were effected in reliance on Section 4(a)(2) of the Securities Act.

Stock Repurchases

On October 30, 2014, the board of directors authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.


The following table is a summary of the Company’s repurchase activity of its Class A common stock during the three months ended September 30, 20192020 ($ in thousands, except per share data and average price paid per share):

ISSUER PURCHASE OF EQUITY SECURITIES
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
         
July 1, 2019 - July 31, 2019 —
 $—
 —
 $41,132
August 1, 2019 - August 31, 2019 —
 —
 —
 41,132
September 1, 2019 - September 30, 2019 —
 —
 —
 41,132
         
Total —
 $—
 —
 $41,132
ISSUER PURCHASE OF EQUITY SECURITIES
(a)(b)(c)(d)
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 - July 31, 2020— — — 39,450 
August 1, 2020 - August 31, 202037,100 7.29 37,100 39,180 
September 1, 2020 - September 30, 202087,000 7.18 87,000 38,555 
Total124,100 $7.21 124,100 $38,555 
(1)In August 2015, we publicly disclosed that our board of directors had authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time.

(1)In August 2015, we publicly disclosed that our board of directors had authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.


109
Table of Contents
Item 6. Exhibits

EXHIBIT INDEX
EXHIBIT
NO.		DESCRIPTION
EXHIBIT INDEX
EXHIBIT
NO.31.1
DESCRIPTION
31.1
101.INS101XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded withinFiles Pursuant to Rule 405 of Regulation S-T: (i) the Inline XBRL (iXBRL) documentConsolidated Balance Sheets as of September 30, 2020 and December 31, 2019; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019; (iv) the Consolidated Statement of Changes in Equity for the three and nine months ended September 30, 2020 and 2019; (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019; and (vi) the Notes to the Consolidated Financial Statements.
101.SCH104iXBRL Taxonomy Extension Schema Document
101.CALiXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFiXBRL Taxonomy Extension Definition Linkbase Document
101.LABiXBRL Taxonomy Extension Label Linkbase Document
101.PREiXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File formatted(formatted in iXBRLinline XBRL and contained in Exhibit 101101)
*                                        The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing.


110

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
LADDER CAPITAL CORP
(Registrant)
Date: November 7, 2019October 29, 2020By:/s/ BRIAN HARRIS
Brian Harris
Chief Executive Officer
Date: November 7, 2019October 29, 2020By:/s/ MARC FOX
Marc Fox
Chief Financial Officer



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