Ladder Capital - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered diluted EPS of $0.25 and distributable EPS of $0.27; GAAP income before taxes was $33.0M as the business shifted from defense to offense amid heavy loan payoffs and rising securities income.
• Liquidity and balance sheet strength were the quarter’s anchors: $2.2B total liquidity, $1.3B cash (27% of assets), adjusted leverage 1.4x, and 77% of assets unencumbered, positioning Ladder to reaccelerate originations in 2025.
• The company upsized and extended its unsecured revolver to $850M (accordion to $1.25B) at SOFR+170 bps with a stepdown to +125 bps upon two IG ratings, a key catalyst to lower funding costs and support deployment.
• Credit metrics remained controlled: CECL reserve held at $52M; nonaccruals were $77M including a $16M loan added in Q4; management expects reserve releases over time if macro conditions stabilize.
• No formal quantitative guidance; management signaled a strong 2025 as originations ramp (pipeline >$250M) and capital migrates from T‑bills/securities to higher‑yielding loans; quarterly dividend maintained at $0.23.

What Went Well and What Went Wrong

What Went Well

• Robust liquidity and funding flexibility: $2.2B liquidity, $1.3B cash (27% of assets), and upsized $850M revolver at tighter spreads; “enable us to focus on new investment opportunities as 2025 begins,” per CEO Brian Harris.
• Record payoffs and securities deployment: $575M Q4 payoffs ($1.7B FY) supported $295M Q4 purchases of AAA securities at 6.2% unlevered yields; securities portfolio reached $1.1B (91% AAA) providing carry and optionality.
• Strategic credit and ratings momentum: 65% unsecured debt, new $500M unsecured due 2031, and positive ratings actions; management: “one notch below investment grade… goal of becoming an investment-grade credit”.

Selected quotes:

• “In the fourth quarter, Ladder generated strong earnings and dividend coverage… low leverage and robust liquidity position… enable us to focus on new investment opportunities as 2025 begins.” — CEO Brian Harris.
• “Adjusted leverage remained modest at 1.4x, with 77% of our asset base unencumbered…” — Pamela McCormack.
• “We believe… position us well for achieving our long‑held strategic goal of becoming an investment‑grade credit.” — CFO Paul Miceli.

What Went Wrong

• Net interest income pressure QoQ as loans paid off faster than originations: NII declined to $27.2M from $38.4M in Q3; distributable EPS dipped to $0.27 from $0.30.
• Loan book contracted: Loans receivable fell to $1.59B at 12/31 from $2.04B at 9/30 as $575M Q4 payoffs outpaced $129M originations; management expects rebuild, but timing lag is 60–90 days from application.
• Incremental credit watch items: nonaccruals at $77M with a $16M addition in Q4; CECL reserve held at $52M as a conservative buffer while the denominator (loan book) shrank.

Transcript

Operator (participant)

Good morning and welcome to Ladder Capital Corp's earnings call for the fourth quarter of 2024. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter and year-end of December 31st, 2024. Before the call begins, I'd like to call your attention to the customary Safe Harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance.

The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the investor relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Pamela McCormack (President)

Good morning. We are pleased with Ladder's performance in the fourth quarter and full year of 2024. During the fourth quarter, Ladder generated distributable earnings of $33.6 million, or $0.27 per share, achieving a return on equity of 8.9%. For the full year, distributable earnings totaled $153.9 million, delivering a 9.9% return on equity, while maintaining low leverage, robust liquidity, and stable book value. In 2024, Ladder's conservative business model reinforced its position as a leading middle-market-focused commercial real estate finance REIT, supported by the highest credit ratings in the sector. Our disciplined credit underwriting delivered strong results despite a challenging macroeconomic environment. In addition, we believe the proactive steps we took to enhance our capital structure over the course of the year should position Ladder well for potential investment-grade ratings. Our key achievements in 2024 include strong financial performance.

In 2024, we delivered strong earnings, attractive net interest margins, healthy loan repayments, and consistent net operating income from our real estate portfolio. Additionally, our credit underwriting expertise and conservative investment approach enabled us to maintain steady book value, setting us apart in the commercial mortgage REIT space. Despite a period of rapidly rising interest rates, we successfully navigated the challenges and resumed originating loans by year-end as the Fed began lowering interest rates and transaction volumes began to pick up. Enhanced liquidity and credit capacity. As Paul will cover in more detail, we recently extended and upsized our unsecured corporate revolving credit facility from $324 million to $850 million and secured an accordion to further upsize the facility to $1.25 billion, all at a reduced cost.

This transaction marks a key milestone in Ladder's ongoing efforts to streamline our balance sheet and transition to primarily using unsecured debt to finance our operations. As of December 31st, 2024, Ladder had $2.2 billion in liquidity, including $1.3 billion, or approximately 27% of total assets, comprised of cash and cash equivalents. Adjusted leverage remained modest at 1.4x, with 77% of our asset base unencumbered and 65% of Ladder's debt comprised of unsecured corporate bonds. Enhanced credit ratings. In conjunction with a $500 million unsecured bond issuance completed in July of 2024, Ladder received a positive outlook from both Moody's and Fitch, who rate Ladder just one notch below investment grade, while S&P upgraded our credit rating by one notch.

These achievements should move us closer to our goal of becoming an investment-grade company, which we expect will strengthen our market position, lower funding costs, and attract a broader base of investors. Loan portfolio overview. As of December 31st, 2024, our loan portfolio stood at $1.6 billion, representing 33% of total assets, with a weighted average yield of 9.3% and minimal future funding commitments of only $35 million. In the fourth quarter, our loan portfolio continued to pay down as we received $575 million in loan payoffs, including the full payoff of 11 loans. For the full year 2024, Ladder received $1.7 billion in proceeds from loan payoffs across 61 loan positions. This represents the highest annual payoffs in Ladder's history, underscoring the strength and consistency of the middle-market lending strategy. In Q4, we originated six loans totaling $129 million, primarily focusing on multifamily and industrial properties.

Since quarter-end, our pipeline has continued to build to over $250 million, with an ongoing focus on new acquisitions with basis resets, along with select refinancing and recapitalization transactions for new advantage properties in L.A. Our in-house asset management capabilities enabled us to continue to drive value through strategic sales and capital investments. In 2024, we opportunistically divested owned real estate. We sold four multifamily properties acquired through foreclosure, realizing $2.7 million in aggregate gains, including a multifamily property in Texas we sold during the fourth quarter for a $1.3 million gain above our $9.7 million carry value. Consistent carry income from our real estate portfolio. Our $904 million real estate portfolio generated $13.2 million in net rental income during the fourth quarter and $56.3 million for the full year 2024. The portfolio primarily consists of net lease properties with long-term leases to investment-grade rated tenants.

In addition, we sold five net lease properties, generating $2 million in gains to distributable earnings. Growing securities portfolio. During the fourth quarter, we purchased $295 million of AAA-rated securities at a weighted average unleveraged yield of 6.2%. By year-end, our portfolio totaled $1.1 billion, with a weighted average unleveraged yield of 6%, primarily comprised of AAA-rated securities. This unleveraged portfolio provides Ladder with enhanced liquidity and stability without mark-to-market exposure. 2025 outlook. In conclusion, 2024 showcased the strength of Ladder's conservative approach and differentiated capital structure. As transaction volumes rebound, valuation clarity improves, and commercial real estate markets stabilize, we are well-positioned to deploy our substantial liquidity prudently. Entering 2025 with optimism, we're prepared to capitalize on opportunities in a recovering market while maintaining our disciplined approach to risk and growth. With that, I'll turn the call over to Paul.

Paul Miceli (CFO)

Thank you, Pamela. In the fourth quarter of 2024, Ladder generated $33.6 million of distributable earnings, or $0.27 per share of distributable EPS, achieving a return on average equity of 8.9%. For 2024, distributable earnings totaled $153.9 million, or $1.21 per share of distributable EPS, achieving a 9.9% return on average equity. Our 2024 earnings were driven by net interest income on loans, securities, and cash, alongside stable net operating income from our real estate portfolio, delivering a strong return on equity. This performance was achieved while deleveraging our balance sheet, maintaining steady book value and dividend coverage, and preserving a significant cash balance, allowing us to adopt an offensive strategy by the fourth quarter of 2024. As of December 31st, 2024, Ladder's balance sheet was comprised of 27% cash and cash equivalents, totaling $1.3 billion, with $2.2 billion of total liquidity.

As Pamela discussed, we further fortified Ladder's balance sheet through the upsize of our unsecured revolver to $850 million, an over 2.6x increase, including a reduced interest rate to SOFR plus 170 basis points, with a further reduction to SOFR plus 125 basis points upon achieving an investment-grade credit rating from two rating agencies. We are pleased with this outcome and deeply appreciate the strong support from our 10-bank syndicate. We extend our gratitude to our banking partners. As of December 31st, 2024, our adjusted leverage ratio was 1.4x, with a total gross leverage ratio of 2.0x, with a trending down to 1.4x in the leverage to equity and a massive large liquidity position. Overall, in 2024, we paid down over $1.1 billion in secured debt and issued $500 million in unsecured corporate bonds due in 2031.

As of December 31st, 2024, 65% of our debt was comprised of unsecured corporate bonds, with a weighted average remaining maturity of 3.7 years at an attractive weighted average fixed-rate coupon of 5.2%. In the fourth quarter of 2024, we repurchased $26 million in principal value of our 2025 bonds, which mature in October, of which $296 million in principal remains outstanding. In 2024, both Moody's and Fitch placed Ladder on positive outlook, and Moody's upgraded and unnotched the rating on our bonds to Ba1, aligning our bonds with our corporate credit rating, one notch from investment grade. S&P upgraded our credit rating in 2024 as well. We believe the rating agencies recognize Ladder's long track record as a disciplined and prudent manager of capital, demonstrated since the inception of our business and specifically since we received our first credit rating over 12 years ago.

We believe Ladder's business model is an internally managed company with an unwavering focus on three investment strategies within commercial real estate, coupled with our focus on financing with unsecured debt at a modest leverage level, positioning us well for achieving our long-held strategic goal of becoming an investment-grade credit. We continue to believe in an investment-grade credit rating will open Ladder up to broader opportunities for growth, along with access to the investment-grade capital markets, with the goal of achieving a more attractive cost of capital and enhanced return on equity to shareholders over time. As Pamela discussed, our three segments performed well in 2024. Our loan portfolio paid down meaningfully in 2024 and closed the year with a $1.6 billion balance, with a 9.3% yield.

Ladder's mid-market lending focus and flexible balance sheet helped us achieve a 50% reduction of our loan portfolio through payouts, generating meaningful liquidity and allowing for us to pivot to focus on origination in the bridge and conduit lending space. In 2024, Ladder originated $145 million of loans across seven positions, the majority of which was originated in the fourth quarter. We're hopeful originations will outpace payoffs in the coming quarters. As of December 31st, 2024, we had two loans totaling $77 million on non-accrual, including the addition of a $16 million loan in the fourth quarter collateralized by two residential and retail mixed-use properties in New York City. No specific impairments were identified in the fourth quarter, and our general CECL reserve remained at $52 million, unchanged from the prior quarter.

We continue to hold this level of reserve given the continued macroeconomic shifts that persist in the global economy. We believe this reserve level is adequate to cover any potential loss in our loan portfolio. As of December 31st, 2024, the carrying value of our securities portfolio was $1.1 billion. In 2024, we rotated capital into AAA securities and more than doubled our holdings as our loan book continued to pay off par. We geared up for new lending opportunities by the fourth quarter. As of December 31st, 2024, 98% of the securities portfolio was investment-grade rated, with 91% being AAA-rated. The entire portfolio of predominantly AAA securities is unleveraged and readily financeable, providing additional source of potential liquidity, complementing the $2.2 billion of same-day liquidity we maintained. Our $904 million real estate segment continued to generate stable net operating income in 2024.

The portfolio includes 150 net lease properties, primarily investment-grade credits, committed to long-term leases with an average remaining lease term of 7.6 years. As Pamela discussed, in 2024, we executed the sale of four multifamily assets previously foreclosed on for sales proceeds of $43.6 million, generating a net gain of $2.7 million for distributable earnings. Further, we sold six net lease properties in 2024 for $57.4 million of proceeds, generating $6.8 million of gains for distributable earnings and $22.3 million of net gain for GAAP, which includes the recapture of previously recorded depreciation and amortization expense. As of December 31st, 2024, our unencumbered asset pool stood at $3.8 billion, or 77% of total assets. 81% of this unencumbered asset pool is comprised of first mortgage loans, securities, and unrestricted cash and cash equivalents.

Overall, we believe our significant liquidity position, which includes our recently upsized revolving credit facility, large pool of high-quality unencumbered assets, and best-in-class capital structure one notch from investment grade, position Ladder with strong financial flexibility and ready access to capital as we focus on deployment within our three segments in 2025. As of December 31st, 2024, Ladder's undepreciated book value per share was $13.88, which is net of the $0.41 per share CECL general reserve established. In the fourth quarter of 2024, we repurchased $6 million, or 532,000 shares of our common stock at a weighted average price of $11.27 per share. For the year-ended, December 31st, 2024, we repurchased $8 million of our common stock, or 711,000 shares at a weighted average price of $11.31 per share. As of December 31st, 2024, $67.6 million remains outstanding on Ladder's current stock repurchase program.

Finally, in 2024, our dividend remained well covered, and in the fourth quarter, Ladder declared a $0.23 per share dividend, which was paid on January 15th, 2025. For details on our fourth quarter and full year 2024 operating results, please refer to our earnings supplement, which is available on our website, and Ladder's annual report on Form 10-K, which we expect to file in the coming days. With that, I will turn the call over to Brian.

Brian Harris (Founder and CEO)

Thanks, Paul. We believe Ladder's middle market by design lending model was on full display during 2024. Smaller loan sizes enabled us to diversify our sponsor and geographic exposure and enabled our borrowers to have a relatively easier time refinancing loans coming due last year. We also took some big steps to further strengthen our liability set, having issued a $500 million unsecured corporate bond that closed in July, followed by an upsizing of our revolver to $850 million in December. These events, in a generally difficult year for commercial real estate investors, enabled Ladder to be a bright spot as our liquidity position soared throughout the year as loans paid off while we were very modestly levered throughout the year.

After March of 2023, when the regional bank funding model was disrupted and pushed to the breaking point for certain banks that failed, we heard the expression "stay alive till '25" as it became harder for sponsors to refinance loans coming due. By early 2024, the industry seemed to think the Fed was going to cut short-term interest rates 6x-8x in response to a slowing economy and tame inflation figures, except the Fed never went beyond 100 basis points of rate cuts during all of 2024. I bring up these past events to highlight that most of our sponsors on loans coming due in 2024 did not see the need to stay alive until 2025, and they paid off $1.7 billion of our loans with $1.1 billion of the total received in the second half of the year.

As cash proceeds from loan payoffs outpaced new originations, we purchased $911 million of AAA-rated securities over the last seven months, including January of 2025, at a weighted average unleveraged yield of 6.48%. We believe these yields are attractive from a historical perspective and also added to interest income the day after we acquired most of them. It takes 60-90 days to close a loan after we receive an application, and while our pipeline of loans under application currently stands at just over $250 million, it is growing at a rapid rate, and we believe that new loan originations will soon outpace loans paying off. To fund new loan investments, we will first move cash out of our T-bills, earning an average of 4.32%.

Additionally, we have the option to sell or finance some of our securities, which could provide up to $1 billion of additional liquidity to support continued loan growth in our pipeline. While we expect our loan inventory to build throughout 2025, this will take some time, but we expect it to be readily observable from the second quarter on. While the lag from application to loan closing takes a while, there are plenty of good alternatives available to us, including additional securities to manage the lag from the loan origination process. Overall, we plan to migrate our capital into higher concentrations of balance sheet loans and out of short-term T-bills and securities. We intend to accomplish all of this while maintaining low leverage with high amounts of liquidity and investing in the highest quality assets we can find that we believe present optimal risk-reward relationships for our shareholders.

We look forward to replenishing our asset base with higher interest rates in place. We have limited upcoming loan maturities with plenty of room to add new investments and grow our balance sheet. Ladder has a differentiated business model with a long track record of allocating investment dollars among securities, loans, and real estate, and primarily funded by longer-term unsecured corporate and non-marked-to-market debt with low leverage. As Paul discussed, we have been buying back stock and paying down debt with excess liquidity, and we plan to continue with this strategy when market conditions present us with opportunities to enhance shareholder value. We've waited a long time to be in the position we are in today, armed with large amounts of liquidity and low leverage in a relatively high interest rate environment. We are therefore optimistic that 2025 will be a very strong year for Ladder.

I'd like to take this time now to thank everybody for tuning in on this call and to thank our employees for 2024 and the effort they put forth. I'll turn it back over to the operator.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question is from Jade Rahimi with KBW. Please proceed.

Jade Rahmani (Analyst)

Thank you very much. I wanted to ask about the CMBS conduit business. For the market, CMBS issuance was up about 100% in 2024. Ladder competes probably more than most mortgage REITs with regional banks. Therefore, do you see an opportunity to increase CMBS conduit originations meaningfully as banks still have been pulling back and yet are more willing to let loans come to maturity now?

Brian Harris (Founder and CEO)

Thanks, Jade. It's Brian. Yeah, I think so. There's a shortage of fixed-income investments, which is causing a great tightening to be going on in credit spreads almost everywhere. That business in the conduit and securitization works better when the yield curve is steeper. So while we're no longer inverted after being that way for years, it's improving, I would say, but we're not there yet. I think when we take a look at when we reverse things as to what break-evens are on loans that we could be making on a five or a ten-year fixed-rate basis, it's not terribly attractive. It's not that it's not attractive at all. It's just that the other investments we make seem to be a more profitable allocation of our capital. So I wouldn't expect this to come out too strong in the very near future.

However, as the curve steepens, you'll see us waiting in there a little bit more.

Jade Rahmani (Analyst)

Thank you very much. And then just on the CECL reserve, in dollars, it was unchanged. There were no new provisionings, which means that the reserve level increased quite meaningfully. Are you planning to maintain it at that level, or do you see the potential for releasing some of those reserves with the significant repayments that have been received?

Brian Harris (Founder and CEO)

I think, yes, it is a higher percentage at this point, and we did leave it there because all the potential problems that we see as possible need for reserves, they're still there. Those were not the loans that paid off. However, the loans that did pay off, obviously, the denominator is getting smaller. So I think we're well covered. I don't think we'll get through all of that in the loss column. It's a little hard to gauge as to what quarter things could start changing, but I don't really see it increasing unless something that we're not expecting happens in the economy and in our inventory. I think it's far more likely probability that towards at some point we'll probably be releasing reserves back in, but I don't see that number going up.

Jade Rahmani (Analyst)

Thank you very much.

Operator (participant)

Our next question is from Tom Catherwood with BTIG. Please proceed.

Tom Catherwood (Managing Director and REIT Analyst)

Thank you, and good morning, everybody. Brian, appreciated the detail on originations and the lag between applications and closings. On the origination front, we're hearing of yields tightening somewhat, especially for multifamily. Kind of two parts. A, are you seeing that as well? And then B, how is it impacting your pipeline and the types of properties that you're willing to lend on?

Brian Harris (Founder and CEO)

Okay. Credit spreads are tightening. I don't think interest rates are. The actual rate on the loans that people are paying is up near 7%, and that's not very low relative to our recent past. So got to be a little cautious around when we talk about credit spreads tightening and interest rates prevailing in the mortgage market. So I think the borrowing world would like to hope that with the new administration and some of the comments made today by the Treasury Secretary that rates might be coming down on the ten-year. I personally don't see that because of the deficit situation that the U.S. is in and how they're going to have to issue to pay their interest at this point. So as far as property types go, yes, multifamily is definitely the tightest, obviously the safest because people have to live somewhere.

But for us, I don't think we ever redline anything other than high crime. That is something we try to avoid because it's very difficult to come back from a criminal reputation in any building or any neighborhood. But we're not overly targeting multifamily. We seem to be writing more multifamily and industrial, but I think that's a condition of stability, not necessarily where we're preferencing things. If a retail comes in that we happen to like or if an office building comes in that we happen to like, we'll put a number on it, and we won't sacrifice credit at any rate. But if the asset looks to be recalibrated into today's market, then sure, we're happy to lend on it. I don't see office spreads terribly tighter at all.

In fact, I'm not even sure I would say that it's a reasonable thought that you can refinance an office building. So that is a bit of an outlier right now, although you are seeing some very large SASB deals getting done. I think Bryant Park is in the market right now. MetLife Building is coming down the pipe. So this is improving. There is no doubt about it. The defroster is on, and I suspect that we will start wading into some other product types in a more meaningful way. But I do think we are still a little bit hesitant around very large cities where they're having problems with their capital flight, where a lot of rich people are leaving, and also to the extent that they haven't got their crime under control.

So we're going to continue to avoid downtown LA, and no need to name the cities. But we are happy to write loans in what I call the flyover states where very few people actually go in the Midwest. We happen to like those economies that are doing pretty well.

Tom Catherwood (Managing Director and REIT Analyst)

Appreciate those thoughts, Brian. And maybe sticking with the borrower profiles in your pipeline, are you seeing borrowers that maybe last year would have likely done five-year fixed-rate loans now looking for transitional floating-rate loans to provide more flexibility, or is that kind of not a trend that you've seen crop up yet?

Brian Harris (Founder and CEO)

We have seen that, I would say, to some extent, in that I think borrowers have been through something here, especially long-time owners of real estate. Sometimes, especially the generational wealth families that have owned real estate for many, many years, they're requiring cash in on refinances, and they're also having to spend a lot of money on operating expenses, which they weren't used to spending over the last couple of decades. I do think what's causing it is not necessarily spreads. I think that there are people gravitating towards the floating-rate and five-year part of the world because they want to sell the property, not because they necessarily think interest rates are going to go lower. They've hit a point where they can get a short extension from a bank. Having said that, I think we are very kind.

We actually quoted a few and have a few on our balance sheet now where we've written some one and two-year fixed-rate loans that are fully prepayable, and we provide that at slightly higher rates than what a conduit or floating-rate loan would be. But the reason why is there's no prepayment penalty or lockout. So we simply make the coupon plus the fees we charge to originate the loan. And I think you'll see that picking up more so in the year ahead.

Tom Catherwood (Managing Director and REIT Analyst)

Got it. Appreciate the answers. That's it for me. Thanks, everyone.

Brian Harris (Founder and CEO)

Yes.

Operator (participant)

As a reminder, to star one on your telephone keypad, if you would like to ask a question. Our next question is from Steve Delaney with Citizens JMP. Please proceed.

Steve Delaney (Managing Director and Senior Research Analyst)

Thanks. Good morning, everyone. Congratulations on a great close to 2024. Just looking back over the last two years with all the volatility that we've had in the market from all corners, I think the most remarkable thing that I noticed is that you've been able, despite DRE problems, etc., to maintain a book value per share in the neighborhood of $13.70 over the last two years. And I don't think you have any peers that have been able to do that. So it jumps off the page to me as just a great accomplishment. Now, we've got to go forward and now operate in the new 2025. The one thing that has, as you've played more defense, your loan book has dropped from about $3.9 billion at the end of 2022 to about $1.6 billion. Pretty significant reduction in direct lending.

I guess my question is, and you do a lot of things, but in my mind, I see direct lending as your sort of the heart and soul, your core competency for all commercial mortgage REITs. In 2025, do you think net you can grow your loan book by as much as $1 billion? And if Brian, what would you expect your average return on equity on the loans you might make in 2025? So two-part question. Can you do a billion net, and what would you expect to earn on that? Thank you.

Brian Harris (Founder and CEO)

Okay. Thanks, Steve. And yes, we have noticed that book value. In fact, Pamela has a chart that she sent around to the whole group of people kind of demonstrating that, and we were quite proud of it. Obviously, we got paid back at a better rate than a lot of other people did. But obviously, that comes with something else, and that, as you said, the loan portfolio has dropped quite a bit. What's interesting is if you parse out the drop in $3.9 billion down to $1.6 billion, so we are probably one of the most unlevered companies in the space providing, and as reflected in our dividend, which I think is one of the lowest in the space.

But right now, I think we would like to tell you that with SOFR at 4.3%, I think I might have that right, at 300 over, that would get you to 7.3% unlevered, throw in a point each year for fees maybe, or even a half point, that gets you to 7%, 8%, maybe 8.25%. So that's the unlevered return that we would be targeting. That said, most loans that we're writing are not 300 over. They're more in the 275 area. But as rates rise, as we think they will, then those spreads will tighten. They don't just go up one for one. And if rates fall, those spreads will widen. So the yield that I think we're targeting on an unlevered basis is probably something 8.5%.

Now, when you get paid off on $1 billion worth of loans that are yielding 9%, if you put the money into a money market fund, you'll get about 4%, right? And so ultimately, you lose 500 basis points of net interest margin by holding cash instead of the loans. By taking the stop and understanding the time delay in application to closing and taking a comfortable place to go, and there are two, T-bills at 4.32% and AAA securities, floating rate, which the business is picking up, so there's more CLOs going on right now. So for instance, in 2025, just in the month of January, we have so far this year, we have purchased $228 million of AAA securities. And the average spread there is 140, the credit spread, and the average yield is 578.

That's interesting because you say, "All right, 140 spread," and I'm telling you that we're trying to write loans at 300 over, about half of what AAA is yielding to you. So because those spreads are still relatively high, and keep in mind, if I just add that $228 million to what we bought in the third and fourth quarters of this year, we've actually purchased about $950 million of securities. The average yield on those is $646 million. So we don't go from 9% to 0% or 9% to 4% on the net interest margin. We go from 9% to 6.5%. Then we'll hold there for a little while until we find attractive ways to deploy that capital into higher yielding loans.

But I think what you're seeing right now at Ladder is we went from the, "All right, let's make sure we're good on credit." We told people we were. Let's make sure we are. Okay, check that box because we just got paid a lot back in a year. Earnings pushed downward a little bit, but benefited by the fact that the short-term interest rates are quite high. The curve is still rather flat. And we will be moving. You're going to start to see us move out of securities and T-bills and into loans. Will we add a billion? I can't imagine we won't. I think we will add a billion. And in 2024, to illustrate this, we originated, I think it was $128 million in the fourth quarter and a very small amount in the second quarter. But the first and third quarters, we didn't originate any loans.

That's not going to happen again. And I suspect that $128 million in the fourth quarter, that we will dwarf that number going forward. And when I say we've got $250 million under app right now, that number could double in two weeks and probably will because we're beginning to. The world is waking up, and brokers and borrowers are starting to notice that Ladder is holding a lot of capital and has a very flexible and balance sheet where we can do a lot of different things because we're not beholden to the securitization market or the repo market, both of which we rarely visit anymore. We've got some CLOs outstanding too that have been paying off rapidly. So we could call one of those.

So I would tell you for the tail end of February, we're probably going to cut some expenses on the interest side and pay some things off. We'll continue to acquire securities as long as they're in this neighborhood. But our preference and our push right now under Adam Siper's origination group is to add bridge loans in the $275 million, ideally $300 million area. Right now, there's a little too much pressure on that for me to tell you. We're going to do $300 million. It's probably going to look like $275 million. But good normal recovery, end of cycle turn, gather cash, harvest your loan portfolio, then move into securities so you're not earning zero while you're shopping for new loans. And then never, ever compromise the credit side of the business at any price. And you get your principal back. You're going to be ahead of 90% of the competitors.

So we'll focus that. And we're not overly concerned about how fast that happens. These assets, we don't have to figure out where we can write loans today. We have to figure out where they can pay us off in two to three years. And that's a slight detail that a lot of people overlook. But pretty comfortable with our ability to do this. I love the position we're in right now. We have access to every debt market out there. Some of them are quite inexpensive right now. We could probably borrow more right now, but we obviously don't need any additional cash. And the only thing staring at us is we've got a little less than $300 million coming due at the end of October in the corporate bond market, which we already have covered if we want.

And with that upsizing of the revolver to $825 million, we really don't have to keep a lot of cash on hand anymore. So we're really looking for full deployment here. And you can do some math on if you add $3 billion to your balance sheet at a net spread of 200 basis points, you start adding some numbers up meaningfully here. And that's what I think we're looking forward to.

Steve Delaney (Managing Director and Senior Research Analyst)

Brian, thanks for all that color. Just to be clear, that 8% yield, bridge loan yield, would move up to, what, low double digits when you put a leverage on it, depending on the nature of the leverage, correct?

Brian Harris (Founder and CEO)

That's correct. And by the way, I'd also note too, the $950 million of securities we purchased, they have right now, these are AAAs, they have almost a 6.5% yield. If we put leverage on that, that goes to 11%. And easily financeable. And so we may not just sell them. The spreads continue to tighten. AAAs at 140, which is where we've been buying them in 2025, those are still quite wide. They're not as wide as they were in 2022, where CLOs are being originated at 225 on AAAs. But they're still pretty attractive. I suspect that AAA spread on CLOs will probably get down around $115 million-$125 million.

Steve Delaney (Managing Director and Senior Research Analyst)

Thanks for the call.

Operator (participant)

Final question is a follow-up from Jade Rahimi with KBW. Please proceed.

Jade Rahmani (Analyst)

Thank you very much. I wanted to ask a strategic question given the high cash balance. When you look at the commercial mortgage REIT space, the three names that have traded at material premiums to book value were Starwood due to its diversification, BXMT due to its scale, and Arbor, which is due to the agency servicing business. And I was wondering on the agency servicing business, which is in multifamily, do you see any opportunity to partner with a DUS lender, say a Walker & Dunlop? There could be a lot of potential value creation if Ladder were to co-originate loans and participate in the downstream servicing economics. BXMT has established a relationship with M&T. Curious if that's something you think is reasonable to pursue.

Brian Harris (Founder and CEO)

It's reasonable to pursue it. We don't have anything like that underway right now, and I do see you're seeing, I think that M&T thing that you saw with somebody, that's a tie-up. There were quite a few of those going on a couple of months ago. I haven't heard of too many recently, but I suspect there's a lot of money moving into the private capital market right now, and a lot of it is moving. It's not like the big banks are making the loans anymore. They're kind of just making the introductions and going to the rating agencies and then let the market tell the borrower where the rates are.

But I do think, and we have been approached by some parties who are flush with cash, think real estate's an opportunity, a little hard to figure out how to get an A team in place when there's losses in a lot of places right now. So we are getting a little bit of attention where people would probably like to see us do a sidecar with them where we manage some funds for them, where we each own part of it. And I suspect that'll come more from the insurance side rather than from the servicing side. But we're open to suggestions. And if we appear to be a little less interested in that than perhaps you might think we would be, I mean, that's very good income inside of a REIT.

But I would say that given the amount of capital we've got right now, we're a little hard-pressed to do anything other than something that's very attractive to our shares and our shareholders. So I suspect if we get through about $2 billion of new originations, then that probably will become a little more interesting. And right now, we really do like the investment environment that we're in. And we're fortunate to have all this capital. I don't think we want to start exporting our expertise or our capital to a third party. But I do think you could see us with an insurance company along the lines of what some of our competitors do. I think Apollo has an insurance company. They invest. Benefit Street does too. But so we'd be happy to do something like that, but we're not underway in any discussions on that right now.

Jade Rahmani (Analyst)

Thanks a lot.

Operator (participant)

We have reached the end of our question-and-answer session. I would like to turn the call back over to Brian Harris for closing remarks.

Brian Harris (Founder and CEO)

Just thanks for listening in. It's been a while since we've spoken to our investors on the equity side, and we look forward to the year ahead. We're already coming out of the chute in very good order, and I think that these numbers of origination that we're looking at will go up dramatically in the year ahead, so get on the train with us, and we appreciate having you, and thanks again for a fruitful 2024.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.