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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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 No. 001-35845 
Logo.jpg
LUMENT FINANCE TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland45-4966519
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
230 Park Avenue, 20th Floor, New York, New York
10169
(Address of principal executive offices)(Zip code)

Registrant's Telephone Number, including area code (212) 317-5700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class:Trading Symbol(s)Name of Exchange on Which Registered:
Common Stock, par value $0.01 per shareLFTNew York Stock Exchange
7.875% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per shareLFTPrANew 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 x 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 x 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 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 x
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 x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class 
Outstanding at August 7, 2023
Common stock, $0.01 par value 52,231,152



LUMENT FINANCE TRUST, INC.
 
TABLE OF CONTENTS
 
PART I - Financial Information
 
   
Item 1. 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
   
   
Item 1.
Item 1A.
Risk Factors
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
   
 




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
June 30, 2023(1)
December 31, 2022(1)
 (unaudited) 
ASSETS  
Cash and cash equivalents$98,495,690 $43,858,515 
Restricted cash1,274,046 3,507,850 
Commercial mortgage loans held-for-investment, at amortized cost1,021,042,905 1,076,148,186 
Less: Allowance for credit losses(3,897,895)(4,258,668)
Commercial mortgage loans held-for-investment, net of allowance for credit losses1,017,145,010 1,071,889,518 
Mortgage servicing rights, at fair value746,734 795,656 
Accrued interest receivable5,865,802 5,797,991 
Other assets2,490,187 2,116,007 
Total assets$1,126,017,469 $1,127,965,537 
LIABILITIES AND EQUITY  
LIABILITIES  
Collateralized loan obligations, net830,564,083 829,310,498 
Secured term loan, net47,094,610 46,971,042 
Accrued interest payable2,542,214 2,360,809 
Dividends payable4,131,369 4,131,369 
Fees and expenses payable to Manager1,660,250 1,606,333 
Other liabilities(2)
933,748 583,989 
Total liabilities886,926,274 884,964,040 
COMMITMENTS AND CONTINGENCIES (NOTES 10 & 11)
EQUITY  
Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized; 7.875% Series A Cumulative Redeemable, $60,000,000 aggregate liquidation preference, 2,400,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
57,254,935 57,254,935 
Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 52,231,152 shares issued and outstanding, at June 30, 2023 and December 31, 2022, respectively
522,312 522,252 
Additional paid-in capital314,576,282 314,598,384 
Cumulative distributions to stockholders(169,362,164)(160,724,426)
Accumulated earnings36,000,330 31,250,852 
Total stockholders' equity238,991,695 242,901,997 
Noncontrolling interests$99,500 $99,500 
Total equity$239,091,195 $243,001,497 
Total liabilities and equity$1,126,017,469 $1,127,965,537 

(1)     Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.

(2)     Includes $55,941 and $0 of Current Expected Credit Loss ("CECL") allowance related to unfunded commitments on commercial mortgage loans, net as of June 30, 2023 and December 31, 2022, respectively.

The accompanying notes are an integral part of these unaudited consolidated financial statements.
1



LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)

Three Months Ended June 30, 2023Three Months Ended June 30, 2022Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Revenues:  
Interest income:  
Commercial mortgage loans held-for-investment$21,818,608 $12,633,772 $43,763,269 $22,642,836 
Cash and cash equivalents827,443 4,912 1,089,108 9,767 
Interest expense:  
Collateralized loan obligations(14,199,861)(5,284,890)(27,232,907)(9,289,128)
Secured term loan(937,210)(937,210)(1,864,122)(1,859,853)
Net interest income7,508,980 6,416,584 15,755,348 11,503,622 
Other expense:  
Provision for credit losses, net(555,083)(351,914)(375,399)(351,914)
Change in unrealized (loss) gain on mortgage servicing rights206 81,216 (48,923)228,598 
Servicing income, net45,396 56,053 96,924 123,234 
Total other expense(509,481)(214,645)(327,398)(82)
Expenses:  
Management and incentive fees1,093,374 1,090,652 2,180,636 2,015,269 
General and administrative expenses882,723 960,420 1,830,789 1,813,152 
Operating expenses reimbursable to Manager577,666 648,645 1,087,652 1,039,355 
Other operating expenses1,809,700 77,808 1,874,284 153,998 
Compensation expense61,586 54,893 123,694 105,781 
Total expenses4,425,049 2,832,418 7,097,055 5,127,555 
Net income before provision for income taxes2,574,450 3,369,521 8,330,895 6,375,985 
Benefit from (provision for) income taxes(223)(25,669)10,023 (77,334)
Net income2,574,227 3,343,852 8,340,918 6,298,651 
Dividends accrued to preferred stockholders(1,185,042)(1,185,042)(2,370,000)(2,370,000)
Net income attributable to common stockholders$1,389,185 $2,158,810 $5,970,918 $3,928,651 
Earnings per share:
Net income attributable to common stockholders (basic and diluted)$1,389,185 $2,158,810 $5,970,918 $3,928,651 
Weighted average number of shares of common stock outstanding52,231,152 52,226,141 52,231,152 44,389,086 
Basic and diluted income per share$0.03 $0.04 $0.11 $0.09 
Dividends declared per share of common stock$0.06 $0.06 $0.12 $0.12 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
2



LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
(unaudited)
 Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions to
Stockholders		Accumulated Earnings Total Stockholders' EquityNoncontrolling interestsTotal
Equity
 SharesValueSharesPar Value
Balance at December 31, 20222,400,000 $57,254,935 52,231,152 $522,252 $314,598,384 $(160,724,426)$31,250,852 $242,901,997 $99,500 $243,001,497 
Cost of issuing common stock— — — — (14,040)— — $(14,040)— $(14,040)
Restricted stock compensation expense— — — — 3,358 — — $3,358 — $3,358 
Cumulative-effect adjustment upon adoption of ASU 2016-13 (Note 2)— — — — — — (3,591,440)$(3,591,440)— $(3,591,440)
Net income— — — — — — 5,766,691 $5,766,691 — $5,766,691 
Common stock dividends— — — — — (3,133,869)— $(3,133,869)— $(3,133,869)
Preferred stock dividends— — — — — (1,184,958)— (1,184,958)— $(1,184,958)
Balance at March 31, 20232,400,000 $57,254,935 52,231,152 $522,252 $314,587,702 $(165,043,253)$33,426,103 $240,747,739 $99,500 $240,847,239 
Issuance of common stock— — — 60 13,560 — — $13,620 — $13,620 
Cost of issuing common stock— — — — (14,196)— — $(14,196)— $(14,196)
Restricted stock compensation expense— — — — (10,784)— — $(10,784)— $(10,784)
Net income— — — — — — 2,574,227 $2,574,227 — $2,574,227 
Common stock dividends — — — — — (3,133,869)— $(3,133,869)— $(3,133,869)
Preferred stock dividends— — — — — (1,185,042)— $(1,185,042)— $(1,185,042)
Balance at June 30, 20232,400,000 $57,254,935 52,231,152 $522,312 $314,576,282 $(169,362,164)$36,000,330 $238,991,695 $99,500 $239,091,195 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3



LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
(unaudited)
Preferred StockCommon StockAdditional
Paid-in
Capital		Cumulative
Distributions to
Stockholders		Accumulated
Earnings		Total Stockholders' EquityNoncontrolling interestsTotal
Equity
SharesValueSharesValue
Balance at December 31, 20212,400,000 $57,254,935 24,947,883 $249,434 $233,833,749 $(143,449,310)$21,387,192 $169,276,000 $99,500 $169,375,500 
Issuance of common stock— — 27,277,269 272,773 83,195,670 — — 83,468,443 — 83,468,443 
Cost of issuing common stock— — — — (2,404,070)— — (2,404,070)— (2,404,070)
Restricted stock compensation expense— — — — 4,638 — — 4,638 — 4,638 
Net income— — — — — — 2,954,799 2,954,799 — 2,954,799 
Common stock dividends— — — — — (3,133,509)— (3,133,509)— (3,133,509)
Preferred stock dividends— — — — — (1,184,958)— (1,184,958)— (1,184,958)
Balance at March 31, 20222,400,000 $57,254,935 52,225,152 $522,207 $314,629,987 $(147,767,777)$24,341,991 $248,981,343 $99,500 $249,080,843 
Issuance of common stock— — 6,000 45 18,765 — — $18,810 — $18,810 
Cost of issuing common stock— — — — (14,196)— — $(14,196)— $(14,196)
Restricted stock compensation expense— — — — (14,334)— — $(14,334)— $(14,334)
Net income— — — — — — 3,343,852 $3,343,852 — $3,343,852 
Common stock dividends— — — — — (3,133,869)— $(3,133,869)— $(3,133,869)
Preferred stock dividends— — — — — (1,185,042)— $(1,185,042)— $(1,185,042)
Balance at June 30, 20222,400,000 $57,254,935 52,231,152 $522,252 $314,620,222 $(152,086,688)$27,685,843 $247,996,564 $99,500 $248,096,064 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
4



LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30, 2023		Six Months Ended
June 30, 2022
Cash flows from operating activities:  
Net income$8,340,918 $6,298,651 
Adjustments to reconcile net income to net cash provided by operating activities:  
Accretion of commercial mortgage loans held-for-investment discounts(1,196)(125,098)
Amortization of commercial mortgage loans held-for-investment premiums10,687 50,522 
Accretion of deferred loan fees(129,300)— 
Amortization of deferred offering costs(28,236)(85,867)
Amortization of deferred financing costs1,377,153 1,372,887 
Provision for credit losses, net375,399 351,914 
Unrealized loss (gain) on mortgage servicing rights48,923 (228,598)
Restricted stock compensation expense6,194 9,114 
Net change in:  
Accrued interest receivable(67,811)388,565 
Other assets(374,179)(262,488)
Accrued interest payable181,405 404,480 
Fees and expenses payable to Manager53,917 (78,327)
Other liabilities293,818 199,679 
Net cash provided by operating activities10,087,692 8,295,434 
Cash flows from investing activities:  
Purchase of commercial mortgage loans held-for-investment(72,630,053)(222,142,167)
Principal payments from commercial mortgage loans held-for-investment123,583,470 171,007,115 
Net cash provided by (used in) investing activities50,953,417 (51,135,052)
Cash flows from financing activities:  
Proceeds from issuance of common stock— 81,136,045 
Payment of deferred financing costs— (119,375)
Dividends paid on common stock(6,267,738)(5,378,818)
Dividends paid on preferred stock(2,370,000)(2,370,000)
Net cash (used in) provided by financing activities(8,637,738)73,267,852 
Net increase in cash, cash equivalents and restricted cash52,403,371 30,428,234 
Cash, cash equivalents and restricted cash, beginning of period47,366,365 18,279,052 
Cash, cash equivalents and restricted cash, end of period$99,769,736 $48,707,286 
Supplemental disclosure of cash flow information  
Cash paid for interest$27,538,470 $9,371,614 
Non-cash investing and financing activities information  
Dividends declared but not paid at end of period$4,315,119 $4,131,369 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
5


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

Lument Finance Trust, Inc. (together with its consolidated subsidiaries, the "Company"), is a Maryland corporation that focuses primarily on investing in, originating, financing and managing a portfolio of commercial real estate ("CRE") debt investments. The Company is externally managed by Lument Investment Management, LLC (the "Manager" or "Lument IM"). The Company's common stock is listed on the NYSE under the symbol "LFT."

The Company was incorporated on March 28, 2012 and commenced operations on May 16, 2012. The Company began trading as a publicly traded company on March 22, 2013.

The Company has elected to be taxed as a real estate investment trust ("REIT") and to comply with Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission ('SEC") on March 23, 2023.

Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of the Company and all subsidiaries which it controls (i) through voting or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). All significant intercompany transactions have been eliminated on consolidation.

Use of Estimates

The financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g. valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

VIEs

An entity is considered a VIE when any of the following applies: (1) the equity investors (if any) lack one or more essential characteristics of a controlling financial interest; (2) the equity investment at risk is not sufficient 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 defined as the entity having both the following characteristics: (1) the power to direct activities that, when taken together, most significantly impact the VIE performance; and (2) the obligation to absorb losses and right to receive returns from the VIE that would be significant to the VIE.

The Company evaluates quarterly its junior retained notes and preferred shares of LFT CRE 2021-FL1, Ltd. for potential consolidation. At June 30, 2023, the Company determined it was the primary beneficiary of LFT CRE 2021-FL1, Ltd. based on its obligation to absorb losses derived from ownership of its preferred shares. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities. The Company's maximum exposure to loss from collateralized loan obligations ("CLO") was $166,250,000 at June 30, 2023 and December 31, 2022, respectively.

Collateralized Loan Obligations

Collateralized loan obligations ("CLOs") represent third-party liabilities of LFT CRE 2021-FL1, Ltd. and LFT CRE 2021-FL1, LLC (collectively, the "2021-FL1 CLO"). The 2021-FL1 CLO is a VIE and management has determined that the Company is the primary beneficiary of the 2021-FL1 CLO. Accordingly, the Company consolidates the assets, liabilities (other than the below investment grade-rated notes and preferred shares of the 2021-FL1 CLO retained by the Company that are eliminated on consolidation), income and expense of the 2021-FL1 CLO. The third-party obligations of the 2021-FL1 CLO do not have any recourse to the Company as the consolidator of the CLO. The third-party obligations of the 2021-FL1 CLO are carried at their outstanding unpaid principal balances, net of any deferred financing costs. Any premiums, discounts or deferred financing costs associated with these third-party obligations are amortized to interest expense using the effective interest method over the expected average life of the related obligations, or on a straight line basis when it approximates the effective interest method. The Company's maximum exposure to loss from CLOs was $166,250,000 at June 30, 2023 and December 31, 2022, respectively.

In the second quarter of 2023, $1,684,618 in costs related to a previously contemplated public CRE CLO were expensed as "Other operating expenses" in the statements of operations as a result abandoning the contemplated transaction due to then current capital market environment.


6


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at time of purchase include cash held in bank accounts on an overnight basis and other short term deposit accounts with banks having maturities of 90 days or less at time of acquisition. The Company maintains its cash and cash equivalents with highly rated financial institutions, and at times these balances exceed insurable amounts.

Restricted cash includes cash held within the 2021-FL1 CLO as of June 30, 2023 and December 31, 2022, respectively.

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 amounts shown in the statements of cash flows.

June 30, 2023December 31, 2022
Cash and cash equivalents$98,495,690 $43,858,515 
Restricted cash held within the 2021-FL1 CLO$1,274,046 $3,507,850 
Total cash, cash equivalents and restricted cash$99,769,736 $47,366,365 

Deferred Offering Costs

Direct costs incurred to issue shares classified as equity, such as legal and accounting fees, are deducted from the related proceeds and the net amount recorded as stockholders' equity. Accordingly, payments made by the Company in respect of such costs related to the issuance of shares are recorded as an asset in the accompanying consolidated balance sheets in the line item "Other assets," for subsequent deduction from the related proceeds upon closing of the offering. To the extent that certain costs, in particular legal fees, are known to have been accrued but have not yet been invoiced and paid, they are included in "Other accounts payable and accrued expenses" on the accompanying consolidated balance sheets.

Fair Value Measurements

The "Fair Value Measurements and Disclosures" Topic 820 of the FASB, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurement under GAAP. Specifically, the guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at measurement date. ASC 820 specifies a hierarchy of valuation techniques based on the inputs used in measuring fair value.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable market data from independent sources, while unobservable inputs reflect the Company's market assumptions. The three levels are defined as follows:

•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.

Pursuant to ASC 820 we disclose fair value information about financial instruments, which are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate fair value for those certain instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument, for which it is practicable to estimate that value:
•Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.
•Restricted cash: The carrying amount of restricted cash approximates fair value.
•Commercial mortgage loans: The Company determines the fair value of commercial mortgage loans by utilizing a pricing model based on discounted cash flow methodologies using discount rates, which reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Additionally, the Company may record fair value adjustments on a non-recurring basis when it has determined it necessary to record a specific impairment reserve or charge-off against a loan and the Company measures such specific reserve or charge-off using the fair value of the loan's collateral. To determine the fair value of loan collateral, the Company employs the income capitalization approach, appraised values, broker opinion of value, sale offers, letters of intention to purchase, or other valuation benchmarks, as applicable, depending upon the nature of such collateral and other relevant market factors.
•Mortgage servicing rights: The Company determines the fair value of MSRs from a third-party pricing service on a recurring basis. The third-party pricing service uses common market pricing methods that include using discounted cash flow models to calculate present value, estimated net servicing income and observed market pricing for MSR purchase and sale transactions. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors.
•Collateralized loan obligations: The Company determines the fair value of collateralized loan obligations by utilizing a third-party pricing service. In determining the value of a particular investment, pricing service providers may use market spreads, inventory levels, trade and bid history, as well as market insight from clients, trading desks and global research platform.
•Secured term loan: The Company determines the fair value of its secured term loan based on a discounted cash flow methodology.

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased or originated by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are
7


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan on a straight-line basis approximating the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement.

As of June 30, 2023, the Company held one loan on non-accrual status and interest collections will be accounted for under the cost recovery method.

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and amendments, which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit losses required under ASC 2016-13 is included in "Allowance for credit losses" on our consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" in the consolidated balance sheets. The initial CECL reserve recorded on January 1, 2023 is reflected as a direct charge to retained earnings on our consolidated statements of changes in equity; however subsequent changes to the CECL reserve are recognized through net income on our consolidated statements of operations. In connection with the adoption of ASU 2016-13, we recorded a $3.6 million decrease to accumulated earnings as of January 1, 2023.

The Company's implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the current credit quality of loans and operating performance of loan collateral and the Company's expectations of performance and (iii) expectation of macroeconomic conditions over the relevant time period.

In the absence of any Company history of valuation reserves or realized loan losses since our inception in 2013, other than on one office loan, the Company elected to utilize a widely-used analytical model incorporating a loss-given-default methodology and loan performance data for over 100,000 commercial real estate loans dating back to 1998. The Company expects to use this data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determines its CECL estimate based on macroeconomic forecasts that include baseline, optimistic and pessimistic scenarios during the reasonable forecast period. The Company determined the key variables driving its CECL loss estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage.

The Company evaluates each loan rated Default Risk as to whether it is impaired on a quarterly basis. Impaired loans are individually evaluated based on the Company's quarterly assessment of each loan and assignment of a risk rating. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for (reversal of) credit losses. Impairment of these loans, all of which are deemed collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Any loans deemed to be collateral dependent will be removed from the pool of assets measured under CECL. Actual losses, if any, could ultimately differ from estimated losses.

The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023:

Pre-adoptionTransition adjustmentPost-adoption
Assets
Commercial mortgage loans, held-for-investment$1,076,148,186 $— $1,076,148,186 
Less: Allowance for credit losses(4,258,668)(3,549,501)(7,808,169)
Commercial mortgage loans, held-for-investment, net of allowance for credit losses$1,071,889,518 $(3,549,501)$1,068,340,017 
Liabilities
Other liabilities(1)
$583,989 $41,939 $625,928 
Equity
Accumulated earnings$31,250,852 $(3,591,440)$27,659,412 
(1)    Includes reserve for unfunded loan commitments

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:
8


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectation
3.Moderate Risk: consistent with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default

Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights ("MSRs") are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company's taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a subservicer, the associated loan. MSRs are reported at fair value. Residential mortgage loans for which the Company owns the MSRs are directly serviced by two sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.
 
MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.

Secured Term Loan

The Company and certain of its subsidiaries are party to a $47.75 million credit and guaranty agreement with the lenders referred to therein and Cortland Capital Service LLC, as administrative agent and collateral agent for the lenders (the "Secured Term Loan"). The Secured Term Loan is carried at its unpaid principal balance, net of deferred financing costs. Deferred financing costs associated with this liability are amortized to interest expense on a straight line basis when it approximates the effective interest method. See Note 6 for additional information related to the Secured Term Loan.

Common Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 450,000,000 shares of common stock, par value $0.01 per share. On February 22, 2022, the Company closed a transferable common stock rights offering and issued 27,277,269 shares of common stock. The Company had 52,231,152 shares of common stock issued and outstanding at June 30, 2023 and December 31, 2022.

Stock Repurchase Program

On December 15, 2015, the Company's Board of Directors (the "Board") authorized a stock repurchase program ("Repurchase Program"), to repurchase up to $10 million of the Company's outstanding common stock. Subject to applicable securities laws, repurchase of common stock under the Repurchase Program may be made at times and in amounts as the Company deems appropriate, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of common stock. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice.

Preferred Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.01 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board. On May 5, 2021, the Company issued 2,400,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock (Series A Preferred Stock"). The Company had 2,400,000 shares of preferred stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Our preferred stock is classified as permanent equity and carried at its liquidation preference less offering costs. See Note 12 for additional information related to our Series A Preferred Stock.

Income Taxes

The Company has elected to be taxed as a REIT under the Code for U.S. federal income tax purposes, commencing with the Company's short taxable period ended December 31, 2012. A REIT is generally taxable as a U.S. C-Corporation; however, so long as the Company qualifies as a REIT it is entitled to a special deduction for dividends paid to stockholders not otherwise available to corporations. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent its distributions to stockholders equals, or exceeds, its REIT taxable income for the year. In addition, the Company must continue to meet certain REIT qualification requirements with respect to distributions, as well as certain asset, income and share ownership tests, in accordance with Sections 856 through 860 of the Code, as summarized below. In addition, the TRS is maintained to perform certain services and earn income for the Company that the Company is not permitted to engage in as a REIT.

To maintain its qualification as a REIT, the Company must meet certain requirements, including but not limited to the following: (i) distribute at least 90% of its REIT taxable income to its stockholders; (ii) invest at least 75% of its assets in REIT qualifying assets, with additional restrictions with respect to asset concentration risk; and (iii) earn at least 95% of its gross income from qualifying sources of income, including at least 75% from qualifying real estate and real estate related sources. Regardless of the REIT election, the Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax as a U.S. C-Corporation, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders.

Certain activities of the Company are conducted through a TRS and therefore are taxed as a standalone U.S. C-Corporation. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
9


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
The TRS is not subject to a distribution requirement with respect to its REIT owner. The TRS may retain earnings annually, resulting in an increase in the consolidated book equity of the Company and without a corresponding distribution requirement by the REIT. If the TRS generates net income, and declares dividends to the Company, such dividends will be included in its taxable income and necessitate a distribution to its stockholders in accordance with the REIT distribution requirements.

The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company's accounting policy with respect to interest and penalties is to classify these amounts as other interest expense.

Earnings per Share

The Company calculates basic and diluted earnings per share by dividing net income attributable to common stockholders for the period by the weighted-average shares of the Company's common stock outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as warrants, stock options, and unvested restricted stock, but use the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. See Note 13 for details of the computation of basic and diluted earnings per share.

Stock-Based Compensation

The Company is required to recognize compensation costs relating to stock-based payment transactions in the consolidated financial statements. The Company accounts for share-based compensation using the fair-value based methodology prescribed by ASC 718, Share-Based Payment ("ASC 718"). Compensation cost related to restricted common stock issued to the Company's independent directors is measured at its estimated fair value at the grant date and amortized and expensed over the vesting period. See Note 9 for details of stock-based awards issuable under the Company's prior equity incentive, which expired on December 18, 2022 and is no longer being used to issue new equity awards.

Comprehensive Income (Loss) Attributable to Common Stockholders

For the three and six months ended June 30, 2023 and 2022, comprehensive income equaled net income; therefore, a separate consolidated statement of comprehensive income is not included in the accompanying consolidated financial statements.

Recently Issued and/or Adopted Accounting Standards

Credit Losses

On January 1, 2023, we adopted ASU 2016-13, which utilizes a current expected credit loss methodology ("CECL") for the recognition of credit losses for our commercial mortgage loans held-for-investment at amortized cost, at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted for each period for changes in expected credit losses. This methodology replaces the multiple impairment methods in GAAP that generally required that a loss be incurred before it is recognized. We adopted ASU 2016-13 using the modified retrospective method, therefore, the results for reporting period prior to January 1, 2023 have been unadjusted and reported in accordance with previously applicable GAAP. Upon adoption of ASU 2016-13 on January 1, 2023, the Company recorded a cumulative-effect adjustment to accumulated earnings of $3.6 million, or $0.07 per common share.

The CECL reserve required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related commercial mortgage loans on our balance sheet, which will reduce our stockholders' equity. The initial reserve recorded on January 1, 2023 was reflected as a direct charge against accumulated earnings; however, future net changes to the CECL reserve will be recognized in net income on our consolidated statements of operations. ASU 2016-13 does not require use of a particular method for determining the CECL reserve, but it does specify the allowance should be based on relevant information about past events, including historical loss experience, composition of current commercial mortgage loan portfolio, current conditions in real estate and capital markets, and reasonable and supportable forecasts for the expected term of each loan. Additionally, but for a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to CECL incur some amount of valuation reserve to reflect the underlying principle of the CECL model, that all loans, debt securities and similar financial assets bear some inherent risk of loss regardless of credit quality, amount of subordinate capital, or other risk mitigants.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate ("LIBOR") and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt instruments, leases, derivatives and other contracts affected by reference rate reform. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, deferring the sunset date of ASC 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024. ASC 848 provides temporary relief relating to potential accounting impact relating to replacement of LIBOR or other reference rates expected to be discounted as a result of reference rate reform. We have not adopted any of the optional expedients or exceptions through June 30, 2023, but will continue to evaluate the possible adoption of any such expedients or exceptions.
10


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 3 – COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT


The following tables summarize certain characteristics of the Company's investments in commercial mortgage loans as of June 30, 2023 and December 31, 2022:
Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
June 30, 2023
Loans held-for-investment
Senior secured loans(3)
$1,021,956,208 $1,021,042,905 66 100.0 %8.6 %3.1
Allowance for credit lossesN/A(3,897,895)
1,021,956,208 1,017,145,010 66 100.0 %8.6 %3.1

Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
December 31, 2022
Loans held-for-investment
Senior secured loans(3)
$1,076,865,099 $1,076,148,186 71 100.0 %7.6 %3.5
Allowance for credit lossesNA(4,258,668)
1,076,865,099 1,071,889,518 71 100.0 %7.6 %3.5

(1)    Weighted average coupon assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day Term Secured Overnight Financing Rate ("SOFR") of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.25% and 0.27%, respectively. As of June 30, 2023, 73.9% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 26.1% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR.
(2)    Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(3)    As of June 30, 2023, $994,914,714 of the outstanding senior secured loans were held in VIEs and $22,230,296 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside VIEs.

Activity: For the six months ended June 30, 2023, the loan portfolio activity was as follows:
Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2022$1,071,889,518 
Purchases, advances and originations72,630,053 
Principal payments(123,583,470)
Accretion of purchase discount1,196 
Amortization of purchase premium(10,687)
Accretion of deferred loan fees129,300 
Cumulative-effect adjustment upon adoption of ASU 2016-13(3,549,501)
Provision for credit losses, net(361,399)
Balance at June 30, 2023
$1,017,145,010 

Loan Risk Ratings: As further described in Note 2, the Company evaluates the commercial mortgage loan portfolio on a quarterly basis and assigns a risk rating based on a variety of factors. The following table presents the principal balance and net book value of the loan portfolio based on the Company's internal risk ratings as of June 30, 2023 and December 31, 2022:

June 30, 2023
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20232022202120192017
1— $— — — — — — 
22 36,850,000 17,926,638 18,533,248 — — — 
353 831,892,473 — 138,379,697 628,385,618 41,515,275 19,625,364 
410 140,539,480 — 50,841,772 89,263,143 — — 
11


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 3 - COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT (Continued)
51 12,674,255 — — 12,674,255 — — 
66 $1,021,956,208 17,926,638 207,754,717 730,323,016 41,515,275 19,625,364 

December 31, 2022
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20222021201920182017
1— $— — — — — — 
211 153,933,750 85,198,084 67,999,500 — — — 
355 852,474,681 101,654,140 672,421,907 42,077,193 16,672,623 19,668,071 
43 47,448,000 15,000,000 32,448,000 — — — 
52 23,008,668 — 12,750,000 — 6,000,000 — 
71 $1,076,865,099 201,852,224 785,619,407 42,077,193 22,672,623 19,668,071 

As of June 30, 2023, the average risk rating of the commercial mortgage loan portfolio was 3.4 (Moderate Risk), weighted by investment carrying value, with 85.0% of the net carrying value of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

As of December 31, 2022, the average risk rating of the commercial mortgage loan portfolio was 3.0 (Moderate Risk), weighted by investment carrying value, with 93.8% of the net carrying value of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

The average risk rating of the portfolio has increased during the six months ended June 30, 2023. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $33.5 million, "3" of $84.0 million and a risk rating of "5" of $10.3 million, offset by the purchase of commercial mortgage loans with a risk rating of "2" of $17.9 million and , "3" of $55.0 million during the six months ended June 30, 2023. Additionally, $101.5 million of loans with a risk rating of "2" transitioned to a risk rating of "3," and $93.1 million of loans with a risk rating of "3" transitioned to a risk rating of "4".

Concentration of Credit Risk: The following tables present the geographic and property types of collateral underlying the Company's commercial mortgage loans as a percentage of the loans' carrying value as of June 30, 2023 and December 31, 2022:

Loans Held-for-Investment
June 30, 2023December 31, 2022
Geography
South45.2 %46.6 %
Southwest24.8 26.7 
Mid-Atlantic15.4 12.4 
Midwest7.9 8.0 
West6.7 6.3 
Total100.0 %100.0 %
June 30, 2023
December 31, 2022
Collateral Property Type
Multifamily89.5 %89.6 %
Seniors Housing and Healthcare8.6 6.4 
Self-Storage1.9 1.8 
Retail— 1.6 
Office— 0.6 
Total100.0 %100.0 %

Allowance for Credit Losses:

The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the allowance for credit losses on the outstanding balances of the Company's loans held-for-investment:

12


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 3 - COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT (Continued)
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$3,357,527 $— $4,258,668 $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 3,549,501 
Provision for credit losses540,368 — 361,399 — 
Charge offs— — (4,271,673)
Allowance for credit losses at end of period$3,897,895 $— $3,897,895 $— 

The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the provision for (release of) credit losses on the unfunded commitments of the Company's loans held-for-investment:
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$41,225 $— $— $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 41,939 — 
(Reversal of) credit losses14,716 — 14,002 — 
Charge offs— — — — 
Allowance for credit losses at end of period$55,941 $— $55,941 $— 

We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loans discussed below as of June 30, 2023 or December 31, 2022.

In February 2023, in connection with the sale of the office building collateralizing an impaired loan by the borrower to an unaffiliated third-party, the Company accepted a discounted payoff of approximately $6.0 million on the impaired loan, which had an unpaid principal balance of $10.3 million. An allowance for credit loss of $4.3 million was recorded for this impaired loan in the year ended December 31, 2022. Upon the discounted payoff, a $4.3 million charge off against the allowance for credit losses was recorded, with de minimis impact to income in the six months ended June 30, 2023.

During the period ended June 30, 2023, management continued to identify one loan, collateralized by a multifamily property, with an unpaid principal value of $12.8 million as impaired due to monetary default; however, no reserve is required after analysis of underlying collateral value. This loan is on non-accrual status as a result of the monetary default and impaired loan classification.

NOTE 4 - USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES

We account for CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us. See Note 2 ("Summary of Significant Accounting Policies - Principles Consolidation - VIE" and "Collateralized Loan Obligations")) for further discussion.

On June 14, 2021, the Company completed the 2021-FL1 CLO, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $903.8 million. Of the total CLO notes issued $833.8 million were investment grade notes issued to third party investors and $70 million were below investment-grade notes retained by us. In addition, a $96.25 million equity interest in the portfolio was retained by us. The financing has an initial two-and-a-half year reinvestment period that allows principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $330.3 million for the purpose of acquiring additional loan obligations or a period of up to 180 days from the 2021-FL1 CLO closing date, resulting in the issuer owning loan obligations with a face value of $1.0 billion, representing leverage of 83%.

The 2021-FL1 CLO is subject to collateralization and coverage tests that are customary for these types of securitizations. As of June 30, 2023 and December 31, 2022 all such collateralization and coverage tests in the 2021-FL1 CLO were met.

The carrying values of the Company's total assets and liabilities related to the 2021-FL1 CLO at June 30, 2023 and December 31, 2022 included the following VIE assets and liabilities:

ASSETSJune 30, 2023December 31, 2022
Cash, cash equivalents and restricted cash$1,274,046 $3,507,850 
Accrued interest receivable5,802,948 5,488,118 
Investment related receivable— — 
Loans held for investment, net of allowance for credit losses994,914,714 996,511,403 
Total Assets$1,001,991,708 $1,005,507,371 
LIABILITIES
Accrued interest payable$2,455,667 $2,264,646 
Collateralized loan obligations(1)
830,564,083 829,310,498 
13


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 4 – USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES (Continued)
Total Liabilities$833,019,750 $831,575,144 
Equity168,971,958 173,932,227 
Total liabilities and equity$1,001,991,708 $1,005,507,371 

(1)     The stated maturity of the collateral loan obligations per the terms of the underlying collateralized loan obligation agreement is June 14, 2039 for the 2021-FL1 CLO.

The following tables present certain loan and borrowing characteristics of the 2021-F11 CLO as of June 30, 2023 and December 31, 2022:

As of June 30, 2023
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$999,042,153 $994,914,714 
8.62%
Financing provided1$833,750,000 $830,564,083 
6.63%

As of December 31, 2022
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$996,492,150 $996,511,403 
7.60%
Financing provided1$833,750,000 $829,310,498 
5.75%
(1)     The carrying value for the 2021-FL1 CLO is net of debt issuance costs of $3,185,917 and $4,439,502 for June 30, 2023 and December 31, 2022, respectively.
(2)    Weighted average coupon for loan investments assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day SOFR of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.27% and 0.25%, and spreads of 3.42% and 3.41%, respectively. As of June 30, 2023, 74.7% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 25.3% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 80.5% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 19.5% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. Weighted coupon for the financing assumes applicable one-month LIBOR of 5.11% and 4.32% as of June 30, 2023 and December 31, 2022 and spreads of 1.43% for June 30, 2023 and December 31, 2022.

The statement of operations related to the 2021-FL1 CLO for the three and six months ended June 30, 2023 and June 30, 2022 include the following income and expense items:

Statements of OperationsThree Months Ended June 30, 2023Three Months Ended June 30, 2022
Interest income$21,530,481 $11,734,126 
Interest expense(14,199,861)(5,284,890)
Net interest income$7,330,620 $6,449,236 
Provision for credit losses(522,003)(351,914)
General and administrative fees(181,894)(177,845)
Net income$6,626,723 $5,919,477 

Statements of OperationsSix Months Ended June 30, 2023Six Months Ended June 30, 2022
Interest income$42,328,890 $21,546,569 
Interest expense(27,232,907)(9,289,128)
Net interest income$15,095,983 $12,257,441 
Provision for credit losses(507,787)(351,914)
General and administrative fees(325,243)(324,367)
Net income$14,262,953 $11,581,160 

NOTE 5 - RESTRICTED CASH

The 2021-FL1 CLO is actively managed with an initial reinvestment period of 30 months that expires in December 2023. As loans payoff or mature, as applicable, during this reinvestment period, cash received is restricted and intended to be reinvested within the 2021-FL1 CLO in accordance with the terms and conditions of their respective governing agreements.

14


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 6 – SECURED TERM LOAN

On January 15, 2019, the Company, together with its FOAC and Lument CMT Equity subsidiaries (together with the Company, the "Credit Parties"), entered into the Secured Term Loan, as amended on February 13, 2019, July 9, 2020, April 21, 2021 and February 22, 2022 with the lenders party thereto and Cortland Capital Market Services, LLC, as administrative agent (in such capacity, the "Agent"), providing for a term facility ("Credit Agreement") to be drawn in an aggregate principal amount of $40.25 million with a maturity of 6 years.

The borrowings under the Secured Term Loan are joint and several obligations of the Credit Parties. In addition, the Credit Parties' obligations under the Secured Term Loan are secured by substantially all the assets of the Credit Parties through pledge and security documentation. Amounts advanced under the Secured Term Loan are subject to compliance with a borrowing base comprised of assets of the Credit Parties and certain of their subsidiaries, and include senior and subordinated CRE mortgage loans, preferred equity in CRE assets (directly or indirectly), CRE construction mortgage loans and certain types of equity interests (the "Eligible Assets"). Borrowings under the Secured Term Loan bear interest at a fixed rate of 7.25% for the six-year period following the initial draw-down, which is subject to step up by 0.25% for the first four months after the sixth anniversary of the borrowing of the Senior Secured Term Loan, then by 0.375% for the following four months, then by 0.50% for the last four months until maturity.

In response to the continued COVID-19 pandemic, on July 9, 2020, the Company entered into the Second Amendment to the Credit and Guaranty Agreement. This amendment provides the Company with additional flexibility to effectively manage any potential borrower distress related to COVID-19 that were not originally contemplated in loan documentation.

On April 21, 2021, the Company, together with its Credit Parties, entered into an amendment (the "Third Amendment") to the Credit and Guaranty Agreement. The amendment, among other things, (i) provides the Company with an incremental secured term loan in the aggregate principal amount of $7.5 million; (ii) extends the maturity date of the Secured Term Loan from February 14, 2025 to February 14, 2026; (iii) amends certain asset concentration limits and (iv) amends certain financial covenants. On May 5, 2021 the Third Amendment became effective. On August 23, 2021, the Company drew down the $7.5 million incremental secured term loan.

On February 14, 2019, the Company drew on the Secured Term Loan in the aggregate principal amount of $40.25 million generating net proceeds of $39.2 million. The outstanding balance of the Secured Term Loan in the table below is presented gross of deferred financing costs ($675,871 and $778,958 at June 30, 2023 and December 31, 2022, respectively). As of June 30, 2023 and December 31, 2022, the outstanding balance and total commitment under the Credit Agreement consisted of the following:
June 30, 2023December 31, 2022
Outstanding BalanceTotal CommitmentOutstanding BalanceTotal Commitment
Secured Term Loan$47,750,000 $47,750,000 $47,750,000 $47,750,000 
Total$47,750,000 $47,750,000 $47,750,000 $47,750,000 

On February 22, 2022, the Company, together with its Credit Parties, entered into a fourth amendment to the Credit and Guaranty Agreement. This amendment waived the step-down provisions of the maximum total net leverage financial covenant in connection with the February 2022 rights offering, however the step-down provision remains in place for future capital raises.

The Credit Agreement contains affirmative and negative covenants binding the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to: minimum asset coverage ratio; minimum unencumbered assets ratio; maximum total net leverage ratio; minimum tangible net worth; and an interest charge coverage ratio. As of June 30, 2023 and December 31, 2022 we were in compliance with these covenants.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.

NOTE 7 - MSRs

As of June 30, 2023, the Company retained the servicing rights associated with an aggregate principal balance of $70,212,243 of residential mortgage loans that the Company had previously transferred to residential mortgage loan securitization trusts. The Company's MSRs are held and managed at the Company's taxable REIT subsidiary ("TRS"), and the Company employs two licensed sub-servicers to perform the related servicing activities.

The following table presents the Company's MSR activity for the six months ended June 30, 2023 and the six months ended June 30, 2022:

 June 30, 2023June 30, 2022
Balance at beginning of period$795,656 $551,997 
Changes in fair value due to:
Changes in valuation inputs or assumptions used in valuation model585 300,977 
Other changes to fair value(1)
(49,507)(72,379)
Balance at end of period$746,734 $780,595 
Loans associated with MSRs(2)
$70,212,243 $79,643,107 
MSR values as percent of loans(3)
1.06 %0.98 %
(1)Amounts represent changes due to realization of expected cash flows and prepayment of principal of the underlying loan portfolio.
(2)Amounts represent the unpaid principal balance of loans associated with MSRs outstanding at June 30, 2023 and June 30, 2022, respectively.
(3)Amounts represent the carrying value of MSRs at June 30, 2023 and June 30, 2022, respectively divided by the outstanding balance of the loans associated with these MSRs.
15


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 7 – MSRs (Continued)
The following table presents the servicing income recorded on the Company's consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022:
Three Months Ended
June 30, 2023		Three Months Ended
June 30, 2022
Servicing income, net$45,396 $56,053 
Total servicing income$45,396 $56,053 
Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Servicing income, net$96,924 $123,234 
Total servicing income$96,924 $123,234 

NOTE 8 - FAIR VALUE

The following tables summarize the valuation of the Company's assets and liabilities carried at fair value on a recurring basis within the fair value hierarchy levels as of June 30, 2023 and December 31, 2022:

 June 30, 2023
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of June 30, 2023
Assets:    
Mortgage servicing rights— — $746,734 $746,734 
Total$— $— $746,734 $746,734 

 December 31, 2022
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of
December 31, 2022
Assets:    
Mortgage servicing rights— — $795,656 $795,656 
Total$— $— $795,656 $795,656 

As of June 30, 2023 and December 31, 2022, the Company had $746,734 and $795,656, respectively, in Level 3 assets. The Company's Level 3 assets are comprised of MSRs. For more detail about Level 3 assets, also see Notes 2 and 7.

The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's MSRs classified as Level 3 fair value assets at June 30, 2023 and December 31, 2022:

As of June 30, 2023
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.3%
8.3 %
 Discount rate12.0 %12.0 %
As of December 31, 2022
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.4%
8.1 %
 Discount rate12.0 %12.0 %

As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount, face amount and fair value of the financial instruments described in Note 2:
16


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 8 – FAIR VALUE (Continued)
June 30, 2023
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$98,495,690 $98,495,690 $98,495,690 
Restricted cash11,274,046 1,274,046 1,274,046 
Commercial mortgage loans held-for-investment, net31,017,145,010 1,021,956,208 1,015,244,182 
Total$1,116,914,746 $1,121,725,944 $1,115,013,918 
Liabilities:
Collateralized loan obligations2$830,564,083 $833,750,000 $807,972,875 
Secured Term Loan347,094,610 47,750,000 44,859,068 
Total$877,658,693 $881,500,000 $852,831,943 

December 31, 2022
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$43,858,515 $43,858,515 $43,858,515 
Restricted cash13,507,850 3,507,850 3,507,850 
Commercial mortgage loans held-for-investment, net31,071,889,518 1,076,865,099 1,064,407,588 
Total$1,119,255,883 $1,124,231,464 $1,111,773,953 
Liabilities:
Collateralized loan obligations2$829,310,498 $833,750,000 $803,308,375 
Secured term loan346,971,042 47,750,000 44,563,236 
Total$876,281,540 $881,500,000 $847,871,611 

Estimates of cash and cash equivalents and restricted cash are measured using quoted prices, or Level 1 inputs. Estimates of the fair value of collateralized loan obligations are measured using observable, quoted market prices, in active markets, or Level 2 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.

NOTE 9 - RELATED PARTY TRANSACTIONS

Management and Incentive Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement, the Company pays the manager a management fee equal to 1.5% of Stockholders' Equity per annum, calculated and payable quarterly (0.375% per quarter) in arrears. For purposes of calculating the management fee, the Company's stockholders' equity includes the sum of the net proceeds from all issuances of the Company's equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company's retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount that the Company paid for repurchases of the Company's common stock since inception, and excluding any unrealized gains, losses or other items that did not affect realized net income (regardless of whether such items were included in other comprehensive income or loss, or in net income). This amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain non-cash items after discussions between the Manager and the Company's independent directors and approval by a majority of the Company's independent directors. To the extent asset impairment reduces the Company's retained earnings at the end of any completed calendar quarter, it will reduce the management fee for such quarter. The Company's stockholders' equity for the purposes of calculating the management fee could be greater than the amount of stockholders' equity shown on the consolidated financial statements. Additionally, starting in the first full calendar quarter following January 3, 2020, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum. The term of our management agreement expires on January 3, 2024, with automatic, one-year renewals thereafter.

For the three months ended June 30, 2023, the Company incurred management fees of $1,093,374 (June 30, 2022: $1,090,652), recorded as "Management and incentive fees" in the consolidated statement of operations, of which $1,084,000 (June 30, 2022: $1,095,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the consolidated balance sheets.

For the three months ended June 30, 2023 and the three months ended June 30, 2022, the Company did not incur any incentive fees.

17


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)

For the six months ended June 30, 2023, the Company incurred management fees of $2,180,636 (June 30, 2022: $2,015,269), recorded as "Management and incentive fees" in the consolidated statement of operations, of which $1,084,000 (June 30, 2022: $1,095,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the consolidated balance sheets.

For the six months ended June 30, 2023 and the six months ended June 30, 2022, the Company did not incur any incentive fees.

Expense Reimbursement

Pursuant to the management agreement, the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company's affairs. The Manager has agreed to certain limitations on manager expense reimbursement from the Company.

For the three months ended June 30, 2023, the Company incurred reimbursable expenses of $577,666 (June 30, 2022: $648,645), recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $576,250 (June 30, 2022: $651,815) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the three months ended June 30, 2023, the Company waived $167,500 in gross exit fees, reducing reimbursed expenses by $83,750 and for the three months ended June 30, 2022, the Company waived $699,547 in gross exit fees, reducing reimbursed expenses due to the Manager by $48,115.

For the six months ended June 30, 2023, the Company incurred reimbursable expenses of $1,087,652 (June 30, 2022: $1,039,355), recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $576,250 (June 30, 2022: $651,815) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the six months ended June 30, 2023, the Company waived $167,500 in gross exit fees, reducing reimbursed expenses by $83,750 and for the six months ended June 30, 2022, the Company waived $603,317 in gross exit fees, reducing reimbursed expenses due to the Manager by $349,774.

Manager Equity Plan

The Company had in place a Manager Equity Plan, which expired December 18, 2022, under which the Company had the ability to provide equity compensation to the Manager and the Company's independent directors, consultants, or officers. The Manager, in its sole discretion, could allocate any awards it received under the Manager Equity Plan to its directors, officers, employees or consultants. The Company was able to issue under the Manager Equity Plan up to 3.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis) at the time of each award.

The following table summarizes the activity related to restricted common stock granted under the Manager Equity Plan for the six months ended June 30, 2023 and June 30, 2022:

Six Months Ended June 30,
20232022
SharesWeighted Average Grant Date Fair Market ValueSharesWeighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period6,000 $2.27 4,500 $4.18 
Granted— — 6,000 2.27 
Vested(6,000)2.27 (4,500)$4.18 
Outstanding Unvested Shares at End of Period— $— 6,000 $2.27 

For the period ended June 30, 2023, the Company recognized compensation expense related to restricted common stock of $6,194 (2022: $9,114). The Company has no unrecognized compensation expense of as of June 30, 2023 (2022: $13,030) for unvested shares of restricted common stock.

Lument Structured Finance

During the second quarter of 2023, the 2021-FL1 CLO purchased two loans with an aggregate unpaid principal balance of $48.6 million at par from Lument Structured Finance ("LSF"), an affiliate of our Manager and purchased two funded loan advances with an unpaid principal balance of $1.7 million at par from LSF. Additionally, the 2021-FL1 CLO purchased one loan with an aggregate unpaid principal balance of $6.1 million at a discount of $0.1 million and purchased seventeen funded loan advances with an aggregate unpaid principal balance of $16.5 million at a discount of $0.2 million from LSF.

During the first quarter of 2022, (a) the 2021-FL1 CLO purchased eight loans with an aggregate unpaid principal balance of $108.9 million at par from LSF and (b) Lument Commercial Mortgage Trust ("LCMT") purchased six loans with an aggregate unpaid principal balance of $76.0 million at par from LSF.

During the second quarter of 2022, (a) the 2021-FL1 CLO purchased three loans with an aggregate unpaid principal balance of $31.2 million at par from LSF and (b) LCMT purchased six loans with an unpaid principal balance of $76.0 million at par from LSF.



18


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)

Lument Real Estate Capital

Lument Real Estate Capital, LLC ("LREC"), an affiliate of the Manager, was appointed as the servicer and special servicer with respect to mortgage assets forthe 2021-FL1 CLO in June 2021 and continues to serve in this role.

Lument IM

Lument IM was appointed as the collateral manager with respect to the 2021-FL1 CLO in June 2021, and continues to serve in this role. Lument IM has agreed to waive all its entitlements to collateral management fees for so long as Lument IM or an affiliate is the collateral manager and also the manager of Lument Finance Trust, Inc..

Lument Investment Holdings

On February 22, 2022, Lument Investment Holdings purchased 13,071,895 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.

Hunt Companies, Inc.

One of the Company's directors is also Chief Executive Officer and President of Hunt Companies, Inc. ("Hunt") and is a member of the Hunt board of directors, with which affiliates of the Manager have a commercial business relationship. The Manager's affiliates may from time to time sell commercial mortgage loans to Hunt or various of its subsidiaries and affiliates.

On February 22, 2022, an affiliate of Hunt Companies, Inc., purchased 3,524,851 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.

NOTE 10 - GUARANTEES

The Company, through FOAC, is party to customary and standard loan repurchase obligations in respect of residential mortgage loans that it has sold into securitizations or to third parties, to the extent it is determined that there has been a breach of standard seller representations and warranties in respect of such loans. To date, the Company has not been required to repurchase any loan due to a claim of breached seller reps and warranties.

In July 2016, the Company announced that it would no longer aggregate and securitize residential mortgage loans; however, the Company sought to capitalize on its infrastructure and knowledge to become the provider of seller eligibility review and backstop services to MAXEX. MAXEX's wholly owned clearinghouse subsidiary, MAXEX Clearing LLC, formerly known as Central Clearing and Settlement LLC ("MAXEX Clearing LLC"), functions as the central counterparty with which buyers and sellers transact, and acts as the buyer's counterparty for each transaction. Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29, 2016, January 30, 2017 and June 27, 2018, among MAXEX, MAXEX Clearing LLC and FOAC (the "Master Agreement"), FOAC provided seller eligibility review services under which it reviewed, approved and monitored sellers that sold loans via MAXEX Clearing LLC. Once approved, and having signed the standardized loan sale contract, the seller sold loan(s) to MAXEX Clearing LLC, and MAXEX Clearing LLC simultaneously sold loan(s) to the buyer on substantially the same terms including representations and warranties. The Master Agreement was terminated on November 28, 2018 (the "MAXEX Termination Date"). To the extent that a seller approved by FOAC prior to the MAXEX Termination Date failed to honor its obligations to repurchase a loan based on an arbitration finding that it breached its representations and warranties, FOAC was obligated to backstop the seller's repurchase obligation. The term of the backstop guarantee is the earlier of the contractual maturity of the underlying mortgage, or its earlier repayment in full; however, the incidence of claims for breaches of representations and warranties over time is considered unlikely to occur more than five years from the sale of a mortgage. FOAC's obligations to provide further seller eligibility review and backstop guarantee services terminated on the MAXEX Termination Date. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770 (the "Alternate Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption Agreement that it (i) is rated at least "A" (or equivalent) by at least one nationally recognized statistical rating agency or (ii) has (a) adjusted tangible net worth of at least $20 million and (b) minimum available liquidity equal to the greater of (x) $5 million and (y) 0.1% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. MAXEX's chief financial officer is required to certify ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX Clearing LLC is required to deposit into an escrow account for FOAC's benefit an amount equal to the greater of (A) the unamortized Alternate Backstop Fee for each outstanding loan covered by the backstop guarantee and (B) the product of 0.01% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees.

The maximum potential amount of future payments that the Company could be required to make under the outstanding backstop guarantees, which represents the outstanding balance of all underlying mortgage loans sold by approved sellers to MAXEX Clearing LLC, was estimated to be $167 million and $172 million as of June 30, 2023 and December 31, 2022, respectively, although the Company believes this amount is not indicative of the Company's actual potential losses. Amounts payable in excess of the outstanding principal balance of the related mortgage, for example any premium paid by the loan buyer or costs associated with collecting mortgage payments, are not currently estimable. Amounts that may become payable under the backstop guarantee are normally recoverable from the related seller, as well as from any payments received on (or from the sale of property securing) the mortgage loan repurchased and, as noted above, MAXEX Clearing LLC has assumed all of FOAC's obligations in respect of its backstop guarantees. Pursuant to the Master Agreement, FOAC is required to maintain minimum available liquidity equal to the greater of (i) $5.0 million or (ii) 0.10% of the aggregate unpaid principal balance of loans backstopped by FOAC, either directly or through a credit support agreement acceptable by MAXEX. As of June 30, 2023, the Company was not aware of any circumstances expected to lead to the triggering of a backstop guarantee obligation.

In addition, the Company enters into certain contracts that contain a variety of indemnification obligations, principally with the Manager, brokers and counterparties to repurchase agreements. The maximum potential future payment amount the Company could be required to pay under these indemnification
19


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 10 - GUARANTEES (Continued)
obligations is unlimited. The Company has not incurred any costs to defend lawsuits or settle claims related to the indemnification obligations. As a result, the estimated fair value of these agreements is minimal. Accordingly, the Company recorded no liabilities for these agreements as of June 30, 2023.
NOTE 11 - COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, LFT may be involved in various claims and legal actions arising in the ordinary course of business. LFT establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable.

As of June 30, 2023, LFT was not involved in any material legal proceedings regarding claims or legal actions against LFT.

Unfunded Commitments

As of June 30, 2023, LCMT had $6.7 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected in the Company's consolidated balance sheets.

As of June 30, 2023, LSF, an affiliate of the Manager, had $54.7 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected on the Company's consolidated balance sheets.

As of June 30, 2023, LSF, had $0.4 million of unfunded commitments related to loans held in LCMT. These commitments are not reflected on the Company's consolidated balance sheets.

As of December 31, 2022, LSF, had $78.4 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected on the Company's consolidated balance sheets.

As of December 31, 2022, LSF, had $4.7 million of unfunded commitments related to loans held in LCMT. These commitments are not reflected on the Company's consolidated balance sheets.

Future loan fundings comprise funding for capital improvements, leasing costs, interest and carry costs, and fundings will vary depending on the progress of the business plan and cash flows at the mortgage assets. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying mortgage assets.

NOTE 12 - EQUITY

Common Stock
The Company has 450,000,000 authorized shares of common stock, par value $0.01 per share, with 52,231,152 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

On February 22, 2022, the Company closed a transferable common stock rights offering. The Company issued and sold 27,277,269 shares of common stock at a price of $3.06 per share resulting in gross proceeds of approximately $83.5 million.


Stock Repurchase Program

On December 15, 2015, the Board authorized a stock repurchase program (or the "Repurchase Program"), to repurchase up to $10 million of the Company's outstanding common stock. Shares of the Company's common stock may be purchased in the open market, including through block purchases, or through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18(b)(1) of the Securities Exchange Act of 1934, as amended. The timing, manner, price and amount of any repurchases will be determined at the Company's discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, the Company intends to only consider repurchasing shares of the Company's common stock when the purchase price is less than the Company's estimate of the Company's current net asset value per common share. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of the Company's common stock. No share repurchases have been made since January 19, 2016. Through June 30, 2023, the Company had repurchased 126,856 shares of common stock at a weighted average share price of $5.09. No share repurchases have been made since January 19, 2016. As of June 30, 2023, $9.4 million of common stock remained authorized for future share repurchase under the Repurchase Program.

Preferred Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.01 per share, with 2,400,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively. Voting and other rights and preferences will be determined by the Board upon issuance.

On May 5, 2021, LFT issued 2,400,000 shares of Series A Preferred Stock, and received net proceeds, after underwriting discounts and commissions but before offering expenses payable by the Company, of $58.1 million. The Series A Preferred Stock is redeemable, at LFT's option, at a liquidation preference price of $25.00 per share plus accrued dividends commencing on May 5, 2026. Dividends on the Series A Preferred Stock are payable quarterly in arrears beginning on July 15, 2021.




20


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 12 – EQUITY (Continued)
Distributions to Stockholders

For the 2023 taxable year to date, the Company has declared dividends to common stockholders totaling $6,267,738, or $0.12 per share. The following table presents cash dividends declared by the Company on its common stock during the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023March 31, 2023April 17, 2023$3,133,869 $0.060 
June 14, 2023June 30, 2023July 17, 2023$3,133,869 $0.060 

The following table presents cash dividends declared by the Company on its Series A Preferred stock for the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023April 3, 2023April 17, 2023$1,181,250 $0.49219 
June 14, 2023July 3, 2023July 17, 2023$1,181,250 $0.49219 

Non-controlling Interests
 
On November 29, 2018, LCMT, which is an indirect wholly-owned subsidiary of the Company that has elected to be taxed as a REIT for U.S. Federal income tax purposes, issued 125 shares of Series A Preferred Shares ("LCMT Preferred Shares").  Net proceeds to LCMT were $99,500 representing $125,000 in equity raised, less $25,500 in expenses and is reflected as "Non-controlling interests" in the Company's consolidated balance sheets.  Dividends on the LCMT Preferred Shares are cumulative annually, in an amount equal to 12% of the initial purchase price plus any accrued unpaid dividends.  The LCMT Preferred Shares are redeemable at any time by LCMT.  The redemption price through December 31, 2020 was 1.1x the initial purchase price plus all accrued and unpaid dividends, and the initial purchase price plus all accrued and unpaid dividends thereafter.  The holders of the LCMT Preferred Shares have limited voting rights, which do not entitle the holders to participate or otherwise direct the management of LCMT or the Company.  The LCMT Preferred Shares are not convertible into or exchangeable for any other property or securities of LCMT or the Company.  Dividends on the LCMT Preferred Shares, which amounted to $15,000 for the year ended December 31, 2022 are reflected in "Dividends to preferred stockholders" in the Company's consolidated statements of operations. As of June 30, 2023, LCMT had $7,500 in accrued dividends on the LCMT Preferred Shares which are reflected in "dividends to preferred stockholders" in the Company's consolidated statements of operations of which $0 were accrued and unpaid dividends on the LCMT Preferred Shares which are reflected in "Dividends payable" in the Company's consolidated balance sheet.

Independent Directors Stock-for-Fees Program

Upon the recommendation of the Compensation Committee of the Board, on April 20, 2023, the Board has adopted the Independent Directors Stock-for-Fees Program (the “Stock-for-Fees Program”). The purpose of the Stock-for-Fees Program is to promote the long-term success of the Company and further align the interests of the Company’s independent directors with the interests of its stockholders by providing the independent directors with an opportunity to elect to receive their Director Fees (as defined below) in the form of shares of common stock.

Pursuant to the Stock-for-Fees Program, an independent director may elect to exchange all or a portion of such director’s unpaid Director Fees for the right to receive payment of such unpaid fees in the form of shares of common stock. Such election will apply to all Director Fees that would otherwise have been paid (but for such election) in the fiscal quarter that commences after the date the independent director’s election form is filed with and received by the Company and will continue for each fiscal quarter through and until the fiscal quarter that commences after such time as the director files a new election form that is received by the Company modifying or terminating such prior election or, if earlier, the date such Director terminates service on the Board. Unless otherwise approved by the Board, an election by an independent directors will be made only in an open trading window pursuant to the Company’s insider trading policy. Unless otherwise approved by the Board, an independent director may not make more than one election in any six-month period of time. Any Director Fees that an independent director elects to receive in the form of shares of common stock are referred to as “Exchanged Fees.”

Upon any Exchange Date (as defined below) that occurs after an independent director files an election form that is received by the Company, the independent director will be entitled to receive a number of shares of common stock determined by dividing (i) the amount of the Exchanged Fees that would otherwise have been paid to the independent director in cash on such Exchange Date but for such election, by (ii) the Fair Market Value (as defined below) of a share of common stock as of such Exchange Date, and rounding down to the nearest whole share. Any fractional amount less than the Fair Market Value of a share of common stock as of such Exchange Date will be paid in cash. Any shares of common stock acquired by an independent director pursuant to the Stock-for-Fees Program will be fully vested at all times.

The maximum aggregate number of shares of common stock issuable pursuant to the Stock-for-Fees Program is 2,611,555. The maximum aggregate number of shares issuable to an independent director pursuant to the Stock-for-Fees Program shall not exceed 522,311 shares of common stock. The Company has not issued any shares pursuant to the Stock-for_Fees Program as of June 30, 2023.

For purposes of this Stock-for-Fees Program, the following definitions apply:

“Director Fees” means the annual retainer and meeting fees, to the extent otherwise payable in cash, payable to an independent director for services as a member of the Board.

21


LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
NOTE 12 – EQUITY (Continued)
“Exchange Date” means any date on which the Company pays Director Fees to independent directors.

“Fair Market Value” means, with respect to an Exchange Date, the average of the closing prices of a share of the Company’s common stock as reported on the composite tape for securities listed on the NYSE for the period of ten trading days ending on the trading day immediately preceding the Exchange Date.

NOTE 13 - EARNINGS PER SHARE

In accordance with ASC 260, outstanding instruments that contain rights to non-forfeitable dividends are considered participating securities. The Company is required to apply the two-class method or the treasury stock method of computing basic and diluted earnings per share when there are participating securities outstanding. The Company has determined that outstanding unvested restricted shares issued under the Manager Equity Plan are participating securities, and they are therefore included in the computation of basic and diluted earnings per share. The following tables provide additional disclosure regarding the computation for the three and six months ended June 30, 2023 and June 30, 2022:

 Three Months Ended June 30, 2023Three Months Ended June 30, 2022
Net income$2,574,227 $3,343,852 
Less dividends:    
Common stock$3,133,869  $3,133,869  
Preferred stock1,185,042  1,185,042  
 4,318,911  4,318,911 
Undistributed earnings (deficit)$(1,744,684)$(975,059)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.06 $0.06 $0.06 $0.06 
Undistributed earnings (deficit)0.00 (0.03)0.00 (0.02)
Total$0.06 $0.03 $0.06 $0.04 

For the three months ended June 30,
20232022
Basic weighted average shares of common stock52,226,141 52,221,394 
Weighted average of non-vested restricted stock5,011 4,747 
Diluted weighted average shares of common stock outstanding52,231,152 52,226,141 

Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Net income$8,340,918 $6,298,651 
Less dividends:
Common stock$6,267,738 $6,267,378 
Preferred stock2,370,000 2,370,000 
8,637,738 8,637,378 
Undistributed earnings (deficit)$(296,820)$(2,338,727)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.12 $0.12 $0.14 $0.14 
Undistributed earnings (deficit)0.00 0.00 0.00 (0.05)
Total$0.12 $0.12 $0.14 $0.09 

For the six months ended June 30,
20232022
Basic weighted average shares of common stock52,225,649 44,384,462 
Weighted average of non-vested restricted stock5,503 4,624 
Diluted weighted average shares of common stock outstanding52,231,152 44,389,086 

NOTE 14 - SEGMENT REPORTING

The Company invests in a portfolio comprised of commercial mortgage loans and other mortgage-related investments, and operates as a single reporting segment.

NOTE 15 - INCOME TAXES

The Company has elected to be treated as a REIT under federal income tax laws. As a REIT, the Company must generally distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any capital net gain, in order for U.S. federal income not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

Certain activities of the Company that produce prohibited income are conducted through a TRS, FOAC, to protect REIT election and FOAC is therefore subject to tax as a U.S. C-Corporation. To maintain our REIT election, the Company must continue to meet certain ownership, asset and income requirements set forth in the Code. As further discussed below, the Company may be subject to non-income taxes on excess amounts of assets or income that cause a failure of any of the REIT testing requirements. As of June 30, 2023 and December 31, 2022, we were in compliance with all REIT requirements.

As of June 30, 2023, tax years 2019 through 2022 remain subject to examination by taxing authorities.

NOTE 16 - SUBSEQUENT EVENTS

On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets which is not subject to margin calls or additional collateralization requirements. In connection with the LMF 2023-1 Financing, approximately $270.4 million of an investment grade-rated senior secured floating rate loan was provided by a private lender and approximately $47.3 million of investment grade-rated notes (collectively, the "Senior Debt") were issued and sold to an affiliate of LFT's external manager, Lument IM. A consolidated subsidiary of LFT retained the subordinate interests in the issuing vehicle of approximately $68.6 million. The Senior Debt has an initial weighted average spread of approximately 314 basis points over 30-day Term SOFR, excluding fees and transaction costs. The Senior Debt matures on the payment date in July 2032, unless it is sooner repaid or redeemed in accordance with its terms.

The initial collateral pool securing the Senior Debt consists of 25 first lien floating rate mortgage loans and participations in first lien mortgage loans secured by 32 multifamily properties located across the United States. In connection with the LMF 2023-1 Financing, collateral with an unpaid principal balance of $376.2 million was acquired by an LFT subsidiary at an aggregate discount to par of approximately 1.5% plus interest accrued on the collateral as of July 12, 2023. The weighted average spread of the initial collateral was approximately 365 basis points over 30-day Term SOFR. All the mortgage assets were originated by LSF. LMF 2023-1 provides for a 24-month reinvestment period that allows principal proceeds from repayments of the mortgage assets to be reinvested in qualifying replacement mortgage assets, subject to certain conditions.

As of the closing date, LSF had approximately $28.6 million of unfunded commitments to the initial collateral pool of mortgage assets. LSF will have the sole obligation to make future advances under such commitments.

Through its ownership of the equity of LMF 2023-1, the Company intends to own the related mortgage assets until maturity and will account for the Senior Debt on its balance sheet as a financing.
22



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
In this Quarterly Report on Form 10-Q, or this "report," we refer to Lument Finance Trust as "we," "us," or "our," unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, Lument Investment Management, as our "Manager" or "Lument IM".
 
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our financial statements which are included in Item 1 of this report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, or our 2022 10-K, filed with the Securities and Exchange Commission, or SEC, on March 23, 2023.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. In addition, our management may from time to time make oral forward-looking statements. You can identify forward-looking statements by use of words such as "believe," "expect," "anticipate," "estimate" "project," "plan," "continue," "intend," "should," "may," "will," "seek," "would," "could" or the negative of these words and phrases or similar words and phrases, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this quarterly report. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this quarterly report and should consider carefully the risk factors described in Part I, Item IA "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2022 in evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. It is not possible to predict or identify all such risks. Additional information concerning these and other risk factors are contained in our 2022 10-K which is available on the Securities and Exchange Commission's website at www.sec.gov.
 
Overview 
 
We are a Maryland corporation that is focused on investing in, originating, financing and managing a portfolio of commercial real estate ("CRE") debt investments.
 
In January 2020, we entered into a series of transactions with subsidiaries of ORIX Corporation USA ("ORIX USA"), a diversified financial company with the ability to provide investment capital and asset management services to clients in the corporate, real estate and municipal finance sectors. We entered into a new management agreement with Lument IM, while another affiliate of ORIX USA purchased an ownership stake of approximately 5.0% through a privately-placed stock issuance. On February 22, 2022, the affiliate purchased an additional 13,071,895 shares of common stock from the transferable common stock rights offering, increasing its beneficial ownership in the Company to approximately 27.4%. These transactions have enhanced the scale of LFT and are expected to generate shareholder value through leveraging ORIX USA's expansive originations, asset management and servicing platform.

Lument IM is an affiliate of Lument, a nationally recognized leader in multifamily and seniors housing and health care finance. The Company leverages Lument's broad platform and significant expertise when originating, underwriting and asset managing its investments.

We invest primarily in transitional floating rate CRE mortgage loans with an emphasis on middle market multifamily assets. We may also invest in other CRE-related investments including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans and other CRE debt instruments. We finance our current investments in transitional multifamily and other CRE loans primarily through matched term non-recourse secured borrowings, including collateralized loan obligations ("CLO"), which are not subject to margin calls or additional collateralization requirements. We may utilize warehouse repurchase agreements or other forms of financing in the future. Our primary sources of income are net interest from our investment portfolio and non-interest income from our mortgage loan-related activities. Net interest income represents the interest income we earn on investments less the expense of funding these investments.

Our investments typically have the following characteristics:
 
•Sponsors with experience in particular real estate sectors and geographic markets;
•Located in U.S. markets with multiple demand drivers, such as growth in employment and household formation;
•Fully funded principal balance greater than $5 million and generally less than $75 million;
•Loan to Value ratio up to 85% of as-is value and up to 75% of as-stabilized value;
•Floating rate loans tied to one-month term SOFR, previously to one-month U.S. denominated LIBOR, and/or any applicable replacement index in the future; and
•Three-year term with two one-year extension options.

We believe that our current investment strategy provides significant opportunities to achieve attractive risk-adjusted returns for our stockholders over time. However, to capitalize on the investment opportunities at different points in the economic and real estate investment cycle, we may modify or expand our investment strategy. We believe that the flexibility of our strategy, which is supported by the significant CRE experience of Lument's investment team, and the extensive resources of ORIX USA, will allow us to take advantage of changing market conditions to maximize risk-adjusted returns for our stockholders.

We have elected to be taxed as a REIT and comply with the provisions of the Internal Revenue Code with respect thereto. Accordingly, we are generally not subject to federal income tax on our REIT taxable income that we currently distribute to our stockholders so long as we maintain our qualification as a REIT. Our continued qualification as a REIT depends on our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code relating to, among other things, the source of our gross income, the composition and values of our assets, our distribution
23



levels and the concentration of ownership of our capital stock. Even if we maintain our qualification as a REIT, we may become subject to some federal, state and local taxes on our income generated in our wholly owned taxable REIT subsidiary, Five Oaks Acquisition Corp. ("FOAC").
Recent Developments
The year ended December 31, 2022 and the period ended June 30, 2023 have been characterized by significant volatility in global markets, primarily driven by heightened inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple regional bank failures. Central banks have responded to rapidly rising inflation with tightening monetary policy actions that have and are likely to continue to create headwinds to economic growth.
The U.S. Federal Reserve has taken action to increase interest rates in order to control inflation which has created further uncertainty for the economy and our borrowers. Although our business model is such that rising interest rates will, all else being equal, correlate to increases in our net income, increases in interest rates may adversely affect our existing borrowers' ability to meet their debt obligations and execute their property-level business plans. Additionally, the anticipated further rise in interest rates and unpredictable geopolitical landscape may cause further dislocation in the capital markets resulting in a continued reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business. It is difficult to predict the full impact on the debt capital markets of recent changes, and any future changes in interest rates.
Second Quarter 2023 Summary and Subsequent Events
 
•Acquired one loan and funded eighteen loan advances with an initial unpaid principal balance of $48.0 million and a weighted average interest rate of one-month U.S. LIBOR plus 3.66%.
•Acquired two loans and funded one loan advance with an initial unpaid principal balance of $25.0 million and a weighted average interest rate of 30-day term SOFR plus 4.18%.
•On June 14, 2023, the Company announced its first quarter common dividend of $0.06 per share of common stock, in line with the previous quarter.
•On June 14, 2023, the Company announced its first quarter preferred dividend of $0.49219 per share of Series A Preferred Stock.
•On July 12, 2023, the Company entered into and closed LMF 2023-1, a collateralized commercial real estate financing, secured by $386.4 million of first lien floating-rate multifamily mortgage assets. The financing consisted of $270.4 million of an investment-grade rated senior secured floating rate loan that was placed with a private lender and approximately $47.3 million of investment-grade notes that were issued and sold to an affiliate of our external Manager, Lument IM. The Company retained $68.6 million of subordinate notes. LMF 2023-1 is a matched-term non-recourse CRE secured borrowing which is not subject to margin calls or additional collateralization requirements.
Factors Impacting Our Operating Results

Market conditions.    The results of our operations are and will continue to be affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and the supply of, and demand for, our target assets in the marketplace. Our net interest income, will vary primarily as a result of changes in market interest rates and prepayment speeds, and by the ability of the borrowers underlying our commercial mortgage loans to continue making payments in accordance with the contractual terms of their loans, which may be impacted by unanticipated credit events experienced by such borrowers. Interest rates vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results will also be affected by general U.S. real estate fundamentals and the overall U.S. economic environment. In particular, our strategy is influenced by the specific characteristics of the underlying real estate markets, including prepayment rates, credit market conditions and interest rates. This year has been characterized by significant volatility in global markets, driven by investor concerns over inflation, rising interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector. While there is debate among economists as whether such factors, coupled with economic contraction in the U.S. in 2022, indicate that the U.S. has entered, or in the near term will enter a recession, it remains difficult to predict the full impact of the recent changes and any future changes in interest rates or inflation.

 Changes in market interest rates.    Generally, our business model is such that rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income. As of June 30, 2023, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 73.9% were indexed to one-month LIBOR and 26.1% were indexed to 30-day term SOFR, and all of our collateralized loan obligations were indexed to one-month LIBOR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes. Our net interest income currently benefits from LIBOR/SOFR floors in our commercial loan portfolio, with a weighted average LIBOR/SOFR floor of 0.27% as of June 30, 2023. As of June 30, 2023, 99.0% of the loans in our commercial mortgage loan portfolio are structured with LIBOR/SOFR floors, none of which currently has a floor greater than the current spot interest rate. When interest rates are above our average interest rate floor, an increase in interest rates will increase our interest income. Alternatively, when interest rates are below our average interest rate floor, an increase in interest rates will decrease our net interest income until such time as interest rates rise above our average interest rate floor. Although our Manager is currently originating loans with SOFR floors, there can be no assurance that we will continue to obtain SOFR floors on future originations or LIBOR floors on future acquisitions. Similarly, net interest income is also impacted by the spread in our commercial mortgage loan portfolio. As of June 30, 2023, the weighted average spread of our commercial loan portfolio was 3.45%, but there is no assurance that these spreads will be maintained as market environments fluctuate.

The Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However in March 2022, the Federal Reserve approved a 0.25% rate increase and subsequently increased rates an additional six times during 2022, raising the federal funds target range to 4.25% to 4.50%. On February 2, 2023, March 20, 2023, May 3, 2023 and June 26, 2023, the Federal Reserve approved its eighth, ninth, tenth and eleventh rate increases, increasing the federal funds target range to 5.25% to 5.50%. The Federal Reserve has indicated that they remain highly attentive to inflation risks and foresee potential for further increases in interest rates throughout 2023 and 2024.

In addition to the risk related to fluctuations in cash flows associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and/or impact their ability to refinance outstanding debt at, or prior to, maturity.

On November 30, 2020, the ICE Benchmark Administration ("IBA"), with the support of the United States Federal Reserve and United Kingdom's Financial Conduct Authority ("FCA"), announced plans to consult on ceasing publication of LIBOR on December 31, 2021 for only the one week and two
24



month LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. While this announcement extended the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. On March 5, 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one week and two month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. In November 2022, the FCA announced a public consultation regarding whether it should compel the IBA to continue publishing "synthetic" USD LIBOR setting from June 2023 to the end of September 2024. The Alternative Reference Rate Committee ("ARRC"), a committee convened by the Federal Reserve that includes major market participants, proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate ("SOFR"). On July 29, 2021 the ARRC ratified term rates for the one-, three- and six-month tenors based on SOFR futures traded. As of June 30, 2023, 73.9% of our commercial loans by principal balance and 100% of our collateralized loan obligations bear interest indexed to one-month USD LIBOR. We completed the process of converting our LIBOR-based loans and CLO liabilities to term SOFR during the second quarter of 2023, applicable to the first rate settings in July.

Credit risk.    Our commercial mortgage loans and other investments are also subject to credit risk. The performance and value of our loans and other investments depend upon the sponsor's ability to operate properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, the Manager's asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as lender. The market values of commercial mortgage assets are subject to volatility and may be adversely affected 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; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. As of June 30, 2023, 98.8% of the commercial mortgage loans in our portfolio were current as to principal and interest. Additionally, we have reviewed the loans designated as Default Risk for impairment. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. We can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into forbearance agreements or loan modifications in order to protect the value of our commercial mortgage loan assets. Should that occur, it could have a material negative impact on our results of operations.

Liquidity and financing markets. Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments and repay borrowings and other general business needs. Our primary sources of liquidity have been proceeds of common or preferred stock issuances, net proceeds from corporate debt obligations, net cash provided by operating activities and other financing arrangements. We finance our commercial mortgage loans primarily with non-recourse secured borrowings, the maturities of which are matched to the maturities of the loans, and which are not subject to margin calls or additional collateralization requirements. However, to the extent that we seek to invest in additional commercial mortgage loans outside of our secured borrowings, we will in part be dependent on our ability to issue additional collateralized loan obligations, to secure alternative financing facilities or to raise additional common or preferred equity. The anticipated further rise in interest rates and unpredictable geopolitical landscape may cause a continued dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.

Prepayment speeds.    Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest earned on the assets. With the exception of ten loans acquired and seventeen funded loan advances with an initial aggregate unpaid principal balance of $139.6 million with an aggregate purchase premium of $538,146 and aggregate purchase discount of $488,016, all of our commercial mortgage loans were acquired at par. As of June 30, 2023, our aggregate unamortized purchase premium was $8,565 and our aggregate purchase discount $315,003, and accordingly we do not believe this to be a material risk for us at present. Additionally, we are subject to prepayment risk associated with the terms of our secured borrowings. Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our secured borrowings include a reinvestment period during which principal repayments and prepayments on our commercial mortgage loans may be reinvested in similar assets, subject to meeting certain eligibility criteria. The reinvestment period for the 2021-FL1 CLO remains in place through December 2023 and for LMF 2023-1 through July 2025. While the interest-rate spreads of our secured borrowings are fixed until they are repaid, the terms, including spreads, of newly originated loans are subject to uncertainty based on a variety of factors, including market and competitive conditions, which remain uncertain and volatile in light of the current inflationary environment. To the extent that such conditions result in lower spreads on the assets in which we reinvest, we may be subject to a reduction in interest income in the future. However, our loan agreements provide for prepayment penalties which are intended to offset any potential reduction in future interest income.
 
Changes in market value of our assets.    We account for our commercial mortgage loans at amortized cost. As such, our earnings will generally not be directly impacted by changes in the market values of these loans. However, if a loan is considered to be impaired as a result of adverse credit performance, an allowance is recorded to reduce the carrying value through a charge to the provision for credit losses. Impairment is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. Provisions for (reversal of) credit losses will directly impact our earnings.

 Governmental actions. Since 2008, when both Fannie Mae and Freddie Mac were placed under the conservatorship of the U.S. government, there have been a number of proposals to reform the U.S. housing finance system in general, and Fannie Mae and Freddie Mac in particular. We anticipate debate on residential housing and mortgage reform to continue through 2023 and beyond, and as such it remains unclear what shape any reform would take and what impact, if any, reform would have on mortgage REITs.

Key Financial Measure and Indicators

As a real estate investment trust, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Distributable Earnings, and book value per share of common stock. For the three months ended June 30, 2023, we recorded earnings per share of $0.03, declared a quarterly dividend of $0.06 per share, and reported $0.04 per share of Distributable Earnings. In addition, our book value per share of common stock was $3.43.

25



As further described below, Distributable Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings is a performance metric we consider when declaring our dividends.

Earnings Per Share and Dividends Declared

The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share:
Three Months Ended
June 30, 2023March 31, 2023
Net income(1)
$1,389,185 $4,581,733 
Weighted-average shares outstanding, basic and diluted52,231,152 52,231,152 
Net income per share, basic and diluted$0.03 $0.09 
Dividends declared per share$0.06 $0.06 
(1)    Represents net income attributable to Lument Finance Trust, Inc.

Distributable Earnings

Distributable Earnings is a non-GAAP financial measure, which we define as GAAP net income (loss) attributable to holders of common stock, or, without duplication, owners of our subsidiaries, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation, (ii) depreciation and amortization, (iii) any unrealized gains or losses or other similar non-cash items that are included in net income for that applicable reporting period, regardless of whether such items are included in other comprehensive income (loss) or net income (loss), and (iv) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions with the Board and approved by a majority of the Company's independent directors.

While Distributable Earnings excludes the impact of any unrealized provisions for credit losses, any credit losses are charged off and realized through Distributable Earnings when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or in the case of foreclosures, when the underlying asset is sold), or (ii) with respect to any amount due under any loan, when such amount is determined to be non-collectible.

We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flows from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Refer to Note 15 to our consolidated financial statements for further discussion of our distribution requirements as a REIT. Furthermore, Distributable Earnings help us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations, and is a performance metric we consider when declaring our dividends.

Distributable Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.

The following table provides a reconciliation of Distributable Earnings to GAAP net income:
Three Months Ended
June 30, 2023March 31, 2023
Net income attributable to common stockholders$1,389,185 $4,581,733 
Realized loss on commercial mortgage loans— (4,271,672)
Unrealized loss on mortgage servicing rights(206)49,129 
Unrealized provision for credit losses555,083 (179,684)
Recognized compensation expense related to restricted common stock2,836 3,358 
Adjustment for income taxes223 (10,246)
Distributable Earnings$1,947,121 $172,618 
Weighted-average shares outstanding, basic and diluted52,231,152 51,231,152 
Distributable Earnings per share, basic and diluted$0.04 $0.00 

Book Value Per Share of Common Stock

The following table calculates our book value per share of common stock:
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June 30, 2023March 31, 2023
Total stockholders' equity$238,991,695 $240,747,739 
Less preferred stock (liquidation preference of $25.00 per share)(60,000,000)(60,000,000)
Total common stockholders' equity178,991,695 180,747,739 
Shares of common stock issued and outstanding at period end52,231,152 52,231,152 
Book value per share of common stock(1)
$3.43 $3.46 
(1)    Book value as of June 30, 2023 and March 31, 2023 includes the impact of an estimated CECL allowance of $3,720,679 or $0.07 per common share and $3,357,527 or $0.06 per common share, respectively.

Investment Portfolio

Commercial Mortgage Loans

As of June 30, 2023, we have determined that we are the primary beneficiary of the 2021-FL1 CLO. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities, collateralized loan obligations.

The following table details our loan activity by unpaid principal balance:

Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2022$1,071,889,518 
Proceeds from principal repayments(123,583,470)
Amortization of purchase premium(10,687)
Accretion of deferred loan fees129,300 
Cumulative-effect adjustment upon adoption of ASU 2016-13(3,549,501)
Release of credit losses, net(361,399)
Balance at June 30, 2023
$1,017,145,010 

The following table details overall statistics for our loan portfolio as of June 30, 2023 and December 31, 2022:

Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Remaining
 Term
 (Years)(2)
June 30, 2023
Loans held-for-investment
Senior secured loans(3)
$1,021,956,208 $1,021,042,905 66 100.0 %8.6 %3.1
Allowance for credit lossesN/A$(3,897,895)
$1,021,956,208 $1,017,145,010 66 100.0 %8.6 %3.1

Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Remaining
 Term
 (Years)(2)
December 31, 2022
Loans held-for-investment
Senior secured loans(3)
$1,076,865,099 $1,076,148,186 71 100.0 %7.6 %3.5
Allowance for credit lossesNA$(4,258,668)
$1,076,865,099 $1,071,889,518 71 100.0 %7.6 %3.5

(1)    Weighted average coupon assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day Term SOFR of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.25% and 0.27%, respectively. As of June 30, 2023, 73.9% of the investments by total investment exposure earned a floating rate indexed to one-month USD LIBOR and 26.1% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month USD LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR.
(2)    Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
27



(3)    As of June 30, 2023, $994,914,714 of the outstanding senior secured loans were held in VIEs and $22,230,296 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside VIEs.

The table below sets forth additional information relating to the Company's portfolio as of June 30, 2023:
Loan #Form of InvestmentOrigination Date
Total Loan Commitment(1)
Current Principal AmountLocationProperty TypeCouponMax Remaining Term (Years)
LTV(2)
1  Senior secured December 16, 2021$54,455,784 $51,375,000  Daytona, FL  Multi-Family 1mL + 3.13.671.7 %
2  Senior secured November 22, 2019$42,600,000 $36,781,588  Virginia Beach, VA  Multi-Family 1mS + 3.31.577.1 %
3  Senior secured June 28, 2021$39,263,000 $36,658,084  Barrington, NJ  Multi-Family 1mL + 3.13.178.1 %
4  Senior secured June 8, 2021$35,877,500 $33,360,000  Chattanooga, TN  Multi-Family 1mL + 3.73.179.8 %
5  Senior secured December 29, 2021$34,464,000 $30,709,146  Multi, NC  Multi-Family 1mL + 3.93.659.9 %
6  Senior secured June 8, 2021$32,500,000 $30,576,666  Miami, FL  Multi-Family 1mL + 3.23.174.3 %
7  Senior secured May 20, 2021$33,000,000 $30,220,508  Marietta, GA  Multi-Family 1mL + 3.13.077.0 %
8  Senior secured June 7, 2021$29,400,000 $27,569,521  San Antonio, TX  Multi-Family 1mL + 3.43.180.0 %
9  Senior secured August 26, 2021$27,268,000 $25,440,413  Clarkston, GA  Multi-Family 1mL + 3.53.279.0 %
10  Senior secured November 15, 2021$26,003,000 $24,330,000  El Paso, TX  Multi-Family 1mL + 3.13.576.0 %
11  Senior secured October 18, 2021$28,250,000 $23,348,000  Cherry Hill, NJ  Multi-Family 1mL + 3.03.472.4 %
12  Senior secured August 26, 2021$23,370,000 $22,872,354  Union City, GA  Multi-Family 1mL + 3.43.370.4 %
13  Senior secured June 30, 2021$21,968,000 $21,968,000  Jacksonville, FL  Multi-Family 1mL + 3.53.177.1 %
14  Senior secured November 16, 2021$21,975,000 $21,916,753  Dallas, TX  Multi-Family 1mL + 3.23.573.5 %
15  Senior secured August 31, 2021$21,750,000 $21,644,684  Houston, TX  Multi-Family 1mL + 3.33.374.2 %
16  Senior secured November 29, 2022$21,283,348 $20,360,000  Glendale, WI  Healthcare 1mS + 4.03.545.0 %
17  Senior secured October 13, 2017$20,000,000 $19,648,818  Seattle, WA  Self Storage 1mL + 3.61.446.5 %
18  Senior secured November 5, 2021$20,965,000 $19,625,274  Orlando, FL  Multi-Family 1mL + 3.03.478.1 %
19  Senior secured November 21, 2022$21,135,000 $18,920,000  Houston, TX  Healthcare 1mS + 4.03.567.0 %
20  Senior secured November 23, 2021$19,925,000 $18,834,024  Orange, NJ  Multi-Family 1mL + 3.23.578.0 %
21  Senior secured February 11, 2022$20,165,000 $18,599,480  Tampa, FL  Multi-Family 1mS + 3.63.878.0 %
22  Senior secured March 1, 2023$17,930,000 $17,930,000  Multi, VA  Multi-Family 1mS + 4.31.853.0 %
23  Senior secured October 12, 2021$17,500,000 $17,500,000  Atlanta, GA  Multi-Family 1mL + 3.21.342.9 %
24  Senior secured July 8, 2021$17,000,000 $17,000,000  Knoxville, TN  Multi-Family 1mL + 4.01.269.7 %
25  Senior secured November 10, 2022$18,590,000 $16,690,000  Austin, TX  Healthcare 1mS + 4.03.565.0 %
26  Senior secured December 1, 2021$16,071,800 $15,449,323  Horn Lake, MS  Multi-Family 1mL + 3.33.575.7 %
28  Senior secured February 1, 2022$16,160,000 $15,400,000  San Antonio, TX  Multi-Family 1mS + 3.53.779.8 %
27  Senior secured December 2, 2021$16,250,000 $15,010,343  Colorado Springs, CO  Multi-Family 1mL + 3.03.572.5 %
29  Senior secured February 22, 2022$18,241,527 $15,000,000  Philadelphia, PA  Multi-Family 1mS + 3.83.880.0 %
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30  Senior secured April 12, 2021$17,000,000 $15,000,000  Cedar Park, TX  Multi-Family 1mL + 3.82.966.7 %
31  Senior secured June 15, 2022$15,371,600 $14,511,455  Denton, TX  Multi-Family 1mS + 3.94.173.0 %
32  Senior secured November 21, 2022$15,735,000 $14,030,000  Southlake, TX  Healthcare 1mS + 4.03.548.0 %
33  Senior secured May 12, 2021$13,930,000 $13,862,247  Fort Worth, TX  Multi-Family 1mL + 3.43.074.9 %
34  Senior secured November 3, 2021$13,870,000 $13,720,000  Louisville, KY  Multi-Family 1mL + 3.43.475.4 %
35  Senior secured May 26, 2022$17,500,000 $13,300,000  Brooklyn, NY  Multi-Family 1mS + 3.82.064.3 %
36  Senior secured August 16, 2021$15,886,000 $12,674,255  Columbus, OH  Multi-Family 1mL + 3.73.375.0 %
37  Senior secured December 13, 2021$15,656,650 $12,600,000  Evansville, IN  Multi-Family 1mL + 3.33.674.3 %
38  Senior secured October 1, 2021$13,775,000 $12,100,000  East Nashville, TN  Multi-Family 1mL + 3.43.379.1 %
39  Senior secured June 28, 2022$12,880,000 $11,470,000  Colorado Springs, CO  Multi-Family 1mS + 3.94.173.1 %
40  Senior secured October 28, 2021$12,250,000 $11,202,535  Tampa, FL  Multi-Family 1mL + 3.03.475.7 %
41  Senior secured April 23, 2021$11,600,000 $10,986,357  Tualatin, OR  Multi-Family 1mL + 3.22.973.9 %
42  Senior secured September 30, 2021$11,300,000 $10,795,000  Clearfield, UT  Multi-Family 1mL + 3.23.368.0 %
43  Senior secured December 29, 2021$11,000,000 $10,239,800  Phoenix, AZ  Multi-Family 1mL + 3.73.675.9 %
44  Senior secured December 2, 2021$9,975,000 $9,975,000  Tomball, TX  Multi-Family 1mL + 3.43.568.5 %
45  Senior secured November 23, 2021$10,706,000 $9,856,000  Atlanta, GA  Multi-Family 1mL + 3.43.579.5 %
46  Senior secured January 14, 2022$10,234,000 $9,609,250  Houston, TX  Multi-Family 1mS + 3.63.778.8 %
47  Senior secured October 21, 2021$11,500,000 $9,100,000  Madison, TN  Multi-Family 1mL + 3.23.468.4 %
48  Senior secured October 29, 2021$9,000,000 $8,717,380  Riverside, MO  Multi-Family 1mL + 3.43.476.6 %
49  Senior secured May 12, 2021$8,950,000 $8,220,000  Lakeland, FL  Multi-Family 1mL + 3.43.076.8 %
50  Senior secured June 22, 2022$9,772,000 $8,175,500  Des Moines, IA  Multi-Family 1mS + 4.04.172.0 %
51  Senior secured June 24, 2022$7,934,160 $7,934,160  Monks Corner, SC  Multi-Family 1mS + 4.24.167.8 %
52  Senior secured November 16, 2021$7,680,000 $7,680,000  Cape Coral, FL  Multi-Family 1mL + 3.31.579.2 %
53  Senior secured September 28, 2021$8,125,000 $7,286,000  Chicago, IL  Multi-Family 1mL + 3.73.375.9 %
54  Senior secured February 18, 2022$7,800,000 $7,200,000  Drexel Hills, PA  Multi-Family 1mS + 4.03.878.1 %
55  Senior secured July 1, 2021$7,285,000 $7,169,838  Harker Heights, TX  Multi-Family 1mL + 3.63.172.3 %
56  Senior secured December 19, 2022$6,325,000 $6,325,000  Asheville, NC  Multi-Family 1mS + 3.82.141.1 %
57  Senior secured April 8, 2022$6,191,853 $6,096,412  St. Petersburg, FL  Multi-Family 1mS + 4.03.975.5 %
58  Senior secured April 27, 2022$55,220,000 $6,000,000  North Brunswick, NJ  Multi-Family 1mS + 3.43.979.9 %
59  Senior secured May 21, 2021$7,172,000 $5,994,000  Youngtown, AZ  Multi-Family 1mL + 3.73.071.4 %
60  Senior secured July 14, 2021$6,048,000 $5,913,912  Birmingham, AL  Multi-Family 1mL + 3.73.271.7 %
61  Senior secured October 26, 2021$6,807,000 $5,812,000  Indianapolis, IN  Multi-Family 1mL + 3.93.477.1 %
62  Senior secured November 19, 2021$6,453,000 $5,519,604  Huntsville, AL  Multi-Family 1mL + 3.83.578.8 %
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63  Senior secured April 30, 2021$5,472,000 $5,285,500  Daytona Beach, FL  Multi-Family 1mL + 3.72.977.4 %
64  Senior secured December 13, 2021$6,799,000 $5,250,000  Evansville, IN  Multi-Family 1mL + 3.33.673.9 %
65 Senior securedJune 10, 2019$5,500,000 $4,807,027  San Antonio, TX  Multi-Family 1mL + 2.91.162.9 %
66 Senior securedDecember 28, 2021$52,800,000 $2,800,000  Houston, TX  Multi-Family 1mS + 3.33.671.2 %

(1)    See Note 11 Commitments and Contingencies to our consolidated financial statements for further discussion of unfunded commitments.
(2)    LTV as of the date the loan was originated by a Hunt/ORIX affiliate and is calculated after giving effect to capex and earn-out reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value, which may have occurred subsequent to the origination date.

We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loans discussed below as of June 30, 2023 or December 31, 2022.

In February 2023, in connection with the sale of the office building collateralizing an impaired loan by the borrower to an unaffiliated third-party, the Company accepted a discounted payoff of approximately $6.0 million on the impaired loan, which had an unpaid principal balance of $10.3 million. An allowance for credit loss of $4.3 million was recorded for this impaired loan in the year ended December 31, 2022. Upon the discounted payoff, a $4.3 million charge off against the allowance for credit losses was recorded, with de minimis impact to income in the six months ended June 30, 2023.

During the period ended June 30, 2023, management continued to identify one loan, collateralized by a multifamily property, with an unpaid principal value of $12.8 million as impaired due to monetary default, however, no reserve is required after analysis of underlying collateral value. This loan is on non-accrual status as a result of the monetary default and impaired loan classification.

We maintain strong relationships with our borrowers and utilized those relationships to address potential impacts on loans secured by properties experiencing cash flow pressure. All of our loans are current with respect to principal and interest, other than the loan discussed above, however, we will continue to engage in discussions with them should these difficulties arise.

We have not entered into any forbearance agreements or adverse material loan modifications to date, on our current loan portfolio. However, we can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into any forbearance agreements or material loan modifications in order to protect the value of our commercial mortgage loan assets.

As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns a risk rating between "1" and "5," from less risk to greater risk. The weighted average risk rating of our total loan exposure was 3.4 as of June 30, 2023 and 3.0 as of December 31, 2022, respectively. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $33.5 million, "3" of $84.0 million and a risk rating of "5" of $10.3 million, offset by the purchase of commercial mortgage loans with a risk rating of "2" of $17.9 million, "3" of $55.0 million and "4" of $3.9 million during the six months ended June 30, 2023. Additionally, $101.5 million of loans with a risk rating of "2" transitioned to a risk rating of "3," and $93.1 million of loans with a risk rating of "3" transitioned to a risk rating of "4,". The following table presents the principal balance and net book value based on our internal risk ratings:

June 30, 2023
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20232022202120192017
1— $— — — — — — 
22 36,850,000 17,926,638 18,533,248 — — — 
353 831,892,473 — 138,379,697 628,385,618 41,515,275 19,625,364 
410 140,539,480 — 50,841,772 89,263,143 — — 
51 12,674,255 — — 12,674,255 — — 
66 $1,021,956,208 17,926,638 207,754,717 730,323,016 41,515,275 19,625,364 

Collateralized Loan Obligations

We may seek to enhance returns on our commercial mortgage loan investments through securitizations, or CLOs, if available, as well as the utilization of warehouse repurchase agreement financing. To the extent available, we intend to securitize the senior portion of some of our loans, while retaining the subordinate securities in our investment portfolio. The securitizations of this senior portion will be accounted for as either a "sale" or as a "financing." If they are accounted for as a sale, the loan will be removed from the balance sheet and if they are accounted for as a financing the loans will be classified as "commercial mortgage loans held-for-investment" in our consolidated balance sheets, depending on the structure of the securitization. As of June 30, 2023, the carrying amounts and outstanding principal balances of our collateralized loan obligations were $830.6 million and $833.8 million, respectively. See Note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional terms and details of our CLOs.
  
FOAC and Our Residential Mortgage Loan Business
 
In June 2013, we established FOAC as a Taxable REIT Subsidiary, or TRS, to increase the range of our investments in mortgage-related assets. Until August 1, 2016, FOAC aggregated mortgage loans primarily for sale into securitization transactions, with the expectation that we would purchase
30



the subordinated tranches issued by the related securitization trusts, and that these would represent high quality credit investments for our portfolio. Residential mortgage loans for which FOAC owns the MSRs continue to be directly serviced by one or more licensed sub-servicers since FOAC does not directly service any residential mortgage loans.

As noted earlier, we previously determined to cease the aggregation of prime jumbo loans for the foreseeable future, and therefore no longer maintain warehouse financing to acquire prime jumbo loans. We do not expect the previous changes to our mortgage loan business strategy to impact the existing MSRs that we own, or the securitizations we have sponsored to date.

Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29, 2016, January 30, 2017 and June 27, 2018, among MAXEX, LLC ("MAXEX"), MAXEX Clearing LLC, MAXEX's wholly-owned clearinghouse subsidiary and FOAC, FOAC provided seller eligibility review services under which it reviewed, approved and monitored sellers that sold loans via MAXEX Clearing LLC. To the extent that a seller approved by FOAC failed to honor its obligations to repurchase a loan based on an arbitration finding that it breached its representations and warranties, FOAC was obligated to backstop the seller's repurchase obligation. The term of such backstop guarantee was the earlier of the contractual maturity of the underlying mortgage and its repayment in full. However, the incidence of claims for breaches of representations and warranties over time is considered unlikely to occur more than five years from the sale of a mortgage. FOAC's obligations to provide such seller eligibility review and backstop guarantee services terminated on November 28, 2018. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770 (the "Alternative Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption Agreement that it (i) is rated at least "A" (or equivalent) by at least one nationally recognized statistical rating agency or (ii) has (a) adjusted tangible net worth of at least $20.0 million and (b) minimum available liquidity equal to the greater of (x) $5.0 million and (y) 0.1% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. MAXEX's chief financial officer is required to certify ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX Clearing LLC is required to deposit into an escrow account FOAC's benefit an amount equal to the greater of (A) the unamortized Alternative Backstop Fee for each outstanding loan covered by the backstop guarantee and (B) the product of 0.01% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. See Note 10 to our consolidated financial statements included in this Quarterly Report on form 10-Q for a further description of MAXEX.

Critical Accounting Policies and Estimates  
 
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to understanding our financial statements because they involve significant judgments and uncertainties that could affect our reported assets and liabilities, as well as our reported revenues and expenses. All of these estimates reflect our best judgments about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of the financial statements. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our interest income recognition, allowance for credit losses, future impairment of our investments, and valuation of our investment portfolio, among other effects. We believe that the following accounting policies are among the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments.   

Commercial Mortgage Loans Held-for-Investment

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and amendments, which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit losses required under ASC 2016-13 is included in "Allowance for credit losses" on our consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" in the consolidated balance sheets. The initial CECL reserve recorded on January 1, 2023 is reflected as a direct charge to retained earnings on our consolidated statements of changes in equity; however subsequent changes to the CECL reserve are recognized through net income on our consolidated statements of operations. In connection with the adoption of ASU 2016-13, we recorded a $3.6 million decrease to accumulated earnings as of January 1, 2023.

The Company's implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the current credit quality of loans and operating performance of loan collateral and the Company's expectations of performance and (iii) expectation of macroeconomic conditions over the relevant time period.

In the absence of any Company history of valuation reserves or realized loan losses since our inception in 2013, other than one office loan, see Note 3 for more information, the Company elected to utilize a widely-used analytical model incorporating a loss-given-default methodology and loan performance data for over 100,000 commercial real estate loans dating back to 1998. The Company expects to use this data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company selected for use in its CECL estimate a weighted macroeconomic forecast that includes baseline, optimistic and pessimistic scenarios during the reasonable forecast period. The Company determined the key variables driving its CECL loss estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage.

The Company evaluates each loan rated Default Risk or above as to whether it is impaired on a quarterly basis. Impaired loans are individually evaluated based on the Company's quarterly assessment of each loan and assignment of a risk rating. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the
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contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for (reversal of) credit losses. Impairment of these loans, all of which are deemed collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Actual losses, if any, could ultimately differ from estimated losses.

The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023:
Pre-adoptionTransition adjustmentPost-adoption
Assets
Commercial mortgage loans, held-for-investment$1,076,148,186 $— $1,076,148,186 
Less: Allowance for credit losses(4,258,668)(3,549,501)(7,808,169)
Commercial mortgage loans, held-for-investment, net$1,071,889,518 $(3,549,501)$1,068,340,017 
Liabilities
Other liabilities(1)
$583,989 $41,939 $625,928 
Equity
Accumulated earnings$31,250,852 $(3,591,440)$27,659,412 
(1)    Includes reserve for unfunded loan commitments

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:

1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectations
3.Moderate Risk: consistent with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default

Capital Allocation
 
The following tables set forth our allocated capital by investment type at June 30, 2023 and December 31, 2022:

This information represents non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to better understand the capital necessary to support each income-earning asset category, and thus our ability to generate operating earnings. While we believe that the non-GAAP information included in this report provides supplemental information to assist investors in analyzing our portfolio, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP.

June 30, 2023
 Commercial Mortgage LoansMSRs
Unrestricted Cash(1)
Total(2)
Carrying Value$1,017,145,010 $746,734 $98,495,690 $1,116,387,434 
Collateralized Loan Obligations(830,564,083)— — (830,564,083)
Other(3)
3,410,135 — (4,300,226)(890,091)
Restricted Cash1,274,046 — — 1,274,046 
Capital Allocated$191,265,108 $746,734 $94,195,464 $286,207,306 
% Capital66.8 %0.3 %32.9 %100.0 %

December 31, 2022
Commercial Mortgage LoansMSRs
Unrestricted Cash(1)
Total(2)
Carrying Value$1,071,889,518 $795,656 $43,858,515 $1,116,543,689 
Collateralized Loan Obligations(829,310,498)— — (829,310,498)
Other(3)
3,533,345 — (4,301,847)(768,502)
Restricted Cash3,507,850 — — 3,507,850 
Capital Allocated$249,620,215 $795,656 $39,556,668 $289,972,539 
% Capital86.1 %0.3 %13.6 %100.0 %
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(1)Includes cash and cash equivalents.
(2)Includes the carrying value of our Secured Term Loan.
(3)Includes principal and interest receivable, investment related receivable, prepaid and other assets, interest payable, dividend payable and accrued expenses and other liabilities.

 Results of Operations  
 
The table below presents information from our Statement of Operations for the three and six months ended June 30, 2023 and June 30, 2022, respectively:

Three Months Ended June 30, 2023Three Months Ended June 30, 2022Six Months Ended June 30, 2023Six Months Ended June 30, 2022
(unaudited)(unaudited)
Revenues:  
Interest income:  
Commercial mortgage loans held-for-investment$21,818,608 $12,633,772 $43,763,269 $22,642,836 
Cash and cash equivalents827,443 4,912 1,089,108 9,767 
Interest expense:  
Collateralized loan obligations(14,199,861)(5,284,890)(27,232,907)(9,289,128)
Secured Term Loan(937,210)(937,210)(1,864,122)(1,859,853)
Net interest income7,508,980 6,416,584 15,755,348 11,503,622 
Other expense:  
Provision for credit losses, net(555,083)(351,914)(375,399)(351,914)
Change in unrealized (loss) gain on mortgage servicing rights206 81,216 (48,923)228,598 
Servicing income, net45,396 56,053 96,924 123,234 
Total other expense(509,481)(214,645)(327,398)(82)
Expenses:  
Management and incentive fees1,093,374 1,090,652 2,180,636 2,015,269 
General and administrative expenses882,723 960,420 1,830,789 1,813,152 
Operating expenses reimbursable to Manager577,666 648,645 1,087,652 1,039,355 
Other operating expenses1,809,700 77,808 1,874,284 153,998 
Compensation expense61,586 54,893 123,694 105,781 
Total expenses4,425,049 2,832,418 7,097,055 5,127,555 
Net income before provision for income taxes2,574,450 3,369,521 8,330,895 6,375,985 
Benefit from (provision for) income taxes(223)(25,669)10,023 (77,334)
Net income2,574,227 3,343,852 8,340,918 6,298,651 
Dividends accrued to preferred stockholders(1,185,042)(1,185,042)(2,370,000)(2,370,000)
Net income attributable to common stockholders$1,389,185 $2,158,810 $5,970,918 $3,928,651 
Earnings per share:  
Net income attributable to common stockholders (basic and diluted)$1,389,185 $2,158,810 $5,970,918 $3,928,651 
Weighted average number of shares of common stock outstanding52,231,152 52,226,141 52,231,152 44,389,086 
Basic and diluted income per share$0.03 $0.04 $0.11 $0.09 
Dividends declared per share of common stock$0.06 $0.06 $0.12 $0.12 
 
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net Income Summary
 
For the three months ended June 30, 2023, our net income attributable to common stockholders was $1,389,185, or $0.03 basic and diluted net income per average share, compared with net income of $2,158,810, or $0.04 basic and diluted net income per average share, for the three months ended June 30, 2022.  The principal drivers of this net income decrease was an increase in net interest income from $6,416,584 for the three months ended June 30, 2022 to $7,508,980 for the three months ended June 30, 2023 which was more than offset by an increase in total other loss from $214,645 for the three months ended June 30, 2022 to $509,481 for the three months ended June 30, 2023 and an increase in total expenses from $2,832,418 for the three months ended June 30, 2022 to $4,425,049 for the three months ended June 30, 2023.

Net Interest Income
 
For the three months ended June 30, 2023 and the three months ended June 30, 2022, our net interest income was $15,755,348 and $11,503,622, respectively. The increase was primarily due to (i) a 420bps increase in weighted-average floating rate of our loan portfolio; (ii) a 3bps increase in
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weighted-average spread on the loan portfolio and (iii) an increase in interest earned on cash of $0.8 million for the three months ended June 30, 2023 compared to the corresponding period in 2022. This was offset by (i) a $62.1 million decrease in weighted-average principal of our loan portfolio; (ii) a 423bps increase in weighted-average LIBOR for our CLO liabilities for the three months ended June 30, 2023 compared to the corresponding period in 2022 and (iii) a decrease in exit/extension fees of $0.1 million for our loan portfolio for the three months ended June 30, 2023 compared to the corresponding period in 2022.

As disclosed above, we experienced a decrease of $0.1 million in exit and extension fees in the three months ended June 30, 2023. The primary driver of this change was attributed to exit fees. For the three months ended June 30, 2023, we experienced loan payoffs on three loans with net principal balances of $40.0 million which generated exit fees of $0.5 million included in interest income and one loan with net principal balance of $33.5 million which waived exit fees of $0.2 million resulting in a reduction to expense reimbursement of $0.1 million included in operating expenses reimbursable to Manager. For the three months ended June 30, 2022, we experienced loan payoffs on five loans with net principal balances of $71.1 million which generated exit fees of $0.7 million included in interest income and one loan with net principal balance $9.6 million which waived exit fees of $0.1 million resulting in a reduction to expense reimbursement of $0.0 million included in operating expenses reimbursable to Manager.

Other Income
 
For the three months ended June 30, 2023, our other loss was $509,481. This loss was driven by provision for credit losses of $555,083 primarily related to changes in macroeconomic forecast, which more than offset net servicing income of $45,396 and net unrealized gains on mortgage servicing rights of $206 as a result of decreased interest rates in the period.

For the three months ended June 30, 2022, our other loss was $214,645. This loss was driven by provision for credit losses of $351,914 net servicing income of $56,053 and net unrealized gains on mortgage servicing rights of $81,216.

The period-over-period decrease to other income was primarily due to the change in unrealized gain on mortgage servicing rights.

Expenses
 
For the three months ended June 30, 2023, we incurred management and incentive fees of 1,093,374 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $3,331,675, of which $577,666 was payable to our Manager and $2,754,009 was payable directly by us.

For the three months ended June 30, 2022, we incurred management and incentive fees of $1,090,652 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $1,741,766 of which $648,645 was payable to our Manager and $1,093,121 was payable directly by us.

The period-over-period increase in operating expenses primarily reflects the impact of expenses deal costs of $1.7 million related to the abandonment of a previously contemplated public CRE CLO as well as an increase in administration, accounting and legal which more than offset a decrease in insurance and professional fees.

Income Tax (Benefit) Provision

For the three months ended June 30, 2023, the Company recognized a provision for income taxes of $223 and for the three months ended June 30, 2022, the Company recognized a provision for income taxes in the amount of $25,669. The period-over-period decrease in tax provision primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net Income Summary
 
For the six months ended June 30, 2023, our net income attributable to common stockholders was $5,970,918, or $0.11 basic and diluted net income per average share, compared with net income of $3,928,651, or $0.09 basic and diluted net income per average share, for the six months ended June 30, 2022.  The principal drivers of this net income increase was an increase in net interest income from $11,503,622 for the six months ended June 30, 2022 to $15,755,348 for the six months ended June 30, 2023 which more than offset a decrease in total other loss from $82 for the six months ended June 30, 2022 to $327,398 for the six months ended June 30, 2023 and an increase in total expenses from $5,127,555 for the six months ended June 30, 2022 to $7,097,055 for the six months ended June 30, 2023.

Net Interest Income
 
For the six months ended June 30, 2023 and the six months ended June 30, 2022, our net interest income was $15,755,348 and $11,503,622, respectively. The increase was primarily due to (i) a 430bps increase in weighted-average floating rate of our loan portfolio; (ii) a 7bps increase in weighted-average spread on the loan portfolio; (iii) an increase in exit/extension fees of $0.2 million for our loan portfolio for the six months ended June 30, 2023 compared to the corresponding period in 2022 and (iv) an increase in interest earned on cash of of $1.1 million for the six months ended June 30, 2023 compared to the corresponding period in 2022. This was offset by (i) a $14.8 million decrease in weighted-average principal of our loan portfolio and (ii) a 428bps increase in weighted-average LIBOR for our CLO liabilities for the six months ended June 30, 2023 compared to the corresponding period in 2022.

As disclosed above, we experienced an increase of $0.2 million in exit and extension fees in the six months ended June 30, 2023. The primary driver of this change was attributed to extension fees. For the six months ended June 30, 2023, we experienced loan payoffs on seven loans with net principal balances of $84.0 million which generated exit fees of $1.2 million included in interest income one loan with net principal balance of $33.5 million which waived exit fees of $0.2 million resulting in a reduction to expense reimbursement of $0.1 million included in operating expenses reimbursable to Manager. For the six months ended June 30, 2022, we experienced loan payoffs on ten loans with net principal balances of $119.6 million which generated exit fees of $1.2 million included in interest income and four loans with net principal balances $70.0 million which waived exit
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fees of $0.7 million resulting in a reduction to expense reimbursement of $0.3 million included in operating expenses reimbursable to Manager. Additionally, two loans experienced maturity extensions during the six months ended June 30, 2023 generating extension fees of $0.2 million.

Other Income
 
For the six months ended June 30, 2023, our other loss was $327,398. This loss was driven by provision for credit losses of $375,399 primarily related to changes in macroeconomic forecast and net unrealized losses on mortgage servicing rights of $48,923 as a result of reduction in principal balance in the period which more than offset net servicing income of $96,924.

For the six months ended June 30, 2022, our other loss was $82. This loss was driven by provision for credit losses of $351,914 which more than offset net servicing income of $123,234 and net unrealized gains on mortgage servicing rights of $228,598.

The period-over-period increase to other loss was primarily due to the change from unrealized gain to unrealized loss on mortgage servicing rights which more than offset the change in credit reserves as a result of loan payoffs.

Expenses
 
For the six months ended June 30, 2023, we incurred management and incentive fees of $2,180,636 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $4,916,419, of which $1,087,652 was payable to our Manager and $3,828,767 was payable directly by us.

For the six months ended June 30, 2022, we incurred management and incentive fees of $2,015,269 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $3,112,286 of which $1,039,355 was payable to our Manager and $2,072,931 was payable directly by us.

The period-over-period increase in operating expenses primarily reflects the impact of expensed deal costs of $1.7 million related to the abandonment of a previously contemplated public CRE CLO as well as an increase in administration, audit, compensation, data, investor relations, legal and management fees which more than offset a decrease in accounting, insurance and listing fees.

Income Tax (Benefit) Provision

For the six months ended June 30, 2023, the Company recognized a benefit from income taxes of $10,023 and for the six months ended June 30, 2022, the Company recognized a provision for income taxes in the amount of $77,334. The period-over-period increase in tax benefit primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.

Liquidity and Capital Resources
 
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, comply with margin requirements, if any, and repay borrowings and other general business needs. Our primary sources of liquidity have been met with net proceeds of common or preferred stock issuance, net proceeds from debt offerings and net cash provided by operating activities. We have added to our liquidity position in February 2022, by completing a transferable common stock rights offering issuing and selling 27,277,269 shares of common stock for net proceeds of approximately $81.1 million and in May 2021 by issuing 2,400,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock resulting in net proceeds (after underwriting discount and commission but before operating expense) of $58.1 million. We finance our commercial mortgage loans primarily with non-recourse match term secured borrowings, which are not subject to margin calls or additional collateralization requirements. On June 14, 2021, we closed the 2021-FL1 CLO issuing eight tranches of CLO notes totaling $903.8 million. Of the total CLO notes issued $833.8 million were investment grade notes issued to third-party investors and $70.0 million were below investment-grade notes retained by us. On July 12, 2023, we closed LMF 2023-1 placing $270.4 million of an investment-grade rated senior secured floating-rate loan with a private lender, issued and sold approximately $47.3 million of investment-grade rated notes to an affiliate of our Manager and retained the subordinate interests in the issuing vehicle of approximately $68.6 million. On August 23, 2021 we drew an additional $7.5 million of our Secured Term Loan pursuant to the Third Amendment. As of June 30, 2023, our balance sheet included $47.8 million of a secured term loan and $833.8 million in collateralized loan financing, gross of discounts and debt issuance costs. Our secured term loan matures in February 2026 and our collateralized loan financing is term-matched and matures in 2039 or later. However, to the extent that we seek to invest in additional commercial mortgage loans, we will in part be dependent on our ability to issue additional collateralized loan obligations to secure alternative financing facilities or to raise additional common or preferred equity. The anticipated continual rise in interest rates and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.

If we were required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets, particularly in a financial market that has been significantly disrupted and less liquid as a result of the current inflationary environment. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced if such leverage is, at least in part, dependent on the market value of our assets. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition. We seek to limit our exposure to illiquidity risk to the extent possible, by ensuring that the secured borrowings that we use to finance our commercial mortgage loans are not subject to margin calls or other limitations that are dependent on the market value of the related loan collateral.

We intend to continue to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated investment requirements and unforeseen business needs but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our operating results.  As of June 30, 2023, we had unrestricted cash and cash equivalents of $98.5 million, compared to $43.9 million as of December 31, 2022. The increase in unrestricted cash was primarily driven by principal payment from mortgage loans of $51.6 million.
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As of June 30, 2023, we had $47.8 million in outstanding principal under our Senior Secured Term Loan, with a borrowing rate of 7.25%. As of June 30, 2023, the ratio of our recourse debt to equity was 0.2:1.

As of June 30, 2023, we consolidated the assets and liabilities of the 2021-FL1 CLO. The assets of the 2021-FL1 CLO are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trust, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trust. As of June 30, 2023, the carrying value of these non-recourse liabilities aggregated to $830.6 million. As of June 30, 2023, our total debt to equity ratio was 3.7:1 on a GAAP basis.

As of June 30, 2023, LCMT had $6.7 million of unfunded commitments related to loans held in LFT 2021-FL1, Ltd.

Cash Flows

The following table sets forth changes in cash, cash equivalents and restricted cash for the six months ended June 30, 2023 and 2022:
For the three months ended June 30,
20232022
Cash Flows From Operating Activities$10,087,692 $8,295,434 
Cash Flows From Investing Activities50,953,417 (51,135,052)
Cash Flows From Financing Activities(8,637,738)73,267,852 
Net Increase in Cash, Cash Equivalents and Restricted Cash$52,403,371 $30,428,234 

During the six months ended June 30, 2023, cash, cash equivalents and restricted cash increased by $53.1 million and for the six months ended June 30, 2022, cash, cash equivalents and restricted cash increased by $28.9 million.

Operating Activities

For the six months ended June 30, 2023 and 2022, net cash provided operating activities totaled $10.1 million and $8.3 million, respectively. For the six months ended June 30, 2023, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO of $15.9 million, interest received from our senior secured loans held outside the VIE we consolidate of $1.4 million, interest received on cash accounts of $1.1 million and cash received from mortgage servicing rights of $0.1 million exceeding cash interest expense paid on our Secured Term Loan of $1.8 million, management and incentive fees of $2.2 million, expense reimbursements of $1.0 million and other operating expenditures of $3.4 million. For the six months ended June 30, 2022, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO of $14.2 million, interest received from our senior secured loans held outside VIE's we consolidate of $0.9 million and cash received from mortgage servicing rights of $0.1 million exceeding cash interest expense paid on our Secured Term Loan of $1.8 million, management and incentive fees of $2.0 million, expense reimbursement of $1.1 million and other operating expenditures of $2.0 million.

Investing Activities

For the six months ended June 30, 2023, net cash provided by investing activities totaled $51.0 million. This was a result of the principal repayment of commercial mortgage loans held for investment exceeding the cash used for purchase and funding of commercial mortgage loans held for investment during the period. For the six months ended June 30, 2022 net cash used in investing activities totaled $51.1 million. This was the result of cash used for the purchase and funding of commercial mortgage loans held for investment exceeding the principal repayment of commercial mortgage loans held for investment during the period.

Financing Activities

For the six months ended June 30, 2023, net cash used in financing activities totaled $8.6 million and primarily related payments of common stock dividends of $6.3 million and payments of preferred stock dividends of $2.4 million. For the six months ended June 30, 2022, net cash provided by financing activities totaled $73.3 million and primarily related to proceeds from issuance of common stock of $81.1 million which more than offset payments of common stock dividends of $5.4 million, payment of preferred stock dividends of $2.4 million and payment of debt issuance costs of $0.1 million.

Forward-Looking Statements Regarding Liquidity  
 
Based upon our current portfolio, leverage rate and available borrowing arrangements, we believe that the net proceeds of our prior equity sales combined with cash flow from operations will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our distributions to stockholders and for other general corporate expenses.  
Our ability to meet our long-term (greater than one-year) liquidity and capital resource requirements will be subject to, amongst other things, obtaining additional debt financing and equity capital. We may increase our capital resources by obtaining long-term credit facilities, additional secured borrowings, including collateralized loan obligations, or making additional public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock and senior and subordinated notes.
 
To maintain our qualification as a REIT, we generally must distribute annually at least 90% of our "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain). These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.  

Off-Balance Sheet Arrangements   

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As of June 30, 2023, we did not maintain any relationships with unconsolidated financial partnerships, or special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of June 30, 2023, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.   

In connection with the provision of seller eligibility and backstop guarantee services provided to MAXEX, we previously accounted for the related non-contingent liability at its fair value on our consolidated balance sheet as a liability. As of June 30, 2023, pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee, see Note 10 for further information.

Distributions  
 
We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain) and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its "REIT taxable income." We have historically made regular monthly distributions, and with effect from the third quarter of 2018 we now make regular quarterly distributions, to our stockholders in an amount equal to all or substantially all of our REIT taxable income. Although FOAC no longer aggregates and securitizes residential mortgages, it continues to generate taxable income from MSRs and other mortgage-related activities. This taxable income will be subject to regular corporate income taxes. We generally anticipate the retention of profits generated and taxed at FOAC. Before we make any distribution on our common stock, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and any debt service obligations on debt payable. If cash available for distribution to our stockholders is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.   
 
If substantially all of our taxable income has not been paid by the close of any calendar year, we may declare a special dividend prior to the end of such calendar year, to achieve this result. On June 14, 2023, we announced that our Board had declared a cash dividend rate for the second quarter of 2023 of $0.06 per share of common stock which was paid on July 17, 2023 and declared a cash dividend rate for the second quarter of 2023 of $0.49219 per share of Series A Preferred Stock which was paid on July 17, 2023.
37



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 
Not applicable.

38



ITEM 4.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or Exchange Act, that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
 
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 as of June 30, 2023. Based upon our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2023.

Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
   
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of the date hereof, neither we nor, to our knowledge, our Manager, are subject to any legal proceedings that we or our Manager considers to be material (individually or in the aggregate). 
 
Item 1A. Risk Factors
 
There have been no material changes to the Risk Factors previously disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.



Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
None.
 
39



Item 6. Exhibits
 
The exhibits listed on the accompanying Index of Exhibits are filed or furnished herewith, as applicable, as a part of this report. Such Index is incorporated herein by reference.

EXHIBIT INDEX
 
Exhibit
Number		 Exhibit Description
10.1***
10.2***
10.3***
10.4***
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
*Filed herewith
**Furnished herewith
***Management contract or compensatory plan in which directors and/or executive officers are eligible to participate


40




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.
 
 LUMENT FINANCE TRUST, INC.
  
Dated: August 8, 2023
By/s/ James P. Flynn
  James P. Flynn
  Chief Executive Officer (Principal Executive Officer), President and Chairman of the Board
   
Dated: August 8, 2023
By/s/ James A. Briggs
  James A. Briggs
  Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


41


Exhibit 31.1
 
Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
 
I, James P. Flynn, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Lument Finance Trust, Inc.
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
/s/ James P. Flynn
 James P. Flynn
 Chief Executive Officer (principal executive officer) and President



Exhibit 31.2
 
Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
 
I, James A. Briggs, certify that:
 
1.I have reviewed this Quarterly Report on Form 10-Q of Lument Finance Trust, Inc.
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 8, 2023
/s/ James A. Briggs
 James A. Briggs
 Chief Financial Officer (principal financial officer and principal accounting officer)



Exhibit 32.1
 
CERTIFICATION PURSUANT TO
17 CFR 240.15d-14(b) AND
18 U.S.C. SECTION 1350

 
In connection with the Quarterly Report on Form 10-Q of Lument Finance Trust, Inc. (the “Company”) for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James P. Flynn, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 17 CFR 240.15d-14(b) and 18 U.S.C. Section 1350, that, to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 8, 2023
/s/ James P. Flynn
 James P. Flynn
 Chief Executive Officer (principal executive officer) and President
 
A signed original of this written statement required by Section 906 has been provided to Lument Finance Trust, Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.



Exhibit 32.2
 
CERTIFICATION PURSUANT TO
17 CFR 240.15d-14(b) AND
18 U.S.C. SECTION 1350

 
In connection with the Quarterly Report on Form 10-Q of Lument Finance Trust, Inc. (the “Company”) for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James A. Briggs, as Chief Financial Officer (principal financial officer and principal accounting officer) of the Company, certify, pursuant to 17 CFR 240.15d-14(b) and 18 U.S.C. Section 1350, that, to the best of my knowledge:

1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 8, 2023
/s/ James A. Briggs
 James A. Briggs
 Chief Financial Officer (principal financial officer and principal accounting officer)
 
A signed original of this written statement required by Section 906 has been provided to Lument Finance Trust, Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request. 


v3.23.2
Cover Page - shares
 6 Months Ended
Jun. 30, 2023
Aug. 07, 2023
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2023  
Document Transition Report false  
Entity File Number 001-35845  
Entity Registrant Name LUMENT FINANCE TRUST, INC.  
Entity Incorporation, State or Country Code MD  
Entity Tax Identification Number 45-4966519  
Entity Address, Address Line One 230 Park Avenue  
Entity Address, Address Line Two 20th Floor  
Entity Address, City or Town New York  
Entity Address, State or Province NY  
Entity Address, Postal Zip Code 10169  
City Area Code 212  
Local Phone Number 317-5700  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding (in shares)   52,231,152
Amendment Flag false  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0001547546  
Current Fiscal Year End Date --12-31  
Common Stock    
Entity Information [Line Items]    
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol LFT  
Security Exchange Name NYSE  
Redeemable Preferred Stock    
Entity Information [Line Items]    
Title of 12(b) Security 7.875% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share  
Trading Symbol LFTPrA  
Security Exchange Name NYSE  
v3.23.2
Consolidated Balance Sheets - USD ($)
Jun. 30, 2023
Dec. 31, 2022
ASSETS    
Cash and cash equivalents [1] $ 98,495,690 $ 43,858,515
Restricted cash [1] 1,274,046 3,507,850
Commercial mortgage loans held-for-investment, at amortized cost [1] 1,021,042,905 1,076,148,186
Allowance for credit losses [1] (3,897,895) (4,258,668)
Commercial mortgage loans held-for-investment, net of allowance for credit losses [1] 1,017,145,010 1,071,889,518
Mortgage servicing rights, at fair value [1] 746,734 795,656
Accrued interest receivable [1] 5,865,802 5,797,991
Other assets [1] 2,490,187 2,116,007
Total assets [1] 1,126,017,469 1,127,965,537
LIABILITIES    
Collateralized loan obligations, net [1] 830,564,083 829,310,498
Secured term loan, net [1] 47,094,610 46,971,042
Accrued interest payable [1] 2,542,214 2,360,809
Dividends payable [1] 4,131,369 4,131,369
Fees and expenses payable to Manager [1] 1,660,250 1,606,333
Other liabilities [1],[2] 933,748 583,989
Total liabilities [1] 886,926,274 884,964,040
COMMITMENTS AND CONTINGENCIES (NOTES 10 & 11) [1]
EQUITY    
Preferred Stock: par value $0.01 per share; 50,000,000 shares authorized; 7.875% Series A Cumulative Redeemable, $60,000,000 aggregate liquidation preference, 2,400,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively [1] 57,254,935 57,254,935
Common Stock: par value $0.01 per share; 450,000,000 shares authorized, 52,231,152 shares issued and outstanding, at June 30, 2023 and December 31, 2022, respectively [1] 522,312 522,252
Additional paid-in capital [1] 314,576,282 314,598,384
Cumulative distributions to stockholders [1] (169,362,164) (160,724,426)
Accumulated earnings [1] 36,000,330 31,250,852
Total stockholders' equity [1] 238,991,695 242,901,997
Noncontrolling interests [1] 99,500 99,500
Total equity [1] 239,091,195 243,001,497
Total liabilities and equity [1] $ 1,126,017,469 $ 1,127,965,537
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
[2] Includes $55,941 and $0 of Current Expected Credit Loss ("CECL") allowance related to unfunded commitments on commercial mortgage loans, net as of June 30, 2023 and December 31, 2022, respectively.
v3.23.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
 6 Months Ended 12 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Variable Interest Entity [Line Items]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 50,000,000 50,000,000
Preferred stock, dividend rate, percentage 7.875% 7.875%
Preferred stock, aggregate liquidation preference $ 60,000,000 $ 60,000,000
Preferred stock, shares issued (in shares) 2,400,000 2,400,000
Preferred stock, shares outstanding (in shares) 2,400,000 2,400,000
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 450,000,000 450,000,000
Common stock, shares issued (in shares) 52,231,152 52,231,152
Common stock, shares outstanding (in shares) 52,231,152 52,231,152
Total [1] $ 1,126,017,469 $ 1,127,965,537
Liabilities [1] 886,926,274 884,964,040
Unfunded Loan Commitment    
Variable Interest Entity [Line Items]    
Allowance for credit loss 55,941 0
Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd.    
Variable Interest Entity [Line Items]    
Total 1,001,991,708 1,005,507,371
Liabilities $ 833,019,750 $ 831,575,144
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
Consolidated Statements of Operations (Unaudited) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Interest income:        
Commercial mortgage loans held-for-investment $ 21,818,608 $ 12,633,772 $ 43,763,269 $ 22,642,836
Cash and cash equivalents 827,443 4,912 1,089,108 9,767
Interest expense:        
Collateralized loan obligations (14,199,861) (5,284,890) (27,232,907) (9,289,128)
Secured term loan (937,210) (937,210) (1,864,122) (1,859,853)
Net interest income 7,508,980 6,416,584 15,755,348 11,503,622
Other expense:        
Provision for credit losses, net (555,083) (351,914) (375,399) (351,914)
Change in unrealized (loss) gain on mortgage servicing rights 206 81,216 (48,923) 228,598
Servicing income, net 45,396 56,053 96,924 123,234
Total other expense (509,481) (214,645) (327,398) (82)
Expenses:        
Management and incentive fees 1,093,374 1,090,652 2,180,636 2,015,269
General and administrative expenses 882,723 960,420 1,830,789 1,813,152
Operating expenses reimbursable to Manager 577,666 648,645 1,087,652 1,039,355
Other operating expenses 1,809,700 77,808 1,874,284 153,998
Compensation expense 61,586 54,893 123,694 105,781
Total expenses 4,425,049 2,832,418 7,097,055 5,127,555
Net income before provision for income taxes 2,574,450 3,369,521 8,330,895 6,375,985
Benefit from (provision for) income taxes (223) (25,669) 10,023 (77,334)
Net income 2,574,227 3,343,852 8,340,918 6,298,651
Dividends accrued to preferred stockholders (1,185,042) (1,185,042) (2,370,000) (2,370,000)
Net income attributable to common stockholders 1,389,185 2,158,810 5,970,918 3,928,651
Earnings per share:        
Net income attributable to common stockholders (basic) 1,389,185 2,158,810 5,970,918 3,928,651
Net income attributable to common stockholders (diluted) $ 1,389,185 $ 2,158,810 $ 5,970,918 $ 3,928,651
Weighted average number of shares of common stock outstanding (in shares) 52,231,152 52,226,141 52,231,152 44,389,086
Basic income per share (in dollars per share) $ 0.03 $ 0.04 $ 0.11 $ 0.09
Diluted income per share (in dollars per share) 0.03 0.04 0.11 0.09
Dividends declared per share of common stock (in dollars per share) $ 0.06 $ 0.06 $ 0.12 $ 0.12
v3.23.2
Consolidated Statement of Changes in Equity - USD ($)
Total
Transition adjustment
Total Stockholders' Equity
Total Stockholders' Equity
Transition adjustment
Preferred Stock
Common Stock
Additional Paid-in Capital
Cumulative Distributions to Stockholders
Accumulated Earnings
Accumulated Earnings
Transition adjustment
Noncontrolling interests
Beginning balance (in shares) at Dec. 31, 2021         2,400,000            
Balance at Dec. 31, 2021 $ 169,375,500   $ 169,276,000   $ 57,254,935 $ 249,434 $ 233,833,749 $ (143,449,310) $ 21,387,192   $ 99,500
Beginning balance (in shares) at Dec. 31, 2021           24,947,883          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Issuance of common stock (in shares)           27,277,269          
Issuance of common stock 83,468,443   83,468,443     $ 272,773 83,195,670        
Cost of issuing common stock (2,404,070)   (2,404,070)       (2,404,070)        
Restricted stock compensation expense 4,638   4,638       4,638        
Net income 2,954,799   2,954,799           2,954,799    
Common stock dividends (3,133,509)   (3,133,509)         (3,133,509)      
Preferred stock dividends (1,184,958)   (1,184,958)         (1,184,958)      
Ending balance (in shares) at Mar. 31, 2022         2,400,000            
Balance at Mar. 31, 2022 249,080,843   248,981,343   $ 57,254,935 $ 522,207 314,629,987 (147,767,777) 24,341,991   99,500
Ending balance (in shares) at Mar. 31, 2022           52,225,152          
Beginning balance (in shares) at Dec. 31, 2021         2,400,000            
Balance at Dec. 31, 2021 169,375,500   169,276,000   $ 57,254,935 $ 249,434 233,833,749 (143,449,310) 21,387,192   99,500
Beginning balance (in shares) at Dec. 31, 2021           24,947,883          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net income 6,298,651                    
Common stock dividends (6,267,378)                    
Preferred stock dividends (2,370,000)                    
Ending balance (in shares) at Jun. 30, 2022         2,400,000            
Balance at Jun. 30, 2022 248,096,064   247,996,564   $ 57,254,935 $ 522,252 314,620,222 (152,086,688) 27,685,843   99,500
Ending balance (in shares) at Jun. 30, 2022           52,231,152          
Beginning balance (in shares) at Dec. 31, 2021         2,400,000            
Balance at Dec. 31, 2021 $ 169,375,500   169,276,000   $ 57,254,935 $ 249,434 233,833,749 (143,449,310) 21,387,192   99,500
Beginning balance (in shares) at Dec. 31, 2021           24,947,883          
Ending balance (in shares) at Dec. 31, 2022 2,400,000       2,400,000            
Balance at Dec. 31, 2022 $ 243,001,497 [1] $ (3,591,440) 242,901,997 $ (3,591,440) $ 57,254,935 $ 522,252 314,598,384 (160,724,426) 31,250,852 $ (3,591,440) 99,500
Ending balance (in shares) at Dec. 31, 2022 52,231,152         52,231,152          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Accounting Standards Update [Extensible Enumeration] Accounting Standards Update 2016-13                    
Beginning balance (in shares) at Mar. 31, 2022         2,400,000            
Balance at Mar. 31, 2022 $ 249,080,843   248,981,343   $ 57,254,935 $ 522,207 314,629,987 (147,767,777) 24,341,991   99,500
Beginning balance (in shares) at Mar. 31, 2022           52,225,152          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Issuance of common stock (in shares)           6,000          
Issuance of common stock 18,810   18,810     $ 45 18,765        
Cost of issuing common stock (14,196)   (14,196)       (14,196)        
Restricted stock compensation expense (14,334)   (14,334)       (14,334)        
Net income 3,343,852   3,343,852           3,343,852    
Common stock dividends (3,133,869)   (3,133,869)         (3,133,869)      
Preferred stock dividends (1,185,042)   (1,185,042)         (1,185,042)      
Ending balance (in shares) at Jun. 30, 2022         2,400,000            
Balance at Jun. 30, 2022 $ 248,096,064   247,996,564   $ 57,254,935 $ 522,252 314,620,222 (152,086,688) 27,685,843   99,500
Ending balance (in shares) at Jun. 30, 2022           52,231,152          
Beginning balance (in shares) at Dec. 31, 2022 2,400,000       2,400,000            
Balance at Dec. 31, 2022 $ 243,001,497 [1] (3,591,440) 242,901,997 (3,591,440) $ 57,254,935 $ 522,252 314,598,384 (160,724,426) 31,250,852 (3,591,440) 99,500
Beginning balance (in shares) at Dec. 31, 2022 52,231,152         52,231,152          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Cost of issuing common stock $ (14,040)   (14,040)       (14,040)        
Restricted stock compensation expense 3,358   3,358       3,358        
Net income 5,766,691   5,766,691           5,766,691    
Common stock dividends (3,133,869)   (3,133,869)         (3,133,869)      
Preferred stock dividends (1,184,958)   (1,184,958)         (1,184,958)      
Ending balance (in shares) at Mar. 31, 2023         2,400,000            
Balance at Mar. 31, 2023 $ 240,847,239   240,747,739   $ 57,254,935 $ 522,252 314,587,702 (165,043,253) 33,426,103   99,500
Ending balance (in shares) at Mar. 31, 2023           52,231,152          
Beginning balance (in shares) at Dec. 31, 2022 2,400,000       2,400,000            
Balance at Dec. 31, 2022 $ 243,001,497 [1] $ (3,591,440) 242,901,997 $ (3,591,440) $ 57,254,935 $ 522,252 314,598,384 (160,724,426) 31,250,852 $ (3,591,440) 99,500
Beginning balance (in shares) at Dec. 31, 2022 52,231,152         52,231,152          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net income $ 8,340,918                    
Common stock dividends (6,267,738)                    
Preferred stock dividends $ (2,370,000)                    
Ending balance (in shares) at Jun. 30, 2023 2,400,000       2,400,000            
Balance at Jun. 30, 2023 $ 239,091,195 [1]   238,991,695   $ 57,254,935 $ 522,312 314,576,282 (169,362,164) 36,000,330   99,500
Ending balance (in shares) at Jun. 30, 2023 52,231,152         52,231,152          
Beginning balance (in shares) at Mar. 31, 2023         2,400,000            
Balance at Mar. 31, 2023 $ 240,847,239   240,747,739   $ 57,254,935 $ 522,252 314,587,702 (165,043,253) 33,426,103   99,500
Beginning balance (in shares) at Mar. 31, 2023           52,231,152          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Issuance of common stock 13,620   13,620     $ 60 13,560        
Cost of issuing common stock (14,196)   (14,196)       (14,196)        
Restricted stock compensation expense (10,784)   (10,784)       (10,784)        
Net income 2,574,227   2,574,227           2,574,227    
Common stock dividends (3,133,869)   (3,133,869)         (3,133,869)      
Preferred stock dividends $ (1,185,042)   (1,185,042)         (1,185,042)      
Ending balance (in shares) at Jun. 30, 2023 2,400,000       2,400,000            
Balance at Jun. 30, 2023 $ 239,091,195 [1]   $ 238,991,695   $ 57,254,935 $ 522,312 $ 314,576,282 $ (169,362,164) $ 36,000,330   $ 99,500
Ending balance (in shares) at Jun. 30, 2023 52,231,152         52,231,152          
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
Consolidated Statements of Cash Flows - USD ($)
 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Cash flows from operating activities:    
Net income $ 8,340,918 $ 6,298,651
Adjustments to reconcile net income to net cash provided by operating activities:    
Accretion of commercial mortgage loans held-for-investment discounts (1,196) (125,098)
Amortization of commercial mortgage loans held-for-investment premiums 10,687 50,522
Accretion of deferred loan fees (129,300) 0
Amortization of deferred offering costs (28,236) (85,867)
Amortization of deferred financing costs 1,377,153 1,372,887
Provision for credit losses, net 375,399 351,914
Unrealized loss (gain) on mortgage servicing rights 48,923 (228,598)
Restricted stock compensation expense 6,194 9,114
Net change in:    
Accrued interest receivable (67,811) 388,565
Other assets (374,179) (262,488)
Accrued interest payable 181,405 404,480
Fees and expenses payable to Manager 53,917 (78,327)
Other liabilities 293,818 199,679
Net cash provided by operating activities 10,087,692 8,295,434
Cash flows from investing activities:    
Purchase of commercial mortgage loans held-for-investment (72,630,053) (222,142,167)
Principal payments from commercial mortgage loans held-for-investment 123,583,470 171,007,115
Net cash provided by (used in) investing activities 50,953,417 (51,135,052)
Cash flows from financing activities:    
Proceeds from issuance of common stock 0 81,136,045
Payment of deferred financing costs 0 (119,375)
Dividends paid on common stock (6,267,738) (5,378,818)
Dividends paid on preferred stock (2,370,000) (2,370,000)
Net cash (used in) provided by financing activities (8,637,738) 73,267,852
Net increase in cash, cash equivalents and restricted cash 52,403,371 30,428,234
Cash, cash equivalents and restricted cash, beginning of period 47,366,365 18,279,052
Cash, cash equivalents and restricted cash, end of period 99,769,736 48,707,286
Supplemental disclosure of cash flow information    
Cash paid for interest 27,538,470 9,371,614
Non-cash investing and financing activities information    
Dividends declared but not paid at end of period $ 4,315,119 $ 4,131,369
v3.23.2
ORGANIZATION AND BUSINESS OPERATIONS
 6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
ORGANIZATION AND BUSINESS OPERATIONS ORGANIZATION AND BUSINESS OPERATIONS
Lument Finance Trust, Inc. (together with its consolidated subsidiaries, the "Company"), is a Maryland corporation that focuses primarily on investing in, originating, financing and managing a portfolio of commercial real estate ("CRE") debt investments. The Company is externally managed by Lument Investment Management, LLC (the "Manager" or "Lument IM"). The Company's common stock is listed on the NYSE under the symbol "LFT."

The Company was incorporated on March 28, 2012 and commenced operations on May 16, 2012. The Company began trading as a publicly traded company on March 22, 2013.
The Company has elected to be taxed as a real estate investment trust ("REIT") and to comply with Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met.
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission ('SEC") on March 23, 2023.

Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of the Company and all subsidiaries which it controls (i) through voting or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). All significant intercompany transactions have been eliminated on consolidation.

Use of Estimates

The financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g. valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.

VIEs

An entity is considered a VIE when any of the following applies: (1) the equity investors (if any) lack one or more essential characteristics of a controlling financial interest; (2) the equity investment at risk is not sufficient 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 defined as the entity having both the following characteristics: (1) the power to direct activities that, when taken together, most significantly impact the VIE performance; and (2) the obligation to absorb losses and right to receive returns from the VIE that would be significant to the VIE.

The Company evaluates quarterly its junior retained notes and preferred shares of LFT CRE 2021-FL1, Ltd. for potential consolidation. At June 30, 2023, the Company determined it was the primary beneficiary of LFT CRE 2021-FL1, Ltd. based on its obligation to absorb losses derived from ownership of its preferred shares. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities. The Company's maximum exposure to loss from collateralized loan obligations ("CLO") was $166,250,000 at June 30, 2023 and December 31, 2022, respectively.

Collateralized Loan Obligations

Collateralized loan obligations ("CLOs") represent third-party liabilities of LFT CRE 2021-FL1, Ltd. and LFT CRE 2021-FL1, LLC (collectively, the "2021-FL1 CLO"). The 2021-FL1 CLO is a VIE and management has determined that the Company is the primary beneficiary of the 2021-FL1 CLO. Accordingly, the Company consolidates the assets, liabilities (other than the below investment grade-rated notes and preferred shares of the 2021-FL1 CLO retained by the Company that are eliminated on consolidation), income and expense of the 2021-FL1 CLO. The third-party obligations of the 2021-FL1 CLO do not have any recourse to the Company as the consolidator of the CLO. The third-party obligations of the 2021-FL1 CLO are carried at their outstanding unpaid principal balances, net of any deferred financing costs. Any premiums, discounts or deferred financing costs associated with these third-party obligations are amortized to interest expense using the effective interest method over the expected average life of the related obligations, or on a straight line basis when it approximates the effective interest method. The Company's maximum exposure to loss from CLOs was $166,250,000 at June 30, 2023 and December 31, 2022, respectively.

In the second quarter of 2023, $1,684,618 in costs related to a previously contemplated public CRE CLO were expensed as "Other operating expenses" in the statements of operations as a result abandoning the contemplated transaction due to then current capital market environment.
Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at time of purchase include cash held in bank accounts on an overnight basis and other short term deposit accounts with banks having maturities of 90 days or less at time of acquisition. The Company maintains its cash and cash equivalents with highly rated financial institutions, and at times these balances exceed insurable amounts.

Restricted cash includes cash held within the 2021-FL1 CLO as of June 30, 2023 and December 31, 2022, respectively.

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 amounts shown in the statements of cash flows.

June 30, 2023December 31, 2022
Cash and cash equivalents$98,495,690 $43,858,515 
Restricted cash held within the 2021-FL1 CLO$1,274,046 $3,507,850 
Total cash, cash equivalents and restricted cash$99,769,736 $47,366,365 

Deferred Offering Costs

Direct costs incurred to issue shares classified as equity, such as legal and accounting fees, are deducted from the related proceeds and the net amount recorded as stockholders' equity. Accordingly, payments made by the Company in respect of such costs related to the issuance of shares are recorded as an asset in the accompanying consolidated balance sheets in the line item "Other assets," for subsequent deduction from the related proceeds upon closing of the offering. To the extent that certain costs, in particular legal fees, are known to have been accrued but have not yet been invoiced and paid, they are included in "Other accounts payable and accrued expenses" on the accompanying consolidated balance sheets.

Fair Value Measurements

The "Fair Value Measurements and Disclosures" Topic 820 of the FASB, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurement under GAAP. Specifically, the guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at measurement date. ASC 820 specifies a hierarchy of valuation techniques based on the inputs used in measuring fair value.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable market data from independent sources, while unobservable inputs reflect the Company's market assumptions. The three levels are defined as follows:

•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.

Pursuant to ASC 820 we disclose fair value information about financial instruments, which are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate fair value for those certain instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument, for which it is practicable to estimate that value:
•Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.
•Restricted cash: The carrying amount of restricted cash approximates fair value.
•Commercial mortgage loans: The Company determines the fair value of commercial mortgage loans by utilizing a pricing model based on discounted cash flow methodologies using discount rates, which reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Additionally, the Company may record fair value adjustments on a non-recurring basis when it has determined it necessary to record a specific impairment reserve or charge-off against a loan and the Company measures such specific reserve or charge-off using the fair value of the loan's collateral. To determine the fair value of loan collateral, the Company employs the income capitalization approach, appraised values, broker opinion of value, sale offers, letters of intention to purchase, or other valuation benchmarks, as applicable, depending upon the nature of such collateral and other relevant market factors.
•Mortgage servicing rights: The Company determines the fair value of MSRs from a third-party pricing service on a recurring basis. The third-party pricing service uses common market pricing methods that include using discounted cash flow models to calculate present value, estimated net servicing income and observed market pricing for MSR purchase and sale transactions. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors.
•Collateralized loan obligations: The Company determines the fair value of collateralized loan obligations by utilizing a third-party pricing service. In determining the value of a particular investment, pricing service providers may use market spreads, inventory levels, trade and bid history, as well as market insight from clients, trading desks and global research platform.
•Secured term loan: The Company determines the fair value of its secured term loan based on a discounted cash flow methodology.

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased or originated by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are
intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan on a straight-line basis approximating the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement.

As of June 30, 2023, the Company held one loan on non-accrual status and interest collections will be accounted for under the cost recovery method.

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and amendments, which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit losses required under ASC 2016-13 is included in "Allowance for credit losses" on our consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" in the consolidated balance sheets. The initial CECL reserve recorded on January 1, 2023 is reflected as a direct charge to retained earnings on our consolidated statements of changes in equity; however subsequent changes to the CECL reserve are recognized through net income on our consolidated statements of operations. In connection with the adoption of ASU 2016-13, we recorded a $3.6 million decrease to accumulated earnings as of January 1, 2023.

The Company's implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the current credit quality of loans and operating performance of loan collateral and the Company's expectations of performance and (iii) expectation of macroeconomic conditions over the relevant time period.

In the absence of any Company history of valuation reserves or realized loan losses since our inception in 2013, other than on one office loan, the Company elected to utilize a widely-used analytical model incorporating a loss-given-default methodology and loan performance data for over 100,000 commercial real estate loans dating back to 1998. The Company expects to use this data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determines its CECL estimate based on macroeconomic forecasts that include baseline, optimistic and pessimistic scenarios during the reasonable forecast period. The Company determined the key variables driving its CECL loss estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage.

The Company evaluates each loan rated Default Risk as to whether it is impaired on a quarterly basis. Impaired loans are individually evaluated based on the Company's quarterly assessment of each loan and assignment of a risk rating. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for (reversal of) credit losses. Impairment of these loans, all of which are deemed collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Any loans deemed to be collateral dependent will be removed from the pool of assets measured under CECL. Actual losses, if any, could ultimately differ from estimated losses.

The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023:

Pre-adoptionTransition adjustmentPost-adoption
Assets
Commercial mortgage loans, held-for-investment$1,076,148,186 $— $1,076,148,186 
Less: Allowance for credit losses(4,258,668)(3,549,501)(7,808,169)
Commercial mortgage loans, held-for-investment, net of allowance for credit losses$1,071,889,518 $(3,549,501)$1,068,340,017 
Liabilities
Other liabilities(1)
$583,989 $41,939 $625,928 
Equity
Accumulated earnings$31,250,852 $(3,591,440)$27,659,412 
(1)    Includes reserve for unfunded loan commitments

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:
1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectation
3.Moderate Risk: consistent with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default

Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights ("MSRs") are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company's taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a subservicer, the associated loan. MSRs are reported at fair value. Residential mortgage loans for which the Company owns the MSRs are directly serviced by two sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.
 
MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.

Secured Term Loan

The Company and certain of its subsidiaries are party to a $47.75 million credit and guaranty agreement with the lenders referred to therein and Cortland Capital Service LLC, as administrative agent and collateral agent for the lenders (the "Secured Term Loan"). The Secured Term Loan is carried at its unpaid principal balance, net of deferred financing costs. Deferred financing costs associated with this liability are amortized to interest expense on a straight line basis when it approximates the effective interest method. See Note 6 for additional information related to the Secured Term Loan.

Common Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 450,000,000 shares of common stock, par value $0.01 per share. On February 22, 2022, the Company closed a transferable common stock rights offering and issued 27,277,269 shares of common stock. The Company had 52,231,152 shares of common stock issued and outstanding at June 30, 2023 and December 31, 2022.

Stock Repurchase Program

On December 15, 2015, the Company's Board of Directors (the "Board") authorized a stock repurchase program ("Repurchase Program"), to repurchase up to $10 million of the Company's outstanding common stock. Subject to applicable securities laws, repurchase of common stock under the Repurchase Program may be made at times and in amounts as the Company deems appropriate, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of common stock. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice.

Preferred Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.01 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board. On May 5, 2021, the Company issued 2,400,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock (Series A Preferred Stock"). The Company had 2,400,000 shares of preferred stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Our preferred stock is classified as permanent equity and carried at its liquidation preference less offering costs. See Note 12 for additional information related to our Series A Preferred Stock.

Income Taxes

The Company has elected to be taxed as a REIT under the Code for U.S. federal income tax purposes, commencing with the Company's short taxable period ended December 31, 2012. A REIT is generally taxable as a U.S. C-Corporation; however, so long as the Company qualifies as a REIT it is entitled to a special deduction for dividends paid to stockholders not otherwise available to corporations. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent its distributions to stockholders equals, or exceeds, its REIT taxable income for the year. In addition, the Company must continue to meet certain REIT qualification requirements with respect to distributions, as well as certain asset, income and share ownership tests, in accordance with Sections 856 through 860 of the Code, as summarized below. In addition, the TRS is maintained to perform certain services and earn income for the Company that the Company is not permitted to engage in as a REIT.

To maintain its qualification as a REIT, the Company must meet certain requirements, including but not limited to the following: (i) distribute at least 90% of its REIT taxable income to its stockholders; (ii) invest at least 75% of its assets in REIT qualifying assets, with additional restrictions with respect to asset concentration risk; and (iii) earn at least 95% of its gross income from qualifying sources of income, including at least 75% from qualifying real estate and real estate related sources. Regardless of the REIT election, the Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax as a U.S. C-Corporation, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders.

Certain activities of the Company are conducted through a TRS and therefore are taxed as a standalone U.S. C-Corporation. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
The TRS is not subject to a distribution requirement with respect to its REIT owner. The TRS may retain earnings annually, resulting in an increase in the consolidated book equity of the Company and without a corresponding distribution requirement by the REIT. If the TRS generates net income, and declares dividends to the Company, such dividends will be included in its taxable income and necessitate a distribution to its stockholders in accordance with the REIT distribution requirements.

The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company's accounting policy with respect to interest and penalties is to classify these amounts as other interest expense.

Earnings per Share

The Company calculates basic and diluted earnings per share by dividing net income attributable to common stockholders for the period by the weighted-average shares of the Company's common stock outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as warrants, stock options, and unvested restricted stock, but use the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. See Note 13 for details of the computation of basic and diluted earnings per share.

Stock-Based Compensation

The Company is required to recognize compensation costs relating to stock-based payment transactions in the consolidated financial statements. The Company accounts for share-based compensation using the fair-value based methodology prescribed by ASC 718, Share-Based Payment ("ASC 718"). Compensation cost related to restricted common stock issued to the Company's independent directors is measured at its estimated fair value at the grant date and amortized and expensed over the vesting period. See Note 9 for details of stock-based awards issuable under the Company's prior equity incentive, which expired on December 18, 2022 and is no longer being used to issue new equity awards.

Comprehensive Income (Loss) Attributable to Common Stockholders

For the three and six months ended June 30, 2023 and 2022, comprehensive income equaled net income; therefore, a separate consolidated statement of comprehensive income is not included in the accompanying consolidated financial statements.

Recently Issued and/or Adopted Accounting Standards

Credit Losses

On January 1, 2023, we adopted ASU 2016-13, which utilizes a current expected credit loss methodology ("CECL") for the recognition of credit losses for our commercial mortgage loans held-for-investment at amortized cost, at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted for each period for changes in expected credit losses. This methodology replaces the multiple impairment methods in GAAP that generally required that a loss be incurred before it is recognized. We adopted ASU 2016-13 using the modified retrospective method, therefore, the results for reporting period prior to January 1, 2023 have been unadjusted and reported in accordance with previously applicable GAAP. Upon adoption of ASU 2016-13 on January 1, 2023, the Company recorded a cumulative-effect adjustment to accumulated earnings of $3.6 million, or $0.07 per common share.

The CECL reserve required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related commercial mortgage loans on our balance sheet, which will reduce our stockholders' equity. The initial reserve recorded on January 1, 2023 was reflected as a direct charge against accumulated earnings; however, future net changes to the CECL reserve will be recognized in net income on our consolidated statements of operations. ASU 2016-13 does not require use of a particular method for determining the CECL reserve, but it does specify the allowance should be based on relevant information about past events, including historical loss experience, composition of current commercial mortgage loan portfolio, current conditions in real estate and capital markets, and reasonable and supportable forecasts for the expected term of each loan. Additionally, but for a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to CECL incur some amount of valuation reserve to reflect the underlying principle of the CECL model, that all loans, debt securities and similar financial assets bear some inherent risk of loss regardless of credit quality, amount of subordinate capital, or other risk mitigants.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate ("LIBOR") and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt instruments, leases, derivatives and other contracts affected by reference rate reform. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, deferring the sunset date of ASC 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024. ASC 848 provides temporary relief relating to potential accounting impact relating to replacement of LIBOR or other reference rates expected to be discounted as a result of reference rate reform. We have not adopted any of the optional expedients or exceptions through June 30, 2023, but will continue to evaluate the possible adoption of any such expedients or exceptions.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT
 6 Months Ended
Jun. 30, 2023
Receivables [Abstract]  
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT
The following tables summarize certain characteristics of the Company's investments in commercial mortgage loans as of June 30, 2023 and December 31, 2022:
Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
June 30, 2023
Loans held-for-investment
Senior secured loans(3)
$1,021,956,208 $1,021,042,905 66 100.0 %8.6 %3.1
Allowance for credit lossesN/A(3,897,895)
1,021,956,208 1,017,145,010 66 100.0 %8.6 %3.1

Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
December 31, 2022
Loans held-for-investment
Senior secured loans(3)
$1,076,865,099 $1,076,148,186 71 100.0 %7.6 %3.5
Allowance for credit lossesNA(4,258,668)
1,076,865,099 1,071,889,518 71 100.0 %7.6 %3.5

(1)    Weighted average coupon assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day Term Secured Overnight Financing Rate ("SOFR") of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.25% and 0.27%, respectively. As of June 30, 2023, 73.9% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 26.1% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR.
(2)    Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(3)    As of June 30, 2023, $994,914,714 of the outstanding senior secured loans were held in VIEs and $22,230,296 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside VIEs.

Activity: For the six months ended June 30, 2023, the loan portfolio activity was as follows:
Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2022$1,071,889,518 
Purchases, advances and originations72,630,053 
Principal payments(123,583,470)
Accretion of purchase discount1,196 
Amortization of purchase premium(10,687)
Accretion of deferred loan fees129,300 
Cumulative-effect adjustment upon adoption of ASU 2016-13(3,549,501)
Provision for credit losses, net(361,399)
Balance at June 30, 2023
$1,017,145,010 

Loan Risk Ratings: As further described in Note 2, the Company evaluates the commercial mortgage loan portfolio on a quarterly basis and assigns a risk rating based on a variety of factors. The following table presents the principal balance and net book value of the loan portfolio based on the Company's internal risk ratings as of June 30, 2023 and December 31, 2022:

June 30, 2023
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20232022202120192017
1— $— — — — — — 
22 36,850,000 17,926,638 18,533,248 — — — 
353 831,892,473 — 138,379,697 628,385,618 41,515,275 19,625,364 
410 140,539,480 — 50,841,772 89,263,143 — — 
51 12,674,255 — — 12,674,255 — — 
66 $1,021,956,208 17,926,638 207,754,717 730,323,016 41,515,275 19,625,364 

December 31, 2022
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20222021201920182017
1— $— — — — — — 
211 153,933,750 85,198,084 67,999,500 — — — 
355 852,474,681 101,654,140 672,421,907 42,077,193 16,672,623 19,668,071 
43 47,448,000 15,000,000 32,448,000 — — — 
52 23,008,668 — 12,750,000 — 6,000,000 — 
71 $1,076,865,099 201,852,224 785,619,407 42,077,193 22,672,623 19,668,071 

As of June 30, 2023, the average risk rating of the commercial mortgage loan portfolio was 3.4 (Moderate Risk), weighted by investment carrying value, with 85.0% of the net carrying value of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

As of December 31, 2022, the average risk rating of the commercial mortgage loan portfolio was 3.0 (Moderate Risk), weighted by investment carrying value, with 93.8% of the net carrying value of commercial loans held-for-investment rated 3 (Moderate Risk) or better by the Company's Manager.

The average risk rating of the portfolio has increased during the six months ended June 30, 2023. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $33.5 million, "3" of $84.0 million and a risk rating of "5" of $10.3 million, offset by the purchase of commercial mortgage loans with a risk rating of "2" of $17.9 million and , "3" of $55.0 million during the six months ended June 30, 2023. Additionally, $101.5 million of loans with a risk rating of "2" transitioned to a risk rating of "3," and $93.1 million of loans with a risk rating of "3" transitioned to a risk rating of "4".

Concentration of Credit Risk: The following tables present the geographic and property types of collateral underlying the Company's commercial mortgage loans as a percentage of the loans' carrying value as of June 30, 2023 and December 31, 2022:

Loans Held-for-Investment
June 30, 2023December 31, 2022
Geography
South45.2 %46.6 %
Southwest24.8 26.7 
Mid-Atlantic15.4 12.4 
Midwest7.9 8.0 
West6.7 6.3 
Total100.0 %100.0 %
June 30, 2023
December 31, 2022
Collateral Property Type
Multifamily89.5 %89.6 %
Seniors Housing and Healthcare8.6 6.4 
Self-Storage1.9 1.8 
Retail— 1.6 
Office— 0.6 
Total100.0 %100.0 %

Allowance for Credit Losses:

The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the allowance for credit losses on the outstanding balances of the Company's loans held-for-investment:
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$3,357,527 $— $4,258,668 $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 3,549,501 
Provision for credit losses540,368 — 361,399 — 
Charge offs— — (4,271,673)
Allowance for credit losses at end of period$3,897,895 $— $3,897,895 $— 

The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the provision for (release of) credit losses on the unfunded commitments of the Company's loans held-for-investment:
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$41,225 $— $— $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 41,939 — 
(Reversal of) credit losses14,716 — 14,002 — 
Charge offs— — — — 
Allowance for credit losses at end of period$55,941 $— $55,941 $— 

We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loans discussed below as of June 30, 2023 or December 31, 2022.

In February 2023, in connection with the sale of the office building collateralizing an impaired loan by the borrower to an unaffiliated third-party, the Company accepted a discounted payoff of approximately $6.0 million on the impaired loan, which had an unpaid principal balance of $10.3 million. An allowance for credit loss of $4.3 million was recorded for this impaired loan in the year ended December 31, 2022. Upon the discounted payoff, a $4.3 million charge off against the allowance for credit losses was recorded, with de minimis impact to income in the six months ended June 30, 2023.
During the period ended June 30, 2023, management continued to identify one loan, collateralized by a multifamily property, with an unpaid principal value of $12.8 million as impaired due to monetary default; however, no reserve is required after analysis of underlying collateral value. This loan is on non-accrual status as a result of the monetary default and impaired loan classification.
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES
 6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES
We account for CLO transactions on our consolidated balance sheet as financing facilities. Our CLOs are VIEs for which we are the primary beneficiary and are consolidated in our financial statements. The investment grade tranches are treated as secured financings, and are non-recourse to us. See Note 2 ("Summary of Significant Accounting Policies - Principles Consolidation - VIE" and "Collateralized Loan Obligations")) for further discussion.

On June 14, 2021, the Company completed the 2021-FL1 CLO, issuing eight tranches of CLO notes through two newly-formed wholly-owned subsidiaries totaling $903.8 million. Of the total CLO notes issued $833.8 million were investment grade notes issued to third party investors and $70 million were below investment-grade notes retained by us. In addition, a $96.25 million equity interest in the portfolio was retained by us. The financing has an initial two-and-a-half year reinvestment period that allows principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $330.3 million for the purpose of acquiring additional loan obligations or a period of up to 180 days from the 2021-FL1 CLO closing date, resulting in the issuer owning loan obligations with a face value of $1.0 billion, representing leverage of 83%.

The 2021-FL1 CLO is subject to collateralization and coverage tests that are customary for these types of securitizations. As of June 30, 2023 and December 31, 2022 all such collateralization and coverage tests in the 2021-FL1 CLO were met.

The carrying values of the Company's total assets and liabilities related to the 2021-FL1 CLO at June 30, 2023 and December 31, 2022 included the following VIE assets and liabilities:

ASSETSJune 30, 2023December 31, 2022
Cash, cash equivalents and restricted cash$1,274,046 $3,507,850 
Accrued interest receivable5,802,948 5,488,118 
Investment related receivable— — 
Loans held for investment, net of allowance for credit losses994,914,714 996,511,403 
Total Assets$1,001,991,708 $1,005,507,371 
LIABILITIES
Accrued interest payable$2,455,667 $2,264,646 
Collateralized loan obligations(1)
830,564,083 829,310,498 
Total Liabilities$833,019,750 $831,575,144 
Equity168,971,958 173,932,227 
Total liabilities and equity$1,001,991,708 $1,005,507,371 

(1)     The stated maturity of the collateral loan obligations per the terms of the underlying collateralized loan obligation agreement is June 14, 2039 for the 2021-FL1 CLO.

The following tables present certain loan and borrowing characteristics of the 2021-F11 CLO as of June 30, 2023 and December 31, 2022:

As of June 30, 2023
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$999,042,153 $994,914,714 
8.62%
Financing provided1$833,750,000 $830,564,083 
6.63%

As of December 31, 2022
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$996,492,150 $996,511,403 
7.60%
Financing provided1$833,750,000 $829,310,498 
5.75%
(1)     The carrying value for the 2021-FL1 CLO is net of debt issuance costs of $3,185,917 and $4,439,502 for June 30, 2023 and December 31, 2022, respectively.
(2)    Weighted average coupon for loan investments assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day SOFR of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.27% and 0.25%, and spreads of 3.42% and 3.41%, respectively. As of June 30, 2023, 74.7% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 25.3% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 80.5% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 19.5% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. Weighted coupon for the financing assumes applicable one-month LIBOR of 5.11% and 4.32% as of June 30, 2023 and December 31, 2022 and spreads of 1.43% for June 30, 2023 and December 31, 2022.

The statement of operations related to the 2021-FL1 CLO for the three and six months ended June 30, 2023 and June 30, 2022 include the following income and expense items:

Statements of OperationsThree Months Ended June 30, 2023Three Months Ended June 30, 2022
Interest income$21,530,481 $11,734,126 
Interest expense(14,199,861)(5,284,890)
Net interest income$7,330,620 $6,449,236 
Provision for credit losses(522,003)(351,914)
General and administrative fees(181,894)(177,845)
Net income$6,626,723 $5,919,477 

Statements of OperationsSix Months Ended June 30, 2023Six Months Ended June 30, 2022
Interest income$42,328,890 $21,546,569 
Interest expense(27,232,907)(9,289,128)
Net interest income$15,095,983 $12,257,441 
Provision for credit losses(507,787)(351,914)
General and administrative fees(325,243)(324,367)
Net income$14,262,953 $11,581,160 
v3.23.2
RESTRICTED CASH
 6 Months Ended
Jun. 30, 2023
Cash and Cash Equivalents [Abstract]  
RESTRICTED CASH RESTRICTED CASHThe 2021-FL1 CLO is actively managed with an initial reinvestment period of 30 months that expires in December 2023. As loans payoff or mature, as applicable, during this reinvestment period, cash received is restricted and intended to be reinvested within the 2021-FL1 CLO in accordance with the terms and conditions of their respective governing agreements.
v3.23.2
SECURED TERM LOAN
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
SECURED TERM LOAN SECURED TERM LOAN
On January 15, 2019, the Company, together with its FOAC and Lument CMT Equity subsidiaries (together with the Company, the "Credit Parties"), entered into the Secured Term Loan, as amended on February 13, 2019, July 9, 2020, April 21, 2021 and February 22, 2022 with the lenders party thereto and Cortland Capital Market Services, LLC, as administrative agent (in such capacity, the "Agent"), providing for a term facility ("Credit Agreement") to be drawn in an aggregate principal amount of $40.25 million with a maturity of 6 years.

The borrowings under the Secured Term Loan are joint and several obligations of the Credit Parties. In addition, the Credit Parties' obligations under the Secured Term Loan are secured by substantially all the assets of the Credit Parties through pledge and security documentation. Amounts advanced under the Secured Term Loan are subject to compliance with a borrowing base comprised of assets of the Credit Parties and certain of their subsidiaries, and include senior and subordinated CRE mortgage loans, preferred equity in CRE assets (directly or indirectly), CRE construction mortgage loans and certain types of equity interests (the "Eligible Assets"). Borrowings under the Secured Term Loan bear interest at a fixed rate of 7.25% for the six-year period following the initial draw-down, which is subject to step up by 0.25% for the first four months after the sixth anniversary of the borrowing of the Senior Secured Term Loan, then by 0.375% for the following four months, then by 0.50% for the last four months until maturity.

In response to the continued COVID-19 pandemic, on July 9, 2020, the Company entered into the Second Amendment to the Credit and Guaranty Agreement. This amendment provides the Company with additional flexibility to effectively manage any potential borrower distress related to COVID-19 that were not originally contemplated in loan documentation.

On April 21, 2021, the Company, together with its Credit Parties, entered into an amendment (the "Third Amendment") to the Credit and Guaranty Agreement. The amendment, among other things, (i) provides the Company with an incremental secured term loan in the aggregate principal amount of $7.5 million; (ii) extends the maturity date of the Secured Term Loan from February 14, 2025 to February 14, 2026; (iii) amends certain asset concentration limits and (iv) amends certain financial covenants. On May 5, 2021 the Third Amendment became effective. On August 23, 2021, the Company drew down the $7.5 million incremental secured term loan.

On February 14, 2019, the Company drew on the Secured Term Loan in the aggregate principal amount of $40.25 million generating net proceeds of $39.2 million. The outstanding balance of the Secured Term Loan in the table below is presented gross of deferred financing costs ($675,871 and $778,958 at June 30, 2023 and December 31, 2022, respectively). As of June 30, 2023 and December 31, 2022, the outstanding balance and total commitment under the Credit Agreement consisted of the following:
June 30, 2023December 31, 2022
Outstanding BalanceTotal CommitmentOutstanding BalanceTotal Commitment
Secured Term Loan$47,750,000 $47,750,000 $47,750,000 $47,750,000 
Total$47,750,000 $47,750,000 $47,750,000 $47,750,000 

On February 22, 2022, the Company, together with its Credit Parties, entered into a fourth amendment to the Credit and Guaranty Agreement. This amendment waived the step-down provisions of the maximum total net leverage financial covenant in connection with the February 2022 rights offering, however the step-down provision remains in place for future capital raises.

The Credit Agreement contains affirmative and negative covenants binding the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to: minimum asset coverage ratio; minimum unencumbered assets ratio; maximum total net leverage ratio; minimum tangible net worth; and an interest charge coverage ratio. As of June 30, 2023 and December 31, 2022 we were in compliance with these covenants.

The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.
v3.23.2
MSRs
 6 Months Ended
Jun. 30, 2023
Mortgage Servicing Rights MSR Disclosure [Abstract]  
MSRs MSRs
As of June 30, 2023, the Company retained the servicing rights associated with an aggregate principal balance of $70,212,243 of residential mortgage loans that the Company had previously transferred to residential mortgage loan securitization trusts. The Company's MSRs are held and managed at the Company's taxable REIT subsidiary ("TRS"), and the Company employs two licensed sub-servicers to perform the related servicing activities.

The following table presents the Company's MSR activity for the six months ended June 30, 2023 and the six months ended June 30, 2022:

 June 30, 2023June 30, 2022
Balance at beginning of period$795,656 $551,997 
Changes in fair value due to:
Changes in valuation inputs or assumptions used in valuation model585 300,977 
Other changes to fair value(1)
(49,507)(72,379)
Balance at end of period$746,734 $780,595 
Loans associated with MSRs(2)
$70,212,243 $79,643,107 
MSR values as percent of loans(3)
1.06 %0.98 %
(1)Amounts represent changes due to realization of expected cash flows and prepayment of principal of the underlying loan portfolio.
(2)Amounts represent the unpaid principal balance of loans associated with MSRs outstanding at June 30, 2023 and June 30, 2022, respectively.
(3)Amounts represent the carrying value of MSRs at June 30, 2023 and June 30, 2022, respectively divided by the outstanding balance of the loans associated with these MSRs.
The following table presents the servicing income recorded on the Company's consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022:
Three Months Ended
June 30, 2023		Three Months Ended
June 30, 2022
Servicing income, net$45,396 $56,053 
Total servicing income$45,396 $56,053 
Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Servicing income, net$96,924 $123,234 
Total servicing income$96,924 $123,234 
v3.23.2
FAIR VALUE
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
FAIR VALUE FAIR VALUE
The following tables summarize the valuation of the Company's assets and liabilities carried at fair value on a recurring basis within the fair value hierarchy levels as of June 30, 2023 and December 31, 2022:

 June 30, 2023
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of June 30, 2023
Assets:    
Mortgage servicing rights— — $746,734 $746,734 
Total$— $— $746,734 $746,734 

 December 31, 2022
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of
December 31, 2022
Assets:    
Mortgage servicing rights— — $795,656 $795,656 
Total$— $— $795,656 $795,656 

As of June 30, 2023 and December 31, 2022, the Company had $746,734 and $795,656, respectively, in Level 3 assets. The Company's Level 3 assets are comprised of MSRs. For more detail about Level 3 assets, also see Notes 2 and 7.

The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's MSRs classified as Level 3 fair value assets at June 30, 2023 and December 31, 2022:

As of June 30, 2023
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.3%
8.3 %
 Discount rate12.0 %12.0 %
As of December 31, 2022
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.4%
8.1 %
 Discount rate12.0 %12.0 %

As discussed in Note 2, GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. The following table details the carrying amount, face amount and fair value of the financial instruments described in Note 2:
June 30, 2023
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$98,495,690 $98,495,690 $98,495,690 
Restricted cash11,274,046 1,274,046 1,274,046 
Commercial mortgage loans held-for-investment, net31,017,145,010 1,021,956,208 1,015,244,182 
Total$1,116,914,746 $1,121,725,944 $1,115,013,918 
Liabilities:
Collateralized loan obligations2$830,564,083 $833,750,000 $807,972,875 
Secured Term Loan347,094,610 47,750,000 44,859,068 
Total$877,658,693 $881,500,000 $852,831,943 

December 31, 2022
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$43,858,515 $43,858,515 $43,858,515 
Restricted cash13,507,850 3,507,850 3,507,850 
Commercial mortgage loans held-for-investment, net31,071,889,518 1,076,865,099 1,064,407,588 
Total$1,119,255,883 $1,124,231,464 $1,111,773,953 
Liabilities:
Collateralized loan obligations2$829,310,498 $833,750,000 $803,308,375 
Secured term loan346,971,042 47,750,000 44,563,236 
Total$876,281,540 $881,500,000 $847,871,611 

Estimates of cash and cash equivalents and restricted cash are measured using quoted prices, or Level 1 inputs. Estimates of the fair value of collateralized loan obligations are measured using observable, quoted market prices, in active markets, or Level 2 inputs. All other fair value significant estimates are measured using unobservable inputs, or Level 3 inputs. See Note 2 for further discussion regarding fair value measurement of certain of our assets and liabilities.
v3.23.2
RELATED PARTY TRANSACTIONS
 6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS
Management and Incentive Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement, the Company pays the manager a management fee equal to 1.5% of Stockholders' Equity per annum, calculated and payable quarterly (0.375% per quarter) in arrears. For purposes of calculating the management fee, the Company's stockholders' equity includes the sum of the net proceeds from all issuances of the Company's equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company's retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount that the Company paid for repurchases of the Company's common stock since inception, and excluding any unrealized gains, losses or other items that did not affect realized net income (regardless of whether such items were included in other comprehensive income or loss, or in net income). This amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain non-cash items after discussions between the Manager and the Company's independent directors and approval by a majority of the Company's independent directors. To the extent asset impairment reduces the Company's retained earnings at the end of any completed calendar quarter, it will reduce the management fee for such quarter. The Company's stockholders' equity for the purposes of calculating the management fee could be greater than the amount of stockholders' equity shown on the consolidated financial statements. Additionally, starting in the first full calendar quarter following January 3, 2020, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum. The term of our management agreement expires on January 3, 2024, with automatic, one-year renewals thereafter.

For the three months ended June 30, 2023, the Company incurred management fees of $1,093,374 (June 30, 2022: $1,090,652), recorded as "Management and incentive fees" in the consolidated statement of operations, of which $1,084,000 (June 30, 2022: $1,095,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the consolidated balance sheets.

For the three months ended June 30, 2023 and the three months ended June 30, 2022, the Company did not incur any incentive fees.
For the six months ended June 30, 2023, the Company incurred management fees of $2,180,636 (June 30, 2022: $2,015,269), recorded as "Management and incentive fees" in the consolidated statement of operations, of which $1,084,000 (June 30, 2022: $1,095,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the consolidated balance sheets.

For the six months ended June 30, 2023 and the six months ended June 30, 2022, the Company did not incur any incentive fees.

Expense Reimbursement

Pursuant to the management agreement, the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company's affairs. The Manager has agreed to certain limitations on manager expense reimbursement from the Company.

For the three months ended June 30, 2023, the Company incurred reimbursable expenses of $577,666 (June 30, 2022: $648,645), recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $576,250 (June 30, 2022: $651,815) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the three months ended June 30, 2023, the Company waived $167,500 in gross exit fees, reducing reimbursed expenses by $83,750 and for the three months ended June 30, 2022, the Company waived $699,547 in gross exit fees, reducing reimbursed expenses due to the Manager by $48,115.

For the six months ended June 30, 2023, the Company incurred reimbursable expenses of $1,087,652 (June 30, 2022: $1,039,355), recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $576,250 (June 30, 2022: $651,815) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the six months ended June 30, 2023, the Company waived $167,500 in gross exit fees, reducing reimbursed expenses by $83,750 and for the six months ended June 30, 2022, the Company waived $603,317 in gross exit fees, reducing reimbursed expenses due to the Manager by $349,774.

Manager Equity Plan

The Company had in place a Manager Equity Plan, which expired December 18, 2022, under which the Company had the ability to provide equity compensation to the Manager and the Company's independent directors, consultants, or officers. The Manager, in its sole discretion, could allocate any awards it received under the Manager Equity Plan to its directors, officers, employees or consultants. The Company was able to issue under the Manager Equity Plan up to 3.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis) at the time of each award.

The following table summarizes the activity related to restricted common stock granted under the Manager Equity Plan for the six months ended June 30, 2023 and June 30, 2022:

Six Months Ended June 30,
20232022
SharesWeighted Average Grant Date Fair Market ValueSharesWeighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period6,000 $2.27 4,500 $4.18 
Granted— — 6,000 2.27 
Vested(6,000)2.27 (4,500)$4.18 
Outstanding Unvested Shares at End of Period— $— 6,000 $2.27 

For the period ended June 30, 2023, the Company recognized compensation expense related to restricted common stock of $6,194 (2022: $9,114). The Company has no unrecognized compensation expense of as of June 30, 2023 (2022: $13,030) for unvested shares of restricted common stock.

Lument Structured Finance

During the second quarter of 2023, the 2021-FL1 CLO purchased two loans with an aggregate unpaid principal balance of $48.6 million at par from Lument Structured Finance ("LSF"), an affiliate of our Manager and purchased two funded loan advances with an unpaid principal balance of $1.7 million at par from LSF. Additionally, the 2021-FL1 CLO purchased one loan with an aggregate unpaid principal balance of $6.1 million at a discount of $0.1 million and purchased seventeen funded loan advances with an aggregate unpaid principal balance of $16.5 million at a discount of $0.2 million from LSF.

During the first quarter of 2022, (a) the 2021-FL1 CLO purchased eight loans with an aggregate unpaid principal balance of $108.9 million at par from LSF and (b) Lument Commercial Mortgage Trust ("LCMT") purchased six loans with an aggregate unpaid principal balance of $76.0 million at par from LSF.

During the second quarter of 2022, (a) the 2021-FL1 CLO purchased three loans with an aggregate unpaid principal balance of $31.2 million at par from LSF and (b) LCMT purchased six loans with an unpaid principal balance of $76.0 million at par from LSF.
Lument Real Estate Capital

Lument Real Estate Capital, LLC ("LREC"), an affiliate of the Manager, was appointed as the servicer and special servicer with respect to mortgage assets forthe 2021-FL1 CLO in June 2021 and continues to serve in this role.

Lument IM

Lument IM was appointed as the collateral manager with respect to the 2021-FL1 CLO in June 2021, and continues to serve in this role. Lument IM has agreed to waive all its entitlements to collateral management fees for so long as Lument IM or an affiliate is the collateral manager and also the manager of Lument Finance Trust, Inc..

Lument Investment Holdings

On February 22, 2022, Lument Investment Holdings purchased 13,071,895 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.

Hunt Companies, Inc.

One of the Company's directors is also Chief Executive Officer and President of Hunt Companies, Inc. ("Hunt") and is a member of the Hunt board of directors, with which affiliates of the Manager have a commercial business relationship. The Manager's affiliates may from time to time sell commercial mortgage loans to Hunt or various of its subsidiaries and affiliates.

On February 22, 2022, an affiliate of Hunt Companies, Inc., purchased 3,524,851 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.
v3.23.2
GUARANTEES
 6 Months Ended
Jun. 30, 2023
Guarantees [Abstract]  
GUARANTEES GUARANTEES
The Company, through FOAC, is party to customary and standard loan repurchase obligations in respect of residential mortgage loans that it has sold into securitizations or to third parties, to the extent it is determined that there has been a breach of standard seller representations and warranties in respect of such loans. To date, the Company has not been required to repurchase any loan due to a claim of breached seller reps and warranties.

In July 2016, the Company announced that it would no longer aggregate and securitize residential mortgage loans; however, the Company sought to capitalize on its infrastructure and knowledge to become the provider of seller eligibility review and backstop services to MAXEX. MAXEX's wholly owned clearinghouse subsidiary, MAXEX Clearing LLC, formerly known as Central Clearing and Settlement LLC ("MAXEX Clearing LLC"), functions as the central counterparty with which buyers and sellers transact, and acts as the buyer's counterparty for each transaction. Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29, 2016, January 30, 2017 and June 27, 2018, among MAXEX, MAXEX Clearing LLC and FOAC (the "Master Agreement"), FOAC provided seller eligibility review services under which it reviewed, approved and monitored sellers that sold loans via MAXEX Clearing LLC. Once approved, and having signed the standardized loan sale contract, the seller sold loan(s) to MAXEX Clearing LLC, and MAXEX Clearing LLC simultaneously sold loan(s) to the buyer on substantially the same terms including representations and warranties. The Master Agreement was terminated on November 28, 2018 (the "MAXEX Termination Date"). To the extent that a seller approved by FOAC prior to the MAXEX Termination Date failed to honor its obligations to repurchase a loan based on an arbitration finding that it breached its representations and warranties, FOAC was obligated to backstop the seller's repurchase obligation. The term of the backstop guarantee is the earlier of the contractual maturity of the underlying mortgage, or its earlier repayment in full; however, the incidence of claims for breaches of representations and warranties over time is considered unlikely to occur more than five years from the sale of a mortgage. FOAC's obligations to provide further seller eligibility review and backstop guarantee services terminated on the MAXEX Termination Date. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770 (the "Alternate Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption Agreement that it (i) is rated at least "A" (or equivalent) by at least one nationally recognized statistical rating agency or (ii) has (a) adjusted tangible net worth of at least $20 million and (b) minimum available liquidity equal to the greater of (x) $5 million and (y) 0.1% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees. MAXEX's chief financial officer is required to certify ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX Clearing LLC is required to deposit into an escrow account for FOAC's benefit an amount equal to the greater of (A) the unamortized Alternate Backstop Fee for each outstanding loan covered by the backstop guarantee and (B) the product of 0.01% multiplied by the scheduled unpaid principal balance of each outstanding loan covered by the backstop guarantees.

The maximum potential amount of future payments that the Company could be required to make under the outstanding backstop guarantees, which represents the outstanding balance of all underlying mortgage loans sold by approved sellers to MAXEX Clearing LLC, was estimated to be $167 million and $172 million as of June 30, 2023 and December 31, 2022, respectively, although the Company believes this amount is not indicative of the Company's actual potential losses. Amounts payable in excess of the outstanding principal balance of the related mortgage, for example any premium paid by the loan buyer or costs associated with collecting mortgage payments, are not currently estimable. Amounts that may become payable under the backstop guarantee are normally recoverable from the related seller, as well as from any payments received on (or from the sale of property securing) the mortgage loan repurchased and, as noted above, MAXEX Clearing LLC has assumed all of FOAC's obligations in respect of its backstop guarantees. Pursuant to the Master Agreement, FOAC is required to maintain minimum available liquidity equal to the greater of (i) $5.0 million or (ii) 0.10% of the aggregate unpaid principal balance of loans backstopped by FOAC, either directly or through a credit support agreement acceptable by MAXEX. As of June 30, 2023, the Company was not aware of any circumstances expected to lead to the triggering of a backstop guarantee obligation.

In addition, the Company enters into certain contracts that contain a variety of indemnification obligations, principally with the Manager, brokers and counterparties to repurchase agreements. The maximum potential future payment amount the Company could be required to pay under these indemnification
obligations is unlimited. The Company has not incurred any costs to defend lawsuits or settle claims related to the indemnification obligations. As a result, the estimated fair value of these agreements is minimal. Accordingly, the Company recorded no liabilities for these agreements as of June 30, 2023.
v3.23.2
COMMITMENTS AND CONTINGENCIES
 6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES COMMITMENTS AND CONTINGENCIES
Litigation

From time to time, LFT may be involved in various claims and legal actions arising in the ordinary course of business. LFT establishes an accrued liability for legal proceedings only when those matters present loss contingencies that are both probable and reasonably estimable.

As of June 30, 2023, LFT was not involved in any material legal proceedings regarding claims or legal actions against LFT.

Unfunded Commitments

As of June 30, 2023, LCMT had $6.7 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected in the Company's consolidated balance sheets.

As of June 30, 2023, LSF, an affiliate of the Manager, had $54.7 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected on the Company's consolidated balance sheets.

As of June 30, 2023, LSF, had $0.4 million of unfunded commitments related to loans held in LCMT. These commitments are not reflected on the Company's consolidated balance sheets.

As of December 31, 2022, LSF, had $78.4 million of unfunded commitments related to loans held in the 2021-FL1 CLO. These commitments are not reflected on the Company's consolidated balance sheets.

As of December 31, 2022, LSF, had $4.7 million of unfunded commitments related to loans held in LCMT. These commitments are not reflected on the Company's consolidated balance sheets.
Future loan fundings comprise funding for capital improvements, leasing costs, interest and carry costs, and fundings will vary depending on the progress of the business plan and cash flows at the mortgage assets. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying mortgage assets.
v3.23.2
EQUITY
 6 Months Ended
Jun. 30, 2023
Equity [Abstract]  
EQUITY EQUITY
Common Stock
The Company has 450,000,000 authorized shares of common stock, par value $0.01 per share, with 52,231,152 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.

On February 22, 2022, the Company closed a transferable common stock rights offering. The Company issued and sold 27,277,269 shares of common stock at a price of $3.06 per share resulting in gross proceeds of approximately $83.5 million.


Stock Repurchase Program

On December 15, 2015, the Board authorized a stock repurchase program (or the "Repurchase Program"), to repurchase up to $10 million of the Company's outstanding common stock. Shares of the Company's common stock may be purchased in the open market, including through block purchases, or through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18(b)(1) of the Securities Exchange Act of 1934, as amended. The timing, manner, price and amount of any repurchases will be determined at the Company's discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, the Company intends to only consider repurchasing shares of the Company's common stock when the purchase price is less than the Company's estimate of the Company's current net asset value per common share. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of the Company's common stock. No share repurchases have been made since January 19, 2016. Through June 30, 2023, the Company had repurchased 126,856 shares of common stock at a weighted average share price of $5.09. No share repurchases have been made since January 19, 2016. As of June 30, 2023, $9.4 million of common stock remained authorized for future share repurchase under the Repurchase Program.

Preferred Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.01 per share, with 2,400,000 shares of Series A Preferred Stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively. Voting and other rights and preferences will be determined by the Board upon issuance.

On May 5, 2021, LFT issued 2,400,000 shares of Series A Preferred Stock, and received net proceeds, after underwriting discounts and commissions but before offering expenses payable by the Company, of $58.1 million. The Series A Preferred Stock is redeemable, at LFT's option, at a liquidation preference price of $25.00 per share plus accrued dividends commencing on May 5, 2026. Dividends on the Series A Preferred Stock are payable quarterly in arrears beginning on July 15, 2021.
Distributions to Stockholders

For the 2023 taxable year to date, the Company has declared dividends to common stockholders totaling $6,267,738, or $0.12 per share. The following table presents cash dividends declared by the Company on its common stock during the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023March 31, 2023April 17, 2023$3,133,869 $0.060 
June 14, 2023June 30, 2023July 17, 2023$3,133,869 $0.060 

The following table presents cash dividends declared by the Company on its Series A Preferred stock for the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023April 3, 2023April 17, 2023$1,181,250 $0.49219 
June 14, 2023July 3, 2023July 17, 2023$1,181,250 $0.49219 

Non-controlling Interests
 
On November 29, 2018, LCMT, which is an indirect wholly-owned subsidiary of the Company that has elected to be taxed as a REIT for U.S. Federal income tax purposes, issued 125 shares of Series A Preferred Shares ("LCMT Preferred Shares").  Net proceeds to LCMT were $99,500 representing $125,000 in equity raised, less $25,500 in expenses and is reflected as "Non-controlling interests" in the Company's consolidated balance sheets.  Dividends on the LCMT Preferred Shares are cumulative annually, in an amount equal to 12% of the initial purchase price plus any accrued unpaid dividends.  The LCMT Preferred Shares are redeemable at any time by LCMT.  The redemption price through December 31, 2020 was 1.1x the initial purchase price plus all accrued and unpaid dividends, and the initial purchase price plus all accrued and unpaid dividends thereafter.  The holders of the LCMT Preferred Shares have limited voting rights, which do not entitle the holders to participate or otherwise direct the management of LCMT or the Company.  The LCMT Preferred Shares are not convertible into or exchangeable for any other property or securities of LCMT or the Company.  Dividends on the LCMT Preferred Shares, which amounted to $15,000 for the year ended December 31, 2022 are reflected in "Dividends to preferred stockholders" in the Company's consolidated statements of operations. As of June 30, 2023, LCMT had $7,500 in accrued dividends on the LCMT Preferred Shares which are reflected in "dividends to preferred stockholders" in the Company's consolidated statements of operations of which $0 were accrued and unpaid dividends on the LCMT Preferred Shares which are reflected in "Dividends payable" in the Company's consolidated balance sheet.

Independent Directors Stock-for-Fees Program

Upon the recommendation of the Compensation Committee of the Board, on April 20, 2023, the Board has adopted the Independent Directors Stock-for-Fees Program (the “Stock-for-Fees Program”). The purpose of the Stock-for-Fees Program is to promote the long-term success of the Company and further align the interests of the Company’s independent directors with the interests of its stockholders by providing the independent directors with an opportunity to elect to receive their Director Fees (as defined below) in the form of shares of common stock.

Pursuant to the Stock-for-Fees Program, an independent director may elect to exchange all or a portion of such director’s unpaid Director Fees for the right to receive payment of such unpaid fees in the form of shares of common stock. Such election will apply to all Director Fees that would otherwise have been paid (but for such election) in the fiscal quarter that commences after the date the independent director’s election form is filed with and received by the Company and will continue for each fiscal quarter through and until the fiscal quarter that commences after such time as the director files a new election form that is received by the Company modifying or terminating such prior election or, if earlier, the date such Director terminates service on the Board. Unless otherwise approved by the Board, an election by an independent directors will be made only in an open trading window pursuant to the Company’s insider trading policy. Unless otherwise approved by the Board, an independent director may not make more than one election in any six-month period of time. Any Director Fees that an independent director elects to receive in the form of shares of common stock are referred to as “Exchanged Fees.”

Upon any Exchange Date (as defined below) that occurs after an independent director files an election form that is received by the Company, the independent director will be entitled to receive a number of shares of common stock determined by dividing (i) the amount of the Exchanged Fees that would otherwise have been paid to the independent director in cash on such Exchange Date but for such election, by (ii) the Fair Market Value (as defined below) of a share of common stock as of such Exchange Date, and rounding down to the nearest whole share. Any fractional amount less than the Fair Market Value of a share of common stock as of such Exchange Date will be paid in cash. Any shares of common stock acquired by an independent director pursuant to the Stock-for-Fees Program will be fully vested at all times.

The maximum aggregate number of shares of common stock issuable pursuant to the Stock-for-Fees Program is 2,611,555. The maximum aggregate number of shares issuable to an independent director pursuant to the Stock-for-Fees Program shall not exceed 522,311 shares of common stock. The Company has not issued any shares pursuant to the Stock-for_Fees Program as of June 30, 2023.

For purposes of this Stock-for-Fees Program, the following definitions apply:

“Director Fees” means the annual retainer and meeting fees, to the extent otherwise payable in cash, payable to an independent director for services as a member of the Board.
“Exchange Date” means any date on which the Company pays Director Fees to independent directors.

“Fair Market Value” means, with respect to an Exchange Date, the average of the closing prices of a share of the Company’s common stock as reported on the composite tape for securities listed on the NYSE for the period of ten trading days ending on the trading day immediately preceding the Exchange Date.
v3.23.2
EARNINGS PER SHARE
 6 Months Ended
Jun. 30, 2023
Earnings Per Share [Abstract]  
EARNINGS PER SHARE EARNINGS PER SHARE
In accordance with ASC 260, outstanding instruments that contain rights to non-forfeitable dividends are considered participating securities. The Company is required to apply the two-class method or the treasury stock method of computing basic and diluted earnings per share when there are participating securities outstanding. The Company has determined that outstanding unvested restricted shares issued under the Manager Equity Plan are participating securities, and they are therefore included in the computation of basic and diluted earnings per share. The following tables provide additional disclosure regarding the computation for the three and six months ended June 30, 2023 and June 30, 2022:

 Three Months Ended June 30, 2023Three Months Ended June 30, 2022
Net income$2,574,227 $3,343,852 
Less dividends:    
Common stock$3,133,869  $3,133,869  
Preferred stock1,185,042  1,185,042  
 4,318,911  4,318,911 
Undistributed earnings (deficit)$(1,744,684)$(975,059)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.06 $0.06 $0.06 $0.06 
Undistributed earnings (deficit)0.00 (0.03)0.00 (0.02)
Total$0.06 $0.03 $0.06 $0.04 

For the three months ended June 30,
20232022
Basic weighted average shares of common stock52,226,141 52,221,394 
Weighted average of non-vested restricted stock5,011 4,747 
Diluted weighted average shares of common stock outstanding52,231,152 52,226,141 

Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Net income$8,340,918 $6,298,651 
Less dividends:
Common stock$6,267,738 $6,267,378 
Preferred stock2,370,000 2,370,000 
8,637,738 8,637,378 
Undistributed earnings (deficit)$(296,820)$(2,338,727)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.12 $0.12 $0.14 $0.14 
Undistributed earnings (deficit)0.00 0.00 0.00 (0.05)
Total$0.12 $0.12 $0.14 $0.09 

For the six months ended June 30,
20232022
Basic weighted average shares of common stock52,225,649 44,384,462 
Weighted average of non-vested restricted stock5,503 4,624 
Diluted weighted average shares of common stock outstanding52,231,152 44,389,086 
v3.23.2
SEGMENT REPORTING
 6 Months Ended
Jun. 30, 2023
Segment Reporting [Abstract]  
SEGMENT REPORTING SEGMENT REPORTINGThe Company invests in a portfolio comprised of commercial mortgage loans and other mortgage-related investments, and operates as a single reporting segment.
v3.23.2
INCOME TAXES
 6 Months Ended
Jun. 30, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company has elected to be treated as a REIT under federal income tax laws. As a REIT, the Company must generally distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any capital net gain, in order for U.S. federal income not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

Certain activities of the Company that produce prohibited income are conducted through a TRS, FOAC, to protect REIT election and FOAC is therefore subject to tax as a U.S. C-Corporation. To maintain our REIT election, the Company must continue to meet certain ownership, asset and income requirements set forth in the Code. As further discussed below, the Company may be subject to non-income taxes on excess amounts of assets or income that cause a failure of any of the REIT testing requirements. As of June 30, 2023 and December 31, 2022, we were in compliance with all REIT requirements.

As of June 30, 2023, tax years 2019 through 2022 remain subject to examination by taxing authorities.
v3.23.2
SUBSEQUENT EVENTS
 6 Months Ended
Jun. 30, 2023
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS SUBSEQUENT EVENTS
On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets which is not subject to margin calls or additional collateralization requirements. In connection with the LMF 2023-1 Financing, approximately $270.4 million of an investment grade-rated senior secured floating rate loan was provided by a private lender and approximately $47.3 million of investment grade-rated notes (collectively, the "Senior Debt") were issued and sold to an affiliate of LFT's external manager, Lument IM. A consolidated subsidiary of LFT retained the subordinate interests in the issuing vehicle of approximately $68.6 million. The Senior Debt has an initial weighted average spread of approximately 314 basis points over 30-day Term SOFR, excluding fees and transaction costs. The Senior Debt matures on the payment date in July 2032, unless it is sooner repaid or redeemed in accordance with its terms.

The initial collateral pool securing the Senior Debt consists of 25 first lien floating rate mortgage loans and participations in first lien mortgage loans secured by 32 multifamily properties located across the United States. In connection with the LMF 2023-1 Financing, collateral with an unpaid principal balance of $376.2 million was acquired by an LFT subsidiary at an aggregate discount to par of approximately 1.5% plus interest accrued on the collateral as of July 12, 2023. The weighted average spread of the initial collateral was approximately 365 basis points over 30-day Term SOFR. All the mortgage assets were originated by LSF. LMF 2023-1 provides for a 24-month reinvestment period that allows principal proceeds from repayments of the mortgage assets to be reinvested in qualifying replacement mortgage assets, subject to certain conditions.

As of the closing date, LSF had approximately $28.6 million of unfunded commitments to the initial collateral pool of mortgage assets. LSF will have the sole obligation to make future advances under such commitments.

Through its ownership of the equity of LMF 2023-1, the Company intends to own the related mortgage assets until maturity and will account for the Senior Debt on its balance sheet as a financing.
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation

The unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission ('SEC") on March 23, 2023.
Principles of Consolidation
Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of the Company and all subsidiaries which it controls (i) through voting or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). All significant intercompany transactions have been eliminated on consolidation.
Use of Estimates
Use of Estimates

The financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities, amount and timing of credit losses, prepayment rates, and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates (e.g. valuation changes due to supply and demand, credit performance, prepayments, interest rates, or other reasons) will occur in the near term. The Company's estimates are inherently subjective in nature and actual results could differ from its estimates and the differences may be material.
VIEs
VIEs

An entity is considered a VIE when any of the following applies: (1) the equity investors (if any) lack one or more essential characteristics of a controlling financial interest; (2) the equity investment at risk is not sufficient 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 defined as the entity having both the following characteristics: (1) the power to direct activities that, when taken together, most significantly impact the VIE performance; and (2) the obligation to absorb losses and right to receive returns from the VIE that would be significant to the VIE.
The Company evaluates quarterly its junior retained notes and preferred shares of LFT CRE 2021-FL1, Ltd. for potential consolidation. At June 30, 2023, the Company determined it was the primary beneficiary of LFT CRE 2021-FL1, Ltd. based on its obligation to absorb losses derived from ownership of its preferred shares. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities.
Collateralized Loan Obligations and Secured Term Loan Collateralized Loan ObligationsCollateralized loan obligations ("CLOs") represent third-party liabilities of LFT CRE 2021-FL1, Ltd. and LFT CRE 2021-FL1, LLC (collectively, the "2021-FL1 CLO"). The 2021-FL1 CLO is a VIE and management has determined that the Company is the primary beneficiary of the 2021-FL1 CLO. Accordingly, the Company consolidates the assets, liabilities (other than the below investment grade-rated notes and preferred shares of the 2021-FL1 CLO retained by the Company that are eliminated on consolidation), income and expense of the 2021-FL1 CLO. The third-party obligations of the 2021-FL1 CLO do not have any recourse to the Company as the consolidator of the CLO. The third-party obligations of the 2021-FL1 CLO are carried at their outstanding unpaid principal balances, net of any deferred financing costs. Any premiums, discounts or deferred financing costs associated with these third-party obligations are amortized to interest expense using the effective interest method over the expected average life of the related obligations, or on a straight line basis when it approximates the effective interest method.Secured Term LoanThe Company and certain of its subsidiaries are party to a $47.75 million credit and guaranty agreement with the lenders referred to therein and Cortland Capital Service LLC, as administrative agent and collateral agent for the lenders (the "Secured Term Loan"). The Secured Term Loan is carried at its unpaid principal balance, net of deferred financing costs. Deferred financing costs associated with this liability are amortized to interest expense on a straight line basis when it approximates the effective interest method.
Cash and Cash Equivalents and Restricted Cash
Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at time of purchase include cash held in bank accounts on an overnight basis and other short term deposit accounts with banks having maturities of 90 days or less at time of acquisition. The Company maintains its cash and cash equivalents with highly rated financial institutions, and at times these balances exceed insurable amounts.

Restricted cash includes cash held within the 2021-FL1 CLO as of June 30, 2023 and December 31, 2022, respectively.
Deferred Offering Costs
Deferred Offering Costs

Direct costs incurred to issue shares classified as equity, such as legal and accounting fees, are deducted from the related proceeds and the net amount recorded as stockholders' equity. Accordingly, payments made by the Company in respect of such costs related to the issuance of shares are recorded as an asset in the accompanying consolidated balance sheets in the line item "Other assets," for subsequent deduction from the related proceeds upon closing of the offering. To the extent that certain costs, in particular legal fees, are known to have been accrued but have not yet been invoiced and paid, they are included in "Other accounts payable and accrued expenses" on the accompanying consolidated balance sheets.
Fair Value Measurements
Fair Value Measurements

The "Fair Value Measurements and Disclosures" Topic 820 of the FASB, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurement under GAAP. Specifically, the guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at measurement date. ASC 820 specifies a hierarchy of valuation techniques based on the inputs used in measuring fair value.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable market data from independent sources, while unobservable inputs reflect the Company's market assumptions. The three levels are defined as follows:

•Level 1 Inputs – Quoted prices for identical instruments in active markets.
•Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3 Inputs – Instruments with primarily unobservable value drivers.

Pursuant to ASC 820 we disclose fair value information about financial instruments, which are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate fair value for those certain instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument, for which it is practicable to estimate that value:
•Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.
•Restricted cash: The carrying amount of restricted cash approximates fair value.
•Commercial mortgage loans: The Company determines the fair value of commercial mortgage loans by utilizing a pricing model based on discounted cash flow methodologies using discount rates, which reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Additionally, the Company may record fair value adjustments on a non-recurring basis when it has determined it necessary to record a specific impairment reserve or charge-off against a loan and the Company measures such specific reserve or charge-off using the fair value of the loan's collateral. To determine the fair value of loan collateral, the Company employs the income capitalization approach, appraised values, broker opinion of value, sale offers, letters of intention to purchase, or other valuation benchmarks, as applicable, depending upon the nature of such collateral and other relevant market factors.
•Mortgage servicing rights: The Company determines the fair value of MSRs from a third-party pricing service on a recurring basis. The third-party pricing service uses common market pricing methods that include using discounted cash flow models to calculate present value, estimated net servicing income and observed market pricing for MSR purchase and sale transactions. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors.
•Collateralized loan obligations: The Company determines the fair value of collateralized loan obligations by utilizing a third-party pricing service. In determining the value of a particular investment, pricing service providers may use market spreads, inventory levels, trade and bid history, as well as market insight from clients, trading desks and global research platform.
•Secured term loan: The Company determines the fair value of its secured term loan based on a discounted cash flow methodology.
Commercial Mortgage Loans Held-For-Investment
Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased or originated by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are
intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan on a straight-line basis approximating the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement.

As of June 30, 2023, the Company held one loan on non-accrual status and interest collections will be accounted for under the cost recovery method.

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") and amendments, which replaces the incurred loss methodology with an expected loss model known as the Current Expected Credit Loss ("CECL") model. CECL amends the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments. The allowance for credit losses required under ASC 2016-13 is included in "Allowance for credit losses" on our consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" in the consolidated balance sheets. The initial CECL reserve recorded on January 1, 2023 is reflected as a direct charge to retained earnings on our consolidated statements of changes in equity; however subsequent changes to the CECL reserve are recognized through net income on our consolidated statements of operations. In connection with the adoption of ASU 2016-13, we recorded a $3.6 million decrease to accumulated earnings as of January 1, 2023.

The Company's implementation process included a selection of a credit loss analytical model, completion and documentation of policies and procedures, changes to internal reporting processes and related internal controls and additional disclosures. A control framework for governance, data, forecast and model controls was developed to support the CECL process. Estimating an allowance for credit losses requires significant judgment and a variety of subjective assumptions, including (i) determination of relevant historical loan loss data sets, (ii) the current credit quality of loans and operating performance of loan collateral and the Company's expectations of performance and (iii) expectation of macroeconomic conditions over the relevant time period.

In the absence of any Company history of valuation reserves or realized loan losses since our inception in 2013, other than on one office loan, the Company elected to utilize a widely-used analytical model incorporating a loss-given-default methodology and loan performance data for over 100,000 commercial real estate loans dating back to 1998. The Company expects to use this data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determines its CECL estimate based on macroeconomic forecasts that include baseline, optimistic and pessimistic scenarios during the reasonable forecast period. The Company determined the key variables driving its CECL loss estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage.

The Company evaluates each loan rated Default Risk as to whether it is impaired on a quarterly basis. Impaired loans are individually evaluated based on the Company's quarterly assessment of each loan and assignment of a risk rating. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for (reversal of) credit losses. Impairment of these loans, all of which are deemed collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Any loans deemed to be collateral dependent will be removed from the pool of assets measured under CECL. Actual losses, if any, could ultimately differ from estimated losses.

The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023:

Pre-adoptionTransition adjustmentPost-adoption
Assets
Commercial mortgage loans, held-for-investment$1,076,148,186 $— $1,076,148,186 
Less: Allowance for credit losses(4,258,668)(3,549,501)(7,808,169)
Commercial mortgage loans, held-for-investment, net of allowance for credit losses$1,071,889,518 $(3,549,501)$1,068,340,017 
Liabilities
Other liabilities(1)
$583,989 $41,939 $625,928 
Equity
Accumulated earnings$31,250,852 $(3,591,440)$27,659,412 
(1)    Includes reserve for unfunded loan commitments

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:
1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectation
3.Moderate Risk: consistent with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default
Mortgage Servicing Rights, at Fair Value
Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights ("MSRs") are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company's taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a subservicer, the associated loan. MSRs are reported at fair value. Residential mortgage loans for which the Company owns the MSRs are directly serviced by two sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.
 
MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.
Common Stock, Stock Repurchase Program and Preferred Stock
Common Stock

At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 450,000,000 shares of common stock, par value $0.01 per share. On February 22, 2022, the Company closed a transferable common stock rights offering and issued 27,277,269 shares of common stock. The Company had 52,231,152 shares of common stock issued and outstanding at June 30, 2023 and December 31, 2022.

Stock Repurchase Program

On December 15, 2015, the Company's Board of Directors (the "Board") authorized a stock repurchase program ("Repurchase Program"), to repurchase up to $10 million of the Company's outstanding common stock. Subject to applicable securities laws, repurchase of common stock under the Repurchase Program may be made at times and in amounts as the Company deems appropriate, using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program, if any, will be canceled and, until reissued by the Company, will be deemed to be authorized but unissued shares of common stock. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice.

Preferred Stock
At June 30, 2023 and December 31, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.01 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board. On May 5, 2021, the Company issued 2,400,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock (Series A Preferred Stock"). The Company had 2,400,000 shares of preferred stock issued and outstanding at June 30, 2023 and December 31, 2022, respectively. Our preferred stock is classified as permanent equity and carried at its liquidation preference less offering costs.
Income Taxes
Income Taxes

The Company has elected to be taxed as a REIT under the Code for U.S. federal income tax purposes, commencing with the Company's short taxable period ended December 31, 2012. A REIT is generally taxable as a U.S. C-Corporation; however, so long as the Company qualifies as a REIT it is entitled to a special deduction for dividends paid to stockholders not otherwise available to corporations. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent its distributions to stockholders equals, or exceeds, its REIT taxable income for the year. In addition, the Company must continue to meet certain REIT qualification requirements with respect to distributions, as well as certain asset, income and share ownership tests, in accordance with Sections 856 through 860 of the Code, as summarized below. In addition, the TRS is maintained to perform certain services and earn income for the Company that the Company is not permitted to engage in as a REIT.

To maintain its qualification as a REIT, the Company must meet certain requirements, including but not limited to the following: (i) distribute at least 90% of its REIT taxable income to its stockholders; (ii) invest at least 75% of its assets in REIT qualifying assets, with additional restrictions with respect to asset concentration risk; and (iii) earn at least 95% of its gross income from qualifying sources of income, including at least 75% from qualifying real estate and real estate related sources. Regardless of the REIT election, the Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax as a U.S. C-Corporation, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders.

Certain activities of the Company are conducted through a TRS and therefore are taxed as a standalone U.S. C-Corporation. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
The TRS is not subject to a distribution requirement with respect to its REIT owner. The TRS may retain earnings annually, resulting in an increase in the consolidated book equity of the Company and without a corresponding distribution requirement by the REIT. If the TRS generates net income, and declares dividends to the Company, such dividends will be included in its taxable income and necessitate a distribution to its stockholders in accordance with the REIT distribution requirements.
The Company assesses its tax positions for all open tax years and determines whether the Company has any material unrecognized liabilities in accordance with ASC 740, Income Taxes. The Company records these liabilities to the extent the Company deems them more likely than not to be incurred. The Company's accounting policy with respect to interest and penalties is to classify these amounts as other interest expense.
Earnings per Share Earnings per ShareThe Company calculates basic and diluted earnings per share by dividing net income attributable to common stockholders for the period by the weighted-average shares of the Company's common stock outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as warrants, stock options, and unvested restricted stock, but use the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.
Stock-Based Compensation Stock-Based CompensationThe Company is required to recognize compensation costs relating to stock-based payment transactions in the consolidated financial statements. The Company accounts for share-based compensation using the fair-value based methodology prescribed by ASC 718, Share-Based Payment ("ASC 718"). Compensation cost related to restricted common stock issued to the Company's independent directors is measured at its estimated fair value at the grant date and amortized and expensed over the vesting period.
Comprehensive Income (Loss) Attributable to Common Stockholders
Comprehensive Income (Loss) Attributable to Common Stockholders

For the three and six months ended June 30, 2023 and 2022, comprehensive income equaled net income; therefore, a separate consolidated statement of comprehensive income is not included in the accompanying consolidated financial statements.
Recently Issued and/or Adopted Accounting Standards
Recently Issued and/or Adopted Accounting Standards

Credit Losses

On January 1, 2023, we adopted ASU 2016-13, which utilizes a current expected credit loss methodology ("CECL") for the recognition of credit losses for our commercial mortgage loans held-for-investment at amortized cost, at the time the financial asset is originated or acquired. The allowance for credit losses is adjusted for each period for changes in expected credit losses. This methodology replaces the multiple impairment methods in GAAP that generally required that a loss be incurred before it is recognized. We adopted ASU 2016-13 using the modified retrospective method, therefore, the results for reporting period prior to January 1, 2023 have been unadjusted and reported in accordance with previously applicable GAAP. Upon adoption of ASU 2016-13 on January 1, 2023, the Company recorded a cumulative-effect adjustment to accumulated earnings of $3.6 million, or $0.07 per common share.

The CECL reserve required under ASU 2016-13 is a valuation account that is deducted from the amortized cost basis of related commercial mortgage loans on our balance sheet, which will reduce our stockholders' equity. The initial reserve recorded on January 1, 2023 was reflected as a direct charge against accumulated earnings; however, future net changes to the CECL reserve will be recognized in net income on our consolidated statements of operations. ASU 2016-13 does not require use of a particular method for determining the CECL reserve, but it does specify the allowance should be based on relevant information about past events, including historical loss experience, composition of current commercial mortgage loan portfolio, current conditions in real estate and capital markets, and reasonable and supportable forecasts for the expected term of each loan. Additionally, but for a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to CECL incur some amount of valuation reserve to reflect the underlying principle of the CECL model, that all loans, debt securities and similar financial assets bear some inherent risk of loss regardless of credit quality, amount of subordinate capital, or other risk mitigants.

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The standard was issued to ease the accounting effects of reform to the London Interbank Offered Rate ("LIBOR") and other reference rates. The standard provides optional expedients and exceptions for applying GAAP to debt instruments, leases, derivatives and other contracts affected by reference rate reform. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The standard is effective for all entities as of March 12, 2020 through December 31, 2022 and may be elected over time as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, deferring the sunset date of ASC 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024. ASC 848 provides temporary relief relating to potential accounting impact relating to replacement of LIBOR or other reference rates expected to be discounted as a result of reference rate reform. We have not adopted any of the optional expedients or exceptions through June 30, 2023, but will continue to evaluate the possible adoption of any such expedients or exceptions.
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Schedule of Reconciliation of Cash, Cash Equivalents and Restricted Cash
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 amounts shown in the statements of cash flows.

June 30, 2023December 31, 2022
Cash and cash equivalents$98,495,690 $43,858,515 
Restricted cash held within the 2021-FL1 CLO$1,274,046 $3,507,850 
Total cash, cash equivalents and restricted cash$99,769,736 $47,366,365 
Schedule of Financial Impact of the Adoption of Accounting Standard Update
The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023:

Pre-adoptionTransition adjustmentPost-adoption
Assets
Commercial mortgage loans, held-for-investment$1,076,148,186 $— $1,076,148,186 
Less: Allowance for credit losses(4,258,668)(3,549,501)(7,808,169)
Commercial mortgage loans, held-for-investment, net of allowance for credit losses$1,071,889,518 $(3,549,501)$1,068,340,017 
Liabilities
Other liabilities(1)
$583,989 $41,939 $625,928 
Equity
Accumulated earnings$31,250,852 $(3,591,440)$27,659,412 
(1)    Includes reserve for unfunded loan commitments
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT (Tables)
 6 Months Ended
Jun. 30, 2023
Receivables [Abstract]  
Schedule of Commercial Mortgage Loans
The following tables summarize certain characteristics of the Company's investments in commercial mortgage loans as of June 30, 2023 and December 31, 2022:
Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
June 30, 2023
Loans held-for-investment
Senior secured loans(3)
$1,021,956,208 $1,021,042,905 66 100.0 %8.6 %3.1
Allowance for credit lossesN/A(3,897,895)
1,021,956,208 1,017,145,010 66 100.0 %8.6 %3.1

Weighted Average
Loan TypeUnpaid Principal BalanceCarrying ValueLoan CountFloating Rate Loan %
Coupon(1)
Term
 (Years)(2)
December 31, 2022
Loans held-for-investment
Senior secured loans(3)
$1,076,865,099 $1,076,148,186 71 100.0 %7.6 %3.5
Allowance for credit lossesNA(4,258,668)
1,076,865,099 1,071,889,518 71 100.0 %7.6 %3.5

(1)    Weighted average coupon assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day Term Secured Overnight Financing Rate ("SOFR") of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.25% and 0.27%, respectively. As of June 30, 2023, 73.9% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 26.1% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR.
(2)    Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(3)    As of June 30, 2023, $994,914,714 of the outstanding senior secured loans were held in VIEs and $22,230,296 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside VIEs.

Activity: For the six months ended June 30, 2023, the loan portfolio activity was as follows:
Commercial Mortgage Loans Held-for-Investment
Balance at December 31, 2022$1,071,889,518 
Purchases, advances and originations72,630,053 
Principal payments(123,583,470)
Accretion of purchase discount1,196 
Amortization of purchase premium(10,687)
Accretion of deferred loan fees129,300 
Cumulative-effect adjustment upon adoption of ASU 2016-13(3,549,501)
Provision for credit losses, net(361,399)
Balance at June 30, 2023
$1,017,145,010 
Schedule of Loan Risk Ratings The following table presents the principal balance and net book value of the loan portfolio based on the Company's internal risk ratings as of June 30, 2023 and December 31, 2022:
June 30, 2023
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20232022202120192017
1— $— — — — — — 
22 36,850,000 17,926,638 18,533,248 — — — 
353 831,892,473 — 138,379,697 628,385,618 41,515,275 19,625,364 
410 140,539,480 — 50,841,772 89,263,143 — — 
51 12,674,255 — — 12,674,255 — — 
66 $1,021,956,208 17,926,638 207,754,717 730,323,016 41,515,275 19,625,364 

December 31, 2022
Amortized Cost by Year of Origination
Risk RatingNumber of LoansOutstanding Principal20222021201920182017
1— $— — — — — — 
211 153,933,750 85,198,084 67,999,500 — — — 
355 852,474,681 101,654,140 672,421,907 42,077,193 16,672,623 19,668,071 
43 47,448,000 15,000,000 32,448,000 — — — 
52 23,008,668 — 12,750,000 — 6,000,000 — 
71 $1,076,865,099 201,852,224 785,619,407 42,077,193 22,672,623 19,668,071 
Schedule of Geographic Concentrations The following tables present the geographic and property types of collateral underlying the Company's commercial mortgage loans as a percentage of the loans' carrying value as of June 30, 2023 and December 31, 2022:
Loans Held-for-Investment
June 30, 2023December 31, 2022
Geography
South45.2 %46.6 %
Southwest24.8 26.7 
Mid-Atlantic15.4 12.4 
Midwest7.9 8.0 
West6.7 6.3 
Total100.0 %100.0 %
June 30, 2023
December 31, 2022
Collateral Property Type
Multifamily89.5 %89.6 %
Seniors Housing and Healthcare8.6 6.4 
Self-Storage1.9 1.8 
Retail— 1.6 
Office— 0.6 
Total100.0 %100.0 %
Schedule of Allowance for Loan Losses The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the allowance for credit losses on the outstanding balances of the Company's loans held-for-investment:
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$3,357,527 $— $4,258,668 $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 3,549,501 
Provision for credit losses540,368 — 361,399 — 
Charge offs— — (4,271,673)
Allowance for credit losses at end of period$3,897,895 $— $3,897,895 $— 

The following table presents the changes for the three and six months ended June 30, 2023 and June 30, 2022 in the provision for (release of) credit losses on the unfunded commitments of the Company's loans held-for-investment:
Three months endedSix months ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Allowance for credit losses at beginning of period$41,225 $— $— $— 
Cumulative-effect adjustment upon adoption of ASU 2016-13— — 41,939 — 
(Reversal of) credit losses14,716 — 14,002 — 
Charge offs— — — — 
Allowance for credit losses at end of period$55,941 $— $55,941 $— 
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES (Tables)
 6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Schedule of Condensed Consolidated Balance Sheets
The carrying values of the Company's total assets and liabilities related to the 2021-FL1 CLO at June 30, 2023 and December 31, 2022 included the following VIE assets and liabilities:

ASSETSJune 30, 2023December 31, 2022
Cash, cash equivalents and restricted cash$1,274,046 $3,507,850 
Accrued interest receivable5,802,948 5,488,118 
Investment related receivable— — 
Loans held for investment, net of allowance for credit losses994,914,714 996,511,403 
Total Assets$1,001,991,708 $1,005,507,371 
LIABILITIES
Accrued interest payable$2,455,667 $2,264,646 
Collateralized loan obligations(1)
830,564,083 829,310,498 
Total Liabilities$833,019,750 $831,575,144 
Equity168,971,958 173,932,227 
Total liabilities and equity$1,001,991,708 $1,005,507,371 

(1)     The stated maturity of the collateral loan obligations per the terms of the underlying collateralized loan obligation agreement is June 14, 2039 for the 2021-FL1 CLO.
Schedule Of Loan And Borrowing Characteristics
The following tables present certain loan and borrowing characteristics of the 2021-F11 CLO as of June 30, 2023 and December 31, 2022:

As of June 30, 2023
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$999,042,153 $994,914,714 
8.62%
Financing provided1$833,750,000 $830,564,083 
6.63%

As of December 31, 2022
Collateralized Loan ObligationsCountPrincipal Value
Carrying Value(1)
Wtd. Avg. Coupon(2)
Collateral (loan investments)64$996,492,150 $996,511,403 
7.60%
Financing provided1$833,750,000 $829,310,498 
5.75%
(1)     The carrying value for the 2021-FL1 CLO is net of debt issuance costs of $3,185,917 and $4,439,502 for June 30, 2023 and December 31, 2022, respectively.
(2)    Weighted average coupon for loan investments assumes applicable one-month LIBOR of 5.19% and 4.18% and 30-day SOFR of 5.14% and 4.19% as of June 30, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.27% and 0.25%, and spreads of 3.42% and 3.41%, respectively. As of June 30, 2023, 74.7% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 25.3% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 80.5% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 19.5% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR. Weighted coupon for the financing assumes applicable one-month LIBOR of 5.11% and 4.32% as of June 30, 2023 and December 31, 2022 and spreads of 1.43% for June 30, 2023 and December 31, 2022.
Schedule of Condensed Consolidated Statements of Operations
The statement of operations related to the 2021-FL1 CLO for the three and six months ended June 30, 2023 and June 30, 2022 include the following income and expense items:

Statements of OperationsThree Months Ended June 30, 2023Three Months Ended June 30, 2022
Interest income$21,530,481 $11,734,126 
Interest expense(14,199,861)(5,284,890)
Net interest income$7,330,620 $6,449,236 
Provision for credit losses(522,003)(351,914)
General and administrative fees(181,894)(177,845)
Net income$6,626,723 $5,919,477 

Statements of OperationsSix Months Ended June 30, 2023Six Months Ended June 30, 2022
Interest income$42,328,890 $21,546,569 
Interest expense(27,232,907)(9,289,128)
Net interest income$15,095,983 $12,257,441 
Provision for credit losses(507,787)(351,914)
General and administrative fees(325,243)(324,367)
Net income$14,262,953 $11,581,160 
v3.23.2
SECURED TERM LOAN (Tables)
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Schedule of Credit Agreement As of June 30, 2023 and December 31, 2022, the outstanding balance and total commitment under the Credit Agreement consisted of the following:
June 30, 2023December 31, 2022
Outstanding BalanceTotal CommitmentOutstanding BalanceTotal Commitment
Secured Term Loan$47,750,000 $47,750,000 $47,750,000 $47,750,000 
Total$47,750,000 $47,750,000 $47,750,000 $47,750,000 
v3.23.2
MSRs (Tables)
 6 Months Ended
Jun. 30, 2023
Mortgage Servicing Rights MSR Disclosure [Abstract]  
Schedule of MSR Activity
The following table presents the Company's MSR activity for the six months ended June 30, 2023 and the six months ended June 30, 2022:

 June 30, 2023June 30, 2022
Balance at beginning of period$795,656 $551,997 
Changes in fair value due to:
Changes in valuation inputs or assumptions used in valuation model585 300,977 
Other changes to fair value(1)
(49,507)(72,379)
Balance at end of period$746,734 $780,595 
Loans associated with MSRs(2)
$70,212,243 $79,643,107 
MSR values as percent of loans(3)
1.06 %0.98 %
(1)Amounts represent changes due to realization of expected cash flows and prepayment of principal of the underlying loan portfolio.
(2)Amounts represent the unpaid principal balance of loans associated with MSRs outstanding at June 30, 2023 and June 30, 2022, respectively.
(3)Amounts represent the carrying value of MSRs at June 30, 2023 and June 30, 2022, respectively divided by the outstanding balance of the loans associated with these MSRs.
Schedule of Components of Servicing Income
The following table presents the servicing income recorded on the Company's consolidated statements of operations for the three and six months ended June 30, 2023 and June 30, 2022:
Three Months Ended
June 30, 2023		Three Months Ended
June 30, 2022
Servicing income, net$45,396 $56,053 
Total servicing income$45,396 $56,053 
Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Servicing income, net$96,924 $123,234 
Total servicing income$96,924 $123,234 
v3.23.2
FAIR VALUE (Tables)
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Schedule of Assets and Liabilities Carried at Fair Value on a Recurring Basis
The following tables summarize the valuation of the Company's assets and liabilities carried at fair value on a recurring basis within the fair value hierarchy levels as of June 30, 2023 and December 31, 2022:

 June 30, 2023
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of June 30, 2023
Assets:    
Mortgage servicing rights— — $746,734 $746,734 
Total$— $— $746,734 $746,734 

 December 31, 2022
Quoted prices in
active markets
for identical assets
Level 1		Significant
other observable
inputs
Level 2		Unobservable
inputs
Level 3
Balance as of
December 31, 2022
Assets:    
Mortgage servicing rights— — $795,656 $795,656 
Total$— $— $795,656 $795,656 
Schedule of Quantitative Information About the Significant Unobservable Inputs Used in the Fair Value Measurement of MSRs Classified as Level 3
The following table provides quantitative information about the significant unobservable inputs used in the fair value measurement of the Company's MSRs classified as Level 3 fair value assets at June 30, 2023 and December 31, 2022:

As of June 30, 2023
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.3%
8.3 %
 Discount rate12.0 %12.0 %
As of December 31, 2022
Valuation TechniqueUnobservable InputRangeWeighted Average
Discounted cash flowConstant prepayment rate
8.0 - 9.4%
8.1 %
 Discount rate12.0 %12.0 %
Schedule of Fair Value Schedule of Financial Instruments The following table details the carrying amount, face amount and fair value of the financial instruments described in Note 2:
June 30, 2023
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$98,495,690 $98,495,690 $98,495,690 
Restricted cash11,274,046 1,274,046 1,274,046 
Commercial mortgage loans held-for-investment, net31,017,145,010 1,021,956,208 1,015,244,182 
Total$1,116,914,746 $1,121,725,944 $1,115,013,918 
Liabilities:
Collateralized loan obligations2$830,564,083 $833,750,000 $807,972,875 
Secured Term Loan347,094,610 47,750,000 44,859,068 
Total$877,658,693 $881,500,000 $852,831,943 

December 31, 2022
Level in Fair Value HierarchyCarrying ValueFace AmountFair Value
Assets:
Cash and cash equivalents1$43,858,515 $43,858,515 $43,858,515 
Restricted cash13,507,850 3,507,850 3,507,850 
Commercial mortgage loans held-for-investment, net31,071,889,518 1,076,865,099 1,064,407,588 
Total$1,119,255,883 $1,124,231,464 $1,111,773,953 
Liabilities:
Collateralized loan obligations2$829,310,498 $833,750,000 $803,308,375 
Secured term loan346,971,042 47,750,000 44,563,236 
Total$876,281,540 $881,500,000 $847,871,611 
v3.23.2
RELATED PARTY TRANSACTIONS (Tables)
 6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Schedule of Restricted Common Stock Activity
The following table summarizes the activity related to restricted common stock granted under the Manager Equity Plan for the six months ended June 30, 2023 and June 30, 2022:

Six Months Ended June 30,
20232022
SharesWeighted Average Grant Date Fair Market ValueSharesWeighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period6,000 $2.27 4,500 $4.18 
Granted— — 6,000 2.27 
Vested(6,000)2.27 (4,500)$4.18 
Outstanding Unvested Shares at End of Period— $— 6,000 $2.27 
v3.23.2
EQUITY (Tables)
 6 Months Ended
Jun. 30, 2023
Equity [Abstract]  
Schedule of Cash Dividends Declared The following table presents cash dividends declared by the Company on its common stock during the six months ended June 30, 2023:
Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023March 31, 2023April 17, 2023$3,133,869 $0.060 
June 14, 2023June 30, 2023July 17, 2023$3,133,869 $0.060 

The following table presents cash dividends declared by the Company on its Series A Preferred stock for the six months ended June 30, 2023:

Declaration DateRecord DatePayment DateDividend AmountCash Dividend Per Weighted Average Share
March 16, 2023April 3, 2023April 17, 2023$1,181,250 $0.49219 
June 14, 2023July 3, 2023July 17, 2023$1,181,250 $0.49219 
v3.23.2
EARNINGS PER SHARE (Tables)
 6 Months Ended
Jun. 30, 2023
Earnings Per Share [Abstract]  
Schedule of Computation of Basic and Diluted Earnings Per Share The following tables provide additional disclosure regarding the computation for the three and six months ended June 30, 2023 and June 30, 2022:
 Three Months Ended June 30, 2023Three Months Ended June 30, 2022
Net income$2,574,227 $3,343,852 
Less dividends:    
Common stock$3,133,869  $3,133,869  
Preferred stock1,185,042  1,185,042  
 4,318,911  4,318,911 
Undistributed earnings (deficit)$(1,744,684)$(975,059)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.06 $0.06 $0.06 $0.06 
Undistributed earnings (deficit)0.00 (0.03)0.00 (0.02)
Total$0.06 $0.03 $0.06 $0.04 
Six Months Ended June 30, 2023Six Months Ended June 30, 2022
Net income$8,340,918 $6,298,651 
Less dividends:
Common stock$6,267,738 $6,267,378 
Preferred stock2,370,000 2,370,000 
8,637,738 8,637,378 
Undistributed earnings (deficit)$(296,820)$(2,338,727)

Unvested Share-Based
Payment Awards		Common StockUnvested Share-Based
Payment Awards		Common Stock
Distributed earnings$0.12 $0.12 $0.14 $0.14 
Undistributed earnings (deficit)0.00 0.00 0.00 (0.05)
Total$0.12 $0.12 $0.14 $0.09 
Schedule of Weighted Average Number of Shares
For the three months ended June 30,
20232022
Basic weighted average shares of common stock52,226,141 52,221,394 
Weighted average of non-vested restricted stock5,011 4,747 
Diluted weighted average shares of common stock outstanding52,231,152 52,226,141 
For the six months ended June 30,
20232022
Basic weighted average shares of common stock52,225,649 44,384,462 
Weighted average of non-vested restricted stock5,503 4,624 
Diluted weighted average shares of common stock outstanding52,231,152 44,389,086 
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Narrative (Details)
 3 Months Ended 6 Months Ended 12 Months Ended
Feb. 22, 2022
shares
May 05, 2021
shares
Jun. 30, 2023
USD ($)
loan
sub-servicer
realizedLoanLoss
$ / shares
shares
Jun. 30, 2023
USD ($)
loan
sub-servicer
realizedLoanLoss
$ / shares
shares
Dec. 31, 2022
USD ($)
$ / shares
shares
Jan. 01, 2023
USD ($)
$ / shares
Feb. 14, 2019
USD ($)
Jan. 15, 2019
USD ($)
Dec. 15, 2015
USD ($)
Debt and Equity Securities, FV-NI [Line Items]                  
Number of non accrual loans | loan     1 1          
Accumulated Deficit | $ [1]     $ (36,000,330) $ (36,000,330) $ (31,250,852)        
Number of realized loan losses since inception in 2013 | realizedLoanLoss     1 1          
Number of commercial real estate loans included in loan performance analytical model | loan     100,000 100,000          
Number of sub-servicers | sub-servicer     2 2          
Principal amount | $     $ 47,750,000 $ 47,750,000 $ 47,750,000        
Common stock, shares authorized (in shares)     450,000,000 450,000,000 450,000,000        
Common stock, par value (in dollars per share) | $ / shares     $ 0.01 $ 0.01 $ 0.01        
Common stock, shares issued (in shares)     52,231,152 52,231,152 52,231,152        
Common stock, shares outstanding (in shares)     52,231,152 52,231,152 52,231,152        
Stock repurchase program, authorized amount | $                 $ 10,000,000
Preferred stock, shares authorized (in shares)     50,000,000 50,000,000 50,000,000        
Preferred stock, par value (in dollars per share) | $ / shares     $ 0.01 $ 0.01 $ 0.01        
Preferred stock, shares issued (in shares)     2,400,000 2,400,000 2,400,000        
Preferred stock, dividend rate, percentage       7.875% 7.875%        
Preferred stock, shares outstanding (in shares)     2,400,000 2,400,000 2,400,000        
Transition adjustment                  
Debt and Equity Securities, FV-NI [Line Items]                  
Share price (in dollars per share) | $ / shares           $ 0.07      
Common Stock                  
Debt and Equity Securities, FV-NI [Line Items]                  
Issuance of common stock (in shares) 27,277,269                
Series A Cumulative Redeemable Preferred Stock                  
Debt and Equity Securities, FV-NI [Line Items]                  
Preferred stock, shares authorized (in shares)     50,000,000 50,000,000 50,000,000        
Preferred stock, par value (in dollars per share) | $ / shares     $ 0.01 $ 0.01 $ 0.01        
Preferred stock, shares issued (in shares)   2,400,000 2,400,000 2,400,000 2,400,000        
Preferred stock, dividend rate, percentage   7.875%              
Preferred stock, shares outstanding (in shares)     2,400,000 2,400,000 2,400,000        
Delayed Draw Facility | Credit Agreement                  
Debt and Equity Securities, FV-NI [Line Items]                  
Principal amount | $     $ 47,750,000 $ 47,750,000     $ 40,250,000 $ 40,250,000  
Accounting Standards Update 2016-13                  
Debt and Equity Securities, FV-NI [Line Items]                  
Accumulated Deficit | $           $ 3,600,000      
Accounting Standards Update 2016-13 | Transition adjustment                  
Debt and Equity Securities, FV-NI [Line Items]                  
Accumulated Deficit | $           $ 3,591,440      
Other Operating Expenses                  
Debt and Equity Securities, FV-NI [Line Items]                  
Payments of debt issuance costs | $     $ 1,684,618            
Collateralized Loan Obligations                  
Debt and Equity Securities, FV-NI [Line Items]                  
Maximum exposure to loss from consolidated trusts | $       $ 166,250,000 $ 166,250,000        
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Reconciliation of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($)
Jun. 30, 2023
Dec. 31, 2022
Jun. 30, 2022
Dec. 31, 2021
Accounting Policies [Abstract]        
Cash and cash equivalents [1] $ 98,495,690 $ 43,858,515    
Restricted cash held within the 2021-FL1 CLO [1] 1,274,046 3,507,850    
Total cash, cash equivalents and restricted cash $ 99,769,736 $ 47,366,365 $ 48,707,286 $ 18,279,052
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Schedule of Financial Impact of the Adoption of Accounting Standard Update (Details) - USD ($)
Jun. 30, 2023
Jan. 01, 2023
Dec. 31, 2022
Debt and Equity Securities, FV-NI [Line Items]      
Commercial mortgage loans, held-for-investment [1] $ 1,021,042,905   $ 1,076,148,186
Less: Allowance for credit losses     (4,258,668)
Commercial mortgage loans held-for-investment, net of allowance for credit losses [1] 1,017,145,010   1,071,889,518
Other liabilities [1],[2] 933,748   583,989
Accumulated earnings [1] $ 36,000,330   $ 31,250,852
Accounting Standards Update 2016-13      
Debt and Equity Securities, FV-NI [Line Items]      
Accumulated earnings   $ (3,600,000)  
Accounting Standards Update 2016-13 | Transition adjustment      
Debt and Equity Securities, FV-NI [Line Items]      
Commercial mortgage loans, held-for-investment   0  
Less: Allowance for credit losses   (3,549,501)  
Commercial mortgage loans held-for-investment, net of allowance for credit losses   (3,549,501)  
Other liabilities   41,939  
Accumulated earnings   (3,591,440)  
Accounting Standards Update 2016-13 | Post-adoption      
Debt and Equity Securities, FV-NI [Line Items]      
Commercial mortgage loans, held-for-investment   1,076,148,186  
Less: Allowance for credit losses   (7,808,169)  
Commercial mortgage loans held-for-investment, net of allowance for credit losses   1,068,340,017  
Other liabilities   625,928  
Accumulated earnings   $ 27,659,412  
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
[2] Includes $55,941 and $0 of Current Expected Credit Loss ("CECL") allowance related to unfunded commitments on commercial mortgage loans, net as of June 30, 2023 and December 31, 2022, respectively.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Summary of Commercial Mortgage Loans (Details)
 6 Months Ended 12 Months Ended
Jun. 30, 2023
USD ($)
mortgageLoan
Dec. 31, 2022
USD ($)
mortgageLoan
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Allowance for credit losses [1] $ (3,897,895) $ (4,258,668)
One month LIBOR rate (as a percent) 5.19% 4.18%
One month SOFR rate ( as a percent) 5.14% 4.19%
Weighted average LIBOR floor rate (as a percent) 0.25% 0.27%
Weighted average floating rate 73.90% 77.40%
Weighted average SOFR rate 26.10% 22.60%
Commercial mortgage loans, held-for-investment, net of allowance for credit losses [1] $ 1,017,145,010 $ 1,071,889,518
Commercial Real Estate Portfolio Segment    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Unpaid Principal Balance 1,021,956,208 1,076,865,099
Carrying Value 1,021,042,905 1,076,148,186
Carrying value, net $ 1,017,145,010 $ 1,071,889,518
Loan Count | mortgageLoan 66 71
Financing receivable, floating Rate (as a percent) 100.00% 100.00%
Coupon 8.60% 7.60%
Term (Years) 3 years 1 month 6 days 3 years 6 months
Commercial mortgage loans, held-for-investment, net of allowance for credit losses $ 1,017,145,010 $ 1,071,889,518
Outstanding senior secured loans from loan participations 22,230,296 75,378,115
Commercial Real Estate Portfolio Segment | Hunt CMT    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Commercial mortgage loans, held-for-investment, net of allowance for credit losses $ 994,914,714 $ 996,511,403
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Loan Portfolio Activity (Details) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Commercial Mortgage Loans Held-for-Investment        
Balance at December 31, 2022 [1]     $ 1,071,889,518  
Purchases, advances and originations     72,630,053 $ 222,142,167
Principal payments     (123,583,470) (171,007,115)
Accretion of purchase discount     1,196 125,098
Amortization of purchase premium     (10,687) (50,522)
Accretion of deferred loan fees     129,300 0
Provision for credit losses, net $ (555,083) $ (351,914) (375,399) $ (351,914)
Balance at June 30, 2023 [1] 1,017,145,010   1,017,145,010  
Commercial Real Estate Portfolio Segment        
Commercial Mortgage Loans Held-for-Investment        
Balance at December 31, 2022     1,071,889,518  
Purchases, advances and originations     72,630,053  
Principal payments     (123,583,470)  
Accretion of purchase discount     1,196  
Amortization of purchase premium     (10,687)  
Accretion of deferred loan fees     129,300  
Provision for credit losses, net     (361,399)  
Balance at June 30, 2023 $ 1,017,145,010   1,017,145,010  
Commercial Real Estate Portfolio Segment | Minimum | Accounting Standards Update 2016-13        
Commercial Mortgage Loans Held-for-Investment        
Balance at December 31, 2022     $ (3,549,501)  
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Summary of Commercial Loan Risk Ratings (Details)
 6 Months Ended 12 Months Ended
Jun. 30, 2023
USD ($)
mortgageLoan
Jun. 30, 2022
USD ($)
Dec. 31, 2022
USD ($)
mortgageLoan
Financing Receivable, Credit Quality Indicator [Line Items]      
Commercial mortgage loans held-for-investment, at amortized cost [1] $ 1,021,042,905   $ 1,076,148,186
Average risk rating, moderate 3.4   3.0
Purchase of commercial loans held for investment $ 72,630,053 $ 222,142,167  
Commercial Real Estate Portfolio Segment      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 66   71
Commercial mortgage loans held-for-investment, at amortized cost $ 1,021,956,208   $ 1,076,865,099
Year 1 17,926,638   201,852,224
Year 2 207,754,717   785,619,407
Year 3 730,323,016    
Year 4     42,077,193
Year 5 41,515,275   22,672,623
Before year 5 19,625,364   $ 19,668,071
Purchase of commercial loans held for investment $ 72,630,053    
Commercial Real Estate Portfolio Segment | Risk rating, 1      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 0   0
Commercial mortgage loans held-for-investment, at amortized cost $ 0   $ 0
Year 1 0   0
Year 2 0   0
Year 3 0    
Year 4     0
Year 5 0   0
Before year 5 $ 0   $ 0
Commercial Real Estate Portfolio Segment | Risk rating, 2      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 2   11
Commercial mortgage loans held-for-investment, at amortized cost $ 36,850,000   $ 153,933,750
Year 1 17,926,638   85,198,084
Year 2 18,533,248   67,999,500
Year 3 0    
Year 4     0
Year 5 0   0
Before year 5 0   $ 0
Commercial loans that paid off 33,500,000    
Purchase of commercial loans held for investment $ 17,900,000    
Commercial Real Estate Portfolio Segment | Risk rating, 3      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 53   55
Commercial mortgage loans held-for-investment, at amortized cost $ 831,892,473   $ 852,474,681
Year 1 0   101,654,140
Year 2 138,379,697   672,421,907
Year 3 628,385,618    
Year 4     42,077,193
Year 5 41,515,275   16,672,623
Before year 5 $ 19,625,364   $ 19,668,071
Average risk rating, percentage 85.00%   93.80%
Commercial loans that paid off $ 84,000,000    
Purchase of commercial loans held for investment 55,000,000    
Transition of commercial loans held for sale to a higher risk rating $ 101,500,000    
Commercial Real Estate Portfolio Segment | Risk rating, 4      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 10   3
Commercial mortgage loans held-for-investment, at amortized cost $ 140,539,480   $ 47,448,000
Year 1 0   15,000,000
Year 2 50,841,772   32,448,000
Year 3 89,263,143    
Year 4     0
Year 5 0   0
Before year 5 0   $ 0
Transition of commercial loans held for sale to a higher risk rating $ 93,100,000    
Commercial Real Estate Portfolio Segment | Risk rating, 5      
Financing Receivable, Credit Quality Indicator [Line Items]      
Number of Loans | mortgageLoan 1   2
Commercial mortgage loans held-for-investment, at amortized cost $ 12,674,255   $ 23,008,668
Year 1 0   0
Year 2 0   12,750,000
Year 3 12,674,255    
Year 4     0
Year 5 0   6,000,000
Before year 5 0   $ 0
Commercial loans that paid off $ 10,300,000    
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Summary of Concentration of Credit Risk (Details) - Commercial Loans Held-For-Investment - Commercial Real Estate Portfolio Segment
 6 Months Ended 12 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 100.00% 100.00%
Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 100.00% 100.00%
Multifamily | Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 89.50% 89.60%
Seniors Housing and Healthcare | Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 8.60% 6.40%
Self-Storage | Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 1.90% 1.80%
Retail | Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 0.00% 1.60%
Office | Collateral Property Type    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 0.00% 0.60%
South | Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 45.20% 46.60%
Southwest | Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 24.80% 26.70%
Mid-Atlantic | Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 15.40% 12.40%
Midwest | Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 7.90% 8.00%
West | Geography    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Concentration risk, percent 6.70% 6.30%
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Allowance for Loan Losses (Details) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Financing Receivable, Allowance for Credit Loss [Roll Forward]        
Allowance for credit losses at beginning of period [1]     $ 4,258,668  
Provision (reversal of) credit losses $ 555,083 $ 351,914 375,399 $ 351,914
Allowance for credit losses at end of period [1] 3,897,895   3,897,895  
Commercial Loans Held-For-Investment        
Financing Receivable, Allowance for Credit Loss [Roll Forward]        
Allowance for credit losses at beginning of period 3,357,527 0 4,258,668 0
Provision (reversal of) credit losses 540,368 0 361,399 0
Charge offs 0 0 (4,271,673)
Allowance for credit losses at end of period 3,897,895 0 3,897,895 0
Commercial Loans Held-For-Investment | Unfunded Loan Commitment        
Financing Receivable, Allowance for Credit Loss [Roll Forward]        
Allowance for credit losses at beginning of period 41,225 0 0 0
Provision (reversal of) credit losses 14,716 0 14,002 0
Charge offs 0 0 0 0
Allowance for credit losses at end of period 55,941 0 55,941 0
Transition adjustment | Accounting Standards Update 2016-13 | Commercial Loans Held-For-Investment        
Financing Receivable, Allowance for Credit Loss [Roll Forward]        
Allowance for credit losses at beginning of period 0 0 3,549,501
Transition adjustment | Accounting Standards Update 2016-13 | Commercial Loans Held-For-Investment | Unfunded Loan Commitment        
Financing Receivable, Allowance for Credit Loss [Roll Forward]        
Allowance for credit losses at beginning of period $ 0 $ 0 $ 41,939 $ 0
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT - Additional Information (Details)
$ in Millions
 1 Months Ended 6 Months Ended 12 Months Ended
Feb. 28, 2023
USD ($)
Jun. 30, 2023
USD ($)
loanParticipation
Dec. 31, 2022
USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]      
Sale of loans $ 6.0    
Reserve for impaired loan     $ 4.3
Office Building      
Accounts, Notes, Loans and Financing Receivable [Line Items]      
Impaired unpaid principal value $ 10.3    
Reserve for impaired loan   $ 4.3  
Multifamily      
Accounts, Notes, Loans and Financing Receivable [Line Items]      
Impaired unpaid principal value   $ 12.8  
Number of impaired office loans | loanParticipation   1  
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES - Narrative (Details)
Jun. 14, 2021
USD ($)
subsidiary
tranche
Variable Interest Entity [Line Items]  
Number of wholly-owned subsidiaries | subsidiary 2
Equity interest retained $ 96,250,000
Proceeds from issuance of long-term debt allocated to acquire additional loan obligations $ 330,300,000
Period to acquire additional loan obligations from closing date 180 days
Collateralized loan obligation leverage ratio (as a percent) 0.83
Collateralized Loan Obligations - LFT CRE 2021-FL1, Ltd.  
Variable Interest Entity [Line Items]  
Number of tranches of CLO notes issued | tranche 8
Aggregate principal of CLO notes $ 903,800,000
Initial investment period 2 years 6 months
Proceeds from issuance of collateralized loan obligations $ 1,000,000,000
Collateralized Loan Obligations - LFT CRE 2021-FL1, Ltd. - Investment Grade  
Variable Interest Entity [Line Items]  
Aggregate principal of CLO notes 833,800,000
Collateralized Loan Obligations - LFT CRE 2021-FL1, Ltd. - Below Investment Grade  
Variable Interest Entity [Line Items]  
Aggregate principal of CLO notes $ 70,000,000
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES - Condensed Consolidated Balance Sheets (Details) - USD ($)
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
ASSETS            
Cash, cash equivalents and restricted cash $ 99,769,736   $ 47,366,365 $ 48,707,286   $ 18,279,052
Accrued interest receivable [1] 5,865,802   5,797,991      
Loans held for investment, net of allowance for credit losses [1] 1,017,145,010   1,071,889,518      
Total assets [1] 1,126,017,469   1,127,965,537      
LIABILITIES            
Accrued interest payable [1] 2,542,214   2,360,809      
Collateralized loan obligations [1] 830,564,083   829,310,498      
Total liabilities [1] 886,926,274   884,964,040      
Equity 239,091,195 [1] $ 240,847,239 243,001,497 [1] $ 248,096,064 $ 249,080,843 $ 169,375,500
Total liabilities and equity [1] 1,126,017,469   1,127,965,537      
2021-FL1 CLO            
ASSETS            
Cash, cash equivalents and restricted cash 1,274,046   3,507,850      
Accrued interest receivable 5,802,948   5,488,118      
Investment related receivable 0   0      
Loans held for investment, net of allowance for credit losses 994,914,714   996,511,403      
Total assets 1,001,991,708   1,005,507,371      
LIABILITIES            
Accrued interest payable 2,455,667   2,264,646      
Collateralized loan obligations 830,564,083   829,310,498      
Total liabilities 833,019,750   831,575,144      
Equity 168,971,958   173,932,227      
Total liabilities and equity $ 1,001,991,708   $ 1,005,507,371      
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES - Summary of Loan and Borrowing Characteristics (Details)
 6 Months Ended 12 Months Ended
Jun. 30, 2023
USD ($)
instrument
contract
mortgageLoan
Dec. 31, 2022
USD ($)
instrument
contract
mortgageLoan
Variable Interest Entity [Line Items]    
Collateralized loan obligations [1] $ 830,564,083 $ 829,310,498
One month LIBOR rate (as a percent) 5.19% 4.18%
One month SOFR rate ( as a percent) 5.14% 4.19%
Weighted average LIBOR floor rate (as a percent) 0.27% 0.25%
SOFR spread rate (as a percent) 3.42% 3.41%
Basis spread on one-month LIBOR (percent) 1.43% 1.43%
One-Month LIBOR Rate    
Variable Interest Entity [Line Items]    
One month LIBOR rate (as a percent) 5.11% 4.32%
Financing receivable, floating Rate (as a percent) 74.70% 80.50%
Secured​ Overnight ​Financing​ Rate    
Variable Interest Entity [Line Items]    
Financing receivable, floating Rate (as a percent) 25.30% 19.50%
Commercial Real Estate Portfolio Segment    
Variable Interest Entity [Line Items]    
Collateral (loan investments) (Count) | mortgageLoan 66 71
Carrying Value $ 1,021,042,905 $ 1,076,148,186
Financing receivable, floating Rate (as a percent) 100.00% 100.00%
2021-FL1 CLO    
Variable Interest Entity [Line Items]    
Financings provided, (Count) | instrument 1 1
Collateralized loan obligations $ 830,564,083 $ 829,310,498
2021-FL1 CLO | One-Month LIBOR Rate    
Variable Interest Entity [Line Items]    
Weighted average yield (percent) 8.62% 7.60%
Weighted average yield (percent) 6.63% 5.75%
2021-FL1 CLO | Commercial Real Estate Portfolio Segment    
Variable Interest Entity [Line Items]    
Collateral (loan investments) (Count) | contract 64 64
Principal Value | 2021-FL1 CLO    
Variable Interest Entity [Line Items]    
Carrying Value $ 999,042,153 $ 996,492,150
Collateralized loan obligations 833,750,000 833,750,000
Carrying Value | 2021-FL1 CLO    
Variable Interest Entity [Line Items]    
Carrying Value 994,914,714 996,511,403
Collateralized loan obligations 830,564,083 829,310,498
Debt issuance costs $ 3,185,917 $ 4,439,502
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES - Condensed Consolidated Statement of Operations (Details) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Variable Interest Entity [Line Items]        
Net interest income $ 7,508,980 $ 6,416,584 $ 15,755,348 $ 11,503,622
Provision for credit losses (555,083) (351,914) (375,399) (351,914)
General and administrative fees (882,723) (960,420) (1,830,789) (1,813,152)
LFT CRE 2021-FL1, Ltd., Hunt Cre 2017-FL1, Ltd, and Hunt Cre 2018-FL2, Ltd.        
Variable Interest Entity [Line Items]        
Interest income 21,530,481 11,734,126 42,328,890 21,546,569
Interest expense (14,199,861) (5,284,890) (27,232,907) (9,289,128)
Net interest income 7,330,620 6,449,236 15,095,983 12,257,441
Provision for credit losses (522,003) (351,914) (507,787) (351,914)
General and administrative fees (181,894) (177,845) (325,243) (324,367)
Net income $ 6,626,723 $ 5,919,477 $ 14,262,953 $ 11,581,160
v3.23.2
RESTRICTED CASH (Details)
 6 Months Ended
Jun. 30, 2023
LFT CRE 2021-FL1  
Restricted Cash and Cash Equivalents Items [Line Items]  
Reinvestment period 30 months
v3.23.2
SECURED TERM LOAN - Additional Information (Details) - USD ($)
Aug. 23, 2021
Jan. 15, 2019
Jun. 30, 2023
Dec. 31, 2022
Apr. 21, 2021
Feb. 14, 2019
Debt Instrument [Line Items]            
Principal amount     $ 47,750,000 $ 47,750,000    
Collateralized loan obligation, discount           $ 39,200,000
Collateralized loan obligation, deferred financing costs     675,871 $ 778,958    
Delayed Draw Facility | Credit Agreement            
Debt Instrument [Line Items]            
Principal amount   $ 40,250,000 $ 47,750,000     $ 40,250,000
Maturity term   6 years        
Incremental increase in term loan         $ 7,500,000  
Proceeds from credit facility $ 7,500,000          
Delayed Draw Facility | Credit Agreement | Six year period following initial draw            
Debt Instrument [Line Items]            
Maturity term   6 years        
Stated interest rate, percent   7.25%        
Delayed Draw Facility | Credit Agreement | First four months after sixth anniversary            
Debt Instrument [Line Items]            
Weighted average yield (percent)   0.25%        
Delayed Draw Facility | Credit Agreement | Second four months after sixth anniversary            
Debt Instrument [Line Items]            
Weighted average yield (percent)   0.375%        
Delayed Draw Facility | Credit Agreement | Last four months until maturity            
Debt Instrument [Line Items]            
Weighted average yield (percent)   0.50%        
v3.23.2
SECURED TERM LOAN - Summary of Credit Agreement (Details) - USD ($)
Jun. 30, 2023
Dec. 31, 2022
Debt Disclosure [Abstract]    
Outstanding Balance $ 47,750,000 $ 47,750,000
Total Commitment $ 47,750,000 $ 47,750,000
v3.23.2
MSRs - Additional Information (Details)
 6 Months Ended
Jun. 30, 2023
USD ($)
sub-servicer
Jun. 30, 2022
USD ($)
Mortgage Servicing Rights MSR [Line Items]    
Number of sub-servicers | sub-servicer 2  
Mortgage servicing rights    
Mortgage Servicing Rights MSR [Line Items]    
Loans associated with MSRs | $ $ 70,212,243 $ 79,643,107
v3.23.2
MSRs - MSR Activity (Details) - Mortgage Servicing Rights - USD ($)
 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Movement in Mortgage Service Rights    
Balance at beginning of period $ 795,656 $ 551,997
Changes in fair value due to:    
Changes in valuation inputs or assumptions used in valuation model 585 300,977
Other changes to fair value (49,507) (72,379)
Balance at end of period 746,734 780,595
Loans associated with MSRs $ 70,212,243 $ 79,643,107
MSR values as percent of loans 1.06% 0.98%
v3.23.2
MSRs - Components of Servicing Income (Details) - Mortgages - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Schedule Of Components Of Servicing Income [Line Items]        
Servicing income, net $ 45,396 $ 56,053 $ 96,924 $ 123,234
Total servicing income $ 45,396 $ 56,053 $ 96,924 $ 123,234
v3.23.2
FAIR VALUE - Assets and Liabilities at Fair Value (Details) - USD ($)
Jun. 30, 2023
Dec. 31, 2022
Assets:    
Total assets $ 746,734 $ 795,656
Quoted prices in active markets for identical assets Level 1    
Assets:    
Total assets 0 0
Significant other observable inputs Level 2    
Assets:    
Total assets 0 0
Unobservable inputs Level 3    
Assets:    
Total assets 746,734 795,656
Mortgage servicing rights    
Assets:    
Total assets 746,734 795,656
Mortgage servicing rights | Quoted prices in active markets for identical assets Level 1    
Assets:    
Total assets 0 0
Mortgage servicing rights | Significant other observable inputs Level 2    
Assets:    
Total assets 0 0
Mortgage servicing rights | Unobservable inputs Level 3    
Assets:    
Total assets $ 746,734 $ 795,656
v3.23.2
FAIR VALUE - Additional Information (Details) - USD ($)
Jun. 30, 2023
Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total assets $ 746,734 $ 795,656
Unobservable inputs Level 3    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total assets 746,734 795,656
Mortgage Servicing Rights    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total assets 746,734 795,656
Mortgage Servicing Rights | Unobservable inputs Level 3    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Total assets $ 746,734 $ 795,656
v3.23.2
FAIR VALUE - Unobservable Inputs Information (Details) - Mortgage servicing rights - Discounted cash flow - Unobservable inputs Level 3
Jun. 30, 2023
Dec. 31, 2022
Constant prepayment rate | Minimum    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Unobservable Input 0.080 0.080
Constant prepayment rate | Maximum    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Unobservable Input 0.093 0.094
Constant prepayment rate | Weighted Average    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Unobservable Input 0.083 0.081
Discount rate    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Unobservable Input 0.120 0.120
Discount rate | Weighted Average    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Unobservable Input 0.120 0.120
v3.23.2
FAIR VALUE - Fair Value Information on Financial Instruments (Details) - USD ($)
Jun. 30, 2023
Dec. 31, 2022
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Cash and cash equivalents [1] $ 98,495,690 $ 43,858,515
Restricted cash [1] 1,274,046 3,507,850
Total [1] 1,126,017,469 1,127,965,537
Collateralized loan obligations [1] 830,564,083 829,310,498
Secured Term Loan [1] 47,094,610 46,971,042
Total liabilities [1] 886,926,274 884,964,040
Outstanding senior secured loans [1] 1,017,145,010 1,071,889,518
Carrying Value    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total 1,116,914,746 1,119,255,883
Total liabilities 877,658,693 876,281,540
Carrying Value | Quoted prices in active markets for identical assets Level 1    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Cash and cash equivalents 98,495,690 43,858,515
Restricted cash 1,274,046 3,507,850
Carrying Value | Significant other observable inputs Level 2    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Collateralized loan obligations 830,564,083 829,310,498
Carrying Value | Unobservable inputs Level 3    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Commercial mortgage loans held-for-investment, net 1,017,145,010  
Secured Term Loan 47,094,610 46,971,042
Face Amount    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total 1,121,725,944 1,124,231,464
Total liabilities 881,500,000 881,500,000
Face Amount | Quoted prices in active markets for identical assets Level 1    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Cash and cash equivalents 98,495,690 43,858,515
Restricted cash 1,274,046 3,507,850
Face Amount | Significant other observable inputs Level 2    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Collateralized loan obligations 833,750,000 833,750,000
Face Amount | Unobservable inputs Level 3    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Commercial mortgage loans held-for-investment, net 1,021,956,208 1,076,865,099
Secured Term Loan 47,750,000 47,750,000
Fair Value    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total 1,115,013,918 1,111,773,953
Total liabilities 852,831,943 847,871,611
Fair Value | Quoted prices in active markets for identical assets Level 1    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Cash and cash equivalents 98,495,690 43,858,515
Restricted cash 1,274,046 3,507,850
Fair Value | Significant other observable inputs Level 2    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Collateralized loan obligations 807,972,875 803,308,375
Fair Value | Unobservable inputs Level 3    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Commercial mortgage loans held-for-investment, net 1,015,244,182 1,064,407,588
Secured Term Loan $ 44,859,068 $ 44,563,236
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
RELATED PARTY TRANSACTIONS - Additional Information (Details)
 3 Months Ended 6 Months Ended
Feb. 22, 2022
$ / shares
shares
Jan. 03, 2020
Jun. 30, 2023
USD ($)
loan
Jun. 30, 2022
USD ($)
loan
shares
Mar. 31, 2022
USD ($)
loan
shares
Jun. 30, 2023
USD ($)
Jun. 30, 2022
USD ($)
Related Party Transaction [Line Items]              
Annual management fee (percentage)           1.50%  
Quarterly management fee percentage (as a percent)           0.375%  
Reimbursable expenses     $ 577,666 $ 648,645   $ 1,087,652 $ 1,039,355
Common Stock              
Related Party Transaction [Line Items]              
Issuance of common stock (in shares) | shares 27,277,269     6,000 27,277,269    
Common stock, shares issued (in dollars per share) | $ / shares $ 3.06            
Restricted Stock Units (RSUs)              
Related Party Transaction [Line Items]              
Compensation expense           $ 6,194 9,114
Manager Equity Plan              
Related Party Transaction [Line Items]              
Maximum shares issued, percentage of issued and outstanding shares of common stock (as a percent)           3.00%  
Manager Equity Plan | Restricted Stock Units (RSUs)              
Related Party Transaction [Line Items]              
Unrecognized compensation expense     0 $ 13,030   $ 0 13,030
Affiliated Entity              
Related Party Transaction [Line Items]              
Management fee expense     1,093,374 1,090,652   2,180,636 2,015,269
Management fee payable     1,084,000 1,095,000   1,084,000 1,095,000
Incentive fee expense     0 0   0 0
Reimbursable expenses     577,666 648,645   1,087,652 1,039,355
Reimbursable expenses payable     $ 576,250 $ 651,815   $ 576,250 $ 651,815
Reduction to reimbursable expenses as a percentage of exit fees waived (percent)     50.00% 50.00%   50.00% 50.00%
Reimbursable expenses waived     $ 167,500 $ 699,547   $ 167,500 $ 603,317
Reimbursable expense reduction     $ 83,750 $ 48,115   $ 83,750 $ 349,774
Affiliated Entity | Common Stock              
Related Party Transaction [Line Items]              
Issuance of common stock (in shares) | shares 3,524,851            
Common stock, shares issued (in dollars per share) | $ / shares $ 3.06            
Affiliated Entity | Hunt Investment Management, LLC              
Related Party Transaction [Line Items]              
Quarterly incentive fee percentage (as a percent)   20.00%          
Hurdle rate percentage (as a percent)   8.00%          
Length of renewal terms   1 year          
Affiliated Entity | OREC Investment Holdings | Common Stock              
Related Party Transaction [Line Items]              
Issuance of common stock (in shares) | shares 13,071,895            
Common stock, shares issued (in dollars per share) | $ / shares $ 3.06            
Affiliated Entity | Lument Structured Finance | 2021-FL1 CLO              
Related Party Transaction [Line Items]              
Number of loans purchased | loan       3 8    
Unpaid principal balance of purchased loans       $ 31,200,000 $ 108,900,000    
Affiliated Entity | Lument Structured Finance | Lument Commercial Mortgage Trust              
Related Party Transaction [Line Items]              
Number of loans purchased | loan       6 6    
Unpaid principal balance of purchased loans       $ 76,000,000 $ 76,000,000.0    
Affiliated Entity | Loan Purchase One | Lument Structured Finance | 2021-FL1 CLO              
Related Party Transaction [Line Items]              
Number of loans purchased | loan     2        
Unpaid principal balance of purchased loans     $ 48,600,000        
Affiliated Entity | Loan Purchase Two | Lument Structured Finance | 2021-FL1 CLO              
Related Party Transaction [Line Items]              
Number of loans purchased | loan     2        
Unpaid principal balance of purchased loans     $ 1,700,000        
Affiliated Entity | Loan Purchase Three | Lument Structured Finance | 2021-FL1 CLO              
Related Party Transaction [Line Items]              
Number of loans purchased | loan     1        
Unpaid principal balance of purchased loans     $ 6,100,000        
Payments to acquire finance receivables, discount     $ 100,000        
Affiliated Entity | Loan Purchase Four | Lument Structured Finance | 2021-FL1 CLO              
Related Party Transaction [Line Items]              
Number of loans purchased | loan     17        
Number of loans funded | loan     17        
Unpaid principal balance of purchased loans     $ 16,500,000        
Payments to acquire finance receivables, discount     $ 200,000        
v3.23.2
RELATED PARTY TRANSACTIONS - Unvested Share Activity (Details) - Employee Stock Option - Affiliated Entity - $ / shares
 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Shares    
Outstanding Unvested Shares at Beginning of Period (in shares) 6,000 4,500
Granted (in shares) 0 6,000
Vested (in shares) (6,000) (4,500)
Outstanding Unvested Shares at End of Period (in shares) 0 6,000
Weighted Average Grant Date Fair Market Value    
Outstanding Unvested Shares at Beginning of Period (in dollars per share) $ 2.27 $ 4.18
Granted (in dollars per share) 0 2.27
Vested (in dollars per share) 2.27 4.18
Outstanding Unvested Shares at End of Period (in dollars per share) $ 0 $ 2.27
v3.23.2
GUARANTEES (Details) - USD ($)
 6 Months Ended
Jun. 15, 2016
Jun. 30, 2023
Dec. 31, 2022
Backstop Guarantee      
Guarantor Obligations [Line Items]      
Representation and warranty breach, threshold period for likely occurrence 5 years    
Minimum adjusted tangible new worth   $ 20,000,000  
Minimum available liquidity   $ 5,000,000  
Minimum available liquidity, percentage of aggregate unpaid principal balance (as a percent)   0.10%  
Maximum amount of estimated future payments under the backstop guarantees   $ 167,000,000 $ 172,000,000
Backstop Guarantee | Loan Review Services      
Guarantor Obligations [Line Items]      
Minimum available liquidity, percentage of aggregate unpaid principal balance (as a percent)   0.01%  
Backstop Guarantee | Oak Circle Capital Partners, LLC | Loan Review Services      
Guarantor Obligations [Line Items]      
Alternative backstop fee   $ 426,770  
Indemnification Agreement      
Guarantor Obligations [Line Items]      
Maximum amount of estimated future payments under the backstop guarantees   $ 0  
v3.23.2
COMMITMENTS AND CONTINGENCIES (Details) - USD ($)
$ in Millions
Jun. 30, 2023
Dec. 31, 2022
LFT 2021-FL1, Ltd.    
Loss Contingencies [Line Items]    
Unfunded commitments $ 6.7  
2021-FL1 CLO    
Loss Contingencies [Line Items]    
Unfunded commitments   $ 78.4
Funded participation interests 54.7  
LCMT    
Loss Contingencies [Line Items]    
Unfunded commitments   $ 4.7
Funded participation interests $ 0.4  
v3.23.2
EQUITY - Additional Information (Details)
 3 Months Ended 6 Months Ended 12 Months Ended 89 Months Ended
Apr. 20, 2023
election
contract
shares
Feb. 22, 2022
USD ($)
$ / shares
shares
May 05, 2021
USD ($)
$ / shares
shares
Nov. 29, 2018
USD ($)
shares
Jun. 30, 2023
USD ($)
$ / shares
shares
Jun. 30, 2022
USD ($)
$ / shares
shares
Mar. 31, 2022
shares
Jun. 30, 2023
USD ($)
$ / shares
shares
Jun. 30, 2022
USD ($)
$ / shares
shares
Dec. 31, 2022
USD ($)
$ / shares
shares
Jun. 30, 2023
USD ($)
$ / shares
shares
Mar. 31, 2023
shares
Dec. 31, 2021
shares
Dec. 31, 2020
Dec. 15, 2015
USD ($)
Stockholders' Equity Note [Line Items]                              
Common stock, shares authorized (in shares)         450,000,000     450,000,000   450,000,000 450,000,000        
Common stock, par value (in dollars per share) | $ / shares         $ 0.01     $ 0.01   $ 0.01 $ 0.01        
Common stock, shares issued (in shares)         52,231,152     52,231,152   52,231,152 52,231,152        
Common stock, shares outstanding (in shares)         52,231,152     52,231,152   52,231,152 52,231,152        
Stock repurchase program, authorized amount | $                             $ 10,000,000
Preferred stock, shares authorized (in shares)         50,000,000     50,000,000   50,000,000 50,000,000        
Preferred stock, par value (in dollars per share) | $ / shares         $ 0.01     $ 0.01   $ 0.01 $ 0.01        
Preferred stock, shares issued (in shares)         2,400,000     2,400,000   2,400,000 2,400,000        
Preferred stock, shares outstanding (in shares)         2,400,000     2,400,000   2,400,000 2,400,000        
Dividends payable | $ [1]         $ 4,131,369     $ 4,131,369   $ 4,131,369 $ 4,131,369        
Dividends declared per share of common stock (in dollars per share) | $ / shares         $ 0.06 $ 0.06   $ 0.12 $ 0.12            
Noncontrolling interests | $ [1]         $ 99,500     $ 99,500   $ 99,500 $ 99,500        
Dividends on the HCMT Preferred Shares | $         $ 1,185,042 $ 1,185,042   $ 2,370,000 $ 2,370,000            
Number of trading days | contract 10                            
Director                              
Stockholders' Equity Note [Line Items]                              
Number of election | election 1                            
Stock repurchase program, period in force 6 months                            
Redeemable Preferred Stock                              
Stockholders' Equity Note [Line Items]                              
Preferred stock, shares authorized (in shares)         50,000,000     50,000,000   50,000,000 50,000,000        
Preferred stock, par value (in dollars per share) | $ / shares         $ 0.01     $ 0.01   $ 0.01 $ 0.01        
Preferred stock, shares issued (in shares)     2,400,000   2,400,000     2,400,000   2,400,000 2,400,000        
Preferred stock, shares outstanding (in shares)         2,400,000     2,400,000   2,400,000 2,400,000        
Proceeds from issuance of redeemable preferred stock | $     $ 58,100,000                        
Series A Preferred Stock                              
Stockholders' Equity Note [Line Items]                              
Preferred stock, liquidation preference (in dollars per share) | $ / shares     $ 25.00                        
Stock Repurchase Program                              
Stockholders' Equity Note [Line Items]                              
Stock repurchase program, authorized amount | $                             $ 10,000,000
Common stock repurchase activity (in shares)                     0        
Number of shares repurchased (in shares)         126,856     126,856     126,856        
Weighted average share price of common stock repurchased (in dollars per share) | $ / shares               $ 5.09              
Stock repurchase program, remaining authorized amount | $         $ 9,400,000     $ 9,400,000     $ 9,400,000        
Common Stock                              
Stockholders' Equity Note [Line Items]                              
Common stock, shares outstanding (in shares)         52,231,152 52,231,152 52,225,152 52,231,152 52,231,152 52,231,152 52,231,152 52,231,152 24,947,883    
Issuance of common stock (in shares)   27,277,269       6,000 27,277,269                
Common stock, shares issued (in dollars per share) | $ / shares   $ 3.06                          
Proceeds from issuance of common stock | $   $ 83,500,000                          
Dividends payable | $         $ 6,267,738     $ 6,267,738     $ 6,267,738        
Common Stock | Stock-for-Fees Program                              
Stockholders' Equity Note [Line Items]                              
Sale of stock, number of shares issued in transaction (in shares) 2,611,555                            
Common Stock | Stock-for-Fees Program | Director                              
Stockholders' Equity Note [Line Items]                              
Sale of stock, number of shares issued in transaction (in shares)               522,311              
Noncontrolling interests                              
Stockholders' Equity Note [Line Items]                              
Dividends on the HCMT Preferred Shares | $               $ 0              
Preferred dividends paid | $               $ 7,500              
Noncontrolling interests | Series A Preferred Stock                              
Stockholders' Equity Note [Line Items]                              
Number of shares issued (in shares)       125                      
Noncontrolling interests | $       $ 99,500                      
Equity raised | $       125,000                      
Non-controlling interests expenses | $       $ 25,500                      
Dividend rate percentage (as a percent)       12.00%                      
Redemption price ratio                           1.1  
Dividends on the HCMT Preferred Shares | $                   $ 15,000          
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
EQUITY - Dividends Declared (Details) - USD ($)
 3 Months Ended 6 Months Ended
Jul. 17, 2023
Apr. 17, 2023
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Jul. 03, 2023
Apr. 03, 2023
Mar. 31, 2023
Dec. 31, 2022
Dividends [Line Items]                    
Dividend Amount [1]     $ 4,131,369   $ 4,131,369         $ 4,131,369
Dividends declared per share of common stock (in dollars per share)     $ 0.06 $ 0.06 $ 0.12 $ 0.12        
Common Stock                    
Dividends [Line Items]                    
Dividend Amount     $ 6,267,738   $ 6,267,738          
Common Stock | Distribution One                    
Dividends [Line Items]                    
Dividend Amount     $ 3,133,869   $ 3,133,869       $ 3,133,869  
Dividends declared per share of common stock (in dollars per share)   $ 0.060                
Cash Dividend Per Weighted Average Share (in dollars per share)   0.060                
Common Stock | Distribution One | Subsequent Event                    
Dividends [Line Items]                    
Dividends declared per share of common stock (in dollars per share) $ 0.060                  
Cash Dividend Per Weighted Average Share (in dollars per share) 0.060                  
Preferred Stock | Distribution One                    
Dividends [Line Items]                    
Dividend Amount               $ 1,181,250    
Dividends declared per share of common stock (in dollars per share)   0.49219                
Cash Dividend Per Weighted Average Share (in dollars per share)   $ 0.49219                
Preferred Stock | Distribution One | Subsequent Event                    
Dividends [Line Items]                    
Dividend Amount             $ 1,181,250      
Dividends declared per share of common stock (in dollars per share) 0.49219                  
Cash Dividend Per Weighted Average Share (in dollars per share) $ 0.49219                  
[1] Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs") as the Company was the primary beneficiary of these VIEs. As of June 30, 2023 and December 31, 2022, assets of consolidated VIEs totaled $1,001,991,708 and $1,005,507,371, respectively and the liabilities of consolidated VIEs totaled $833,019,750 and $831,575,144 respectively. See Note 4 for further discussion.
v3.23.2
EARNINGS PER SHARE - Earnings per Share (Details) - USD ($)
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]            
Net income $ 2,574,227 $ 5,766,691 $ 3,343,852 $ 2,954,799 $ 8,340,918 $ 6,298,651
Less dividends:            
Common stock 3,133,869 3,133,869 3,133,869 3,133,509 6,267,738 6,267,378
Preferred stock 1,185,042 $ 1,184,958 1,185,042 $ 1,184,958 2,370,000 2,370,000
Dividends 4,318,911   4,318,911   8,637,738 8,637,378
Undistributed earnings (deficit) $ (1,744,684)   $ (975,059)   $ (296,820) $ (2,338,727)
Basic income per share (in dollars per share) $ 0.03   $ 0.04   $ 0.11 $ 0.09
Common Stock            
Less dividends:            
Distributed earnings (in dollars per share) 0.06   0.06   0.12 0.14
Undistributed earnings (deficit) (in dollars per share) (0.03)   (0.02)   0.00 (0.05)
Basic income per share (in dollars per share) 0.03   0.04   0.12 0.09
Unvested Share-Based Payment Awards            
Less dividends:            
Distributed earnings (in dollars per share) 0.06   0.06   0.12 0.14
Undistributed earnings (deficit) (in dollars per share) 0.00   0.00   0.00 0.00
Basic income per share (in dollars per share) $ 0.06   $ 0.06   $ 0.12 $ 0.14
v3.23.2
EARNINGS PER SHARE - Weighted Average Number of Shares (Details) - shares
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Earnings Per Share [Abstract]        
Basic weighted average shares of common stock (in shares) 52,226,141 52,221,394 52,225,649 44,384,462
Weighted average of non-vested restricted stock (in shares) 5,011 4,747 5,503 4,624
Diluted weighted average number of shares of common stock outstanding (in shares) 52,231,152 52,226,141 52,231,152 44,389,086
v3.23.2
SUBSEQUENT EVENTS (Details)
Jul. 12, 2023
USD ($)
property
loanAndParticipation
Jun. 30, 2023
USD ($)
Dec. 31, 2022
USD ($)
Commercial Real Estate Portfolio Segment      
Subsequent Event [Line Items]      
Face amount   $ 1,021,956,208 $ 1,076,865,099
Subsequent Event | Affiliated Entity | Lument Structured Finance      
Subsequent Event [Line Items]      
Unfunded commitments $ 28,600,000    
Subsequent Event | Senior Loans | Collateralized Securities      
Subsequent Event [Line Items]      
Initial collateral pool securing senior debt floating rate mortgage loans, basis rate | loanAndParticipation 25    
Subsequent Event | Senior Loans | Collateralized Securities | Multifamily | UNITED STATES      
Subsequent Event [Line Items]      
Initial collateral pool securing senior debt floating rate mortgage loans, basis rate | property 32    
Subsequent Event | Senior Loans | Secured​ Overnight ​Financing​ Rate      
Subsequent Event [Line Items]      
Debt, weighted average interest rate 3.14%    
Debt weighted average, excluding fees and transaction costs, term 30 days    
Subsequent Event | Senior Loans | Secured​ Overnight ​Financing​ Rate | Collateralized Securities      
Subsequent Event [Line Items]      
Debt, weighted average interest rate 3.65%    
Debt weighted average, excluding fees and transaction costs, term 30 days    
Subsequent Event | LMF 2023-1 Financing | Affiliated Entity | Lument Structured Finance      
Subsequent Event [Line Items]      
Unpaid principal balance of purchased loans $ 376,200,000    
Subsequent Event | LMF 2023-1 Financing | Collateralized Securities      
Subsequent Event [Line Items]      
Reinvestment period 24 months    
Subsequent Event | LMF 2023-1 Financing | Collateralized Securities | Affiliated Entity | Lument Structured Finance      
Subsequent Event [Line Items]      
Percentage of collateralization of acquired subsidiary, aggregate discount 1.50%    
Subsequent Event | LMF 2023-1 Financing | Internal Investment Grade | Senior Loans      
Subsequent Event [Line Items]      
Face amount $ 47,300,000    
Subsequent Event | LMF 2023-1 Financing | Internal Investment Grade | Private Placement      
Subsequent Event [Line Items]      
Face amount 270,400,000    
Subsequent Event | LMF 2023-1 Financing | Commercial Real Estate Portfolio Segment | Internal Investment Grade | Multifamily      
Subsequent Event [Line Items]      
Face amount 386,400,000    
Subsequent Event | Lument Finance Trust      
Subsequent Event [Line Items]      
Payments to retained subordinate interests $ 68,600,000    
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