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 September 30, 2021 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 https://reportify- 1252068037.cos.ap- beijing.myqcloud.com/media/productio LUMENT FINANCE TRUST, INC. (Exact n ...

Lument Finance Trust, Inc. (NYSE:LFT) Q2 2021 Earnings Conference Call August 10, 2021 8:30 AM ET Company Participants Charles Duddy - Investor Relations James Flynn - Chief Executive Officer James Briggs - Chief Financial Officer Michael Larsen - President Precilla Torres - Head of Real Estate Investment Strategies Conference Call Participants Christopher Nolan - Ladenburg Thalmann Chris Muller - JMP Securities Operator Good morning and thank you for joining the Lument Finance Trust Second Quarter 2021 Ear ...

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, 2021 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 LUMENT FINANCE TRUST, INC. (Exact name of registrant as specified in its charter) Maryland 45-4966519 (State or oth ...

Lument Finance Trust, Inc. (NYSE:LFT) Q1 2021 Earnings Conference Call May 11, 2021 8:30 AM ET Company Participants Charles Duddy - Investor Relations James Flynn - CEO Michael Larsen - President James Briggs - CFO Precilla Torres - Head of Real Estate Investment Strategies Conference Call Participants Steve Delaney - JMP Securities Jason Stewart - Jones Trading Christopher Nolan - Ladenburg Thalmann Operator Good morning, and thank you for joining the Lument Finance Trust First Quarter 2021 Earnings Call. ...

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 March 31, 2021 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 LUMENT FINANCE TRUST, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements, subject to inherent risks and uncertainties that may cause actual results to differ materially - This section warns that the report contains forward-looking statements, identified by words like 'believe,' 'expect,' or 'anticipate,' which are based on current beliefs and expectations but are subject to risks and uncertainties[10](index=10&type=chunk)[11](index=11&type=chunk) - Factors that may cause actual results to differ materially include risks detailed in Item 1A, the severity and duration of the COVID-19 pandemic, general political and economic conditions, interest rate volatility, adverse changes in real estate markets, financing difficulties, borrower defaults, legislative/regulatory developments, and the company's REIT qualification[12](index=12&type=chunk) [PART I](index=4&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) LFT is a REIT externally managed by Lument IM, specializing in transitional floating-rate commercial mortgage loans, primarily for middle-market multifamily assets, financed through non-recourse CRE CLOs - LFT is a Maryland corporation, formed in March 2012, that elected REIT status for U.S. federal income tax purposes. Its name changed from 'Hunt Companies Finance Trust, Inc.' to 'Lument Finance Trust, Inc.' on December 28, 2020[14](index=14&type=chunk)[17](index=17&type=chunk) - LFT is externally managed by OREC Investment Management, LLC (Lument IM), a subsidiary of ORIX Real Estate Capital Holdings, LLC (Lument), which is a subsidiary of ORIX Corporation USA[16](index=16&type=chunk)[20](index=20&type=chunk) - In January 2020, a new management agreement with Lument IM was entered, replacing the prior manager. An ORIX USA affiliate purchased 1,246,719 shares of LFT common stock for approximately **$5.7 million**, representing a **43% premium** over the January 2, 2020 share price, giving ORIX USA **~5.0% ownership**[18](index=18&type=chunk)[19](index=19&type=chunk) - The primary investment strategy focuses on transitional floating-rate CRE mortgage loans, with an emphasis on middle-market multifamily assets. Other potential investments include mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed-rate loans, and construction loans. Financing is primarily through match-term non-recourse CRE collateralized loan obligations (CLOs)[15](index=15&type=chunk)[21](index=21&type=chunk) Loan Portfolio Statistics as of December 31, 2020 | Metric | Value | | :-------------------------------- | :---------------- | | Number of Senior Secured Loans | 40 | | Aggregate Unpaid Principal Balance (USD) | $547.3 million | | Weighted Average Coupon (%) | 5.1% (LIBOR + 0.14%, incl. 1.64% floor) | | Weighted Average Term to Maturity (Years) | 3.1 years | | Weighted Average LTV (%) | 74.2% | | Portfolio Supported by Multifamily (%) | 89.5% | | Loans acquired in 2020 (USD) | $57.6 million | | Loan repayments in 2020 (USD) | $145.5 million | | Net repayments in 2020 (USD) | $87.9 million | - As of December 31, 2020, the company retained servicing rights for residential mortgage loans with an aggregate unpaid principal balance of approximately **$191.8 million**, with a carrying value of **$0.9 million**. No new residential loan activity is anticipated[29](index=29&type=chunk) - The company uses leverage, typically between **three and six times stockholders' equity**, primarily through non-recourse CRE CLOs, aiming to match-fund and match-index investments to minimize duration and index differences[30](index=30&type=chunk)[31](index=31&type=chunk) [Item 1A. Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks that could adversely affect LFT's business, financial condition, results of operations, and ability to make distributions, including investment, financing, management, securities, and tax risks, with a focus on COVID-19 impacts - The ongoing COVID-19 pandemic poses significant risks, including long-term impacts on the broader economy and commercial real estate market, potential deterioration in asset values, increased borrower forbearance requests, limited ability to redeploy investment proceeds, volatility in interest rates and credit spreads, and operational challenges for third-party providers[55](index=55&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - Risks related to investment strategy and business include the inability to successfully operate or generate sufficient revenue, potential changes in business policies without shareholder approval, failure to maintain effective internal controls, and various risks associated with floating-rate commercial mortgage loans such as interest rate, prepayment, and credit risks, particularly for transitional loans[59](index=59&type=chunk)[62](index=62&type=chunk)[69](index=69&type=chunk)[74](index=74&type=chunk) - Financing and hedging risks involve high leverage amplifying losses, potential increases in borrowing costs, restrictive covenants from lenders, inability to meet financial covenants, and risks associated with non-recourse securitizations. Hedging strategies may be expensive, imperfect, or fail to protect against losses[138](index=138&type=chunk)[142](index=142&type=chunk)[146](index=146&type=chunk)[150](index=150&type=chunk) - Risks associated with the relationship with the Manager include broad investment guidelines without individual approval, incentive fees potentially encouraging riskier investments, dependence on the Manager and its key personnel, the costly and difficult termination of the management agreement, limited Manager liability, and conflicts of interest with ORIX affiliates in investment allocation[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[166](index=166&type=chunk) - Securities-related risks include substantial volatility in market price and trading volume, impact of market factors unrelated to performance, the speculative nature of investments, and potential adverse effects from future offerings of debt or equity securities that rank senior to common stock[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[175](index=175&type=chunk) - Tax risks include the potential failure to maintain REIT qualification, which would result in corporate taxation and substantial tax liability, impact on financing facilities, and distribution requirements that may limit growth. Additionally, REIT dividends do not qualify for reduced tax rates available for some dividends[205](index=205&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) [Item 1B. Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[231](index=231&type=chunk) [Item 2. Properties](index=32&type=section&id=Item%202.%20Properties) The company does not own any real estate or physical properties, with its corporate headquarters located in office space provided by its Manager - The company does not own any real estate or other physical properties[232](index=232&type=chunk) - Corporate headquarters are located at 230 Park Avenue, 23rd Floor, New York, NY 10169, in office space furnished by the Manager, with related expenses reimbursed under the management agreement[232](index=232&type=chunk) [Item 3. Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) As of the filing date, the company is not a party to any litigation or legal proceedings, nor is it aware of any threatened litigation - As of the date of filing, the company is not a party to any litigation or legal proceeding, nor is it aware of any threatened litigation or legal proceeding[233](index=233&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[234](index=234&type=chunk) [PART II](index=33&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) LFT's common stock trades on the NYSE under 'LFT,' with 24,943,383 shares outstanding as of March 12, 2021, and the company pays quarterly dividends while having a share repurchase program - LFT's common stock is listed on the NYSE under the symbol 'LFT'. As of March 12, 2021, the last reported sales price was **$3.44**[237](index=237&type=chunk) - As of March 12, 2021, there were **24,943,383 outstanding shares** of common stock[6](index=6&type=chunk)[238](index=238&type=chunk) - Dividends on common stock are paid quarterly, authorized by the board based on REIT taxable earnings, financial condition, and REIT status. The company is required to distribute at least **90%** of its REIT taxable income[239](index=239&type=chunk)[240](index=240&type=chunk) Common Dividends Declared per Share (2019-2020) | Declaration Date | Amount (USD) | Record Date | Date of Payment | | :--------------- | :----- | :---------- | :----------- | | March 18, 2019 | $0.070 | March 29, 2019 | April 15, 2019 | | June 10, 2019 | $0.075 | June 28, 2019 | July 15, 2019 | | September 17, 2019 | $0.075 | September 30, 2019 | October 15, 2019 | | December 4, 2019 | $0.075 | December 31, 2019 | January 15, 2020 | | March 12, 2020 | $0.075 | March 31, 2020 | April 15, 2020 | | June 17, 2020 | $0.075 | June 30, 2020 | July 15, 2020 | | September 17, 2020 | $0.085 | September 30, 2020 | October 15, 2020 | | December 18, 2020 | $0.090 | December 31, 2020 | January 15, 2021 | | December 21, 2020 | $0.040 | December 31, 2020 | January 15, 2021 | - The company has a share repurchase program, authorized up to **$10 million** since December 16, 2015. No common shares were purchased under this plan during the twelve months ended December 31, 2020[243](index=243&type=chunk)[244](index=244&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of LFT's business, recent developments, and a detailed analysis of its financial performance for the year ended December 31, 2020, covering key financial measures, investment portfolio activity, critical accounting policies, and liquidity - The ORIX transaction in January 2020, including a new management agreement and a **5.0% ownership stake** by an ORIX USA affiliate, is expected to enhance LFT's scale and shareholder value by leveraging ORIX USA's platform[248](index=248&type=chunk)[249](index=249&type=chunk) - The COVID-19 pandemic did not significantly impact LFT's operating results for 2020, except for expensing **$624,816** in deferred debt issuance costs. As of December 31, 2020, the loan portfolio was **100% performing** with no impairments or forbearance requests, but heightened credit risk persists[256](index=256&type=chunk)[261](index=261&type=chunk)[263](index=263&type=chunk) 2020 Financial Highlights | Metric | 2020 (USD) | 2019 (USD) | Change (YoY) (USD) | | :------------------------------------------ | :----------- | :----------- | :----------- | | Net income attributable to common stockholders | $8,434,770 | $2,664,098 | +$5.8M | | Basic and Diluted Income per Share | $0.34 | $0.11 | +$0.23 | | Distributable Earnings (non-GAAP) | $9,759,342 | $7,550,628 | +$2.2M | | Distributable Earnings per share (non-GAAP) | $0.39 | $0.32 | +$0.07 | | Book Value per Share | $4.56 | $4.59 | -$0.03 | | Dividends Declared per Share | $0.37 | $0.30 | +$0.07 | Commercial Mortgage Loan Portfolio Activity (Year Ended Dec 31) | Metric | 2020 (USD) | 2019 (USD) | | :-------------------------- | :----------- | :----------- | | Balance at Jan 1 | $635,260,420 | $555,172,891 | | Purchases and advances | $57,601,572 | $300,319,433 | | Proceeds from repayments | ($145,516,658) | ($213,415,654) | | Proceeds from sales | — | ($6,816,250) | | Balance at Dec 31 | $547,345,334 | $635,260,420 | Commercial Mortgage Loan Portfolio Statistics (as of Dec 31) | Metric | 2020 | 2019 | | :-------------------------- | :----- | :----- | | Loan Count | 40 | 51 | | Unpaid Principal Balance (USD) | $547.3M | $635.3M | | Carrying Value (USD) | $547.3M | $635.3M | | Floating Rate Loan (%) | 100.0% | 100.0% | | Weighted Average Coupon (%) | 5.1% | 5.4% | | Weighted Average Term (Years) | 3.1 | 3.8 | | Weighted Average LTV (%) | 74.2% | 73.6% | - The average risk rating of the commercial mortgage loan portfolio increased from **2.8 in 2019 to 3.1 in 2020**, primarily due to downgrading non-multifamily loans (retail and office) to reflect higher risk from the COVID-19 pandemic[293](index=293&type=chunk)[524](index=524&type=chunk) Consolidated Statements of Operations Summary (Year Ended Dec 31) | Metric | 2020 (USD) | 2019 (USD) | Change (YoY) (USD) | | :------------------------------------------ | :----------- | :----------- | :----------- | | Net Interest Income | $18,430,514 | $15,413,842 | +$3.0M | | Total Other (Loss) | ($1,070,961) | ($443,647) | -$0.6M | | Total Expenses | $9,386,031 | $8,764,828 | +$0.6M | | Net Income before Income Taxes | $7,973,522 | $6,205,367 | +$1.8M | | Benefit from Income Taxes | $476,248 | $43,523 | +$0.4M | | Net Income | $8,449,770 | $6,248,890 | +$2.2M | | Dividends to Preferred Stockholders | ($15,000) | ($491,764) | +$0.4M | | Deemed Dividend on Preferred Stock Redemption | — | ($3,093,028) | +$3.1M | | Net Income Attributable to Common Stockholders | $8,434,770 | $2,664,098 | +$5.8M | | Basic and Diluted Income per Share | $0.34 | $0.11 | +$0.23 | - As of December 31, 2020, the company had **$40.2 million** in outstanding principal under its Senior Secured Term Loan (recourse debt) and **$465.3 million** in non-recourse collateralized loan financing. The recourse debt-to-equity ratio was **0.4:1**, and the total debt-to-equity ratio was **4.4:1** on a GAAP basis[330](index=330&type=chunk)[331](index=331&type=chunk) Cash Flows Summary (Year Ended Dec 31) | Activity | 2020 (USD) | 2019 (USD) | | :------------------------------------------ | :----------- | :----------- | | Net cash provided by operating activities | $12,219,209 | $7,282,343 | | Net cash provided by (used in) investing activities | $87,915,086 | ($42,298,246) | | Net cash (used in) financing activities | ($46,770,769) | ($8,186,079) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $53,363,526 | ($43,201,982) | [Item 8. Financial Statements and Supplementary Data](index=47&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the location of the audited consolidated financial statements and supplementary data within the Form 10-K, starting on page F-2 - The Reports of Independent Registered Public Accounting Firm, the Company's consolidated financial statements, and notes to the consolidated financial statements appear in a separate section of this Form 10-K, beginning on page F-2[342](index=342&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=47&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure[343](index=343&type=chunk) [Item 9A. Controls and Procedures](index=47&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, with no material changes identified - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[345](index=345&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the criteria set forth in the COSO Framework[347](index=347&type=chunk) - No changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting were identified during the most recently completed fiscal quarter[348](index=348&type=chunk) [Item 9B. Other Information](index=48&type=section&id=Item%209B.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[349](index=349&type=chunk) [PART III](index=49&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=49&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on LFT's board of directors and executive officers, including their biographical details, qualifications, roles, and outlines the company's corporate governance practices Board of Directors (as of March 1, 2021) | Name | Age | Position Held with Us | Director Since | | :---------------- | :-- | :---------------------------------- | :------------- | | James P. Flynn | 44 | Chairman of the Board and Chief Executive Officer | 2019 | | Neil A. Cummins | 66 | Independent Director | 2013 | | James C. Hunt | 50 | Director | 2018 | | William A. Houlihan | 65 | Independent Director | 2013 | | Walter C. Keenan | 53 | Independent Director | 2015 | Executive Officers (as of March 1, 2021) | Name | Age | Position Held with Us | Officer Since | | :---------------- | :-- | :---------------------------------- | :------------ | | James P. Flynn | 44 | Chief Executive Officer and Chairman of the Board | 2018 | | Michael P. Larsen | 42 | President | 2018 | | James A. Briggs | 54 | Chief Financial Officer | 2020 | - The board's nominating and corporate governance committee reviews director qualifications annually, considering personal and professional integrity, experience in corporate management and the industry, academic expertise, and business judgment. Diversity is also considered[354](index=354&type=chunk)[355](index=355&type=chunk) - The Audit Committee consists of Messrs. Cummins, Houlihan, and Keenan. Mr. Houlihan serves as the chair and is designated as an 'audit committee financial expert' based on his education and extensive financial experience[384](index=384&type=chunk)[385](index=385&type=chunk) - The company has adopted a Code of Business Conduct and Ethics and Corporate Governance Guidelines, available on its website, to promote high ethical standards and provide a framework for board governance[381](index=381&type=chunk)[382](index=382&type=chunk) [Item 11. Executive Compensation](index=52&type=section&id=Item%2011.%20Executive%20Compensation) This section details the compensation structure for LFT's executive officers and directors, noting that executive officers receive no direct cash compensation from LFT, while independent directors receive cash retainers and restricted stock awards - Executive officers (Messrs. Flynn, Larsen, and Briggs) are employees of an affiliate of the Manager and do not receive direct compensation from LFT[386](index=386&type=chunk) - For 2020, the amount of total compensation paid by the Manager's affiliate to Mr. Briggs, allocable to his time spent managing LFT's affairs, was **$324,111** (compared to **$313,324** in 2019)[387](index=387&type=chunk) - Independent directors receive an annual cash retainer of **$50,000** and **1,500 restricted shares** of common stock. Committee chairs receive additional cash retainers (**$15,000** for Audit, **$10,000** for Compensation and Nominating & Corporate Governance)[391](index=391&type=chunk) Director Compensation for 2020 | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | | :------------------ | :------------------------------ | :--------------- | :------------------------- | :-------- | | Neil A. Cummins | 60,000 | 3,900 | 4,818 | 68,718 | | William A. Houlihan | 65,000 | 3,900 | 4,818 | 73,718 | | Walter C. Keenan | 60,000 | 3,900 | 3,448 | 67,348 | | James C. Hunt | — | — | — | — | - The company maintains an insider trading policy that prohibits short selling, dealing in publicly traded options, and hedging or monetization transactions in its securities[389](index=389&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=53&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details the beneficial ownership of LFT's common stock by significant holders, directors, and executive officers, and provides information on the Manager Equity Plan and Section 16(a) reporting compliance - The Manager Equity Plan allows for grants of restricted common stock and other equity-based awards up to **3.0%** of the total issued and outstanding common stock (fully diluted) to the Manager and independent directors[396](index=396&type=chunk) Equity Compensation Plan Information (as of December 31, 2020) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights (USD) | Number of securities remaining available for future issuance under equity compensation plans | | :------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :----------------------------------------------------------------------- | | Equity compensation plans approved by security holders | — | — | 682,301 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **—** | **—** | **682,301** | Beneficial Ownership Table (as of March 1, 2021) | Name of Beneficial Owner | Shares of Common Stock Owned | Percentage of Common Stock Owned (%) | | :-------------------------------- | :--------------------------- | :------------------------------- | | XL Investments Ltd | 3,330,550 | 13.39 % | | XL Global, Inc. | 10,230 | * | | Hunt Companies Equity Holdings LLC | 2,249,901 | 9.02 % | | James P. Flynn | 107,180 | * | | James C. Hunt | 215,054 | * | | Michael Larsen | 41,121 | * | | James A. Briggs | 17,500 | * | | Neil A. Cummins | 38,794 | * | | William A. Houlihan | 68,793 | * | | Walter C. Keenan | 40,411 | * | | All directors and executive officers as a group (seven persons) | 528,853 | 2.04 % | - All Section 16(a) filing requirements for directors, executive officers, and greater than **10%** stockholders were complied with on a timely basis for the year ended December 31, 2020, except for a late Form 4 filing for Mr. Flynn related to a common stock purchase on March 26, 2020[403](index=403&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=54&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section details the company's relationships and transactions with related parties, including its Manager, ORIX affiliates, and Hunt Companies, covering management fees, expense reimbursements, investment transactions, and director independence - A new Management Agreement with Lument IM became effective on January 3, 2020. For the year ended December 31, 2020, the company incurred management and incentive fees of **$2,505,318** and reimbursed operating expenses of **$1,644,886** to the Manager[405](index=405&type=chunk)[553](index=553&type=chunk)[556](index=556&type=chunk) - XL Investments, an indirect subsidiary of AXA SA, owned **13.39%** of LFT's common stock as of March 1, 2021, and has the right to appoint a board observer. The board granted XL Investments an exemption from the **9.8% ownership limitation**[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk) - ORIX Real Estate Capital Holdings, LLC (Lument) affiliates, including Lument IM (the Manager), have significant relationships with LFT, including a **5.00% ownership stake** by OREC Investment Holdings, LLC. Potential conflicts of interest exist due to ORIX's broader investment activities[410](index=410&type=chunk)[411](index=411&type=chunk) - In 2020, Hunt CRE 2017-FL1 and Hunt CRE 2018-FL2 purchased loans totaling **$46.3 million** from OREC Structured Finance Co., LLC (LSF), an affiliate of the Manager[412](index=412&type=chunk) - On August 5, 2020, future funding participation interests for Hunt CRE 2017-FL1 were transferred to LSF, with LFT agreeing to purchase funded participations from LSF at par when capital is available. The maximum unfunded commitments for FL1 Seller were **$28.9 million** as of December 31, 2020[327](index=327&type=chunk)[561](index=561&type=chunk) - Hunt Companies Equity Holdings, LLC (an affiliate of Hunt Companies, Inc.) owns **9.02%** of LFT's common stock and has the right to designate one director to the board[413](index=413&type=chunk)[414](index=414&type=chunk) - Registration rights agreements are in place with XL Investments, HCEH, and OREC Investment Holdings, LLC, allowing them to register the resale of their common stock[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk) - The company's charter and bylaws provide indemnification for directors and officers to the fullest extent permitted by Maryland law, with limitations for acts of bad faith, willful misconduct, gross negligence, or improper personal benefit[419](index=419&type=chunk) - All directors, except James P. Flynn (CEO/Chairman) and James C. Hunt (Director), were determined to be independent for purposes of NYSE listing standards[422](index=422&type=chunk) [Item 14. Principal Accounting Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section details the fees paid to the independent registered public accounting firm, KPMG LLP, for audit and audit-related services in 2020 and 2019, and outlines the audit committee's pre-approval policy for such services Fees Billed by Independent Registered Public Accounting Firm (Year Ended Dec 31) | Category | 2020 (USD) | 2019 (USD) | | :--------------- | :----------- | :----------- | | Audit Fees | $536,000 | $720,390 | | Audit-Related Fees | — | $89,500 | | Tax Fees | — | — | | All Other Fees | — | — | | **Total** | **$536,000** | **$622,980** | - The audit committee's charter requires pre-approval of all audit services, audit-related tax services, and other permitted services performed by the independent registered public accounting firm. All services in 2020 were approved in accordance with this policy[428](index=428&type=chunk) [PART IV](index=58&type=section&id=PART%20IV) [Item 15. Exhibits, Financial Statements and Schedules](index=58&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statements%20and%20Schedules) This item lists the financial statements, exhibits, and schedules included as part of the Annual Report on Form 10-K - The report includes consolidated financial statements (Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, Statements of Cash Flows) and related notes, along with the Reports of Independent Registered Public Accounting Firm[432](index=432&type=chunk)[449](index=449&type=chunk) - A detailed Exhibit Index is provided, incorporating various documents by reference, and Schedule IV – Mortgage Loans on Real Estate is included[433](index=433&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[434](index=434&type=chunk)[591](index=591&type=chunk) [Item 16. Form 10-K Summary](index=62&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company states that no Form 10-K Summary is provided - No Form 10-K Summary is provided[442](index=442&type=chunk)

Hunt Companies Finance Trust, Inc. (HCFT) Q3 2020 Earnings Conference Call November 9, 2020 8:30 AM ET Company Participants Charles Study - Investor Relations, OREC Investment Management James Flynn - Chief Executive Officer Mike Larsen - President James Briggs - Chief Financial Officer Precilla Torres - Head, Real Estate Investment Strategies Conference Call Participants Christopher Nolan - Ladenburg Thalmann Steve Delaney - JMP Securities Operator Good morning and thank you for joining the Hunt Companies ...

| --- | --- | --- | |-----------------------------------|-------|-------| | | | | | | | | | | | | | Hunt Companies Finance Trust | | | | Q3 2020 Earnings Supplemental | | | | | | | | | | | | November 2020 | | | | | | | | www.huntcompaniesfinancetrust.com | | | Disclaimer This presentation, any related webcast/conference call, and other oral statements made by our representatives from time to time may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as am ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the company's financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, along with detailed notes on accounting policies and other disclosures [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the Company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, along with comprehensive notes detailing accounting policies, investment characteristics, related party transactions, and other financial disclosures for the periods ended September 30, 2020, and December 31, 2019 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and liabilities from December 31, 2019, to September 30, 2020, while total equity increased | Metric | September 30, 2020 | December 31, 2019 | | :------------------------------------------ | :------------------- | :------------------- | | **ASSETS** | | | | Cash and cash equivalents | $9,720,138 | $10,942,115 | | Restricted cash | $14,548,916 | $5,069,715 | | Commercial mortgage loans held-for-investment | $598,933,122 | $635,260,420 | | Total assets | $637,827,526 | $657,901,998 | | **LIABILITIES AND EQUITY** | | | | Collateralized loan obligations, net | $479,704,710 | $505,930,065 | | Total liabilities | $523,349,362 | $549,257,286 | | Total equity | $114,478,164 | $108,644,712 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show an increase in net income attributable to common stockholders for both the three and nine months ended September 30, 2020, compared to the prior year, driven by higher net interest income despite increased total expenses | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $4,831,984 | $3,795,884 | $13,791,320 | $12,049,146 | | Total other (loss) | $(162,138) | $(201,595) | $(1,016,534) | $(622,133) | | Total expenses | $2,261,431 | $1,703,217 | $7,230,789 | $6,527,324 | | Net income attributable to common stockholders | $2,547,218 | $2,153,956 | $5,970,092 | $1,445,601 | | Basic and diluted income per share | $0.10 | $0.09 | $0.24 | $0.06 | | Dividends declared per share of common stock | $0.09 | $0.08 | $0.24 | $0.22 | [Condensed Consolidated Statement of Changes in Equity](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Equity) The statement of changes in equity reflects an increase in total equity from December 31, 2019, to September 30, 2020, primarily due to the issuance of common stock and net income, partially offset by common dividends declared | Metric | December 31, 2019 | September 30, 2020 | | :-------------------------------- | :------------------ | :------------------- | | Total Equity | $108,644,712 | $114,478,164 | | Issuance of common stock (9 months) | N/A | $5,747,375 | | Net income (9 months) | N/A | $5,981,384 | | Common dividends declared (9 months) | N/A | $(5,861,358) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities increased, while investing activities provided less cash and financing activities used significantly more cash for the nine months ended September 30, 2020, compared to the prior year, resulting in a lower net increase in cash, cash equivalents, and restricted cash | Cash Flow Category | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $8,624,187 | $5,158,355 | | Net cash provided by investing activities | $27,151,602 | $33,440,622 | | Net cash (used in) financing activities | $(27,518,565) | $(6,474,957) | | Net increase in cash, cash equivalents and restricted cash | $8,257,224 | $32,124,020 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the financial statements, covering the Company's organization, significant accounting policies, characteristics of its commercial mortgage loan portfolio, related party transactions, guarantees, commitments, equity, earnings per share, segment reporting, and income taxes [NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS](index=8&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20BUSINESS%20OPERATIONS) This note outlines the Company's primary investment focus, management structure changes, REIT election, and preferred stock redemption - The Company primarily invests in, finances, and manages a portfolio of commercial real estate debt investments[20](index=20&type=chunk) - Effective January 3, 2020, OREC Investment Management, LLC became the external manager, replacing Hunt Investment Management, LLC[20](index=20&type=chunk)[24](index=24&type=chunk) - The Company elected to be taxed as a real estate investment trust (REIT)[21](index=21&type=chunk) - On February 14, 2019, the Company redeemed all **1,610,000 shares** of its outstanding 8.75% Series A Cumulative Redeemable Preferred Stock using proceeds from a **$40.25 million** secured term loan[22](index=22&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the accounting principles used, including GAAP compliance, consolidation of VIEs, COVID-19 impact considerations, and specific asset valuation methods - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting[25](index=25&type=chunk) - The Company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, specifically Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd[26](index=26&type=chunk)[28](index=28&type=chunk) - The COVID-19 pandemic introduces significant uncertainty to estimates and assumptions, with actual results potentially differing materially[29](index=29&type=chunk)[30](index=30&type=chunk) - Commercial mortgage loans held-for-investment are carried at amortized cost, and interest income is recognized using the effective interest method[39](index=39&type=chunk)[40](index=40&type=chunk) - Mortgage servicing rights (MSRs) are reported at fair value[43](index=43&type=chunk) - As a smaller reporting company, the Company has deferred implementation of ASU 2016-13 (Credit Losses) until January 1, 2023[60](index=60&type=chunk)[65](index=65&type=chunk) [NOTE 3 – COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT](index=16&type=section&id=NOTE%203%20%E2%80%93%20COMMERCIAL%20MORTGAGE%20LOANS%20HELD-FOR-INVESTMENT) This note provides details on the commercial mortgage loan portfolio, including its size, characteristics, activity, risk ratings, and collateral types | Metric | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------- | | Unpaid Principal Balance | $598,933,122 | $635,260,420 | | Loan Count | 44 | 51 | | Weighted Average Coupon | 5.1% | 5.4% | | Weighted Average Remaining Term | 3.2 years | 3.8 years | - For the nine months ended September 30, 2020, loan portfolio activity included **$52.6 million** in purchases and fundings and **$(88.9) million** in principal payments[68](index=68&type=chunk) - The average risk rating of the commercial mortgage loan portfolio increased from **2.8 (Moderate Risk)** at December 31, 2019, to **3.1 (Moderate Risk)** at September 30, 2020, primarily due to downgrades of non-multi-family loans (retail and office) impacted by the COVID-19 pandemic[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) - As of September 30, 2020, **90.4%** of collateral property types were Multi-Family, a decrease from **93.9%** at December 31, 2019[71](index=71&type=chunk) - No impaired loans, nonaccrual loans, or loans in maturity default were reported as of September 30, 2020, or December 31, 2019[72](index=72&type=chunk) [NOTE 4 - THE FREMF TRUSTS](index=17&type=section&id=NOTE%204%20-%20THE%20FREMF%20TRUSTS) This note confirms the Company no longer holds any FREMF Trusts and details the payment in full of a specific trust - As of September 30, 2020, the Company no longer held any FREMF Trusts[73](index=73&type=chunk) - The FREMF 2012-KF01 trust was paid-in full on January 25, 2019[74](index=74&type=chunk) [NOTE 5 - USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES](index=17&type=section&id=NOTE%205%20-%20USE%20OF%20SPECIAL%20PURPOSE%20ENTITIES%20AND%20VARIABLE%20INTEREST%20ENTITIES) This note explains the Company's consolidation of specific Variable Interest Entities (VIEs) and provides their financial metrics and CLO operational results - The Company consolidates Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. as Variable Interest Entities (VIEs) because it is the primary beneficiary[78](index=78&type=chunk) | VIE Assets/Liabilities | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------- | | Total Assets | $608,690,756 | $636,541,489 | | Total Liabilities | $480,043,366 | $506,662,238 | - All collateralization and coverage tests in the consolidated CLOs were met as of September 30, 2020[79](index=79&type=chunk) | CLO Operations | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------- | :-------------------------- | :-------------------------- | | Interest income | $25,225,152 | $29,695,218 | | Interest expense | $(9,649,523) | $(16,147,178) | | Net income | $15,078,541 | $13,010,012 | [NOTE 6 - RESTRICTED CASH](index=19&type=section&id=NOTE%206%20-%20RESTRICTED%20CASH) This note clarifies the restrictions on cash, particularly regarding reinvestment periods for specific CLO entities - The reinvestment period for Hunt CRE 2017-FL1, Ltd. expired on February 20, 2020[85](index=85&type=chunk) - Cash received from loan payoffs or maturities in Hunt CRE 2018-FL2, Ltd. is restricted for reinvestment during its 36-month reinvestment period[85](index=85&type=chunk) [NOTE 7 - SECURED TERM LOAN](index=19&type=section&id=NOTE%207%20-%20SECURED%20TERM%20LOAN) This note details the Company's secured term loan, including its terms, compliance with covenants, and recent amendments - The Company has a **$40.25 million** Secured Term Loan with a 6-year maturity, bearing a fixed interest rate of **7.25%** for the initial five-year period[86](index=86&type=chunk)[87](index=87&type=chunk) - As of September 30, 2020, the Company was in compliance with all covenants of the Credit Agreement[89](index=89&type=chunk) - A Second Amendment to the Credit and Guaranty Agreement was entered into on July 9, 2020, to provide additional flexibility for managing potential borrower distress related to COVID-19[88](index=88&type=chunk) [NOTE 8 – MSRs](index=20&type=section&id=NOTE%208%20%E2%80%93%20MSRs) This note provides a summary of Mortgage Servicing Rights (MSRs), including their fair value, unrealized losses, and servicing income | Metric | September 30, 2020 | September 30, 2019 | | :-------------------------------- | :------------------- | :------------------- | | Balance at end of period | $1,097,154 | $2,713,809 | | Unrealized (loss) on MSRs (9 months) | $(1,603,052) | $(1,283,977) | | Servicing income, net (9 months) | $586,516 | $676,944 | | MSR values as percent of loans | 0.46% | 0.75% | - Mortgage Servicing Rights (MSRs) are held and managed at the Company's taxable REIT subsidiary (TRS) and are reported at fair value[43](index=43&type=chunk)[91](index=91&type=chunk) [NOTE 9 – FAIR VALUE](index=20&type=section&id=NOTE%209%20%E2%80%93%20FAIR%20VALUE) This note details the fair value measurements of financial instruments, classifying them by hierarchy level - Mortgage servicing rights (MSRs) are classified as Level 3 assets, with a balance of **$1,097,154** as of September 30, 2020, down from **$2,700,207** at December 31, 2019[94](index=94&type=chunk)[95](index=95&type=chunk) | Financial Instrument | Fair Value Hierarchy Level | Carrying Value (Sep 30, 2020) | Fair Value (Sep 30, 2020) | | :------------------------------------ | :-------------------------- | :------------------------------ | :-------------------------- | | Commercial mortgage loans held-for-investment | 3 | $598,933,122 | $594,213,194 | | Collateralized loan obligations | 2 | $479,704,710 | $470,291,430 | | Secured Term Loan | 3 | $39,512,924 | $42,046,142 | [NOTE 10 - RELATED PARTY TRANSACTIONS](index=22&type=section&id=NOTE%2010%20-%20RELATED%20PARTY%20TRANSACTIONS) This note outlines transactions with related parties, including management fees, reimbursable expenses, and loan purchases from affiliates | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Management and incentive fees | $1,850,139 | $1,677,456 | | Operating expenses reimbursable to Manager | $1,249,123 | $1,232,211 | | Reimbursable expense waived | $73,549 | $345,988 | - Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. purchased loans from OREC Structured Finance, LLC, an affiliate of the Manager[108](index=108&type=chunk)[109](index=109&type=chunk) - An amendment to Participation Agreements transferred future funding participation interests from FL1 Seller to OREC SF, with OREC SF making advances on unfunded loan commitments, and the Company may be required to purchase these participations, with a maximum unfunded commitment of **$31.3 million** as of September 30, 2020[112](index=112&type=chunk) [NOTE 11 - GUARANTEES](index=24&type=section&id=NOTE%2011%20-%20GUARANTEES) This note details the Company's guarantee obligations, including the assumption of backstop guarantees by MAXEX Clearing LLC and the estimated maximum potential future payments - MAXEX Clearing LLC assumed all of FOAC's backstop guarantee obligations as of December 31, 2018, indemnifying FOAC against related losses[116](index=116&type=chunk) - The maximum potential amount of future payments under outstanding backstop guarantees was estimated at **$860.5 million** as of September 30, 2020, a decrease from **$1.4 billion** at December 31, 2019, though the Company believes this is not indicative of actual potential losses[117](index=117&type=chunk) [NOTE 12 - COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=NOTE%2012%20-%20COMMITMENTS%20AND%20CONTINGENCIES) This note addresses the uncertain impact of the COVID-19 pandemic and details unfunded loan commitments for various entities - The full extent of the COVID-19 pandemic's impact remains uncertain, and no contingencies have been recorded on the consolidated balance sheet as of September 30, 2020[119](index=119&type=chunk) - Unfunded commitments related to loans held in Hunt CRE 2017-FL1, Ltd. were **$29.5 million** as of September 30, 2020[120](index=120&type=chunk) - Unfunded commitments related to loans held in Hunt CRE 2018-FL2, Ltd. were **$40.9 million** as of September 30, 2020[122](index=122&type=chunk) - Future loan fundings are uncertain and anticipated to be slower due to the COVID-19 pandemic[123](index=123&type=chunk) [NOTE 13 - EQUITY](index=25&type=section&id=NOTE%2013%20-%20EQUITY) This note details changes in common stock, preferred stock redemption, and common stock dividends declared - Common stock issued and outstanding increased to **24,943,383 shares** at September 30, 2020, from **23,692,164 shares** at December 31, 2019[124](index=124&type=chunk) - On January 3, 2020, the Company issued **1,246,719 shares** of common stock in a private placement, generating **$5.7 million** in net proceeds[124](index=124&type=chunk) - All 8.75% Series A Cumulative Redeemable Preferred Stock was redeemed on February 14, 2019[126](index=126&type=chunk) - For the 2020 taxable year to date, the Company declared **$5,861,358**, or **$0.24 per share**, in dividends to common stockholders[127](index=127&type=chunk) [NOTE 14 - EARNINGS PER SHARE](index=26&type=section&id=NOTE%2014%20-%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per share, including the impact of participating securities | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net income attributable to common stockholders | $5,970,092 | $1,445,601 | | Basic weighted average shares of common stock | 24,927,122 | 23,683,164 | | Diluted weighted average shares of common stock outstanding | 24,931,524 | 23,687,664 | | Basic and diluted income per share | $0.24 | $0.06 | - Outstanding unvested restricted shares issued under the Manager Equity Plan are considered participating securities and are included in the computation of basic and diluted earnings per share[129](index=129&type=chunk) [NOTE 15 - SEGMENT REPORTING](index=27&type=section&id=NOTE%2015%20-%20SEGMENT%20REPORTING) This note clarifies that the Company operates as a single reporting segment focused on commercial mortgage loans and related investments - The Company operates as a single reporting segment, investing in a portfolio of commercial mortgage loans and other mortgage-related investments[132](index=132&type=chunk) [NOTE 16 - INCOME TAXES](index=27&type=section&id=NOTE%2016%20-%20INCOME%20TAXES) This note explains the Company's REIT tax status, resolution of a prior income test failure, and the tax treatment of its Taxable REIT Subsidiary - The Company has elected to be treated as a REIT, generally not subject to federal income tax at the corporate level if it distributes **100%** of its taxable earnings[133](index=133&type=chunk) - The Company resolved the 2018 **75%** Income Test Failure with the IRS, confirming that its REIT election will not be impacted[136](index=136&type=chunk) - Certain activities are conducted through a Taxable REIT Subsidiary (TRS), FOAC, which is subject to tax as a U.S. C-Corporation[133](index=133&type=chunk) [NOTE 17 - SUBSEQUENT EVENTS](index=28&type=section&id=NOTE%2017%20-%20SUBSEQUENT%20EVENTS) This note confirms that management has reviewed subsequent events and found no items requiring additional disclosure - Management has reviewed subsequent events through the issuance date and determined that no events occurred requiring accrual or additional disclosure[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of its business, recent developments, factors impacting performance, and detailed analysis of financial results, liquidity, and capital resources, also addressing the ongoing impact of the COVID-19 pandemic [Overview](index=29&type=section&id=Overview) This overview describes the Company's investment focus, new management agreement, primary investment strategy, and REIT tax election - The Company focuses on investing in, financing, and managing a portfolio of commercial real estate debt investments[142](index=142&type=chunk) - In January 2020, the Company entered into a new management agreement with OREC Investment Management, LLC, and an affiliate of ORIX USA purchased a **5.0%** ownership stake through a private placement[143](index=143&type=chunk) - The Company primarily invests in transitional floating rate commercial mortgage loans, with an emphasis on middle market multi-family assets, financed through match term collateralized loan obligations[144](index=144&type=chunk) - The Company has elected to be taxed as a REIT[146](index=146&type=chunk) [Third Quarter 2020 Summary](index=29&type=section&id=Third%20Quarter%202020%20Summary) This summary highlights the loan portfolio decrease and the announced increase in the third-quarter common stock dividend - The loan portfolio decreased by **$10.9 million** to **$598.9 million**, with **$10.6 million** in loan purchases offset by **$21.5 million** in loan payoffs[148](index=148&type=chunk) - The Company announced a third-quarter dividend of **$0.085 per share** of common stock, representing a **13.3%** increase over the second-quarter dividend[148](index=148&type=chunk) [The ORIX Transaction](index=30&type=section&id=The%20ORIX%20Transaction) This section details the new external management agreement with OREC IM and the private placement of common stock to an ORIX USA affiliate - On January 6, 2020, the Company entered into a new external management agreement with OREC IM, part of ORIX Real Estate Capital's platform[149](index=149&type=chunk) - An affiliate of ORIX USA purchased **1,246,719 shares** of the Company's common stock in a private placement for **$5,747,375**, representing a **43%** premium over the January 2, 2020, share price[150](index=150&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) This section discusses the adverse impact of the COVID-19 pandemic on economic conditions and the Company's future financial outlook, noting limited impact on current operating results - The COVID-19 pandemic continues to adversely impact economic and market conditions globally, nationally, and locally[151](index=151&type=chunk) - The Company faces future uncertainty and risk regarding its financial condition, results of operations, liquidity, and ability to pay distributions due to the pandemic[152](index=152&type=chunk) - Operating results for the three and nine months ended September 30, 2020, were not significantly impacted by COVID-19, except for **$624,816** in expensed deferred debt issuance costs related to an unlikely collateralized loan obligation transaction[153](index=153&type=chunk) [Factors Impacting Our Operating Results](index=30&type=section&id=Factors%20Impacts%20Our%20Operating%20Results) This section identifies key factors influencing operating results, including net interest income, asset market value, supply/demand, interest rate sensitivity, LIBOR discontinuation, credit risk, and prepayment risk - Operating results are primarily affected by net interest income, market value of assets, and supply/demand for target assets[154](index=154&type=chunk) - Rising interest rates generally increase net interest income, while declining rates decrease it, and the Company's loan portfolio benefits from **100%** LIBOR floors (weighted average **1.61%** as of September 30, 2020)[155](index=155&type=chunk) - The discontinuation of LIBOR after 2021 introduces uncertainty regarding alternative base rates and their impact[155](index=155&type=chunk) - Heightened credit risk is associated with the commercial mortgage loan portfolio due to COVID-19, although all loans were current as to principal and interest as of September 30, 2020[157](index=157&type=chunk) - Prepayment risk is not considered a material risk as all commercial mortgage loans were acquired at par[159](index=159&type=chunk) [Managing Our Business through COVID-19](index=31&type=section&id=Managing%20Our%20Business%20through%20COVID-19) This section outlines the Company's strategies for managing its business during the COVID-19 pandemic, including remote work, borrower engagement, and a cautious approach to new investments - The Manager implemented a work-from-home policy for employees, who remain fully operational[162](index=162&type=chunk) - The Company is actively engaging with borrowers to monitor property performance and potential cash flow pressures[162](index=162&type=chunk) - A more measured approach is being taken for new investment activity, incorporating the impact of COVID-19[163](index=163&type=chunk) - The CDC's nationwide moratorium on residential evictions may negatively impact multi-family property cash flow coverage of debt service[163](index=163&type=chunk) [Investment Portfolio](index=32&type=section&id=Investment%20Portfolio) This section provides an overview of the Company's investment portfolio, focusing on commercial mortgage loans, their characteristics, activity, risk ratings, and performance | Metric | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------- | | Commercial Mortgage Loans Held-for-Investment | $598,933,122 | $635,260,420 | | Loan Count | 44 | 51 | | Weighted Average Coupon | 5.1% | 5.4% | | Weighted Average Remaining Term | 3.2 years | 3.8 years | - For the nine months ended September 30, 2020, loan portfolio activity included **$52.6 million** in purchases and fundings and **$(88.9) million** in principal repayments[166](index=166&type=chunk) - The weighted average risk rating of the loan portfolio increased from **2.8** to **3.1**, reflecting higher risk in retail and office properties due to COVID-19[172](index=172&type=chunk) - All loans in the portfolio were performing, with no impairments, defaults, or non-accrual loans as of September 30, 2020, and all October payments were made[169](index=169&type=chunk) [Collateralized Loan Obligations](index=34&type=section&id=Collateralized%20Loan%20Obligations) This subsection describes how the Company finances its commercial mortgage loans primarily through collateralized loan obligations (CLOs) - The Company finances its commercial mortgage loans primarily with collateralized loan obligations (CLOs)[173](index=173&type=chunk) - As of September 30, 2020, the carrying value of CLOs was **$479.7 million**, and the outstanding principal balance was **$482.4 million**[173](index=173&type=chunk) [FOAC and Our Residential Mortgage Loan Business](index=34&type=section&id=FOAC%20and%20Our%20Residential%20Mortgage%20Loan%20Business) This section explains FOAC's historical role in residential mortgage loan aggregation, its cessation of prime jumbo loan aggregation, and the assumption of backstop guarantee obligations by MAXEX Clearing LLC - FOAC, a Taxable REIT Subsidiary (TRS), historically aggregated mortgage loans for securitization but has ceased aggregating prime jumbo loans[174](index=174&type=chunk)[175](index=175&type=chunk) - MAXEX Clearing LLC assumed all of FOAC's backstop guarantee obligations as of December 31, 2018, indemnifying FOAC against related losses[176](index=176&type=chunk) - The maximum potential future payments under outstanding backstop guarantees decreased from **$1.4 billion** at December 31, 2019, to **$860.5 million** at September 30, 2020[117](index=117&type=chunk) [Equity and Book Value Per Share](index=35&type=section&id=Equity%20and%20Book%20Value%20Per%20Share) This section reports the Company's total equity and book value per common share, attributing the increase to net income offsetting dividends - As of September 30, 2020, the Company's total equity was **$114.5 million**[177](index=177&type=chunk) - Book value per common share was **$4.59** on a basic and fully diluted basis as of September 30, 2020, an increase from the previous quarter-end amount of **$4.57**[177](index=177&type=chunk) - The increase in book value is attributed to increased net income in the quarter, which more than offset the increase in common dividends[177](index=177&type=chunk) [Critical Accounting Policies and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant judgments and estimates required for financial statement preparation, particularly concerning commercial mortgage loans and MSRs, and notes no impairments were recognized - The preparation of financial statements requires significant judgments and estimates, which are inherently less certain due to the COVID-19 pandemic[178](index=178&type=chunk) - Commercial mortgage loans held-for-investment are carried at amortized cost, and impairment is assessed quarterly by comparing the estimated fair value of collateral to the loan's book value[179](index=179&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) - Mortgage Servicing Rights (MSRs) are reported at fair value[185](index=185&type=chunk) - No impairments were recognized on loans held-for-investment as of September 30, 2020[184](index=184&type=chunk) [Capital Allocation](index=36&type=section&id=Capital%20Allocation) This section presents the Company's capital allocation across different categories, highlighting the increasing proportion dedicated to commercial mortgage loans | Capital Allocation Category | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------- | | Commercial Mortgage Loans | $144,948,269 | $136,010,251 | | MSRs | $1,115,474 | $2,700,207 | | Unrestricted Cash | $7,927,345 | $9,318,295 | | Total Capital Allocated | $153,991,088 | $148,028,753 | | % Capital (Commercial Mortgage Loans) | 94.1% | 91.9% | - Commercial mortgage loans represent the largest portion of allocated capital, increasing from **91.9%** to **94.1%** of total allocated capital[189](index=189&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) This section discusses the comparability of operating results, the limited impact of COVID-19 on current performance, and potential future effects of the pandemic - Results of operations for the periods ended September 30, 2020, and September 30, 2019, are not directly comparable due to significant events in 2019 (FREMF trust repayment, preferred stock redemption, Secured Term Loan draw)[191](index=191&type=chunk) - The COVID-19 pandemic did not significantly impact operating results for the period ended September 30, 2020, except for **$624,816** in expensed deferred debt issuance costs[192](index=192&type=chunk) - The pandemic's prolonged duration could further affect interest income, credit losses, and commercial mortgage loan reinvestment[192](index=192&type=chunk) [Net Income Summary](index=37&type=section&id=Net%20Income%20Summary) This summary presents net income attributable to common stockholders and basic/diluted net income per share for the three and nine months ended September 30, 2020, highlighting the drivers of the increase | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net income attributable to common stockholders | $5,970,092 | $1,445,601 | | Basic and diluted net income per average share | $0.24 | $0.06 | - The increase in net income for the nine months ended September 30, 2020, was primarily driven by an increase in net interest income, a decrease in preferred dividends, and the absence of a deemed dividend on preferred stock redemption[194](index=194&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net income attributable to common stockholders | $2,547,218 | $2,153,956 | | Basic and diluted net income per average share | $0.10 | $0.09 | [Net Interest Income](index=38&type=section&id=Net%20Interest%20Income) This section details the net interest income for the three and nine months ended September 30, 2020, and explains the factors contributing to its increase | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------- | :-------------------------- | :-------------------------- | | Net interest income | $13,791,320 | $12,049,146 | - The nine-month increase was due to a **$40.3 million** increase in the weighted-average principal balance of the loan portfolio, a **26bps** increase in weighted-average LIBOR floors, and a **167bps** decrease in weighted-average LIBOR for CLO liabilities[197](index=197&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | | :----------------- | :-------------------------- | :-------------------------- | | Net interest income | $4,831,984 | $3,795,884 | [Other Income](index=38&type=section&id=Other%20Income) This section summarizes other income (loss) for the three and nine months ended September 30, 2020, primarily attributing the nine-month loss to unrealized losses on mortgage servicing rights | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------- | :-------------------------- | :-------------------------- | | Total other (loss) | $(1,016,534) | $(622,133) | - The nine-month loss was primarily driven by net unrealized losses on mortgage servicing rights of **$(1,603,052)**, partially offset by net mortgage servicing income of **$586,516**[199](index=199&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | | :----------------- | :-------------------------- | :-------------------------- | | Total other (loss) | $(162,138) | $(201,595) | [Expenses](index=38&type=section&id=Expenses) This section details the Company's expenses for the three and nine months ended September 30, 2020, highlighting the increase in operating expenses due to insurance, legal fees, and expensed deferred costs | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Management and incentive fees | $1,850,139 | $1,677,456 | | Operating expenses reimbursable to Manager | $1,249,123 | $1,232,211 | | General and administrative expenses | $2,531,385 | $3,266,757 | | Other operating expenses | $1,444,049 | $204,228 | | Compensation expense | $156,093 | $146,672 | | Total expenses | $7,230,789 | $6,527,324 | - The period-over-period increase in operating expenses for the nine months was primarily due to increased insurance and legal fees, as well as deferred costs expensed during the period[206](index=206&type=chunk) | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Management and incentive fees | $675,107 | $557,833 | | Operating expenses reimbursable to Manager | $441,349 | $175,174 | | General and administrative expenses | $786,651 | $904,413 | | Other operating expenses | $309,125 | $19,212 | | Compensation expense | $49,199 | $46,585 | | Total expenses | $2,261,431 | $1,703,217 | [Impairment](index=39&type=section&id=Impairment) This section states that the Company has not recognized any impairments on its loans held-for-investment or recorded any allowance for loan losses - The Company has not recognized any impairments on its loans held-for-investment for the three and nine months ended September 30, 2020, and 2019, and has not recorded any allowance for loan losses[209](index=209&type=chunk) [Income Tax (Benefit) Expense](index=39&type=section&id=Income%20Tax%20%28Benefit%29%20Expense) This section presents the income tax benefit for the three and nine months ended September 30, 2020, and 2019 | Metric | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | Benefit from income taxes | $437,387 | $126,996 | | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | Benefit from income taxes | $142,595 | $266,676 | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section outlines the Company's primary liquidity sources, outstanding debt, debt-to-equity ratios, and the potential impact of the COVID-19 pandemic on financing - Primary liquidity sources include net proceeds from common/preferred stock issuances, debt offerings, and net cash from operating activities[211](index=211&type=chunk) - As of September 30, 2020, the Company had a **$40.2 million** outstanding principal under its Secured Term Loan (**7.25%** borrowing rate, matures January 2025) and **$482.4 million** in collateralized loan financing[211](index=211&type=chunk)[215](index=215&type=chunk) - The recourse debt to equity ratio was **0.4:1**, and the total debt to equity ratio (GAAP basis) was **4.6:1** as of September 30, 2020[215](index=215&type=chunk)[216](index=216&type=chunk) - Unrestricted cash and cash equivalents decreased to **$9.7 million** at September 30, 2020, from **$10.9 million** at December 31, 2019[214](index=214&type=chunk) - The COVID-19 pandemic may make obtaining additional financing more difficult[211](index=211&type=chunk) [Cash Flows](index=39&type=section&id=Cash%20Flows) This section summarizes the Company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2020 | Cash Flow Category | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $8,624,187 | $5,158,355 | | Net cash provided by investing activities | $27,151,602 | $33,440,622 | | Net cash (used in) financing activities | $(27,518,565) | $(6,474,957) | | Net increase in cash, cash equivalents and restricted cash | $8,257,224 | $32,124,020 | - Operating activities provided **$8.6 million** in cash, primarily from interest received from VIEs and senior secured loans[220](index=220&type=chunk) - Investing activities provided **$27.2 million**, mainly from principal repayment of commercial mortgage loans[221](index=221&type=chunk) - Financing activities used **$27.5 million**, primarily due to repayments of collateralized loan obligations and common dividends, partially offset by common stock issuance[222](index=222&type=chunk) [Forward-Looking Statements Regarding Liquidity](index=40&type=section&id=Forward-Looking%20Statements%20Regarding%20Liquidity) This section discusses the Company's expectations for meeting short-term and long-term liquidity requirements, noting the reliance on additional financing and equity capital, and REIT distribution limitations - The Company believes current liquidity sources are sufficient to meet anticipated short-term (one year or less) liquidity requirements[223](index=223&type=chunk) - Long-term (greater than one-year) liquidity and capital resource requirements will depend on obtaining additional debt financing and equity capital[224](index=224&type=chunk) - REIT distribution requirements limit the Company's ability to retain earnings, necessitating distribution of at least **90%** of taxable income annually[225](index=225&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of unconsolidated off-balance sheet arrangements and the elimination of backstop guarantee liabilities due to MAXEX Clearing LLC's assumption - As of September 30, 2020, the Company did not maintain any relationships with unconsolidated financial partnerships or special purpose entities for off-balance sheet arrangements[226](index=226&type=chunk) - MAXEX Clearing LLC assumed all of FOAC's backstop guarantee obligations, eliminating the related non-contingent liability from the Company's balance sheet[227](index=227&type=chunk) [Distributions](index=41&type=section&id=Distributions) This section outlines the Company's intention to continue regular quarterly distributions to common stockholders to meet REIT requirements - The Company intends to continue making regular quarterly distributions to common stockholders to meet REIT requirements, which mandate distributing at least **90%** of REIT taxable income annually[228](index=228&type=chunk) - For the third quarter of 2020, a cash dividend rate of **$0.085 per share** of common stock was declared[229](index=229&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risks](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This section states that there are no quantitative and qualitative disclosures about market risks to report [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020, and reported no material changes in internal control over financial reporting during the most recently completed fiscal quarter - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020[233](index=233&type=chunk) - There have been no material changes in internal control over financial reporting during the most recently completed fiscal quarter[234](index=234&type=chunk) [PART II - OTHER INFORMATION](index=43&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, and exhibits [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently subject to any material legal proceedings - Neither the Company nor its Manager is subject to any legal proceedings considered material as of the filing date[235](index=235&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section highlights that there have been no material changes to previously disclosed risk factors, but emphasizes the significant and ongoing adverse impact of the COVID-19 pandemic on the Company's business, financial condition, liquidity, and stock price - No material changes to the Risk Factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2019, other than those related to COVID-19[237](index=237&type=chunk) - The spread of COVID-19 could have a material adverse effect on the Company's business, financial condition, liquidity, results of operations, and the market price of its common stock[238](index=238&type=chunk)[239](index=239&type=chunk) - Specific COVID-19 related risks include: negative impact on asset collateral value, potential borrower requests for forbearance, limited ability to redeploy investment proceeds, impacts on interest rates and credit spreads, and challenges for third-party providers[240](index=240&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There are no unregistered sales of equity securities or use of proceeds to report for the period [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report for the period [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed or furnished as part of the report, including corporate governance documents and certifications - The exhibit index includes various corporate documents such as Amended and Restated Articles of Incorporation, Articles Supplementary, Third Amended and Restated Bylaws, and certifications from the Chief Executive Officer and Chief Financial Officer[245](index=245&type=chunk) [SIGNATURES](index=45&type=section&id=SIGNATURES) This section contains the official signatures for the report [Signatures](index=45&type=section&id=Signatures) The report is duly signed on behalf of Hunt Companies Finance Trust, Inc. by its Chief Executive Officer and Chief Financial Officer - The report was signed by James P. Flynn, Chief Executive Officer, and James A. Briggs, Chief Financial Officer, on November 6, 2020[250](index=250&type=chunk)

Financial Data and Key Metrics Changes - For Q2 2020, the company reported net income to common stockholders of $1.9 million, or $0.08 per share, compared to $1.5 million, or $0.06 per share in the prior quarter and $1.4 million, or $0.06 per share in Q2 2019, driven by an increase in net interest income [17][18] - Core earnings attributed to common stockholders for the quarter were $2.2 million or $0.09 per share, consistent with the prior quarter and Q2 2019 [18] - The book value at June 30 was $114 million or $4.57 per share, unchanged from Q1 2020 [19] Business Line Data and Key Metrics Changes - The portfolio consists of over 99% senior mortgage loans, with no exposure to mezzanine loans, construction loans, or loans backed by hotels, focusing primarily on multifamily assets [10][11] - During the quarter, the company made future funding advances on 11 loans totaling $3.4 million, all secured by multifamily assets, while experiencing $32.9 million in loan payoffs [24] Market Data and Key Metrics Changes - The company noted that bridge lending activity has shown positive movement with less transition risk and more moderate leverage compared to pre-COVID periods [9] - The overall loan portfolio at quarter end was over 90% multifamily, reflecting resilience during downturns [25] Company Strategy and Development Direction - The company is focused on proactive asset management and evaluating new investment opportunities, particularly in the multifamily sector, while remaining cautious due to market uncertainties [24][30] - The management expressed a desire to grow and expand financing sources, despite the challenges posed by the COVID-19 pandemic [46] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the significant impact of COVID-19 on the economy and the lending market, but noted improvements in liquidity and credit market volatility [8][30] - The company remains optimistic about the future, actively monitoring its portfolio and the broader economic environment [30] Other Important Information - The company has not experienced any material adverse liquidity events due to COVID-19 and believes its liquidity position is sufficient [13] - The Q2 2020 dividend of $0.075 per share was paid on July 15, with a decision on Q3 2020 dividends expected in September [14] Q&A Session Summary Question: Plans for cash from repayments and distributions - Management clarified that repayments are being used to sequentially pay down bonds, resulting in a slight reduction in overall leverage [35][36] Question: Expectation of asset volume decline in H2 - Management indicated that a decline in asset volumes is more likely than not due to de-leveraging [54] Question: Impact of rent regulations on landlords - Management acknowledged pressures from rent regulations in various states and emphasized the need for balance between property owners and tenants [59] Question: New opportunities in Q3 - Management confirmed ongoing discussions with borrowers about financing needs and identified opportunities in the bridge space despite current market conditions [65][66]