Lument Finance Trust(LFT) - 2025 Q1 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Lument Finance Trust, Inc. as of and for the three months ended March 31, 2025, including balance sheets, statements of operations, changes in equity, and cash flows, with detailed notes Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $1.06 billion from $1.13 billion at year-end 2024, primarily due to reduced commercial mortgage loans, while total liabilities and equity also slightly declined Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $63,520 | $69,173 | | Commercial mortgage loans held-for-investment, net | $988,781 | $1,048,803 | | Allowance for credit losses | ($17,060) | ($11,320) | | Total Assets | $1,061,517 | $1,128,594 | | Liabilities | | | | Collateralized loan obligations and secured financings, net | $772,285 | $828,390 | | Secured term loan, net | $47,532 | $47,470 | | Total Liabilities | $829,469 | $890,695 | | Total Equity | $232,048 | $237,899 | - The company consolidates Variable Interest Entities (VIEs), which comprised $996.2 million of total assets and $774.7 million of total liabilities as of March 31, 2025[11] Consolidated Statements of Operations For Q1 2025, the company reported a net loss of $0.52 million, a significant downturn from $6.98 million net income in Q1 2024, driven by decreased net interest income and increased provision for credit losses Statement of Operations Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $7,735 | $12,993 | | Total Expenses | $2,593 | $4,268 | | Provision for credit losses, net | ($5,698) | ($1,777) | | Net (Loss) Income | ($523) | $6,980 | | Net (Loss) Income Attributable to Common Stockholders | ($1,708) | $5,795 | | Basic and Diluted (Loss) Income Per Share | ($0.03) | $0.11 | - Dividends declared per common share were $0.08 in Q1 2025, an increase from $0.07 in Q1 2024[16] Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $4.1 million in Q1 2025 from $9.1 million in Q1 2024, with overall cash and equivalents decreasing by $7.0 million during the quarter Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $4,094 | $9,078 | | Net Cash Provided by Investing Activities | $55,294 | $80,093 | | Net Cash Used in Financing Activities | ($66,430) | ($76,043) | | Net (Decrease) Increase in Cash | ($7,042) | $13,128 | Notes to Unaudited Consolidated Financial Statements The notes detail the company's single operating segment, use of Variable Interest Entities, application of the CECL model, a $1.01 billion commercial mortgage loan portfolio, and a $17.1 million allowance for credit losses - The company operates as a single operating segment, focusing on a portfolio of leveraged commercial real estate loans[24] - The company has elected to be taxed as a REIT and must comply with relevant IRS code sections to maintain this status[23] - The allowance for credit losses is estimated using a probability of default and loss given default method, utilizing a third-party model with historical CRE loan data, with key variables including debt service coverage ratio and LTV ratio[42] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the $1.7 million net loss for Q1 2025, driven by lower net interest income and higher credit loss provisions, detailing the $1.0 billion senior loan portfolio and sufficient short-term liquidity Q1 2025 Key Performance Indicators | Metric | Value | Per Share | | :--- | :--- | :--- | | Net loss attributable to common stockholders | ($1.7 million) | ($0.03) | | Distributable Earnings (Non-GAAP) | $4.0 million | $0.08 | | Common Dividend Declared | - | $0.08 | | Book Value of Common Stock | $171.9 million | $3.29 | - The investment portfolio consists of $1.0 billion in senior loans, which are 100% floating rate with an average spread of 3.55% over 30-day term SOFR[169] - The company's financing is 100% non-mark-to-market, totaling $0.8 billion as of March 31, 2025[164] Investment Portfolio Analysis As of March 31, 2025, the commercial mortgage loan portfolio decreased to $1.01 billion across 61 loans, with 91.7% in multifamily assets and $108.4 million in 'Default Risk' loans, leading to a $17.1 million allowance for credit losses Loan Portfolio Risk Rating (by Principal Balance) | Risk Rating | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 1 (Very Low) | $0 | $0 | | 2 (Low) | $76.8M | $57.8M | | 3 (Moderate) | $520.7M | $616.6M | | 4 (High) | $305.0M | $292.8M | | 5 (Default) | $108.4M | $98.3M | | Total | $1,010.9M | $1,065.6M | - During Q1 2025, the company experienced $55.0 million in loan payoffs[169] - The allowance for credit losses increased by $5.7 million during Q1 2025, primarily due to specific reserves on risk-rated '5' multifamily loans and changes in macroeconomic assumptions[75] - Seven loans with an aggregate unpaid principal of $108.4 million were rated '5' (Default Risk) and individually evaluated for specific credit loss allowances[69][77][78] Results of Operations Comparison Net income attributable to common stockholders fell from $5.8 million in Q1 2024 to a $1.7 million loss in Q1 2025, primarily due to a $5.3 million decrease in net interest income and a $3.9 million increase in credit loss provisions Results of Operations (Q1 2025 vs Q1 2024, in millions) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $7.7 | $13.0 | ($5.3) | | Total Expenses | $2.6 | $4.3 | ($1.7) | | Provision for credit losses, net | ($5.7) | ($1.8) | ($3.9) | | Net (Loss) Income Attributable to Common Stockholders | ($1.7) | $5.8 | ($7.5) | - The decrease in net interest income year-over-year was driven by a $298.9 million decrease in the weighted-average principal balance of the loan portfolio and a 105bps decrease in the weighted-average floating rate[243] - The increase in other loss was primarily due to a $3.9 million higher provision for credit losses, driven by specific reserves on risk-rated '5' multifamily loans in Q1 2025[242][249] Liquidity and Capital Resources The company's liquidity is supported by $63.5 million in unrestricted cash and $0.8 billion in non-recourse CLO financing, with a total debt-to-equity ratio of 3.6:1, deemed sufficient for short-term needs - As of March 31, 2025, the company had $63.5 million in unrestricted cash and cash equivalents[257] Debt Profile as of March 31, 2025 | Debt Type | Outstanding Principal | Recourse Status | | :--- | :--- | :--- | | Secured Term Loan | $47.8 million | Recourse | | Collateralized Loan Obligations | $772.3 million | Non-Recourse | - The company has unfunded loan commitments totaling $40.1 million as of March 31, 2025, related to its CLO and financing vehicles[131][132] - Management believes that cash flow from operations and available borrowings are sufficient to meet anticipated short-term (one year or less) liquidity requirements[265] Item 3. Quantitative and Qualitative Disclosures about Market Risks This section is marked as 'Not applicable' in the report - The company has indicated that this item is not applicable[272] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[274] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[275] PART II - Other Information Item 1. Legal Proceedings The company reports that it is not subject to any legal proceedings considered material, either individually or in aggregate - As of the filing date, the company is not involved in any material legal proceedings[276] Item 1A. Risk Factors The company reiterates the significant risk posed by a prolonged economic recession and declining real estate values, which could impair asset values and increase losses on its transitional multifamily and CRE loan portfolio - The company emphasizes that a prolonged economic recession and declining real estate values could impair its assets and harm operations[278] - Declining real estate values increase the likelihood of losses on loans in the event of default, as collateral may be insufficient to cover the outstanding principal[278] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[280]