Lument Finance Trust(LFT) - 2022 Q2 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Lument Finance Trust, Inc. for the quarterly period ended June 30, 2022, including balance sheets, statements of operations, changes in equity, cash flows, and accompanying notes Consolidated Balance Sheets The Consolidated Balance Sheets detail the company's financial position as of June 30, 2022, compared to December 31, 2021, showing total assets increased to $1.13 billion and total equity significantly increased to $248.1 million Consolidated Balance Sheet Highlights (unaudited) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,130,311,822 | $1,048,923,353 | | Commercial mortgage loans, net | $1,033,649,358 | $1,001,825,294 | | Cash and cash equivalents | $39,048,256 | $14,749,046 | | Total Liabilities | $882,215,758 | $879,547,853 | | Collateralized loan obligations, net | $828,036,131 | $826,782,543 | | Total Equity | $248,096,064 | $169,375,500 | Consolidated Statements of Operations The Consolidated Statements of Operations show the company's revenues, expenses, and profitability for the three and six months ended June 30, 2022 and 2021, with Q2 2022 net interest income growing to $6.4 million and net income attributable to common stockholders at $2.16 million Q2 2022 vs Q2 2021 Performance (unaudited) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net Interest Income | $6,416,584 | $5,254,447 | | Total Other (Loss) | ($214,645) | ($1,788,595) | | Total Expenses | $2,832,418 | $1,839,622 | | Net Income | $3,343,852 | $1,680,242 | | Net Income Attributable to Common Stockholders | $2,158,810 | $954,575 | | Basic and Diluted EPS | $0.04 | $0.04 | Consolidated Statement of Changes in Equity This statement tracks the changes in the company's equity accounts for the six-month period ended June 30, 2022, primarily driven by the issuance of 27.3 million shares of common stock generating approximately $83.5 million in proceeds - Total equity increased from $169.4 million at the end of 2021 to $248.1 million as of June 30, 2022[15] - The company issued 27,277,269 shares of common stock, resulting in an $83.5 million increase in equity before issuance costs[15] - Dividends paid to common and preferred stockholders during the six-month period totaled approximately $8.6 million[15][19] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022, showing a net increase in cash due to positive cash flow from operations and financing activities Cash Flow Summary for Six Months Ended June 30, 2022 (unaudited) | Activity | Cash Flow Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $8,295,434 | | Net Cash Used in Investing Activities | ($51,135,052) | | Net Cash Provided by Financing Activities | $73,267,852 | | Net Increase in Cash, Cash Equivalents and Restricted Cash | $30,428,234 | Notes to Unaudited Consolidated Financial Statements The notes provide crucial context to the financial statements, detailing accounting policies, the commercial mortgage loan portfolio, CLO financing, fair value measurements, related-party transactions, and equity details, including an impaired office loan and the LIBOR to SOFR transition - The company's commercial mortgage loan portfolio had a carrying value of $1.034 billion as of June 30, 2022, with 98.9% of the portfolio rated 'Moderate Risk' or better[62][63] - One loan collateralized by an office building, with an unpaid principal of $11.7 million, was identified as impaired, leading to a $0.4 million allowance for loan loss[68] - On February 22, 2022, the company closed a transferable common stock rights offering, issuing 27,277,269 shares and raising gross proceeds of approximately $83.5 million[127] - The company consolidates LFT CRE 2021-FL1, Ltd., a CLO which is a Variable Interest Entity (VIE). The assets and liabilities of this VIE are included in the balance sheet but are non-recourse to the company[69][70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results for Q2 2022, covering business overview, market conditions, investment portfolio analysis, operational results, and liquidity and capital resources Overview and Market Conditions The company focuses on CRE debt, primarily transitional floating-rate loans on multifamily assets, financed through non-recourse CLOs, navigating rising interest rates and the ongoing transition from LIBOR to SOFR - The company's business model is structured such that rising interest rates generally increase net interest income, as 99.9% of its investments have floating rates[153] - The Federal Reserve's rate hikes in 2022 are a key market factor, creating both opportunities (higher income) and risks (potential borrower non-performance)[154][155] - The company is transitioning from LIBOR to SOFR. As of June 30, 2022, 91.5% of loans were still tied to LIBOR, but all new originations since January 1, 2022, are based on 30-day term SOFR[156][158] Key Financial Measures and Investment Portfolio For Q2 2022, key metrics included $0.04 EPS, $0.05 Distributable Earnings per share, and a book value of $3.60 per share, with the commercial mortgage loan portfolio growing to a carrying value of $1.034 billion and a stable weighted average risk rating of 2.3 Key Metrics for Q2 2022 | Metric | Value | | :--- | :--- | | Net Income per Share (EPS) | $0.04 | | Distributable Earnings per Share | $0.05 | | Book Value per Share | $3.60 | | Dividend Declared per Share | $0.06 | Loan Portfolio Growth | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Carrying Value | $1,033,649,358 | $1,001,825,294 | | Loan Count | 69 | 66 | - Management identified one office loan with an $11.7 million unpaid principal balance as impaired, recording a $0.4 million reserve. This loan was subsequently placed in maturity default after the quarter ended[186] Results of Operations Analysis Net income attributable to common stockholders for Q2 2022 was $2.16 million, up from $0.95 million in Q2 2021, driven by higher net interest income from a larger loan portfolio and rising rates, partially offset by a provision for loan losses and increased total expenses - Net interest income for Q2 2022 increased to $6.4 million from $5.25 million in Q2 2021, primarily due to a $522.6 million increase in the weighted-average principal of the loan portfolio and a 65bps increase in the weighted-average floating rate[209] - Other loss for Q2 2022 was $214,645, mainly due to a $351,914 provision for loan losses. This compares to a $1.8 million loss in Q2 2021, which was driven by a $1.7 million loss on debt extinguishment[213][214] - Total expenses increased to $2.8 million in Q2 2022 from $1.8 million in Q2 2021, reflecting higher management fees and an increase in general and administrative costs[218][219] Liquidity and Capital Resources The company's liquidity is sourced from equity offerings, debt, and operating cash flow, with a February 2022 rights offering providing $81.1 million in net proceeds and $39 million in unrestricted cash as of June 30, 2022 - The company enhanced its liquidity by raising $81.1 million in net proceeds from a common stock rights offering in February 2022[223] - As of June 30, 2022, unrestricted cash and cash equivalents stood at $39 million[225] - The total GAAP debt-to-equity ratio was 3.6:1. The majority of debt ($828.0 million) is non-recourse, related to the consolidated CLO[227] Item 3. Quantitative and Qualitative Disclosures about Market Risks This section is stated as not applicable in the report - The company has indicated that this disclosure is not applicable for this reporting period[239] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management's evaluation concluded that the company's disclosure controls and procedures were effective as of the end of the period[241] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[242] PART II - Other Information Item 1. Legal Proceedings The company reports that it is not currently involved in any material legal proceedings - As of the filing date, the company is not subject to any legal proceedings that it considers to be material[243] Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes to the Risk Factors disclosed in the company's 2021 Form 10-K[245] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[244] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[246] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with the report include Sarbanes-Oxley certifications from the CEO and CFO, as well as XBRL interactive data files[252]