Lument Finance Trust, Inc.

Previous wording

Changes in market interest rates. Generally, our business model is such that rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income. As of December 31, 2023, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 100.0% were indexed to 30-day term SOFR, and all of our collateralized loan obligations and secured financings were indexed to 30-day term SOFR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes. As of December 31, 2022, 99.0% of the loans in our commercial loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 0.38%, none of which currently has a floor greater than the current spot interest rate. When interest rates are below our average interest rate floor, an increase in interest rates will decrease our net interest income until such time as interest rates rise above our average interest rate floor. Although our Manager is currently originating loans with SOFR floors, there can be no assurance that we will continue to obtain SOFR floors on future originations or acquisitions. Similarly, net interest income is also impacted by the spread in our commercial mortgage loan portfolio As of December 31, 2023, the weighted average spread of our commercial loan portfolio was 3.54%, but there is no assurance that these spreads will be maintained as market environments fluctuate.

Current wording

Changes in market interest rates. Generally, our business model is such that rising interest rates will increase our net interest income, while declining interest rates will decrease our net interest income. As of December 31, 2024, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 100.0% were indexed to 30-day term SOFR, and all of our collateralized loan obligations and secured financings were indexed to 30-day term SOFR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes. As of December 31, 2024, 99.0% of the loans in our commercial mortgage loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 0.63%, none of which currently has a floor greater than the current spot interest rate. When interest rates are above our average interest rate floor, an increase in interest rates will increase our interest income. Alternatively, when interest rates are below our average interest rate floor, an increase in interest rates will decrease our net interest income until such time as interest rates rise above our average interest rate floor. Although our Manager is currently originating loans with SOFR floors, there can be no assurance that we will continue to obtain SOFR floors on future originations or acquisitions. Similarly, net interest income is also impacted by the spread in our commercial mortgage loan portfolio. As of December 31, 2024, the weighted average spread of our commercial loan portfolio was 3.58%, but there is no assurance that these spreads will be maintained as market environments fluctuate.

Previous wording

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

Current wording

The U.S. Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However, beginning in March 2022, the U.S. Federal Reserve raised the federal funds rate eleven times, increasing the federal funds target range to 5.25% to 5.50%. On September 18, 2024 the U.S. Federal Reserve lowered interest rates by 0.50% and on November 7, 2024 and December 18, 2024, respectively, the Federal Reserve lowered interest rates by 0.25%. In January 2025, the U.S. Federal Reserve declined to make any additional changes to interest rates, holding the federal funds target range at 4.25% to 4.50%. Therefore, interest rates remain elevated, and the timing, direction and extent of any future interest rate changes remain uncertain.

Previous wording

In addition to the risk related to fluctuations in cash flows associated with movement in interest rates, there is also the risk of non-performance on floating rate assets. In the case of significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and/or impact their ability to be refinanced at such higher interest rates, potentially, contribute to non-performance or, in severe cases, default. This risk is partially mitigated during the underwriting process, which generally includes a requirement for our borrowers to purchase interest rate cap contracts with an unaffiliated third-party, provide an interest rate reserve deposit, and/or provide other structural protections. As of December 31, 2023, 97.7% of our performing loans have interest rate caps with a weighted-average strike price of 2.5%.

Current wording

In addition to the risk related to fluctuations in cash flows associated with movement in interest rates, there is also the risk of non-performance on floating rate assets. In the case of significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and/or impact their ability to be refinanced at such higher interest rates, potentially, contribute to non-performance or, in severe cases, default. This risk is partially mitigated during the underwriting process, which generally includes a requirement for our borrowers to purchase interest rate cap contracts with an unaffiliated third-party, provide an interest rate reserve deposit, and/or provide other structural protections. As of December 31, 2024, 79.7% of our performing loans have interest rate caps with a weighted-average strike price of 2.4%.

Previous wording

Credit risk. Our commercial mortgage loans and other investments are also subject to credit risk. The performance and value of our loans and other investments depend upon the sponsor's ability to operate properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, the Manager's asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as lender. The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. As of December 31, 2023, 96.7% of the commercial mortgage loans in our portfolio were current as to principal and interest. Additionally, we have reviewed the loans designated as Default Risk for impairment. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. We can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into forbearance agreements or loan modifications in order to protect the value of our commercial mortgage loan assets. Should that occur, it could have a material negative impact on our results of operations.

Current wording

Credit risk. Our commercial mortgage loans and other investments are also subject to credit risk. The performance and value of our loans and other investments depend upon the sponsor's ability to operate properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, the Manager's asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders and local market experts to monitor the performance of the underlying collateral, anticipate borrower, property and market issues and, to the extent necessary or appropriate, enforce our rights as lender. The market values of commercial mortgage assets are subject to volatility and may be adversely affected by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses. As of December 31, 2024, 97.8% of the commercial mortgage loans in our portfolio were current as to principal and interest. Additionally, we have reviewed the loans designated as Default Risk for impairment. Impairment of these loans, which are collateral dependent, is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. We can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into forbearance agreements or loan modifications in order to protect the value of our commercial mortgage loan assets. Should that occur, it could have a material negative impact on our results of operations.

Previous wording

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

Current wording

Liquidity and financing markets. Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments and repay borrowings and other general business needs. Our primary sources of liquidity have been proceeds of common or preferred stock issuance, net proceeds from corporate debt obligations, net cash provided by operating activities and other financing arrangements. We finance our commercial mortgage loans primarily with non-recourse secured borrowings, the maturities of which are matched to the maturities of the loans, and which are not subject to margin calls or additional collateralization requirements. However, to the extent that we seek to invest in additional commercial mortgage loans, outside of our secured borrowings, we will in part be dependent on our ability to issue additional collateralized loan obligations, to secure alternative financing facilities or to raise additional common or preferred equity. The expectation of slower interest rate decreases moving forward and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period could limit our ability to grow our business. Additionally, the CRE CLOs and other secured financings we have entered into, and may in the future enter into, include certain interest coverage tests, overcollateralization coverage tests or other tests that, if not met, may result in a change in the priority of distributions, which may result in the reduction or elimination of distributions to the subordinate debt and equity tranches retained by us until the tests have been met or certain senior classes of securities have been paid in full. Accordingly, if such tests are not satisfied, we, as holders of the subordinate debt and equity interests in the applicable CRE CLO or secured financing, may experience a significant reduction in our cash flow from those interests, which would impact our liquidity.

Previous wording

Prepayment speeds. Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest earned on the assets. With the exception of twenty-nine loans acquired and seventeen funded loan advances with an initial aggregate unpaid principal balance of $473.1 million with an aggregate purchase discount of $8.1 million, all of our commercial mortgage loans were acquired at par. As of December 31, 2023, our aggregate unaccreted purchase discount was $7.0 million, and accordingly we do not believe this to be a material risk to interest income for us at present. Additionally, we are subject to prepayment risk associated with the terms of our secured borrowings. Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our secured borrowings include a reinvestment period during which principal repayments and prepayments on our commercial mortgage loans may be reinvested in similar assets, subject to meeting certain eligibility criteria. The reinvestment period for the 2021-FL1 CLO expired in December 2023 and for LMF 2023-1 remains in place through July 2025. While the interest rate spreads of our secured borrowings are fixed until they are repaid, the terms, including spreads, of newly originated loans are subject to uncertainty based on a variety of factors, including market and competitive conditions, which remain uncertain and volatile in light of the current inflationary environment. To the extent that such conditions result in lower spreads on the assets in which we reinvest, we may be subject to a reduction in interest income in the future. However, our loan agreements provide for prepayment penalties which are intended to offset any potential reduction in future interest income.

Current wording

Prepayment speeds. Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, causing the return on certain investments to be less than expected. As we receive prepayments of principal on our assets, any premiums paid on such assets are amortized against interest income. In general, an increase in prepayment rates accelerates the amortization of purchase premiums, thereby reducing the interest income earned on the assets. Conversely, discounts on such assets are accreted into interest income. In general, an increase in prepayment rates accelerates the accretion of purchase discounts, thereby increasing the interest earned on the assets. We have acquired twenty-nine loans and seventeen funded loan advances with an initial aggregate unpaid principal balance of $473.1 million with an aggregate purchase discount of $8.1 million. All of our other commercial mortgage loans were acquired at par. As of December 31, 2024, our aggregate unaccreted purchase discount was $3.5 million, and accordingly we do not believe this to be a material risk to interest income for us at present. Additionally, we are subject to prepayment risk associated with the terms of our secured borrowings. Due to shorter maturities of transitional floating-rate commercial mortgage loans, our secured borrowings include a reinvestment period during which principal repayments and prepayments on our commercial mortgage loans may be reinvested in similar assets, subject to meeting certain eligibility criteria. The reinvestment period for the 2021-FL1 CLO expired in December 2023 and for LMF 2023-1 remains in place through July 2025. While the interest rate spreads of our secured borrowings are fixed until they are repaid, the terms, including spreads, of newly originated loans are subject to uncertainty based on a variety of factors, including market and competitive conditions, which remain uncertain and volatile in the current inflationary environment. To the extent that such conditions result in lower spreads on the assets in which we reinvest, we may be subject to a reduction in interest income in the future. However, our loan agreements provide for prepayment penalties which are intended to offset any potential reduction in future interest income.

Previous wording

Changes in market value of our assets. We account for our commercial mortgage loans at amortized cost. As such, our earnings will generally not be directly impacted by changes in the market values of these loans. However, if a loan is considered to be impaired as the result of adverse credit performance, an allowance is recorded to reduce the carrying value through a charge to the provision for credit losses. Impairment is typically measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. Provisions for credit losses will directly impact our earnings.

Current wording

Changes in market value of our assets. We account for our commercial mortgage loans at amortized cost. As such, our earnings will generally not be directly impacted by changes in the market values of these loans. However, if a loan is classified as impaired as the result of adverse credit performance, an allowance is recorded to reduce the carrying value through a charge to the provision for credit losses. Impairment is typically measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. Provisions for credit losses will directly impact our earnings.

Previous wording

As a real estate investment trust, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Distributable Earnings, and book value per share of common stock. For the three months ended December 31, 2023, we recorded earnings per share of $0.07, declared a quarterly common dividend of $0.07 per share, and reported $0.10 per share of Distributable Earnings. In addition, our book value per share was $3.46 per share. For the year ended December 31, 2023, we recorded earnings per share of $0.29, declared aggregate common dividends of $0.26 per share, and reported $0.26 per share of Distributable Earnings.

Current wording

As a real estate investment trust, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Distributable Earnings, and book value per share of common stock. For the three months ended December 31, 2024, we recorded earnings per share of $0.07, declared a quarterly common dividend of $0.08 per share, declared a one-time special dividend of $0.09 per share, and reported $0.10 per share of Distributable Earnings. In addition, our book value per share was $3.40 per share. For the year ended December 31, 2024, we recorded earnings per share of $0.34, declared aggregate common dividends of $0.40 per share, and reported $0.44 per share of Distributable Earnings.

Previous wording

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

Current wording

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

Previous wording

(1) Book value as of December 31, 2023 includes the impact of an estimated CECL allowance of $6,059,006 or $0.12 per common share.

Current wording

(1) Book value as of December 31, 2024 and December 31, 2023 includes the impact of an estimated CECL allowance of $11,320,220 or $0.22 per common share and $6,059,006 or $0.12 per common share, respectively.

Previous wording

As of December 31, 2023, we have determined that we are the primary beneficiary of the 2021-FL1 CLO and LMF 2023-1 Financing based on our obligation to absorb losses derived from ownership of our residual interests. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities, collateralized loan obligations.

Current wording

As of December 31, 2024, we have determined that we are the primary beneficiary of the 2021-FL1 CLO and LMF 2023-1 Financing based on our obligation to absorb losses derived from ownership of our residual interests. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities and the collateralized loan obligations.

Previous wording

(1) Carrying Value includes $7,000,863 in unaccreted purchase discounts as of December 31, 2023, there were no unaccreted purchase discounts as of December 31, 2022

Current wording

(1) Carrying Value includes $3,466,214 and $7,000,863 in unaccreted purchase discounts as of December 31, 2024 and December 31, 2023, respectively.

Previous wording

(2) Weighted average coupon assumes applicable one-month LIBOR of 4.18% as of December 31, 2022, and 30-day Term Secured Overnight Financing Rate ("SOFR") of 5.33% and 4.19% as of December 31, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.38% and 0.27%, respectively. As of December 31, 2023, 100.0% of the investments by total exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR..

Current wording

(2) Weighted average coupon assumes applicable 30-day term SOFR of 4.51% and 5.33% as of December 31, 2024 and December 31, 2023, respectively, inclusive of weighted average interest rate floor of 0.63% and 0.38%, respectively. As of December 31, 2024 and December 31, 2023, 100.0% of the investments by total investment exposure earned a floating rate indexed to 30-day term SOFR.

Previous wording

(5) As of December 31, 2023, $1,375,277,312 of the outstanding senior secured loans were held in VIEs and $8,603,886 of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside of VIEs.

Current wording

(5) As of December 31, 2024, $1,049,886,009 of the outstanding senior secured loans were held in VIEs and $(1,082,931) of the outstanding senior secured loans were held outside of VIEs. As of December 31, 2023, $1,375,277,312 of the outstanding senior secured loans were held in VIEs and $8,603,886 of the outstanding senior secured loans were held outside of VIEs.

Previous wording

During the period ended December 31, 2023, management identified one loan, collateralized by a multifamily property in Virginia Beach, VA, with an unpaid principal balance of $36.8 million as impaired due to monetary default resulting in a risk rating of "5"; however no specific asset reserves were required after analysis of underlying collateral value. This loan is on non-accrual status as a result as a result of monetary default and impaired loan classification.

Current wording

During the period ended December 31, 2024, management identified a loan, collateralized by a multifamily property in Dallas, TX, with an unpaid aggregate principal value of $31.6 million as requiring individual evaluation for a specific allowance for credit losses due to technical default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value.

Previous wording

During the period ended December 31, 2022 and throughout 2023, management identified one loan, collateralized by a multifamily property in Columbus, Ohio, with an initial unpaid principal value of $12.8 million as impaired due to monetary default resulting in a risk rating of "5." In the first quarter of 2023, this loan was placed on non-accrual status with interest collections accounted for under the cost recovery method. As of December 31, 2023, the carrying value of this loan was $8.9 million, which reflects a $5.0 million payment received on November 25, 2023 under an insurance claim, of which $3.1 million was applied to principal reduction and a $1.9 million liability established primarily for a tenant settlement. As of December 31, 2023, no specific reserves were required after analysis of the underlying collateral value. Subsequent to December 31, 2023, we received additional insurance proceeds in the amount of $13.5 million which reduced the carrying value of this loan on our consolidated balance sheets to $0. See Note 16 for further discussion.

Current wording

Throughout 2023, management identified one loan, collateralized by a multifamily property in Columbus, Ohio, with an initial unpaid principal value of $12.8 million as impaired due to monetary default resulting in a risk rating of "5." In the first quarter of 2023, this loan was placed on non-accrual status with interest collections accounted for under the cost recovery method. As of December 31, 2023, the carrying value of this loan was $8.9 million, which reflected a $5.0 million payment received on November 25, 2023 under an insurance claim, of which $3.1 million was applied to carrying value reduction and a $1.9 million payable established primarily related to a tenant settlement. As of December 31, 2023, no specific reserves were required after analysis of the underlying collateral value. In the first quarter of 2024, we received additional insurance proceeds in the amount of $13.8 million which reduced the carrying value of this loan to $0, and after taking into consideration repayment of an interest rate cap and certain legal and other costs and amounts deemed recoverable, resulting in the recognition of approximately $2.8 million of income in the quarter ended March 31, 2024.

Previous wording

Subsequent to December 31, 2023, the Company and the borrower entered into a loan modification and the loan was loan returned to accrual status. See Note 16 for further discussion.

Current wording

During the period ended December 31, 2023, management identified one loan, collateralized by a multifamily property in Virginia Beach, VA, with an unpaid principal balance of $36.8 million as impaired due to monetary default resulting in a risk rating of "5"; however, no specific asset reserves were required after analysis of underlying collateral value. This loan was on non-accrual status as a result of monetary default and impaired loan classification. In the first quarter of 2024, the Company and the borrower entered into a loan modification and the loan was returned to accrual status. In connection with the modification, the borrower, among other things, made a principal payment of approximately $3.6 million and brought current any past due interest, escrows and reserves, which resulted in interest of approximately $0.5 million that was unpaid as of December 31, 2023 recognized as income in the quarter ended March 31, 2024. The note rate on the loan was amended to SOFR + 400 basis points from SOFR + 327 basis points and the stated maturity date of the loan was amended to April 5, 2024, with the ability for borrower to extend, under certain conditions, to May 3, 2024. On May 3, 2024, the loan repaid in full according to the terms of the loan modification.

Previous wording

Loan modifications and amendments are commonplace in the transitional lending business. We may amend or modify a loan depending on the loan's specific fact and circumstances. These loan modifications typically include additional time for a borrower to refinance or sell their property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan maturity, modification of terms of interest rate cap agreements, and/or deferral of scheduled principal payments. In exchange for a modification, we often receive a partial repayment of principal, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection and/or an increase in the loan coupon or additional fees. We continue to work with our borrowers to address issues as they arise while seeking to preserve the credit attributes of our loan. However, we cannot assure you that these efforts will be successful, and we may experience payment delinquencies, defaults, foreclosures or losses.

Current wording

Loan modifications and amendments are commonplace in the transitional lending business. We may amend or modify a loan depending on the loan's specific facts and circumstances. These loan modifications typically include additional time for a borrower to refinance or sell their property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan maturity, modification of terms of interest rate cap agreements, and/or deferral of scheduled principal payments. In exchange for a modification, we often receive a partial repayment of principal, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection and/or an increase in the loan coupon or additional fees. We continue to work with our borrowers to address issues as they arise while seeking to preserve the credit attributes of our loan. However, we cannot assure you that these efforts will be successful, and we may experience payment delinquencies, defaults, foreclosures or losses.

Previous wording

As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns a risk rating between "1" and "5," from less risk to greater risk. The weighted average risk rating of our total loan exposure was 3.5 as of December 31, 2023 and 3.0 as of December 31, 2022, respectively. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $41.2 million, a risk rating of "3" of $192.6 million and a risk rating of "5" of $14.1 million, offset by purchases of commercial mortgage loans with a risk rating of "2" of $7.0 million, a risk rating of "3" of $475.5 million and a risk rating of "4" of $85.9 million during the year ended December 31, 2023. Additionally, $82.1 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $169.9 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $36.8 million of loans transitioned from a risk rating of "3" to a risk rating of "5", and $9.1 million of loans transitioned from a risk rating of "4" to a risk rating of "3". The following table presents the principal balance and net book value based on our internal risk ratings:

Current wording

As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns a risk rating between "1" and "5," from less risk to greater risk. The weighted average risk rating of our total loan exposure was 3.5 as of December 31, 2024 and December 31, 2023, respectively. The change in underlying risk rating consisted of loans that paid off with a risk rating of "3" of $277.5 million, a risk rating of "4" of $67.1 million and a risk rating of "5" of $45.7 million, offset by purchases of commercial mortgage loans with a risk rating of "2" of $27.1 million and a risk rating of "3" of $31.3 million during the year ended December 31, 2024. Additionally, $7.0 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $225.7 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $6.1 million of loans transitioned from a risk rating of "3" to a risk rating of "5", $67.8 million of loans transitioned from a risk rating of "4" to a risk rating of "3", and $92.2 million of loans transitioned from a risk rating of "4" to a risk rating of "5". The following table presents the principal balance and net book value based on our internal risk ratings:

Previous wording

(1) The carrying value of the collateral is net of purchase discounts of $7,159,664 as of December 31, 2023. The carrying value for 2021-FL1 CLO is net of debt issuance costs of $1,911,547 and $4,439,502 for December 31, 2023, and December 31, 2022, respectively, and the carrying value for LMF 2023-1 Financing is net of debt issuance costs of $3,327,701.

Current wording

(1) The carrying value of the collateral is net of purchase discounts of $3,577,206 and allowance for credit loss of $11,320,220 as of December 31, 2024. The carrying value for LMF 2023-1 Financing is net of debt issuance costs of $2,308,507 as of December 31, 2024.

Previous wording

(2) Weighted average coupon assumes applicable one-month LIBOR of 4.18% as of December 31, 2022 and 30-day Term SOFR of 5.33% and 4.19% as of December 31, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.38% and 0.25%, respectively. As of December 31, 2023, 100.0% of the investments by total exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 80.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 19.6% of the investments by total investment exposure earned a floating indexed to 30-day term SOFR. Weighted average coupon for the financings assumes applicable 30-day term SOFR of 5.36% as of December 31, 2023 and one-month LIBOR of 4.32% as of December 31, 2022, respectively and spreads of 1.99% and 1.43% for December 31, 2023 and December 31, 2022.

Current wording

(2) Weighted average coupon assumes applicable 30-day term SOFR of 4.51% as of December 31, 2024, inclusive of weighted average interest rate floors of 0.63%. As of December 31, 2024, 100.0% of the investments by total exposure earned a floating rate indexed to 30-day term SOFR. Weighted average coupon for the financings assumes applicable 30-day term SOFR of 4.40% as of December 31, 2024 and spread of 2.26% as of December 31, 2024.

Previous wording

In June 2013, we established FOAC as a Taxable REIT Subsidiary, or TRS, to increase the range of our investments in mortgage-related assets. Until August 1, 2016, FOAC aggregated mortgage loans primarily for sale into securitization transactions, with the expectation that we would purchase the subordinated tranches issued by the related securitization trusts, and that these would represent high quality credit investments for our portfolio. Residential mortgage loans for which FOAC owns the MSRs continue to be directly serviced by two licensed sub-servicers since FOAC does not directly service any residential mortgage loans.

Current wording

In June 2013, we established FOAC as a TRS to increase the range of our investments in mortgage-related assets. Until August 1, 2016, FOAC aggregated mortgage loans primarily for sale into securitization transactions, with the expectation that we would purchase the subordinated tranches issued by the related securitization trusts, and that these would represent high quality credit investments for our portfolio. Residential mortgage loans for which FOAC owns the MSRs continue to be directly serviced by two licensed sub-servicers since FOAC does not directly service any residential mortgage loans.

Previous wording

As noted above, we previously determined to cease the aggregation of prime jumbo loans for the foreseeable future, and therefore no longer maintain warehouse financing to acquire prime jumbo loans. We do not expect the previous changes to our mortgage loan business strategy to impact the existing MSRs that we own, nor the securitizations we have sponsored to date.

Current wording

We previously determined to cease the aggregation of prime jumbo loans for the foreseeable future, and therefore no longer maintain warehouse financing to acquire prime jumbo loans. We do not expect the previous changes to our mortgage loan business strategy to impact the existing MSRs that we own, nor the securitizations we have sponsored to date.

Previous wording

The Company estimates the allowance for credit losses for its portfolio on a collective basis, including unfunded loan commitments, for loans that share similar risk characteristics. The calculation is applied at the loan level. The allowance for credit losses estimation methodology used by LFT includes a probability of default and loss given default method utilizing a widely-used third-party analytical model with historical loan losses for over 100,000 commercial real estate loans dating back to 1998. Within this data set, we focused our historical loss information on the most relevant subset of available CRE data, which we determined based on loan metrics that are most comparable to our loan portfolio including asset type, spread to interest rate, unpaid principal balance and origination loan-to-value, or LTV. The Company expects to use this proxy data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determined the key variables driving its allowance for credit losses estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage. The Company determines its allowance for credit loss estimate based on the weighting of multiple macroeconomic forecast scenarios driven by macroeconomic variables such as gross domestic product ("GDP"), unemployment rate, federal funds target rate and core personal consumption expenditure ("CPR") among others, during the reasonable and supportable forecast period. The reasonable and supportable forecast period is currently one year, however, the Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed based on our assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy. For the period beyond which the Company is able to make reasonable and supportable forecasts, the Company reverts, on a straight-line basis over four quarters, to the historical loss information derived from CRE data set.

Current wording

The Company estimates the allowance for credit losses for its portfolio on a collective basis, including unfunded loan commitments, for loans that share similar risk characteristics. The calculation is applied at the loan level. The allowance for credit losses estimation methodology used by LFT includes a probability of default and loss given default method utilizing a widely used third-party analytical model with historical loan losses for over 125,000 commercial real estate loans dating back to 1998. Within this data set, we focused our historical loss information on the most relevant subset of available CRE data, which we determined based on loan metrics that are most comparable to our loan portfolio including asset type, spread to interest rate, unpaid principal balance and origination loan-to-value, or LTV. The Company expects to use this proxy data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determined the key variables driving its allowance for credit losses estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage. The Company determines its allowance for credit loss estimate based on the weighting of multiple macroeconomic forecast scenarios driven by macroeconomic variables such as gross domestic product ("GDP"), unemployment rate, federal funds target rate and core personal consumption expenditure ("CPR") among others, during the reasonable and supportable forecast period. The reasonable and supportable forecast period is currently one year, however, the Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed based on our assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy. For the period beyond which the Company is able to make reasonable and supportable forecasts, the Company reverts, on a straight-line basis over four quarters, to the historical loss information derived from CRE data set.

Previous wording

For the year ended December 31, 2023, our net income attributable to common stockholders was $14,974,496 or $0.29 basic and diluted net income per average share, compared with net income of $5,123,660 or $0.11 basic and diluted net loss per share, for the year ended December 31, 2022. The principal drivers of this net income variance were an increase in net interest income from $23,874,804 for the year ended December 31, 2022 to $34,392,996 for the year ended December 31, 2023 and a decrease in total other loss from $3,667,171 for the year ended December 31, 2022 to $2,418,903 for the year ended December 31, 2023, which more than offset an increase in total expenses from $10,332,885 for the year ended December 31, 2022 to $12,253,874 for the year ended December 31, 2023.

Current wording

For the year ended December 31, 2024, our net income attributable to common stockholders was $17,909,190 or $0.34 basic and diluted net income per average share, compared with net income of $14,974,496 or $0.29 basic and diluted net income per share, for the year ended December 31, 2023. The principal drivers of this net income variance were an increase in net interest income from $34,392,996 for the year ended December 31, 2023 to $41,356,609 for the year ended December 31, 2024 which more than offset an increase in total other loss from $2,418,903 for the year ended December 31, 2023 to $5,180,578 for the year ended December 31, 2024 and an increase in total expenses from $12,253,874 for the year ended December 31, 2023 to $13,508,033 for the year ended December 31, 2024.

Previous wording

For the years ended December 31, 2023 and December 31, 2022, our net interest income was $34,392,996 and $23,874,804, respectively. The increase was primarily due to (i) a $151.5 million increase in weighted-average principal balance of our loan portfolio; (ii) a 328bps increase in weighted-average floating rate of our loan portfolio; (iii) a 13bps increase in weighted-average spread on the loan portfolio; (iv) an increase in exit/extension fees of $0.6 million for our loan portfolio for the year-ended December 31, 2023, compared to the corresponding period in 2022; (v) accretion of purchase discount of $1.0 million and (vi) an increase in interest earned on cash of $2.3 million for the year-ended December 31, 2023, compared to the corresponding period in 2022. This was partially offset by (i) a $150.6 million increase in weighted-average principal balance of our secured borrowings; (ii) a 363bps increase in weighted-average floating rate for our secured borrowings for the year-ended December 31, 2023, compared to the corresponding period in 2022; (iii) a 53bps increase in weighted-average spread for our secured borrowing liabilities and (iv)amortization of debt issuance costs of $0.5 million for the year ended December 31, 2023 compared to the corresponding period in 2022.

Current wording

For the years ended December 31, 2024 and December 31, 2023, our net interest income was $41,356,609 and $34,392,996, respectively. The increase was primarily due to (i) a $44.1 million increase in weighted-average principal balance of our loan portfolio; (ii) a 16bps increase in weighted-average floating rate of our loan portfolio; (iii) a 7bps increase in weighted-average spread on the loan portfolio; (iv) an increase in exit/extension fees of $1.1 million for our loan portfolio for the year-ended December 31, 2024, compared to the corresponding period in 2023 and (v) accretion of purchase discount of $2.5 million for the year-ended December 31, 2024, compared to the corresponding period in 2023, and (vi) a one-time income of $2.8 million related to the resolution of the defaulted Columbus, Ohio loan. This was partially offset by (i) a $18.0 million increase in weighted-average principal balance of our secured borrowings; (ii) a 24bps increase in weighted-average floating rate for our secured borrowings for the year-ended December 31, 2024, compared to the corresponding period in 2023 and (iii) a 37bps increase in weighted-average spread for our secured borrowing liabilities for the year ended December 31, 2024 compared to the corresponding period in 2023.

Previous wording

As disclosed above, we experienced an increase of $0.6 million in exit and extension fees for the year ended December 31, 2023. The primary driver of this change was attributed to exit fees. For the year ended December 31, 2023, we experienced loan payoffs on 12 loans with net principal balances of $152.6 million which generated exit fees of $1.9 million included in interest income and 7 loans with net principal balances of $112.7 million which waived exit fees of $1.0 million resulting in a reduction to expense reimbursement of $0.5 million included in operating expenses reimbursable to Manager. For the year ended December 31, 2022, we experienced loan payoffs on 12 loans with net principal balances of $133.1 million which generated exit fees of $1.3 million included in interest income and 9 loans with net principal balances of $128.9 million which waived exit fees of $1.2 million resulting in a reduction to expense reimbursement of $0.6 million included in operating expenses reimbursable to Manager.

Current wording

As disclosed above, we experienced an increase of $1.1 million in exit and extension fees for the year ended December 31, 2024. For the year ended December 31, 2024, we experienced loan payoffs on 23 loans with net principal balances of $314.5 million which generated exit fees of $2.6 million included in interest income and 5 loans with net principal balances of $46.9 million which waived exit fees of $0.6 million resulting in a reduction to expense reimbursement of $0.3 million included in operating expenses reimbursable to Manager. For the year ended December 31, 2024 we experienced extensions on 17 loans with net principal balances of $289.6 million which generated $1.4 million in deferred extension fees of which $0.5 million was accreted to interest income. For the year ended December 31, 2023, we experienced loan payoffs on 12 loans with net principal balance of $152.6 million which generated exit fees of $1.9 million included in interest income and 7 loans with net principal balance of $112.7 million which waived exit fees of $1.0 million resulting in a reduction to expense reimbursement of $0.5 million included in operating expenses reimbursable to Manager.

Previous wording

For the year ended December 31, 2022, we incurred management and incentive fees of $4,197,819 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,135,066, of which $2,116,636 was payable to our Manager and $4,018,430 was payable to third parties.

Current wording

We incurred management and incentive fees of $6,630,571 for the year ended December 31, 2024 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,877,462, of which $1,799,570 was payable to our Manager and $5,077,892 was payable to third parties.

Previous wording

We incurred management and incentive fees of $4,335,904 for the year ended December 31, 2023 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $7,917,970, of which $1,897,699 was payable to our Manager and $6,020,271 was payable to third parties.

Current wording

For the year ended December 31, 2023, we incurred management and incentive fees of $4,335,904 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $7,917,970, of which $1,897,699 was payable to our Manager and $6,020,271 was payable to third parties.

Previous wording

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

Current wording

The year-over-year increase in expenses primarily reflects earned incentive fees of $2.2 million as well as an increase in accounting, administration, audit, management, professional and secured financing fees which more than offset a decrease in legal, insurance, discontinued deal costs and reimbursable fees.

Previous wording

For the year ended December 31, 2022, we incurred a loss of $3,667,171. This loss was primarily driven by provision for credit losses of $4,258,668 which more than offset the impact of net unrealized gains on mortgage servicing rights of $243,659 as a result of increased interest rates in the period and net mortgage servicing income of $347,838.

Current wording

For the year ended December 31, 2024, we incurred other loss of $5,180,578. This loss was primarily driven by provision for credit losses of $5,275,122 primarily due to specific reserves taken on risk-rated "5" multifamily loans, changes in macroeconomic assumptions employed in determining the Company's model-based general reserve and the impact of net unrealized losses on mortgage servicing rights of $42,686 as a result of reduction in principal balance in the period which more than offset mortgage servicing income of $137,230.

Previous wording

For the year ended December 31, 2023, we incurred a loss of $2,418,903. This loss was primarily driven by provision for credit losses of $2,524,216 primarily related to an increase in loan portfolio as a result of the loans acquired in the LMF 2023-1 Financing as well as changes in macroeconomic forecast and the impact of net unrealized losses on mortgage servicing rights of $103,684 as a result of reduction in principal balance in the period which more than offset mortgage servicing income of $208,997.

Current wording

For the year ended December 31, 2023, we incurred other loss of $2,418,903. This loss was primarily driven by provision for credit losses of $2,524,216 primarily related to an increase in loan portfolio as a result of the loans acquired in the LMF 2023-1 Financing as well as changes in macroeconomic forecast and the impact of net unrealized losses on mortgage servicing rights of $103,684 as a result of reduction in principal balance in the period which more than offset net mortgage servicing income of $208,997.

Previous wording

For the year ended December 31, 2023 the Company recognized a provision for income taxes in the amount of $5,723 and for the year ended December 31, 2022, the Company recognized a provision for income taxes in the amount of $11,088. The year-over-year decrease in tax expense primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.

Current wording

For the year ended December 31, 2024 the Company recognized a provision for income taxes in the amount of $18,808 and for the year ended December 31, 2023, the Company recognized a provision for income taxes in the amount of $5,723. The year-over-year increase in tax expense primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.

Previous wording

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, comply with margin requirements, if any, and repay borrowings and other general business needs. Our primary sources of liquidity have been met with net proceeds of common or preferred stock issuance, net proceeds from debt offerings and net cash provided by operating activities. We have added to our liquidity position in February 2022, by completing a transferable common stock rights offering issuing and selling 27,277,269 shares of common stock for net proceeds of approximately $81.1 million and in May 2021 by issuing 2,400,000 shares of 7.875% Series A Cumulative Redeemable Preferred Stock resulting in net proceeds (after underwriting discount and commission but before operating expense) of $58.1 million. We finance our commercial mortgage loans primarily with non-recourse match term secured borrowings, which are not subject to margin calls or additional collateralization requirements. On June 14, 2021, we closed the 2021-FL1 CLO issuing eight tranches of CLO notes totaling $903.8 million. Of the total CLO notes issued $833.8 million were investment grade notes issued to third-party investors and $70.0 million were below investment-grade notes retained by us. On July 12, 2023, we closed LMF 2023-1 placing $270.4 million of an investment-grade rated senior secured floating-rate loan with a private lender, issued and sold approximately $47.3 million of investment-grade rated notes to an affiliate of our Manager and retained the subordinate interests in the issuing vehicle of approximately $68.6 million. On August 23, 2021 we drew an additional $7.5 million of our Secured Term Loan pursuant to the Third Amendment. As of December 31, 2023, our balance sheet included $47.8 million of a secured term loan and $1.2 billion in collateralized loan financing, gross of discounts and debt issuance costs. Our secured term loan matures in February 2026, our collateralized loan financing is term-matched and matures in 2039 or later and our collateralized financing is match-termed and matures in 2032 or later. However, to the extent that we seek to invest in additional commercial mortgage loans, we will in part be dependent on our ability to issue additional collateralized loan obligations to secure alternative financing facilities or to raise additional common or preferred equity. The anticipated continual rise in interest rates and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.

Current wording

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, comply with margin requirements, if any, and repay borrowings and other general business needs. Our primary sources of liquidity have been met with net proceeds of common or preferred stock issuance, net proceeds from debt offerings and net cash provided by operating activities, primarily derived from our retained beneficial interest in CRE CLOs and secured financings. We finance our commercial mortgage loans primarily with non-recourse match term secured borrowings, which are not subject to margin calls or additional collateralization requirements. On June 14, 2021, we closed the 2021-FL1 CLO issuing eight tranches of CLO notes totaling $903.8 million. Of the total CLO notes issued $833.8 million were investment grade notes issued to third-party investors and $70.0 million were below investment-grade notes retained by us. On July 12, 2023, we closed LMF 2023-1 placing $270.4 million of an investment-grade rated senior secured floating-rate loan with a private lender, issued and sold approximately $47.3 million of investment-grade rated notes to an affiliate of our Manager and retained the subordinate interests in the issuing vehicle of approximately $68.6 million. On August 23, 2021 we drew an additional $7.5 million of our Secured Term Loan pursuant to the Third Amendment. As of December 31, 2024, our balance sheet included $47.8 million of a secured term loan and $0.8 billion in collateralized loan financing, gross of discounts and debt issuance costs. Our secured term loan matures in February 2026, our collateralized loan financing is term-matched and matures in 2039 or later and our collateralized financing is match-termed and matures in 2032 or later. However, to the extent that we seek to invest in additional commercial mortgage loans, we will in part be dependent on our ability to issue additional collateralized loan obligations to secure alternative financing facilities or to raise additional common or preferred equity. Notwithstanding the current period of relatively high interest rates, the U.S. Federal Reserve began decreasing rates in 2024. Although decelerating, inflation remains above the U.S. Federal Reserve's target levels. Despite multiple federal fund rate decreases over the course of 2024, interest rates have remained elevated, with the U.S. Federal Reserve indicating in 2025 an expectation of slower rate decreases moving forward. The higher-for-longer interest rate environment and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.

Previous wording

We intend to continue to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated investment requirements and unforeseen business needs but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our operating results. As of December 31, 2023, we had unrestricted cash and cash equivalents of $51.2 million, compared to $43.9 million as of December 31, 2022.

Current wording

We intend to continue to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated investment requirements and unforeseen business needs but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our operating results. As of December 31, 2024, we had unrestricted cash and cash equivalents of $69.2 million, compared to $51.2 million as of December 31, 2023.

Previous wording

As of December 31, 2023, we consolidated the assets and liabilities of the 2021-FL1 CLO and LMF 2023-1 collateralized financings. The assets of the 2021-FL1 CLO and LMF 2023-1 are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trust, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trust. As of December 31, 2023, the carrying value of these non-recourse liabilities aggregated to $1,146.2 million. As of December 31, 2023, our total debt to equity ratio was 5.0:1 on a GAAP basis.

Current wording

As of December 31, 2024, we consolidated the assets and liabilities of the 2021-FL1 CLO and LMF 2023-1 collateralized financings. The assets of the 2021-FL1 CLO and LMF 2023-1 are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trust, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trust. As of December 31, 2024, the carrying value of these non-recourse liabilities aggregated to $828.4 million. As of December 31, 2024, our total debt to equity ratio was 3.7:1 on a GAAP basis.

Previous wording

During the year ended December 31, 2023, cash, cash equivalents and restricted cash increased by $4.2 million and for the year ended December 31, 2022, cash, cash equivalents and restricted cash increased by $29.1 million.

Current wording

During the year ended December 31, 2024, cash, cash equivalents and restricted cash increased by $20.0 million and for the year ended December 31, 2023, cash, cash equivalents and restricted cash increased by $4.2 million.

Previous wording

For the years ended December 31, 2023 and December 31, 2022, net cash provided by operating activities totaled $24.7 million and $16.3 million, respectively. For the year ended December 31, 2023, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO and LMF 2023-1 Financing of $34.0 million interest received from our senior secured loans held outside the VIEs we consolidate of $1.5 million, interest received on cash accounts of $2.4 million and cash received from mortgage servicing rights of $0.2 million exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $4.3 million, expense reimbursements of $1.9 million and other operating expenditures of $3.5 million. For the year ended December 31, 2022, our cash flows from operating activities were primarily driven by $26.1 million of interest received from the junior retained notes and preferred shares of 2021-FL1 CLO, $3.3 million of interest received from our senior secured loans held outside the VIE we consolidate and $0.3 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management fees of $4.2 million, expense reimbursement of $2.3 million and other operating expenditures of $3.5 million.

Current wording

For the years ended December 31, 2024 and December 31, 2023, net cash provided by operating activities totaled $27.1 million and $24.7 million, respectively. For the year ended December 31, 2024, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO and LMF 2023-1 Financing of $37.8 million interest received from our senior secured loans held outside the VIEs we consolidate of $3.8 million, interest received on cash accounts of $2.7 million and cash received from mortgage servicing rights of $0.1 million exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $6.6 million, expense reimbursements of $1.8 million and other operating expenditures of $5.3 million. For the year ended December 31, 2023, our cash flows from operating activities were primarily driven by $34.0 million of interest received from the junior retained notes and preferred shares of 2021-FL1 CLO and LMF 2023-1 Financing, interest received on cash accounts of $2.4 million, $1.5 million of interest received from our senior secured loans held outside the VIE we consolidate and $0.2 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $4.3 million, expense reimbursements of $1.9 million and other operating expenditures of $3.5 million.

Previous wording

For the year ended December 31, 2023, net cash used in investing activities totaled $316.7 million. This was a result of cash used for the purchase and funding of commercial mortgage loans held for investment exceeding the principal repayment of commercial mortgage loans held for investment during the period. For the year ended December 31, 2022 net cash used in investing activities totaled $51.8 million. This was a result of the cash used for the purchase and funding of commercial mortgage loans held for investment exceeding the principal repayment of commercial mortgage loans held-for-investment for the year ended December 31, 2022.

Current wording

For the year ended December 31, 2024, net cash provided by investing activities totaled $334.1 million. This was a result of cash received from the principal repayment of commercial mortgage loans exceeding the cash used for the purchase and funding of commercial mortgage loans held for investment during the period. For the year ended December 31, 2023, net cash used in investing activities totaled $316.7 million. This was a result of the cash used for the purchase and funding of commercial mortgage loans held for investment exceeding the principal repayment of commercial mortgage loans held-for-investment for the year ended December 31, 2023.

Previous wording

For the year ended December 31, 2023, net cash provided by financing activities totaled $296.1 million and primarily related to proceeds from issuance of investment-grade senior secured floating rate loan of $270.4 million and issuance of $47.3 million in investment-grade rated notes, which more than offset payments of common stock dividends of $13.1 million, payments of preferred stock dividends of $4.7 million and payment of debt issuance costs of $3.8 million. For the year ended December 31, 2022, net cash provided by financing activities totaled $64.6 million and primarily related to proceeds from issuance common stock of $81.1 million, which more than offset by payments of common stock dividends of $11.6 million, payment of preferred stock dividends of $4.7 million and payment of debt issuance costs of $0.1 million.

Current wording

For the year ended December 31, 2024, net cash used in financing activities totaled $341.2 million. This was due to payments of common stock dividends of $15.7 million, payments of preferred stock dividends of $4.7 million, and repayment of collateralized loan obligations of $320.8 million. For the year ended December 31, 2023, net cash provided by financing activities totaled $296.1 million and primarily related to proceeds from issuance of investment-grade senior secured floating rate loan of $270.4 million and issuance of $47.3 million in investment-grade rated notes, which more than offset payments of common stock dividends of $13.1 million, payment of preferred stock dividends of $4.7 million and payment of debt issuance costs of $3.8 million.