Lument Finance Trust, Inc.

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. In addition, our management may from time to time make oral forward-looking statements. You can identify forward-looking statements by the use of words such as "believe," "expect," "anticipate," "estimate" "project," "plan," "continue," "intend," "should," "may," "will," "seek," "would," "could" or the negative of these words and phrases or similar words and phrases, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions, changes in interest rates or inflation and any resulting effect on our borrowers or liquidity, and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this quarterly report. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this quarterly report and should consider carefully the risk factors described in Part I, Item IA "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2024 in evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. It is not possible to predict or identify all such risks. Additional information concerning these and other risk factors are contained in our 2024 10-K which is available on the Securities and Exchange Commission's website atwww.sec.gov.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. In addition, our management may from time to time make oral forward-looking statements. You can identify forward-looking statements by the use of words such as "believe," "expect," "anticipate," "estimate" "project," "plan," "continue," "intend," "should," "may," "will," "seek," "would," "could" or the negative of these words and phrases or similar words and phrases, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions, changes in interest rates or inflation and any resulting effect on our borrowers or liquidity, and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this quarterly report. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this quarterly report and should consider carefully the risk factors described in Part I, Item IA "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2024, as updated by our quarterly report on Form 10-Q for the quarter ended March 31, 2025, and/or as disclosed in any subsequent filings with the SEC, in evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. It is not possible to predict or identify all such risks. Additional information concerning these and other risk factors are contained in our 2024 10-K and subsequent filings with the SEC, which are available on the SEC's website atwww.sec.gov.

Previous wording

The last several quarters have been characterized by significant volatility in U.S. and global markets, driven by heightened inflation, higher interest rates, slowing economic growth, increased tariffs, trade tensions, geopolitical conditions and political and regulatory uncertainties. These conditions have adversely impacted, and may continue to adversely impact, the U.S. and global economies, the real estate industry and our borrowers, and the performance of the properties securing our loans. Collectively, these market dynamics pose challenges to commercial real estate values and transaction activit.

Current wording

The last several quarters have been characterized by significant volatility in U.S. and global markets, driven by heightened inflation, higher interest rates, slowing economic growth, increased tariffs, trade tensions, geopolitical conditions and political and regulatory uncertainties. These conditions have adversely impacted, and may continue to adversely impact, the U.S. and global economies, the real estate industry and our borrowers, and the performance of the properties securing our loans. Collectively, these market dynamics pose challenges to commercial real estate values and transaction activity.

Previous wording

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. Although our business model is such that higher interest rates will, all else being equal, correlate to increases in our net income, interest rates remaining elevated for an extended period of time may adversely affect our existing borrowers. Additionally, higher interest rates and unpredictable geopolitical landscape may cause 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. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

Current wording

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 and 2025, interest rates have remained elevated. Although our business model is such that higher interest rates will, all else being equal, correlate to increases in our net income, interest rates remaining elevated for an extended period of time may adversely affect our existing borrowers. Additionally, higher interest rates and unpredictable geopolitical landscape may cause 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. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.

Previous wording

•On June 20, 2025, the Company announced its second quarter common dividend of $0.06 per share of common stock

Current wording

•On September 16, 2025, the Company announced its third quarter common dividend of $0.04 per share of common stock

Previous wording

•On June 20, 2025, the Company announced its second quarter preferred dividend of $0.49219 per share of Series A Preferred Stock

Current wording

•On September 16, 2025, the Company announced its third quarter preferred dividend of $0.49219 per share of Series A Preferred Stock

Previous wording

•Book value of common stock as of June 30, 2025 was $171.4 million, or $3.27 per share of common stock

Current wording

•Book value of common stock as of September 30, 2025 was $170.0 million, or $3.25 per share of common stock

Previous wording

•Experienced $63.4 million in loan payoffs

Current wording

•Experienced $48.8 million in loan payoffs

Previous wording

•$0.9 million senior loan portfolio is 100% floating rate with an average spread to 30-day term SOFR of 3.56%, excluding unamortized purchase discounts of $2.3 million as of June 30, 2025

Current wording

•$0.8 billion senior loan portfolio is 100% floating rate with an average spread to 30-day term SOFR of 3.55%, excluding unamortized purchase discounts of $1.9 million as of September 30, 2025

Previous wording

•Multifamily assets represent 90.6% of loan portfolio

Current wording

•Multifamily assets represent 89.6% of loan portfolio

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 June 30, 2025, 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 June 30, 2025, 100% of the loans in our commercial mortgage loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 0.97%, 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 June 30, 2025, the weighted average spread of our commercial loan portfolio was 3.56%, 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 September 30, 2025, 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 September 30, 2025, 100% of the loans in our commercial mortgage loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 1.36%, 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 September 30, 2025, the weighted average spread of our commercial loan portfolio was 3.55%, but there is no assurance that these spreads will be maintained as market environments fluctuate.

Previous 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, March, May and July 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.

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%. Additionally, on September 17, 2025 and October 29, 2025, respectively, the U.S. Federal Reserve lowered the federal funds rate by 0.25% to a current target range of 3.75% to 4.00%. Interest rates continue to 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 June 30, 2025, 75.0% of our performing loans have interest rate caps with a weighted-average strike price of 2.6%.

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 a significant increase in interest rates or the continued elevation in current 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 September 30, 2025, 60.6% of our performing loans have interest rate caps with a weighted-average strike price of 2.27%.

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 June 30, 2025, 95.2% 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 September 30, 2025, 92.7% 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 specific credit reserves. 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

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 June 30, 2025, our aggregate unaccreted purchase discount was $2.3 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 Financing in 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.

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 September 30, 2025, our aggregate unaccreted purchase discount was $1.9 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 Financing in July 2025, accordingly any principal prepayments received on our loan portfolio will be used to paydown their related secured borrowings. Currently, 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 during active reinvestment periods, 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. To the extent any loans are permanently refinanced by the Manager or any of its affiliates, the prepayment penalties will be waived resulting in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived fee capped at a waived fee of 1%.

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 June 30, 2025, we recorded earnings per share of $0.05, declared a quarterly common dividend of $0.06 per share, and reported $0.05 per share of Distributable Earnings. In addition, our book value per share was $3.27.

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 September 30, 2025, we recorded earnings per share of $0.01, declared a quarterly common dividend of $0.04 per share, and reported $0.02 per share of Distributable Earnings. In addition, our book value per share was $3.25.

Previous wording

(1) Book value as of June 30, 2025 and December 31, 2024 includes the impact of an estimated CECL allowance of $14,252,284 or $0.27 per common share and $11,320,220 or $0.22 per common share, respectively.

Current wording

(1) Book value as of September 30, 2025 and December 31, 2024 includes the impact of an estimated CECL allowance of $14,020,408 or $0.27 per common share and $11,320,220 or $0.22 per common share, respectively.

Previous wording

(1) Carrying Value includes $2,284,651 and $3,466,214 in unamortized purchase discounts as of June 30, 2025 and December 31, 2024, respectively.

Current wording

(1) Carrying Value includes $1,928,239 and $3,466,214 in unamortized purchase discounts as of September 30, 2025 and December 31, 2024, respectively.

Previous wording

(2) Weighted average coupon assumes applicable 30-day term Secured Overnight Financing Rate ("SOFR") of 4.31% and 4.51% as of June 30, 2025 and December 31, 2024, respectively, inclusive of weighted average interest rate floors of 0.97% and 0.63%, respectively. As of June 30, 2025 and December 31, 2024, 100.0% 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 Secured Overnight Financing Rate ("SOFR") of 4.22% and 4.51% as of September 30, 2025 and December 31, 2024, respectively, inclusive of weighted average interest rate floors of 1.36% and 0.63%, respectively. As of September 30, 2025 and December 31, 2024, 100.0% of the investments by total investment exposure earned a floating rate indexed to 30-day term SOFR.

Previous wording

(4) As of June 30, 2025, $902,921,404 of the outstanding senior secured loans were held in VIEs and $2,498,492 of the outstanding senior loans were held outside of VIEs. 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 VIEs.

Current wording

(4) As of September 30, 2025, $819,117,267 of the outstanding senior secured loans were held in VIEs and $2,726,213 of the outstanding senior loans were held outside of VIEs. 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 VIEs.

Previous wording

The table below sets forth additional information relating to the Company's loan portfolio as of June 30, 2025:

Current wording

The table below sets forth additional information relating to the Company's portfolio as of September 30, 2025:

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in Colorado Springs, CO, with an unpaid principal value of $10.5 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $0.8 million for credit losses was required after analysis of the underlying collateral value. This loan has been on non-accrual status since December 31, 2024 as a result of the monetary default, with interest recorded as income on a cash basis. During the three and six months ended June 30, 2025, the Company recognized $0.1 million of interest on this loan.

Current wording

During the period ended September 30, 2025, management continued to identify a loan, collateralized by a multifamily property in Colorado Springs, CO, with an unpaid principal value of $10.3 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $1.3 million for credit losses was required after analysis of the underlying collateral value. This loan has been on non-accrual status since December 31, 2024 as a result of the monetary default, with interest recorded as income on a cash basis. During the three and nine months ended September 30, 2025, the Company recognized $0.1 million and $0.3 million of interest on this loan, respectively.

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in Ypsilanti, MI, with an unpaid principal value of $11.9 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $2.9 million for credit losses was required after analysis of the underlying collateral value. This loan has been on non-accrual status since March 31, 2025 as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended June 30, 2025, the Company has not recognized interest on this loan.

Current wording

During the period ended September 30, 2025, management continued to identify a loan, collateralized by a multifamily property in Ypsilanti, MI, with an unpaid principal value of $11.9 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $4.1 million for credit losses was required after analysis of the underlying collateral value. This loan has been on non-accrual status since March 31, 2025 as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended September 30, 2025, the Company has not recognized interest on this loan.

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in Cedar Park, TX, with an unpaid principal value of $13.7 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2025, as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended June 30, 2025, the Company recognized $0.1 million of interest on this loan.

Current wording

During the period ended September 30, 2025, management continued to identify a loan, collateralized by a multifamily property in Cedar Park, TX, with an unpaid principal value of $13.7 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2025, as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended September 30, 2025, the Company recognized $0.2 million of interest on this loan.

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in Des Moines, IA, with an unpaid principal value of $8.2 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2025, as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended June 30, 2025, the Company recognized $0.0 million of interest on this loan.

Current wording

During the period ended September 30, 2025, management continued to identify a loan, collateralized by a multifamily property in Des Moines, IA, with an unpaid principal value of $8.2 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2025, as a result of the monetary default, with interest recorded as income on a cash basis. During the three months ended September 30, 2025, the Company has not recognized interest on this loan.

Previous wording

During the period ended December 31, 2024, management identified a loan, collateralized by two multifamily properties in Philadelphia, PA, with an unpaid aggregate principal value of $15.0 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $0.1 million for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2024, as a result of the monetary default, with interest collections accounted for under the cost recovery method. In the second quarter of 2025, this loan transitioned to a risk rating of "4", is performing on its interest payments and was returned to accrual status.

Current wording

During the period ended December 31, 2024, management identified a loan, collateralized by two multifamily properties in Philadelphia, PA, with an unpaid aggregate principal value of 15.0 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of 0.1 million for credit losses was required after analysis of the underlying collateral value. This loan was placed on non-accrual status as of June 30, 2024, as a result of the monetary default, with interest collections accounted for under the cost recovery method. In the second quarter of 2025, this loan transitioned to a risk rating of "4", was performing on its interest payments and was returned to accrual status. During the period ended September 30, 2025, management identified this loan as requiring individual evaluation for a specific allowance for credit losses due to maturity 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 June 30, 2025, management identified a loan, collateralized by a multifamily property in Orlando, FL, with an unpaid principal balance of $19.6 million as requiring individual evaluation for a specific allowance for credit losses due to maturity default, and a resulting risk rating of "5"; however, no specific allowance for credit losses were required after analysis of the underlying collateral.

Current wording

During the period ended December 31, 2024, management identified a loan, collateralized by a multifamily property in Orlando, FL, with an unpaid principal balance of 19.6 million as requiring individual evaluation for a specific allowance for credit losses due to maturity default, and a resulting risk rating of "5"; however, no specific allowance for credit losses were required after analysis of the underlying collateral. In the third quarter of 2025, this loan transitioned to a risk rating of "4".

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in Clarkston, GA, with an unpaid principal value of $24.5 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $3.8 million for credit losses was required after analysis of the underlying collateral value.

Current wording

During the period ended March 31, 2025, management identified a loan, collateralized by a multifamily property in Clarkston, GA, with an unpaid principal value of $24.5 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of $3.8 million for credit losses was required after analysis of the underlying collateral value. In the third quarter of 2025, as a result of a loan modification, this loan transitioned to a risk rating of "4". The loan is performing on its interest payments and was returned to accrual status. Additionally, due to this transition, the prior specific allowance of $3.8 million was reversed in the quarter.

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in San Antonio, TX, with an unpaid principal value of $26.6 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value.

Current wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in San Antonio, TX, with an unpaid principal value of $26.6 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; however, no specific allowance for credit losses was required after analysis of the underlying collateral value. In the third quarter of 2025, this loan was foreclosed on, with ownership of the property being taken by a newly formed subsidiary of 2021-FL1 CLO.

Previous wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in San Antonio, TX, with an unpaid principal value of $9.1 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of 0.2 million for credit losses was required after analysis of the underlying collateral value.

Current wording

During the period ended June 30, 2025, management identified a loan, collateralized by a multifamily property in San Antonio, TX, with an unpaid principal value of $9.1 million as requiring individual evaluation for a specific allowance for credit losses due to monetary default, and a resulting risk rating of "5"; a specific allowance of 0.2 million for credit losses was required after analysis of the underlying collateral value. In the third quarter of 2025, this loan was foreclosed on, with ownership of the property being taken by a newly formed subsidiary of LMF 2023-1 Financing.

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 average risk rating of the portfolio remained consistent during the six months ended June 30, 2025. The change in underlying risk rating consisted of loans that paid off with a risk rating of "3" of $94.6 million, a risk rating of "4" of $21.5 million and a risk rating of "5" of $2.0 million during the six months ended June 30, 2025, partially offset by funding of loans with a risk rating of "2" of $3.6 million. Additionally, $18.9 million of loans with a risk rating of "3" transitioned to a risk rating of "2," $75.9 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $49.4 million of loans with a risk rating of "3" transitioned to a risk rating of "5," $88.1 million of loans with a risk rating of "4" transitioned to a risk rating of "3", $44.6 million of loans with a risk rating of "4" transitioned to a risk rating of "5", $29.6 million of loans with a risk rating of "5" transitioned to a risk rating of "3" and $21.1 million of loans with a risk rating of "5" transitioned to a risk rating of "4". Further, $11.5 million of loans with a risk rating of "4" and $15.4 million of loans with a risk rating of "5" were foreclosed and moved to REO. The following table presents the principal balance and net book value based on the Company's internal risk ratings as of June 30, 2025:

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 average risk rating of the portfolio increased during the nine months ended September 30, 2025. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $27.1 million, a risk rating of "3" of $115.0 million, a risk rating of "4" of $22.7 million and a risk rating of "5" of $2.0 million during the nine months ended September 30, 2025, partially offset by funding of loans with a risk rating of "2" of $3.6 million. Additionally, $34.3 million of loans with a risk rating of "3" transitioned to a risk rating of "2," $203.8 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $13.7 million of loans with a risk rating of "3" transitioned to a risk rating of "5," $96.2 million of loans with a risk rating of "4" transitioned to a risk rating of "3", $47.4 million of loans with a risk rating of "4" transitioned to a risk rating of "5" and $55.3 million of loans with a risk rating of "5" transitioned to a risk rating of "4". Further, $35.7 million of loans with a risk rating of "3", $11.5 million of loans with a risk rating of "4" and $15.4 million of loans with a risk rating of "5" were foreclosed and moved to REO. The following table presents the principal balance and net book value based on the Company's internal risk ratings as of September 30, 2025:

Previous wording

At June 30, 2025, our REO assets were comprised of two multifamily properties held within 2021-FL1 CLO and LMF 2023-1 Financing.

Current wording

At September 30, 2025, our REO assets were comprised of four multifamily properties held within 2021-FL1 CLO and LMF 2023-1 Financing.

Previous wording

During the six months ended June 30, 2025, Lument Real Estate Capital, LLC ('LREC"), as special servicer for 2021-FL1 CLO foreclosed on one multifamily bridge loan with aggregate net carrying value of $13.0 million, net of specific CECL reserves of $2.4 million, with ownership and deed to the property being taken by a newly formed subsidiary of 2021-FL1 CLO. Additionally, LREC, as special servicer for LMF 2023-1 Financing foreclosed on one multifamily bridge loan with aggregate net carrying value of $11.0 million, net of specific CECL reserves of $0.5 million, with ownership and deed to the property being taken by a newly formed subsidiary of LMF 2023-1 Financing.

Current wording

During the nine months ended September 30, 2025, Lument Real Estate Capital, LLC ("LREC"), as special servicer for 2021-FL1 CLO foreclosed on two multifamily bridge loans with aggregate net carrying value of $39.5 million, net of specific CECL reserves of $2.4 million, with ownership and deed to the property being taken by a newly formed subsidiary of 2021-FL1 CLO. Additionally, LREC, as special servicer for LMF 2023-1 Financing foreclosed on two multifamily bridge loans with aggregate net carrying value of $19.9 million, net of specific CECL reserves of $0.7 million, with ownership and deed to the property being taken by a newly formed subsidiary of LMF 2023-1 Financing.

Previous wording

The fair value of the underlying collateral is determined using the income approach, market approach, or a combination thereof. The significant unobservable input for the income capitalization approach is the overall capitalization rate assumption, used in the direct capitalization method, which ranged from 6.00%-6.25%. The significant unobservable input used for the market approach is the price per unit from an appraisal or broker opinion of value.

Current wording

The fair value of the underlying collateral is determined using the income approach, market approach, or a combination thereof. The significant unobservable input for the income capitalization approach is the overall capitalization rate assumption, used in the direct capitalization method, which ranged from 6.25%-7.40%. The significant unobservable input used for the market approach is the price per unit from an appraisal or broker opinion of value.

Previous wording

(1) Maximum facility size represents the largest amount of borrowings under a given facility once sufficient collateral assets have been approved by the lender and pledged by us. Collateralized loan obligations maximum facility size reduced by repayment of Class A Notes of $394.9 million and secured financings maximum facility size reduced by repayment of Class A Loans of $44.8 million. Includes $166.3 million in collateralized loan obligations retained interests and $68.6 million in secured financings retained interests that are eliminated in consolidation in our balance sheets at June 30, 2025 and December 31, 2024, respectively.

Current wording

(1) Maximum facility size represents the largest amount of borrowings under a given facility once sufficient collateral assets have been approved by the lender and pledged by us. Collateralized loan obligations maximum facility size reduced by repayment of Class A Notes of $397.1 million and secured financings maximum facility size reduced by repayment of Class A Loans of $44.8 million. Includes $166.3 million in collateralized loan obligations retained interests and $83.0 million in secured financings retained interests that are eliminated in consolidation in our balance sheets at September 30, 2025 and December 31, 2024, respectively.

Previous wording

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

Current wording

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

Previous wording

On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets and are not subject to margin calls or additional collateralization requirements. In connection with the LMF 2023-1 Financing, approximately $270.4 million of an investment-grade rated senior secured floating rate loan was provided by a private lender and approximately $47.3 million of investment-grade rated notes (collectively, the "Senior Debt") were issued and sold to an affiliate of LFT's external manager, Lument IM. A consolidated subsidiary of LFT retained the subordinate int in the issuing vehicle of approximately

Current wording

On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets and are not subject to margin calls or additional collateralization requirements. In connection with the LMF 2023-1 Financing, approximately $270.4 million of an investment-grade rated senior secured floating rate loan was provided by a private lender and approximately $47.3 million of investment-grade rated notes (collectively, the "Senior Debt") were issued and sold to an affiliate of LFT's external manager, Lument IM. A consolidated subsidiary of LFT retained the subordinate notes in the issuing vehicle of approximately

Previous wording

$68.6 million. The Senior Debt has an initial weighted average spread of approximately 314 basis points over 30-day term SOFR, excluding fees and transaction costs. The Senior Debt matures on the payment date in July 2032, unless it is sooner repaid or redeemed in accordance with its terms. The financing has an initial two-year reinvestment period that allows principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid.

Current wording

$68.6 million. The Senior Debt has an initial weighted average spread of approximately 314 basis points over 30-day term SOFR, excluding fees and transaction costs. The Senior Debt matures on the payment date in July 2032, unless it is sooner repaid or redeemed in accordance with its terms. The financing had an initial two-year reinvestment period that allowed principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid.

Previous wording

(2) The carrying value of the collateral is net of unaccreted purchase discounts of $2,370,234 and allowance for credit loss of $14,252,268 as of June 30, 2025. The carrying value for LMF 2023-1 Financing is net of debt issuance costs of $1,804,478 for June 30, 2025.

Current wording

(2) The carrying value of the collateral is net of unaccreted purchase discounts of $1,928,239 and allowance for credit loss of $14,020,408 as of September 30, 2025. The carrying value for LMF 2023-1 Financing is net of debt issuance costs of $1,548,287 for September 30, 2025.

Previous wording

(3) Weighted average coupon for loan investments assumes applicable 30-day term SOFR of 4.31% as of June 30, 2025, inclusive of weighted average interest rate floors of 0.97% and spreads of 3.56%. Weighted average coupon for the financings assumes applicable 30-day term SOFR of 4.31% as of June 30, 2025 and spreads of 2.32% as of June 30, 2025.

Current wording

(3) Weighted average coupon for loan investments assumes applicable 30-day term SOFR of 4.22% as of September 30, 2025, inclusive of weighted average interest rate floors of 1.37% and spreads of 3.55%. Weighted average coupon for the financings assumes applicable 30-day term SOFR of 4.15% as of September 30, 2025 and spreads of 2.30% as of September 30, 2025.

Previous wording

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

Current wording

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