LFT US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes included in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our current expectations, estimates, forecasts and projections.

Overview

We are a Maryland corporation that is focused on investing in, financing and managing a portfolio of commercial real estate debt investments.

In January 2020, we entered into a series of transactions with subsidiaries of ORIX Corporation USA ("ORIX USA"), a diversified financial company with the ability to provide investment capital and asset management services to clients in the corporate, real estate and municipal finance sectors. We entered into a new management agreement with OREC Investment Management, LLC doing business as Lument Investment Management (the "Manager" or "Lument IM"), while another affiliate of ORIX USA purchased an ownership stake of approximately 5.0% through a privately-placed stock issuance. The transactions are expected to enhance the scale of LFT and generate shareholder value through leveraging ORIX USA's expansive originations, asset management and servicing platform.

Lument IM is an affiliate of Lument, a nationally recognized leader in multifamily and seniors housing and care finance. The Company leverages Lument's broad platform and significant expertise when originating and underwriting investments.

We invest primarily in transitional floating rate CRE mortgage loans with an emphasis on middle market multifamily assets. We may also invest in other CRE-related investments including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans and other CRE debt instruments. We finance our current investments in transitional multifamily and other CRE loans primarily through match term non-recourse CRE CLOs. We may utilize warehouse repurchase agreements or other forms of financing in the future. Our primary sources of income are net interest from our investment portfolio and non-interest income from our mortgage loan-related activities. Net interest income represents the interest income we earn on investments less the expense of funding these investments.

Our investments typically have the following characteristics:

•Sponsors with experience in particular real estate sectors and geographic markets;

•Located in U.S. markets with multiple demand drivers, such as growth in employment and household formation;

•Fully funded principal balance greater than $5 million;

•Loan to Value ratio up to 85% of as-is value and up to 75% of as stabilized value;

•Floating rate loans tied to one-month U.S. denominated LIBOR or any index replacement;

•Three-year term with two one-year extension options.

We believe that our current investment strategy provides significant opportunities to achieve attractive risk-adjusted returns for our stockholders over time. However, to capitalize on the investment opportunities at different points in the economic and real estate investment cycle, we may modify or expand our investment strategy. We believe that the flexibility of our strategy, which is supported by significant CRE experience of Lument's investment team, and the extensive resources of ORIX USA, will allow us to take advantage of changing market conditions to maximize risk-adjusted returns to our stockholders.

We have elected to be taxed as a REIT and comply with the provisions of the Internal Revenue Code with respect thereto. Accordingly, we are generally not subject to federal income tax on our REIT taxable income that we currently distribute to our stockholders so long as we maintain our qualification as a REIT. Our continued qualification as a REIT depends on our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code relating to, among other things, the source of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our capital stock. Even if we maintain our qualification as a REIT, we may become subject to some federal, state and local taxes on our income generated in our wholly owned taxable REIT subsidiary ("TRS"), Five Oaks Acquisition Corp. ("FOAC").

Recent Developments

As of December 31, 2020, there is an ongoing global outbreak of a novel coronavirus, or COVID-19. On March 11, 2020, the WHO declared COVID-19 a global pandemic, and numerous countries, including the United States, declared national emergencies with respect to COVID-19. The United States and other countries reacted to the COVID-19 outbreak with unprecedented government intervention, including interest rate cuts and economic stimulus. The global impact of the outbreak rapidly evolved (and continues to do so), and many countries reacted by instituting, or strongly encouraging, quarantines and restrictions on travel, closing financial markets and/or restricting trading, limiting operations of non-essential offices, retail centers, hotels, and other businesses, and taking other restrictive measures to help slow the spread of COVID-19. Businesses also implemented similar precautionary measures. Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, have created disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries, including industries related to the collateral underlying certain of our loans. Moreover, with the continued spread of COVID-19, governments and businesses are likely to continue to take aggressive measures to help slow its spread. For this reason, among others, as COVID-19 continues to spread, the potential impacts, including a global, regional, or other economic recession, are increasingly uncertain and difficult to assess.

Although we are still uncertain of the potential full magnitude or duration of the COVID-19 outbreak and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas, we face future uncertainty and risk with respect to our financial condition, results of operations, liquidity and ability to pay distributions. Possible future declines in rental rates and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, or rent abatements for tenants severely impacted by the COVID-19 pandemic may result in decreases in cash flows to our borrowers and potentially in defaults in paying debt service on outstanding indebtedness, which could adversely impact our results of operations and financial performance. Impending declines in economic conditions could negatively impact real estate and real estate capital markets and result in lower occupancy, lower rental rates and declining values in our portfolio, which could adversely impact the value of investments, making it more difficult for us to make distributions or meet our financing obligations. Although there are effective vaccines for COVID-19 that have been approved for use, distribution of the vaccines did not begin until late 2020, and a majority of the public will likely not have access to a vaccination until sometime in 2021. Accordingly, the full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with travel advisories, quarantines and restrictions, the recovery time of the disrupted

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supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the economic slowdown. We are unable to predict or control these factors.

The effects of the COVID-19 pandemic did not significantly impact our operating results for the year ended December 31, 2020, other than previously deferred debt issuance costs of $624,816 expensed in the second quarter of 2020 as a result of the current market environment related to a collateralized loan obligations transaction that has been determined as unlikely to be executed prior to December 31, 2020. However, the prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and negatively impact our business, financial performance and operating results for the year ending December 31, 2021 and potentially longer.

2020 Highlights

•We believe we successfully navigated the challenging economic environment resulting from the COVID-19 pandemic during 2020. As of December 31, 2020, our loan portfolio is 100% performing with no loan impairments, loan defaults or non-accrual loans and no forbearance requests granted within our loan portfolio.

•Our net income attributable to our common stockholders increased from $2.7 million, or $0.11 per share of common stock, in 2019 to $8.4 million, or $0.34 per share of common stock, in 2020. Our Distributable Earnings increased by 22% from $7.6 million, or $0.32 per share of common stock, in 2019 to $9.8 million, or $0.39 per share of common stock, in 2020. Distributable Earnings is a non-GAAP financial measure. For a definition of Distributable Earnings and a reconciliation of our Distributable Earnings to our net income attributable to common stockholders, see "Key Financial Measure and Indicators."

•On September 17, 2020, we announced a dividend increase from $0.075 per share of common stock to $0.085 per share of common stock, a 13.3% increase over the previous quarter. On December 18, 2020, we announced our second consecutive dividend increase from $0.085 per share of common stock to $0.09 per share of common stock, a 5.9% increase over the previous quarter. On December 21, 2020, we announced a one-time special cash dividend of $0.04 per share of common stock.

•Our book value per share of common stock was $4.56 as of December 31, 2020, which was substantially consistent with our book value per share of common stock of $4.59 as of December 31, 2019.

•We acquired four loans with an initial unpaid principal balance of $46.4 million and a weighted average interest rate of one-month LIBOR plus 3.36%.

•We funded $11.2 million in future funding obligations associated with existing loans with a weighted average interest rate of one-month LIBOR plus 3.27%

The ORIX Transaction

On January 6, 2020, we announced the entry into a new external management agreement with Lument IM and the concurrent mutual termination of our management agreement with HIM. Lument IM is part of Lument, a nationally recognized leader in multifamily and seniors housing and healthcare finance. The terms of the new management agreement align with the terms of our prior management agreement with HIM in all material respects, including a cap on reimbursable expenses. Pursuant to the terms of the termination agreement between the Company and HIM, the termination of the management agreement did not trigger, and HIM was not paid, a termination fee by the Company.

In connection with the transaction, an affiliate of ORIX USA purchased 1,246,719 shares of the Company's common stock in a private placement by the Company at a purchase price of $4.61 per share, resulting in an aggregate capital raise of $5,747,375. The purchase price per share represented a 43% premium over the LFT common share price on January 2, 2020. As a result of this share purchase, an affiliate of ORIX USA owns approximately 5.0% of LFT's outstanding common shares. Also, in connection with the transaction, James C. Hunt resigned as the Company's Chairman of the Board, but continues to serve as a member of the Board. In addition, the Board appointed Interim Chief Financial Officer James A. Briggs as Chief Financial Officer of the Company.

Factors Impacting Our Operating Results

Market conditions. The results of our operations are and will continue to be affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and the supply of, and demand for, our target assets in the marketplace. Our net interest income, will vary primarily as a result of changes in market interest rates and prepayment speeds, and by the ability of the borrowers underlying our commercial mortgage loans to continue making payments in accordance with the contractual terms of their loans, which may be impacted by unanticipated credit events experienced by such borrowers, particularly in light of the ongoing COVID-19 pandemic. Interest rates vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty, and have most recently been impacted by the ongoing COVID-19 pandemic. Our operating results will also be affected by general U.S. real estate fundamentals and the overall U.S. economic environment, including the pace and degree of recovery from the ongoing COVID-19 pandemic. In particular, our strategy is influenced by the specific characteristics of the underlying real estate markets, including prepayment rates, credit market conditions and interest rate levels.

Changes in market interest rates. Generally, our business model is such that rising interest rates will generally increase our net interest income, while declining rates will generally decrease our net interest income. Substantially all of our investments and all of our collateralized loan obligations are indexed to 30-day LIBOR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes. Additionally, we benefit from 100% of our commercial loan portfolio having LIBOR floors as a further mitigant to interest variability, with a weighted average LIBOR floor of 1.64% as of December 31, 2020. As of December 31, 2020, 100% of the loans in our commercial loan portfolio had a LIBOR floor greater than the current spot LIBOR rate. While we expect low LIBOR rates to persist amidst the current COVID-19 pandemic, no assurance can be made that our current portfolio profile, including its LIBOR floor will be maintained. A decrease to the weighted average LIBOR floor would result in a decrease to net interest income if the prevailing spot LIBOR rate is less than the weighted average LIBOR floor. LIBOR is expected to be discontinued after 2021. As of December 31, 2020, 100% of commercial mortgage loans by principal balance earned a floating rate of interest indexed to LIBOR, and 100% of our outstanding collateralized loan obligations bear interest indexed to LIBOR. All of these arrangements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and to work with our borrowers to minimize the impact of any LIBOR transition on our financial condition and results of operations, but can provide no assurances regarding the impact of the discontinuation of LIBOR. We finance a portion of our commercial loan portfolio with equity, and as such, decreases in interest rates may reduce our net interest income and may impact the competition for and supply of new investment opportunities. In addition to the risk related to fluctuations in cash flows associated with movements in interest rates, there is also the risk of non-performance

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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 the mortgages and, potentially, contribute to non-performance or, in severe cases, default.

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, 2020, 100% of the commercial mortgage loans in our portfolio were current as to principal and interest. Additionally, we have reviewed the loans designated as High 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. As of December 31, 2020, the Company has not recognized any impairments on its loan portfolio. However, due to the continued widespread impact of the COVID-19 pandemic we consider there to be heightened credit risk associated with our commercial mortgage loan portfolio. Uncertainty about the severity and duration of the economic impact of the COVID-19 pandemic persist and potential exists for the credit risk of our portfolio to heighten further. 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.

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 collateralized loan obligations, 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, 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. Additionally, due to the expiration of the reinvestment period of Hunt CRE 2017-FL1, our interest earning assets will continue to decline as loans payoff in this collateralized loan obligation until such time this collateralized loan obligation is refinanced. However, due to the current market environment created by the COVID-19 pandemic, it may make obtaining this refinance more difficult.

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. All of our commercial mortgage loans were acquired at par, and accordingly we do not believe this to be a material risk for us at present. Additionally, we are subject to prepayment risk associated with the terms of our collateralized loan obligations. Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our CLOs 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 Hunt CRE 2017-FL1 expired on February 20, 2020 and remains in place for Hunt CRE 2018-FL2. As of December 31, 2020, we have experienced $44.9 million in loan prepayments in Hunt CRE 2017-FL1 subsequent to the expiration of its reinvestment period. While the interest rate spreads of our collateralized loan obligations 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 COVID-19 pandemic. 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.

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 loan losses. Impairment is 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 loan losses will directly impact our earnings. Given the widespread impact of COVID-19 pandemic, we consider there to be a heightened credit risk associated with our commercial mortgage loan portfolio.

Governmental actions. Since 2008, when both Fannie Mae and Freddie Mac were placed under the conservatorship of the U.S. government, there have been a number of proposals to reform the U.S. housing finance system in general, and Fannie Mae and Freddie Mac in particular. We anticipate debate on residential housing and mortgage reform to continue through 2021 and beyond, but a deep divide persists between factions on Congress and as such it remains unclear what shape any reform would take and what impact, if any, reform would have on mortgage REITs.

Managing Our Business Through COVID-19

As of March 13, 2020, our Manager and its affiliates, implemented a work from home, or WFH, policy for employees in all locations. The WFH policy remains in effect as of the date of this filing. Our Manager's highly experienced senior team and dedicated employees are fully operational during this ongoing disruption and are continuing to execute on all investment management, asset management, servicing, portfolio monitoring, financial reporting and related control activities. Our Manager's and affiliates employees are in constant communication to ensure timely coordination and early identification of issues. We continue to engage in ongoing active dialogue with the borrowers in our commercial mortgage loan portfolio to understand what is taking place at the properties collateralizing our investments.

Considering the current economic environment caused by COVID-19 we are taking a more measured approach in our new investment activity and our evaluation of any new investments to incorporate the impact of COVID-19. We are mindful of local ordinance constraints on lender protection and continue to monitor the impact of fiscal stimulus on our loan portfolio. More recently, the CDC issued a nationwide moratorium on residential evictions. Specifically, from September 4, 2020 through March 31, 2021 residential landlords and those with similar eviction rights may not evict "covered persons" for nonpayment of rent in any U.S. state or territory. Covered persons (a) use best efforts to obtain government assistance; (b) make less than $99,000 or $198,000 jointly; (c) have suffered loss of income or extraordinary medical expenses; (d) use the best efforts to make partial payments; and (e) have no other housing options. As a result of this national restriction, multifamily apartment borrowers have less ability to address non-payment of tenants, which in turn may negatively impact a property's cashflow coverage of the debt service of their loans. Additionally, due to COVID-19, there are potential challenges facing third-party providers,

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such as appraisers, environmental and engineering consultants we rely on to make new investments which may make it more difficult to make these investments.

Key Financial Measure and Indicators

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. For the three months ended December 31, 2020, we recorded earnings per share of $0.10, declared a quarterly dividend of $0.09 per share and a special dividend of $0.04 per share, and reported $0.10 per share of Distributable Earnings. In addition, our book value per share was $4.56 per share. For the year ended December 31, 2020, we recorded earnings per share of $0.34, declared aggregate dividends of $0.37 per share, and reported $0.39 per share of Distributable Earnings.

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.

Earnings Per Share and Dividends Declared

The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share:

Three Months EndedDecember 31, Year EndedDecember 31,

Net income per share, basic and diluted $ 0.10 $ 0.34 $ 0.11

Dividends declared per share(2) $ 0.13 $ 0.37 $ 0.30

(1) Represents net income attributable to Lument Finance Trust, Inc.

(2) Includes $0.04 special dividend declared on December 21, 2020.

Distributable Earnings

Distributable Earnings is a non-GAAP financial measure, which we define as GAAP net income (loss) attributable to holders of common stock, or, without duplication, owners of our subsidiaries, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation, (ii) incentive compensation payable to the Manager, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other similar non-cash items that are included in net income for that applicable repotting period, regardless of whether such items are included in other comprehensive income (loss) or net income (loss), and (v) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions with the Company's board of directors and approved by a majority of the Company's independent directors. Distributable Earnings mirrors how we calculate Core Earnings (as defined in our management agreement between our Manager and us) for purposes of calculating the incentive fee payable to our Manager.

While Distributable Earnings excludes the impact of any unrealized provisions for credit losses, any loan losses are charged off and realized through Distributable Earnings when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or in the case of foreclosures, when the underlying asset is sold), or (ii) with respect to any amount due under any loan, when such amount is determined to be non-collectible.

We believe that Distributable Earnings provides meaningful information to consider in addition to our net income (loss) and cash flows from operating activities determined in accordance with GAAP. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, over time, Distributable Earnings has been a strong indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Refer to Note 16 to our consolidated financial statements for further discussion of our distribution requirements as a REIT. Furthermore, Distributable Earnings help 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, and is a performance metric we consider when declaring our dividends.

Distributable Earnings does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar performance measures, and accordingly, our reported Distributable Earnings may not be comparable to the Distributable Earnings reported by other companies.

The following table provides a reconciliation of Distributable Earnings to GAAP net income:

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Three Months EndedDecember 31, Year EndedDecember 31,

Realized loss on sale of investments, net — — 709,439

Adjustment for consolidated securities — — 3,269

Adjustment for one-time charges — — 512,115

Adjustment for deemed dividend related preferred stock redemption — — 3,093,028

Distributable Earnings per share, basic and diluted $ 0.10 $ 0.39 $ 0.32

(1) Represents net income attributable to common stockholders of Lument Finance Trust, Inc.

Book Value Per Share

The following table calculates our book value per share:

Book value per share $ 4.56 $ 4.59

As of December 31, 2020, our equity was $113.7 million, and our book value per common share was $4.56 on a basic and fully diluted basis. Our equity increased by $5.1 million compared to our stockholders’ equity as of December 31, 2019 as a result of the ORIX private placement on January 3, 2020, while book value per common share declined by 0.7% from the previous year-end amount of $4.59. The slight decrease in book value per share is primarily reflective of the one-time special cash dividend of $0.04 per share of common stock declared in December 2020 in order to satisfy REIT distribution requirements.

Investment Portfolio

Commercial Mortgage Loans

As of December 31, 2020, we have determined that we are the primary beneficiary of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. 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.

The following table details our loan activity by unpaid principal balance:

Proceeds from principal repayments (145,516,658)

The following table details overall statistics for our loan portfolio as of December 31, 2020:

Weighted Average

Loans held-for-investment

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Weighted Average

(1) Weighted average coupon assumes applicable one-month LIBOR of 0.14% and 1.70% as of December 31, 2020 and December 31, 2019, respectively, and weighted average LIBOR floors of 1.64% and 1.56%, respectively.

(2) Weighted average term assumes all extension options are exercised by the borrower; provided, however, that our loans may be repaid prior to such date.

(3) LTV as of the date the loan was originated and is calculated after giving effect to capex and earnout reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value which may have occurred subsequent to origination date.

(4) As of December 31, 2020, $531,363,401 of the outstanding senior secured loans were held in VIEs and $15,981,933 of the outstanding senior secured loans were held outside VIEs. As of December 31, 2019, $629,157,956 of the outstanding senior secured loans were held in VIEs and $6,102,464 of the outstanding senior secured loans were held outside VIEs.

The table below sets forth additional information relating to the Company's portfolio as of December 31, 2019:

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(1) See Note 12 Commitments and Contingencies to our consolidated financial statements for further discussion of unfunded commitments.

(2) LTV as of the date the loan was originated and is calculated after giving effect to capex and earnout reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value which may have occurred subsequent to origination date.

Our loan portfolio is 100% performing with no loan impairments, loan defaults, or non-accrual loans as of December 31, 2020.

We maintain strong relationships with our borrowers and utilized those relationships to address potential impacts of the COVID-19 pandemic on loans secured by properties experiencing cash flow pressure. All of our loans are current with respect to principal and interest, however, some of our borrowers have expressed concern on potential future difficulties due to the prolonged impact of the COVID-19 pandemic. Accordingly, we will engage in discussions with them to work towards the maximization of cash flows and values of our commercial mortgage loan assets should these difficulties arise.

We have not entered into any forbearance agreements or loan modifications to date. However, due to the widespread economic impact of the COVID-19 pandemic we consider there to be heightened credit risk associated with our commercial mortgage loan portfolio. As such, we can provide no assurances that our borrowers will remain current as to principal and interest, or that we will not enter into any forbearance agreements or loan modifications on order to protect the value of our commercial mortgage loan assets.

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 3.1 and 2.8 as of December 31, 2020 and December 31, 2019, respectively. The increase in risk rating was primarily the result of downgrading non multifamily loans to a risk rating of "4" to reflect higher risk in loans collateralized by retail and office properties that are more negatively impacted by the COVID-19 pandemic. The following table presents the principal balance and net book value based on our internal risk ratings:

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Risk Rating Number of Loans Unpaid Principal Balance Net Carrying Value

1 — $ — —

5 — — —

Collateralized Loan Obligations

We may seek to enhance returns on our commercial mortgage loan investments through securitizations, or CLOs, if available, as well as the utilization of warehouse or repurchase agreement financing. To the extent available, we intend to securitize the senior portion of our loans, while retaining the subordinate securities in our investment portfolio. The securitizations of this senior portion will be accounted for as either a "sale" or as a "financing." If they are accounted for as a sale, the loan will be removed from the balance sheet and if they are accounted for as a financing the loans will be classified as "commercial mortgage loans held-for-investment" in our consolidated balance sheets, depending on the structure of the securitization. As of December 31, 2020, the carrying amounts and outstanding principal balances of our collateralized loan obligations were $463.1 million and $465.3 million, respectively. See Note 5 to our consolidated financial statements included in this Annual Report on Form 10-K for additional terms and details of our CLOs.

FOAC and Changes to Our Residential Mortgage Loan Business

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.

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.

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 $20,000,000 and (b) minimum available liquidity equal to the greater of (x) $5,000,000 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 Notes 13 and 14 to our consolidated financial statements included in this Annual Report for a further description of MAXEX.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to understanding our financial statements because they involve significant judgments and uncertainties that could affect our reported assets and liabilities, as well as our reported revenues and expenses. All of these estimates reflect our best judgments about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of the financial statements. The year ended December 31, 2020 was characterized by heightened uncertainty due to the COVID-19 pandemic which could impact estimates made by management. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our interest income recognition, allowance for loan losses, tax liability, future impairment of our investments, and valuation of our investment portfolio, among other effects. We believe that the following accounting policies are among the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments:

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.

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Interest income is recognized as revenue using the effective interest method and is recorded on the accrual basis according to the terms of the underlying loan agreement. Any fees, costs, premiums and discounts associated with these loan investments are deferred and amortized over the term of the loan using the effective interest method, or on a straight line basis when it approximates the effective interest method. Income accrual is generally suspended and loans are placed on non-accrual status on the earlier of the date at which payment has become 90 days past due or when full and timely collection of interest and principal is considered not probable. The Company may return a loan to accrual status when repayment of principal and interest is reasonably assured under the terms of the underlying loan agreement. As of December 31, 2020, the Company did not hold any loans placed in non-accrual status.

Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:

1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions

2.Low Risk: meeting or exceeding underwritten expectations

3.Moderate Risk: in-line with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks

4.High Risk: potential risk of default, a loss may occur in the event of default

5.Default Risk: imminent risk of default, a loss is likely in the event of default

The Company evaluates each loan rated High Risk or above as to whether it is impaired on a quarterly basis. Impairment occurs when the Company determines that the facts and circumstances of the loan deem it probable that the Company will not be able to collect all amounts due in accordance with the contractual terms of the loan. If a loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan through a charge to the provision for loan losses. 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. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, actions of other lenders, and other factors deemed necessary by the Manager. Actual losses, if any, could ultimately differ from estimated losses.

In addition, the Company evaluates the entire portfolio to determine whether the portfolio has any impairment that requires a valuation allowance on the remainder of the loan portfolio. As of December 31, 2020, the Company has not recognized any impairments on its loans held-for-investment. We also assessed the remainder of the loan portfolio, considering the absence of delinquencies and current market conditions, and, as such has not recorded any allowance for loan losses.

Mortgage Servicing Rights, at Fair Value

Mortgage servicing rights ("MSRs") are associated with residential mortgage loans that the Company historically purchased and subsequently sold or securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"), the Company's taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company is entitled to receive a portion of the interest payments from the associated residential mortgage loan, and is obligated to service, directly or through a subservicer, the associated loan. MSRs are reported at fair value as a result of a fair value option election. Residential mortgage loans for which the Company owns the MSRs are directly serviced by one or more sub-servicers retained by the Company. The Company does not directly service any residential mortgage loans.

MSR income is recognized at the contractually agreed upon rate, net of the costs of sub-servicers retained by the Company. If a sub-servicer with which the Company contracts were to default, an evaluation of MSR assets for impairment would be undertaken at that time.

See Note 2 to our consolidated financial statements for the complete listing of our significant accounting policies.

Capital Allocation

The following tables set forth our allocated capital by investment type at December 31, 2020 and December 31, 2019:

This information constitutes non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to better understand the capital necessary to support each income-earning asset category, and thus our ability to generate operating earnings. While we believe that the non-GAAP information included in this report provides supplemental information to assist investors in analyzing our portfolio, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP.

Commercial Mortgage Loans MSRs Unrestricted Cash(1) Total(2)

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Commercial Mortgage Loans MSRs Unrestricted Cash(1) Total(2)

1.Includes cash and cash equivalents.

2.Includes the carrying value of our Secured Term Loan.

3.Includes principal and interest receivable, prepaid and other assets, interest payable, dividends payable and accrued expenses and other liabilities.

Results of Operations

As of December 31, 2020, we no longer consolidated the assets and liabilities of the FREMF 2012-KF01 Trust, which repaid in full in January 2019, and no longer consolidate the interest and expenses of the trust. As of December 31, 2020, we consolidated the assets and liabilities of two commercial real estate collateralized loan obligations, Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. Our results of operations were impacted in part by (i) the repayment in full of the FREMF 2012-KF01 Trust in the first quarter of 2019; (ii) the redemption of preferred stock in the first quarter of 2019; and (iii) the draw of Secured Term Loan in the first quarter of 2019. Consequently, our results of operations for the periods ended December 31, 2020 and December 31, 2019 are not directly comparable. Additionally, although the COVID-19 pandemic did not significantly impact our operating results for the period ended December 31, 2020, other than previously deferred debt costs of $624,816 expensed in the second quarter of 2020, should the pandemic and resulting economic deterioration persist, we expect it may further affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, interest income, credit losses and commercial loan reinvestment, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are out of our control.

The table below presents certain information from our Statement of Operations for the years ended December 31, 2020 and December 31, 2019:

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Year EndedDecember 31,

Revenues:

Interest income:

Multifamily loans held in securitization trusts — 78,361

Interest expense:

Other income:

Realized (loss) on investments, net — (709,439)

Change in unrealized (loss) on mortgage servicing rights (1,780,528) (1,297,579)

Other income 2 —

Expenses:

Deemed dividend on preferred stock related to redemption $ — $ (3,093,028)

Earnings per share:

Basic and diluted income per share $ 0.34 $ 0.11

Dividends declared per share of common stock $ 0.37 $ 0.30

Net Income Summary

For the year ended December 31, 2020, our net income attributable to common stockholders was $8,434,770 or $0.34 basic and diluted net income per average share, compared with net income of $2,664,098 or $0.11 basic and diluted net loss per share, for the year ended December 31, 2019. The principal drivers of this net income variance were an increase in net interest income from $15,413,842 for the year ended December 31, 2019 to $18,430,514 for the year ended December 31, 2020, a decrease in preferred dividends from $491,764 for the year ended December 31, 2019 to $15,000 for the year ended December 31, 2020 and the deemed dividend of $3,093,028 for the year ended December 31, 2019, which more than offset an increase in total other loss from $443,647 for the year ended December 31, 2019 to a loss of $1,070,961 for the year ended December 31, 2020, and an increase in total expenses from $8,764,828 for the year ended December 31, 2019 to $9,386,031 for the year ended December 31, 2020.

The year over year increase in net income was primarily the result of an increase in net interest income by $3.0 million and the deemed preferred dividend of $3.1 million declared in 2019. Net interest income benefited in 2020 from 100% of our commercial mortgage loan portfolio having LIBOR floors greater than prevailing spot LIBOR throughout 2020 as a result of the drastic decline in LIBOR due to the COVID-19 pandemic.

Net Interest Income

For the years ended December 31, 2020 and December 31, 2019, our net interest income was $18,430,514 and $15,413,842, respectively. The increase was primarily due to (i) a $26.3 million increase in weighted-average principal balance of our loan portfolio; (ii) an increase of 22bps in weighted-average LIBOR floor on our loan portfolio for the year-ended December 31, 2020 compared to the corresponding period in 2019 and; (iii) a decrease in weighted-average LIBOR of 167bps for our CLO liabilities. This was offset by (i) a 35bps decrease in weighted-average spread on the loan portfolio for the year-ended December 31, 2020 compared to the corresponding period in 2019, and (ii) a full period of Secured Term Loan interest expense in 2020, compared to a partial period of interest expense due to the draw of the Secured Term Loan on February 14, 2019.

Other (Loss)

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For the year ended December 31, 2020, we incurred a loss of $1,070,961. This loss was driven by the impact of net unrealized losses on mortgage servicing rights of $1,780,528 caused by a decrease in interest rates which increased prepayments and decreased projected float income, which more than offset net mortgage servicing income of $709,565.

For the year ended December 31, 2019, we incurred a loss of $443,647. This loss was primarily driven by the impact of (i) net realized losses on the FREMF 2012-KF01 Trust of $709,439 and (ii) net unrealized losses on mortgage servicing rights of $1,297,579. These factors were partially offset by (i) net unrealized gains on multifamily mortgage loans held in the FREMF 2012-KF01 Trust of $694,339 and (ii) net mortgage servicing income of $869,032.

The year-over-year increase in other loss was primarily due to the change in unrealized loss on mortgage servicing rights as a result of lower interest rates and higher prepayment speeds.

Expenses

We incurred management fees of $2,524,139 for the year ended December 31, 2020 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,861,892, of which $1,644,886 was payable to our Manager and $5,217,006 was payable to third parties.

For the year ended December 31, 2019, we incurred management fees of $2,245,065 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,519,763, of which $1,629,908 was payable to our Manager and $4,889,855 was payable to third parties.

The year-over-year increase in expenses reflects the impact of the January 3, 2020 ORIX equity offering increasing management fees, accrual of incentive fees during the period, an increase in insurance and legal fees as well as deferred costs expensed during the period, which more than offset decreased accounting, audit and other fees.

Impairment

We review each loan classified as held-for-investment for impairment on a quarterly basis. For the years ended December 31, 2020 and December 31, 2019, the Company has not recognized any impairments on its loans held-for-investment and therefore has not recorded any allowance for loan losses.

Income Tax (Benefit) Expense

For the year ended December 31, 2020 and December 31, 2019, the Company recognized a benefit from income taxes in the amount of $476,248 and $43,523, respectively.

Liquidity and Capital Resources

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 finance our commercial mortgage loans primarily with match term collateralized loan obligations, which are not subject to margin calls or additional collateralization requirements. A of December 31, 2020, our balance sheet included $40.2 million of a secured term loan and $465.3 million in collateralized loan financing, gross of discounts and debt issuance costs. Our secured term loan matures in January 2025 and our collateralized loan financing is term-matched and matures in 2028 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. On July 13, 2020, we entered into a closing agreement with the IRS relating to our application of Section 856(c)(6) of the Code in our 2018 tax return, facilitating our ability to execute certain financing transactions and equity capital raises. However, due to the current market environment created by the COVID-19 pandemic, it may make obtaining this financing more difficult.

In addition, if we were required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets, particularly in a financial market that has been significantly disrupted and less liquid as a result of the ongoing COVID-19 pandemic. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced if such leverage is, at least in part, dependent on the market value of our assets. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition. We seek to limit our exposure to illiquidity risk to the extent possible, by ensuring that the collateralized loan obligations that we use to finance our commercial mortgage loans are not subject to margin calls or other limitations that are dependent on the market value of the related loan collateral.

On August 5, 2020, the Company entered into an amendment to its Participation Agreements amongst Hunt CRE 2017-FL1 Seller LLC ("FL1 Seller"), Hunt Commercial Mortgage Trust and ORIX Real Estate Capital LLC to transfer future funding participation interests from FL1 Seller to OREC Structured Finance, LLC ("OREC SF"), an affiliate of our Manager (the "FL1 Future Funding Participation Transfer"). As a result of the FL1 Future Funding Participation Transfer, OREC SF will make advances pursuant to the unfunded loan commitments. In connection with the FL1 Future Funding Participation Transfer, the Company has agreed that at such time it (i) has available excess capital and (ii) the satisfaction of the applicable requirements for acquiring such assets, each as determined by the Manager, it will purchase from OREC SF, at a price equal to par, any FL1 Participations funded by OREC SF. We will generally finance the purchase of FL1 Participations funded by OREC SF with net cash provided by operating activities and proceeds from common or preferred stock issuances. Future loan fundings comprise funding for capital improvements, leasing costs, interest and carry costs, and fundings will vary depending on the progress of the business plan and cash flows of the mortgage assets. Therefore, the exact timing and amounts of such future loan fundings are uncertain and will depend on the current and future performance of the underlying mortgage assets. The maximum amount of future advances that the Company could be required to purchase from OREC SF under the Future Funding Participation Transfer, which represents the unfunded commitments of Hunt CRE 2017-FL1, Ltd. was $28.9 million as of December 31, 2020. As of December 31, 2020, OREC SF had funded $7.7 million of participation interests and $21.2 million remain unfunded.

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

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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, 2020, we had unrestricted cash and cash equivalents of $11.4 million, compared to $10.9 million as of December 31, 2019.

As of December 31, 2020, we had $40.2 million in outstanding principal under our Senior Secured Term Loan, with a borrowing rate of 7.25%, which we used to redeem our 8.75% Series A Cumulative Redeemable Preferred Stock during the first quarter of 2019. As of December 31, 2020, the ratio of our recourse debt to our equity was 0.4:1.

As of December 31, 2020, we consolidated the assets and liabilities of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. The assets of the trusts are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trusts, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trusts. As of December 31, 2020, the carrying value of these non-recourse liabilities aggregated to $463,060,090. As of December 31, 2020, our total debt-to-equity ratio was 4.4:1 on a GAAP basis.

Cash Flows

The following table sets forth changes in cash, cash equivalents and restricted cash for the years ended December 31, 2020 and December 31, 2019:

For the years ended December 31, 2020

During the year ended December 31, 2020, cash, cash equivalents and restricted cash increased by $53.4 million and for the year ended December 31, 2019, cash, cash equivalents and restricted cash decreased by $43.2 million.

Operating Activities

For the years ended December 31, 2020 and December 31, 2019, net cash provided by operating activities totaled $12.2 million and $7.3 million, respectively. For the year ended December 31, 2020, our cash flows from operating activities were primarily driven by $22.1 million of interest received from the junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd., the CRE CLOs that we consolidate, $0.7 million of interest received from our senior secured loans held outside the CRE CLOs we consolidate and $0.7 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $3.0 million, management fees of $2.3 million, expense reimbursements of $1.7 million and other operating expenditures of $4.5 million. For the year ended December 31, 2019, our cash flows from operating activities were primarily driven by $18.8 million of interest received from the junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd., the CRE CLOs we consolidate, $0.4 million of interest received from our senior secured loans held outside the CRE CLOs we consolidate and $0.9 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $2.5 million, management fees of $2.3 million, expense reimbursement of $1.8 million and other operating expenditures of $6.3 million.

Investing Activities

For the year ended December 31, 2020, net cash provided by investing activities totaled $87.9 million. This was a result of the cash received from principal repayments of commercial mortgage loans held-for-investment exceeding the purchase and funding of commercial mortgage loans held for investment during the period. For the year ended December 31, 2019 net cash used in investing activities totaled $42.3 million. This was primarily a result of the cash used in the purchase and funding of commercial mortgage loans held-for-investment exceeding cash received from unsettled trades, principal repayment of loans held-for-investment and retained beneficial interests for the year ended December 31, 2019.

Financing Activities

For the year ended December 31, 2020, net cash used in financing activities totaled $46.8 million and primarily related to proceeds from issuance of common stock of $5.7 million more than offset by payments of common and preferred dividends of $7.6 million and repayment of collateralized loan obligations of $44.9 million. For the year ended December 31, 2019, net cash used in financing activities totaled $8.2 million and primarily related to the redemption of preferred stock of $40.3 million, payment of common and preferred dividends of $7.2 million and payment of deferred financing costs of $1.0 million partially offset by proceeds from our Secured Term Loan of $40.3 million.

Forward-Looking Statements Regarding Liquidity

Based upon our current portfolio, leverage rate and available borrowing arrangements, we believe that the net proceeds of our prior equity sales, combined with cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our distributions to stockholders and for other general corporate expenses.

Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to, amongst other things, obtaining additional debt financing and equity capital. We may increase our capital resources by obtaining long-term credit facilities, additional collateralized loan obligations or making additional public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock and senior or subordinated notes.

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To maintain our qualification as a REIT, we generally must distribute annually at least 90% of our "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain). These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not maintain any relationships with unconsolidated financial partnerships, or special purpose or variable interest entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of December 31, 2020, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.

In connection with the provision of seller eligibility and backstop guarantee services provided to MAXEX, we previously accounted for the related non-contingent liability at its fair value on our consolidated balance sheet as a liability. As of December 31, 2020, 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 guarantees. See Note 11 for further information.

Distributions

We intend to continue to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain) and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its "REIT taxable income." We have historically made regular monthly distributions, but with effect from the third quarter of 2018 we now make regular quarterly distributions, to our stockholders in an amount equal to all or substantially all of our taxable income. Although FOAC no longer aggregates and securitizes residential mortgages, it continues to generate taxable income from MSRs and other mortgage-related activities. This taxable income will be subject to regular corporate income taxes. We generally anticipate the retention of profits generated and taxed at FOAC. Before we make any distribution on our common stock, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and any debt service obligations on debt payable. If cash available for distribution to our stockholders is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

If substantially all of our taxable income has not been paid by the close of any calendar year, we may declare a special dividend prior to the end of such calendar year, to achieve this result. On December 18, 2020, we announced that our board of directors had declared a cash dividend rate for the fourth quarter of 2020 of $0.09 per share of common stock. Additionally, on December 21, 2020, we announced that our board of directors had declared a one-time special cash dividend of $0.04 per share of common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Reports of Independent Registered Public Accounting Firm, the Company’s consolidated financial statements and notes to the Company’s consolidated financial statements appear in a separate section of this Form 10-K (beginning on Page F-2 following Part IV). The index to the Company’s consolidated financial statements appears on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or Exchange Act, that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 as of December 31, 2020. Based upon our evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is also responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and includes those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

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•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision of our Audit Committee and with the participation of management, including our principal executive officer and principal financial officer, we evaluated the effectiveness, as of December 31, 2020, of our internal control over financial reporting. In making this assessment, management used the criteria set forth in the "Internal Control-Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework). Based on its evaluation under the COSO Framework, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information About Directors

Set forth below is information regarding the current members of our board of directors. The biographical information concerning such directors has been furnished by them to the Company. Age and other information are as of March 1, 2021. There are no family relationships between any director and executive officer.

Name Age Position Held with Us DirectorSince

James P. Flynn 44 Chairman of the Board and Chief Executive Officer 2019

Neil A. Cummins(1) 66 Independent Director 2013

William A. Houlihan(1) 65 Independent Director 2013

Walter C. Keenan(1) 53 Independent Director 2015

(1)Currently a member of the audit committee, compensation committee and nominating and corporate governance committee. Mr. Houlihan is the chair of our audit committee and an audit committee financial expert. Mr. Keenan is the chair of our compensation committee. Mr. Cummins is the chair of our nominating and corporate governance committee.

Board Qualifications

The nominating and corporate governance committee is responsible for reviewing with our board of directors, on an annual basis, the appropriate characteristics, skills and experience required for our board of directors as a whole and its individual members. While the nominating and corporate governance committee has established no minimum eligibility requirements for candidates to serve on our board of directors, in performing its duties, the nominating and corporate governance committee considers any criteria it deems appropriate, including but not limited to the following criteria:

•personal and professional integrity, ethics and values;

•experience in corporate management, such as serving as an officer or former officer of a publicly held company, and a general understanding of marketing, finance and other elements relevant to the success of a publicly-traded company in today’s business environment;

•experience in our industry and with relevant social policy concerns;

•experience as a board member of another publicly held company;

•academic expertise in an area of our operations; and

•practical and mature business judgment, including ability to make independent analytical inquiries.

Each director must also possess fundamental qualities of intelligence, honesty, good judgment, high ethics and standards of integrity, fairness and responsibility. The nominating and corporate governance committee may, in its discretion, consider diversity in identifying nominees for directors. Our board of directors evaluates each individual in the context of the board of directors as a whole, with the objective of assembling a group that can best represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on our board of directors for an extended period of time.

We believe that the members of our board of directors represent a desirable mix of backgrounds, skills and experiences, and they all share the personal attributes of effective directors described above. Included in the biographical information set forth below are some of the specific experiences and skills of our directors that led the board to conclude that, in light of our business and structure, such individuals should serve as members of the board.

Biographical Information — Directors

James P. Flynn has been our Chief Executive Officer since January 2018, a director since March 2019 and the Chairman of our Board since March 2020. Mr. Flynn has over 17 years' experience in real estate and financial markets. Mr. Flynn currently serves as Chief Executive Officer and Chief Executive Officer of ORIX Real Estate Capital Holdings, LLC doing business as Lument, an affiliate of ORIX Investment Management, LLC doing business as Lument Investment Management (our "Manager"). Lument acquired Hunt Real Estate Capital in January 2020. Mr. Flynn joined Hunt Real Estate Capital (formerly Centerline Capital Group in 2007 and is a member of its executive management team and investment and credit committees. Prior to joining Hunt Real Estate Capital, Mr. Flynn practiced law at Gibson Dun & Crutcher LLP in its real estate practice group and prior to that Mr. Flynn was an investment banker at Lehman Brothers. Mr. Flynn received a B.S. magna cum laude in Finance and Accounting from the McDonough School of Business at Georgetown University and JD from Columbia University Law School, where he was a Harlan Fiske Stone Scholar.

As a consequence of over 17 years' experience in real estate finance, Mr. Flynn is well qualified to provide valuable advice to our board of directors in many important areas.

Neil A. Cummins has been an independent director of our board of directors since the closing of our initial public offering, or IPO, in March 2013. Mr. Cummins is chairman of the Nominating and Corporate Governance Committee and is a member of the Audit and Compensation Committees. Mr. Cummins has been active in international financial markets for over 30 years.

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Mr. Cummins is a member of the Board of Directors of North Square Investments, LLC, a private investment management firm. Mr. Cummins was Chairman of Oak Ridge Investments LLC, a privately-owned investment manager from 2013 to 2018. Mr. Cummins held global management roles with Barclays Capital, from 1997 to 2012, including founding Management Committee member, Global Head of Distribution and Research, Global Head of Strategic Relationship Management and voting member of the Barclays Bank Group Credit Committee. Mr. Cummins also served on the Board of Directors of iBoxx Limited and the International Index Company from 2003 to 2005. From 1985 to 1997, Mr. Cummins was a Managing Director of Morgan Stanley, and served on the Board of Directors of Morgan Stanley Bank Luxembourg SA and the Supervisory Board of Morgan Stanley Bank AG, Frankfurt. Prior to 1985, Mr. Cummins worked in the international financial markets, principally with Mellon Bank N.A. Mr. Cummins graduated with a B.A. in Economics from Indiana University.

As a consequence of over 30 years’ experience in international financial markets, Mr. Cummins is well qualified to provide valuable advice to our board of directors in many important areas.

William A. Houlihan has been an independent director of our board of directors since the listing of our common stock on the NYSE in March 2013. Mr. Houlihan is chairman of the Audit Committee and is a member of the Compensation and Nominating and Corporate Governance Committees. Mr. Houlihan has more than 40 years of diversified financial sector and business experience.

Mr. Houlihan served from June 2018 to July 2019 as the Chief Financial Officer of Thunder Bridge Acquisition Ltd. He has served since August 2019 as the Chief Financial Officer of Thunder Bridge Acquisition II, Ltd. He has served since February 2021 as the Chief Financial Officer of Thunder Bridge Capital Partners III Inc. He has served since November 2012 as a director and audit committee chairman for MaxEx, LLC, a privately-owned residential mortgage loan trading business. He has served since 2009 as a director and financial expert on the audit committee of First Physicians Capital Group, a privately-owned healthcare investment company, which was registered with the Securities and Exchange Commission, or SEC, prior to completion of a going-private transaction in January 2015, from April 2013 to September 2014 as Non-Executive Chairman of its board of directors and since May 2013 as the chairman of its audit committee.

He served from July 2013 to July 2015 as lead independent director and chairman of the audit committee of Tiptree Inc., or Tiptree, a publicly traded financial services holding company; and from August 2010 to July 2013 as lead independent director and chairman of the audit committee for Care Investment Trust, a publicly traded healthcare REIT which merged with Tiptree in July 2013. From 2003 to 2010, he was a director of SNL Financial, a privately owned financial information company, and in addition, from 1998 to 2012 he was a director and shareholder of a family-owned commercial real estate investment partnership.

He served from March 2013 to February 2014 as the chief financial officer for Amalgamated Bank, a privately owned company. From 2001 through 2008, Mr. Houlihan was a private investor while he served as transitional Chief Financial Officer for several distressed financial services companies: Sixth Gear, Inc. from October 2007 to November 2008, Sedgwick Claims Management Services from August 2006 until January 2007, Metris Companies from August 2004 to January 2006, and Hudson United Bancorp from January 2001 to November 2003. From 1981 until 2000, and for short-term periods in 2004 and 2007, Mr. Houlihan worked for a number of investment banking companies, including UBS, J.P. Morgan, Keefe Bruyette & Woods, Bear Stearns and Goldman Sachs. He also held several auditing and accounting positions from June 1977 through June 1981.

Mr. Houlihan graduated with an M.B.A. in Finance from New York University Graduate School of Business, and a B.S. in Accounting from Manhattan College. In addition, he was licensed as a Certified Public Accountant, but his license is currently inactive. Since January 2017, he has served as an adjunct professor at the Feliciano School of Business at Montclair State University.

On March 13, 2015, Mr. Houlihan settled an administrative proceeding brought by the SEC regarding his alleged failure to file on a timely basis required Schedule 13D amendments and Section 16(a) reports relating to his beneficial ownership of securities of First Physicians Capital Group, Inc., or FPCG. Mr. Houlihan is a member of the board of directors of FPCG and at certain times has been a greater than 10% beneficial owner of FPCG securities. In the settlement, Mr. Houlihan did not admit or deny the SEC’s allegations, consented to the entry of a cease and desist order requiring him not to cause any violation of Sections 13(d)(2) and 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and agreed to pay a civil penalty of $15,000 to the SEC.

As a consequence of Mr. Houlihan’s over 40 years of pertinent experience, qualifications and skills including significant financial expertise and literacy, he is well qualified to provide significant and relevant expertise and advice to our board of directors in relation to many areas, including accounting and financial matters.

James C. ("Chris") Hunt joined our Board in January 2018. Mr. Hunt previously served as our Chairman from January 2018 until January 2020. Mr. Hunt has 27 years of experience in real estate, real estate finance and corporate governance and management. He currently serves as the Chief Executive Officer and President of Hunt Companies, Inc. ("Hunt") and has been a member of the Hunt Board of Directors since 2001. In addition, he serves as Chief Financial Officer and is on the Board of Directors of various Hunt subsidiaries and affiliates. Mr. Hunt also oversees Hunt's private market real estate development and acquisition activities, which includes market rate residential properties and mixed-use retail developments. Mr. Hunt is responsible for establishing relationships with development and financial partners. Mr. Hunt began his career at Hunt in 1993 as Project Developer for Hunt's construction division, was later appointed Vice President, Executive Vice President and subsequently President. Mr. Hunt received a B.A. in Economics and an MBA from the University of Texas, Austin.

As a consequence of 27 years' experience in real estate, real estate finance and corporate governance and management, Mr. Hunt is well qualified to provide valuable advice to our board of directors in many important areas.

Walter C. Keenan has been an independent director of our board of directors since April 17, 2015. Mr. Keenan is the chairman of the Compensation Committee and is a member of the Audit and Nominating and Corporate Governance Committees. Mr. Keenan has over 25 years of experience in the financial services industry as an advisor, investor and executive manager.

Since July 2013, he has served as Chief Executive Officer of Advantage Insurance Inc., or Advantage Insurance, a specialty insurance group serving the insurance needs of high net worth individuals and business owners worldwide. Mr. Keenan was a consultant to Advantage Insurance from July 2012 through July 2013. From August 2014 through the completion of its sale to AmTrust Financial Services, Inc. in April 2016, Mr. Keenan served as an independent director and audit committee chair of Republic Companies, Inc., a regional property and casualty insurance company. Prior to joining Advantage Insurance, from March 2011 to October 2011, Mr. Keenan served as Executive Chairman of Medicus Insurance Holdings, Inc., a provider of professional liability insurance to physicians, and was Chairman from July 2006 to March 2011. Before becoming an insurance industry executive, Mr. Keenan worked in private

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equity as President of JMP Capital, the principal investments group of JMP Group LLC (NYSE: JMP) from 2007 to 2011 and as a Principal of The Cypress Group from 2005 to 2007. Mr. Keenan’s work for JMP and Cypress included strategic investments in two mortgage REIT companies. Mr. Keenan began his career at Morgan Stanley, where he worked in investment banking from 1989 to 2003. Mr. Keenan received a Bachelor of Arts degree with Honors from Southern Methodist University.

As a consequence of over 25 years’ experience in financial services, Mr. Keenan is well qualified to provide valuable advice to our board of directors in many important areas.

Information About Executive Officers

Set forth below is information regarding our executive officers as of March 1, 2021. Each officer holds office at the pleasure of our board of directors and until their successors shall have been duly elected and qualified. There are no family relationships between any director and executive officer.

Name Age Position Held with Us Officer Since

James P. Flynn 44 Chief Executive Officer and Chairman of the Board 2018

Michael P. Larsen 42 President 2018

James A. Briggs 54 Chief Financial Officer 2020

Biographical Information - Executive Officers

Biographical information for Mr. Flynn appears above under the heading "- Biographical Information - Directors"

Michael Larsenhas been our President since January 2018. He has over 18 years' experience in the financial markets. Mr. Larsen currently serves as Chief Operating Officer of ORIX Real Estate Capital Holdings, LLC doing business as Lument, an affiliate of our Manager. Mr. Larsen held similar positions at Hunt Real Estate Capital, LLC, prior to its acquisition by ORIX Real Estate Capital Holdings, LLC doing business as Lument. Previously, Mr. Larsen was Chief Financial Officer of Centerline Capital Group, a publicly traded mortgage banking and investment management company that Hunt acquired in 2013. Prior to joining a Centerline Capital Group predecessor in 2002, Mr. Larsen worked in the real estate consulting and structured finance practices at Arthur Andersen. Mr. Larsen received a B.A. from the University of Pennsylvania and an MBA from Columbia University. Mr. Larsen has been a participant in the Real Estate Roundtable's TPAC and RECPAC committees and is a member of the MBA.

James A. Briggs has been our Chief Financial Officer since January 2020. He has served as our Interim Chief Financial Officer from September 2018 until January 2020. He has more than 30 years of accounting and finance experience in the financial services and real estate industries. Mr. Briggs currently also serves as Chief Accounting Officer of ORIX Real Estate Capital Holdings, LLC, doing business as Lument, an affiliate of our Manager. Prior to his current position, Mr. Briggs served in the same capacity for Hunt Real Estate Capital, LLC, which was acquired by ORIX Real Estate Capital Holdings, LLC doing business as Lument in January 2020. Mr. Briggs joined Hunt Real Estate Capital (formerly Centerline Capital Group) in 2009. Prior to joining Hunt Real Estate Capital, Mr. Briggs was the Director of Finance for MRU Holdings, Inc. a specialty finance company. Prior to joining MRU Holdings, Inc., Mr. Briggs spent fifteen years at JPMorgan Chase & Co, and its predecessor companies in a variety of accounting and finance roles, including Head of Valuation Control and CFO for Emerging Markets. Prior to joining JPMorgan Chase & Co., Mr. Briggs was a senior auditor at Ernst & Young LLP. Mr. Briggs earned his B.B.A. in Accounting from Iona College and is a Certified Public Accountant.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under federal securities laws, our executive officers, directors and any persons beneficially owning more than 10% of a registered class of our equity securities are required to report their ownership and any changes in that ownership to the SEC. These persons are also required by SEC rules and regulations to furnish us with copies of these reports.

Based solely on our review of the reports and amendments to those reports furnished to us or written representations from our directors and executive officers that these reports were not required from those persons, we believe that, during the year ended December 31, 2020, all of these filing requirements applicable to our directors, executive officers, and greater than 10% stockholders were complied with on a timely basis.

Code of Ethics

Concurrently with our IPO, we adopted a Code of Business Conduct and Ethics and Policy Against Insider Trading that is applicable to all of our executive officers and other personnel, including our principal executive officer, our principal financial officer, our principal accounting officer, our controller, and persons performing similar functions for the Company. The Code of Business Conduct and Ethics and Policy Against Insider Trading establishes policies and procedures that we believe promote adherence to, and the conduct of business according to, the highest ethical standards. A copy of our Code of Business Conduct and Ethics and Policy Against Insider Trading is available on the "Investors Relations" section of our website at http://lumentfinancetrust.com/investor-relations/summary/ under the Corporate Governance tab.

Corporate Governance Guidelines

Concurrently with our IPO, we adopted a set of Corporate Governance Guidelines, which describe our corporate governance practices and policies and provide a framework for the governance of our board of directors. The nominating and corporate governance committee is responsible for overseeing these guidelines and reporting and making recommendations to our board of directors concerning corporate governance matters. From time to time, the nominating and corporate governance committee reviews our Corporate Governance Guidelines and, if necessary, recommends changes to the full board of directors. Our current Corporate Governance Guidelines are available in the "Investors Relations" section of our website at http://lumentfinancetrust.com/investor-relations/summary/ under the Corporate Governance tab.

Audit Committee

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The Company maintains a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of Securities Exchange Act of 1934, as amended, or the Exchange Act. The Audit Committee currently consists of Messrs. Cummins, Houlihan and Keenan.

Audit Committee Financial Expert

Mr. Houlihan is the chair of our audit committee. Our board of directors has determined that Mr. Houlihan qualifies as an "audit committee financial expert" as such term is defined in Item 407(d)(5)(ii) of Regulation S-K based on his education and experience in his respective fields, and is independent under the current listing standards of the NYSE.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

Name and Principal Position Year Salary ($) Bonus ($) Total ($)

James P. Flynn(1)(2)

Chief Executive Officer and Chairman of the Board 2020 $ — $ — $ —

(commenced serving as Chairman of the Board on 2019 $ — $ — $ —

Michael P. Larsen(1)(2) 2020 $ — $ — $ —

President 2019 $ — $ — $ —

James A. Briggs(1)(2)

Chief Financial Officer (served as Interim Chief Financial 2020 $ — $ — $ —

Officer from September 6, 2018 to January 3, 2020, commenced 2019 $ — $ — $ —

serving as Chief Financial Officer on January 3, 2020)

(1)Messrs. Flynn, Larsen and Briggs are employees of an affiliate of our Manager and, prior to January 3, 2020, an affiliate of HIM, and are not paid compensation by us. Mr. Flynn now serves as Chairman of the Board, commencing March 12, 2020. Mr. Briggs now serves as our Chief Financial Officer, commencing January 3, 2020.

(2)In 2020 and 2019, Messrs. Flynn and Larsen did not receive any compensation from our Manager or our previous manager or any of their affiliates for their time spent managing our affairs. In 2020 and 2019, the amount of total compensation paid by our Manager or our previous manager or any of their affiliates to Mr. Briggs that was allocable to him based on the percentage of his time spent managing our affairs was $324,111 and $313,324, respectively.

Outstanding Equity Awards at Fiscal Year-End

No stock option awards or stock awards have been granted by the Company to its current named executive officers to date.

Insider Trading Policy

We maintain an insider trading policy, which prohibits short selling, dealing in publicly traded options and hedging or monetization transactions in our securities.

Director Compensation

Executive Directors

A member of our board of directors who is also an employee of our Manager or any of our or its affiliates is referred to as an executive director. James P. Flynn is an executive director. Executive directors do not receive cash compensation for serving on our board of directors. However, we have adopted the Manager Equity Plan pursuant to which we make awards to our Manager, which in turn, grants such awards to its employees, officers, members (including our current officers), directors or consultants. The purpose of any such grants will be to encourage their respective individual efforts toward our continued success, long-term growth and profitability and to reward and retain them.

Independent Directors

As compensation for serving on our board of directors in 2020, each independent director received an annual cash retainer of $50,000, paid in arrears, and an annual retainer of 1,500 restricted shares of our common stock, granted under our Manager Equity Plan. The grants of restricted stock are generally made immediately following our annual stockholders’ meeting, and vest in full on the first anniversary of the grant date, subject to continuing service on our board of directors on the vesting date. We also reimburse these independent directors for reasonable out-of-pocket expenses incurred in connection with the performance of their duties as directors, including, without limitation, travel expenses in connection with their attendance at full board of directors and committee meetings. In addition, the chair of our audit committee was paid an annual cash retainer of $15,000, and the chairs of our compensation committee and our nominating and corporate governance committee each were paid an annual cash retainer of $10,000, in each case in addition to the annual retainer of $50,000 and the grant of 1,500 restricted shares of our common stock. Independent directors may also receive retainers or meeting fees for participation on ad hoc committees formed on an as-needed basis from time to time.

Our senior management reports once a year to the full board of directors or the compensation committee regarding the status of our non-management director compensation in relation to other U.S. companies of comparable size and our competitors. Such report includes consideration of both direct and indirect forms

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of compensation to our non-management directors and recommendations regarding any changes in non-management director compensation. Director fees are the sole form of compensation that members of our audit committee receive from us.

As of December 31, 2020, all elements of director compensation for 2020 remain unchanged from the compensation plan utilized in 2019.

Director Compensation for 2020

The table below sets forth the compensation paid to each individual serving as a non-executive director at any time during 2020*.

Name Fees Earned orPaid in Cash StockAwards(1) All OtherCompensation(2) Total

James C. Hunt — — — —

*Columns for "Option Awards,” "Non-Equity Incentive Plan Compensation” and "Change in Pension Value and Nonqualified Deferred Compensation Earnings" have been omitted because they are not applicable.

(1)The amounts in this column reflect the aggregate grant date fair value of grants of restricted stock to each listed director on June 17, 2020, calculated in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10 to our audited financial statements for the year ended December 31, 2020. As of December 31, 2020, each of Messrs. Cummins, Houlihan and Keenan held 1,500 unvested shares of restricted stock (and Messrs. Cummins and Houlihan each held 12,008 shares of formerly restricted stock that vested prior to such date and Mr. Keenan held 8,254 shares of formerly restricted stock that vested prior to such date).

(2)The amounts in this column reflect dividends paid in 2020 on all vested and unvested shares of restricted stock held by the directors in the table.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plan

The Lument Finance Trust, Inc. Manager Equity Plan., or the Manager Equity Plan, includes provisions for grants of restricted common stock and other equity based awards to our Manager and to our independent directors, consultants or officers whom we may directly employ in the future, if any. In turn, our Manager grants such awards to its employees, officers (including our current officers), members, directors or consultants. The total number of shares that may be granted subject to awards under the Manager Equity Plan is equal to an aggregate of 3.0% of the total number of issued and outstanding shares of our common stock (on a fully diluted basis) at the time of each award (other than any shares issued or subject to awards made pursuant to the Manager Equity Plan).

The following information is with respect to our Manager Equity Plan as of December 31, 2020:

Equity Compensation Plan Information

Equity compensation plans approved by security holders — — 682,301

Equity compensation plans not approved by security holders — — —

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding the beneficial ownership of shares of our common stock, as of March 1, 2021, by: (1) each director of the Company, (2) each executive officer of the Company, (3) all directors and executive officers of the Company as a group, and (4) all persons known by us to be beneficial owners of more than 5% of any class of our voting securities.

In accordance with SEC rules, beneficial ownership includes: all shares the investor actually owns beneficially or of record; all shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); and all shares the investor has the right to acquire within 60 days (such as shares of restricted common stock which are scheduled to vest within 60 days).

Unless otherwise indicated, all shares are owned directly, and the indicated person has sole voting and investment power. Except as indicated in the footnotes to the table below, the business address of each of the individuals listed below is the address of our principal executive office, 230 Park Avenue, 23rd Floor, New York, New York 10169. None of our shares of common stock beneficially owned by any of our directors or executive officers have been pledged as security.

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Beneficial Ownership Table

5% Holders

Directors and Executive Officers

William A. Houlihan 68,793 *

All directors and executive officers as a group (seven persons) 528,853 2.04 %

* Represents less than 1% of the shares of our common stock outstanding.

(1)XL Investments Ltd, or XL Investments, is the record owner of 3,330,550 shares of common stock. AXA SA is the ultimate parent holding company of XL Investments and indirectly owns all of the equity interests of XL Investments. AXA SA is a société anonyme organized under the laws of France whose shares are listed on Euronext. The address for XL Investments is One Bermudiana Road, Hamilton HM08, Bermuda.

(2)XL Global is the record owner of 10,230 shares of common stock. XL Global is an indirect subsidiary of AXA SA. AXA SA is a société anonyme organized under the laws of France whose shares are listed on Euronext. The address for XL Global is 200 Liberty Street, 22nd Floor, New York, New York 10281.

(3)Pursuant to the terms of a securities purchase agreement with us dated January 18, 2018, Hunt Companies Equities Holdings LLC, or Hunt CE Holdings LLC, agreed to purchase 1,539,406 shares of common stock for an aggregate purchase price of $7,342,967. In addition, pursuant to the terms of a share purchase agreement dated January 18, 2018, between Hunt CE Holdings LLC and XL Investments, Hunt CE Holdings LLC agreed to purchase 710,495 shares of common stock for an aggregate purchase price of $3,389,061. The address for Hunt CE Holdings, LLC is 1330 Avenue of the Americas, 28th Floor, New York, NY 10019.

Section 16(A) Beneficial Ownership Reporting Compliance

Under federal securities laws, our executive officers, directors and any persons beneficially owning more than 10% of a registered class of our equity securities are required to report their ownership and any changes in that ownership to the SEC. These persons are also required by SEC rules and regulations to furnish us with copies of these reports.

Based solely on our review of the reports and amendments to those reports furnished to us or written representations from our directors and executive officers that these reports were not required from those persons, we believe that, during the year ended December 31, 2020, all of these filing requirements applicable to our directors, executive officers and greater than 10% stockholders were complied with on a timely basis, except that Statements of Changes in Beneficial Ownership on Form 4 filed on behalf of Mr. Flynn relating to a purchase of shares of common stock on March 26, 2020, were inadvertently filed later than the time prescribed by the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

TRANSACTIONS WITH RELATED PERSONS

Management Agreement

On January 3, 2020, we entered into a new Management Agreement with our Manager, which replaced the previous management agreement we had executed on January 18, 2018 with Hunt Investment Management LLC ("HIM") and pursuant to which our Manager provides the day-to-day management of our operations. The Management Agreement requires our Manager to manage our business affairs in conformity with the policies and the investment guidelines that are approved and monitored by our board of directors. All of our executive officers are employees of our Manager, or affiliates thereof. Pursuant to the Management Agreement and our prior management agreement, we paid our Manager and our prior manager, for the applicable periods, management and incentive fees and reimbursed them for certain expenses. For the year ended December 31, 2020 the Company incurred management and incentive fees under the Management Agreement of $2,505,318 and for the years ended December 31, 2020 and 2019, the Company incurred management fees under the Management Agreement of $18,821 and $2,245,065, respectively. In addition the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting services, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company's affairs. For the years ended December 31, 2020 and 2019, the Company incurred reimbursable expenses of $1,644,886 and $1,629,908, respectively.

Relationship with the XL Group of Companies

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XL Investments, an indirect wholly owned subsidiary of AXA SA, purchased $25.0 million of our shares of common stock in May 2012. As part of this investment, XL Investments also agreed to make an additional investment in us of up to $25.0 million, subject to certain conditions and over a period of time. The conditions were deemed satisfied upon the closing of our IPO, and accordingly XL Investments accelerated the timing of its investment and bought $25.0 million of our common stock in a concurrent private placement at the IPO price, or 1,666,667 shares of common stock. Pursuant to a share purchase agreement dated January 18, 2018, XL Investment agreed to sell 710,495 shares to Hunt Companies Equities Holdings, LLC ("HCEH"). Accordingly, as of March 1, 2021, XL Investments owned 13.39% of our common stock. Despite the reduction in the number of shares of our common stock owned by, and an agreement to terminate all of the warrants previously held by, XL Investments, it maintains a significant ownership stake in us and therefore, XL Investments may continue to have the ability to influence the outcome of matters that require a vote of our stockholders, including a change of control.

We have agreed with XL Investments that, for so long as XL Investments and its affiliates collectively beneficially own at least 9.8% of our issued and outstanding common stock (on a fully diluted basis), XL Investments will have the right to appoint an observer to attend all board of directors' meetings but such observer will have no right to vote at any such meeting. The board observer will be indemnified by us to the same extent as our directors.

Our articles prohibits, with certain exceptions, any stockholder from beneficially or constructively owning, applying certain attribution rules under the Internal Revenue Code, more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock. Our board of directors has granted XL Investments an exemption from the 9.8% ownership limitation.

Relationship with ORIX Real Estate Capital Holdings, LLC doing business as Lument and its Affiliates

On January 3, 2020, ORIX Real Estate Capital Holdings, LLC doing business as Lument ("Lument") purchased an affiliate of HIM, Hunt Real Estate Capital, LLC and certain of its subsidiaries. Simultaneously, we executed a management agreement with OREC Investment Management, LLC doing business as Lument Investment Management ("Lument IM"), having agreed with HIM to terminate the management agreement with HIM entered into on January 18, 2018. Additionally, an affiliate of Lument IM, OREC Investment Holdings, LLC purchased 1,248,719 shares of our common stock in a direct issuance, resulting in an affiliate of Lument IM owning approximately 5.00% of our common stock as a result of the purchase.

As a consequence of Lument IM, an affiliate of Lument, serving as our manager, maintaining a significant ownership stake in us, and originating loans and credit risk securities that we will purchase and hold on our balance sheet the potential existed for conflicts of interest to arise in our relationship with Lument. In addition, after an initial grace period of 2 months, we were required to pay our Manager an incentive fee if our Core Earnings (as defined in our Management Agreement) exceed a hurdle rate of 8% per annum. Our board of directors is responsible for supervising Lument IM, and ensuring that in managing our day-to-day operations, Lument IM performs in a manner that appropriately addresses any potential conflicts of interest. There is no guarantee that the policies and procedures adopted by Lument IM, Lument and their respective affiliates, enabled us to identify adequately address or mitigate all potential conflicts of interest.

For the year ended December 31, 2020, Hunt CRE 2017-FL1, Ltd. purchased two loans with unpaid principal balance of $31.9 million at par and Hunt CRE 2018-FL2 purchased two loans with unpaid principal balance of $14.4 million at par from OREC Structured Finance Co., LLC doing business as Lument Structured Finance ("LSF") formerly known as Hunt Finance Company, LLC ("HFC"), an affiliate of our Manager.

Relationship with the Hunt Companies, Inc. Group of Companies

On January 18, 2018, we entered into a series of transactions with affiliates of the Hunt Companies, Inc. ("Hunt"). First we entered into a new management agreement with HIM, which agreement was terminated on January 3, 2020 simultaneously with the execution of the management agreement with Lument IM. Additionally, another affiliate of Hunt, HCEH, purchased 1,539,406 shares of our common stock in a private placement and purchased a further 710,495 shares of common stock from XL Investments, resulting in Hunt owning an aggregate of 9.50% of our common stock after such purchase.

We entered into a Shareholder Agreement with HCEH, an affiliate of the Hunt Companies, LLC, pursuant to which, the Company granted HCEH the right to designate one designee to the Company's board of directors. The right granted to HCEH expires at such time as HCEH's and its affiliates "beneficial ownership" of the Company's common stock as determined pursuant to Rule 13d-3 under the Exchange Act of 1934, is less than 5%.

Registration Rights Agreements

We have entered into a registration rights agreement with XL Investments and certain other holders pursuant to which we agreed to register the resale of shares of common stock owned by XL Investments and its transferees, and any shares of common stock held by and warrants previously granted to such holders, which we collectively refer to as the registrable securities. Pursuant to the registration rights agreement, XL Investments and its affiliated transferees have the right to demand that we cause their registrable securities to be registered for resale on a registration statement. All other holders of registrable securities have the option to include their registrable securities in such registration statement and we must maintain the effectiveness of such registration statement until all the registrable securities are sold under a shelf registration statement or another registration statement, or until all the registrable securities are eligible to be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, without volume limitation or other restrictions on transfer; however, XL Investments and its affiliated transferees are limited to two demand registrations. The registration rights agreement also requires us to file a "shelf registration statement" for the remaining registrable securities as soon as practicable after we become eligible to use Form S-3, and we must maintain the effectiveness of this shelf registration statement until all the registrable securities have been sold under the shelf registration statement or sold pursuant to Rule 144 under the Securities Act. On April 29, 2016, we filed a "shelf registration statement" for the registrable securities, which was declared effective by the SEC on July 20, 2016.

On January 18, 2018, we entered into an additional registration rights agreement with HCEH, pursuant to which we agreed to register the resale of shares of common stock owned by HCEH. Pursuant to the registration rights agreement, HCEH, and its affiliated transferees were provided with certain demand and piggyback registration rights in respect of shares of our common stock owned or subsequently acquired by them.

On January 3, 2020, we entere4d into a registration rights agreement with OREC Investment Holdings, LLC, an affiliate of our Manager, pursuant to which OREC Investment Holdings, LLC and its affiliated transferees were provided with certain demand and piggyback registrations rights in respect of shares of the Company's common stock that OREC Investment Holdings, LLC owns or may acquire from time to time.

Limitations on Liability and Indemnification of Officers and Directors

52

Our charter and bylaws provide indemnification for our directors and officers to the fullest extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (1) any individual who is a present or former director or officer of ours or (2) any individual who, while a director or officer of ours and at our request, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity. We have the power, with the approval of our board of directors, to provide such indemnification and advancement of expenses to a person who served a predecessor of ours in any of the capacities described in (1) or (2) above and to any employee or agent of ours or a predecessor of ours. However, the Maryland General Corporation Law, or MGCL, prohibits us from indemnifying a director or officer for any act or omission if:

•the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty;

•the director or officer actually received an improper personal benefit in money, property or services; or

•in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

In addition, under the MGCL, we may not indemnify a director or officer in a suit by us or in our right in which the director or officer was adjudged liable to us or in a proceeding in which the director or officer was adjudged liable on the basis that a personal benefit was improperly received. However, indemnification with respect to any proceeding by us or in our right or in which the director or officer was adjudged liable on the basis that a personal benefit was improperly received shall be limited to expenses. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that a personal benefit was improperly received.

We have entered into indemnification agreements with each of our directors and executive officers that would provide for indemnification to the maximum extent permitted by Maryland law.

The above-described limitation of liability and indemnification may be held not to be enforceable for violations of the federal securities laws of the United States.

Independence Determinations

Our board of directors undertakes periodic reviews of director independence. In such reviews, the board of directors considers transactions and relationships between (1) each director, entities with which such person is affiliated and/or any member of such person’s immediate family, and (2) the Company and its subsidiaries and affiliates, in order to ascertain whether any such relationships or transactions are inconsistent with a determination that such person is "independent" in accordance with applicable rules and regulations of the NYSE, applicable law, and the rules and regulations of the SEC. The board of directors bases its determinations primarily on a review of the responses of such persons to questions regarding employment and compensation history, affiliations and family and other relationships between the Company, the directors, and entities with which such persons are affiliated, discussions and analyses with respect to the foregoing, and the recommendations of the nominating and corporate governance committee.

As a result of such reviews, as well as the directors’ responses to the Company’s questionnaire with respect to independence matters, our board of directors has affirmatively determined that all persons who served as directors of the Company during any part of the 2020 calendar year, and all current directors, were and are "independent" for purposes of Section 303A of the Listed Company Manual of the NYSE, with the exception of Mr. Flynn, the Company’s Chief Executive Officer and Chairman of the Board and Mr. Hunt a director. Each individual who was a member of the Company’s audit committee, compensation committee, and nominating and corporate governance committee during any part of the 2020 calendar year has been determined by our board of directors to be independent in accordance with such standards as well. In determining that each director other than Messrs. Flynn and Hunt are independent, in addition to confirming that none of the automatic disqualifications prescribed by the NYSE are applicable to such persons, the board of directors also affirmatively determined that each such person has no direct or indirect material relationship with the Company or its subsidiaries.

As none of Messrs. Cummins, Houlihan or Keenan had or has any direct or indirect relationship with the Company or its subsidiaries, they were each deemed to be independent.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

FEES BILLED BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Fees and expenses paid to our principal accountant, KPMG LLP, for the year ended December 31, 2020 and paid to our principal accountant, KPMG LLP, and our former accountant, Grant Thornton LLP, for the year ended 2019 consisted of the following:

Audit-Related Fees — 89,500 (3)

Tax Fees — —

All Other Fees — —

(1)Represents fees and expenses for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements, statutory audits, and advice on accounting matters directly related to the audit and audit services provided in connection with other regulatory filings.

(2)$100,000 of these audit fees related to the 2018 audit paid to Grant Thornton LLP in 2019.

53

(3)Represents $79,500 consent fee and a $10,000 access fee paid to Grant Thornton LLP.

PRE-APPROVAL POLICY

The audit committee charter provides that the audit committee of our board of directors shall pre-approve all audit services, audit-related tax services and other permitted services to be performed for us by our independent registered public accounting firm and the related fees. Pursuant to its charter and in compliance with rules of the SEC and Public Company Accounting Oversight Board ("PCAOB") the audit committee has established a pre-approval policy and procedures that require the pre-approval of all services to be performed by the independent registered public accounting firm. The independent registered public accounting firm may be considered for other services not specifically approved as audit services or audit-related services and tax services so long as the services are not prohibited by SEC or PCAOB rules and would not otherwise impair the independence of the independent registered public accounting firm. During 2020, all of the above services were approved by the audit committee in accordance with this policy.

54

PART IV

Item 15. Exhibits, Financial Statements and Schedules

(a)Financial Statements.

Page

Financial Statements F-1

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-4

Consolidated Statements of Operations F-5

Consolidated Statements of Stockholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

(b)Exhibits.

The Exhibits listed in the Exhibit Index, which appear immediately following the signature pages, are incorporated herein by reference and are filed as part of this Annual Report on Form 10-K.

(c)Schedules.

Schedule IV - Mortgage Loan on Real Estate

Schedules other than the one listed above are omitted because they are not applicable or deemed not material.

55

EXHIBIT INDEX

Exhibit

No. Document

56

21.1 List of Subsidiaries of Lument Finance Trust, Inc.*

23.1 Consent of KPMG, LLP *

57

101.INS Inline XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema Document*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB XBRL Taxonomy Extension Label Linkbase Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith.

** Furnished herewith.

†Management contract or compensatory plan or arrangement.

58

Item 16. Form 10-K Summary

None.

59

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LUMENT FINANCE TRUST, INC.

March 15, 2021 /s/ James P. Flynn

James P. Flynn

Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ James P. Flynn Chief Executive Officer, Chairman of the Board March 15, 2021

James P. Flynn (Principal Executive Officer)

James A. Briggs Principal Accounting Officer)

/s/ James C. Hunt Director March 15, 2021

James C. Hunt

/s/ Neil A. Cummins Director March 15, 2021

Neil A. Cummins

/s/ William Houlihan Director March 15, 2021

William Houlihan

/s/ Walter C. Keenan Director

Walter C. Keenan March 15, 2021

60

Contents

Page

Financial Statements

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 F-4

Notes to Consolidated Financial Statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lument Finance Trust, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lument Finance Trust, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedule IV – Mortgage Loans on Real Estate as of December 31, 2020 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or is required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of commercial mortgage loans held-for-investment individually evaluated for impairment

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company’s commercial mortgage loans held-for-investment totaled $547.3 million as of December 31, 2020, including $0 of impaired loans, and the related allowance for loan losses (ALL) was $0. Based on the facts and circumstances of the loan, the Company determines a loan is impaired when it is probable that it will not be able to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans are individually evaluated based on the Company’s quarterly assessment of each loan and assignment of a risk rating which are based on a number of factors including debt service coverage, loan-to-value, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. Impairment of these loans, all of which are deemed 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 (individually evaluated ALL). The Company primarily utilizes an income capitalization approach in determining the estimated fair value of the underlying collateral for use when evaluating that a loan is impaired. The inputs and assumptions utilized in the fair value measurement included both loan level information and general market trends to determine the assumptions, such as capitalization rates, creditworthiness of major tenants, occupancy rates, availability of financing, and exit plan.

We identified the assessment of the individually evaluated ALL as a critical audit matter as it involved complex auditor judgment related to the recognition and measurement of impairment for those loans which were individually evaluated and significant measurement uncertainty, both requiring specialized skills and knowledge. The recognition of impairment of commercial mortgage loans held-for-investment was sensitive to the risk rating model applied and significant assumptions such as debt-service coverage ratio, loan-to-value, property type, geographic and local market dynamics. The measurement of the individually evaluated ALL was sensitive to the significant assumptions of capitalization rates, creditworthiness of major tenants, occupancy rates, availability of financing, and exit plan. These assumptions are based on current market data and had a significant effect on the recognition and estimation of the individually evaluated ALL. In addition, auditor judgment was required to evaluate the sufficiency of the evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s recognition and measurement of the individually evaluated ALL estimate, including controls over the:

•risk rating process;

•evaluation and recognition that a loan is impaired;

•evaluation of significant assumptions used in the fair value measurement of the collateral.

We evaluated the Company’s process to develop the individually evaluated ALL estimate by testing their identification of individually impaired loans through the Company’s risk rating process for a selection of loans. We evaluated whether the significant assumptions used in the risk rating model were

F-2

relevant and reliable by comparing to independent sources on similar properties. We evaluated whether the significant assumptions used in the fair value measurement were representative of current market data by comparing to recent market activity on similar property transactions. We involved our valuation professionals with specialized skills and knowledge, who assisted in testing a selection of loans and related underlying documentation used to determine the fair value of the loan collateral.

We also assessed the sufficiency of the audit evidence obtained related to individually evaluated ALL by evaluating the:

•cumulative results of the audit procedures

•qualitative aspects of the Company’s accounting practices

•potential bias in the accounting estimate.

/s/ KPMG LLP

We have served as the Company's auditor since 2019.

New York, New York

March 15, 2021

F-3

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

ASSETS

Deferred offering costs — 40,000

LIABILITIES AND EQUITY

LIABILITIES:

COMMITMENTS AND CONTINGENCIES (NOTES 14 & 15)

EQUITY:

(1)Our consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs) as the Company was the primary beneficiary of these VIEs. As of December 31, 2020 and December 31, 2019, assets of the consolidated VIEs related to Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. totaled $591,318,506 and $636,541,489, respectively and the liabilities of consolidated VIEs related to Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. totaled $463,411,967 and $506,662,238, respectively. See Note 7 for further discussion.

The accompanying notes are an integral part of these consolidated financial statements.

F-4

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Revenues:

Interest income:

Multifamily loans held in securitization trusts — 78,361

Interest expense:

Other income:

Realized (loss) on investments, net — (709,439)

Change in unrealized (loss) on mortgage servicing rights (1,780,528) (1,297,579)

Other income 2 —

Expenses:

Deemed dividend on preferred stock related to redemption $ — $ (3,093,028)

Earnings per share:

Basic and diluted income per share $ 0.34 $ 0.11

Dividends declared per weighted average share of common stock $ 0.37 $ 0.30

The accompanying notes are an integral part of these consolidated financial statements.

F-5

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

Shares Par Value Shares Par Value

Restricted stock compensation expense — — — — (6,338) — — (6,338) — (6,338)

Restricted stock compensation expense — — — — 5,307 — — 5,307 — 5,307

The accompanying notes are an integral part of these consolidated financial statements.

F-6

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Cash flows from operating activities:

Accretion of collateralized loan obligations discounts, net 1,137,156 1,095,750

Amortization of deferred offering costs (40,000) (86,516)

Realized loss on investments, net — 709,439

Unrealized (gain) loss on mortgage servicing rights 1,780,528 1,297,579

Restricted stock compensation expense 20,292 8,962

Net change in:

Other accounts payable and accrued expenses (30,735) (1,697,029)

Cash flows from investing activities:

Proceeds from sales of commercial mortgage loans held-for-investment — 6,816,250

Principal payments from retained beneficial interests — 4,747,049

Investment related receivable — 33,042,234

Cash flows from financing activities:

Proceeds from issuance of common stock 5,747,375 —

Redemption of preferred stock — (40,250,000)

Proceeds from secured term loan — 40,250,000

Payment of collateralized loan obligations (44,864,874) —

Payment of deferred financing costs — (1,017,419)

Supplemental disclosure of cash flow information

Non-cash investing and financing activities information

Dividends declared but not paid at end of period $ 3,242,640 $ 1,776,912

The accompanying notes are an integral part of these consolidated financial statements.

F-7

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS

Lument Finance Trust, Inc. (together with its consolidated subsidiaries, the "Company”), formerly Hunt Companies Finance Trust, Inc., is a Maryland corporation that focuses primarily on investing in, financing and managing a portfolio of commercial real estate debt investments. Effective January 3, 2020, the Company is externally managed by OREC Investment Management, LLC, doing business as Lument Investment Management (the "Manager" or "Lument IM"), who replaced the prior manager, Hunt Investment Management, LLC ("HIM"). On December 28, 2020, the Company changed its name from Hunt Companies Finance Trust, Inc. to Lument Finance Trust, Inc., and its common stock began trading on the NYSE under the symbol "LFT." Previously, the Company's common stock was listed on the NYSE under the symbol "HCFT."

The Company was incorporated on March 28, 2012 and commenced operations on May 16, 2012. The Company began trading as a publicly traded company on March 22, 2013.

The Company has elected to be taxed as a real estate investment trust ("REIT") and to comply with Sections 856 through 859 of the Internal Revenue Code of 1986, as amended, (the "Code"). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met.

On February 14, 2019, the Company drew on its secured term loan ("Secured Term Loan") in the aggregate principal amount of $40.25 million and used the net proceeds of $39.2 million and working capital of $1.1 million to redeem all 1,610,000 shares of its outstanding 8.75% Series A Cumulative Redeemable Preferred Stock at its $25 per share liquidation preference plus accrued and unpaid dividends. The redeemed shares have been reclassified as authorized and unissued shares of the Company's preferred stock, $0.01 per value per share, without designation of a class or series.

On March 18, 2019, the Company entered into a support agreement with HIM, pursuant to which HIM agreed to reduce the expense reimbursement cap by 25% per annum (subject to such reduction not exceeding $568,000 per annum) until such time as the aggregate support provided thereunder equaled approximately $1.96 million. The terms of the support agreement are materially unchanged in the new management agreement with the Manager.

On January 3, 2020, the Company and HIM entered into a termination agreement pursuant to which the Company and HIM agreed to mutually and immediately terminate that certain management agreement dated January 18, 2018. The Company simultaneously entered into a new management agreement with Lument IM. Pursuant to the terms of the termination agreement between the Company and HIM, the termination of the management agreement did not trigger, and HIM was not paid, a termination fee by the Company. See Note 10 for further discussion.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These financial statements have been prepared in accordance with U.S. GAAP and are expressed in United States dollars.

The consolidated financial statements of the Company include the accounts of its subsidiaries.

Principles of Consolidation

The accompanying consolidated financial statements of the Company include the accounts of the Company and all subsidiaries which it controls (i) through voting or similar rights or (ii) by means other than voting rights if the Company is the primary beneficiary of a variable interest entity ("VIE"). Entities which the Company does not control and entities which are VIEs in which the Company is not the primary beneficiary are accounted for under the equity method or other appropriate GAAP. All significant intercompany transactions have been eliminated on consolidation.

VIEs

An entity is considered a VIE when any of the following applies: (1) the equity investors (if any) lack one or more essential characteristics of a controlling financial interest; (2) the equity investment at risk is not sufficient to finance that entity's activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is defined as the entity having both the following characteristics: (1) the power to direct activities that, when taken together, most significantly impact the VIE performance; and (2) the obligation to absorb losses and right to receive returns from the VIE that would be significant to the VIE.

The Company evaluates quarterly its junior retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd and Hunt CRE 2018-FL2, Ltd. for potential consolidation. At December 31, 2020, the Company determined it was the primary beneficiary of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. based on its obligation to absorb losses derived from ownership of its preferred shares. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities. The Company's maximum exposure to loss from collateralized loan obligations was $124,046,671 at December 31, 2020 and December 31, 2019.

Use of Estimates

The financial statements have been prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires the Company to make a number of significant estimates. On March 11, 2020, the WHO declared COVID-19 a global pandemic, which continues to spread throughout the United States and around the world. The outbreak has adversely impacted, and continues to adversely impact economic and market conditions globally, nationally and locally. Actions taken around the world to help mitigate the spread of COVID-19 include imposition of quarantines, "stay-at-home" orders, restrictions on travel and forced closures for certain types of public places, businesses and schools. The prolonged duration of the COVID-19 pandemic and its impact on our borrowers and their tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. We believe the estimates and assumptions underlying our consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2020, however uncertainty over the ultimate impact of COVID-19 on the global economy generally, and our business in particular, makes any estimates and assumptions

F-8

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could differ from its estimates and the differences may be material.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents at time of purchase include cash held in bank accounts on an overnight basis and other short term deposit accounts with banks having maturities of 90 days or less at time of acquisition. The Company maintains its cash and cash equivalents in highly rated financial institutions, and at times these balances exceed insurable amounts.

Restricted cash includes cash held within Hunt CRE 2018-FL2, Ltd. as of December 31, 2020 and within Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. as of December 31, 2019 for purposes of reinvestment in qualifying commercial mortgage loans. The reinvestment period for Hunt CRE 2017-FL1, Ltd. expired on February 20, 2020.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statement of cash flows.

Deferred Offering Costs

Direct costs incurred to issue shares classified as equity, such as legal and accounting fees, are deducted from the related proceeds and the net amount recorded as stockholders’ equity. Accordingly, payments made by the Company in respect of such costs related to the issuance of shares are recorded as an asset in the accompanying consolidated balance sheets in the line item "Deferred offering costs", for subsequent deduction from the related proceeds upon closing of the offering. To the extent that certain costs, in particular legal fees, are known to have been accrued but have not yet been invoiced and paid, they are included in "Other accounts payable and accrued expenses" on the accompanying consolidated balance sheets.

Fair Value Measurements

The "Fair Value Measurements and Disclosures" Topic 820 of the FASB, or ASC 820, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurement under GAAP. Specifically, the guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at measurement date. ASC 820 specifies a hierarchy of valuation techniques based on the inputs used in measuring fair value.

Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable market data from independent sources, while unobservable inputs reflect the Company's market assumptions. The three levels are defined as follows:

•Level 1 Inputs - Quoted prices for identical instruments in active markets

•Level 2 Inputs - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

•Level 3 Inputs - Instruments with primarily unobservable value drivers.

Pursuant to ASC 820 we disclose fair value information about financial instruments, which are not otherwise reported at fair value in our consolidated balance sheet, to the extent it is practicable to estimate fair value for those certain instruments.

The following methods and assumptions are used to estimate the fair value of each class of financial instrument, for which it is practicable to estimate that value:

•Cash and cash equivalents: The carrying amount of cash and cash equivalents approximates fair value.

•Restricted cash: The carrying amount of restricted cash approximates fair value.

•Commercial mortgage loans: The Company determines the fair value of commercial mortgage loans by utilizing a pricing model based on discounted cash flow methodologies using discount rates, which reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Additionally, the Company may record fair value adjustments on a non-recurring basis when it has determined it necessary to record a specific impairment reserve or charge-off against a loan and the Company measures such specific reserve or charge-off using the fair value of the loan's collateral. To determine the fair value of loan collateral, the Company employs the income

capitalization approach, appraised values, broker opinion of value, sale offers, letters of intention to purchase, or other valuation benchmarks,

as applicable, depending upon the nature of such collateral and other relevant market factors.

•Mortgage servicing rights: The Company determines the fair value of MSRs from a third-party pricing service on a recurring basis. The third-party pricing service uses common market pricing methods that include using discounted cash flow models to calculate present value estimated net servicing income and observed market pricing for MSR purchase and sale transactions. The model considers contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors.

•Collateralized loan obligations: The Company determines the fair value of collateralized loan obligations by utilizing a third-party pricing service. In determining the value of a particular investment, pricing service providers may use market spreads, inventory levels, trade and bid history, as well as market insight from clients, trading desks and global research platform.

•Secured term loan: The Company determines the fair value of its secured term loan based on a discounted cash flow methodology.

F-9

LUMENT FINANCE TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2020

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Commercial Mortgage Loans Held-for-Investment

Commercial mortgage loans held-for-investment represent floating-rate transitional loans and other commercial mortgage loans purchased by the Company. These loans include loans sold into securitizations that the Company consolidates. Commercial mortgage loans held-for-investment are intended to be held-to-maturity and, accordingly, are carried at their unpaid principal balances, adjusted for net unamortized loan fees and costs (in respect of originated loans), premiums and discounts (in respect of purchased loans) and impairment, if any.