Lument Finance Trust, Inc. 2026 Q2 Earnings Call

Please go ahead. Morning, everyone.

Thank you for joining our call to discuss Lument Finance Trust second quarter 2026 financial results. With me on the call today are James Flynn, our CEO, James Briggs, our CFO, Greg Calvert, our President, and Zach Halpern, our Portfolio Manager. Last evening, we filed our 10-Q with the SEC and issued a press release to provide details on our recent financial results. We also provided a supplemental earnings presentation, which can be found on our website. Before handing the call over to James Flynn, I'd like to remind everyone that certain statements made during the course of this call are not based on historical information and may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These results and uncertainties are discussed in the company's reports filed with the SEC, in particular the Risk Factors section of our Form 10-K and Form 10-Qs. It is not possible to predict or identify all such risks, and listeners are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to update any of these forward-looking statements. Further, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC. For the second quarter of 2026, we reported a GAAP net loss of $0.18 and distributable loss of $0.10 per share of common stock. In June, we had declared a quarterly dividend of $0.04 per share with respect to the second quarter, in line with the prior quarterly dividend. I will now turn the call over to James Flynn. Please go ahead. Thank you, Andrew.

Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the second quarter of 2026. We appreciate you joining us today. We also wanted to express our appreciation to our investors for their patience, support, and continued engagement as we work through issues in the legacy portfolio. We recognize the challenges that the company has faced, and we remain focused every day on improving outcomes for our shareholders. Looking at the economic and market conditions in the country today, conditions remain generally stable. There is continued uncertainty around monetary policy weighing on investment activity. Recent economic data has increased uncertainty regarding the path of the Fed, including whether short-term rates may remain elevated for longer than previously expected. Long-term rates also remain elevated, continuing to pressure transaction activity and real estate valuations.

Within multifamily, fundamentals continue to improve as the sector moves beyond peak supply levels. While rent growth remains modest, long-term demand drivers, including housing affordability challenges, continue to support the multifamily rental sector. Capital markets remain active, with liquidity available across warehouse securitization and institutional lending channels strong through the first half of this year. The CRE CLO market continues to be an important source of financing for multifamily mortgage assets, and investor demand for floating rate credit remains relatively strong, particularly for repeat issuers with proven track records. Active asset management remains our highest priority. We continue to work closely with borrowers and operating partners to maximize outcomes across both performing and non-performing investments. We continue to proactively evaluate resolution strategies for legacy assets while maintaining a disciplined approach to credit.

While the market for certain legacy assets remains soft, we are beginning to see an acceleration in resolution activity, including both negotiated sales and other paths to monetize or stabilize challenged positions. We continue to work tirelessly to resolve these assets in a manner that protects value, improves liquidity, and positions the company to reinvest capital efficiently. On the portfolio side, during the quarter, we were intentional about managing liquidity on our balance sheet to support ongoing portfolio management efforts while selectively redeploying CLO capital when available. We generally held on to cash from non-securitized asset loan payoffs. Our financing profile remains well-positioned following the refinancing initiatives completed earlier this year. We believe our current liquidity position remains appropriate to support asset resolution activities, portfolio management, and selective capital deployment opportunities.

As capital becomes available through resolutions and repayments, our objective is to redeploy it efficiently into investments that meet our credit standards and are expected to be accretive to earnings. We are being disciplined on timing and asset selection, but we are also focused on ensuring that the company's capital is put back to work as efficiently and quickly as possible. Our board of directors recently approved a 10-for-1 reverse stock split of our common stock after having determined that such actions were in the best interest of the company and its stockholders, providing flexibility to maintain compliance with the applicable New York Stock Exchange listing requirements and support an efficient public market for the company's common stock.

The reverse stock split is expected to become effective at the close of business on Wednesday, September 9, and the company's common stock is expected to begin trading on a split-adjusted basis on the New York Stock Exchange at the opening of trading on Thursday, September 10, under the existing ticker symbol, LFT. The reverse stock split will affect all stockholders uniformly and will not alter any stockholder's percentage ownership interest in the company, except with respect to treatment of fractional shares, which will be paid out in cash. We have also posted for our investors a reverse stock split FAQ document on our website. We believe the reverse stock split is an important step toward reducing technical pressure on the public stock price and supporting a more orderly market for our shares.

While this action does not change the underlying economics of the company, we believe it helps address one of the external pressures on the stock and allows investors to focus more clearly on the value of the portfolio, our asset resolution progress, and our earnings trajectory. Our priorities remain unchanged. We are committed to resolving legacy assets, protecting book value, and thoughtfully redeploying capital into high-quality multifamily investments. We appreciate the continued patience and support of our investors and capital partners as we execute on this plan. While we recognize the resolution of our non-performing and REO assets remains challenging, we are seeing improving momentum in deal resolutions and sales activity. As those resolutions occur, we intend to reinvest capital efficiently and on a disciplined basis.

We remain committed to fully deploying our capital in 2027, which we believe will be an important driver of improved earnings and, over time, enhanced shareholder value. We recognize there is still work to do, and the timing of certain NPL and REO resolutions remains subject to submarket conditions. That said, we believe the company has the support of its capital partners, a clear path to redeployment, and the platform capabilities necessary to move forward constructively. With that, I'd like to turn the call over to James Briggs, who will provide details regarding our financial results.

Jim? Thanks, Jim. Good morning.

Last night, we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. Supplemental investor presentation has been uploaded to the webcast as well for your reference. On pages 4 through 7 of the presentation, you'll find key updates and an earnings summary for the quarter. For the second quarter of 2026, we reported net loss to common stockholders of $9.2 million, or $0.18 per share. We reported a distributable loss of $5.3 million, or $0.10 per share. There are a few Q2 P&L items I'd like to highlight. For Q2, net interest income was $4.5 million, a sequential decline from $5.7 million recorded in Q1.