Sachem Capital Corp. 10-K

Item 7. Management’s Discussion and Analysis of Financial condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. Certain statements in this discussion and elsewhere in this Report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. The actual results may differ materially from those anticipated in these forward-looking statements. Company Overview We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term ( i.e., three years or less) loans secured by first mortgage liens on real property. From our inception, in December 2010, through our initial public offering, in February 2017, we operated as a limited liability company. On February 9, 2017, we completed our initial public offering (the “IPO”), the primary purpose of which was to raise equity capital to fund mortgage loans and expand our mortgage loan portfolio and to diversify our ownership so that we could qualify, for federal income tax purposes, as a real estate investment trust, or REIT. We believe that, since consummation of the IPO, we met all the requirements to qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income. Any taxable income not distributed to shareholders is subject to tax at the regular corporate tax rates and may also be subject to a 4% excise tax to the extent it exceeds 10% of our total taxable income. To maintain our qualification as a REIT, we are required to distribute each year at least 90% of our taxable income. As a REIT, we may also be subject to federal excise taxes and state taxes. 2020 Year in Review; Outlook for 2021 We began 2020 with approximately $35 million of liquid assets which we planned to use to fund new mortgage loans. Then, the COVID-19 virus began to spread throughout the United States and we realized that drastic changes to our operations would need to be made. Once the State of Connecticut declared a state of emergency, we were forced to scale-back our operations. As a finance company, we were permitted to remain open but, given “social distancing” and other measures designed to protect our employees and curtail the spread of the virus, we rotated employees through the office and, for those with remote log-in capability, had them work from home. Face-to-face customer contact was curtailed significantly, placing greater emphasis on phone calls, emails and video conferencing. In addition, the filing and preparation of loan documents with the various recording offices were and may continue to be delayed and currently there is only limited access to the Connecticut court system to process foreclosures and evictions. In summary, the consequences of the COVID-19 virus have and may continue to include one or more of the following: ● increase in the amount of time necessary to review loan applications, structure loans, and fund loans; ● adversely impact the ability of borrowers to remain current on their obligations; 38 Table of Contents ● reduce the rate of prepayments; ● delay the completion of renovation projects that are in process; ● inhibit the ability of borrowers to sell their properties so they can repay their obligation to us; and ● delay foreclosure or other judicial proceedings necessary to enforce our rights. In light of the impact of the COVID-19 pandemic on general economic conditions and the capital markets, we took various steps to reduce our risks, including the following changes to our underwriting guidelines as of April 1, 2020 applicable to new loans: ● limited new loan activity to the amount of cash generated by loan payoffs; ● reduced the loan-to-value ratio on new loans from 70% to 50%; ● loans greater than $1 million required the approval of one of our independent directors; and ● required an interest reserve with respect to loans exceeding a specified amount. In addition, in response to the COVID-19 pandemic, in the second quarter of 2020 we instituted a forbearance program to help borrowers who were adversely impacted by the pandemic. Under this program, approximately $200,000 of interest on 23 loans, having an aggregate principal amount of $6.5 million was deferred. As of December 31, 2020, all these loans have moved off forbearance and were current with respect to their interest payment obligations and no other loans were added to the forbearance program. The policies and guidelines that we adopted to address the impact of the COVID-19 pandemic were designed to allow us to preserve our liquidity because at the time the actual impact and consequences of the pandemic were unknown. In that regard, they were successful. On the other hand, they did have an adverse impact on our growth. Our mortgage loan portfolio at June 30, 2020 was virtually identical to our mortgage loan portfolio at March 31, 2020 and our earnings per share for the second quarter was $0.10 as it was for the first quarter. Effective July 1, 2020, we relaxed some of these measures by increasing our loan-to-value ratio back to 70% while still maintaining a cautionary perspective. Demand for our products in the third quarter of 2020 was robust. We believe this demand was driven by several factors, all of which are related to COVID-19. ● First, was the improvement in the overall economy, particularly the Northeast Corridor. This improvement reflected the reduction in the transmission rate of the virus and the slow-down in the number of virus-related deaths at the time. ● Second, the competitive landscape for us remains favorable. Notwithstanding the improvements in the economy, banks and other traditional lenders have not eased-up on their lending requirements and many non-traditional lenders are undercapitalized. In a way, this validated our decision prior to the second quarter of the year to focus on preservation of capital rather than short-term growth. ● Third, the residential real estate market in Connecticut, our primary market, has stabilized and is quite strong. Like many other communities surrounding New York, Connecticut, particularly the southern counties, have benefitted from the migration of New York City residents to the suburbs. We believe this contributed to the increase in the number of loan pay-offs that we experienced in the third and fourth quarters. ● Fourth, in the third quarter we initiated a growth strategy focused on Florida. At June 30, 2020, we had less than $1 million of Florida loans in our portfolio. At December 31, 2020, our portfolio included approximately $15.0 million aggregate principal amount of loans in Florida. 39 Table of Contents In terms of our outlook for 2021, we see certain fundamental changes that may affect our business. The biggest challenge at this time remains the impact of COVID-19 or actions taken to contain the spread of COVID-19. One example of this was the November 6, 2020, rollback of the State of Connecticut re-opening plan from Phase 3 to Phase 2.1, a modified version of the State’s Phase 2. This illustrates that movement on the COVID-19 front may be in both a progressive or regressive manner. Keeping our workforce healthy and safe is our number one priority. We have not been immune to the virus striking our employees and their family members. Fortunately, none of these occurrences has been life-threatening in any way. However, to mitigate the risk of office closure and to ensure business continuity, our employees are equipped so they can seamlessly work remotely, away from the Sachem corporate office. This remote work set-up has proven to be effective since, at times during the pandemic, employees had to self-isolate based on their own health condition or that of an immediate family member. While loan processing and funding may have been marginally delayed, there was no impact to the service levels we provided our borrowers. In the event we are forced to close our physical office, there would be some impact. For example, the underwriting process would continue to function but would take longer to complete without immediate access to background and credit profiles. Loan committee meetings would continue to be held virtually (as they are under normal conditions) but the loan approval process may incur delay or not be as thorough and efficient as in the past. In addition, we may not be able to meet with borrowers or potential borrowers, including physical property inspections, which could adversely impact our ability to service our loans, monitor compliance and originate new loans. Finally, the filing of loan documents with the various recording offices may be delayed. In summary, the consequences may include one or more of the following: ● increase the amount of time necessary to review loan applications, structure loans and fund loans; ● adversely impact the ability of borrowers to remain current on their obligations; ● reduce the rate of prepayments; ● delay the completion of renovation projects in-process; ● inhibit the ability of borrowers to sell their properties in order to repay their obligation to us; and ● delay foreclosure or other judicial proceedings necessary to enforce our rights. As is the case with most industries and businesses impacted by COVID-19, we are limited in terms of the tools that are available to us to blunt the impact of COVID-19. Our number one priority is the health and safety of our employees. We will do all that is possible, to keep our operations going, maintain contact with all our borrowers and applicants and, where necessary and appropriate, take any and all legal action required to enforce our rights. However, we cannot assure you that our business, operations and financial condition will not be adversely impacted by COVID-19. Other factors that we believe will impact our business in 2021 include the following: (i) Increased competition. In the past, our primary competitors were other non-bank real estate finance companies (similar to Sachem Capital Corp.) and banks and other financial institutions. Our principal competitive advantages included our size and our ability to address the needs of borrowers in terms of timing and structuring loan transactions. More recently, we are encountering competition from private equity funds, hedge funds and other specialty finance entities funded by investment banks, asset managers, private equity funds and hedge funds. Clearly, the primary driver for these new market participants is the need to generate yield. They are well-funded and aggressive in terms of pricing. (ii) Borrower expectations. The new competitive landscape is shifting the negotiating leverage in favor of borrowers. As borrowers have more choices, they are demanding better terms. For 2020, the yield on our portfolio was 11.79% compared to 12.42% in 2019. We expect further rate compression in 2021. 40 Table of Contents (iii) Declining property values. The rate of increasing property values has slowed and, in some cases, has even reversed. Although our default and foreclosure rate has been relative consistent over the last three years, as property values decline the risk of foreclosure increases. Our response to this development has been to adhere to our strict loan-to-value ratio, limit the term of our loans to not more than one year and aggressively enforce our rights when loans go into default. Despite the challenges we faced in 2020 and the changing dynamics of the real estate finance marketplace and the impact of COVID- 19, we continue to believe in the viability of our business model. Our goal is, and has always been, to continue to grow our mortgage loan portfolio and increase our loan profitability, while at the same time maintain or improve on our existing underwriting and loan criteria. Specifically, we believe that the following changes wrought in 2020 will, in fact, help us deal with the uncertainties expected in 2021. (i) As of December 31, 2020, we had a cash and short-term marketable security balance of approximately $56.7 million, which we will use to increase our mortgage loan portfolio. From January through March 12, 2021, we funded $20.2 million of new mortgage loans. (ii) Our largest expense item is interest and amortization of deferred financing costs, which has increased significantly as we have increased our indebtedness. The weighted average interest rate on our outstanding Notes is 7.36% per annum. However, the Notes have certain features that we find attractive. Other than interest, the Notes do not have any significant costs and expenses, such as legal fees, collateral maintenance fees, unused facility fees, processing fees and the additional personnel costs relating to reporting and compliance. Second, the Notes have one financial covenant – an asset coverage ratio of 150% -- which gives us plenty of flexibility in terms of the size of the mortgage loans we choose to make, the markets in which we choose to operate and the nature of the collateral. Finally, the Notes are unsecured. However, we may obtain a senior credit facility should such a facility be available at terms that are advantageous to our strategy. (iii) We have made the necessary adjustments to our operations to replace our former co-chief executive officer by hiring new employees and re-assigning existing employees to new tasks. We believe these changes will result in significant savings, principally in the area of compensation and general and administrative expenses, without compromising quality . (iv) We have adjusted and refined our business strategy to address changes in the marketplace and our growth to date. Specifically, we are looking to strengthen our geographic footprint beyond Connecticut with particular emphasis on Florida and Texas. We are looking to fund larger loans than we have in the past that are secured by what we believe are higher-quality properties that are being developed by borrowers that we deem to be more stable and successful. In 2020, we funded loans secured by properties in Phoenix, Arizona, Austin, Texas, Charleston, South Carolina, Naples, Florida, Littleton, Colorado and Sacramento, California. We continue to look for opportunities in new markets that meet our basic underwriting and loan criteria. In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate . Operational and Financial Overview Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5% to 13% per year and a default rate of 18% per year. We usually receive origination fees, or “points,” ranging from 2% to 5% of the original principal amount of the loan as well as other fees relating to underwriting, funding and managing the loan, such as inspection fees. Since we treat an extension or renewal of an existing loan as a new loan, we also receive additional “points” and other loan-related fees in connection with those transactions. Interest is always payable monthly in arrears. As a matter of policy, we do not make any loans if the loan-to value ratio exceeds 70%. During the second quarter of 2020, we revised that policy that the amount of the loan may not exceed 50% of the market value of the property securing the loan —  i.e., a 50% loan-to-value ratio. As of July 2020, the 50% loan-to-value ratio on new loans reverted back to our general policy of 70%. In the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. We rely on readily available market data, including appraisals when available or timely, tax assessment rolls, recent sales transactions and brokers to evaluate the value of the collateral. Finally, we have adopted a policy that limits the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10% of the aggregate amount of our loan portfolio, taking into consideration the loan under consideration. 41 Table of Contents Our revenue consists primarily of interest earned on our loan portfolio. As our capital structure has tilted towards more debt over the past 18 months, debt service has become a significant factor in determining our net income. Our capital structure at December 31, 2020 was approximately 64.3% debt vs. 35.7% equity. Most of our debt, approximately $114.5 million, is unsecured unsubordinated 5-year notes. The weighted average interest rate on these notes is 7.36%. In addition, we had a balance of approximately $28.1 million at December 31, 2020 under our margin loan account with Wells Fargo. The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate. The interest rate on this loan as of January 31, 2021 was 1.5%. In addition, our net income for 2020 has been adversely impacted by a reduction in the yield on our mortgage loan portfolio. For the years ended December 31, 2020 and 2019, the yield on our mortgage loan portfolio was 11.79% and 12.41%, respectively. For this purpose, yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable. We believe the interest rate compression will continue to be a factor in 2021 as we implement our new strategy focusing on larger loans, secured by higher quality properties being developed by more seasoned developers with a history of successful development projects. On the other hand, since the interest rate on our outstanding indebtedness is fixed, we have reduced the risk on interest rate compression if and when interest rates begin to increase. That will enable us to continue to focus on growth and building market share rather than short-term profits and cash flow. We seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year. At December 31, 2020, approximately 81.4% of the mortgage loans in our portfolio had a term of one year or less. If, at the end of the term, the loan is not in default and meets our other underwriting criteria, we will consider an extension or renewal of the loan at our then prevailing interest rate. If interest rates have decreased and we renew a loan at a lower rate, the “spread” between our borrowing costs and the yield on our portfolio will be squeezed and would adversely impact our net income. We cannot assure you that we will be able to increase our rates at any time in the future and we cannot assure you that we can continue to increase our market share. As a real estate finance company, we deal with a variety of default situations, including breaches of covenants, such as the obligation of the borrower to maintain adequate liability insurance on the mortgaged property, to pay the taxes on the property and to make timely payments to us. As such, we may not be aware that a default occurred. At December 31, 2020, five of our mortgage loans were the subject of enforcement or collection proceedings. The aggregate amount due on these loans, including principal, unpaid accrued interest and borrower charges, was approximately $307,000, representing approximately 0.2% of our aggregate mortgage loan portfolio. In the case of each of these loans, we have determined the value of the collateral exceeds the aggregate amount due. To date, the aggregate amount of realized losses on our loan portfolio have been de minimis. Financing Strategy Overview To continue to grow our business, we must increase the size of our loan portfolio, which requires that we raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness. We do not have a policy limiting the amount of indebtedness that we may incur. Thus, our operating income in the future will depend on how much debt we incur and the spread between our cost of funds and the yield on our loan portfolio. Rising interest rates could have an adverse impact on our business if we cannot increase the rates on our loans to offset the increase in our cost of funds and to satisfy investor demand for yield. In addition, rapidly rising interest rates could have an unsettling effect on real estate values, which could compromise some of our collateral. We do not have any formal policy limiting the amount of indebtedness we may incur. Depending on various factors we may, in the future, decide to take on additional debt to expand our mortgage loan origination activities to increase the potential returns to our shareholders. Although we have no pre-set guidelines in terms of leverage ratio, the amount of leverage we will deploy will depend on our assessment of a variety of factors, which may include the liquidity of the real estate market in which most of our collateral is located, employment rates, general economic conditions, the cost of funds relative to the yield curve, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, our opinion regarding the creditworthiness of our borrowers, the value of the collateral underlying our portfolio, and our outlook for interest rates and property values. At December 31, 2020, debt proceeds represented approximately 64.3% of our total capital. To grow the business and satisfy the requirement to pay out 90% of net profits, from 2019 to 2020 we increased our level of debt from 41.7% to 64.3% of our total capital. We intend to maintain a modest amount of leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates. 42 Table of Contents Our total outstanding indebtedness at December 31, 2020 was approximately $143.6 million, which included a mortgage loan of approximately $800,000, a credit line loan of approximately $28.1 million and three series of unsecured, unsubordinated five-year notes having an aggregate original principal amount of approximately $114.5 million. The mortgage loan was repaid in full in the first quarter of 2021. Notes having an aggregate principal amount of approximately $23.7 million bearing interest at the rate of 7.125% per annum and have a maturity date of June 30, 2024 (the “June 2024 Notes”). Notes having an aggregate principal amount of $34.5 million bearing interest at the rate of 6.875% per annum and have a maturity date of December 30, 2024 (the “December 2024 Notes”). Notes having an aggregate original principal amount of approximately $56.4 million, bearing interest at the rate of 7.75% per annum and have a maturity date of September 30, 2025 (the “September 2025 Notes”). All three series of existing notes are unsecured, unsubordinated obligations and rank equally in right of payment with all our existing and future senior unsecured and unsubordinated indebtedness but are effectively subordinated in right of payment to all our existing and future secured indebtedness (including indebtedness that is initially unsecured but to which we subsequently grant a security interest). Interest on all three series of existing notes is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year the notes are outstanding. Each series of notes was issued pursuant to the Indenture, dated June 21, 2019, and a supplement thereto, which provides for the form and terms, including default provisions and cures, applicable to each series. All three series of existing notes are subject to (i) “Defeasance,” which means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on such notes when due and satisfying any additional conditions required under the Indenture, we will be deemed to have been discharged from our obligations under such notes and (ii) an “Asset Coverage Ratio” requirement pursuant to which we may not pay any dividends or make distributions in excess of 90% of our taxable income, incur any indebtedness or purchase any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the making of such distribution or the incurrence of such indebtedness. “Asset Coverage Ratio” means the ratio (expressed as a percentage) of the value of our total assets relative to the aggregate amount of its indebtedness. We may, at our option, at any time and from time to time, on or after June 30, 2021, in the case of the June 2024 Notes, November 7, 2021, in the case of the December 2024 Notes, and September 4, 2022, in the case of the 2025 Notes, redeem such notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest to, but excluding, the date fixed for redemption. On and after any redemption date, interest will cease to accrue on the redeemed notes. All three series of existing notes trade on the NYSE American. The June 2024 Notes trade under the symbol “SCCB”, the December 2024 Notes trade under the symbol “SACC” and the 2025 Notes trade under the symbol “SCCC”. During 2020 we borrowed $30.1 million from Wells Fargo against our short-term securities, which had a balance of approximately $28.1 million at December 31, 2020. The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate. The interest rate at December 31, 2020 is 1.5%. REIT Qualification We believe that we have qualified as a REIT since the consummation of the IPO and that it is in the best interests of our shareholders that we operate as a REIT. We made the election to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders on an annual basis. We cannot assure you that we will be able to maintain REIT status. Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distribution requirements applicable to REITs and the diversity of ownership of our outstanding common shares. We cannot assure you that we will be able to maintain our qualification as a REIT. So long as we qualify as a REIT, we, generally, will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate income tax rates and may be precluded from electing to be treated as a REIT for four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income. 43 Table of Contents Emerging Growth Company Status We are an “emerging growth company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements not applicable to other public companies but applicable to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we can also delay adopting new or revised accounting standards until those standards apply to private companies. We intend to avail ourselves of these options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company. We will cease to be an emerging growth company upon the earliest of: (i) the end of the 2022 fiscal year; (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common shares held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common shares less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce future disclosure, investors find our common shares less attractive, there may be a less active trading market for our common shares and the price of our common shares may be more volatile. Critical Accounting Policies and Use of Estimates The preparation of financial statements in conformity with U.S. GAAP in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our use of estimates on (a) a preset number of assumptions that consider past experience, (b) future projections and (c) general financial market conditions. Actual amounts could differ from those estimates. Interest income from commercial loans is recognized, as earned, over the loan period and origination fee revenue on commercial loans is amortized over the term of the respective note. As an “emerging growth company,” we intend to avail ourselves of the reduced disclosure requirements and extended transition periods for adopting new or revised accounting standards that would otherwise apply to us as a public reporting company. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to those of other public reporting companies that either are not emerging growth companies or that are emerging growth companies but have opted not to avail themselves of the reduced disclosure requirements for emerging growth companies and investors may deem our securities a less attractive investment relative to those other companies, which could adversely affect our stock price. Results of Operations Years ended December 31, 2020 and 2019 Total revenue Total revenue for the year ended December 31, 2020 was approximately $18.6 million compared to approximately $12.7 million for the year ended December 31, 2019, an increase of approximately $5.9 million, or 46.5%. The increase in revenue represented an increase in lending operations. For 2020, interest income was approximately $13.8 million, origination fees were approximately $1.9 million, other income was approximately $1.25 million, gain on sale of investment securities was approximately $900,000, investment income was approximately $400,000, processing fees were approximately $168,000, late and other fees were approximately $85,000 and net rental income was approximately $85,000. Other income in 2020 included income from borrower charges of $291,000, lender, modification, and extension fees were $672,000, in-house legal fees were $223,000 and other income was $60,000. 44 Table of Contents In comparison, in 2019, interest income was approximately $9.8 million, origination fees were approximately $1.5 million, other income was approximately $827,000, late and other fees were approximately $265,000, processing fees were approximately $167,000, investment income was approximately $81,000, net rental income was approximately $69,000 and gain on sale of investment securities was $0. Operating costs and expenses Total operating costs and expenses for the year ended December 31, 2020 were approximately $9.6 million compared to approximately $6.5 million for 2019, an increase of approximately $3.1 million, or 47.7%. The increase in operating costs and expenses was primarily attributable to an increase in our indebtedness and a general increase in lending activities and our expansion into the Florida and Texas markets. Interest and amortization of deferred financing costs in 2020 were approximately $5.5 million compared to approximately $2.9 million in 2019, an increase of approximately 89%. The balance of the increase in operating expenses was attributable to (i) impairment loss, which increased approximately $378,000; (ii) compensation (including stock-based compensation), fees and taxes, which increased approximately $265,000; (iii) professional fees, which increased approximately $86,000; (iv) general and administrative expenses, which increased approximately $84,000; (v) other expenses, which increased approximately $67,000; and (vi) exchange fees, which increased approximately $5,000. These increases were offset by decreases in (i) expenses in connection with the termination of our old Webster credit facility of approximately $340,000; (ii) net loss on sale of real estate of approximately $28,000; and (iii) depreciation expense, which decreased approximately $1,700. Net income and net income per share Net income for 2020 was approximately $9.0 million compared to approximately $6.2 million for 2019, an increase of approximately $2.8 million or 45%. Our net income per weighted average common share outstanding for 2020 was $0.41 compared to $0.32 for 2019. Liquidity and Capital Resources Total assets at December 31, 2020 were approximately $226.7 million compared to approximately $141.2 million at December 31, 2019, an increase of approximately $85.5 million, or 61%. The increase was due primarily to the growth in our mortgage loan portfolio, which increased approximately $61.3 million, an approximately $21.9 million increase in cash and short-term marketable securities, an approximately $1.2 million increase in due from borrowers, an approximately $600,000 increase in real estate owned, an approximately $375,000 increase in receivables, an approximately $87,000 increase in property and equipment, an approximately $56,000 increase in deferred financing costs and an approximately $47,000 increase in prepaid expenses. The increase in real estate owned is due, in part, to the fact that we capitalized past due real estate taxes that we paid, costs to repair and maintain property, legal costs to secure title and finally costs to prepare the property for sale. Total liabilities at December 31, 2020 were approximately $145.8 million compared to approximately $58.7 million at December 31, 2019, an increase of approximately $87.1 million, or approximately 148%. This increase is principally due to an overall increase in our total indebtedness, which at December 31, 2020, was approximately $138.7 million compared to approximately $56.3 million at December 31, 2019 (in each case, net of deferred financing costs), an increase of $82.5 million. The balance of the increase was attributable to an increase in advances from borrowers of approximately $980,000, an increase in deferred revenue of approximately $894,000, an increase in accounts payable and accrued expenses of approximately $123,000 and accrued dividends payable of approximately $2.7 million which were paid in January 2021. Total shareholders’ equity at December 31, 2020 was approximately $81.0 million compared to approximately $82.6 million at December 31, 2019, a decrease of approximately $1.6 million. This decrease was due primarily to the difference between our net income of approximately $9.0 million and the aggregate of dividends paid and dividends declared of $10.6 million. 45 Table of Contents Net cash provided by operating activities in 2020 was approximately $ 9.6 million compared to approximately $8.1 million in 2019. For 2020, net cash from operating activities was primarily the result of net income of approximately $9.0 million, amortization of deferred financing costs of approximately $602,000, an impairment loss of $795,000, decreases in other receivables of approximately $74,000 and deposits on property and equipment of approximately $72,000, increases in deferred revenue of approximately $894,000, advances from borrowers of approximately $982,000 and accounts payable and accrued expenses of approximately $122,000, offset by a gain on sale of marketable securities of approximately $903,000, and increases in interest and fees receivable of approximately $505,000, and amounts due from borrowers of approximately $1.5 million. For 2019, net cash from operating activities was primarily the result of net income of  approximately $6.2 million, the write-off and amortization of deferred financing costs of  approximately $723,000, impairment loss of  approximately $417,000, a decrease in the amounts due from borrowers of  approximately $385,000 and increases in deferred revenue of  approximately $147,000 and advances from borrowers of  approximately $531,000, all of which were offset by an increase in interest and fees receivable of  approximately $154,000 and a decrease in accrued interest of  approximately $173,000. Net cash used for investing activities for 2020 year was approximately $82.8 million compared to approximately $37.8 million in net cash used for 2019. For 2020, the major contributors to net cash used for investing activities were the purchase of investments of approximately $97.6 million, acquisitions of and improvements to real estate owned of approximately $1.8 million and principal disbursements on mortgages receivable of approximately $117.2 million. These amounts were offset by proceeds from the sales of investments of approximately $77.1 million, proceeds from the sale of real estate owned of approximately $1.8 million, and principal collections on mortgages receivable of approximately $55.0 million. For 2019, the major contributors to net cash used for investing activities were purchase of marketable securities of approximately $16.0 million, principal disbursements for mortgages receivable of approximately $64.7 million and acquisitions and improvements to real estate of approximately $1.3 million. These amounts were offset by principal collections on mortgages receivable of approximately $43.3 million and proceeds from sale of real estate of approximately $1.1 million. Marketable securities were purchased with the net proceeds from our various securities offerings pending their use to originate new mortgage loans. Net cash provided by financing activities for 2020 year was approximately $73.8 million compared to approximately $48.4 million for 2019. Net cash provided by financing activities for the 2020 consisted primarily of proceeds from the Wells Fargo line of credit of approximately $30.1 million, gross proceeds from the sale of our fixed rate notes of approximately $56.1 million (after taking into account the original issuance discount) and proceeds from other loans of approximately $258,000 offset by dividends paid of approximately $7.96 million, the repayment of our credit line in the amount of $2.0 million , financing costs incurred of approximately $2.52 million and principal payments on our notes and mortgage payable of approximately $37,000. Net cash provided by financing activities for 2019 consisted primarily of proceeds from our equity offerings of approximately $30.5 million and from our sale of our unsecured, unsubordinated notes of approximately $58.2 million offset by deferred financing costs of $2.9 million, proceeds from our credit facility of approximately $42.7 million offset by repayments under that facility of approximately $69.9 million, dividends paid of approximately $9.7 million and net repayments of $1.2 million on notes due to shareholder. We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include funding of loans, dividend payments, interest payments on our indebtedness and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses. Based on this analysis, we believe that our current cash balances, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months. Our long-term cash needs will include principal payments on outstanding indebtedness and funding of new mortgage loans. Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows and proceeds from sales of real estate owned. From and after the effective date of our REIT election, we intend to pay regular quarterly distributions to holders of our common shares in an amount not less than 90% of our REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gains). Subsequent Events On January 8, 2021, we paid a dividend of $0.12 per share, or $2,654,976 in the aggregate, to shareholders of record as of December 31, 2020. 46 Table of Contents On January 15, 2021, we sold a property classified as real estate held for sale at December 31, 2020 receiving $360,424 in net proceeds. We recognized an impairment loss of $42,067 as of December 31, 2020 in connection with this property. On February 19, 2021, we paid off the Bankwell mortgage securing our corporate office in Branford Connecticut. In March 2021, we sold an aggregate of 234,051 common shares under an at-the-market offering facility realizing gross proceeds of approximately $1.2 million, all of which are due to settle by March 31, 2021. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources. Contractual Obligations As of December 31, 2020, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment and software licenses. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 1 – 3 ​ 3 – 5 ​ More than ​ Total 1 year years years 5 years Operating lease obligations $ 8,031 $ 2,888 $ 5,143 $ — $ — Unfunded portions of outstanding construction loans ​ 19,601,731 ​ 19,601,731 ​ — ​ — ​ — Unfunded loan commitments ​ — ​ — ​ — ​ — ​ — Total contractual obligations ​ $ 19,609,762 ​ $ 19,604,619 ​ $ 5,143 ​ $ — ​ $ — ​ Recent Accounting Pronouncements See ‘‘Note 2 — Significant Accounting Policies’’ to the financial statements for explanation of recent accounting pronouncements impacting us. ​ 47 Table of Contents Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are a “smaller reporting company” as defined by Regulation S-K and, as such, are not required to provide the information required by this item. Item 8. Financial Statements and Supplementary Data The financial statements required by this Item are set forth beginning on page F-1. Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure None.