What changed in this filing

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Item 1. Business

2022-03-31 compared with 2021-03-31 · 253 added, 134 removed, 238 unchanged (62% of the section changed)

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Prior to February 8, 2017, our business operated as a Connecticut limited liability company under the name Sachem Capital Partners, LLC (“SCP”).

On February 9, 2017, we completed our initial public offering (the “IPO”) in which we issued and sold 2.6 million common shares, $.001 par value per share.

We believe that since the consummation of the IPO, we have qualified as a REIT and we elected to be taxed as a REIT beginning with our 2017 tax year.

On February 9, 2017, we completed our initial public offering (the “IPO”) in which we issued and sold 2.6 million of our common shares, $.001 par value per share, (our “Common Shares”).

We believe that since the consummation of the IPO, we have qualified as a real estate investment trust (“REIT”) and we elected to be taxed as a REIT beginning with our 2017 tax year.

We believe that it is in the best interests of our shareholders that we continue to operate as a REIT.

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Finally, we intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act.

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 located primarily in Connecticut.

Each loan is personally guaranteed by the principal(s) of the borrower, which guaranty is typically collaterally secured by a pledge of the guarantor’s interest in the borrower.

Our typical borrower is a real estate investor who will use the proceeds to fund its acquisition, renovation, rehabilitation, development and/or improvement of residential or commercial properties located primarily in Connecticut and that are held for investment or sale.

Business Overview

Our typical borrower is a real estate investor or developer who will use the proceeds to fund its acquisition, renovation, rehabilitation, development and/or improvement of residential or commercial properties and that are held for investment or sale.

The mortgaged property may or may not be income producing.

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Our loans are referred to in the real estate finance industry as “hard money loans” primarily because they are secured by “hard” ( i.e., real estate) assets.

Our principal place of business is located in Branford, Connecticut and, since inception, our lending activity was concentrated almost exclusively in Connecticut and a few surrounding states.

However, over the last two years, we have extended our geographic footprint significantly.

While most of our loans, by number and amount, are still made in Connecticut, the percentages are declining.

At December 31, 2021, our mortgage loan portfolio was spread across 14 states.

Connecticut loans represented approximately 72.7% of our portfolio measured by number of loans and only 55.1% measured by the loan balances.

Similarly, historically our primary focus has been on small loans – less than $500,000.

Over the last two years, our strategy shifted and we began to actively pursue larger loans.

At December 31, 2021, loans having an outstanding principal balance of $500,000 or less still represented 78.8% of the number of our loans in our portfolio but these loans only accounted for 26.1% of the amount of our loan portfolio.

Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5.0% to 14.2% 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.

We usually receive origination fees, or “points,” generally ranging from 1% to 3% 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.

We also receive additional “points” and other loan-related fees in connection with a renewal or extension of an existing mortgage loan.

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%.

In the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property.

Recently, as loan sizes have increased, we have required our borrowers to set up interest reserves that are funded with a minimum of one year’s interest payments.

Generally, we limit the amount of a loan to 70% of the value of the property securing the loan.

However, we will consider loans with a higher loan to value ratio if there are other factors that we believe mitigate the risk.

Those other factors could be additional collateral, the credit profile of the borrower, any prior history that we have with the borrower, the quality of the property or the nature of the local real estate market in which the property is located.

Also, 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, after accounting for the loan under consideration.

We also 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 after accounting for the loan under consideration.

Finally, any loan with an original principal amount exceeding $5 million must be approved by the Board of directors (the “Board”).

Our primary objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends.

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accelerate profitable growth and drive operational excellence.

More details behind this strategy may be found in this Item 1 under the heading “ Our Business and Growth Strategies ”.

We will continue to selectively originate loans and carefully manage our loan portfolio in a manner designed to generate attractive risk-adjusted returns across a variety of market conditions, economic cycles and high-growth geographies.

Approximately 88.9% of our mortgage loan portfolio at the end of 2020 included loans having an original principal amount of $500,000 or less, compared to 93.2% at the end of 2019.

We believe that the demand for relatively small real estate loans, those less than $350,000, in Connecticut and neighboring states is significant and growing and that traditional lenders, including banks and other financial institutions that usually serve this market are unable to satisfy this demand.

This demand/supply imbalance has created an opportunity for “hard money” real estate lenders like us to selectively originate high-quality first mortgage loans on attractive terms and these conditions, we believe, should persist for several years.

Nevertheless, the increase in the number and proportion of loans having an original principal amount exceeding $500,000 reflects our strategy to fund larger loans, secured by higher quality properties being developed by borrowers with a history of successful development.

One target of our growth strategy is a focus on Texas and Florida, states that Forbes ranked #2 and #5, respectively, in their 2019 “Best States for Business” study.

Both Texas and Florida have net migration into the state, no state income tax, a pleasant climate, a strong job market, and a positive economic forecast.

According to the Forbes study mentioned above, Texas has an unemployment rate of 3.5% compared to the current national average of 6.2%;

and its projected annual job growth is 1.7%.

The state economy – $1.9 trillion – second only to California.

In addition, Texas is headquarters to 100 of the top 1,000 public and private U.S.

Florida has a 3% unemployment rate and in 2019 welcomed 906 new residents per day on average.

Its gross state economy is $1.1 trillion.

We are initially targeting South, Southwest, Central, and Northwest Florida.

Taken together, these are compelling reasons for Sachem Capital to focus on these high-growth geographies.

In summary, we built our business on a foundation of intimate knowledge of the Connecticut real estate market, our ability to respond quickly to customer needs and demands, and a disciplined underwriting and due diligence culture that focuses primarily on the value of the underlying collateral and that is designed to protect and preserve capital.

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We believe that our flexibility in terms of meeting the needs of borrowers without compromising our standards on credit risk, our in-house expertise, our intimate knowledge of real estate in the geographic markets we serve, and our focus on newly originated first mortgage loans have defined our success until now and should enable us to continue to achieve our objectives.

In light of the impact of the COVID-19 pandemic on general economic conditions and the capital markets, we immediately 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 to 50%;

● loans greater than $1 million required the approval of one of our independent directors;

● 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 twenty-three loans, having an aggregate principal amount of $6.5 million at June 30, 2020, 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.

As conditions improved, 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.

The Market Opportunity

Notwithstanding the spread of the novel corona virus known as COVID-19, which has had a severe adverse impact on general economic conditions, we continue to believe that once the spread of the virus abates there still will be a significant market opportunity for a well-capitalized “hard money” lender to originate attractively priced loans to small-scale real estate developers with strong equity positions ( i.e., good collateral), particularly in Connecticut where, traditionally, real estate values in many neighborhoods have been stable and substandard properties are improved, rehabilitated and renovated.

We further believe that there will be many opportunities for us to expand our business into new markets.

Starting in the fourth quarter of 2019 and during 2020, we have funded loans secured by properties in Naples, Florida, Phoenix, Arizona, Austin, Texas, Charleston, South Carolina, Littleton, Colorado and Sacramento, California.

We also believe these developers will prefer to borrow from us rather than other lending sources because of our flexibility in structuring loans to suit their needs, our lending criteria, which places greater emphasis on the value of the collateral rather than the property cash flow or credit of the borrower, and our ability to close quickly.

See Risk Factors — “ The outbreak and spread of the novel coronavirus disease 2019, known as COVID-19, could have a material adverse effect on our business, operations and financial condition ”;

Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Year in Review — 2020;

Outlook for 2021” and Note 18 to our Financial Statements.

We expect 2022 to be a challenging year.

First, the novel corona virus known as COVID-19 remains a concern as the risk of new variants and the attendant personal and economic disruption is still prevalent.

Second, the repercussions of the Ukrainian-Russian conflict and its geopolitical and economic impact is not fully known at this time.

Finally, the Federal Reserve Board has started to raise interest rates, which could reduce the rate of growth of the U.S.

Nevertheless, we believe that there continues to be a significant market opportunity for a well-capitalized “hard money” lender to originate attractively priced loans to small- and mid-scale real estate developers with good collateral, particularly in markets where, traditionally, real estate values are stable and substandard properties are improved, rehabilitated, and renovated as well as under-developed markets that are experiencing rapid growth due to population shifts.

We also believe developers will prefer to borrow from us rather than other lending sources because of our flexibility in structuring loans to suit their needs, our lending criteria, which places greater emphasis on the value of the collateral rather than the property cash flow or credit of the borrower, and our ability to close quickly.

Our Business and Growth Strategies

We intend to achieve this objective via a simple, yet compelling, two-prong strategy:

1) accelerate profitable growth;

and 2) drive operational excellence.

Our primary business objective remains to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term principally through dividends.

We intend to achieve this objective by accelerating profitable growth and driving operational excellence.

To accelerate profitable growth, we will continue to focus on selectively originating, managing, and servicing a portfolio of first mortgage real estate loans designed to generate attractive risk-adjusted returns across a variety of market conditions and economic cycles.

We are also targeting larger-value commercial loans with strong, experienced sponsors.

To drive operational excellence, we have embarked on a broad change management initiative to review, assess, and upgrade — or transform if necessary — our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms.

We believe that our ability to react quickly to the needs of borrowers, our flexibility in terms of structuring loans to meet the needs of borrowers, our intimate knowledge of the Connecticut real estate market (which accounted for approximately 77% of our loan portfolio at the end of 2020), our expertise in ‘‘hard money’’ lending and our focus on newly originated first mortgage loans, should enable us to achieve our primary objective.

Nevertheless, we remain flexible to take advantage of other real estate opportunities that may arise from time to time, whether they relate to the mortgage market or to direct or indirect investments in real estate.

To that end, in the third quarter of 2021 we rolled out a new underwriting model that automated the production of our loan documentation — term sheets, proof of funds, etc .

The automation allows for more accurate and timely processing of loans, thus increasing loan production while keeping our employee headcount down.

In addition, we have begun to focus on developing relationships with larger scale wholesale brokers, furthering our efforts to attract larger borrowers with better credit quality.

We are also targeting larger-value commercial loans with strong, experienced sponsors.

We believe that our ability to react quickly and our flexibility to structure loans that meet the needs of borrowers, our knowledge of the primary real estate markets in which we lend, our expertise in “hard money” lending and our focus on newly originated first mortgage loans, should enable us to achieve our primary objective.

Our strategy to achieve our objective also includes the following:

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● increase the size and quality of our mortgage loans and expand our geographic footprint to reduce our exposure to adverse market conditions that have a disproportionate impact on a single asset class or geographic area;

● maintain our status as a publicly-held company, subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which gives us immediate access to the public markets for much-needed capital;

● continue to operate to qualify as a REIT and for an exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act.

In 2021 we began to execute on this strategy:

● We adjusted and refined our business strategy to address changes in the marketplace and our growth to-date.

Specifically, we continue to strengthen our geographic footprint beyond Connecticut.

At December 31, 2021, we had loans in 13 other states -- California, Florida, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee and Texas.

We continue to expand our presence in these states as well as seek opportunities in other markets that meet our underwriting and loan criteria.

● We are funding 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 that have a history of successful real estate development.

In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate.

● To leverage our expertise in real estate finance and our capital resources, on the one hand, and to capitalize on lending opportunities in specific markets, on the other, we plan to partner and invest with local “hard money” real estate lenders creating satellite offices under the “Sachem” influence.

An advantage of this model is that these local lenders subscribe to a “Sachem” model using their own personal assets and those of other investor partners to fund loan opportunities and operations which increases their capital commitment to the opportunity.

Under these arrangements, we would provide loan funding capital as well as our underwriting and servicing expertise and our local partners would provide us with “boots on the ground” lending opportunities.

We recently leased office space in Austin, Texas on a short-term basis for nominal rent, and we have a sales and marketing campaign, primarily via Google advertising, at nominal cost, in the hopes of building a robust pipeline to supplement our operator and to develop the Sachem brand in Texas.

We retained the services of one person to oversee our Austin office.

He is not an employee and will be compensated solely upon our successful consummation of a loan opportunity with a borrower.

We also have had preliminary discussions with local lenders in other markets, including Orlando, Florida, Greenwich, Connecticut, Charlotte, North Carolina and Atlanta, Georgia.

We plan to continue these discussions and scout other locations as well.

However, we have not yet entered into any definitive agreements and we cannot assure you that we will be able to consummate any such partnerships or joint ventures on terms that will be acceptable to all parties.

We believe that the primary challenges for us in 2022 will be the following:

The possiblity of new, highly transmittable variants of the COVID-19 virus, could adversely impact our business.

Generally, we follow the updated guidelines and recommendations issued by the State of Connecticut and Centers for Disease Control.

We continue to encourage employees to stay home when sick and encourage working from home when possible.

In the event of a positive COVID-19 test result, our employees are expected to inform management immediately and follow state testing and contact tracing protocols.

To mitigate the risk of office closure and to ensure business continuity, our employees are equipped so they can seamlessly work remotely.

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 material adverse impact to the service levels we provided our borrowers.

In the event we are forced to close our physical office, we think it likely that there would be some adverse 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.

Interest rate compression.

For the years ended December 31, 2021 and 2020, the weighted yield on our mortgage loan portfolio was 11.57% and 11.79%, respectively.

(For this purpose, weighted 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 2022, particularly as the Federal Reserve Board has begun to increase interest rates, thereby increasing borrowing costs and the cost of capital.

This will not impact our fixed rate indebtedness but will have a direct impact on our future borrowing costs and on our adjustable rate obligations.

We seek to mitigate some of the risk associated with rising rates by limiting the term of new loans to one year.

Geopolitical concerns.

The Russian Ukrainian war has caused market volatility, spikes in commodity prices, supply chain interruptions, heightened cybersecurity concerns and general concerns that it might lead to unconventional warfare.

The true ramifications of this conflict and their impact on the markets and our business are not fully known at this time.

While our business is purely domestic, we are impacted by market volatility and cybersecurity threats.

We will continue to monitor the situation closely and continue to take preventive measure and intend to respond appropriately to any threats to our operations.

Increased competition.

In the past, our primary competitors were other non-bank real estate finance companies (similar to Sachem Capital Corp.), community and, in some cases, regional banks and other financial institutions.

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.

These competitors, generally, are well-funded and aggressive in terms of pricing.

Our principal competitive advantages include our size, our ability to access the public markets for working capital, and our ability to address the needs of borrowers in terms of timing and structuring loan transactions.

We believe these advantages still apply.

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.

This is particularly true as we focus more on larger loans and borrowers with better credit histories.

Property value fluctuations.

We remain aware of property value market cycles and utilize a dashboard of indicators to track property value trends.

Our response to this development is to adhere to our underwriting guidelines, to take other measures to mitigate risk where appropriate and to aggressively enforce our rights when loans go into default.

Some of our indicators within our dashboard are interest rate changes impacting mortgage rates, days-on-market, pending sales, National Association of Home Builders’(“NAHB”) Housing Market Index, and the Senior Loan Officer Opinion Survey, among others.

Increased operating expenses.

Our operating expenses for 2021 were considerably higher than they were in 2020.

This was due to a number of factors, including our higher debt load and increases in compensation expense as we hired new personnel and increased salaries of existing employees to administer and service a larger loan portfolio, more complex loan transactions and to manage the overall increase in the size of our operations.

We expect this trend to continue in 2022.

Finally, we expect our aggregate dividend payments will be higher in 2022 than in 2021 due to an increase in the number of Common Shares outstanding and the preferred shares that we issued in June 2021.

Unfunded commitments.

Most of our loans are funded in full at closing.

However, where all or a portion of the loan proceeds are to be used to fund the costs of renovating or constructing improvements on the property, only a portion of the loan may be funded at closing.

At December 31, 2021, our mortgage loan portfolio included 177 loans with future funding obligations, in the aggregate principal amount of approximately $89.2 million, compared to 116 loans with future funding obligations in the aggregate principal amount of approximately $19.1 million at December 31, 2020.

The increase is due to an increase in construction loan originations, a large portion of which is in the Florida market.

Advances under these loans are funded against requests supported by all required documentation (including lien waivers) as and when needed to pay contractors and other costs of construction.

In order to deal with these obligations, we are compelled to maintain higher cash balances, which could adversely impact our financial performance.

Despite the challenges we faced in 2021, including the changing dynamics of the real estate finance marketplace and the ongoing impact of COVID-19, and the challenges we expect to encounter in 2022, 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 factors will impact our performance in 2022.

● Strong balance sheet.

At December 31, 2021, we had approximately $180 million of shareholders’ equity and total indebtedness for borrowed money of approximately $219.3 million (including deferred financing costs).

Thus, our capital structure was approximately 56.9% debt and 43.1% equity compared to approximately 64.3% debt and 35.7% equity at December 31, 2020.

Our equity includes 1,903,000 shares of Series A Preferred Stock, which carries a dividend rate of 7.75% per annum.

● Access to capital .

As a public company subject to the reporting requirements of the Exchange Act, we are able to access the public markets for capital.

Through December 31, 2021, we raised approximately $320 million (gross proceeds) through public offerings of our equity and debt securities.

We have used the net proceeds from these offerings to increase our business.

● Liquidity .

In addition, to our capital raises through the public markets, we have three other sources of liquidity:

(i) a $200 million master repurchase financing facility (the “Churchill Facility”) with Churchill MRA Funding I LLC (“Churchill”), a subsidiary of Churchill Real Estate, a vertically integrated real estate finance company based in New York, New York;

(ii) a margin loan account with Wells Fargo that allows us to borrow against our investment securities portfolio (the “Wells Fargo Loan”);

and (iii) a $1.4 million mortgage loan with New Haven Bank (the “NHB Mortgage”) that we used to finance the purchase and renovation of what will be our new corporate headquarters.

As of December 31, 2021, we had cash and cash equivalents of approximately $41.9 million and investment securities, net of the Wells Fargo Loan, of approximately $27.5 million.

● Management .

We have made the necessary adjustments to our operations to replace one of our former co-chief executive officers by hiring new employees and re-assigning existing employees to new tasks.

Our current senior management team includes our chief executive and chief financial officer (John L.

Villano), a chief investment officer and director of investor relations (William C.

Haydon) and a vice president - finance and operations (Nicholas M.

In addition, we have added personnel in operations, accounting and administration to accommodate the growth of our business.

Although these new hires will result in increased compensation, they were and will continue to be necessary to accommodate our growth and to maintain our ability to continue to service our borrowers and manage our business without sacrificing quality.

Our Competitive Strengths

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We commenced operations as a limited liability company in December 2010 with three investors and limited equity capital.

Since our inception through December 31, 2020, we have funded approximately 1,400 mortgage loans having an aggregate principal amount of $349.2 million.

Immediately prior to the IPO, we had approximately 155 investors and $27 million of members’ equity.

Since the IPO, we have raised an additional $48.7 million in equity capital and $114.2 million of debt capital.

Since our inception through December 31, 2021, we have funded approximately 1,700 mortgage loans having an aggregate principal amount of approximately $643.0 million.

Immediately prior to the IPO, we had approximately 155 investors and approximately $27 million of members’ equity.

At December 31, 2021, we had shareholders’ equity of approximately $180 million.

Through December 31, 2021, we raised approximately $153.8 million (gross proceeds) in equity capital and approximately $166.3 million (gross proceeds) of debt capital.

Similarly, since the IPO, our mortgage loan portfolio has grown from $33.8 million to $292.3 million at December 31, 2021.

In addition, at December 31, 2020, we had $19.4 million of cash.

In addition, at December 31, 2021, we had approximately $41.9 million of cash and cash equivalents and approximately $60.6 million of investment securities.

We have reported net profits in every quarter since our IPO.

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We have ongoing relationships with many of our borrowers.

At December 31, 2020, our loan portfolio includes 128 loans having an aggregate principal balance of approximately $25 million that were extensions of prior loans.

At December 31, 2021, our loan portfolio included 167 loans having an aggregate principal balance of approximately $36.4 million that were extensions of prior loans.

Customers are also a referral source for new borrowers.

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● Knowledge of the market.

Our intimate knowledge of the Connecticut real estate market enhances our ability to identify attractive opportunities and helps distinguish us from many of our competitors.

We have an intimate knowledge of the Connecticut real estate market, which enhances our ability to identify attractive opportunities and helps distinguish us from many of our competitors.

We have also established relationships with locals in other markets, such as Naples, Florida and Austin, Texas, to provide us with visibility, lending opportunities and local color.

● Disciplined lending.

We seek to maximize our risk-adjusted returns, and preserve and protect capital, through our disciplined and credit-based approach.

We utilize rigorous underwriting and loan closing procedures that include numerous checks and balances to evaluate the risks and merits of each potential transaction.

We seek to protect and preserve capital by carefully evaluating the condition of the property, the location of the property, the value of the property and other forms of collateral.

We utilize rigorous underwriting and loan closing procedures that include multiple checks and balances to evaluate the risks and merits of each potential transaction.

We seek to protect and preserve capital by carefully evaluating the condition of the property, the location of the property, the value of the property and, where available, other forms of collateral.

● Vertically integrated loan origination platform.

We manage and control the loan process from origination through closing with our own personnel or independent legal counsel and, in the case of larger loans, independent appraisers, with whom we have long-standing relationships.

As a general rule, our strategy is to service and manage the loans we originate until they are paid.

We manage and control the loan process from origination through closing with our own personnel or independent third parties, including legal counsel and appraisers, with whom we have relationships.

Together, these individuals constitute a team highly experienced in credit evaluation, underwriting and loan structuring.

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● Structuring flexibility.

As a relatively small, non-bank real estate lender, we can move quickly and have much more flexibility than traditional lenders to structure loans to suit the needs of our clients.

As a small, non-bank real estate lender, we can move quickly and have much more flexibility than traditional lenders to structure loans to suit the needs of our clients.

Our ability to customize financing structures to meet borrowers’ needs is one of our key business strengths.

● No legacy issues.

Unlike many of our competitors, we are not burdened by distressed legacy real estate assets.

We do not have a legacy portfolio of low-yield or problem loans that could potentially dilute the attractive returns that we believe are currently available and/or that could distract and monopolize management’s time and attention.

Similarly, we do not have any adverse credit exposure to, and we do not anticipate that our performance will be negatively impacted by, previously purchased assets.

We are not burdened by distressed legacy real estate assets.

Our Real Estate Lending Activities

Our real estate lending activities involve originating, underwriting, funding, servicing and managing short-term loans ( i.e., loans with an initial term of three years or less), secured by first mortgage liens on real estate property held for investment purposes located primarily in Connecticut.

Generally, borrowers use the proceeds from our loans for one of three purposes:

(i) to acquire and/or renovate existing residential (single-, two- or three-family) real estate properties;

(ii) to acquire vacant real estate and construct residential real properties;

and (iii) to purchase and hold income producing properties.

Generally, borrowers use the proceeds from our loans to (i) acquire and/or renovate existing residential (single-, two- or three-family) real estate properties, (ii) acquire vacant real estate for development;

and (iii) purchase and hold income producing properties.

Our mortgage loans are structured to fit the needs and business plans of the borrowers.

Revenue is generated primarily from the interest borrowers pay on our loans and, to a lesser extent, loan fee income generated on the origination and extension of loans.

At December 31, 2020, our mortgage loan portfolio included loans ranging in size from $2,600 to $10,780,000.

Approximately 71% of the mortgage loans have an original principal amount of $250,000 or less, with an average mortgage loan size of approximately $314,000 and a median mortgage loan size of approximately $157,000.

At December 31, 2021, our outstanding mortgage loan portfolio included loans ranging in size from approximately $1,200 to $19.5 million.

At December 31, 2021, approximately 88.5% our loans, accounting for approximately 38.3% of our loan portfolio, had a an outstanding principal balance of $1 million or less.

That means, approximately 11.5% of our loans, accounting for approximately 61.7% of our loan portfolio, had an outstanding principal balance of more than $1 million.

In comparison, at December 31, 2020, approximately 94.6% of our loans, accounting for approximately 59.5% of our loan portfolio, had a an outstanding principal balance of $1 million or less.

That means, approximately 5.5% of our loans, accounting for approximately 40.5% of our loan portfolio, had an outstanding principal balance of more than $1 million.

The table below gives a breakdown of our mortgage loan portfolio by loan size as of December 31, 2021:

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However, where all or a portion of the loan proceeds are to be used to fund the costs of renovating or constructing improvements on the property, only a portion of the loan may be funded at closing.

At December 31, 2020, our loan portfolio included 128 loans with future funding obligations, having a funded principal amount of $41,140,683 and $19,601,731 unfunded pending borrower performance.

At December 31, 2021, our loan portfolio included 177 loans with future funding obligations, having a funded principal amount of $129.7 million and $89.2 million unfunded pending borrower performance.

Advances under these loans are funded against requests supported by all required documentation (including lien waivers) as and when needed to pay contractors and other costs of construction.

In general, our strategy is to service and manage the loans we originate until they are paid.

At December 31, 2021, approximately 72.7% of the loans in our portfolio (representing approximately 55.1% of the aggregate outstanding principal balance of our loan portfolio) were secured by properties located in Connecticut.

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Massachusetts

North Carolina

South Carolina

The typical terms of our loans are as follows:

Principal amount.

We have a policy that will limit the amount of any loan to 10% of our total loan portfolio after accounting for the loan in question.

At December 31, 2020, our loan portfolio included loans ranging in size from $2,600 to $10,780,000.

Approximately 71% of the loans had an original principal amount of $250,000 or less and 89% had an original principal amount of $500,000 or less.

The average loan size was approximately $314,000 and the median loan size was approximately $157,000.

At December 31, 2021, our outstanding loan portfolio included loans ranging in size up to $19.5 million.

Approximately 53.3% of the loans had an outstanding principal balance of $250,000 or less, 75.0% had an outstanding principal balance of $500,000 or less and 88.5% had an outstanding principal balance of $1 million or less.

At December 31, 2021 our average loan size was approximately $562,000 and the median loan size was approximately $202,000.

In comparison, at December 31, 2020, our average loan size was approximately $314,000 and the median loan size was approximately $157,000.

We have a policy that limits the amount of all loans to a single borrower or a group of related borrowers to no more than 10% of our total loan portfolio (after accounting for the loan in question), unless otherwise approved by the Board.

In addition, we have another policy that requires the Board to approve all loans that have an original principal amount of $5 million or more.

Loan-to-Value Ratio.

Our underwriting guidelines require that the original principal amount of a loan may not exceed 70% of the fair market value of the property securing the loan.

Our underwriting guidelines provide that the original principal amount of a loan should not exceed 70% of the fair market value of the property securing the loan.

In the case of properties undergoing renovation, the loan-to-value ratio is calculated based on the estimated fair market value of the property after the renovations have been completed.

However, we do make exceptions to this guideline if the facts and circumstances support the incremental risk.

The factors we will consider include the additional collateral provided by the borrower, the credit profile of the borrower, our previous relationship, if any, with the borrower, the nature of the property, the geographic market in which the property is located and any other information we deem appropriate.

Interest rate.

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Origination fees.

Ranges from 2% for loans of one year or less to 5% for three-year loans.

In the case of three-year loans, a portion of the origination is credited back to the borrower in the event the loan balance is paid off early.

Generally ranges from 1% to 3%.

In addition, if the term of the loan is extended, additional points are payable upon the extension.

Generally, one to three years with early termination in the event of a sale of the property.

Recently, to mitigate the risks associated with rising interest rates, whenever possible, we seek to limit the term on new loans to one year.

We may agree to extend the maturity date so long as the borrower complies with all loan covenants, financial and non-financial, and the loan otherwise satisfies our then existing underwriting criteria.

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We treat a renewal or extension of an existing loan as a new loan.

Borrower may prepay the loan at any time without premium or penalty.

In most cases, borrower may prepay the loan at any time without premium or penalty.

To timely pay all taxes, insurance, assessments, and similar charges with respect to the property;

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Generally, none required.

However, in some cases, we will require that the buyer prepay certain expenses, such as insurances, taxes and/or interest.

Depending on the circumstances, we may require the borrower to establish reserves for interest, taxes and/or insurance.

This has been particularly true with respect to larger loans.

Each loan is evidenced by a promissory note, which is secured by a first mortgage lien on real property owned by the borrower.

Each loan is guaranteed by the principals of the borrower, which guaranty is usually secured by a pledge of the guarantor’s interest in the borrower or other real estate owned by the guarantor.

A loan may be further secured by additional property owned by the borrower, a pledge by the owners of the borrower of their equity interest in the borrower and/or personal guaranties from the borrower or a related party.

Fees and Expenses.

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Our lending activities increased each year since we commenced operations and we have reported net profits in every quarter since our IPO.

We believe this trend will continue for the foreseeable future.

Our Loan Portfolio

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In comparison, at December 31, 2020, our loan portfolio included 495 loans having an aggregate outstanding principal balance of $155.6 million.

The following tables highlight certain information regarding our real estate lending activities for the periods indicated.

The following table highlights certain information regarding our real estate lending activities for the periods indicated:

Loans originated

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(1) Does not include origination fees.

(2) Without giving effect to extensions.

(2) Does not give effect to extensions.

The following table details our mortgage loan portfolio as of December 31, 2021 by year of origination:

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2016 and prior

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, 2021, approximately 51.3% 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.

Historically, most of our loans are paid prior to their maturity dates.

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Similarly, for 2020, approximately 82.4% of the loans repaid during that year were paid prior to maturity.

Our loan portfolio at December 31, 2020 included 93 mortgage loans of which ( i.e., approximately 19% of the loans in our portfolio) had matured in 2020 but have not been repaid in full or extended.

These loans are in the process of modification and will be extended if the borrower can satisfy our underwriting criteria, including the proper loan-to-value ratio, at the time or renewal.

Of the 520 mortgage loans that made up our loan portfolio at December 31, 2021, 107, or approximately 20.6%, had matured in 2021 but have not been repaid in full or extended.

These loans are in the process of modification and will be extended if the borrower can satisfy our underwriting criteria, including the proper loan-to-value ratio, at the time of renewal.

We treat renewals and extensions of existing loans as new loans.

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In the case of each of these loans, we believe the value of the collateral exceeds the outstanding balance on the loan and, accordingly, we have not reserved for any losses.

In comparison, at December 31, 2019, of the 438 mortgage loans in our portfolio, nine, or approximately 2.1%, were in the process of foreclosure.

The aggregate outstanding principal balance, accrued but unpaid interest and borrower charges on these loans as of December 31, 2019 was approximately $2.8 million, or approximately 3.0% of our loan portfolio.

In comparison, at December 31, 2020, of the 495 mortgage loans in our portfolio, 16, or approximately 3.23%, were in the process of foreclosure.

The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans as of December 31, 2020 was approximately $3.1 million, or approximately 2.0% of our mortgage loan portfolio.

In the case of each of these loans, we believe the value of the collateral exceeds the outstanding balance on the loan and, accordingly, we have not reserved for any losses.

In addition, as our business and mortgage loan portfolio has grown, we realize that late payments could adversely impact our performance and could adversely impact our ability to comply with loan covenants under a credit facility.

As our business and mortgage loan portfolio has grown, we realize that late payments could adversely impact our performance and could adversely impact our ability to comply with loan covenants under a credit facility.

As a result, over the last few years we have been more aggressive in asserting our right to collect late payment fees.

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We do not have any specific definitive criteria as to what constitutes hardship or the period we will forbear.

Some of the factors we will consider include the nature of the default ( i.e.

, whether nonpayment of amounts due or breach of a covenant or agreement), the reason or reasons for the default, our cash flow requirements, the nature and length of our relationship with the borrower, whether or not the borrower has a history of non-payment and the loan-to-value ratio at the time of the default.

At December 31, 2020, 12 affiliated borrowers accounted for 6.0% of our loan portfolio.

At December 31, 2019, 11 affiliated borrowers accounted for 6.5% of our loan portfolio.

Some of the factors we will consider include the nature of the default ( i.e ., whether nonpayment of amounts due or breach of a covenant or agreement), the reason or reasons for the default, our cash flow requirements, the nature and length of our relationship with the borrower, whether or not the borrower has a history of non-payment and the loan-to-value ratio at the time of the default.

At December 31, 2021, eight affiliated borrowers accounted for 5.7% of our loan portfolio.

At December 31, 2020, twelve affiliated borrowers accounted for 6.05% of our loan portfolio.

The following tables set forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2021 and 2020 and the interest earned in each category:

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27 loans, which accounted for approximately 5.6% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Massachusetts;

four loans, which accounted for approximately 2.08% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Texas;

one loan, which accounted for approximately 2.02% of the aggregate outstanding balance of our loan portfolio, was secured by properties located in California;

eight loans, which accounted for approximately 1.24% of our loan portfolio, was secured by a property located in Rhode Island;

and one loan, which accounted for approximately 0.97% of our loan portfolio, was secured by property located in Arizona;

and two loans, which accounted for approximately 0.07% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Maine and Tennessee.

and five loans, which accounted for approximately 2.3% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New Jersey.

No other state accounted for more than four loans or 2.0% of our loan portfolio.

At December 31, 2020:

427 loans, which accounted for approximately 77.0% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Connecticut;

17 loans, which accounted for approximately 9.64% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Florida;

13 loans, which accounted for approximately 4.14% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New York;

22 loans, which accounted for approximately 2.84% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Massachusetts;

14 loans, which accounted for approximately 4.0% of the aggregate outstanding principal balance of our loan portfolio, were secured by a property located in New York;

10 loans, which accounted for approximately 1.6% of the aggregate outstanding balance of our loan portfolio, were secured by properties located in Rhode Island;

one loan, which accounted for approximately 1.6% of our loan portfolio, was secured by a property located in Arizona;

and two loans, which accounted for approximately 0.4% of our loan portfolio, were secured by properties located in Florida.

four loans, which accounted for approximately 2.08% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Texas;

one loan, which accounted for approximately 2.02% of the aggregate outstanding balance of our loan portfolio, was secured by properties located in California;

and eight loans, which accounted for approximately 1.24% of our loan portfolio, was secured by a property located in Rhode Island.

No other state accounted for more two loans or 1% of our loan portfolio.

Our Origination Process and Underwriting Criteria

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Villano, spends a significant portion of his time on business development as well as on underwriting, structuring and servicing each loan in our portfolio.

In May 2021, we hired William C.

Haydon as our chief investment officer and director of investor relations to manage the day-to-day underwriting and loan origination platform.

A principal source of new transactions has been repeat business from existing and former customers and their referral of new business.

We also receive leads for new business from banks, brokers, attorneys and web-based advertising.

When underwriting a loan, the primary focus of our analysis is the value of a property.

When underwriting a loan, the primary focus of our analysis is the value of a property securing the loan.

Prior to making a final decision on a loan application we conduct extensive due diligence of the property as well as the borrower and its principals.

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.

We rely on readily available market data, including appraisals and Automated Valuation Models (“AVM”) when available or timely, tax assessment rolls, recent sales transactions and brokers to evaluate the value of the collateral.

We also order title, lien and judgment searches.

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Finally, we analyze and assess selected financial and operational data provided by the borrower relating to its operation and maintenance of the property.

In terms of the borrower and its principals, we usually obtain third party credit reports from one of the major credit reporting services as well as selected personal financial information provided by the borrower and its principals.

In terms of the borrower and its principals, we obtain third party credit reports from one of the major credit reporting services as well as selected personal financial information provided by the borrower and its principals.

We analyze all this information carefully prior to making a final determination.

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Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property.

We also require a personal guarantee from the principal or principals of the borrower.

Our Current Financing Strategies

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.

Our operating income in the future will depend on the amount of debt incurred and the spread between our cost of funds and the yield on our loan portfolio.

Financing Strategy Overview

To continue to grow our business, we must increase the size of our loan portfolio, which requires that we use our existing working capital to fund new loans and 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.

For example, in 2019, we sold $23,663,000 unsecured unsubordinated 5-year notes at 7.125% and $34,500,000 unsecured unsubordinated 5-year notes at 6.875%.

In 2020, we sold unsecured unsubordinated 5-year notes having an aggregate original principal amount of $56,363,750 at 7.75%.

The gross proceeds to us from the sale of these notes was $56,083,750.

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.

At December 31, 2020, debt capital represented approximately 64.3% of our total capital compared to 35.7% at December 31, 2019.

Depending on various factors we may, in the future, decide to incur additional debt to expand our mortgage loan portfolio to increase the potential returns to our shareholders.

We do not have any formal policy limiting the amount of indebtedness we may incur, but we are limited to a 150% asset coverage ratio from our debt covenants.

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.

However, to prudently grow the business and satisfy the tax requirement to distribute 90% of our taxable income, we expect to maintain our current level of debt and look to reduce our cost of capital.

We intend to use leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.

As discussed above, in 2020, we raised approximately $56.1 million (after taking into account original issue discount) from the sale of unsecured unsubordinated 5-year notes.

In addition, in 2020, we opened a margin loan account with Wells Fargo.

At December 31, 2020, the balance on that account was $28.1 million, which we use to fund new mortgage loans and for working capital and general corporate purposes.

At December 31, 2021, debt represented approximately 56.9% of our total capital compared to 64.3% at December 31, 2020.

To prudently grow the business and satisfy the tax requirement to distribute 90% of our taxable income, we expect to maintain our current level of debt and look to reduce our cost of 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.

Our total outstanding indebtedness at December 31, 2021 was approximately $219.3 million, which included the Wells Fargo Loan balance of $33.2, $19.1 million outstanding under the Churchill Facility, $750,000 outstanding under the NHB Mortgage and $166.3 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, including deferred financing costs (the “Notes”) as follows:

● $23,663,000 million bearing interest at the rate of 7.125% per annum and a maturity date of June 30, 2024 (the “June 2024 Notes”);

● $34,500,000 million bearing interest at the rate of 6.875% per annum and a maturity date of December 30, 2024 (the “December 2024 Notes”);

● $56,363,750 million, bearing interest at the rate of 7.75% per annum and a maturity date of September 30, 2025 (the “2025 Notes”);

● $51,750,000 million, bearing interest at the rate of 6.00 per annum and a maturity date of December 30, 2026 (the “2026 Notes”.

All four series of 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 four series of 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 four series of 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) a covenant that precludes us paying any dividends, making any distributions in excess of 90% of our taxable income, incurring any indebtedness or purchasing 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 our 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, September 4, 2022, in the case of the 2025 Notes, and December 20, 2023, in the case of the 2026 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 four series of Notes trade on the NYSE American.

The June 2024 Notes trade under the symbol “SCCB”, the December 2024 Notes trade under the symbol “SACC”, the 2025 Notes trade under the symbol “SCCC” and the 2026 Notes trade under the symbol “SCCD”.

On July 21, 2021, we consummated the $200 Churchill Facility pursuant to which we have the right, but not the obligation, to sell mortgage loans to Churchill, and Churchill has the right, but not the obligation, to purchase those loans that meet certain criteria.

In addition, we have the right and, in some instances the obligation, to repurchase those loans from Churchill.

The amount that Churchill will pay for each mortgage loan it purchases will vary based on the attributes of the loan and various other circumstances.

The repurchase price is calculated by applying an interest factor to the purchase price of the mortgage loan.

We also granted Churchill a first priority security interest on the mortgage loans sold to Churchill to secure our repurchase obligation.

The cost of capital under the Churchill Facility is equal to the sum of (a) the greater of (i) 0.25% and (ii) the 30-day LIBOR plus (b) 3% – 4%, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time.

The Churchill Facility is subject to other terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements including a covenant that precludes us from A) (i) paying any dividend or making any distribution in excess of 90% of our taxable income, (ii)incurring any indebtedness or (iii) purchasing any of our capital stock, unless` we have an asset coverage ratio of at least 150%;

and (B) have unencumbered cash and cash equivalents in an amount equal to or greater than 2.50% of the amount of our repurchase obligations.

Churchill has the right to terminate the Churchill Facility at any time upon 180 days prior notice to us.

At such time, we have an additional 180 days after termination to repurchase all the mortgage loans held by Churchill.

At December 31,

2021, we had an outstanding balance of approximately $19.1 million under the Churchill Facility, which was accruing interest at the effective rate of 4.25% per annum.

In 2020, we established a margin loan account at Wells Fargo, secured by our portfolio of short-term securities.

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, 2021 was 1.5%.

In 2021, we sold an aggregate of 10,490,188 Common Shares and realized net proceeds of approximately $56.0 million.

The shares were sold to the public pursuant to at-the-market offerings.

In 2021, we raised aggregate net proceeds of approximately $45.5 million (after deducting underwriting discounts and commissions and offering expenses) from the sale of 1,903,000 shares of our 7.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share (the “Series Preferred Stock”) in a firm commitment underwritten public offering at a public offering price of $25.00 per share, equal to the liquidation preference.

The Series A Preferred Stock is listed on the NYSE American and began trading under the symbol “SACHPRA” on July 6, 2021.

The following table shows our sources of capital, including our financing arrangements, and our loan portfolio as of December 31, 2021:

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Bonds payable, net

Repurchase facility

Line of credit

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Villano resigned from his positions as our co-chief executive officer, president and treasurer.

On December 10, 2019, he also resigned as a member of the board of directors.

Upon his resignation, the board of directors confirmed John L.

On December 10, 2019, he also resigned as a member of the Board.

Upon his resignation, the Board confirmed John L.

Villano as our sole chief executive and appointed him as president and treasurer as well.

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Villano is required to devote 100% of his time and efforts to our business and has discontinued all other business activities in which he might be engaged even if it does not conflict with our business.

Effective as of July 1, 2020, the board of directors appointed Peter J.

Cuozzo as our executive vice president and chief operating officer.

His duties include but are not limited to overseeing and supervising our expansion into other markets including, but not limited to, Florida and Texas.

In May 2021, we hired William C.

Haydon as our chief investment officer and director of investor relations.

Haydon is a seasoned executive with over 25 years of experience in financial services and investment banking.

His areas of expertise include

asset-based lending, securities asset management, public offerings, investment banking, and financial strategy and long-term planning.

Haydon is responsible for managing our liquid reserves and securities portfolio and he oversees our underwriting team.

In January 2022, we promoted Nicholas M.

Marcello to the position of vice president, finance and operations, in connection with the January 14, 2022 retirement of Peter Cuozzo from his positions as our Executive Vice President and Chief Operating Officer.

Marcello joined us in September 2020 as director of finance and as vice president, finance and operations he has assumed a leadership role in business operations and will continue to have oversight of our financial reporting, capital markets activities, tax compliance, and investments.

The real estate finance markets in Connecticut and other geographic areas in which we operate are highly competitive.

Our competitors include traditional lending institutions such as regional and local banks, savings and loan institutions, credit unions and other financial institutions as well as other market participants such as specialty finance companies, REITs, investment banks, insurance companies, hedge funds, private equity funds, family offices and high net worth individuals.

In addition, we estimate that, in addition to us, there are numerous “hard money” lenders of significant size serving these markets.

In addition, there are numerous “hard money” lenders of significant size serving the markets in which we currently operate and those in which we plan to operate in the future.

Many of these competitors enjoy competitive advantages over us, including greater name recognition, established lending relationships with customers, financial resources, and access to capital.

Notwithstanding intense competition and some of our competitive disadvantages, we believe we have carved a niche for ourselves among small real estate developers, owners and contractors throughout Connecticut and the rest of New England as well as in parts of New York State because we are well-capitalized, we have the flexibility to structure each loan to suit the needs of each individual borrower and we can act quickly.

In addition, through our marketing efforts we are beginning to develop a brand identity in some of the other markets in which we operate.

In addition, through our marketing efforts we are beginning to develop a brand identity in some of the other markets in which we operate, particularly those along the eastern seaboard as well as Texas.

We believe we have developed a reputation among these borrowers for offering reasonable terms and providing outstanding customer service.

We believe our future success will depend on our ability to maintain and capitalize on our existing relationships with borrowers and brokers and to expand our borrower base by continuing to offer attractive loan products, remain competitive in pricing and terms, and provide superior service.

We further believe our future success will depend on our ability to maintain and capitalize on our existing relationships with borrowers and brokers and to expand our borrower base by continuing to offer attractive loan products, remain competitive in pricing and terms, and provide superior service.

Sales and Marketing

We do not engage any third parties for sales and marketing services.

We do not engage any third parties for sales and marketing services other than Google advertising.

Rather, we rely on our senior executive officers and our new marketing department to generate lending opportunities as well as referrals from existing or former borrowers, brokers, bankers and web-based advertising.

Particularly, in Florida and Texas we rely on brokers for referrals.

A principal source of new transactions has been repeat business from prior customers and their referral of new leads.

Particularly, in Florida, Texas and the Carolinas we rely on brokers for referrals.

In addition, a principal source of new transactions has been repeat business from prior customers and their referral of new leads.

Over the past year, we have created a pipeline of originating loans via a digital marketing strategy and multiple marketing campaigns.

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The objective is to connect with a new audience while creating brand awareness in every new state we enter.

Given that 81% of Americans now search online to purchase a product or service, Sachem Capital can now reach this large and ever-growing market segment of potential borrowers.

Intellectual Property

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Our operations are subject, in certain instances, to supervision and regulation by state and federal governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions.

In addition, we may rely on exemptions from various requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Investment Company Act and ERISA.

In addition, we may rely on exemptions from various requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act, the Investment Company Act and ERISA.

These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties who we do not control.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business