What changed in this filing

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Item 1. Business

2023-03-31 compared with 2022-03-31 · 204 added, 133 removed, 358 unchanged (48% 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 of our common shares, $.001 par value per share, (our “Common Shares”).

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, (“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.

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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.

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 the Northeastern and Southeastern United States and may also be secured with additional collateral, such as other real estate owned by the borrower or its principals, a pledge of the ownership interests in the borrower by the principals thereof, and/or personal guarantees by the principals of the borrower.

Our typical borrower is a real estate investor or developer who uses the proceeds of the loan 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 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.

However, over the last few 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, 2022, our mortgage loan portfolio was spread across 16 states.

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

Connecticut loans represented approximately 61.3% of our portfolio measured by number of loans, but only approximately 43.5% 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,” 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.

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

At December 31, 2022, loans having an outstanding principal balance of $500,000 or less still represented approximately 64.9% of the number of our loans in our portfolio but these loans only accounted for approximately 13.8% 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 up to 18% per year.

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.

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.

Recently, as loan sizes have increased, we have required most of 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.

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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.

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.

We rely on readily available market data, including appraisals when available or timely, automated valuation models (AVMs), recent sales transactions and brokers to evaluate the value of the collateral.

under consideration.

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

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

accelerate profitable growth and drive operational excellence.

accelerate profitable growth and drive operational excellence, thereby reducing general and administrative expenses as a percentage of revenue.

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.

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.

As we implement our growth strategy, we will continue to apply this same rigor and discipline to selected geographies beyond Connecticut.

As we implement our growth strategy, we apply the same rigor and discipline to geographies beyond Connecticut and to larger, more experienced borrowers.

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.

The Market Opportunity

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.

In general, we believe that there is 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.

Notwithstanding the foregoing, our business is not without its challenges.

Although concerns about the COVID-19 virus abated significantly, 2022 proved to be a challenging year and we expect many of these challenges will carryover to 2023.

First, in response to a sharp increase in the rate of inflation beginning in 2022 the Federal Reserve Board has been aggressively raising interest rates.

After the latest increase on March 22, 2023, the Fed Funds target rate established by the Federal Open Market Committee, as of March 22, 2023, is 4.75% to 5.00% and the prime rate, as reported by The Wall Street Journal on March 29, 2023, is 8.00%.

At the end of 2021, the corresponding rates were 0.08% and 3.25%, respectively.

These rate increases have, to date, had only a marginal impact on the inflation rate and, thus, many economists and other financial experts expect rates to continue to increase in 2023.

The increase in rates impacts our business in a number of ways.

First, it has made it more difficult for us to raise funds for working capital purposes and, even when we do raise funds, it is more costly.

This has had an adverse impact on our margins as we have not been able to raise the rates on our loans to the same extent.

Second, the increase in rates has had an adverse impact on property values.

We are addressing this development by taking a more aggressive approach to property values during the underwriting process.

Third, as rates increase and property values decrease, inevitably, default rates on our mortgage loan portfolio are likely to increase.

We are addressing this risk by focusing more on the credit-worthiness of our borrowers and monitoring our loan portfolio more carefully.

The second major challenge for our business is relatively new.

In March 2023, the Federal Deposit Insurance Corporation (“FDIC”) assumed control over two mid-sized banks – Silicon Valley Bank in San Francisco and Signature Bank in New York.

Since then, other banks have been mentioned as possible take-over candidates for the FDIC.

In addition, Credit Suisse-First Boston, a major investment bank, is also believed to be in a difficult financial situation.

It is not yet clear, whether these institutions represent unique situations or whether they represent the vanguard of a larger trend in the financial services industry.

If the latter, it could have severe repercussions for capital markets and the global economy.

The final challenge for 2023 are the ongoing geopolitical tensions including the Russian-Ukrainian war, the state of relations between the United States and China, Iran’s continued pursuit of nuclear weapons and continuing hostile acts and statements by North Korea.

Any or all of the foregoing could adversely impact financial markets and economic growth, all of which could have an adverse impact on our business.

Our Business and Growth Strategies

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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.

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.

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.

To that end, in the second quarter of 2022 we launched a new web-based underwriting platform that further automates our underwriting process.

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

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

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 knowledge of the primary real estate markets we lend in, 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.

Lastly, we are looking to partner with other small hard money lenders that are undercapitalized in an effort to participate in their loans or to provide them with enterprise capital growing their business, with Sachem having upside economics in the Manager entity.

Our strategy to achieve our objective also includes the following:

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● 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.

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

In 2022 we continued to execute on this strategy.

Specifically, we adjusted and refined our business strategy to address changes in the marketplace and our growth to-date.

● We continue to strengthen our geographic footprint beyond Connecticut.

At December 31, 2022, we had loans in 15 other states – California, Florida, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, 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.

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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 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.

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We believe that the primary challenges for us in 2023 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.

Recent developments in the banking sector, particularly the FDIC assuming control of Silicon Valley Bank and Signature Bank, the forced sale of Credit Suisse to USB and the attempt to engineer a sale of First Republic Bank, suggest that the economy may be entering a period of illiquidity.

This could adversely impact our business in several ways.

First, it may make it more difficult for us to raise working capital to grow our business.

Our growth to date has been fueled by our ability to raise capital through the sale of debt and equity securities.

We have not been able to access the capital markets since August of 2022.

Although we recently obtained a $45 million revolving credit facility from Needham Bank, we will need to raise additional working capital to sustain our historical growth rates.

Second, it may make it more difficult for our borrowers to refinance their loans with us as those loans become due.

We have already seen an increase in the number of loans that are past their due date but remain unpaid.

Similarly, our ability to raise equity capital has been hampered by the decline in the value of our common shares, consistent with the general decline in the major stock indices and decreases in the market value of REIT stocks.

Our common shares are now trading well below book value.

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.

Since the beginning of 2022 through the date of this report, the Federal Reserve Board (the “Fed”) has raised interest rates nine times for an aggregate increase of 4.75%.

As a result, the Fed Funds rate has increase from 0.08%, at January 3, 2022, to 4.83% 1 , as of March 29, 2023.

Similarly, the prime rate, which was 3.25%, on January 3, 2022, is 8.00%, as of March 29, 2023.

As a result, our cost of capital has increased.

Our last note offering, consummated in August 2022, was priced at 8.00%, the highest rate we ever paid.

Similarly, the rates on our adjustable rate facilities, have increased significantly.

On the other hand, we have not been able to offset the higher cost of capital with commensurate increases in the rates we charge our borrowers.

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.

As our business is strictly domestic, in general, geopolitical events do not impact us directly.

Nevertheless, adverse geopolitical developments could indirectly impact us to the extent they lead to market volatility, spikes in commodity prices, supply chain interruptions, heightened cybersecurity concerns and general concerns that it might lead to unconventional warfare.

As our business is purely domestic, except for issues related to market volatility, rising interest rates and cybersecurity concerns, the Russia-Ukraine war has had limited impact on 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.

Given recent developments regarding mid-size regional banks, we believe competition from traditional banks will abate in 2023 rather than increase.

However, as banks pull back from the lending market, non-traditional lenders, such as non-bank real estate finance companies, hedge funds, private equity funds and insurance companies, are likely to step into the void.

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.

They are well-funded and aggressive in terms of pricing, making it more difficult for us to raise our borrowing rates.

Thus, competition is becoming more of a factor as we implement our strategy to focus on larger loans and more sophisticated borrowers.

Our principal competitive advantages include our experience, our reputation, our size and our ability to address the needs of borrowers in terms of timing and structuring loan transactions.

Borrower expectations.

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

https://www.newyorkfed.org/markets/reference-rates/effr

Property value fluctuations.

While the higher interest rates have had only a minimal impact on the rate of inflation, they have lowered overall economic output;

GDP growth is slowing.

This has had an adverse impact on property values, which makes it more difficult for our borrowers to sell their properties and pay-off our loans.

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.

Our response to this development would be to adhere to our underwriting guidelines and aggressively enforce our rights when loans go into default.

By judiciously relying on our dashboard of leading indicators and continuing to make decisions in a sound and proper manner, we see no reason to expect any significant negative outcome regarding our business operations and growth.

Some of our indicators within our dashboard are interest rate changes impacting mortgage rates, days-on-market, pending sales, NAHB’s Housing Market Index and the Senior Loan Officer Opinion Survey.

Labor shortages.

As our business has grown, we have had to hire more people.

In 2022 our employee headcount increased by 12, or 55%, including nine people that we hired in October 2022 when we acquired the assets of Urbane New Haven, LLC.

Many of these new hires filled our need in asset management, underwriting, accounting and legal departments.

Knowledgeable and qualified personnel are in high demand.

According to the U.S.

Bureau of Labor Statistics, the January 2023 unemployment rate for New Haven (the most recent month for which such data is available), which is where we are based, was 3.9%, which while higher than the national average is still quite low.

If we cannot hire high-quality, talented people our ability to sustain our growth will be impaired.

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.

Our operating expenses for the year ended December 31, 2022 are significantly higher than they were in the same period in 2021 due to our higher debt load, increased headcount, and increased loan volume.

In addition, our compensation expense has increased as we hired new personnel and increased salaries of existing employees to administer a larger loan portfolio and more complex loan transactions.

Unfunded commitments.

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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, 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.

At December 31, 2022, our mortgage loan portfolio included 177 loans with future funding obligations, in the aggregate principal amount of approximately $114.6 million, compared to 177 loans in the aggregate principal amount of approximately $89.2 million at December 31, 2021.

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.

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

Despite these challenges, the changing dynamics of the real estate finance marketplace, the debt and equity markets, shocks to the financial system and challenging geopolitical developments, we continue to believe in the viability of our business model.

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 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 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 our existing underwriting and loan criteria.

Specifically, we believe that the following factors will impact our performance in 2023.

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As of December 31, 2022, we had cash and cash equivalents of approximately $23.7 million and investment securities, net of the Wells Fargo Loan, of approximately $21.0 million.

In the first quarter of 2023, we refinanced the NHB Mortgage increasing the amount of the loan to $1.66 million and opened a new $45 million revolving credit facility with Needham Bank.

● 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.

Our senior executive officers include John Villano, chief executive officer and president, and John Warch, chief financial officer.

Other key personnel include a vice president – finance and operations, a senior vice president – asset management and a vice president – asset management.

In January 2023 our chief investment officer and director of investor relations resigned.

Instead of replacing him, we reassigned his tasks to existing employees.

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.

Although these new hires have resulted 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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As long as these borrowers remain active real estate investors, they provide us with an advantage in securing new business and help us maintain a pipeline to attractive new opportunities that may not be available to many of our competitors or to the general market.

● Competent workforce.

● Skilled workforce.

Our employees are multi-skilled professionals who have a strong “team” orientation, a “continuous process improvement” mentality, and an authentic desire to learn all aspects of our business and contribute wherever and however they are needed.

Other than the retirement of three employees, we have had zero employee turnover in over 24 months.

● Knowledge of the market.

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.

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 expertise.

● Disciplined lending.

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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.

● Vertically integrated loan origination and asset management platform.

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

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We also believe that our procedures and experience allow us to execute opportunities quickly and efficiently.

Lastly, our newly formed subsidiary, Urbane Capital, LLC, further bolsters our portfolio management by giving us the in-house expertise to resolve troubled loans and to complete construction projects to maximize shareholder value.

● Structuring flexibility.

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At December 31, 2022, our outstanding mortgage loan portfolio included loans ranging in size from approximately $2,600 to $27.3 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.

At December 31, 2022, approximately 77.9% our loans, accounting for approximately 23.1% of our loan portfolio, had an outstanding principal balance of $1 million or less.

That means, approximately 22.1% of our loans, accounting for approximately 76.9% of our loan portfolio, had an outstanding principal balance of more than $1 million.

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In comparison, at the end of 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.

Most of the properties we finance are residential investment or commercial.

Most of the properties we finance are

residential investment or commercial.

However, in all instances the properties are held only for investment by the borrowers and may or may not generate cash flow.

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South Carolina

The typical terms of our loans are as follows:

The typical terms of our loans to date are as follows:

Principal amount.

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Approximately 41.4% of the loans had an outstanding principal balance of $250,000 or less, 64.9% had an outstanding principal balance of $500,000 or less and 77.9% 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.

At December 31, 2022 our average loan size was approximately $1.0 million and the median loan size was approximately $332,000.

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

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Interest rate.

Currently, a fixed rate between 5.0% to 14.2% per annum with a default rate of 18% per annum.

Currently, a fixed rate between 5.0% to 14.2% per annum with a default rate of up to 18% per annum.

Origination fees.

Generally ranges from 1% to 3%.

Generally range from 1% to 3%.

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

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

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

In most cases, a 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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Borrowers pay an application fee, an inspection fee, wire fee, bounced check fee and, in the case of construction loans, check requisition fee for each draw from the loan.

In 2022, we added a construction management fee of 1% to 2% of the construction budget for construction loans.

Finally, as is typical in real estate finance transactions, the borrower pays all expenses relating to obtaining the loan including the cost of a property appraisal, the cost of an environmental assessment report, if any, the cost of a credit report and all title, recording fees and legal fees.

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2017 and prior

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

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

At December 31, 2022, approximately 17.6% of the mortgage loans in our portfolio had a term of one year or less.

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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.

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

For example, of the loans that were repaid in full during 2022, approximately 30.7% were repaid prior to maturity.

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

For 2021, approximately 66.7% of the loans repaid during that year were paid prior to maturity.

Of the 444 mortgage loans that made up our loan portfolio at December 31, 2022, 105, or approximately 23.6%, had matured in 2022 but have not been repaid in full or extended.

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As a result, revenue from late payment fees increased initially.

Notwithstanding our aggressive stance, we realized that certain borrowers may have difficulty staying current on their obligations.

Notwithstanding our aggressive stance, we realized that certain borrowers may have difficulty staying current on

their obligations.

Thus, if a borrower can demonstrate true “hardship”, we will not enforce our rights immediately and give the borrower an opportunity to cure its default.

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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, 2022, five affiliated borrowers accounted for 5.1% of our loan portfolio.

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, 2022 and 2021 and the interest earned in each category:

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20 loans, which accounted for approximately 4.54% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Massachusetts;

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.

21 loans, which accounted for approximately 4.89% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New Jersey;

six loans, which accounted for approximately 2.33% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in North Carolina:

and eight loans, which accounted for approximately 1.69% of our loan portfolio, were secured by properties located in Maryland.

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

At December 31, 2021:

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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;

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.

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.

Our Origination Process and Underwriting Criteria

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Our chief executive officer, John L.

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.

Villano, spends a significant portion of his time on business development as well as on

underwriting, structuring and servicing each loan in our portfolio.

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

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In conducting due diligence, we rely, in part, on third party professionals and experts including appraisers, engineers, title insurers and attorneys.

Before a loan commitment is issued, the loan must be reviewed and approved by our chief executive officer.

Before a loan commitment is issued, the loan must be reviewed and approved by our management team.

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.

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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.

Our total outstanding indebtedness at December 31, 2022 was approximately $335.3 million, which included the Wells Fargo Loan balance of $3.6 million, $42.5 million outstanding under the Churchill Facility, $750,000 outstanding under the NHB Mortgage

and approximately $288.4 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, including deferred financing costs (the “Notes”) as follows:

● $40,250,000 aggregate original principal amount, issued August 23, 2022, bearing interest at the rate of 8.00% per annum and maturing on September 30, 2027 (the “September 2027 Notes”), which trades on the NYSE American under the symbol SCCG;

● $30,000,000 aggregate original principal amount, issued May 11, 2022, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2027 (the “June 2027 Notes”), which trades on the NYSE American under the symbol SCCF;

● $51,875,000 aggregate original principal amount, issued March 9, 2022, bearing interest at the rate of 6.00% per annum and maturing on March 30, 2027 (the “March 2027 Notes”), which trades on the NYSE American under the symbol SCCE;

● $51,750,000 aggregate original principal amount, issued December 20, 2021, bearing interest at the rate of 6.00% per annum and maturing on December 30, 2026 (the “2026 Notes”), which trades on the NYSE American under the symbol SCCD;

● $56,363,750 aggregate original principal amount, of which approximately $14.4 million was issued September 4, 2020, $14.0 million was issued October 23, 2020 and $28.0 million was issued December 22, 2020, bearing interest at the rate of 7.75% per annum and maturing on September 30, 2025 (the “2025 Notes”), which trades on the NYSE American under the symbol SCCC.

The 2025 Notes are prepayable beginning on September 4, 2022;

● $34,500,000 aggregate original principal amount, issued November 7, 2019, bearing interest at the rate of 6.875% per annum and maturing on December 30, 2024 (the “December 2024 Notes”), which trades on the NYSE American under the symbol SACC;

● $23,663,000 aggregate original principal amount, issued June 25, 2019, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2024 (the “June 2024 Notes”), which trades on the NYSE American under the symbol SCCB.

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.

All seven 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) an “Asset Coverage Ratio” requirement pursuant to which we may not (x) pay any dividends or make distributions in excess of 90% of our taxable income, (y) incur any indebtedness or (z) 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.

Under the terms of the Indenture, we may, at our option, at any time and from time to time, redeem Notes two years after the date of their original issuance.

As such, the June 2024 Notes, the December 2024 Notes and the 2025 Notes are all currently redeemable at our option.

The 2026 Notes will be redeemable as of December 20, 2023, and the March 2027 Notes, the June 2027 Notes and the September 27 Notes, will not be redeemable until 2024.

In each case the redemption price is 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.

Our secured indebtedness as of December 31, 2022 includes the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage (each as described below).

On July 21, 2021, we consummated a $200 million facility (the “Churchill Facility”) with Churchill MRA Funding I LLC (“Churchill”).

Under the terms of the Churchill Facility, 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.

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.

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 but generally will not exceed 70% of the unpaid principal balance purchased.

The repurchase price is calculated by applying an interest factor, as defined, 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%;

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.

Our obligations under the Churchill Facility are secured by a lien on the mortgage loans sold to Churchill.

( On November 18, 2022, the Churchill Facility was amended to replace the 90-day LIBOR with the 90-day SOFR as the new benchmark rate.) The Churchill Facility is also subject to various terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements, including a covenant that prohibits us from (A) (i) paying any dividend or make any distribution in excess of 90% of our taxable income, (ii) incurring any indebtedness or (iii) purchasing any shares of our capital stock, unless, in any case, 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.

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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.

We believe the Churchill Facility gives us the ability to raise capital as needed at a relatively low rate.

It also gives us the flexibility to seek other sources of funding.

At December 31, 2022, the amount outstanding under the Churchill Facility was approximately $42.5 million, which amount was accruing interest of an effective rate of 8.52% per annum.

In 2020, we established a margin loan account with Wells Fargo that allows us to borrow against our investment securities portfolio (the “Wells Fargo Loan”).

The Wells Fargo Loan is secured by our portfolio of short-term securities, had a balance of approximately $3.6 million at December 31, 2022.

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%.

At December 31, 2022, the prime rate was 7.5% and the interest rate on the Wells Fargo Loan was 5.75%.

Other than increasing our borrowing costs under the Wells Fargo Loan, it is too early to tell what impact this latest rate increase will have on our business, operations and/or financial condition.

In 2021, we obtained a $1.4 million adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) of which $750,000 was funded at closing and remained outstanding at December 31, 2022.

The initial proceeds of the NHB Mortgage were used to offset some of the costs we incurred to acquire the property located at 568 East Main Street, Branford, Connecticut.

The balance of the NHB Mortgage was to be funded when the renovations of that property were completed.

The NHB Mortgage accrued interest at an initial rate of 3.75% per annum for the first 72 months and was due and payable in full on December 1, 2037.

During the first 12 months, from December 1, 2021 to November 30, 2022, only interest was due and payable.

Beginning on December 1, 2022 principal and interest was due and payable on a monthly basis, based on a 20-year amortization schedule.

On February 28, 2023, we refinanced the NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank.

The new loan accrues interest at an initial rate of 5.75% per annum for the first 60 months.

The interest rate will be adjusted on each of March 1, 2028 and March 1, 2033 to the then published 5-year Federal Home Loan Bank of Boston Classic Advance Rate, plus 1.75%.

Beginning on April 1, 2023 and through March 1, 2038, principal and interest will be due and payable on a monthly basis.

All payments under the new loan are amortized based on a 20-year amortization schedule.

The unpaid principal amount of the loan and all accrued and unpaid interest are due and payable in full on March 1, 2038.

The new loan is a non-recourse obligation, secured primarily by a first mortgage lien on the properties located 698 Main Street, Branford, Connecticut and 568 East Main Street, Branford, Connecticut.

In 2022, we sold an aggregate of 7,879,907 Common Shares and realized net proceeds of approximately $39.3 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.

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 A 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.

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Total sources of capital

Cash and short-term marketable securities

Cash and short-term investment securities

Mortgages receivable

Investments in Partnerships

Commencing with our IPO, our founders, Jeffrey C.

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Villano then resigned as secretary and Peter Giannotti, our in-house counsel, was appointed as secretary in his place.

In July 2022, Mr.

Villano relinquished his position as treasurer and the Board appointed Mr.

Giannotti as secretary and treasurer.

In August 2022, Mr.

Villano relinquished his position as chief financial officer and the Board appointed John E.

Warch as chief financial officer.

Pursuant to his employment agreement with us, John L.

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.

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.

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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.

In July 2022, we hired John E.

Warch as our executive vice president and chief financial officer, replacing John L.

Villano as the company’s chief financial officer.

Warch is a seasoned industry executive, with over 40 years of corporate finance and accounting experience.

In October 2022, in connection with our acquisition of the assets of Urbane New Haven, LLC and formation of Urbane Capital, LLC, we hired Eric O’Brien as our senior vice president - asset management and Ralph Sylvester as our vice president - asset management.

O’Brien and Mr.

Sylvester are seasoned asset management professionals.

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.

insurance companies, hedge funds, private equity funds, family offices and high net worth individuals.

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.

Competition is becoming more of a factor as we implement our strategy to focus on larger loans and more sophisticated borrowers.

Given recent developments regarding mid-size regional banks, we believe competition from traditional banks will abate in 2023 rather than increase.

However, as banks pull back from the lending market, non-traditional lenders are likely to step into the void and aggressively pursue lending opportunities.

Our principal competitive advantages include our experience, our reputation, our size and our ability to address the needs of borrowers in terms of timing and structuring loan transactions.

Notwithstanding intense competition and some of our competitive disadvantages, we believe we have carved a niche for ourselves among small and mid-size real estate developers, owners and contractors in the markets in which we operate because we are well-capitalized, we have demonstrated flexibility to structure loans to suit the needs of the 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, particularly those along the eastern seaboard as well as Texas.

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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, 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.

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

Online marketing and advertising is a productive and cost-effective approach to generate leads.

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We have not registered any trademarks, trade names, service marks or copyrights in the United States Patent and Trademark Office.

As of December 31, 2021, we had 22 employees, including our chief executive officer, of which 19 were full-time.

As of December 31, 2022, we had 34 employees, of which 31 were full-time.

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.

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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